<PAGE>
PROSPECTUS
PRIVATE INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA, SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 877-7748
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The Private Investment Class of the Cash Reserve Portfolio of Tax-Free
Investments Co. (the "Company") is designed to be a convenient vehicle in
which customers of banks, certain broker-dealers and other institutions can
invest in a diversified, open-end money market fund which is exempt from
federal income taxes.
Pursuant to this Prospectus, the Company offers one class of shares which
represents interests in the Cash Reserve Portfolio. Shares of the
Institutional Class of the Cash Reserve Portfolio are offered pursuant to a
separate prospectus. The Cash Reserve Portfolio is a "money market fund," the
investment objective of which is the generation of as high a level of tax-
exempt income as is consistent with preservation of capital and maintenance of
liquidity by investing in high quality, short-term municipal obligations. The
Cash Reserve Portfolio attempts to maintain a constant net asset value of
$1.00 per share. No assurance can be given that such a net asset value can be
maintained.
This Prospectus relates solely to the Private Investment Class of the Cash
Reserve Portfolio.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE COMPANY AND THE SHARES PRIOR TO INVESTING AND SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 29, 1996 HAS BEEN FILED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY REFERENCE. FOR A COPY OF THE
STATEMENT OF ADDITIONAL INFORMATION, WRITE TO FUND MANAGEMENT COMPANY AT P.O.
BOX 4333, HOUSTON, TEXAS 77210-4333 OR CALL (800) 877-7748.
SHARES OF THE CASH RESERVE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE CASH RESERVE PORTFOLIO'S SHARES
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THERE CAN BE NO ASSURANCE THAT THE CASH RESERVE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE CASH
RESERVE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
PROSPECTUS DATED: JULY 29, 1996
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TABLE OF CONTENTS
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PAGE
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<S> <C>
SUMMARY..................... 2
TABLE OF FEES AND EXPENSES.. 4
FINANCIAL HIGHLIGHTS........ 5
SUITABILITY FOR INVESTORS... 5
INVESTMENT PROGRAM.......... 5
PURCHASE OF SHARES.......... 9
REDEMPTION OF SHARES........ 10
</TABLE>
<TABLE>
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PAGE
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<S> <C>
DIVIDENDS.................. 11
TAXES...................... 12
NET ASSET VALUE............ 13
YIELD INFORMATION.......... 13
REPORTS TO SHAREHOLDERS.... 14
MANAGEMENT OF THE COMPANY.. 14
GENERAL INFORMATION........ 17
</TABLE>
SUMMARY
THE COMPANY AND ITS INVESTMENT OBJECTIVE
The Company is an open-end, diversified, series management investment
company with one portfolio, the Cash Reserve Portfolio (the "Portfolio").
Pursuant to this Prospectus, the Company offers one class of shares of the
Portfolio, known as the Private Investment Class (the "Class"). Shares of such
Class represent an interest in the Portfolio. The investment objective of the
Portfolio is the generation of as high a level of tax-exempt income as is
consistent with preservation of capital and maintenance of liquidity by
investing in high quality, short-term municipal obligations. The Portfolio
attempts to maintain a constant net asset value of $1.00 per share. No
assurance can be given that such a net asset value can be maintained.
The Portfolio currently offers two classes of shares, the Institutional Cash
Reserve Shares and the Class. Shares of the Institutional Cash Reserve Shares
are offered pursuant to a separate prospectus.
Because the Company declares dividends on a daily basis, shares of each
class of the Portfolio are expected to have the same net asset value
(proportionate interest in the net assets of the Portfolio) and bear equally
the expenses, such as the advisory fee, of the Portfolio as a whole. Both
classes of the Portfolio share a common investment objective and portfolio of
investments. However, the classes have different shareholder qualifications,
and are separately allocated certain class expenses, such as those associated
with the distribution of their shares. Therefore, each class will have a
different dividend payment and a different yield.
INVESTORS IN THE COMPANY
The Class is designed to be a convenient vehicle in which customers of
banks, certain broker-dealers and other institutions can invest in a
diversified, open-end money market fund, the income from which is exempt from
federal income taxes.
PURCHASE OF SHARES
Shares of the Portfolio are sold at net asset value. The minimum initial
investment in the shares of the Class is $10,000. There is no minimum amount
for subsequent investments. Payment for shares purchased must be in funds
immediately available to the Company. See "Purchase of Shares."
REDEMPTION OF SHARES
Redemptions may be made without charge at net asset value. Payment for
redeemed shares for which redemption orders are received prior to 12:00 noon
Eastern Time will normally be made on the same day. See "Redemption of
Shares."
2
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DIVIDENDS
The net income of the Portfolio is declared as a dividend daily to
shareholders of record immediately after 3:00 p.m. Eastern Time. Dividends are
paid monthly by check or wire transfer unless the shareholder has previously
elected to have such dividends automatically reinvested in additional shares
of the Class. Information concerning the amount of the dividends declared on
any particular day will normally be available by 4:00 p.m. Eastern Time on
that day. See "Dividends."
CONSTANT NET ASSET VALUE
The Company uses the amortized cost method of valuing the securities held by
the Portfolio and rounds the per share net asset value to the nearest whole
cent. Accordingly, the net asset value per share of the Portfolio will
normally remain constant at $1.00; however, no assurance can be given that
such a net asset value can be maintained. See "Net Asset Value."
INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM") serves as the Company's investment advisor and
receives a fee based on the Portfolio's average daily net assets. During the
fiscal year ended March 31, 1996, the Company paid AIM advisory fees which
represented 0.16% of the average net assets of the Portfolio. During such
fiscal year, those expenses of the Company (relating exclusively to the
Portfolio) which were borne by the Class, including fees paid to AIM, amounted
to 0.45% of the Class' average net assets. For the fiscal year ended March 31,
1996, AIM waived a portion of its fees from the Company with respect to the
Portfolio. Had AIM not waived its fee, AIM would have received an amount from
the Company pursuant to the Investment Advisory Agreement with respect to the
Portfolio which represented 0.22% of the Portfolio's average daily net assets.
AIM is primarily engaged in the business of acting as manager or advisor to
investment companies. See "Management of the Company--Investment Advisor."
DISTRIBUTOR AND DISTRIBUTION PLAN
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Class. Pursuant to a Distribution Plan (the "Plan") adopted by
the Company pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "1940 Act") with respect to the Class, the Company may pay up
to 0.50% of the Portfolio's average net asset value attributable to the shares
of the Class to FMC and/or to certain broker-dealers or other financial
institutions. Of this amount, up to 0.25% may be for continuing personal
services to shareholders provided by broker-dealers or institutions and the
balance would be deemed an asset-based sales charge. See "Purchase of Shares"
and "Distribution Plan."
SPECIAL CONSIDERATIONS
The Portfolio may invest in repurchase agreements on a temporary basis or
for defensive purposes. Accordingly, an investment in the shares of the Class
may entail somewhat different risks from an investment in an investment
company that does not engage in such investment practices. There can be no
assurance that the Portfolio will be able to maintain a stable net asset value
of $1.00 per share. See "Investment Program."
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK and AIM Institutional Funds are
registered service marks and La Familia AIM de Fondos and La Familia AIM de
Fondos and Design are service marks of AIM Management Group Inc.
3
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor understand the various
costs and expenses that an investor in the shares of the Class will bear
directly or indirectly. If management fees were not being waived and other
expenses were not being reimbursed, management fees, 12b-1 fees, and other
expenses would be 0.22%, 0.50% and 0.10%, respectively, of the average net
assets of the shares of the Class and total fund operating expenses would have
been .82%. The 12b-1 fees have been restated to reflect current fee waivers. A
beneficial holder of shares of the Class should also consider the effect of any
account fees charged by the financial institution managing his or her account.
<TABLE>
<CAPTION>
PRIVATE
INVESTMENT
CLASS OF THE CASH
RESERVE PORTFOLIO
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<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases (as a percentage of
offering price)............................................ None
Maximum sales load on reinvested dividends (as a percentage
of offering price)......................................... None
Deferred sales load (as a percentage of original purchase
price or redemption proceeds, as applicable)............... None
Redemption fees (as a percentage of amount redeemed, if
applicable)................................................ None
Exchange fees............................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (AFTER WAIVERS AND
EXPENSE REIMBURSEMENTS)
Management fees (after fee waivers)......................... 0.16%
12b-1 Fees (after fee waivers).............................. 0.25%
Other expenses (after expense reimbursements)............... 0.04%
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Total fund operating expenses (after fee waivers and expense
reimbursements)............................................ 0.45%
====
</TABLE>
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period.
<TABLE>
<CAPTION>
PRIVATE
INVESTMENT
CLASS OF THE CASH
RESERVE PORTFOLIO
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<S> <C>
1 year..................................................... $ 5
3 years.................................................... $14
5 years.................................................... $25
10 years.................................................... $57
</TABLE>
THE EXAMPLE SHOWN IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED TO BE AN
ACCURATE REPRESENTATION OF PAST OR FUTURE PERFORMANCE AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
4
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FINANCIAL HIGHLIGHTS
Shown below are the per share income and capital changes for a share of the
Class outstanding during the fiscal years ended March 31, 1996, 1995, 1994 and
1993. The following information has been derived from financial statements
audited by KPMG Peat Marwick LLP, independent auditors, whose report on the
financial statements and the related notes appears in the Statement of
Additional Information.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED MARCH 31,
------------------------------------
1996 1995 1994 1993
------- ------- ------- ------
<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................... 0.03 0.03 0.02 0.02
Less distributions:
Dividends from net investment
operations............................. (0.03) (0.03) (0.02) (0.02)
------- ------- ------- ------
Net asset value, end of period........... $1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======
Total return............................. 3.41% 2.80% 2.07% 2.43%
======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................... $35,139 $29,286 $16,601 $9,593
======= ======= ======= ======
Ratio of expenses to average net
assets(a).............................. 0.45%(b) 0.45% 0.45% 0.45%
======= ======= ======= ======
Ratio of net investment income to
average net assets(a).................. 3.35%(b) 2.89% 2.05% 2.22%
======= ======= ======= ======
</TABLE>
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(a) After waiver of advisory fees and expense reimbursements.
(b) Ratios are based on average net assets of $32,863,968. Ratios of expenses
and net investment income to average net assets prior to waiver of
advisory fees and expense reimbursements are 0.51% and 3.29%,
respectively.
SUITABILITY FOR INVESTORS
The Class is intended for use primarily by customers of banks, certain
broker-dealers and other institutions who seek a convenient and economical
vehicle in which to invest in an open-end, diversified money market fund, the
income from which is exempt from federal income taxes. The minimum initial
investment is $10,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and
maintenance of liquidity by investing in high quality, short-term municipal
obligations.
There can be no assurance that the Portfolio will achieve its investment
objective.
