<PAGE>
TAX-FREE INVESTMENTS CO.
INSTITUTIONAL CASH RESERVE SHARES
Supplement dated June 29, 1995
to the Prospectus
dated August 1, 1994 and
to the Statement of Additional Information
dated August 1, 1994
Effective July 1, 1995, A I M Institutional Fund Services, Inc. ("AIFS"),
a wholly-owned subsidiary of A I M Advisors, Inc. and a registered transfer
agent, will become the exclusive transfer agent and dividend disbursing agent
for the Institutional Cash Reserve Shares (the "Institutional Class") of the
Cash Reserve Portfolio of Tax-Free Investments Co. Since September 16, 1994,
AIFS has been acting as a transfer agent for the Institutional Class providing
certain limited transfer agency services for shares of the Institutional Class.
The address of AIFS is A I M Institutional Fund Services, Inc., 11 Greenway
Plaza, Suite 1919, Houston, Texas, 77046-1173. The phone number of AIFS is
(800) 659-1005.
<PAGE>
TAX-FREE
INVESTMENTS CO.
Prospectus
- --------------------------------------------------------------------------------
INSTITUTIONAL
CASH RESERVE Tax-Free Investments Co. (the "Company") is a mutual
SHARES fund designed for institutions and individuals seeking
current income which is exempt from federal income taxes.
AUGUST 1, 1994 Pursuant to this Prospectus, the Company offers shares
representing interests in the Institutional Class of its
Cash Reserve Portfolio.
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 Institutional
Cash Reserve Shares (the "Institutional Class"). The
Institutional Class is offered exclusively to banks and
other financial institutions acting for themselves or in
a fiduciary, advisory, agency, custodial or similar
capacity, and is designed as a convenient and economical
vehicle in which such institutions can invest short-term
cash reserves. Another class of shares of the Cash
Reserve Portfolio, the Private Investment Class, is
offered to individuals and to financial institutions
pursuant to a separate prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT
INVESTORS 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 AUGUST 1, 1994 HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY
REFERENCE. A COPY OF THE STATEMENT OF ADDITIONAL
INFORMATION IS INCLUDED AS AN APPENDIX TO THIS
PROSPECTUS.
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.
[LOGO OF AIM APPEARS HERE]
Fund Management Company
11 Greenway Plaza
Suite 1919
Houston, Texas 77046-1173
(800) 659-1005
1
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ORGANIZATION OF THE FUND
The Company is a Maryland corporation organized as an open-end, diversified,
series investment company, which currently has one portfolio, the Cash Reserve
Portfolio, which is referred to herein as the "Fund."
The Fund currently offers two classes of shares, the Institutional Cash
Reserve Shares and the Private Investment Class Shares. The Institutional Cash
Reserve Shares, offered pursuant to this Prospectus, are referred to herein as
the "Institutional Class." The Institutional Class is offered exclusively to
banks and other financial institutions investing for themselves or in a
fiduciary, advisory, agency, custodial or other similar capacity.
THIS PROSPECTUS RELATES SOLELY TO THE INSTITUTIONAL CASH RESERVE SHARES.
TABLE OF FEES AND EXPENSES
<TABLE>
<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 fee............................................. None
ANNUAL OPERATING EXPENSES OF THE SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees.......................................... .15%*
12b-1 plan fee.................................. Not Applicable
Other expenses........................................... .05%
----
Total operating expenses of the shares................... .20%
====
</TABLE>
- --------
* After fee waivers.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Institutional Class will
bear directly or indirectly. Had there been no fee waivers during the fiscal
year, management fees would have been 0.22%. A beneficial holder of shares of
the Institutional Class should also consider the effect of any account fees
charged by the financial institution managing his or her account.
EXAMPLE
An investor 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>
<S> <C>
1 year............................................... $ 2
3 years.............................................. $ 6
5 years.............................................. $11
10 years.............................................. $26
</TABLE>
THE EXAMPLES 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 LESSER THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are the per share income and capital changes for a share
outstanding during the fiscal years ended March 31, 1994, 1993, 1992, 1991 and
1990, the eleven months ended March 31, 1989 and the fiscal years ended April
30, 1988, 1987, 1986 and 1985. The following information has been audited by
KPMG Peat Marwick, independent auditors, whose report on the financial
statements and the related notes appears in the Statement of Additional
Information.
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEAR ENDED MARCH 31, ENDED
---------------------------------------------------------------------- MARCH 31,
1994 1993 1992 1991 1990 1989
---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income.... 0.02 0.03 0.04 0.06 0.06 0.05
Net gains (losses) on
securities (both
realized and
unrealized)............. - - - - - -
---------- -------- ---------- ---------- ---------- ----------
Total from investment
operations............ 0.02 0.03 0.04 0.06 0.06 0.05
---------- -------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income........ (0.02) (0.03) (0.04) (0.06) (0.06) (0.05)
Distributions from net
realized capital gains... - - - - - -
---------- -------- ---------- ---------- ---------- ----------
Total distributions..... (0.02) (0.03) (0.04) (0.06) (0.06) (0.05)
---------- -------- ---------- ---------- ---------- ----------
Net asset value, end of
period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ========== ========== ========== ==========
Total return............... 2.33% 2.66% 4.09% 5.68% 6.22% 5.67%(a)
========== ======== ========== ========== ========== ==========
Ratios/Supplemental Data
Net assets, end of
period (000s omitted).... $1,040,595 $994,828 $1,191,209 $1,156,557 $1,114,813 $1,062,479
========== ======== ========== ========== ========== ==========
Ratio of expenses to
average net assets....... 0.20%(b)(c) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(a)(b)
========== ======== ========== ========== ========== ==========
Ratio of net investment
income to average
net assets............... 2.30%(b)(c) 2.66%(b) 4.00%(b) 5.52%(b) 6.03%(b) 5.52%(a)(b)
========== ======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
------------------------------------------------------
1988 1987 1986 1985
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income.... 0.04 0.04 0.05 0.06
Net gains (losses) on
securities (both
realized and
unrealized)............. - - - -
---------- -------- ---------- --------
Total from investment
operations............ 0.04 0.04 0.05 0.06
---------- -------- ---------- --------
Less distributions:
Dividends from net
investment income........ (0.04) (0.04) (0.05) (0.06)
Distributions from net
realized capital gains... - - - -
---------- -------- ---------- --------
Total distributions..... (0.04) (0.04) (0.05) (0.06)
---------- -------- ---------- --------
Net asset value, end of
period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ========== ========
Total return............... 4.56% 4.24% 5.26% 5.71%
========== ======== ========== ========
Ratios/Supplemental Data
Net assets, end of
period (000s omitted).... $1,192,604 $993,392 $1,000,227 $251,420
========== ======== ========== ========
Ratio of expenses to
average net assets....... 0.21%(b) 0.21%(d) 0.22%(d) 0.40%
========== ======== ========== ========
Ratio of net investment
income to average
net assets............... 4.47%(b) 4.14%(d) 5.20%(d) 5.52%
========== ======== ========== ========
</TABLE>
- -------------------
(a) Annualized.
(b) After waiver of advisory fees.
(c) Ratios are based on average net assets of $1,025,128,363. Ratios of
expenses and net investment income to average net assets
prior to waiver of advisory fees are 0.28% and 2.22%, respectively.
(d) After waiver of advisory fees and distribution fees.
3
<PAGE>
SUITABILITY FOR INVESTORS
The Institutional Class is intended for use by banks and other financial
institutions, investing for themselves or in a fiduciary, advisory, agency,
custodial or other similar capacity. The Institutional Class is designed to be a
convenient and economical vehicle in which such shareholders can invest in high
quality municipal obligations with remaining maturities of 397 days or less
while maintaining liquidity. The municipal obligations purchased for investment
by the Portfolio are hereinafter referred to as "Municipal Securities."
Shares of the Institutional Class may not be purchased directly by
individuals, although institutions may purchase the Institutional Class for
accounts maintained for individuals. Prospective investors should determine if
an investment in the Institutional Class is consistent with the investment
objectives of their clients and with applicable state and federal laws and
regulations. Certain financial institutions may impose changes in connection
with opening or maintaining their customers' accounts or for providing
recordkeeping or sub-accounting services with respect to the Institutional
Class. Beneficial owners of the Institutional Class held of record by an
institutional investor should read this Prospectus in light of the terms
governing their institutional accounts, and should obtain from such institution
information concerning any recordkeeping, account maintenance or other fees
charged to their accounts. The minimum amount required for an initial investment
in the Institutional Class is $1 million.
An investment in the Institutional Class may relieve the institution of many
of the investment and administrative burdens encountered when investing in
Municipal Securities directly, including: selection of portfolio investments;
surveying the market for the best price at which to buy and sell; valuation of
portfolio securities; selection and scheduling of maturities; receipt, delivery
and safekeeping of securities; and portfolio recordkeeping. At the same time,
the expenses of the Company attributable to the Institutional Class are expected
to be relatively small due primarily to the fact that there will be only a small
number of shareholders in the Institutional Class. These shareholders of the
Institutional Class do not need many of the services provided by other tax-
exempt investment companies, thereby resulting in lower transfer agent fees and
costs for printing reports and any necessary proxy statements. In addition,
sales of the Institutional Class to institutions acting for themselves or in a
fiduciary capacity are exempt from the registration requirements of most state
securities laws, thereby resulting in reduced state registration fees.
It is anticipated that most shareholders of the Institutional Class will
perform their own sub-accounting. For those shareholders of shares that
prefer not to do their own sub-accounting, such services may be arranged through
the Fund.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVES
The investment objective of the Fund 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 Securities.
There can be no assurance that the Fund will achieve its investment objective.
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 the 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
Fund.
4
<PAGE>
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"), Standard & Poor's
Corporation ("S&P") and certain other nationally recognized statistical
rating organizations ("NRSROs") appears in the Statement of Additional
Information.
The Fund will limit its purchases of Municipal Securities to those which are
"First Tier" securities as defined in Rule 2a-7 under the Investment Company Act
of 1940 (the "1940 Act"). The Securities and Exchange Commission (the "SEC") has
proposed certain changes to Rule 2a-7. While such proposed changes may have a
prospective impact on the investments of the Fund, the Fund anticipates no
difficulty in complying with any proposed change if adopted by the SEC.
Generally, "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 Fund'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 under the caption "Investment Program" 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 Fund 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 Fund 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.
The maturity of a security held by the Fund is determined in compliance with
applicable rules and regulations. Certain securities bearing interest at
rates that are adjusted prior to the stated maturity of the instrument or that
are subject to repurchase agreements are deemed to have maturities shorter than
their stated maturities.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Fund 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 Fund are subject to payment of principal and accrued interest (usually
within seven days) on the Fund's demand. The terms of such demand instruments
require payment of principal and accrued interest 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 Fund. A I M Advisors, Inc. ("AIM") will monitor the
pricing, quality and liquidity of the variable or floating rate Municipal
Securities held by the Fund.
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 Fund 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
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. 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
5
<PAGE>
Sponsor or other investors. For further information regarding specific types of
synthetic municipal instruments in which the Fund may invest see the Statement
of Additional Information.
All such instruments must meet the minimum quality standards required for the
Fund's investments and must present minimal credit risks. In selecting synthetic
municipal instruments for the Fund, AIM considers the creditworthiness of the
issuer of the Underlying Bond, 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.
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 Fund on certain synthetic municipal instruments would be
deemed to be taxable. The Fund 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 Fund 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 Fund will only make commitments to purchase
when-issued or delayed delivery Municipal Securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. No additional when-issued
or delayed delivery commitments will be made if more than 25% of the Fund's net
assets would become so committed.
Investment in securities on a when-issued or delayed delivery basis may
increase the Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. The Fund will employ techniques designed to
reduce such risks.
If the Fund purchases a when-issued or delayed delivery security, the Fund
will direct its custodian bank to segregate cash or other high grade securities
(including temporary investments and Municipal Securities) of the Fund 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 Fund'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 Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. These restrictions provide that the Fund 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 Fund's total
net assets would be invested in securities of such issuer except as permitted
by Rule 2a-7 of the 1940 Act as amended from time to time;
(2) purchase any securities which would cause more than 25% of the value of
the Fund'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;
6
<PAGE>
(3) purchase any industrial development bond, if, as a result of such
purchase, more than 5% of the Fund's total assets would be invested in
securities of issuers, which, together with their predecessors, have been in
business for less than three years;
(4) borrow money or pledge, mortgage or hypothecate the assets of the Fund
except for temporary or emergency purposes and then only in an amount not
exceeding 10% of the value of the Fund's total assets, except that the Fund may
purchase when-issued securities consistent with the Fund's investment
objectives and policies; provided that the Fund will repay all borrowings
(other than when-issued purchases) before making additional investments;
(5) invest in shares of any other investment company, other than in
connection with a merger, consolidation, reorganization or acquisition of
assets, except that the Fund 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 Fund
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) lend money or securities except to the extent that the Fund's investments
may be considered loans;
(7) purchase or sell puts, calls, straddles, spreads or combinations thereof,
except that the Fund may purchase Stand-by Commitments;
(8) 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;
(9) invest in companies for the purpose of exercising control;
(10) 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 Fund's investment program, may be deemed an underwriting;
(11) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests therein;
(12) sell securities short or purchase any securities on margin, except for
such short-term credits as are necessary for the clearance of transactions;
(13) 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
(14) purchase or sell commodities or commodity futures contracts or interests
in oil, gas or other mineral exploration or development programs.
The foregoing restrictions are matters of fundamental policy and may not be
changed without shareholder approval.
In addition to the restrictions described above, the Company must also comply
with the requirements of Rule 2a-7 under the 1940 Act, as amended, which governs
the operations of money market funds and may be more restrictive.
OTHER CONSIDERATIONS
The ability of the Fund to achieve its investment objectives depends upon the
continuing ability of the issuers or guarantors of Municipal Securities held by
such Fund to meet their obligations for the payment of interest and principal
when due. The securities in which the Fund invests may not yield as high a level
of current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value. The net asset value per share
of the Institutional Class will normally remain constant at $1.00, although
there can be no assurance that such net asset value will not change.