5
<PAGE>
MUNICIPAL SECURITIES
"Municipal Securities" include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the lending of such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated facilities. As used in this Prospectus and its related
Statement of Additional Information, interest which is "tax-exempt" or "exempt
from federal income taxes" means interest on Municipal Securities which is
excluded from gross income for federal income tax purposes, and which does not
give rise to a federal alternative minimum tax liability. See "Tax Matters"
herein and in the Statement of Additional Information.
INVESTMENT POLICIES
Except where noted, the investment policies stated below are not fundamental
and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the following investment policies becomes effective. Policies which are
noted as fundamental may be changed only with the approval of the shareholders
of the Portfolio.
QUALITY STANDARDS
The policies set forth below with respect to quality standards are
fundamental and may be changed only with shareholder approval. The quality
standards apply at the time of purchase of a security. Since the Portfolio
invests in securities backed by banks and other financial institutions,
changes in the credit quality of these institutions could cause losses to the
Portfolio and effect its share price. Information concerning the ratings
criteria of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") and certain other nationally recognized statistical
ratings organizations ("NRSROs") appears in the Statement of Additional
Information.
The Portfolio will limit its purchases of Municipal Securities to those
which are "First Tier" securities as defined in Rule 2a-7 under the 1940 Act.
Briefly, "First Tier" securities are securities that are rated in the highest
rating category for short-term obligations by two NRSROs, or, if only rated by
one NRSRO, are rated in the highest rating category by that NRSRO, or, if
unrated, are determined by the Portfolio's investment advisor (under the
supervision of and pursuant to guidelines established by the Board of
Directors) to be of comparable quality to a rated security that meets the
foregoing quality standards.
MATURITIES
The policies set forth below with respect to maturities are non-fundamental
and may be changed without shareholder approval.
Consistent with its objective of stability of principal, the Portfolio
attempts to maintain a constant net asset value per share of $1.00 and, to
this end, values its assets by the amortized cost method and rounds the per
share net asset value of its shares in compliance with Rule 2a-7, as amended
from time to time. Accordingly, the Portfolio invests only in Municipal
Securities having remaining maturities of 397 days or less and maintains a
dollar weighted average portfolio maturity of 90 days or less.
6
<PAGE>
The maturity of a security held by the Portfolio is determined in compliance
with applicable rules and regulations. Certain securities bearing interest at
rates that are adjusted prior to the stated maturity of the instrument or are
subject to demand features or that are subject to repurchase agreements are
deemed to have maturities shorter than their stated maturities.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Portfolio may invest in Municipal Securities which have variable or
floating interest rates which are readjusted periodically. Such readjustment
may be based either upon a predetermined standard, such as a bank prime rate
or the U.S. Treasury bill rate, or upon prevailing market conditions. Variable
or floating interest rates generally reduce changes in the market price of
Municipal Securities from their original purchase price. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable or floating rate Municipal Securities than
for fixed rate obligations.
Many Municipal Securities with variable or floating interest rates purchased
by the Portfolio are subject to payment of principal and accrued interest
(usually within seven days) on the Portfolio's demand. The terms of such
demand instruments require payment of principal and accrued interest from the
issuer, a guarantor and/or a liquidity provider. Frequently such obligations
include letters of credit or other credit support arrangements provided by
financial institutions. All variable or floating rate instruments will meet
the quality standards of the Portfolio. The Company's investment advisor will
monitor the pricing, quality and liquidity of the variable or floating rate
Municipal Securities held by the Portfolio.
SYNTHETIC MUNICIPAL INSTRUMENTS
AIM believes that certain synthetic municipal instruments provide
opportunities for mutual funds to invest in high credit quality securities
providing attractive returns, even in market conditions where the supply of
short-term tax-exempt instruments may be limited. Synthetic municipal
instruments (sometimes referred to as "derivative municipal instruments") are
securities the value of and return on which are derived from underlying
securities. Synthetic municipal instruments comprise a large percentage of
tax-exempt securities eligible for purchase by tax-exempt money market funds.
The types of synthetic municipal instruments in which the Portfolio may invest
involve the deposit into a trust or custodial account of one or more long-term
tax-exempt bonds or notes ("Underlying Bonds"), and the sale of certificates
evidencing interests in the trust or custodial account to investors such as
the Portfolio. The trustee or custodian receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders short-
term floating or variable interest rates which are reset periodically.
Synthetic municipal instruments typically are created by a bank, broker-dealer
or other financial institution ("Sponsor"). Typically, a portion of the
interest paid on the Underlying Bonds which exceeds the interest paid to the
certificate holders is paid to the Sponsor or other investors. For further
information regarding specific types of synthetic municipal instruments in
which the Portfolio may invest see the Statement of Additional Information.
All such instruments must meet the minimum quality standards required for
the Portfolio's investments and must present minimal credit risks. In
selecting synthetic municipal instruments for the Portfolio, AIM considers the
creditworthiness of the issuer of the Underlying Bonds, the Sponsor and the
party providing certificate holders with a conditional right to sell (put)
their certificates at stated times and prices. Typically, a certificate holder
cannot exercise its put upon the occurrence of certain conditions, such as
where the issuer of the Underlying Bond defaults on interest payments.
Moreover, because synthetic municipal instruments involve a trust or custodial
account and a third party conditional put feature, they involve complexities
and potential risks that may not be present where a municipal security is
owned directly.
7
<PAGE>
The tax-exempt character of the interest paid to certificate holders is
based on the assumption that the holders have an ownership interest in the
Underlying Bonds; however, the Internal Revenue Service has not issued a
ruling addressing this issue. In the event the Internal Revenue Service issues
an adverse ruling or successfully litigates this issue, it is possible that
the interest paid to the Portfolio on certain synthetic municipal instruments
would be deemed to be taxable. The Portfolio relies on opinions of special tax
counsel on this ownership question and opinions of bond counsel regarding the
tax-exempt character of interest paid on the Underlying Bonds.
INVESTMENT RESTRICTIONS
The Portfolio's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The most significant of these restrictions provide
that the Portfolio will not:
(1) with respect to 75% of its total assets, purchase securities of any
issuer (except obligations of the U.S. Government, its agencies or
instrumentalities, including any Municipal Securities guaranteed by the
U.S. Government) if as a result of such purchase more than 5% of the
Portfolio's total net assets would be invested in securities of such
issuer, and except as permitted by Rule 2a-7 of the 1940 Act as amended
from time to time;
(2) purchase any securities which would cause more than 25% of the value
of the Portfolio's total net assets at the time of such purchase to be
invested in: (i) securities of one or more issuers conducting their
principal activities in the same state, (ii) securities, the interest on
which is paid from revenues of projects with similar characteristics, or
(iii) industrial development bonds issued by issuers in the same industry;
provided that there is no limit with respect to investments in U.S.
Treasury Bills, other obligations issued or guaranteed by the U.S.
Government and its agencies or instrumentalities, certificates of deposit
and guarantees of Municipal Securities by banks; or
(3) 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.
The foregoing restrictions are matters of fundamental policy and may not be
changed without shareholder approval.
In addition to the restrictions set forth above, the Company must also
comply with the requirements of Rule 2a-7 under the 1940 Act, which governs
the operations of money market funds and may be more restrictive. A
description of further investment restrictions applicable to the Portfolio is
contained in the Statement of Additional Information.
OTHER CONSIDERATIONS
The ability of the Portfolio to achieve its investment objectives depends
upon the continuing ability of the issuers or guarantors of Municipal
Securities held by the Portfolio to meet their obligations for the payment of
interest and principal when due. The securities in which the Portfolio invests
may not yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and greater fluctuation in
value. The net asset value of the shares of the Class will normally remain
constant at $1.00 per share (although there can be no assurance that such net
asset value will not change).
8
<PAGE>
PURCHASE OF SHARES
Shares of the Class are sold on a continuing basis at their net asset value
next determined after an order has been received by the Company. As discussed
below, the Fund reserves the right to reject any purchase order. Although no
sales charges are imposed in connection with the purchase of shares of the
Class, banks or other institutions may charge recordkeeping, account
maintenance or other fees to their customers, and beneficial holders of shares
of the Portfolio should consult with such institutions to obtain a schedule of
such fees. In order to maximize its income, the Portfolio attempts to remain
as fully invested as practicable. Accordingly, in order to be accepted for
execution, purchase orders must be submitted to and received by the Company
prior to 12:00 noon Eastern Time on a business day of the Company, which means
any day on which commercial banks are open for business. It is expected that
commercial banks will be closed during the next twelve months on Saturdays and
Sundays and on the observed holidays for New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans' Day, Thanksgiving Day and Christmas Day.
Shares of the Class are sold primarily to customers of banks, certain
broker-dealers and other institutions (individually, "Institution," or
collectively, "Institutions"). Individuals, corporations, partnerships and
other businesses that maintain qualified accounts at an Institution may invest
in shares of the Class. Each institution will render administrative support
services to its customers who are the beneficial owners of the shares of the
Class. Such services include, among other things, establishment and
maintenance of shareholder accounts and records; assistance in processing
purchase and redemption transactions in shares of the Class; providing
periodic statements showing a client's account balance in shares of the Class;
distribution of Company proxy statements, annual reports and other
communications to shareholders whose accounts are serviced by the Institution;
and such other services as the Company may reasonably request. Institutions
will be required to certify to the Company that they comply with applicable
state law regarding registration as broker-dealers, or that they are exempt
from such registration.
Prior to the initial purchase of shares, an Account Application, which can
be obtained from A I M Institutional Fund Services, Inc. ("Transfer Agent" or
"AIFS"), must be completed and sent to AIFS, P.O. Box 4497, Houston, Texas
77210-4497. Any changes made to the information provided in the Account
Application must be made in writing or by completing a new form and providing
it to AIFS. An investor must open a Company account through an Institution in
accordance with procedures established by such Institution. Each Institution
separately determines the rules applicable to Company accounts opened with it
including minimum initial and subsequent investment requirements and the
procedures to be followed by investors to effect purchases of shares. The
minimum initial investment in shares of the Class is $10,000, and there is no
minimum amount of subsequent purchases of shares by an Institution on behalf
of its customers.
An Institution may have a "sweep" program under which a portion of a
customer's account with such Institution may be automatically invested in the
Class. An investor who proposes to open a Company account with an Institution
should consult with a representative of such Institution to obtain a
description of the rules governing such an account. The Institution holds
shares registered in its name, as agent for the customer, on the books of the
Institution. A statement with regard to the customer's investment in the Class
is supplied to the customer periodically, and confirmations of all
transactions for the account of the customer are provided by the Institution
to the client promptly upon request. In addition, each customer is sent
proxies, periodic reports and other information from the Institution with
regard to the customer's shares of the Class. The customer's shares of the
Class are fully assignable and subject to encumbrance by the customer.
9
<PAGE>
An investor may terminate his relationship with an Institution at any time,
in which case an account in the investor's name will be established directly
with the Company and the investor will become a shareholder of record. In such
case, however, the investor will not be able to purchase additional shares of
the Class directly, except through reinvestment of dividends and distributions.
All agreements which relate to a customer's account with an Institution are
with the Institution.
An order for the purchase of shares of the Class is placed by the investor
with the Institution. The Institution is responsible for the prompt
transmission of the order to the Company. The Portfolio is normally required to
make immediate settlement in federal funds (member bank deposits with a Federal
Reserve Bank) for portfolio securities purchased. Accordingly, payment for
shares of the Class purchased by Institutions on behalf of their clients must
be in federal funds. If an investor's order to purchase shares of the Class is
paid for other than in federal funds, the Institution, acting on behalf of the
investor, completes the conversion into federal funds (which may take two
business days), or itself advances federal funds prior to conversion, and
promptly transmits the order and payment in the form of federal funds to AIFS.
Subject to the conditions stated above and to the Company's right to reject
any purchase order, orders will be accepted (i) when payment for shares of the
Class purchased is received by the Company in the form described above or (ii)
at the time the order is placed, if the Company is assured of payment. Shares
purchased by orders which are accepted prior to 12:00 noon Eastern Time will
earn the dividend declared on the date of purchase.
Federal Reserve wires should be sent as early as possible in order to
facilitate crediting to the shareholder's account. Any funds received in
respect of an order which is not accepted by the Company and any funds received
for which an order has not been received will be returned to the sending
Institution.
The Company reserves the right in its sole discretion to withdraw all or any
part of the offering made by this Prospectus or to reject any purchase order.
REDEMPTION OF SHARES
A shareholder may redeem any or all of his or her shares of the Class at the
net asset value next determined after receipt of the redemption request in
proper form by the Company. Redemption requests with respect to the Class may
also be made via AIM LINK--Registered Trademark--, a personal computer
application software product. Normally, the net asset value per share of the
Portfolio will remain constant at $1.00 per share. See "Net Asset Value" below.
Redemption requests with respect to shares of the Class are normally made
through a customer's Institution.
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the Institution's Account Application,
but may be remitted by check upon request by a shareholder. If a redemption
request is received by AIFS prior to 12:00 noon Eastern Time on a business day
of the Portfolio, the redemption will be effected at the net asset value next
determined on such day and the shares of the Class to be redeemed will not
receive the dividend declared on the day the request is received. If a
redemption request is received by AIFS after 12:00 noon Eastern Time or on
other than a business day of the Portfolio, the redemption will be effected at
the net asset value of the Portfolio determined as of 12:00 noon Eastern Time
on the next business day of the Portfolio, and the proceeds of such redemption
will normally be wired on that day.
10
<PAGE>
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Company. The authorized signature on the
notice must be guaranteed by a commercial bank or a trust company. Additional
documentation may be required when deemed appropriate by the Portfolio or the
Transfer Agent.
Shareholders may request a redemption by telephone. The Transfer Agent and
FMC will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth in the account application if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), and mailings of confirmation
promptly after the transaction.
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts of less than $1,000 will be made by check mailed within seven days
after receipt of the redemption request in proper form. The Company may make
payment for telephone redemptions in excess of $1,000 by check when it is
considered to be in the Company's best interest to do so.
The shares of the Class are not redeemable at the option of the Company
unless the Board of Directors of the Company determines in its sole discretion
that failure to so redeem may have materially adverse consequences to the
shareholders of the Company.
DIVIDENDS
Dividends from the net investment income (not including any net short-term
gains) earned by the Portfolio are declared daily to shareholders of record as
of 3:00 p.m. Eastern Time on the day of declaration. Net investment income for
dividend purposes is determined daily as of 3:00 p.m. Eastern Time. Although
realized gains and losses on the assets of the Portfolio are reflected in the
net asset value of the Portfolio, they are not expected to be of an amount
which would affect the Portfolio's net asset value of $1.00 per share for
purposes of purchases and redemptions. See "Net Asset Value." Distributions
from net realized capital gains (including net short-term gains) are normally
distributed annually. See "Taxes." The Company does not expect to realize any
long-term capital gains or losses in the Portfolio.
All dividends declared during a month will normally be paid by wire
transfer. Payment will normally be made on the first business day of the
following month. A shareholder may elect to have all dividends automatically
reinvested in additional full and fractional shares of the Portfolio at the
net asset value of such shares as of 12:00 noon Eastern Time on the last
business day of the month. Such election, or any revocation thereof, must be
made in writing by the Institution to AIFS, P.O. Box 4497, Houston, TX 77210-
4497 and will become effective with dividends paid after its receipt by AIFS.
If a shareholder redeems all the shares in his account at any time during the
month, all dividends declared through the date of redemption are paid to the
shareholder along with the proceeds of the redemption.
The dividend accrued and paid for each class of the Portfolio will consist
of: (a) interest accrued and original issue discount earned less amortization
of premiums if any, for the Portfolio, the allocation of which is based upon
each such class' pro rata share of the total shares outstanding, less (b)
Company expenses accrued for the applicable dividend period, such as custodian
fees and accounting expenses, based upon each such class' pro rata share of
the net assets of the Portfolio, less (c) expenses directly attributable to
each class that are accrued for the applicable dividend period, such as
distribution expenses, if any.
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The Company uses its best efforts to maintain the net asset value per share
of the Portfolio at $1.00 for purposes of sales and redemptions. See "Net
Asset Value." Should the Company incur or anticipate any unusual expense, loss
or depreciation which could adversely affect the income or net asset value of
the Portfolio, the Company's Board of Directors would at that time consider
whether to adhere to the present dividend policy described above or to revise
it in light of the then prevailing circumstances. For example, under such
unusual circumstances the Board of Directors might reduce or suspend the daily
dividend in order to prevent to the extent possible the net asset value per
share of the Portfolio from being reduced below $1.00. Thus, such expenses,
losses or depreciation may result in a shareholder receiving no dividends for
the period during which shares of the Class were held and cause such a
shareholder to receive upon redemption a price per share lower than the
shareholder's original cost.
TAXES
The Portfolio has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Portfolio qualifies for this
tax treatment, it will not be subject to federal income taxes on amounts
distributed to shareholders.
Shareholders will not be required to include the "exempt-interest" portion
of dividends paid by the Portfolio in their gross income for federal income
tax purposes. However, shareholders will be required to report the receipt of
exempt-interest dividends and other tax-exempt interest on their federal
income tax returns. Moreover, exempt-interest dividends from the Portfolio may
be subject to state income taxes, may give rise to a federal alternative
minimum tax liability, may affect the amount of social security benefits
subject to federal income tax, may affect the deductibility of interest on
certain indebtedness of the shareholder and may have other collateral federal
income tax consequences. The Portfolio intends to avoid investment in those
Municipal Securities where the interest thereon will constitute an item of tax
preference, and therefore which could give rise to a federal alternative
minimum tax liability. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of exempt-
interest dividends, see the Statement of Additional Information.
The Portfolio may pay dividends to shareholders which are taxable, but will
endeavor to avoid investments which would result in taxable dividends. Unless
otherwise required by Treasury regulations, the percentage of dividends which
constitutes exempt-interest dividends, and the percentage thereof (if any)
which constitutes an item of tax preference, will be determined annually and
will be applied uniformly to all dividends declared during that year. These
percentages may differ from the actual percentages for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains (capital gain dividends), whether received in cash or additional
shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Portfolio to pay exempt-interest dividends would be adversely affected.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their tax advisors concerning the impact of the Code on their investments in
the Portfolio, and concerning the application of state, local and foreign
taxes to investments in the Portfolio, which may differ significantly from the
federal income tax consequences described above.
12
<PAGE>
NET ASSET VALUE
The net asset value per share (or share price) of the Portfolio is
determined as of 12:00 noon Eastern Time on each "business day of the
Company," as previously defined. It is calculated by subtracting the
Portfolio's liabilities from its total assets and by dividing the result by
the total number of shares outstanding in the Portfolio, and rounding such per
share net asset value to the nearest whole cent. The determination of the
Portfolio's net asset value is made in accordance with generally accepted
accounting principles. Among other items, the Portfolio's liabilities include
accrued expenses and dividends payable, and its total assets include portfolio
securities valued at their market value as well as income accrued but not yet
received.
Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the United States Securities and Exchange
Commission (the "SEC") applicable to money market funds. This method values a
security at its cost on the date of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if the security were sold. During such periods, the
daily yield on shares of the Portfolio computed as described in "Purchases and
Redemptions--Yield Information" in the Statement of Additional Information may
differ somewhat from an identical computation made by an investment company
with identical investments utilizing available indications as to market value
to value its portfolio securities.
YIELD INFORMATION
Yield information for the shares of the Class can be obtained by calling the
Company at (800) 877-7748. Yields will vary from time to time and past results
are not necessarily indicative of future results. Accordingly, the yield
information for the shares of the Class may not provide a basis for comparison
with investments which pay fixed rates of interest for a stated period of
time, with other investments or with investment companies which use a
different method of calculating performance. Yield is a function of the type
and quality of a Portfolio's investments, a Portfolio's maturity and the
operating expense ratio of the Classes and a Portfolio. A SHAREHOLDER'S
INVESTMENT IN THE PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR BY ANY INSTITUTION. THESE FACTORS SHOULD BE CAREFULLY CONSIDERED
BY THE INVESTOR BEFORE MAKING AN INVESTMENT IN THE PORTFOLIO.
Comparative performance information using data from the industry
publications may be used from time to time in advertising or marketing the
shares of the Class.
The yield of the Class calculated as described below, will fluctuate from
day to day. Calculations of yield will take into account the total income
received by the Portfolio, including taxable income, if any; however, the
Portfolio intends to invest its assets so that one hundred percent (100%) of
its annual interest income will be tax-exempt. To the extent that different
classes of shares bear different expenses, the yield of such classes can be
expected to vary. To the extent that Institutions charge fees in connection
with services provided in conjunction with the Portfolio, the yield will be
lower for those beneficial owners paying such fees.
From time to time and in its discretion, AIM or its affiliates may waive all
or a portion of advisory or distribution fees and/or assume certain expenses
of the Portfolio. Such a practice will have the effect of increasing the
Portfolio's yield and total return.
13
<PAGE>
The current yield, effective yield (which assumes the reinvestment of
dividends for a 365 day year and a return for the entire year equal to the
average annualized current yield for the period) and tax equivalent yield for
the Class are calculated according to a formula prescribed by the SEC. See
"Performance Information" in the Statement of Additional Information. For the
seven-day period ended March 31, 1996, the current and effective yield for the
Class were 2.95% and 2.99%, respectively.