PURCHASE OF SHARES
Shares of the Institutional 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 charge is imposed in connection with the purchase of shares of
the Institutional Class, banks or other financial institutions may charge a
record keeping, account maintenance or other fees to their customers. Beneficial
holders in the Class of the Fund should consult with such institutions to obtain
a schedule of such fees. In order to be accepted for execution, purchase orders
for shares of the Institutional Class must be submitted to and received by the
Company prior to the determination of net asset value (12:00 noon Eastern Time)
on a "business day" of the Fund, which
7
<PAGE>
means any day on which commercial banks in New York Federal district are open
for business. It is expected that commercial banks will be closed during the
next twelve months on Saturdays and Sundays and on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. In order to be
accepted for execution, purchase orders for shares of the Institutional Class
via AIM LINK(TM), a personal computer application software product, must be
submitted to and received by the Company prior to 11:00 a.m. Eastern Time on a
business day of the Fund. The preceding sentence applies only to those
shareholders of the Institutional Class utilizing the version of AIM LINK(TM)
that contains the subaccounting feature. Subject to the Company's right to
reject any purchase order, purchase orders received prior to the net asset value
determination on any business day will be effective on such day and payment for
such shares must be made in the form of federal funds wired to State Street Bank
and Trust Company (the "Transfer Agent") on the day of purchase.
The minimum initial investment for the purchase of shares of the Institutional
Class is $1 million. An institution's Master Account(s) and sub-accounts may be
aggregated for the purpose of the minimum investment requirement. No minimum
amount is required for subsequent investments.
Prior to the initial purchase of shares of the Institutional Class, an Account
Application must be completed and sent to Fund Management Company ("FMC"), the
distributor of the Institutional Class, at P.O. Box 4333, Houston, Texas 77210-
4333. Account Applications may be obtained from FMC. Any funds received in
respect of an order to purchase shares which is not accepted by the Company
and any funds received for which an order has not been received will be promptly
returned to the investor.
In the interest of economy and convenience, certificates representing shares
of the Institutional Class will not be issued except upon written request to the
Company. Share 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
Shareholders may redeem any or all of their shares of the Institutional Class
at the net asset value next determined after receipt of a redemption request in
proper form by the Company. There is no charge for redemption. The value of
shares of the Institutional Class on redemption may be more or less than the
shareholder's initial cost, depending upon the value of the Portfolio's
investments at the time of redemption. It is expected that the net asset value
of the Fund will remain constant at $1.00 per share. See "Net Asset Value
Determination" in the Statement of Additional Information.
Redemption requests with respect to the Institutional Class for which
certificates have not been issued are normally made by calling FMC at (800) 659-
1005. Redemption requests with respect to the Institutional Class may also be
made via AIM LINK(TM). Payment for redeemed shares of the Institutional Class is
normally made by Federal Reserve wire to the commercial bank account designated
in the shareholder's Account Application on the day specified below, but may be
remitted by check upon request by a shareholder.
If a redemption request is received by FMC prior to 12:00 noon Eastern Time on
a business day of the Fund, the redemption will be effected at the net asset
value of the Fund determined as of 12:00 noon Eastern Time and the redemption
proceeds will normally be wired on the same day. If a redemption request is
received by FMC via AIM LINK(TM) prior to 11:00 a.m. Eastern Time on a business
day of the Fund, the redemption will be effected at the net asset value of the
Fund determined as of 12:00 noon Eastern Time and the redemption proceeds will
normally be wired on the same day. The preceding sentence applies only to
redemption requests received by FMC via the version of AIM LINK(TM) that
contains the subaccounting feature. A redemption request received by FMC after
12:00 noon Eastern Time or after 11:00 a.m. Eastern Time via AIM LINK(TM) as
described above or on other than a business day of the Fund will be effected at
the net asset value of the Fund determined as of 12:00 noon Eastern Time on the
next business day of such Fund, and the proceeds of such redemption will
normally be wired on that day.
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Company. The authorized signature on the
notice must be guaranteed by a commercial bank or trust company (which may
include the shareholder). Additional documentation may be required when deemed
appropriate by the Fund or its Transfer Agent.
Payment for shares of the Institutional Class redeemed by mail and payment for
telephone redemptions in amounts of less than $10,000 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 $10,000
by check when it is considered to be in the Company's best interest to do so.
8
<PAGE>
Dividends payable up to the date of redemption on redeemed shares of the
Institutional Class will normally be paid on the next dividend payment date.
However, if all of the shares of the Institutional Class in a shareholder's
account are redeemed, dividends payable up to the date of redemption will
normally be paid within five days of the date of redemption.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of the Fund is determined as of
12:00 noon Eastern Time on each "business day" of the Fund, as previously
defined. It is calculated by subtracting the Fund's liabilities from its total
assets and by dividing the result by the total number of shares outstanding in
the Fund, and rounding such per share net asset value to the nearest whole cent.
The determination of the Fund's net asset value per share is made in accordance
with generally accepted accounting principles. Among other items, the
Fund'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. Fund securities in the Fund are valued on
the basis of amortized cost. All variable rate securities held in the Fund with
an unconditional demand or put feature exercisable within seven days or less
shall be valued at par, which reflects the market value of such securities.
DIVIDENDS
Net investment income (not including any net short-term gains) earned by the
Fund is declared as a dividend to the shareholders of record on each
business day of the Company. The dividend declared on any day preceding a non-
business day of the Fund will include the income accrued on such non-business
day. Dividends will be paid monthly. Net realized capital gains (including
net short-term gains) are normally distributed annually. The Fund does not
expect to realize any long-term capital gains and losses. Dividends and
distributions are paid in cash unless the shareholder has elected to have such
dividends and distributions reinvested in the form of additional full and
fractional shares at the net asset value thereof.
The dividend accrued and paid for each class of shares of the Company will
consist of: (a) interest accrued and original issue discount earned less
amortization of market premiums, if any, for the portfolio to which such class
relates, allocated based upon such class' pro rata share of the total shares
outstanding which relate to such portfolio, less (b) Company expenses accrued
for the applicable dividend period attributable to such portfolio, such as
custodian fees and accounting expenses, allocated based upon each such
class's pro rata share of the net assets of such 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 declared to shareholders of record immediately after 3:00 p.m.
Eastern Time on the day of declaration. Accordingly, dividends accrue on
the first day that a purchase order for shares of the Institutional Class 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 or prior to 11:00
a.m. Eastern Time if a purchase order is transmitted via the version of AIM
LINK(TM) that contains the subaccounting feature, the shareholder will receive
its pro rata share of dividends declared on that day. 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.
PERFORMANCE INFORMATION
Performance information for the Institutional Class can be obtained by calling
the Company at (800) 659-1005. Performance will vary from time to time and
past results are not necessarily indicative of future results. Investors should
understand that performance is a function of the type and quality of the Fund's
investments as well as its operating expenses. Performance information for the
shares of the Institutional 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.
Comparative performance information using data from industry publications may
be used from time to time in advertising or marketing the Institutional Class.
The yield of the Institutional Class, calculated as described below, will
fluctuate from day to day. Calculations of yield will take into account the
total income received by the Fund, including taxable income, if any; however,
the Fund 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 yields of such classes can be expected to
vary. To the extent that institutions charge fees in connection with services
provided in conjunction with the Fund, the yield will be lower for those
beneficial owners paying such fees.
9
<PAGE>
The current yield and 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) for the Institutional Class are
calculated according to a formula prescribed by the SEC. See "Performance
Information" in the Statement of Additional Information. For the seven-day
period ended March 31, 1994, the current yield and effective yield for the
Institutional Class were 2.11% and 2.13%, respectively.
TAX MATTERS
The Fund 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 Fund qualifies for this tax treatment, it
is not 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 Fund 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 Fund 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
a shareholder and may have other collateral federal income tax consequences. The
Fund intends to avoid investment in Municipal Securities the interest on which
will constitute an item of tax preference and therefore 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 Fund may pay dividends to shareholders which are taxable, but will
endeavor to avoid investments which would result in taxable dividends. Unless
otherwise required by Treasury regulations, the percentage of dividends which
constitute exempt-interest dividends, and the percentage thereof (if any) which
constitute an item of tax preference will be determined annually and will be
applied uniformly to all dividends declared during that year. These percentages
may differ from the actual percentages for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains (capital gain dividends), if any,
will be taxable as long-term capital gains, whether received in cash or
additional shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the Fund
to pay exempt-interest dividends might 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
Fund, and concerning the application of state, local and foreign taxes to
investments in the Fund, which may differ significantly from the federal income
tax consequences described above.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested in
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 the Company's agreements with the Fund'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 Fund and to the general supervision of the
Board of Directors. AIM also furnishes or procures on behalf of the Company all
services necessary to the proper conduct of the Company's business. 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.
DISTRIBUTOR
The Company has entered into a distribution agreement dated as of October 18,
1993 (the "Distribution Agreement") with FMC, a wholly-owned subsidiary of AIM,
with respect to the Institutional Class. FMC does not receive any fees from the
Company. Two directors and several officers of the Company are affiliated
with FMC.
10
<PAGE>
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to banks or dealers who sell a minimum dollar amount of the shares
of the Fund during a specific period of time. In some instances, these
incentives may be offered only to certain banks or dealers 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 the Fund's shares or the amount
that the Fund will receive as proceeds from such sales. Banks or dealers may not
use sales of the Fund's shares to qualify for any incentives to the extent
that such incentives may be prohibited by the laws of any jurisdiction.
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, acts as the Company's investment advisor with respect to the Fund pursuant
to an Investment Advisory Agreement dated as of October 18, 1993 (the "Advisory
Agreement"). AIM, which was organized in 1976, advises or manages 35 investment
company portfolios. As of July 1, 1994, the total assets of the investment
company portfolios advised or managed by AIM or its affiliates were
approximately $25.8 billion.
Pursuant to the terms of the Advisory Agreement, AIM manages the investments
of the Fund. AIM obtains and evaluates economic, statistical and financial
information to formulate and implement investment programs for the Fund. AIM
shall not be liable to the Company or to its shareholders except in the case of
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.
FEES AND EXPENSES
Pursuant to the Advisory Agreement, the Company pays AIM a fee with respect to
the Fund calculated 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.
For the fiscal year ended March 31, 1994, AIM was paid fees from the Company
with respect to the Fund which represented 0.15% of the Fund's average net
assets. During such fiscal year, those expenses of the Company which were borne
by the Fund, including fees paid to AIM, amounted to 0.20% of the Institutional
Class' average net assets. For the fiscal year ended March 31, 1994, AIM waived
a portion of its fees with respect to the Fund. Had AIM not waived its fee, AIM
would have received an amount from the Company pursuant to the Advisory
Agreement which represented 0.22% of the Fund's average daily net assets.
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.
FEE WAIVERS
In order to increase the yield to investors, AIM may from time to time
voluntarily waive or reduce its fee while retaining the right to be reimbursed
prior to year end. Fee waivers or reductions, other than those set forth in the
Advisory Agreement, may be rescinded, however, at any time without further
notice to investors, provided, however, that the fee waiver described below will
be continued in effect until sixty days following notice to the Board of
Directors that such fee waiver will be terminated.
AIM has agreed to reduce its fee from the Fund to the extent necessary to
cause the expense ratio of the Company attributable to the operations of the
Institutional Class not to exceed 0.20% (exclusive of interest, taxes, brokerage
commissions, directors' fees, and registration fees payable to the SEC).
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. On August 30, 1985, the Company was
reorganized as a Massachusetts business trust. On May 1, 1992, the Company was
reorganized as a Maryland corporation. The Company currently has one portfolio,
the Cash Reserve Portfolio. The Fund currently offers two classes of shares, the
Institutional Cash Reserve Shares and the Private Investment Class. The Private
Investment Class is offered pursuant to a separate prospectus.
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 to distribution plans or shareholder service
plans, if any such plans are adopted, relating solely to such class. The holders
of each class have distinctive rights with respect to dividends which are more
fully described in the Statement of Additional Information. There will not
normally be annual shareholders' meetings. Share-
11
<PAGE>
holders 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's shares without shareholder approval.
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105 acts as custodian for the Company's portfolio securities and
cash and as transfer agent for the Institutional Class offered pursuant to this
Prospectus. A I M Fund Services, Inc., Institutional Funds Department, P.O. Box
4497, Houston, Texas 77214-4497, acts as sub-transfer agent for the
Institutional Class offered pursuant to this Prospectus.
SHAREHOLDER INQUIRIES
Inquiries by holders of the Class concerning the status of an account should
be directed to an FMC investment representative by calling (800) 659-1005.
12
<PAGE>
APPENDIX
STATEMENT OF
ADDITIONAL INFORMATION
TAX-FREE INVESTMENTS CO.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
(800) 659-1005
-----------------------
Institutional Cash Reserve Shares
-----------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS THAT PRECEDES
THIS APPENDIX, ADDITIONAL COPIES OF WHICH MAY BE OBTAINED BY WRITING
FUND MANAGEMENT COMPANY
P.O. BOX 4333
HOUSTON, TEXAS 77210-4333
OR CALLING (800) 659-1005
-----------------------
Statement of Additional Information Dated: August 1, 1994
Relating to the Prospectus Dated: August 1, 1994
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction........................................................ A-3
General Information about the Company............................... A-3
The Company and Its Shares......................................... A-3
Directors and Officers............................................. A-4
The Distributor.................................................... A-7
The Investment Advisor............................................. A-7
Expenses........................................................... A-8
Custodian and Transfer Agent....................................... A-9
Legal Counsel...................................................... A-9
Sub-Accounting..................................................... A-9
Principal Holders of Securities.................................... A-10
Reports............................................................ A-10
Share Purchases and Redemptions..................................... A-11
Purchases and Redemptions.......................................... A-11
Net Asset Value Determination...................................... A-11
Dividends, Distributions and Tax Matters............................ A-12
Dividends and Distributions........................................ A-12
Tax Matters........................................................ A-12
Qualification as a Regulated Investment Company.................... A-12
Excise Tax on Regulated Investment Companies....................... A-13
Fund Distributions................................................. A-13
Foreign Shareholders............................................... A-14
Effect of Future Legislation; Local Tax Considerations............. A-15
Performance Information............................................. A-15
Investment Program and Restrictions................................. A-15
Investment Program................................................. A-15
Municipal Securities............................................... A-16
Investment Ratings................................................. A-17
When-Issued Securities and Delayed Delivery Transactions........... A-20
Variable or Floating Rate Instruments.............................. A-21
Synthetic Municipal Instruments.................................... A-21
Participation Interests and Municipal Leases....................... A-22
Fund Transactions................................................... A-22
Financial Statements................................................ A-24
</TABLE>
A-2
<PAGE>
INTRODUCTION
Tax-Free Investments Co. (the "Company") is a mutual fund organized with one
portfolio, the Cash Reserve Portfolio, which is referred to herein as the
"Fund." The Fund may have one or more classes of shares. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors with certain
information concerning the activities of the fund being considered for
investment. This information is included in the Prospectus dated August 1, 1994
(the "Prospectus") for Institutional Cash Reserve Shares (the "Institutional
Class"), a class of the Fund of the Company. This Statement of Additional
Information is intended to furnish investors with additional information
concerning the Company. Some of the information set forth in this Statement of
Additional Information is also included in the Prospectus and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additional
information is contained in the Company's registration statement filed with the
SEC. Copies of the registration statement 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 formerly known
as "Tax-Free Investments Trust." The Company was reorganized as a Maryland
corporation under the name "Tax-Free Investments Co." on May 1, 1992. Shares of
the Company are redeemable at the net asset value thereof at the option of the
holders thereof or at the option of the Company in certain circumstances.