REPORTS TO SHAREHOLDERS
The Company furnishes shareholders with semi-annual reports containing
information about the Company and its operations, including a list of the
investments held in the Portfolio's financial statements. The annual financial
statements are audited by the Company's independent auditors. The Board of
Directors has selected KPMG Peat Marwick LLP, 700 Louisiana, NationsBank
Building, Houston, Texas 77002, as the Company's independent auditors to audit
the Company's financial statements and review the Portfolio's tax returns.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested
with its Board of Directors. The Board of Directors approves all significant
agreements between the Company and persons or companies furnishing services to
the Company, including agreements with the Company's investment advisor,
distributor, custodian and transfer agent. The day-to-day operations of the
Company are delegated to the Company's officers and to AIM, subject always to
the objective and policies of the Company and to the general supervision of
the Company's Board of Directors. Certain directors and officers of the
Company are affiliated with AIM and A I M Management Group Inc. ("AIM
Management"), the parent of AIM. Information concerning the Board of Directors
may be found in the Statement of Additional Information.
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, acts as the investment advisor for the Portfolio pursuant to an
Investment Advisory Agreement dated as of October 18, 1993 (the "Agreement").
AIM was organized in 1976 and, together with its affiliates, manages or
advises 43 investment company portfolios. As of July 15, 1996, the total
assets of the investment company portfolios managed or advised by AIM and its
affiliates were approximately $50.8 billion. Pursuant to the terms of the
Agreement, AIM manages the investment of the Portfolio's assets. AIM obtains
and evaluates economic, statistical and financial information to formulate and
implement investment programs for the Portfolio. AIM shall not be liable to
the Company or to its shareholders except in the case of AIM's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty;
provided, however, that AIM may be liable for certain breaches of duty under
the 1940 Act. Certain of the directors and officers of AIM are also directors
or executive officers of the Company.
Pursuant to the Agreement, AIM is paid a fee from the Company with respect
to the Portfolio calculated at the annual rate of 0.25% of the first $500
million of the Portfolio's average daily net assets plus 0.20% of such
Portfolio's average daily net assets in excess of $500 million.
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<PAGE>
For the fiscal year ended March 31, 1996, AIM was paid fees from the Company
with respect to the Portfolio which represented 0.16% of the Portfolio's
average net assets. During such fiscal year, those expenses of the Company
(relating exclusively to the Portfolio) which were borne by the Class,
including fees paid to AIM, amounted to 0.45% of the Class' average net
assets. For the fiscal year ended March 31, 1996, AIM waived a portion of its
fees from the Company with respect to the Portfolio. Had AIM not waived its
fee, AIM would have received an amount from the Company pursuant to the
Agreement with respect to the Portfolio which represented 0.22% of the
Portfolio's average daily net assets. AIM also reimbursed the Company for
expenses of $20,000 with respect to the Class for the year ended March 31,
1996.
The Company pays or causes to be paid all expenses of the Company which are
not borne by its distributor or AIM. See the Statement of Additional
Information for a detailed description of these other charges.
DISTRIBUTOR
The Company has entered into a distribution agreement dated as of October
18, 1993 (the "Distribution Agreement") with FMC, a registered broker-dealer
and a wholly-owned subsidiary of AIM, to act as the exclusive distributor of
the shares of the Class. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. Certain directors and officers of the Company are
affiliated with FMC and AIM Management. The Distribution Agreement provides
that FMC has the exclusive right to distribute shares of the Company either
directly or through other broker-dealers. FMC is the distributor of several of
the mutual funds managed or advised by AIM.
FMC may, from time to time, at its expense, pay a bonus or other
consideration or incentive to financial institutions who sell a minimum dollar
amount of the shares of the Private Investment Class during a specific period
of time. In some instances, these incentives may be offered only to certain
Institutions who have sold or may sell significant amounts of shares. The
total amount of such additional bonus payments or other consideration shall
not exceed 0.05% of the net asset value of the shares sold. Any such bonus or
incentive programs will not change the price paid by investors for the
purchase of shares in the Class or the amount received as proceeds from such
sales. Sales of shares of the Class may not be used to qualify for any
incentives to the extent that such incentives may be prohibited by the laws of
any jurisdiction.
DISTRIBUTION PLAN
The Company has adopted the Plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Class. The Plan provides that the Company may incur
expenses in connection with the distribution of the shares of the Class of up
to 0.50% on an annualized basis of the average daily net assets of the shares
of the Class. Such amounts may be expended when and if authorized by the Board
of Directors and may be used to finance such distribution-related services as
expenses of organizing and conducting sales seminars, printing of prospectuses
and statements of additional information (and supplements thereto) and reports
for other than existing shareholders, preparation and distribution of
advertising material and sales literature, costs of administering the Plan and
payment of service fees to certain Institutions. The Plan provides for payment
of a service fee to Institutions that provide continuing personal shareholder
services to their customers who purchase and own shares of the Class, in
amounts of up to 0.25% of the average net assets of the Class attributable to
the Institutions. Payments to Institutions in excess of such amount and
payments to FMC would be characterized as an asset-based sales charge pursuant
to the Plan. The Plan also imposes a cap on the total amount of sales
15
<PAGE>
charges, including asset-based sales charges, that may be paid by the
Portfolio with respect to the Class. The Plan does not obligate the Company to
reimburse FMC for the actual expenses FMC may incur in fulfilling its
obligations under the Plan on behalf of the Class. Thus, under the Plan, even
if FMC's actual expenses exceed the fee payable to FMC thereunder at any given
time, the Company will not be obligated to pay more than that fee. If FMC's
expenses are less than the fee it receives, FMC will retain the full amount of
the fee.
FMC is a wholly-owned subsidiary of AIM. Both Charles T. Bauer, a Director
and Chairman of the Company and Robert H. Graham, a Director and President of
the Company, own shares of AIM Management.
The Plan requires the officers of the Company to provide the Board of
Directors at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
The Board of Directors shall review these reports in connection with their
decisions with respect to the Plan.
As required by Rule 12b-1 under the 1940 Act, the Plan was most recently
approved by the Board of Directors, including a majority of the directors who
are not "interested persons" (as defined in the 1940 Act) of the Company and
who have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to the Plan ("Qualified Directors") on May 14,
1996. In approving the Plan in accordance with the requirements of Rule 12b-1,
the directors considered various factors and determined that there is a
reasonable likelihood that the Plan would benefit the Company and the holders
of the shares of the Class.
The Plan became effective on May 1, 1992, as amended as of July 1, 1993, and
unless sooner terminated in accordance with its terms, shall continue in
effect for each year thereafter as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors. On May 14, 1996, the Board of Directors, including
the Qualified Directors, voted to continue the Plan until June 30, 1997.
The Plan may be terminated by a vote of a majority of the Qualified
Directors, or by a vote of a majority of the holders of the outstanding voting
securities of the Class. Any change in the Plan that would increase materially
the distribution expenses paid by the Class requires shareholder approval;
otherwise the Plan may be amended by the Board of Directors, including a
majority of the Qualified Directors, by vote cast in person at a meeting
called for the purpose of voting upon such amendment. As long as the Plan is
in effect, the selection or nomination of the Qualified Directors is committed
to the discretion of the Qualified Directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
AIM is responsible for decisions to buy and sell securities for the
Portfolio, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Portfolio are usually
principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and
asked prices. The Portfolio may also purchase securities from underwriters at
prices which include a concession paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the
extent that the execution and prices offered by more than one dealer are
comparable, AIM may, in its discretion, effect transactions with dealers that
furnish statistical, research or other
16
<PAGE>
information or services which are deemed by AIM to be beneficial to the
Portfolio's investment program. Certain research services furnished by dealers
may be useful to AIM with clients other than the Portfolio. Similarly,
research services received by AIM through placement of Portfolio transactions
of other clients may be of value to AIM in fulfilling its obligations to the
Portfolio.
FEE WAIVERS
In order to increase the yield to investors, AIM or its affiliates may from
time to time waive or reduce its advisory or distribution fees while retaining
the right to be reimbursed for such fees prior to the end of each fiscal year.
Fee waivers or reductions, other than those set forth in the Agreement, may be
rescinded at any time without further notice to investors. AIM has agreed,
however, to provide the Board of Directors with 60 days' notice prior to
terminating the current voluntary fee waiver described below.
AIM has voluntarily agreed to reduce its advisory fee from the Portfolio to
the extent necessary so that the amount of ordinary expenses of the
Institutional Cash Reserve Shares (excluding interest, taxes, brokerage
commissions, directors' fees, extraordinary expenses and federal registration
fees) paid or incurred by the Institutional Cash Reserve Shares does not
exceed 0.20% of the Institutional Cash Reserve Shares' average daily net
assets. As a result, AIM's advisory fee on the Class is reduced in the same
proportion as the Institutional Cash Reserve Shares. For the year ended March
31, 1996, AIM reduced its fees from the Portfolio by $690,397. AIM also
assumed expenses of $20,000 on the Class during the same period.
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was originally incorporated in Maryland on January 24, 1977, but
had no operations prior to March 21, 1983. Effective August 30, 1985, the
Company was reorganized as a Massachusetts business trust and, effective May
1, 1992, it was reorganized as a Maryland corporation. The Company currently
offers shares of one portfolio, the Portfolio, which has two classes. All
shares of the Company have equal rights with respect to voting, except that
the holders of shares of a particular class will have the exclusive right to
vote on matters pertaining solely to that class. For example, holders of
shares of a particular class will have the exclusive right to vote on any
matter, such as distribution arrangements, which relates solely to such class.
In the event of liquidation or termination of the Company, holders of shares
of each class will receive pro rata, subject to the rights of creditors, (a)
the proceeds of the sale of the assets held in the Portfolio, less (b) the
liabilities of the Company attributable to the respective class of the
Portfolio allocated between the two classes thereof based on the respective
liquidation value of the class. Fractional shares of the Class have the same
rights as full shares to the extent of their proportionate interest.
There will not normally be annual shareholders' meetings. Shareholders may
remove directors from office by votes cast at a meeting of shareholders or by
written consent, and a meeting of shareholders may be called at the request of
the holders of 10% or more of the Company's outstanding shares.
There are no preemptive or conversion rights applicable to any of the
Company's shares. The Company's shares, when issued, will be fully paid and
non-assessable. The Board of Directors may create additional classes or series
of the Company without shareholder approval.
17
<PAGE>
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173, acts as transfer agent for the Class offered
pursuant to this Prospectus. The Bank of New York, 90 Washington Street, 11th
floor, New York, New York 10286, acts as custodian for the Company's portfolio
securities and cash for the Class offered pursuant to this Prospectus.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania, serves as counsel to the Company, and has passed upon the
legality of the shares of the Portfolio offered by this Prospectus.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to an investor's Institution, or to the Company at P.O. Box 4497, Houston,
Texas 77210-4497, or may be made by calling (800) 877-7748.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know
about the Company prior to investing. A Statement of Additional Information
has been filed with the SEC. Copies of the Statement of Additional Information
are available upon request and without charge by writing or calling the
Company or FMC. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration
statement, including items omitted herein, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
18
<PAGE>
INVESTMENT ADVISOR
A I M ADVISORS, INC. TAX-FREE
11 Greenway Plaza, Suite 1919 INVESTMENTS CO.
Houston, Texas 77046-1173 (TFIC)
(713) 626-1919
PRIVATE
DISTRIBUTOR INVESTMENT CLASS
FUND MANAGEMENT COMPANY OF THE
11 Greenway Plaza, Suite 1919 -------------------------------------
Houston, Texas 77046-1173 CASH RESERVE PROSPECTUS
(800) 877-7748 PORTFOLIO
AUDITORS
KPMG PEAT MARWICK LLP JULY 29, 1996
700 Louisiana
NationsBank Building
Houston, Texas 77002 [Logo Appears Here]
Fund Management Company
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT
A I M INSTITUTIONAL FUND SERVICES, INC.
P.O. Box 4497
Houston, Texas 77210-4497
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
PRIVATE INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 877-7748
----------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS,
COPIES OF WHICH
MAY BE OBTAINED BY WRITING
FUND MANAGEMENT COMPANY, P.O. BOX 4333,
HOUSTON, TEXAS 77210-4333
OR CALLING (800) 877-7748
----------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: JULY 29, 1996
RELATING TO THE PROSPECTUS DATED: JULY 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION..................................................... 1
GENERAL INFORMATION ABOUT THE COMPANY............................ 1
The Company and its Shares.................................. 1
Directors and Officers...................................... 3
Remuneration of Directors................................... 5
AIM Funds Retirement Plan for Eligible Directors/Trustees... 6
Deferred Compensation Agreements............................ 7
The Investment Advisor...................................... 8
Expenses.................................................... 9
Transfer Agent and Custodian................................ 10
Reports..................................................... 10
Principal Holders of Securities............................. 10
SHARE PURCHASES AND REDEMPTIONS.................................. 12
Purchases and Redemptions................................... 12
Net Asset Value Determination............................... 13
The Distribution Agreement.................................. 13
Distribution Plan........................................... 14
PERFORMANCE INFORMATION.......................................... 15
INVESTMENT PROGRAM AND RESTRICTIONS.............................. 16
Investment Program.......................................... 16
Municipal Securities........................................ 17
Investment Ratings.......................................... 18
When-Issued Securities and Delayed Delivery Transactions.... 22
Variable or Floating Rate Instruments....................... 23
Synthetic Municipal Instruments............................. 23
Investment Restrictions..................................... 23
PORTFOLIO TRANSACTIONS........................................... 24
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS......................... 26
Dividends and Distributions................................. 26
Tax Matters................................................. 27
Qualification as a Regulated Investment Company............. 27
Excise Tax on Regulated Investment Companies................ 28
Distributions............................................... 28
Foreign Shareholders........................................ 29
Effect of Future Legislation; Local Tax Considerations...... 30
FINANCIAL STATEMENTS............................................. FS
</TABLE>
<PAGE>
INTRODUCTION
Tax-Free Investments Co. (the "Company") is a mutual fund organized
with one portfolio, the Cash Reserve Portfolio, which has two classes of shares.
The rules and regulations of the 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 a Prospectus dated July 29,
1996. Copies of the Prospectus and additional copies of the Statement of
Additional Information may be obtained without charge by writing the principal
distributor of the Company's shares, Fund Management Company ("FMC"), 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173 or by calling (800) 877-
7748. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Company and the
Private Investment Class of the Cash Reserve Portfolio (the "Class"). Some of
the information required to be in this Statement of Additional Information is
also included in the current Prospectus and, in order to avoid repetition,
reference will be made to sections of the Prospectus. Additionally, the
Prospectus and this Statement of Additional Information omit certain information
contained in the registration statement filed with the SEC. Copies of the
registration statement, including items omitted from the Prospectus and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE COMPANY
THE COMPANY AND ITS SHARES
The Company is an open-end, diversified, series, management investment
company initially organized as a corporation under the laws of the State of
Maryland on January 24, 1977. The Company was reorganized as a business trust
under the laws of The Commonwealth of Massachusetts on August 30, 1985 and was
reorganized as a Maryland corporation on May 1, 1992. Shares of common stock of
the Company are redeemable at the net asset value thereof at the option of the
shareholder or at the option of the Company in certain circumstances. For
information concerning the methods of redemption and the rights of share
ownership, investors should consult the Prospectus under the captions "General
Information" and "Redemption of Shares."
The Company offers shares of one portfolio, the Cash Reserve Portfolio
(referred to as the "Portfolio"). This Statement of Additional Information and
the Prospectus referred to above relate solely to the Class.
As used in the Prospectus, the term "majority of the outstanding
shares" of the Company, the Portfolio or a particular class means, respectively,
the vote of the lesser of (i) 67% or more of the shares of the Company, the
Portfolio or such class present at a meeting of the Company's shareholders, if
the holders of more than 50% of the outstanding shares of the Company, the
Portfolio or such class are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Company, the Portfolio or such class.
Shareholders of the Portfolio do not have cumulative voting rights,
and therefore the holders of a majority of a quorum of the outstanding shares of
the Portfolio voting together for election of directors may elect all of the
members of the Board of Directors of the Company. In such event, the remaining
holders cannot elect any members of the Board of Directors of the Company.
The Board of Directors may classify or reclassify any unissued shares
of any class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such
1
<PAGE>
classification or reclassification will comply with the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Articles of Incorporation permit the directors to issue
6,000,000,000 shares of common stock at $.001 par value. A share of the
Portfolio represents an equal proportionate interest in the Portfolio with each
other share of the Portfolio and is entitled to a proportionate interest in the
dividends and distributions with respect to its class. Additional information
concerning the rights of share ownership is set forth in the Prospectus.
The assets received by the Company for the issue or sale of shares of
each class relating to a Portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, constitute the
underlying assets of that Portfolio. The underlying assets of the Portfolio are
segregated and are charged with the expenses with respect to the Portfolio. See
"Expenses."
The Articles of Incorporation further provide that the directors will
not be liable for errors of judgment or mistakes of fact or law. However,
nothing in the Articles of Incorporation protects a director against any
liability to which a director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The Articles of Incorporation provide
for indemnification by the Company of the directors and the officers of the
Company except with respect to any matter as to which any such person did not
act in good faith and in the reasonable belief that his action was in or not
opposed to the best interests of the Company. Such person may not be
indemnified against any liability to the Company or the Company's shareholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. The Articles of Incorporation also authorize the
purchase of liability insurance on behalf of the Company's directors and
officers.
As described in the Prospectus, the Company will not normally hold
annual shareholders' meetings. A special meeting shall be held upon written
request of the holders of not less than 10% of the outstanding shares of the
Company. At such time as less than a majority of the directors have been
elected by the shareholders, the directors then in office will call a
shareholders' meeting for the election of directors. In addition, directors may
be removed from office by a written consent signed by the holders of two-thirds
of the outstanding shares of the Company and filed with the Company's transfer
agent or by a vote of the holders of two-thirds of the outstanding shares at a
meeting duly called for the purpose. Upon written request by ten or more
shareholders, who have been such for at least six months and who hold shares
constituting 1% of the outstanding shares, stating that such shareholders wish
to communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a 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.
2
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and their
principal occupations during the last five years are set forth below. Unless
otherwise indicated, the address of each director and executive officer is 11
Greenway Plaza, Suite 1919, Houston, Texas 77046.
*CHARLES T. BAUER, Director and Chairman (77)
Director, Chairman and Chief Executive Officer, A I M Management Group
Inc.; and Chairman of the Board of Directors, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc.,
A I M Institutional Fund Services, Inc. and Fund Management Company.
BRUCE L. CROCKETT, Director (52)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Formerly, Director, President and Chief Executive Officer, COMSAT
Corporation (Includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT
Video Enterprises and COMSAT RSI and COMSAT International Ventures). Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services company).
OWEN DALY II, Director (71)
6 Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly,
Director, CF & I Steel Corp., Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the Board of Equitable
Bancorporation.
** CARL FRISCHLING, Director (59)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis & Frankel (law firm). Formerly,
Partner, Reid & Priest (law firm); and, prior thereto, Partner, Spengler Carlson
Gubar Brodsky & Frischling (law firm).
*ROBERT H. GRAHAM, Director and President (49)
Director, President and Chief Operating Officer, A I M Management
Group Inc.; Director and President, A I M Advisors, Inc.; and Director and
Senior Vice President, A I M Capital Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and
Fund Management Company.
- -----------------------
* 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.
3
<PAGE>
JOHN F. KROEGER, Director (71)
37 Pippins Way
Morristown, NJ 07960
Director, Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag
Investors Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc.,
Flag Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund,
Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American Government
Bond Fund, Inc. (investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (53)
6363 Woodway, Suite 825
Houston, TX 77057
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (73)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); and Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR, Director (56)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasurer (51)
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., A I M
Institutional Funds Services, Inc. and Fund Management Company.
GARY T. CRUM, Senior Vice President (48)
Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc., A I M Advisors, Inc.; and
Director, A I M Distributors, Inc.
***CAROL F. RELIHAN, Senior Vice President and Secretary (41)
Senior Vice President, General Counsel and Secretary, A I M Advisors,
Inc.; Vice President, General Counsel and Secretary, A I M Management Group
Inc.; Vice President and General Counsel, Fund Management Company; and Vice
President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund
Services, Inc. and A I M Institutional Fund Services, Inc.
- ---------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
4
<PAGE>
STUART W. COCO, Vice President (41)
Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors,Inc.
MELVILLE B. COX, Vice President (52)
Vice President and Chief Compliance Officer, A I M Advisors, Inc.,
A I M Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services,
Inc., A I M Institutional Fund Services, 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 (36)
Senior Vice President, A I M Capital Management, Inc.; and Vice President, A I M
Advisors, Inc.
J. ABBOTT SPRAGUE, Vice President (41)
Director and President, A I M Institutional Fund Services, Inc. and
Fund Management Company; Director and Senior Vice President, A I M Advisors,
Inc.; and Senior Vice President, A I M Management Group Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (37)
Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
The Company's Board of Directors has an Audit Committee, consisting of
Messrs. Kroeger (Chairman), Daly, Pennock and Robinson, which is responsible for
meeting with the Company's auditors to review audit procedures and results and
to consider any matters arising from an audit to be brought to the attention of
the directors as a whole with respect to the Company's fund accounting, its
internal accounting controls, or to consider such matters as may from time to
time be set forth in a charter adopted by the Board of Directors and such
committee.
The Board of Directors of the Company also has an Investments
Committee, consisting of Messrs. Daly (Chairman), Bauer, Crockett, Kroeger and
Pennock, which is responsible for considering matters relating to investment
management, or for considering such matters as may from time to time be set
forth in a charter adopted by the Board of Directors.