Information concerning the methods of redemption and the rights of share
ownership are set forth in the Prospectus under "General Information" and
"Redemption of Shares."
As used in the Prospectus, the term "majority of the outstanding shares" of
the Company, the Fund or a particular class of shares of the Company means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Company or Fund or class present at a meeting, if the holders of more than 50%
of the outstanding shares of the Company or Fund or class are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Company or Fund or class.
Shareholders of the Company do not have cumulative voting rights, and
therefore the holders of a majority of a quorum of the outstanding shares of all
classes 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 and 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, of $.001 par value. A share of the Company's common
stock represents an equal proportionate interest in the Fund and is entitled to
a proportionate interest in the dividends and distributions with respect to its
class of the Fund. Additional information concerning the rights of share
ownership is set forth in the Prospectus.
The assets received by the Company for the issuance of shares of each class
relating to the Fund and all income, earnings, profits, losses and proceeds
therefrom, subject only to the rights of creditors, are allocated to the Fund
and constitute the underlying assets of the Fund. The underlying assets of
the Fund are charged with the expenses attributable to the Fund. See "Expenses."
The Articles of Incorporation 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
such 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 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 his 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
A-3
<PAGE>
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 Company's outstanding shares
and filed with the Company's transfer agent or by a vote of the holders of two-
thirds of the Company's 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 at least 1% of the
Company's outstanding shares, stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a 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 officers of the Company and their principal occupations
during the last five years are set forth below. Unless otherwise noted, the
address of each such director and officer is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173.
*CHARLES T. BAUER, Director and Chairman
Director and 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.,
and Fund Management Company.
BRUCE L. CROCKETT, Director
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
President and Chief Executive Officer, COMSAT Corporation (Includes COMSAT
World Systems, COMSAT Mobile Communications, COMSAT Video Enterprises and COMSAT
Technology Services). Previously, President and Chief Operating Officer,
COMSAT Corporation; President, World Systems Division; Chairman, INTELSAT Board
of Governors; Vice President and General Manager, INTELSAT Satellite Services,
COMSAT Corporation; and Vice President and Chief Financial Officer, COMSAT
Corporation (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services
company).
OWEN DALY II, Director
Six 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.
**CARL FRISCHLING, Director
40 West 57th Street, 30th Floor
New York, NY 10019
Partner, Reid & Priest (law firm); and Director, Discovery Oil, Ltd. (oil and
gas development company). Formerly, Partner, Spengler Carlson Guber Brodsky &
Frischling (law firm).
*ROBERT H. GRAHAM, Director and President
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.; and Director and Senior Vice President,
Fund Management Company; and Director and Vice President, A I M Capital
Management, Inc. and A I M Fund Services, Inc.
- ----------------
* A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
** A director who is an "interested person" of the Company as defined in the
1940 Act.
A-4
<PAGE>
JOHN F. KROEGER, Director
Box 464
24875 Swan Road -- Martingham
St. Michaels, MD 21663
Trustee, Flag Investors International Trust; and Director, Flag Investors
Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag
Investors Quality Growth Fund, Inc., Flag Investors 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., 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
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director
183 River Drive
Tequesta, FL 33469
Consultant. Previously, 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
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests Limited
Partnership (real estate development).
WILLIAM H. KLEH, Senior Vice President and Secretary
Director, Senior Vice President and General Counsel, A I M Advisors, Inc.;
Director and Vice President, Fund Management Company; Senior Vice
President, General Counsel and Secretary, A I M Management Group Inc.; Vice
President and General Counsel, A I M Capital Management, Inc. and A I M
Distributors, Inc.; and Vice President, A I M Fund Services, Inc.
JOHN J. ARTHUR, Senior Vice President and Treasurer
Senior Vice President and Treasurer, A I M Advisors, Inc.; and 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. and Fund Management Company.
GARY T. CRUM, Senior Vice President
Director and President, A I M Capital Management, Inc.; Director and Senior
Vice President, A I M Management Group Inc. and A I M Advisors, Inc.; and
Director, A I M Distributors, Inc.
CAROL F. RELIHAN, Vice President and Assistant Secretary
Vice President, General Counsel and Secretary, A I M Fund Services, Inc. and
Fund Management Company; Vice President, Associate General Counsel and
Secretary, A I M Advisors, Inc. and A I M Distributors, Inc.; Assistant Vice
President, Associate General Counsel and Assistant Secretary, A I M
Management Group Inc.; and Associate General Counsel and Secretary, A I M
Capital Management, Inc.
A-5
<PAGE>
DANA R. SUTTON, Vice President and Assistant Treasurer
Vice President and Fund Controller, A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund Management Company.
RICHARD A. BERRY, Vice President
Vice President, A I M Capital Management, Inc.
STUART W. COCO, Vice President
Senior Vice President, A I M Capital Management, Inc. and Vice President,
A I M Advisors, Inc.
MELVILLE B. COX, Vice President
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc. and A I M
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
Senior Vice President, A I M Capital Management, Inc.; and Vice President,
A I M Advisors, Inc. Formerly, trader, Federated Investors, Inc.
J. ABBOTT SPRAGUE, Vice President
President and Director, Fund Management Company; Director and Senior Vice
President, A I M Advisors, Inc.; and Senior Vice President, A I M Management
Group Inc. and A I M Fund Services, Inc.
STEPHEN D. TURMAN, Vice President
Vice President, A I M Capital Management, 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 Fund'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 Fund'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 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" (as defined by the 1940 Act) as long
as the Company maintains a Distribution Plan on behalf of the Fund 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 Fund Management Company. All of the
Company's executive officers hold similar offices with some or all of such
investment companies.
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 investment companies
advised or managed by AIM. Each such director receives a fee, allocated among
the investment companies for which he serves as a director or trustee, which
consists of two components: (i) an annual retainer, based on the number of
series portfolios of the investment companies for which such director serves as
director/trustee ("Series"), which annual retainer shall equal the sum of $7,500
for the first Series, $5,000 for the second Series, $2,500 for the third Series,
$1,000 for each of
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<PAGE>
the fourth through tenth Series, and $750 for each additional Series, with 50%
of such annual retainer being allocated equally among the Series for which the
director serves as director/trustee, and 50% of such annual retainer being
allocated among the Series based upon their relative net assets; and (ii) a
meeting fee of $250 per Series, up to a maximum of $1,000 per meeting, for each
board meeting attended in person by such director with 50% of such meeting fee
being allocated equally among the Series for which the director serves as
director/trustee, and 50% allocated among the Series based upon their relative
net assets.
Officers of the Fund receive no direct remuneration from the Fund for serving
in such capacity.
THE DISTRIBUTOR
Fund Management Company ("FMC") serves as the distributor of the Institutional
Class pursuant to a Distribution Agreement dated as of October 18, 1993
(the "Distribution Agreement"). FMC is a registered broker-dealer and a wholly-
owned subsidiary of AIM. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046. Mail addressed to FMC should be sent to P.O. Box 4333,
Houston, Texas 77210-4333.
The Distribution Agreement provides that FMC has the exclusive right to
distribute shares of the Institutional Class either directly or through other
broker-dealers. Pursuant to the Distribution Agreement, AIM Distributors (a)
solicits and receives orders for the purchase of shares of the Institutional
Class, accepts or rejects such orders on behalf of the Company in accordance
with the Company's currently effective Prospectus, and transmits such orders as
are accepted to the Company's transfer agent as promptly as possible; (b)
receives requests for redemptions and transmits such redemption requests to the
Company's transfer agent as promptly as possible; (c) responds to inquiries from
shareholders concerning the status of their accounts and the operations of the
Company; and (d) provides information concerning yields and dividend rates to
shareholders. FMC does not receive any fees from the Company for its services.
FMC has not undertaken to sell any specific number of shares of the
Institutional Class. The Distribution Agreement further provides that, in
connection with the distribution of shares of the Institutional Class, FMC will
pay all of the promotional expenses, including the incremental costs of
printing prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to prospective investors and the costs
of preparing and distributing any other supplemental sales material to
prospective investors. The services of FMC to the Company are not exclusive so
it is free to render similar services to others. FMC shall not be liable to
the Company or the shareholders of the Institutional Class for any act or
omission by FMC or for any loss sustained by the Company or the shareholders of
the Institutional Class except in the case of willful misfeasance, bad faith,
gross negligence or reckless disregard of duty.
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
Institutional 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 per share of the Institutional Class sold. Any such bonus or incentive
programs will not change the price paid by investors for the purchase of shares
of the Institutional Class or the amount received as proceeds from such sales.
Dealers or institutions may not use sales of the shares of the Institutional
Class to qualify for any incentives to the extent that such incentives may be
prohibited by the laws of any jurisdiction.
THE INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046,
serves as investment advisor to the Fund pursuant to an Investment Advisory
Agreement dated as of October 18, 1993 (the "Advisory Agreement"). AIM, which
was organized in 1976, is the investment advisor or manager of 35
investment company portfolios. As of July 1, 1994, the total assets advised or
managed by AIM or its affiliates were approximately $25.8 billion.
On May 10, 1994, the Board of Directors (including the affirmative vote of all
the directors who were not parties to such agreement or "interested persons" of
any such party) last approved the Advisory Agreement, which will be in effect
until June 30, 1995. The Advisory Agreement will continue in effect from year to
year thereafter if it is specifically approved at least annually 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 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
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<PAGE>
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 Fund'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 Portfolio'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 Fund and whether concerning the individual issuers whose
securities are included in the Fund; (g) determines which issuers and securities
shall be represented in the Fund and regularly reports thereon to the Board of
Directors; (h) formulates and implements continuing programs for purchases
and sales of securities for the Fund; and (i) takes, on behalf of the Company,
all actions which appear 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 Fund or its shareholders for any act or omission by AIM or for
any loss sustained by the Fund 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 services, AIM receives a fee from the Company with
respect to the Fund, calculated daily and paid monthly, at the annual rate of
0.25% of the first $500 million of the Fund's aggregate average daily net
assets, plus 0.20% of the Fund's aggregate daily net assets in excess of $500
million. For the fiscal years ended March 31, 1994, 1993 and 1992, 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
Fund were $1,525,419, $1,799,812 and $1,897,860, respectively (after giving
effect to fee waivers for the fiscal years ended March 31, 1994, 1993 and
1992 of $802,331, $741,740 and $710,106, respectively).
In addition, 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 Fund. FMC bears
the expenses of printing and distributing prospectuses and statements of
additional information (other than those prospectuses and statements of
additional information distributed to existing holders of shares) 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 shares of the Institutional
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 Fund; 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 Fund's net asset value and the daily dividend for its several classes.
The method of calculating such reimbursements must be approved annually, and the
amounts paid will be reviewed periodically by
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<PAGE>
the Board of Directors. For the fiscal years ended March 31, 1994, 1993
and 1992, AIM was reimbursed $65,124, $53,930 and $49,014, respectively,
by the Portfolio for such expenses.
Expenses of the Company which are not directly attributable to the operations
of any class are pro-rated among all 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.
AIM has agreed to reduce its fee for any fiscal year, or reimburse the Fund,
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 the Fund imposed by the
securities laws or regulations of those states or jurisdictions in which the
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.
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 Fund which are not directly attributable to the operations of
any class are pro-rated among the classes of the Fund based upon the relative
net assets of each class. Expenses of the Fund which are directly attributable
to a class are charged against the income available for distribution as
dividends to such class.
CUSTODIAN AND TRANSFER AGENT
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. State Street also serves as transfer agent
for the shares of the Institutional Class. The address of State Street is 225
Franklin Street, Boston, Massachusetts 02110. A I M Fund Services, Inc. ("AFS")
serves as sub-transfer agent for the shares of the Institutional Class. The
address of AFS is A I M Fund Services, Inc. -- Institutional Funds Department,
P.O. Box 4497, Houston, Texas 77214-4497.
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania,
serves as counsel to the Company.
SUB-ACCOUNTING
The Company and FMC have arranged for State Street to offer sub-accounting
services to shareholders of the Institutional Class and to maintain information
with respect to the underlying beneficial ownership of the shares. Investors who
purchase shares of the Institutional Class for the account of others can make
arrangements through the Company or FMC for these sub-accounting services. In
addition, shareholders utilizing certain versions of AIM LINK (TM), a personal
computer application software product, may receive sub-accounting services via
such software.
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<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
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 1, 1994, and the amount of the outstanding shares held of record by
such shareholders are set forth below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
NAME AND ADDRESS OF OWNED OF OWNED OF
RECORD OWNER RECORD RECORD
------------------- --------- --------
<S> <C> <C>
NationsBank of Texas, N.A. 339,710,366.05 30.96%
1401 Elm St., 11th Floor
P.O. Box 831000
Dallas, TX 75283-1000
Trust Company of Georgia 149,680,000.00 13.64%
P.O. Box 4655
Atlanta, GA 30302
Liberty Bank and Trust Co. of Tulsa, N.A. 112,879,353.30 10.29%
P.O. Box 75
Tulsa, OK 74101
U.S. Bank of Oregon 65,514,645.00 5.97%
321 Southwest 6th
Portland, OR 97208
Frost National Bank 59,901,463.21 5.19%
P.O. Box 1600
San Antonio, TX 78296
</TABLE>
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 of the
Fund as of July 1, 1994, and the amount of the outstanding shares held of record
by such shareholders, are set forth below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
NAME AND ADDRESS OF OWNED OF OWNED OF
RECORD OWNER RECORD RECORD
------------------- --------- --------
<S> <C> <C>
Frost National Bank 13,072,394.32 78.60%
P.O. Box 1600
San Antonio, TX 78296
Liberty Bank and Trust Co. of Tulsa, N.A. 2,907,153.52 17.48%
P.O. Box 75
Tulsa, OK 74101
</TABLE>
As of July 1, 1994, the directors and officers of the Company owned less than
1% of the Institutional Cash Reserve Shares and the Private Investment Class
Shares.
REPORTS
The Company furnishes shareholders of the Institutional Class with semi-annual
reports containing information about the Company and its operations, including a
schedule of investments held in the Fund, 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, 700 Louisiana,
NationsBank Building, Houston, Texas 77002, as the Company's independent
auditors to audit the Company's financial statements and review the Company's
tax returns.
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<PAGE>
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which shares of the Institutional
Class 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 Fund 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 Fund are issued and redeemed, the net asset value per share is calculated
by: (a) valuing all securities and instruments of the Fund as set forth below;
(b) adding other assets of the Fund, if any; (c) deducting the liabilities of
the Fund; (d) dividing the resulting amount by the number of shares outstanding
of the Fund; and (e) rounding such per share net asset value to the nearest
whole cent.
The debt instruments held in the Fund 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 Fund, with an unconditional demand or
put feature exercisable within seven days or less shall be valued at par, which
reflects the market value of such securities.
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 Fund is permitted in accordance with applicable rules and regulations of the
SEC, which require the Company to adhere to certain conditions. The Fund 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
AIM, pursuant to guidelines established by the Board of Directors, to be
"Eligible Securities" and to present minimal credit risk to the Fund. The Fund
adheres to a policy of purchasing only First Tier securities, 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
Fund 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 Fund's price per share at
$1.00 as computed for the purpose 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 Fund 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 Fund. In the event the Board of Directors
determines that such a deviation exists for any class of shares of the Fund, it
will take such corrective action as the Board of Directors deems necessary and
appropriate, including the sale of portfo-
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<PAGE>
lio 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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Net investment income for the Fund is declared as a dividend to the
shareholders of record of the Institutional Class on each business day of the
Fund. 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 Fund more often if deemed necessary
in order to maintain the net asset value of the Fund at $1.00 per share.
However, the Company does not expect the Fund 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 of the Institutional Class at the net asset value thereof.
The dividend accrued and paid for each class will consist of: (a) income for
the Portfolio to which such class relates, the allocation of which is based upon
each such class' 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 and accounting
expenses, allocated based upon each such class' 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 with respect to the Institutional Class are declared to shareholders
of record immediately after 3:00 p.m. Eastern Time on the date of declaration.
Accordingly, dividends accrue on the first day that a purchase order for shares
of the Institutional Class 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. However, purchase orders
transmitted via AIM LINK(TM) must be received and accepted prior to 11:00 a.m.
Eastern Time to enable the shareholder to receive its pro rata share of
dividends beginning with those declared on that day. The preceding sentence
applies only to those shareholders utilizing the version of AIM LINK(TM) that
contains the subaccounting feature.
Should the Company incur or anticipate any unusual expense, loss or
depreciation, which would adversely affect the net asset value per share of the
Fund or the net income per share of a class of the Fund 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
Fund were reduced, or were anticipated to be reduced, below $1.00, the Board of
Directors might suspend further dividend payments on shares of the Fund until
the net asset value returns to $1.00. Thus, such expense or loss or depreciation
might result in a shareholder receiving no dividends for the period during which
it held shares of the Fund 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 Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund 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 Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes an amount at least equal to the sum
of (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 allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by the Fund made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must (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 invest-
A-12
<PAGE>
ment 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 certain foreign currencies (or options, futures or forward
contracts thereon) held for less than three months (the "Short-Short Gain
Test"). Interest (including original issue discount) received by the Fund 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 Fund 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 Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Fund'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 Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund intends to qualify to pay exempt-interest dividends by satisfying the
requirement that at the close of each quarter of the Fund's taxable year at
least 50% of the Fund's total assets consists of Municipal Securities.
Distributions from the Fund will constitute exempt-interest dividends to the
extent of the Fund's tax-exempt interest income (net of allocable expenses and
amortized bond premium). Exempt-interest dividends distributed to shareholders
of the Fund 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 Fund 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 at 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
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.
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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 Fund is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the Fund.
Moreover, a shareholder who is (or is related to) a "substantial user" of a
facility financed by industrial development bonds held by the Fund will likely
be subject to tax on dividends paid by the Fund 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 Fund 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 Fund may either retain or distribute to shareholders its net capital gain,
if any, for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. 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 Fund 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 Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another 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 received,
determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund 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 the Fund 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 Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends 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 Fund, capital gain dividends (if any) and exempt-interest dividends.
If the income from the Fund 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 Fund will be subject to U.S. federal income tax at the rates applicable
to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund 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 Fund 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 Fund, including
the applicability of foreign taxes.
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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.
Investors should particularly note that a bill (H.R. 3419) was passed by the
House of Representatives on May 17, 1994, that would repeal the Short-Short Gain
Test retroactively for taxable years ending after the date of enactment.
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 Portfolios.
PERFORMANCE INFORMATION
Calculations of yield will take into account the total income received by the
Fund, including taxable income, if any; however, the Portfolio 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 Institutional Class, the yield will be lower for those
beneficial owners paying such fees.
The current yields quoted for the Institutional Class will be the net average
annualized yield for an identified period, usually seven consecutive calendar
days. Yields for the Institutional Class 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 Institutional Class
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.
For the seven-day period ended March 31, 1994, the current yield and effective
yield for the Institutional Class were 2.11% and 2.13%, respectively. Assuming a
corporate tax rate of 35%, those yields for the Institutional Class on a tax-
equivalent basis were 3.25% and 3.28%, respectively.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Fund's investment objectives and fundamental and
operating policies is set forth in the Prospectus. The principal features
of the Fund'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 Fund invests fluctuate based upon interest rates,
the financial stability of the issuer and market factors. The following is a
more detailed description of the instruments eligible for purchase by the Fund,
which augments the summary of the Fund's investment program which appears under
the heading "Investment Program" in the Prospectus.
As set forth in the Prospectus, the Fund will limit its purchases of Municipal
Securities to
(i) "First Tier" securities, as such term is defined from time to time in
Rule 2a-7 under the 1940 Act, or
(ii) securities guaranteed as to payment of principal and interest by the
U.S. Government.
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 under "Share Purchases and Redemptions -- Net Asset Value
Determinations") 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 NRSROs in
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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 Fund, 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 Fund, but AIM will consider such an event to be relevant in its
determination of whether the Fund 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 Fund 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 Fund may invest in Temporary Investments,
for example, due to market conditions or pending the investment of proceeds from
the sale of shares of the Fund or proceeds from the sale of Fund securities or
in anticipation of redemptions. Although interest earned from such Temporary
Investments will be taxable as ordinary income, the Fund intends to minimize
taxable income through investment, when possible, in short-term tax-exempt
securities, which may include shares of other investment companies whose
dividends are tax-exempt. See "Investment Restrictions" in the Prospectus
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 Fund's assets will be invested so that at least 80% of the Fund'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 Fund's assets so
that 100% of the Fund's annual interest income will be tax-exempt. Accordingly,
the Fund may hold cash reserves pending the investment of such reserves in
Municipal Securities.
The Fund 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.
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 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 alternate 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
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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 Fund'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 Fund will vary from time to time.
For purpose of the diversification requirements applicable to the Fund, the
identification of the issuer of the Municipal Securities depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political 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 depend 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
the Fund will be the yield realized by the Fund 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 Fund will be
affected by changes in the yields available on similar securities. If yields
increase following the purchase of a Municipal Security the market value of such
Municipal Security will generally decrease. Conversely, if yields 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 ("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.
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.
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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 are differentiated by the use of the VMIG symbol to reflect
such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally, 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.
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.
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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 used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (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-1+).
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 guaranties unless otherwise indicated.
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.
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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-l."
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.
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 Fund 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 Fund 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 Fund will only
make commitments to purchase when-issued or delayed delivery Municipal
Securities with the intention of actually acquiring such securities, but the
Fund may sell these securities before the settlement date if it is deemed
advisable. No additional when-issued or delayed delivery commitments will be
made if more than 25% of the Fund's net assets would thereby become so
committed.
A-20
<PAGE>
If the Fund purchases a when-issued or delayed delivery security, the Fund
will direct its custodian bank to segregate cash or other high grade securities
(including Temporary Investments and Municipal Securities) of the Fund in an
amount equal to the when-issued or delayed delivery commitment. The segregated
securities 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 of the segregated assets will equal the amount of the Fund'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
securities held in the Fund 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 Fund
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 Fund will experience greater fluctuation in the market value of its
assets.
Furthermore, when the time comes for the Fund to meet its obligations under
when-issued or delayed delivery commitments, the Fund will do so by use of its
then available cash, by the sale of the 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 Fund's payment
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 Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Fund 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 Fund are subject to payment of principal and accrued interest (usually
within seven days) on the Fund's demand. The terms of such demand instruments
require payment of principal and accrued interest from the issuer, a guarantor
and/or a liquidity provider. All variable or floating rate instruments will meet
the quality standards of the Fund. AIM will monitor the pricing, quality and
liquidity of the variable or floating rate Municipal Securities held by the
Fund.
SYNTHETIC MUNICIPAL INSTRUMENTS
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 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 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 "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."
A-21
<PAGE>
PARTICIPATION INTERESTS AND MUNICIPAL LEASES
The Fund 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 Fund 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.
FUND TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection and negotiation of commission rates. Since purchases
and sales of portfolio securities by the Fund are usually principal
transactions, the Fund incurs little or no brokerage commissions. Fund
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 Fund 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 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
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 services furnished by dealers may be
useful to AIM with clients other than the Fund. 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 Fund. 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 Fund by improving the
quality of AIM's investment advice. The advisory fee paid by the Fund 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.
AIM manages several other investment companies (the "AIM Funds"), some of
which may have objectives similar to that of the Fund. 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 Fund 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 Fund 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 Fund to
obtain or dispose of the full amount of a security which it seeks to purchase or
sell.
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.
The Board of Directors has adopted procedures pursuant to Rule 17a-7 under
the 1940 Act relating to portfolio transactions between the Fund and the AIM
Funds and the Fund may from time to time enter into transactions in accordance
with such Rule and procedures. 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 Fund to
purchase Municipal Securities being publicly underwritten by such a syndicate,
and the Fund 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 Fund 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
A-22
<PAGE>
the fiscal years ended March 31, 1994, 1993 and 1992 no securities or
instruments were purchased by the Fund from issuers who paid placement fees or
other compensation to a person affiliated with the Fund.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Fund 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 Fund
to engage in certain such transactions with such 5% holder, if the Fund complies
with conditions and procedures designed to ensure that such transactions
are executed at fair market value and present no conflicts of interest.
Purchases from these 5% holders will be subject to quarterly review by the Board
of Directors, including those directors who are not "interested persons" of
the Company.
A-23
<PAGE>
TAX-FREE INVESTMENTS CO.