The Company also has a Nominating and Compensation Committee,
consisting of Messrs. Pennock (Chairman), Crockett, Daly, Kroeger and Sklar,
which is responsible for considering and nominating individuals to stand for
election as directors who are not "interested persons" of the Company (as
defined by the 1940 Act) as long as the Company maintains a Distribution Plan on
behalf of the Portfolio pursuant to Rule 12b-1 under the 1940 Act, or
considering such matters as may from time to time be set forth in a charter
adopted by the Board and such committee.
All of the Company's directors also serve as directors or trustees of
some or all of the other investment companies managed or advised by A I M
Advisors, Inc. ("AIM") or distributed and administered by FMC. All of the
Company's executive officers hold similar offices with some or all of such
investment companies.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with
each meeting of the Board of Directors or any committee thereof. Each director
who is not also an officer of the Company is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director or trustee of other regulated investment companies managed,
administered or distributed by AIM or
5
<PAGE>
its affiliates (the "AIM Funds"). Each such director receives a fee, allocated
among the AIM Funds for which he serves as a director or trustee, which consists
of an annual retainer component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
for each director of the Company:
<TABLE>
<CAPTION>
======================================================================================
DIRECTOR AGGREGATE RETIREMENT TOTAL
COMPENSATION BENEFITS COMPENSATION
FROM COMPANY(1) ACCRUED FROM ALL AIM FUNDS(3)
BY ALL AIM FUNDS(2)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer -0- -0- -0-
- --------------------------------------------------------------------------------------
Bruce L. Crockett $1,829 $ 3,655 $ 57,750
- --------------------------------------------------------------------------------------
Owen Daly II $2,118 $18,662 $ 58,125
- --------------------------------------------------------------------------------------
Carl Frischling $2,078 $11,323 $ 57,250(4)
- --------------------------------------------------------------------------------------
Robert H. Graham -0- -0- -0-
- --------------------------------------------------------------------------------------
John F. Kroeger $2,025 $22,313 $ 58,125
- --------------------------------------------------------------------------------------
Lewis F. Pennock $1,810 $ 5,067 $ 58,125
- --------------------------------------------------------------------------------------
Ian W. Robinson $1,817 $15,381 $ 56,750
- --------------------------------------------------------------------------------------
Louis S. Sklar $2,095 $ 6,632 $ 57,250
======================================================================================
- ----------------------
</TABLE>
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended March 31, 1996, including
interest earned thereon, was $7,703.
(2) During the fiscal year ended March 31, 1996, the total amount of
expenses allocated to the Company in respect of such retirement
benefits was $4,603. Data reflect compensation for the calendar year
ended December 31, 1995.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a
Director or Trustee of a total of 11 AIM Funds. Messrs. Crockett,
Frischling, Robinson and Sklar each serves as a Director or Trustee of
a total of 10 AIM Funds. Data reflect total compensation for the
calendar year ended December 31, 1995.
(4) See also page 8 regarding fees earned by Mr. Frischling's law firm.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the AIM Funds commencing on the first day of the calendar quarter
coincident with or following his date of retirement equal to 75% of the retainer
paid or accrued by the Applicable AIM Funds for such director during the twelve-
month period immediately preceding the director's retirement
6
<PAGE>
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such Director's years of service
(not in excess of 10 years of service) completed with respect to any of the AIM
Funds. Such benefit is payable to each eligible director in quarterly
installments. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan commences, the
director's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased director, for no more
than ten years beginning the first day of the calendar quarter following the
date of the director's death. Payments under the Plan are not secured or funded
by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits payable
to an eligible director upon retirement assuming various compensation and years
of service classifications. The estimated credited years of service for Messrs.
Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar are 9, 9, 19,
18, 14, 9 and 6 years, respectively.
<TABLE>
<CAPTION>
ESTIMATED BENEFITS UPON RETIREMENT
Annual Compensation Paid By
All AIM Funds
<S> <C> <C> <C> <C>
Number of $55,000 $60,000 $65,000
Years of ================================================
Service with 10 $41,250 $45,000 $48,750
the ------------------------------------------------
AIM Funds 9 $37,125 $40,500 $43,875
------------------------------------------------
8 $33,000 $36,000 $39,000
------------------------------------------------
7 $28,875 $31,500 $34,125
------------------------------------------------
6 $24,750 $27,000 $29,250
------------------------------------------------
5 $20,625 $22,500 $24,375
================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Company, and such amounts are placed into a deferral
account. Currently, the deferring directors may select various AIM Funds in
which all or part of their deferral accounts shall be deemed to be invested.
Distributions from the deferring directors' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of ten years
beginning on the date the deferring director's retirement benefits commence
under the Plan. The Company's Board of Directors, in its sole discretion, may
accelerate or extend the distribution of such deferral accounts after the
deferring director's termination of service as a director of the Company. If a
deferring director dies prior to the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a single lump sum payment as soon as practicable after
such deferring director's death. The Agreements are not funded and, with
respect to the payments of amounts held in the deferral accounts, the deferring
directors have the status of unsecured creditors of the Company and of each
other AIM Fund from which they are deferring compensation.
As of December 31, 1995, the Portfolio paid legal fees of $6,329 for
services rendered by Kramer, Levin, Naftalis & Frankel, formerly Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, as counsel to the Board of Directors. Carl
Frischling, a member of that firm is a director of the Company.
7
<PAGE>
THE INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, serves as investment advisor to the Portfolio pursuant to an Investment
Advisory Agreement dated October 18, 1993 (the "Advisory Agreement"). AIM,
which was organized in 1976, is the investment advisor or manager of 43
investment company portfolios. As of July 15, 1996, the total assets advised or
managed by AIM or its affiliates were approximately $50.8 billion.
AIM is a wholly-owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173. All of
the directors and certain of the officers of AIM are also executive officers of
the Company and their affiliations are shown under "Directors and Officers."
The address of each director and officer of AIM is 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173.
AIM Management is a privately-held corporation. FMC is a registered
broker-dealer and wholly-owned subsidiary of AIM. FMC acts as distributor of
the shares of the Class.
AIM and the Company have adopted a Code of Ethics which requires investment
personnel and certain other employees (a) to pre-clear all personal securities
transactions subject to the Code of Ethics, (b) to file reports or duplicate
confirmations regarding such transactions, (c) to refrain from personally
engaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same
security, and (iii) transactions involving securities being considered for
investment by an AIM Fund, and (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Directors reviews quarterly and annual reports (including information
on any substantial violations of the Code of Ethics). Sanctions for violations
of the Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Advisory Agreement was last approved by the Board of Directors on May
14, 1996, and will continue in effect until June 30, 1997, and from year to year
thereafter if it is specifically approved at least annually by the Company's
Board of Directors and by the affirmative vote of a majority of the directors
who are not parties to the Advisory Agreement or "interested persons" of any
such party by votes cast in person at a meeting called for such purpose. The
Company or AIM may terminate the Advisory Agreement on 60 days' written notice
without penalty. The Advisory Agreement terminates automatically in the event
of its "assignment," as defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM: (a) supervises and
manages all aspects of the Company's operations; (b) provides the Company with
certain executive, administrative and clerical services as deemed advisable by
the Board of Directors; (c) provides the Company with, or obtains for the
Company, adequate office space and all necessary equipment and services,
including telephone services, utilities, stationery supplies and similar items
for the Company's principal office; (d) arranges, but does not pay for, the
periodic updating of prospectuses and statements of additional information (and
supplements thereto), proxy materials, tax returns, reports to the Company's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities; (e) provides the Company's Board of Directors on a regular basis
with financial reports and analyses of the Company's operations and the
operation of comparable funds; (f) obtains and evaluates pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Company and whether concerning the individual issuers whose securities are
included in the Company's Portfolio; (g) determines which issuers and securities
shall be represented in the Portfolio and regularly reports thereon to the Board
of Directors; (h) formulates and implements continuing programs for purchases
and sales of securities for the Portfolio; and (i) takes, on behalf of the
Company, all actions which appear to the Company to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
AIM will at all times be subject to the policies and control of the Board of
Directors. AIM shall not be liable to the Company or its shareholders for any
act or omission by AIM or for any loss sustained by the Company or its
shareholders, except in the case of AIM's willful
8
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of duty;
provided, however, that AIM may be liable for certain breaches of duty under the
1940 Act.
As compensation for its advisory services under the Advisory Agreement, AIM
receives a fee from the Company with respect to the Portfolio, calculated daily
and paid monthly, at the annual rate of 0.25% of the first $500 million of the
Portfolio's aggregate average daily net assets, plus 0.20% of the Portfolio's
aggregate average daily net assets in excess of $500 million. For the fiscal
years ended March 31, 1996, 1995 and 1994, the fees paid by the Company to AIM
with respect to the Portfolio were $1,819,232, $1,824,453 and $1,525,419,
respectively (after giving effect to fee waivers for the fiscal years ended
March 31, 1996, 1995 and 1994 of $690,397, $659,533 and $802,331, respectively).
The Private Investment Class commenced operations April 1, 1992.
In order to increase the yield to investors, AIM or FMC may, from time to
time, 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. The fee waivers currently in effect, are shown in the
Prospectus.
EXPENSES
AIM and FMC furnish, without cost to the Company, the services of the
President, Secretary and one or more Vice Presidents of the Company and such
other personnel as are required for the proper conduct of the Company's affairs
and to carry out their obligations under the Advisory Agreement and the
Distribution Agreement. AIM maintains, at its expense and without cost to the
Company, a trading function in order to carry out its obligations to place
orders for the purchase and sale of portfolio securities for the Company. FMC
bears the expenses of printing and distributing prospectuses and statements of
additional information (other than those prospectuses and statements of
additional information distributed to existing shareholders) and any other
promotional or sales literature used by FMC or furnished by FMC to purchasers or
dealers in connection with the public offering of the shares of the Class.
The Company pays, or causes to be paid, all other expenses of the Company,
including, without limitation, the fees paid to AIM; the charges and expenses of
any registrar, any custodian or depository appointed by the Company for the
safekeeping of cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents; brokers' commissions in connection with
portfolio securities transactions of the Company; all taxes, including
securities issuance and transfer taxes, and fees payable to federal, state or
other governmental agencies; the costs and expenses of engraving or printing
share certificates; all costs and expenses in connection with registration and
maintenance of registration with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
proxy statements, reports to shareholders, prospectuses and statements of
additional information of the Company and supplements thereto (except reports to
shareholders and prospectuses distributed to potential shareholders of the
Company which are paid for by FMC); expenses of shareholders' and directors'
meetings; fees and travel expenses of directors or director members of any
advisory board or committee; expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside pricing service; fees and expenses of legal counsel
and of independent accountants; membership dues of industry associations;
interest payable on borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Company; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Company's operations unless otherwise explicitly assumed by AIM
or FMC.