INSTITUTIONAL CASH RESERVE SHARES
FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED
MARCH 31, 1994
A-24
<PAGE>
To the Board of Directors and Shareholders
Tax-Free Investments Company:
We have audited the accompanying statement of assets and liabilities of the
Tax-Free Cash Reserve Portfolio (a Portfolio of Tax-Free Investments Company),
including the schedule of investments, as of March 31, 1994, 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 five-year period then ended,
the eleven-month period ended March 31, 1989 and each of the years in the four-
year period ended April 30, 1988. 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, 1994, 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 out 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
Tax-Free Cash Reserve Portfolio as of March 31, 1994, 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 five-year period then ended, the eleven-month period
ended March 31, 1989 and each of the years in the four-year period ended April
30, 1988 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
Houston, Texas
May 6, 1994
A-25
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ -------------------
<S> <C> <C> <C> <C> <C>
SCHEDULE OF ALABAMA - 2.40%
INVESTMENTS
March 31, 1994 Alabama Housing Finance Authority (Windscape Project);
Multifamily Adjustable/Fixed Rate Refunding
Series 1988 C RB
2.40% 12/01/03(b)(c)...................................... -- VMIG-1 $ 3,600 $ 3,600,000
Alabama Special Care Facilities Financing Authority of the
City of Montgomery; Floating Rate Annual Demand
Hospital Fixed Equipment and Improvement
Series 1984 A RB
2.75% 07/01/96(b)(c)...................................... A-1 Aaa 9,335 9,335,000
Educational Building Authority of the City of Homewood
(Samford University); Adjustable/Fixed Rate
Educational
Facilities RB
2.40% Series 1988 B 12/01/13(b)(c)........................ -- VMIG-1 1,000 1,000,000
2.40% Series 1988 C 12/01/13(b)(c)........................ -- VMIG-1 3,900 3,900,000
Industrial Development Board of the City of Foley
(Vulcan, Inc. Project); Variable Rate Demand Series
1985 RB
2.40% 12/01/00(b)(c)...................................... -- VMIG-1 3,250 3,250,000
Industrial Development Board of the City of Fort Payne
(Brookwood Expansion Project); Variable Rate
Demand Series 1985 RB
2.40% 12/01/97(b)(c)...................................... -- VMIG-1 2,500 2,500,000
Industrial Development Board of the City of McIntosh
(CIBA-GEIGY Corp.); Variable Rate Series 1985 A PCR
2.25% Series A 12/01/03(b)(c)............................. A-1+ -- 1,800 1,800,000
-------------
25,385,000
-------------
ALASKA - 3.58%
Alaska Housing Finance Corp.; General Mortgage RB
2.25% Series 1991 A 06/01/26(b)............................. A-1+ VMIG-1 28,900 28,900,000
2.15% Series 1991 C 06/01/26(b)............................. A-1+ VMIG-1 9,000 9,000,000
-------------
37,900,000
-------------
ARIZONA - 4.29%
Agricultural and Power District (Salt River Project); RB
2.60% 05/17/94.............................................. A-1+ P-1 2,500 2,499,982
2.55% 05/18/94.............................................. A-1+ P-1 2,000 1,999,985
Agricultural and Power District (Salt River Project); Series
1993 Q TOC
2.65% 01/25/03(b)......................................... A-1+ -- 29,000 29,000,000
Industrial Development Authority of the County of Pinal
(Magma Copper Co. Project); Refunding Series 1992
PCR
2.50% 12/01/11(b)(c)...................................... A-1+ VMIG-1 1,700 1,700,000
Maricopa County Pollution Control Corp. (Palo Verde
Project); Series 1983 A PCR
2.25% 12/01/09(b)(c)...................................... A-1+ VMIG-1 2,025 2,025,000
Maricopa County Pollution Control Corp. (Southern
California Edison Company, Palo Verde Project);
Adjustable Tender Refunding PCR
2.30% Series 1985 B 12/01/09(b)........................... A-1+ P-1 1,500 1,500,000
2.30% Series 1985 C 12/01/09(b)........................... A-1+ P-1 1,200 1,200,000
2.30% Series 1985 G 12/01/09(b)........................... A-1+ P-1 3,850 3,850,000
</TABLE>
A-26
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- ------------------
<S> <C> <C> <C> <C> <C>
ARIZONA - (CONTINUED)
Phoenix (City of) Industrial Development Authority
(Paradise Shadows 11 Apartments Project); Multifamily
Housing Refunding Series 1989 RB
2.20% 12/01/02(b)(c)..................................... A-1 -- $1,625 $ 1,625,000
-------------
45,399,967
-------------
ARKANSAS - 0.18%
Crossett (City of) (Georgia-Pacific Corp. Projects); Series
1984 PCR
2.20% 10/01/07(b)(c)..................................... -- P-1 1,900 1,900,000
-------------
CALIFORNIA - 3.52%
California Health Facilities Financing Authority (Children's
Hospital Of Orange County); Insured Hospital Series
1994 RB
2.00% 11/01/21(b)(c)..................................... A-1+ VMIG-1 1,000 1,000,000
Desert Sands Unified School District; Refunding Series
1994 D COP
3.10% 03/01/95(c)........................................ AAA Aaa 3,000 3,000,000
Marysville Unified School District; Series 1993 TRAN
3.00% 08/31/94........................................... -- MIG-1 4,300 4,308,148
Sacramento (County of) Housing Authority (Grouse Run
Apartments); Multifamily Housing Series A 1990 RB
2.15% 06/01/10(b)(c)..................................... -- VMIG-1 3,900 3,900,000
San Diego Housing Authority (Nobel Court Apartment
Project); Multifamily Housing Series 1985 L RB
2.20% 12/01/08(b)(c)..................................... -- VMIG-1 4,000 4,000,000
San Francisco (City & County of);
Series 1994 TRAN
3.25% 07/15/94........................................... SP-1+ MIG-1 2,000 2,004,926
San Mateo Union High School District; Series 1993-1994
TRAN
3.25% 07/01/94........................................... SP-1+ -- 4,000 4,005,330
Santa Clara (County of) Housing Authority (Foxchase
Apartments Project); Multifamily Housing Series 1985 E
RB
2.15% 11/01/08(b)(c)..................................... A-1+ VMIG-1 10,000 10,000,000
Ventura (County of) Conejo Valley Unified School District;
Series 1993 TRAN
3.25% 07/01/94........................................... SP-1+ -- 5,000 5,005,450
-------------
37,223,854
-------------
COLORADO - 3.07%
Arapahoe (County of) (E-470 Project); Capital
Improvement Trust Highway
Series 1986 D RB
2.85% 08/31/94(c)(d)..................................... A-1+ -- 10,000 10,000,000
Clear Creek County (Colorado Counties Financing Pool
Program); Weekly Adjustable/Fixed Rate Revenue
Anticipation Warrants
2.35% 06/01/98(b)(c)..................................... A-1+ -- 3,720 3,720,000
</TABLE>
A-27
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ --------------------
<S> <C> <C> <C> <C> <C>
COLORADO - (CONTINUED)
Colorado Health Facilities Authority (Boulder Community
Hospital Project); Variable Rate Demand Hospital
Series 1989 C RB
2.20% 10/01/14(b)(c)..................................... A-1+ VMIG-1 $2,500 $ 2,500,000
Colorado Health Facilities Authority (North Colorado
Medical Center); Variable Rate Demand Hospital Series
1990 Bonds
1.95% 05/15/20(b)(c)..................................... A-1+ VMIG-1 4,800 4,800,000
Colorado Housing Finance Authority (Central Park,
Coventry Village and Greenwood Point Projects);
Multifamily Housing Series 1985 RB
2.25% 05/01/97(b)(c)..................................... A-1 -- 4,800 4,800,000
Douglas (County of) (Autumn Chase Project); Variable
Rate Demand Multifamily Housing Series 1985 RB
2.20% 07/01/06(b)(c)..................................... -- VMIG-1 1,100 1,100,000
Englewood (City of) (The Marks Apartments); Multifamily
Housing
Series 1985 A RB
2.20% 12/15/97(b)(c)..................................... A-1 -- 500 500,000
Moffat (County of) (Tri-State Power); Weekly
Adjustable/Fixed Rate Refunding
Series 1984 PCR
2.35% 07/01/10(b)(c)..................................... A-1+ VMIG-1 5,000 5,000,000
-------------
32,420,000
-------------
DISTRICT OF COLUMBIA - 0.16%
District of Columbia (The American University Issue);
Variable Rate Weekly Demand
Series 1985 RB
2.30% 10/01/15(b)(c).................................... -- VMIG-1 1,700 1,700,000
-------------
FLORIDA - 5.08%
Brevard (County of); Variable Rate Demand Multifamily
Housing Series 1985 A RB
2.15% 01/01/15(b)(c).................................... A-1 -- 3,500 3,500,000
Dade (County of) Capital Asset Acquisition; Floating/Fixed
Rate Special Obligation
Series 1990 RB
2.30% 10/01/10(b)(c).................................... A-1 VMIG-1 9,400 9,400,000
Florida (State of); Board of Education
Series 1992 RB
4.50% 06/01/94.......................................... AA Aa 1,195 1,198,719
Florida (State of) Department of Environmental Protection;
Series 1994 A RB
2.65% 03/25/03(b)....................................... A-1+ -- 10,000 10,000,000
Florida Housing Finance Agency (Parrots Landing Project);
Multifamily Housing
Series 1985 AA RB
2.20% 08/01/08(b)(c).................................... A-1 -- 2,855 2,855,000
Florida Housing Finance Agency (Blairstone Project);
Multifamily Housing
Series 1985 W RB
2.35% 12/01/07(b)(c).................................... A-1 -- 2,900 2,900,000
</TABLE>
A-28
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ --------------------
<S> <C> <C> <C> <C> <C>
FLORIDA - (CONTINUED)
Florida Housing Finance Agency (River Oaks Apartments
Project); Multifamily Housing
Series 1985 TT RB
2.35% 12/01/07(b)(c)..................................... A-1 -- $3,300 $ 3,300,000
Florida Housing Finance Agency (Spring Colony Project);
Multifamily Series 1985 FF RB
2.65% 08/01/07(b)(c)..................................... A-1 -- 1,100 1,100,000
Lee (County of) Housing Finance Authority (Forestwood
Apartments Projects); Multifamily Housing Series 1993 A
RB
2.20% 09/01/23(b)(c)...................................... A-1 -- 3,200 3,200,000
Osceola (County of ); Series 1986 GO
7.50% 08/01/94(c)(d)...................................... AAA Aaa 1,850 1,917,465
Port Everglades Authority; Port Authority Senior Lien Series
1989 B RB
6.60% 09/01/94(c)......................................... AAA Aaa 3,000 3,051,017
Putnam County Development Authority (Seminole Electric
Cooperative, Inc. Project); National Rural Utilities
Cooperative Finance Corp. Guaranteed Floating/Fixed
Rate PCR
2.35% Pooled Series 1984H-1 03/15/14(b)(c)................ A-1+ P-1 4,115 4,115,000
2.35% Pooled Series 1984H-2 03/15/14(b)(c)................ A-1+ P-1 1,750 1,750,000
2.35% Pooled Series 1984 S 03/15/14(b)(c)................. A-1+ P-1 2,950 2,950,000
St. Johns County Housing Finance Authority (Remington At
Ponte Vedra Project);
Series 1993 RB
2.15% 02/01/17(b)(c)...................................... A-1+ -- 2,400 2,400,000
-------------
53,637,201
-------------
GEORGIA - 2.35%
Atlanta (City of) Board of Education;
Certificate of Participation Series 1993 GO
2.85% 06/01/94(c)........................................ AAA Aaa 2,705 2,705,575
DeKalb County Housing Authority (Columbia on
Claremont Project); Multifamily Housing Series 1985H
RB
2.20% 08/01/05(b)(c)..................................... -- VMIG-1 2,000 2,000,000
DeKalb Private Hospital Authority (Egleston Children's
Hospital at Emery University); Variable Rate Demand
Certificates
Series 1994 A RAN
2.15% 03/01/24(b)(c)..................................... -- VMIG-1 3,500 3,500,000
Development Authority of DeKalb County (Joyce
International, Inc. Project); Monthly Floating Rate IDR
2.45% 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
2.65% 03/01/05(b)(c)..................................... A-1 -- 2,400 2,400,000
Housing Authority of Clayton County (Oxford Townhomes
Project); Multifamily Housing Refunding Series 1992 RB
2.45% 06/15/17(b)(c)..................................... -- P-1 2,550 2,550,000
</TABLE>
A-29
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- ------------------
<S> <C> <C> <C> <C> <C>
GEORGIA - (CONTINUED)
Housing Authority of Clayton County (Rolling Hills
Apartments); Multifamily Housing Refunding Series 1992
RB
2.45% 06/15/17(b)(c)........................................ -- P-1 $ 1,820 $1,820,000
Housing Authority of Cobb County (Pittco Frey Associates
Project); Multifamily Housing
Series 1992 RB
2.30% 06/01/23(b)(c)........................................ -- VMIG-1 4,000 4,000,000
Housing Authority of DeKalb County (Timber Trace
Apartments Project); Variable Rate Multifamily Rental
Housing Series 1985 K RB
2.65% 12/01/09(b)(c)........................................ -- VMIG-1 2,100 2,100,000
Housing Authority of the City of Roswell (Ski Lodge
Apartments Project); Multifamily Housing Refunding
Series 1991 B RB
2.40% 08/01/06(b)(c)........................................ -- VMIG-1 3,230 3,230,000
----------
24,805,575
----------
IDAHO - 0.21%
Idaho Health Facilities Authority (Magic Valley Regional
Medical Center); Refunding RB
9.25% 12/01/94(c)........................................... AAA Aaa 2,100 2,251,085
----------
ILLINOIS - 6.85%
Burbank (City of) (Service Merchandise Company Inc.
Project); Floating Rate Monthly Demand Industrial
Building Series 1984 RB
2.65% 09/15/24(b)(c)........................................ A-1+ -- 3,600 3,600,000
Chicago School Finance Authority; RB
10.20% 06/01/94(c)(d)....................................... AAA Aaa 1,000 1,042,182
10.50% 06/01/94(c)(d)....................................... AAA Aaa 1,000 1,042,673
Cook (County of); Series 1993 TRAN
3.20% 04/01/94.............................................. SP-1+ MIG-1 1,000 1,000,000
Cook (County of) (Catholic Charities Housing Development
Corp. Project); Adjustable Demand Series 1988 A-1 RB
2.25% 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
2.45% 06/01/08(b)(c)........................................ -- Aa3 2,000 2,000,000
Illinois (State of); Capital Development Series 1984 A GO
9.50% 04/01/94(c)(d)(e)..................................... -- -- 1,660 1,693,200
Illinois (State of); Series 1993 General Obligation Certificates
3.25% 04/15/94.............................................. SP-1+ MIG-1 8,300 8,302,470
3.50% 06/15/94.............................................. SP-1+ MIG-1 1,500 1,502,074
Illinois (State of); Series 1994 B General Obligation Tender
Notes
2.15% 10/31/95(b)(c)........................................ A-1+ VMIG-1 18,000 18,000,000
Illinois (State of) Toll Highway Authority; Toll Highway
Refunding
Series 1993 B RB
2.20% 01/01/10(b)(c)........................................ A-1+ VMIG-1 1,000 1,000,000
</TABLE>
A-30
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- --------------------
<S> <C> <C> <C> <C> <C>
ILLINOIS - (CONTINUED)
Illinois Development Finance Authority (A.E. Stanley
Manufacturing Co. Project); Adjustable Tender Series
1985 PCR
2.25% 12/01/05(b)(c)....................................... -- P-1 $1,000 $ 1,000,000
Illinois Development Finance Authority (Jewish Charities
Revenue Anticipation Note Program); Variable Rate
Demand
Series 1994 RAN
2.40% 06/30/94(b)(c)....................................... A-1+ -- 4,000 4,000,000
Illinois Educational Facilities Authority (Aurora University
Project); Variable/Fixed Rate Refunding Series 1989 RB
2.40% 01/01/09(b)(c)....................................... A-1+ -- 800 800,000
Illinois Health Facilities Authority; Variable Rate Demand
Series 1985 B RB
2.20% 08/01/15(b)(c)....................................... A-1+ VMIG-1 3,200 3,200,000
Illinois Health Facilities Authority (Hospital Sister Services,
Inc. Obligated Group); Unit Priced Demand Adjustable
Series 1985 E RB
2.20% 12/01/14(b)(c)....................................... A-1+ VMIG-1 6,900 6,900,000
Illinois Health Facilities Authority (Swedish American
Hospital); Series 1993 RB
3.05% 11/15/94(b)(c)....................................... AAA Aaa 750 750,000
Marseilles (City of) (Kaiser Agricultural Chemicals Inc.
Project); Variable Rate Demand Series 1985 IDR
2.15% 01/01/98(b)(c)....................................... A-1+ -- 4,350 4,350,000
Village of Lysle (Ashley of Lysle) (Ponds of Pembrooke
Ltd. Project); Multifamily Housing Series 1987 RB
2.30% 12/15/25(b)(c)....................................... A-1+ -- 2,500 2,500,000
Village of Schaumburg (Windsong Apartment Venture
Project); Convertible Variable Rate Demand Multifamily
Housing Series 1985 RB
2.50% 02/01/15(b)(c)....................................... A-1 -- 8,000 8,000,000
-------------
72,382,599
-------------
INDIANA - 1.94%
Auburn (City of) (Sealed Power Corp. Project); Variable
Rate Demand Economic Development Series 1985 RB
2.60% 07/01/10(b)(c)...................................... -- VMIG-1 1,300 1,300,000
Indiana (State of); Banks Advance Funding Program Series
1994 A-1 RAN
2.85% 07/07/94(c)......................................... SP-1+ MIG-1 10,000 10,011,356
Mount Vernon (City of) (Southern Indiana Gas and
Electric Company Project); Adjustable Rate Series 1985
A PCR
2.70% 05/01/94(d)......................................... AA Aa2 9,235 9,234,782
-------------
20,546,138
-------------
IOWA - 1.20%
Chariton (City of) (Hy-Vee Food Stores, Inc. Project);
Refunding Series 1984 IDR
2.50% 11/01/04(b)(c)...................................... A-1+ -- 1,162 1,162,000
Iowa (State of); Series 1993 GO
3.60% 12/30/94(c)......................................... SP-1+ MIG-1 1,500 1,507,699
</TABLE>
A-31
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ ---------------------
<S> <C> <C> <C> <C> <C>
IOWA - (CONTINUED)
Iowa Finance Authority (Village Court Associates Project);
Small Business Development Multifamily Housing
Series 1985 B RB
2.325% 11/01/15(b)(c)................................... -- VMIG-1 $10,000 $ 10,000,000
-------------
12,669,699
-------------
KANSAS - 0.24%
Mission (City of) (Woodland Village Project); Variable
Rate Demand Multifamily Housing Series 1985 RB
2.20% 12/01/97(b)(c).................................... A-1 -- 2,500 2,500,000
-------------
KENTUCKY - 3.52%
Clark County (East Kentucky Power Project); PCR
2.60% Series 1984 J1 04/15/94(c)(d)..................... A-1+ VMIG-1 1,500 1,500,000
2.60% Series 1984 J2 04/15/94(c)(d)..................... A-1+ P-1 3,000 3,000,000
Commonwealth of Kentucky; Housing Corporation Series
1993 C RB
2.65% 04/28/94(b)(d).................................... A-1 MIG-1 1,000 1,000,000
Kentucky Property and Building Authority (Common
Revenue Project No. 36); Corrections Cabinet Series
1986 RB
7.00% 04/01/94(d)(e).................................... -- -- 1,030 1,045,450
Mason County (East Kentucky Power Cooperative, Inc.
Project); National Rural Utilities Cooperative Finance
Corp. Guaranteed Floating/Fixed Rate PCR
2.35% Pooled Series 1984 B-1 10/15/14(b)(c)............. A-1+ Aa3 13,250 13,250,000
2.35% Pooled Series 1984 B-2 10/15/14(b)(c)............. A-1+ Aa3 17,450 17,450,000
-------------
37,245,450
-------------
LOUISIANA - 2.64%
Calcasieu (Parish of) (CITGO Petroleum Corp. Project);
Industrial Development Board Flexible Demand Series
1984 PCR
2.20% 08/01/04(b)(c).................................... -- P-1 800 800,000
Industrial District No. 3 of West Baton Rouge (Dow
Chemical Company Project); RB
2.35% 12/01/02(b)....................................... -- P-1 2,450 2,450,000
Louisiana Correctional Facilities Authority; Lease Refunding
Series 1993 RB
6.00% 12/15/94(c)....................................... AAA Aaa 1,000 1,025,404
Louisiana Public Facilities Authority (Houma Psychiatric
Hospital Inc., Project); Variable Rate Demand
Series 1985 RB
2.15% 09/01/15(b)(c).................................... -- Aa1 3,700 3,700,000
Louisiana Public Facilities Authority (Lincoln Parc du Lac II
Associates Limited Project); Multifamily Housing
Series 1985 A RB
2.20% 08/01/96(b)(c).................................... -- VMIG-1 2,000 2,000,000
Louisiana Public Facilities Authority (Special Assessment -
Unemployment Compensation Funding Program);
Series 1987 RB
6.75% 09/01/94(c)(e).................................... -- -- 3,000 3,048,926
Louisiana Recovery District; Sales Tax Series 1988 RB
3.05% 07/01/98(b)(c).................................... A-1+ VMIG-1 2,000 2,000,000
</TABLE>
A-32
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- --------------------
<S> <C> <C> <C> <C> <C>
LOUISIANA - (CONTINUED)
Plaquemine Port Harbor and Terminal Authority (TECO
Energy, Inc.);
Marine Terminal Facility Refunding
Series 1985 A RB
2.30% 09/01/07(b).................................... -- P-1 $8,500 $ 8,500,000
South Louisiana Port Commission (Occidental Petroleum
Corp. Project); Marine Terminal Facilities Refunding
Series 1991 RB
2.25% 07/01/21(b)(c)................................. A-1+ VMIG-1 4,400 4,400,000
-------------
27,924,330
-------------
MAINE - 0.59%
Maine (State of); General Obligation TAN
3.50% 06/30/94....................................... SP-1+ MIG-1 5,000 5,018,153
Maine Health and Higher Education Facilities Authority
(VHA of New England Capital Asset Financing
Program); Variable Rate Hospital Series 1985 B RB
2.20% 12/01/25(b)(c)................................. A-1 Aaa 1,250 1,250,000
-------------
6,268,153
-------------
MARYLAND - 2.03%
Carroll (County of); Public Improvement and Refunding
Tender Options Certificate Trust Series 1993 W-1 RB
2.45% 05/02/94(d).................................... A-1+ -- 10,500 10,500,000
Carroll (County of); Tender Options Certificates Series
1993 W-1 GO
2.45% 05/02/94(d).................................... A-1+ -- 2,000 2,000,000
Maryland (State of) Community Development
Administration; Department of Housing & Community
Development Single Family Program Series 1993 RB
2.70% 06/15/94(c).................................... -- VMIG-1 5,000 5,000,000
Montgomery (County of) (Oakwood-Gaithersburg
Project); Housing Opportunities Commission
Multifamily Housing Series 1991 A RB
2.90% 11/01/94(c)(d)................................. A-1+ -- 4,000 4,000,000
-------------
21,500,000
-------------
MASSACHUSETTS - 0.85%
Massachusetts (State of); Series 7 Tax Exempt Commercial
Paper Note
2.35% 04/20/94(c).................................... A-1+ P-1 2,000 1,999,989
Massachusetts Bay Transportation Authority (General
Transportation System); Variable Rate Demand
Obligations Series 1984 RB
2.75% 09/01/94(c)(d)................................. A-1+ VMIG-1 5,000 5,000,000
Massachusetts Health and Education Authority (Capital
Assets Program); Series 1985 RB
2.15% 01/01/35(b)(c)................................. AAA VMIG-1 1,000 1,000,000
Massachusetts Housing Finance Agency; Single Family
Housing Series 25 RB
2.95% 09/01/94(b).................................... A-1+ VMIG-1 1,000 1,000,000
-------------
8,999,989
-------------
</TABLE>
A-33
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ --------------------
<S> <C> <C> <C> <C> <C>
MICHIGAN - 2.58%
Detroit (City of) Convention Facility (Limited Tax-Cobo
Hall Expansion Project); Series 1985 RB
9.50% 09/30/94(c)(d).................................... AAA Aaa $5,000 $ 5,310,313
Michigan State Hospital Finance Authority; Series 1991 RB
2.20% 12/01/11(b)(c).................................... -- VMIG-1 2,000 2,000,000
Michigan State Hospital Finance Authority (Hospital
Equipment Loan Program); Series 1994 A RB
2.25% 12/01/23(b)(c).................................... -- VMIG-1 3,000 3,000,000
Michigan State Hospital Finance Authority (Macomb
County Hospital Corp.); Series 1984 RB
11.25% 06/01/94(c)(d)................................... AAA -- 5,000 5,169,636
Michigan State Hospital Finance Authority (Mt. Clemens
General Hospital); Series 1985 RB
2.50% 11/01/12(b)(c).................................... -- VMIG-1 1,500 1,500,000
Michigan State Housing Development Authority; Rental
Housing Series 1994 C RB
3.10% 02/28/95(c)(d).................................... A-1+ -- 5,500 5,500,000
Michigan Strategic Fund (260 Brown St. Associates Project);
Convertible Variable Rate Demand Limited Obligation
Series 1985 RB
2.35% 10/01/15(b)(c).................................... -- VMIG-1 3,800 3,800,000
Michigan Strategic Fund (Norcor Corp. Project); IDR
2.15% 12/01/00(b)(c).................................... -- P-1 1,000 1,000,000
-------------
27,279,949
-------------
MINNESOTA - 0.75%
Austin (City of) (Hy-Vee Foodstores Inc. Project);
Commercial Development Series 1984 RB
2.50% 12/01/04(b)(c).................................... A-1+ -- 900 900,000
Becker (City of) (Northern States Power Co.);
Series 1993 A PCR
2.10% 09/01/19(b)....................................... A-1+ P-1 4,000 4,000,000
Minnesota Housing Finance Agency; Single Family
Mortgage Series 1994 E RB
3.00% 07/01/25(b)....................................... A-1+ VMIG-1 3,000 3,000,000
-------------
7,900,000
-------------
MISSOURI - 3.43%
Health and Educational Facilities Authority of the State of
Missouri (Equipment and Capital Loan Program);
Christian Health Services Development Corporation
Floating Rate Weekly Demand Series 1989 A RB
2.15% 11/01/19(b)(c).................................... A-1+ -- 3,600 3,600,000
Health and Educational Facilities Authority of the State of
Missouri (The Washington University Project);
Educational Facilities Series 1985 A RB
2.35% 09/01/10(b)....................................... A-1+ VMIG-1 6,200 6,200,000
Industrial Development Authority of the City of Kansas City
(The Lorcarno Multifamily Housing Project); Variable
Rate Demand Multifamily Housing
Series 1985 RB
2.20% 12/01/15(b)(c).................................... A-1 -- 1,800 1,800,000
</TABLE>
A-34
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ ------------------
<S> <C> <C> <C> <C> <C>
MISSOURI - (CONTINUED)
Industrial Development Authority of the City of Kansas City
(Willow Creek Multifamily Housing Project); Variable Rate
Demand Multifamily Housing Series 1985 RB
2.20% 09/15/05(b)(c).......................................... A-1 -- $5,100 $ 5,100,000
Kansas City Municipal Assistance Corp.; RB
3.75% 04/15/94(c)............................................. AAA Aaa 4,385 4,387,061
Land Clearance for Redevelopment Authority of Kansas City
(East-West Bryant Limited Partnership); Series 1984 IDR
2.575% 12/01/14(b)(c)......................................... -- Aa2 4,000 4,000,000
Missouri State Environmental Improvement & Energy Resource
Authority; Water Pollution Control Series A RAN
4.40% 05/01/94................................................ SP-1+ MIG-1 2,000 2,002,859
Missouri State Environmental Improvement & Energy Resource
Authority (Associated Electric Cooperative, Inc. Project);
Pooled Series 1993 M RB
2.35% 12/15/03(b)............................................. A+ VMIG-1 3,375 3,375,000
Missouri State Environmental Improvement & Energy Resource
Authority (Union Electric Project); Series 1985 A PCR
2.30% 06/01/15(b)(c).......................................... A-1+ P-1 5,800 5,800,000
-------------
36,264,920
-------------
MONTANA - 0.14%
Forsyth (City of) (Portland General Electric Project); Series 1983
D PCR
2.50% 06/01/13(b)(c).......................................... A-1+ P-1 1,500 1,500,000
-------------
NEBRASKA - 0.49%
Buffalo (County of) Fanciscan Healthcare Corp.); Hospital Series
1985 Bonds
2.20% 01/01/16(b)(c).......................................... -- VMIG-1 1,200 1,200,000
Nebraska Higher Education Loan Program, Inc. (Multiple-Mode
Student Loan Program); Series 1985 A RB
2.25% 12/01/15(b)(c).......................................... AAA VMIG-1 4,000 4,000,000
-------------
5,200,000
-------------
NEVADA - 0.32%
Las Vegas (City of); Series 1987 GO
6.50% 11/01/94(c)............................................. AAA Aaa 1,000 1,020,738
Nevada Housing Division (Single Family Program); Refunding
Series 1993 R RB
2.60% 04/01/94................................................ AA Aa 2,355 2,355,000
-------------
3,375,738
-------------
NEW HAMPSHIRE - 0.10%
New Hampshire Housing Finance Authority (Hampshire Estates
Corp.-Manchester Project); Refunding Series 1991 RB
2.20% 12/01/12(b)(c)......................................... A-1 -- 625 625,000
New Hampshire Industrial Development Authority (Bangor
Hydro-Electric Company Project); Variable Rate Demand
Series 1983 PCR
2.35% 01/01/09(b)(c)......................................... A-1+ -- 400 400,000
-------------
1,025,000
-------------
</TABLE>
A-35
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- ---------------------
<S> <C> <C> <C> <C> <C>
NEW JERSEY - 1.35%
New Jersey (State of); Series 1994 TRAN
3.00% 06/15/94......................................... SP-1+ MIG-1 $14,300 $ 14,320,221
-------------
NEW MEXICO - 1.13%
Albuquerque (City of); Gross Receipts Lodgers Tax Series
1991 A RB
4.70% 01/02/95(c)...................................... AA- Aa3 5,000 5,059,470
Albuquerque (City of) (St. Joseph's Healthcare System
Project); Sisters of Charity Health Care System RB
2.20% 05/15/22(b)...................................... A-1+ VMIG-1 6,900 6,900,000
-------------
11,959,470
-------------
NEW YORK - 9.25%
Eagle Tax Exempt Trust; Class A COP
2.49% Series 1994 B 01/01/04(b)....................... A-1 -- 22,400 22,400,000
2.49% Series 1993 P 11/01/04(b)....................... A-1 -- 17,000 17,000,000
2.49% Series 1994 F 06/01/05(b)....................... A-1 -- 17,800 17,800,000
2.49% Series 1993 E 08/01/06(b)....................... A-1 -- 15,000 15,000,000
2.49% Series 1993 F 08/01/07(b)....................... A-1 -- 20,500 20,500,000
New York (City of) Municipal Water Finance Authority
(Water and Sewer Systems); Series 1993 BAN
2.75% 04/15/94........................................ SP-1 MIG-1 2,000 2,000,132
New York Local Government Assistance Corporation
(Public Benefit Corporation of the State); Series 1994
B RB
2.30% 04/01/23(b)(c).................................. A-1+ VMIG-1 2,000 2,000,000
New York (State of) Medical Care Facility Finance
Agency; Insured Hospital Mortgage Series 1985 B RB
9.75% 01/15/95(c)(d).................................. -- Aaa 1,000 1,070,342
-------------
97,770,474
-------------
NORTH CAROLINA - 1.02%
New Hanover County Industrial Facilities and Pollution
Control Financing Authority (Gang-Nail Systems, Inc.