The Company may also reimburse AIM for the costs of a principal financial
officer and related personnel who may perform internal accounting functions for
the Company. Such accounting functions consist primarily of regulatory, tax,
shareholder and internal management reporting and calculation of the Portfolio's
net asset value and the daily dividend for its two classes. The method of
calculating such reimbursements must be approved annually, and the amounts paid
will be reviewed periodically by the Board of Directors. For the fiscal years
ended March 31, 1996, 1995 and 1994, AIM was reimbursed $75,960, $78,184 and
$65,124, respectively, by the Portfolio with respect to the Institutional Cash
Reserve Shares.
9
<PAGE>
AIM has agreed to reduce its fee for any fiscal year, or reimburse each
Portfolio, to the extent required, so that the amount of the ordinary expenses
of the Company (excluding brokerage commissions, interest, directors' fees,
taxes and extraordinary expenses such as litigation costs) paid or incurred by
the Company does not exceed the expense limitations applicable to each
Portfolio, imposed by the securities laws or regulations of those states or
jurisdictions in which the Company's shares are registered or qualified for
sale. Currently, the most restrictive of such state expense limitations would
require AIM to reduce its fees to the extent required so that ordinary expenses
of the Company (excluding interest, taxes, brokerage commissions and
extraordinary expenses) for any fiscal year do not exceed 2-1/2% of the first
$30 million of the Company's average daily net assets, plus 2% of the next $70
million of the Company's average daily net assets, plus 1-1/2% of the Company's
average daily net assets in excess of $100 million.
Expenses of the Company which are not directly attributable to the
operations of any class are pro-rated among the classes of the Company based
upon the relative net assets of each class. Expenses of the Company which are
directly attributable to a class are charged against the income available for
distribution as dividends to such class.
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc. ("AIFS") serves as transfer agent
and dividend disbursing agent for the shares of the Class and receives an annual
fee from the Company for its services in such capacity in the amount of .009% of
average daily net assets of the Company, payable monthly. Such compensation may
be changed from time to time as is agreed to by AIFS. The address of AIFS is
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046-1173. The Bank of New York ("BONY") acts as custodian for the
Company's portfolio securities and cash. BONY receives such compensation from
the Company for its services in such capacity as is agreed to from time to time
by BONY and the Company. The address of BONY is 90 Washington Street, 11th
Floor, New York, New York 10286.
REPORTS
The Company furnishes shareholders with semi-annual reports containing
information about the Company and its operations, including a schedule of
investments held in the Company's Portfolios and its financial statements. The
annual financial statements are audited by the Company's independent auditors.
The Board of Directors has selected KPMG Peat Marwick LLP, 700 Louisiana,
NationsBank Building, Houston, Texas 77002, as the independent auditors to audit
the financial statements and review the tax returns of the Portfolio.
PRINCIPAL HOLDERS OF SECURITIES
The names and addresses of the holders of 5% or more of each class of the
Company's shares are set forth below.
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INSTITUTIONAL CASH RESERVE SHARES OF THE CASH RESERVE PORTFOLIO
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of the Institutional Cash
Reserve Shares as of July 15, 1996, and the amount of outstanding shares held of
record by such holders are set forth below:
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- ------------
NationsBank of Texas, N.A. 27.95%**
1401 Elm Street, 11th Floor
P.O. Box 831000
Dallas, TX 75283-1000
Liberty Bank and Trust Company of Tulsa 15.13%
P.O. Box 25848
Oklahoma City, OK 73125
First Interstate Bank of California 10.76%
26610 West Agoura Rd.
Calabasas, CA 91302
Trust Company Bank 8.70%
Center 3131
P.O. Box 105504
Atlanta, GA 30348
U.S. Bank of Oregon 8.17%
555 Southwest Oak
Portland, OR 97204-1752
Frost National Bank of Texas 5.06%
P.O. Box 1600
San Antonio, TX 78296
- ------------------------
* The Company has no knowledge as to whether all or any portfolio of the
shares owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
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PRIVATE INVESTMENT CLASS OF THE CASH RESERVE PORTFOLIO
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of the Private Investment Class
as of July 15, 1996, and the amount of outstanding shares held of record by such
holders are set forth below:
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- ------------
The Bank of New York 37.73%**
4 Fisher Lane
White Plains, NY 10603
Cullen/Frost Discount Brokers 25.23%**
P.O. Box 2358
San Antonio, TX 78299
Huntington Capital Corporation 24.41%
41 South High Street, 9th Floor
Columbus, OH 43287
Charter National Bank of Houston Trust 5.49%
P.O. Box 1494
Houston, TX 77251-1494
First National Bank of Chicago 5.21%
Mail Suite 0126
Chicago, IL 60670-0126
As of July 15, 1996, the directors and officers of the Company
beneficially owned less than 1% of each class of shares of the Company.
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which the shares may be purchased,
redeemed or exchanged appears in the Prospectus under the heading "Purchase of
Shares."
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of the Company not reasonably practicable.
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* The Company has no knowledge as to whether all or any portfolio of the
shares owned of record only are owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
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NET ASSET VALUE DETERMINATION
The net asset value of a share of the Portfolio is determined once daily
as of the time shown in the Prospectus on each business day of the Company, as
defined in the Prospectus. For the purpose of determining the price at which
all shares of the Portfolio are issued and redeemed, the net asset value per
share is calculated by: (a) valuing all securities and instruments of the
Portfolio as set forth below; (b) adding other assets of the Portfolio, if any;
(c) deducting the liabilities of the Portfolio; (d) dividing the resulting
amount by the number of shares outstanding of the Portfolio; and (e) rounding
such per share net asset value to the nearest whole cent.
The debt instruments held in the Portfolio are valued on the basis of
amortized cost. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Company would receive if it sold the entire
portfolio.
The valuation of the portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Portfolio is permitted in accordance with applicable rules and regulations
of the SEC, which require the Company to adhere to certain conditions. The
Portfolio is required pursuant to such rules to maintain a dollar-weighted
average portfolio maturity of 90 days or less, to purchase only instruments
having remaining maturities of 397 days or less, and to invest only in
securities determined by the Advisor, pursuant to guidelines established by the
Board of Directors, to be "Eligible Securities" (as such term is defined in Rule
2a-7 under the 1940 Act) and to present minimal credit risk to the Company. The
Company adheres to a policy of purchasing only "First Tier" securities (as such
term is defined in Rule 2a-7 under the 1940 Act), which is a higher quality
standard and more restrictive than required by such rules.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share at
$1.00 as computed for the purpose of sales and redemptions. Such procedures
include review of the portfolio holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for
the Portfolio deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to purchasers or existing
holders of any class of shares of the Portfolio. In the event the Board of
Directors determines that such a deviation exists for any class of shares of the
Portfolio, it will take such corrective action as the Board of Directors deems
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity; the withholding of dividends; the redemption of shares in kind; or the
establishment of a net asset value per share by using available market
quotations.
THE DISTRIBUTION AGREEMENT
The Company has entered into a distribution agreement dated as of October
18, 1993 (the "Distribution Agreement") with FMC, a registered broker-dealer and
a wholly-owned subsidiary of AIM, to act as the exclusive distributor of the
shares of the Class. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. See "Directors and Officers" and "The Investment
Advisor" for information as to the affiliation of certain directors and officers
of the Company with FMC and AIM Management.
The Distribution Agreement provides that FMC has the exclusive right to
distribute shares either directly or through other broker-dealers. The
Distribution Agreement also provides that, except as may otherwise be provided
in a distribution plan pursuant to Rule 12b-1 adopted by the Company's Board of
Directors, FMC will pay promotional expenses, including the incremental costs of
printing prospectuses and statements of additional information, annual reports
and other periodic reports for distribution to persons who are not shareholders
of the Company and the costs of preparing and distributing any other
supplemental sales literature. FMC has not undertaken to sell any specified
number of shares.
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The Distribution Agreement will continue in effect until June 30, 1997,
and from year to year thereafter, provided that it is specifically approved at
least annually by the Company's Board of Directors and the affirmative vote of
the directors who are not parties to the Distribution Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The Company or FMC may terminate the Distribution Agreement on sixty
days' written notice without penalty. The Distribution Agreement will terminate
automatically in the event of its "assignment," as defined in the 1940 Act.
FMC may, from time to time, at its expense, pay a bonus or other
consideration or incentive to dealers or banks who sell a minimum dollar amount
of the shares of the class during a specific period of time. In some instances,
these incentives may be offered only to certain dealers or institutions who have
sold or may sell significant amounts of shares. The total amount of such
additional bonus or payments or other consideration shall not exceed 0.05% of
the net asset value of the shares of the class sold. Any such bonus or
incentive programs will not change the price paid by investors for the purpose
of shares or the amount received as proceeds from such sales. Dealers or
institutions may not use sales of the shares to qualify for any incentives to
the extent that such incentives may be prohibited by the laws of any
jurisdiction.
DISTRIBUTION PLAN
The Company has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act with respect to the Class. The Plan applicable to the
Portfolio provides that the Class may pay up to 0.50% per annum of the average
daily net assets of the Portfolio as follows:
(1) to FMC, as an asset-based sales charge, (2) as a service fee to
certain banks ("Service Providers") who offer continuing personal shareholder
services to their customers who invest in the shares of the class, and who have
entered into Shareholder Service Agreements, and (3) as a service fee to certain
broker-dealers and other financial institutions ("Institutions") who offer
continuing personal shareholder services to their customers who invest in the
shares of the class, and who have entered into Shareholder Service Agreements.
Pursuant to the Plan, the Company may enter into Shareholder Service
Agreements ("Service Agreements") with selected broker-dealers, banks, other
financial institutions or their affiliates. Such firms may receive from the
Portfolio compensation for servicing investors as beneficial owners of shares of
the Class. These services may include among other things: (i) answering
customer inquiries regarding the shares and the Portfolio; (ii) assisting
customers in changing dividend options, account designations and addresses;
(iii) performing sub-accounting; (iv) establishing and maintaining shareholder
accounts and records; (v) processing purchase and redemption transactions; (vi)
automatic investment in shares of the class of customer cash account balances;
(vii) providing periodic statements showing a customer's account balance and
integrating such statements with those of other transactions and balances in the
customer's other accounts serviced by such firm; (viii) arranging for bank
wires; and (ix) such other services as the Company may request on behalf of the
shares of the class, to the extent such firms are permitted to engage in such
services by applicable statute, rule or regulation.
The Plan may only be used for the purposes specified above and as stated
in the Plan. Expenses may not be carried over from year to year.
The Plan requires the officers of the Company to provide the Board of
Directors at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
The Board of Directors shall review these reports in connection with their
decisions with respect to the Plan.
For the fiscal year ended March 31, 1996, $82,160 (or an amount equal to
0.25% of the average daily net assets of the Class) was paid to dealers and
financial institutions pursuant to the Plan. In addition, for the fiscal year
ended March 31, 1996, FMC received no compensation pursuant to the Plan.