Project); Series 1984 IDR
2.35% 12/01/99(b)(c)................................. -- P-1 9,700 9,700,000
Wake (County of) Pollution Control Authority (Carolina
Power & Light Co.);
Series 1985 A RB
2.20% 05/01/15(b)(c)................................. A-1+ P-1 1,100 1,100,000
-------------
10,800,000
-------------
</TABLE>
A-36
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- ---------------------
<S> <C> <C> <C> <C> <C>
OHIO - 3.18%
Cleveland (City of) School District; Special Obligation
Series 1993 RAN
9.00% 06/01/94(c)....................................... AAA Aaa $ 6,780 $ 6,852,147
Franklin (County of) (Bricker & Eckler Building
Company Project); Variable Rate IDR
2.45% 11/01/14(b)(c).................................... -- P-1 9,400 9,400,000
Franklin (County of) (Holy Cross Health System Corp.)
Hospital Refinancing Series 1993 RB
2.80% 06/01/94.......................................... AA- A1 1,000 999,909
Ohio Air Quality Development Authority (Cleveland
Electric Illuminating Co. Project); PCR
2.15% Series 1988 A 03/01/15(b)(c)...................... A-1+ VMIG-1 10,900 10,900,000
2.15% Series 1988 B 03/01/18(b)(c)...................... A-1+ VMIG-1 4,500 4,500,000
Ohio Housing Finance Agency (Kenwood Congregate
Retirement Community Project); Variable Rate
Demand Multifamily Housing Series 1985 RB
2.35% 12/01/15(b)(c).................................... -- VMIG-1 980 980,000
-------------
33,632,056
-------------
OKLAHOMA - 0.47%
Oklahoma Water Resource Board (State Loan Program);
Series 1994 A RB
2.85% 09/01/94(d)....................................... A-1+ -- 5,000 5,000,000
-------------
OREGON - 2.78%
Kamath Falls (City of) (Salt Caves Hydroelectric Project);
Adjustable/Fixed Rate RB
4.75% Series 1986 B 05/01/94(c)(d)...................... SP-1 -- 1,500 1,502,644
4.75% Series 1986 C 05/01/94(c)(d)...................... SP-1 -- 4,000 4,007,369
4.75% Series 1986 D 05/01/94(c)(d)...................... SP-1 -- 11,000 11,018,636
Multnomah (County of) School District #1; Series 1984
GO
11.125% 12/15/94(c)..................................... AAA Aaa 2,000 2,152,038
Portland (City of) (South Park Block Project); Multifamily
Housing Refunding Series
1988 A RB
2.15% 12/01/11(b)(c).................................... A-1 -- 10,750 10,750,000
-------------
29,430,687
-------------
PENNSYLVANIA - 5.45%
Delaware County Industrial Development Authority
(Henderson-Radnor Joint Venture Project); Limited
Obligation Series 1985 RB
2.275% 04/01/15(b)(c).................................. -- Aa3 1,000 1,000,000
Delaware County Industrial Development Authority
(Scott Paper Company Project); Variable Rate Demand
Solid Waste Series 1984 D RB
2.50% 12/01/18(b)(c)................................... A-1+ Aa2 1,000 1,000,000
Eagle Tax Exempt Trust; Class A COP
2.80% 05/01/94(d)...................................... A-1 -- 17,800 17,800,000
Philadelphia (City of); Series 1993-1994 A TRAN
3.25% 06/15/94(c)...................................... SP-1+ MIG-1 5,000 5,004,999
Pittsburg (City of); Series 1992 GO
3.60% 09/01/94(c)...................................... AAA Aaa 1,000 1,003,308
</TABLE>
A-37
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ --------------------
<S> <C> <C> <C> <C> <C>
PITTSBURG - (CONTINUED)
Pittsburg (City of) School District; Refunding
Series 1993 B RB
2.75% 09/01/94(c)...................................... AAA Aaa $1,000 $ 1,000,000
Quakertown Hospital Authority Commonwealth of
Pennsylvania (HPF Group); Series 1985 A RB
2.30% 07/01/05(b)(c)................................... -- VMIG-1 2,000 2,000,000
Redevelopment Authority of the City of Harrisburg
(Washington Square Apartments Project); Multifamily
Housing Series 1985 RB
2.05% 12/01/05(b)(c)................................... A-1 -- 1,700 1,700,000
Washington County Authority (Higher Education Pooled
Equipment Lease Program); Lease Series 1985 A RB
2.25% 11/01/05(b)(c)................................... -- VMIG-1 24,800 24,800,000
Wilkes-Barre Industrial Development Authority
(Toys "R" Us/Penn Inc. Project); Economic
Development Series 1984 RB
2.025% 07/01/14(b)(c).................................. -- Aa2 2,300 2,300,000
-------------
57,608,307
-------------
SOUTH CAROLINA - 5.53%
Florence (County of) (Stone Container Corp.); Variable
Rate Series 1984 IDR
2.60% 02/01/07(b)(c)................................... A-1+ -- 35,600 35,600,000
Horry (County of) (Carolina Treatment Center); Variable
Rate Demand Series 1984 RB
2.15% 12/01/14(b)(c)................................... -- Aa1 4,500 4,500,000
Piedmont Municipal Power Agency (South Carolina
Electric); Series 1984 RB
7.00% 01/01/95(c)(d)................................... AAA Aaa 3,375 3,475,440
10.50% 01/01/95(c)(d).................................. AAA Aaa 2,000 2,166,449
York (County of) (North Carolina Electric Membership
Corp.); Pooled Series 1984 N-2 PCR
2.35% 09/15/14(b)(c)................................... A-1+ P-1 1,800 1,800,000
York (County of) (Saluda River Electric Cooperative, Inc.
Project); National Rural Utilities Cooperative Finance
Corp. Pooled Series 1984 E-2
2.70% 08/15/94(c)(d)................................... A-1+ MIG-1 10,925 10,925,000
-------------
58,466,889
-------------
SOUTH DAKOTA - 0.38%
Watertown (City of) (Supervalu Stores, Inc. Project); Series
1984 IDR
2.70% 09/01/14(b)(c)................................... -- Aa2 3,900 3,900,000
-------------
TENNESSEE - 1.23%
Health and Education Facilities Board of
the Metropolitan Government of Nashville and Davidson
County (Richland Place Project); Multi-Modal
Interchangeable Rate Health Facilities Series 1993 RB
2.30% 05/01/23(b)(c)................................... -- VMIG-1 1,800 1,800,000
</TABLE>
A-38
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ --------------------
<S> <C> <C> <C> <C> <C>
TENNESSEE - (CONTINUED)
Health, Educational and Housing Facilities Board of Shelby
County (Brookside Village Apartments Project); Variable
Rate Multifamily Rental Housing
Series 1985 RB
2.65% 04/01/09(b)(c).................................... -- VMIG-1 $ 700 $ 700,000
Health, Educational and Housing Facilities Board of Shelby
County (Rhodes College); Variable Rate Demand
Educational Facilities Series 1985 RB
2.60% 08/01/10(b)(c).................................... A-1+ -- 1,200 1,200,000
Industrial Development Board of the City of Franklin (The
Landings Project); Variable Rate Demand Multifamily
Housing
Series 1985 Class B RB
2.20% 12/01/06(b)(c).................................... A-1 -- 1,000 1,000,000
Industrial Development Board of the City
of Knoxville (Toys-R-Us Inc., Project); Series 1984 IDR
2.45% 05/01/14(b)(c).................................... -- Aa2 1,150 1,150,000
Tennessee (State of); Correctional Facility Improvements
Series 1986 GO
6.625% 04/01/94......................................... AA+ Aaa 3,000 3,000,000
Tennessee (State of) Local Development Authority (State
Loan Programs);
Series 1985 A RB
9.60% 03/01/95(c)(d).................................... AAA Aaa 1,000 1,077,560
Tennessee State School Bond Authority Higher Educational
Facilities;
Series 1993 A BAN
2.25% 03/01/98(b)....................................... A-1+ VMIG-1 3,120 3,120,000
-------------
13,047,560
-------------
TEXAS - 8.23%
Birdville Independent School District; Unlimited Tax School
Building and Refunding Series 1994 GO
6.75% 02/15/95(c)....................................... AAA Aaa 3,000 3,098,393
Brazos River Harbor Navigation District of Brazoria County
(Hoffman-La Roche Inc. Project); Series 1985 RB
2.15% 04/01/02(b)(c).................................... -- Aa2 2,750 2,750,000
Dallas (County of); Unlimited Tax Road Improvement
Refunding GO
7.625% 08/15/94......................................... AAA Aaa 1,795 1,829,464
El Paso (City of); Public Property Financial Contractual
Obligations
Series 1993 A GO
5.50% 08/15/94.......................................... AA A1 1,100 1,110,472
Euless Industrial Development Authority (Ferguson
Enterprises, Inc. Project); Series 1985 RB
2.35% 12/01/15(b)(c).................................... -- Aa2 4,950 4,950,000
Fort Worth (City of); Certificates of Obligation
Series 1991 GO
5.60% 06/01/94.......................................... AA Aa 910 914,470
</TABLE>
A-39
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- ------------------
<S> <C> <C> <C> <C> <C>
TEXAS - (CONTINUED)
Greater East Texas Higher Authority, Inc.; Student Loan
Series 1993 B RB
2.75% 02/01/95(c)(d)...................................... -- VMIG-1 $2,000 $ 2,000,000
Harris County Health Facilities Authority (Sisters of Charity
of the Incarnate Word-Houston); Unit Priced Adjustable
Tax Exempt Securities Series 1985 RB
2.50% 01/01/15(b)........................................ AA VMIG-1 1,000 1,000,000
Harris County Hospital District; Hospital Refunding RB
6.80% 02/15/95(c)........................................ AAA Aaa 1,500 1,552,826
Harris County Industrial Development Corp. (The Lubrizol
Corp. Project); Marine Terminal Refunding Series 1991
RB
2.25% 07/01/00(b)........................................ A-1+ P-1 4,100 4,100,000
Hays Memorial Health Facilities Development Corp.
(Central Texas Medical Center Project); Variable Rate
Hospital Series 1990 A RB
2.25% 11/15/14(b)(c)..................................... A-1+ -- 1,000 1,000,000
Houston (City of); Variable Rate Demand Series 1992 B
GO
2.35% 04/01/98(b)........................................ A-1+ VMIG-1 800 800,000
Houston (City of); Variable Rate Demand Series 1993 B
Demand Certificates of Obligation
2.35% 04/01/14(b)........................................ A-1+ VMIG-1 3,000 3,000,000
Houston (City of); Water Conveyance System Series 1993
E GO
5.50% 12/15/94(c)........................................ AAA Aaa 1,000 1,019,741
Nueces County Health Facilities
Development Corp. (Driscoll Childrens Hospital);
Floating Rate Demand Hospital Series 1985 RB
2.30% 07/01/15(b)(c)..................................... -- VMIG-1 2,570 2,570,000
Public Property Finance Corporation of Texas (Facilities
Acquisition Program); Mental Health & Retardation
Center Refunding Series 1993 RB
3.00% 09/01/94(c)........................................ AAA Aaa 1,000 1,000,000
San Antonio (City of); Water Refunding Series 1992 RB
4.60% 05/15/94(c)........................................ AAA Aaa 5,000 5,009,635
Spring Branch Independent School District; Maintenance
Series 1993 TRAN
3.20% 08/25/94........................................... SP-1+ -- 2,000 2,002,735
Tarrant County Housing Finance Corporation (SF
Apartments, L.P. Project); Multifamily Housing
Refunding Series 1993 B RB
2.30% 11/01/17(b)(c)..................................... -- VMIG-1 5,000 5,000,000
Texas (State of); Series 1993 B GO
7.50% 10/01/94........................................... AA Aa 10,200 10,457,601
Texas (State of); Tax Exempt Commercial Paper Note
Series 1993 A GO
2.50% 10/27/94........................................... SP-1+ P-1 6,000 6,000,000
Texas Higher Education Authority, Inc. (Educational
Facilities); Floating Rate Weekly Demand Series 1985 B
RB
2.25% 12/01/25(b)(c)..................................... A-1+ VMIG-1 2,900 2,900,000
</TABLE>
A-40
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------ ---------------------
<S> <C> <C> <C> <C> <C>
TEXAS - (CONTINUED)
Texas Muni Power Agency; Tax Exempt Commercial Paper
1.90% 04/13/94........................................... A-1 P-1 $15,000 $ 15,000,000
Texas Public Finance Authority; Tax-Exempt Commercial
Paper Notes
Series 1993 A GO
2.65% 05/26/94........................................... A-1+ P-1 5,800 5,800,000
Trinity River Industrial Development Authority (Radiation
Sterilizers, Inc. Project); Variable Rate Demand IDR
2.65% Series 1985 A 11/01/05(b)(c)....................... A-1 -- 500 500,000
2.65% Series 1985 B 11/01/05(b)(c)....................... A-1 -- 1,650 1,650,000
-------------
87,015,337
-------------
UTAH - 1.30%
Bountiful (City of) (Bountiful Gateway Park Project);
Adjustable Rate Refunding Series 1987 IDR
2.40% 12/01/97(b)(c)..................................... A-1+ -- 3,935 3,935,000
Utah (County of) (McWane, Inc. Project);
Adjustable/Fixed Rate Refunding Series
1990 IDR
2.40% 02/01/98(b)(c)..................................... -- VMIG-1 1,380 ,380,000
Utah (State of) Board of Regents; Student Loan Variable
Rate Demand Series 1988 B RB
2.15% 11/01/00(b)(c)..................................... A-1+ VMIG-1 8,400 8,400,000
-------------
13,715,000
-------------
VIRGINIA - 4.53%
Fairfax County Redevelopment and Housing Authority
(Chase Commons Project); Variable Rate Demand
Series 1984 A RB
2.325% 12/01/06(b)(c).................................... -- VMIG-1 1,000 1,000,000
Hampton Redevelopment and Housing Authority; Variable
Rate Demand Series 1984 A RB
2.325% 12/01/06(b)(c).................................... -- VMIG-1 3,000 3,000,000
Industrial Development Authority of the County of Fairfax
(Inova Health System Hospital Project); Unit Priced
Demand Adjustable Hospital Series 1993 B RB
2.55% 08/15/25(b)........................................ A-1+ VMIG-1 5,000 5,000,000
2.60% 08/15/25(b)........................................ A-1+ VMIG-1 5,000 5,000,000
Newport News (City of); Tender Option Certificates Series
1993 O GO
2.65% 06/08/03(b)........................................ A-1+ -- 19,000 19,000,000
Virginia Housing Development Authority; Commonwealth
Mortgage
Series 1993 D RB
2.80% 11/04/94(d)........................................ -- VMIG-1 5,000 5,000,000
Virginia Housing Development Authority (AHC Service
Corp.); Variable Rate Demand Housing
Series 1987 A RB
2.30% 09/01/17(b)(c)..................................... -- P-1 9,900 9,900,000
-------------
47,900,000
-------------
</TABLE>
A-41
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
------------- ---------------------
<S> <C> <C> <C> <C> <C>
WASHINGTON - 1.72%
Industrial Development Corp. of the Port
of Port Townsend (Port Townsend
Paper Corp. Project); Variable Rate Refunding RB
2.35% Series 1988 B 03/01/02(b)(c).................. -- VMIG-1 $1,000 $ 1,000,000
2.35% Series 1988 A 03/01/09(b)(c).................. -- VMIG-1 5,100 5,100,000
Port of Kalama Public Corporation (Conagra, Inc.
Project); Floating/Fixed Rate Port Facilities RB
2.15% 01/01/04(b)(c)................................ A-1+ Aaa 1,300 1,300,000
Student Loan Finance Association (Guaranteed Student
Loan Program); Variable Rate Demand Second
Series 1985 RB
1.90% 01/01/01(b)(c)................................ -- VMIG-1 3,700 3,700,000
Washington Health Care Facilities Authority
(Highline Community Hospital); Series 1993 RB
3.50% 08/15/94(c)................................... AAA -- 1,205 1,209,543
Washington (State of); Motor Vehicle Fuel Tax Refunding
Series 1993 B GO
2.60% 05/01/94...................................... AA Aa 825 825,000
Washington Public Power Supply System (Nuclear Project
No. 1); Refunding
Series A RB
2.90% 07/01/94...................................... AA Aa 5,000 4,999,377
--------------
18,133,920
--------------
WISCONSIN - 0.95%
Milwaukee (City of); Series 1993 B RAN
3.50% 08/25/94...................................... SP-1+ MIG-1 2,000 2,005,988
Milwaukee (City of) Housing Authority (Yankee Hill
Apartments Project); Multifamily Housing Series 1986
RB
2.20% 12/01/09(b)(c)................................ A-1 -- 4,500 4,500,000
Oakcreek (City of) (Wisconsin Electric Power Co.
Project); Series 1986 PCR
2.50% 08/01/16(b)................................... AA P-1 2,300 2,300,000
Wisconsin Health and Education Facilities Authority
(Sisters of the Sorrowful Mother); Series 1993 D RB
2.50% 08/15/94(c).................................. AAA Aaa 1,205 1,205,000
--------------
10,010,988
--------------
TOTAL INVESTMENTS - 101.01%............................. 1,067,915,556 (f)
OTHER ASSETS LESS
LIABILITIES - (1.01%).................................. (10,719,560)
--------------
NET ASSETS - 100.00%.................................... $1,057,195,996
==============
</TABLE>
A-42
<PAGE>
<TABLE>
<C> <S>
INVESTMENT ABBREVIATIONS:
BAN Bond Anticipation Notes
COP Certificates of Participation
GO General Obligation Bonds
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
RB Revenue Bonds
TOC Tender Option Certificates
TAN Tax Anticipation Notes
TRAN Tax and Revenue Anticipation Notes
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Standard & Poor's Corportion ("S&P") and Moody's
Investors Service, Inc. ("Moody's"). Ratings are not covered by Independent
Auditors' Report.
(b) Demand security; payable upon demand by the Fund at specified frequencies
no greater than thirteen months. Interest rates are redetermined
periodically. Rates shown are the rates in effect on March 31, 1994.
(c) Security is secured by an escrow fund, bond insurance or a letter of
credit.
(d) Security has an outstanding call or mandatory put by the issuer. Maturity
date reflects such call or put.
(e) Unrated security; determined by the directors to be of comparable quality
to the rated determination of quality adopted by the Board of Directors and
followed by the investment advisor.
(f) Cost for federal income tax purposes is $1,067,912,367.
</TABLE>
A-43
<PAGE>
<TABLE>
<S> <C>
MOODY'S MUNICIPAL BOND RATINGS:
Aaa Bonds which are judged to be of the best quality.
Aa Bonds which are judged to be of high quality by all standards.
A Bonds which are judged to be upper medium-grade obligations.
Note: Bonds in the Aa and A groups which possess the strongest investment
attributes are designated by the symbols Aa1 and A1. For IDRs, PCRs, and
bonds secured by either a letter-of-credit or insurance: a numerical
modifier 1, 2, or 3 is attached to ratings in the Aa and A groups to
denote a high, medium, or low ranking, respectively, within its rating
group.
MIG-1 Notes bearing this designation are of best quality.
VMIG-1 Variable rate demand obligations bearing this designation are of best
quality.
Rating pertains to demand feature of security.
P-1 Commercial paper bearing this designation is issued by entities, or related
supporting institutions, having a superior capacity for repayment. Also,
this symbol may be used to rate the demand feature of variable rate demand
obligations.
S&P MUNICIPAL BOND RATINGS:
AAA Bonds issued by entities for which the capacity to pay interest and repay
principal is extremely strong.
AA Bonds issued by entities have a very strong capacity to pay interest and
repay principal.
A Bonds issued by entities which have a strong capacity to pay interest and
repay principal.
Note: Ratings within the AA and A rating groups may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing.
SP-1 Notes having either a very strong or strong capacity to pay interest and
repay principal. Those issues determined to posses overwhelming safety
characteristics are denoted with a plus (+) sign.
A-1 Commercial paper which has a strong degree of safety regarding timely
payment. Also, this symbol may be used to rate the demand feature of
variable rate demand obligations. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) sign.
A detailed description of the above ratings can be found in the Fund's
Statement of Additional Information.
</TABLE>
See Notes to Financial Statements.
A-44
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
STATEMENT ASSETS:
OF ASSETS
AND LIABILITIES Investments, at value (amortized cost).......................... $1,067,915,556
March 31, 1994 Cash............................................................ 1,788,330
Receivables for:
Investments sold or called.................................... 2,400,000
Interest...................................................... 6,732,213
Other assets.................................................... 121,712
--------------
Total assets................................................ 1,078,957,811
--------------
LIABILITIES:
Payables for:
Investments purchased......................................... 19,405,912
Dividends..................................................... 2,143,359
Accrued advisory fees........................................... 159,155
Accrued directors' fees......................................... 2,737
Accrued administrative service fees............................. 5,619
Accrued distribution fees....................................... 3,413
Accrued operating expenses...................................... 41,620
--------------
Total liabilities........................................... 21,761,815
--------------
NET ASSETS...................................................... $1,057,195,996
NET ASSETS:
Institutional Shares.......................................... $1,040,594,667
==============
Private Investment Class...................................... $ 16,601,329
==============
Net asset value per share:
Capital stock, $0.001 par value per share:
Institutional Shares:
Authorized.................................................... 3,000,000,000
Outstanding................................................... 1,040,545,329
==============
Private Investment Class:
Authorized.................................................... 1,000,000,000
Outstanding................................................... 16,600,542
==============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE........ $ 1.00
==============
</TABLE>
See Notes to Financial Statements.
A-45
<PAGE>
<TABLE>
<CAPTION>
Private
Institutional Investment
Shares Class Portfolio
------------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF INVESTMENT INCOME:
OPERATIONS
For the year ended Interest income........................... $25,628,591 $343,548 $25,972,139
March 31, 1994 ----------- -------- -----------
EXPENSES:
Advisory fees............................. 1,505,288 20,131 1,525,419
Custodian fees............................ 156,546 286 156,832
Transfer agent fees....................... 36,180 106 36,286
Registration and filing fees.............. 52,715 52,765 105,480
Administrative service fees............... 64,278 846 65,124
Directors' fees........................... 19,094 164 19,258
Distribution fees......................... -- 34,365 34,365
Other expenses............................ 218,774 4,835 223,609
----------- -------- -----------
Total expenses.......................... 2,052,875 113,498 2,166,373
Less expenses assumed by advisor.......... -- (51,600) (51,600)
----------- -------- -----------
Net expenses............................ 2,052,875 61,898 2,114,773
----------- -------- -----------
NET INVESTMENT INCOME..................... $23,575,716 $281,650 23,857,366
=========== ======== -----------
NET REALIZED GAIN (LOSS) ON SALES OF INVESTMENTS................... (35,815)
NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS.......... (1,994)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $23,819,557
===========
</TABLE>
See Notes to Financial Statements.
A-46
<PAGE>
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
STATEMENT OPERATIONS:
OF CHANGES
IN NET ASSETS Net investment income............................................ $ 23,857,366 $ 30,437,512
For the years ended Net realized gain (loss) on sales of investments................. (35,815) 1,277
March 31, 1994 Net unrealized appreciation (depreciation) of investments........ (1,994) (1,240)
and 1993 -------------- --------------
Net increase in net assets resulting from operations........... 23,819,557 30,437,549
Distributions to shareholders from net investment income:
Institutional Shares............................................. (23,575,716) (30,336,975)
Private Investment Class......................................... (281,650) (100,537)
Share transactions - net:
Institutional Shares............................................. 45,804,111 (196,380,126)
Private Investment Class......................................... 7,008,670 9,591,772
-------------- --------------
Net increase (decrease) in net assets.......................... 52,774,972 (186,788,317)
NET ASSETS:
Beginning of period.............................................. 1,004,421,024 1,191,209,341
-------------- --------------
End of period.................................................... $1,057,195,996 $1,004,421,024
============== ==============
NET ASSETS CONSIST OF:
Shares of beneficial interest:
Institutional Shares........................................... $1,040,545,329 $ 994,741,218
Private Investment Class....................................... 16,600,542 9,591,872
Undistributed net realized gain on sales of investments.......... 46,936 82,751
Unrealized appreciation of investments........................... 3,189 5,183
-------------- --------------
$1,057,195,996 $1,004,421,024
============== ==============
</TABLE>
See Notes to Financial Statements.
A-47
<PAGE>
NOTES TO NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL Tax-Free Investments Co. (the "Company") is registered
STATEMENTS under the Investment Company Act of 1940, as amended (the
March 31, 1994 "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. Investment 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. Investment 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 recorded on the identified cost
basis.
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 $36,527
(which may be carried forward to offset future taxable
gains, if any) which expires, if not previously
utilized, in the year 2002. 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.
A-48
<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.
The Company has entered into distribution agreements with
Fund Management Company ("FMC") for the distribution 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
attributable as follows: 0.10% of average daily net assets to
FMC as compensation for distribution-related services
performed by FMC and up to 0.40% of average daily net assets
to certain broker-dealers or other financial institutions for
distribution-related or similar shareholder services. 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, 1994, the Private Investment Class
accrued $34,365 as compensation under the Plan.
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, 1994, AIM reduced its fees from the Fund
by $802,331. AIM also assumed expenses of $51,600 on the
Private Investment Class during the same period.
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, 1994, the Fund
reimbursed AIM $65,124 for such services.
Certain officers and directors of the Company are directors
or officers of AIM and FMC.
A-49
<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, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------ ------------------------------
Shares Value Shares Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares.................... 5,038,828,273 $5,038,828,273 3,867,247,976 $3,867,247,976
Private Investment Class................ 53,255,784 53,255,784 27,249,202 27,249,202
Issued as reinvestment of dividends:
Institutional Shares.................... 78,543 78,543 29,735 29,735
Private Investment Class................ 269,437 269,437 86,222 86,222
Redeemed:
Institutional Shares.................... (4,993,102,705) (4,993,102,705) (4,063,657,837) (4,063,657,837)
Private Investment Class................ (46,516,551) (46,516,551) (17,743,652) (17,743,652)
-------------- -------------- -------------- --------------
Net increase (decrease)................... 52,812,781 $ 52,812,781 (186,788,354) $ (186,788,354)
============== ============== ============== ==============
</TABLE>
A-50
<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 two-year period
ended March 31, 1994.
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Net asset value, beginning of period........................ $1.00 $1.00
Income from investment operations:
Net investment income..................................... 0.02 0.02
------- ------
Less distributions:
Dividends from net investment operations.................. (0.02) (0.02)
------- ------
Net asset value, end of period.............................. $1.00 $1.00
======= ======
Total return................................................ 2.07% 2.43%
======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted).................... $16,601 $9,593
======= ======
Ratio of expenses to average net assets(a).................. 0.45%(b) 0.45%
======= ======
Ratio of net investment income to average net assets(a)..... 2.05%(b) 2.22%
======= ======
</TABLE>
- ---------
(a) After waiver of advisory fees and expense reimbursements.
(b) Ratios are based on average net assets of $13,746,589. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements are 0.90% and 1.60%, respectively.
A-51
<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
====================================== ======================================
INVESTMENT ADVISOR PROSPECTUS
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173 AUGUST 1, 1994
(713) 626-1919
DISTRIBUTOR TAX-FREE
FUND MANAGEMENT COMPANY INVESTMENTS CO.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
(800) 659-1005 INSTITUTIONAL CASH
RESERVE SHARES
AUDITORS
KPMG PEAT MARWICK
700 Louisiana, NationsBank Building 11 GREENWAY PLAZA, SUITE 1919
Houston, Texas 77002 HOUSTON, TEXAS 77046-1173
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK AND <TABLE>
TRUST COMPANY <S> <C>
225 Franklin Street PAGE
Boston, Massachusetts 02110 ----
Organization of the Fund.......... 2
Table of Fees and Expenses........ 2
NO PERSON HAS BEEN AUTHORIZED TO GIVE Financial Highlights.............. 3
ANY INFORMATION OR TO MAKE ANY Suitability for Investors......... 4
REPRESENTATIONS NOT CONTAINED IN THIS Investment Program................ 4
PROSPECTUS IN CONNECTION WITH THE Purchase of Shares................ 7
OFFERING MADE BY THIS PROSPECTUS, AND Redemption of Shares.............. 8
IF GIVEN OR MADE, SUCH INFORMATION OR Determination of Net Asset Value.. 9
REPRESENTATIONS MUST NOT BE RELIED Dividends......................... 9
UPON AS HAVING BEEN AUTHORIZED BY THE Performance Information........... 9
FUND OR ITS DISTRIBUTOR. THIS Tax Matters....................... 10
PROSPECTUS DOES NOT CONSTITUTE AN Management of the Company......... 10
OFFER IN ANY JURISDICTION TO ANY General Information............... 11
PERSON TO WHOM SUCH OFFERING MAY NOT Appendix.......................... A-1
LAWFULLY BE MADE. </TABLE>
====================================== ======================================