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<PAGE>
As required by Rule 12b-1 under the 1940 Act, the Plan was most recently
approved by the Board of Directors, including a majority of the directors who
are not "interested persons" (as defined in the 1940 Act) of the Company and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan ("Qualified Directors") on May 14, 1996. In
approving the Plan in accordance with the requirements of Rule 12b-1, the
directors considered various factors and determined that there is a reasonable
likelihood that the Plan will benefit the Class and the holders of the shares.
The Plan shall continue in effect until June 30, 1997. The Plan shall
continue in effect thereafter as long as such continuance is specifically
approved at least annually by the Board of Directors, including a majority of
the Qualified Directors.
FMC is a wholly-owned subsidiary of AIM, a wholly-owned subsidiary of AIM
Management. Charles T. Bauer, a Director and Chairman of the Company, owns
shares of AIM Management and Robert H. Graham, a Director and President of the
Company, also owns shares of AIM Management.
The Plan may be terminated by vote of a majority of the Qualified
Directors, or by vote of a majority of the holders of the outstanding voting
securities of the Class. Any change in the Plan that would increase materially
the distribution expenses paid by the Class requires shareholder approval;
otherwise, the Plan may be amended by the directors, including a majority of the
Qualified Directors, by vote cast in person at a meeting called for the purpose
of voting upon such amendment. As long as the Plan is in effect, the selection
or nomination of the Qualified Directors is committed to the discretion of the
Qualified Directors.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the Company and alternate means for
continuing the servicing of such shareholders would be sought. In such event,
changes in the operation of the Company might occur and shareholders serviced by
such bank might no longer be able to avail themselves of any automatic
investment or other services then being provided by such bank. It is not
expected that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to register as dealers pursuant to state law.
The Plan complies with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and provides for payment of a service
fee to dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the
Class, in amounts of up to 0.25% of the average net assets of such class of the
Portfolio attributable to the customers of such dealers or financial
institutions. Payments to dealers and other financial institutions in excess of
such amount and payments to FMC would be characterized as an asset-based sales
charge pursuant to the amended Plan. The Plan also imposes a cap on the total
amount of sales charges, including asset-based sales charges, that may be paid
by the Portfolio with respect to the class.
PERFORMANCE INFORMATION
As stated under the caption "Yield Information" in the Prospectus, yield
information for the shares of the class may be obtained by calling the Company
at (800) 877-7748.
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Calculations of yield will take into account the total income received by
the Portfolio, including taxable income, if any; however, the Company intends to
invest its assets so that 100% of its annual interest income will be tax-exempt.
To the extent that institutions charge fees in connection with services provided
in conjunction with the Company, the yield will be lower for those beneficial
owners paying such fees.
The current yields quoted for the Class will be the net average annualized
yield for an identified period, usually seven consecutive calendar days. Yields
for the 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 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.
In addition, the Company may furnish a tax equivalent yield which is the
rate an investor would have to earn from a fully taxable investment in order to
equal the share's yield after taxes. Tax equivalent yields are calculated by
dividing the share's yield by one minus the stated federal or combined federal
and state tax rate (if only a portion of the share's yield was tax-exempt, only
that portion is adjusted in the calculation).
For the seven-day period ended March 31, 1996, the current and effective
yield for the Class were 2.95% and 2.99%, respectively. Assuming a tax rate of
36% these yields for the Class on a tax-equivalent basis were 4.61% and 4.67%,
respectively.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Portfolio's investment objective and
fundamental and operating policies is set forth in the Prospectus. The
principal features of the Portfolio's investment program and the primary risks
associated with that investment program are also discussed in the Prospectus.
There can be no assurance that the Portfolio will achieve its objective. The
values of the securities in which the Portfolio invests fluctuate based upon
interest rates, the financial stability of the issuer and market factors. The
following is a more detailed description of the portfolio instruments eligible
for purchase by the Portfolio, which augments the summary of the Portfolio's
investment program which appears under the heading "Investment Program" in the
Prospectus.
As set forth in the Prospectus, the Portfolio will limit its purchases of
Municipal Securities (as hereinafter defined) to "First Tier" securities, as
such term is defined from time to time in Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Portfolio, an issue of Municipal
Securities may cease to be a First Tier security. Subject to certain exceptions
set forth in Rule 2a-7, such an event will not require the elimination of the
security from the Portfolio, but AIM will consider such an event to be relevant
in its determination of whether the Portfolio should continue to hold the
security. To the extent that the ratings applied by an NRSRO to Municipal
Securities may change as a result of changes in these rating systems, the
Company will attempt to use comparable ratings as standards for its investments
in Municipal Securities in accordance with the investment policies described
herein.
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The Portfolio may, from time to time, invest in taxable short-term
investments ("Temporary Investments") consisting of obligations of the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
(instruments under which the seller agrees to repurchase the security at a
specified time and price) relating thereto; commercial paper rated within the
highest rating category by a recognized rating agency; and certificates of
deposit of domestic banks with assets of $1.5 billion or more as of the date of
their most recently published financial statements. The Portfolio may invest in
Temporary Investments, for example, due to market conditions or pending the
investment of proceeds from the sale of shares of the Portfolio or proceeds from
the sale of Portfolio securities or in anticipation of redemptions. Although
interest earned from such Temporary Investments will be taxable as ordinary
income, the Portfolio intends to minimize taxable income through investment,
when possible, on short-term tax-exempt securities, which may include shares of
other investment companies whose dividends are tax-exempt. See "Investment
Restrictions" for limitations on the Fund's ability to invest in repurchase
agreements and in shares of other investment companies. It is a fundamental
policy of the Company that the Portfolio's assets will be invested so that at
least 80% of the Portfolio's income will be exempt from federal income taxes,
and it is the Company's present intention (but it is not a fundamental policy)
to invest the Portfolio's assets so that 100% of the Portfolio's annual interest
income will be tax-exempt. Accordingly, the Portfolio may hold cash reserves
pending the investment of such reserves in Municipal Securities.
MUNICIPAL SECURITIES
"Municipal Securities" include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the size and purpose of such issues. Such obligations are
considered to be Municipal Securities provided that the interest paid thereon,
in the opinion of bond counsel, qualifies as exempt from federal income tax.
However, interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. See "Dividends, Distributions and Tax Matters - Tax Matters" in
this Statement of Additional Information.
The two major classifications of Municipal Securities are bonds and notes.
Bonds may be further categorized as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments. Most notes are general obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. There are, of course,
variations in the risks associated with Municipal Securities, both within a
particular classification and between classifications. The Portfolio's assets
may consist of any combination of general obligation bonds, revenue bonds,
industrial revenue bonds and notes. The percentage of such Municipal Securities
in the Portfolio will vary from time to time.
For the purpose of the diversification requirements applicable to the
Portfolio, the identification of the issuer of Municipal Securities depends on
the terms and conditions of the security. When the assets and revenues of an
agency, authority, instrumentality or other political 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
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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
unless the value of all securities issued or guaranteed by such government or
other entity and owned by the Portfolio does not exceed 10% of the total assets
of the Portfolio. Certain Municipal Securities may be secured by the guaranty or
irrevocable letter of credit of a major banking institution, or the payment of
principal and interest when due may be insured by an insurance company.
The yields on Municipal Securities are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions of the Municipal Securities market, size of a particular offering,
maturity of the obligation, and rating of the issue. The yield realized by
holders of a class of a portfolio will be the yield realized by the portfolio on
its investments reduced by the general expenses of the Company and those
expenses attributable to such class. The market values of the Municipal
Securities held by the Portfolio will be affected by changes in the yields
available on similar securities. If yields increase following the purchase of a
Municipal Security the market value of such Municipal Security will generally
decrease. Conversely, if yields on such Municipal Security decrease, the market
value of such security will generally increase.
INVESTMENT RATINGS
The following is a description of the factors underlying the tax-exempt
debt ratings of Moody's, S&P and Fitch Investors Service, Inc. ("Fitch"):
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 edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds 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 risk 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.
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MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are
assigned; one representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade (or MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk, long-
term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature (i.e., a variable rate demand obligation or VRDO). Short-term ratings
on issues with demand features may be differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic demand rather
than fixed maturity dates, and payment relying on external liquidity.
Additionally, the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is not
met.
A VMIG rating may be assigned to commercial paper programs. Such
programs are characterized as having variable short-term maturities but having
neither a variable rate nor demand feature.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months.
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.
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S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based, in varying degrees, on the following
considerations: likelihood of default -capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation; nature of and provisions of the obligation;
and protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be
modified by the addition of a plus (+) sign or minus (-) sign to show relative
standing.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option
or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the demand feature (e.g.,
AAA/A-1+). With short-term demand debt, the note rating symbols are used with
the commercial paper rating symbols (e.g., SP-1+/A-l+).
S&P MUNICIPAL NOTE RATINGS
A S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a long-
term debt rating. The following criteria will be used in making that
assessment: amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note); and source of
payment (the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note).
The highest note rating symbol is as follows:
SP-1
Category denotes very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
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S&P COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
The highest rating category is as follows:
A-1
This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
FITCH BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guarantees unless otherwise
indicated.
Bonds that have the same ratings are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA
Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1."
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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.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Portfolio may purchase Municipal Securities on a "when-issued"
basis, that is, the date for delivery of and payment for the securities is not
fixed at the date of purchase, but is set after the securities are issued
(normally within forty-five days after the date of the transaction). The
Portfolio may purchase or sell Municipal Securities on a delayed delivery basis.
The payment obligation and the interest rate that will be received on the when-
issued securities are fixed at the time the buyer enters into the commitment.
The Portfolio will only make commitments to purchase when-issued or delayed
delivery Municipal Securities with the intention of actually acquiring such
securities, but the Portfolio may sell these securities before the settlement
date if it is deemed advisable. No additional when-issued or delayed delivery
commitments will be made if more than 25% of the Portfolio's net assets would
thereby become so committed.
If the Portfolio purchases a when-issued or delayed delivery security,
the Company will direct its custodian bank to segregate cash or other high grade
securities (including Temporary Investments and Municipal Securities) of the
Portfolio in an amount equal to the when-issued or delayed delivery commitment.
The segregated assets will be valued at market for the purpose of determining
the adequacy of the segregated securities. If the market value of such
securities declines, additional cash or securities will be segregated on a daily
basis so that the market value will equal the amount of the Portfolio's when-
issued or delayed delivery commitments. To the extent funds are segregated,
they will not be available for new investment or to meet redemptions.
Securities purchased on a when-issued or delayed delivery basis and
the other securities held in the Portfolio are subject to changes in market
value based upon the public's perception of the creditworthiness of the issuer
and changes in the level of interest rates (which will generally result in all
of those securities changing in value in the same way, i.e., experiencing
appreciation when interest rates fall). Therefore, if in order to achieve
higher interest income the Portfolio remains substantially fully invested at the
same time that it has purchased securities on a when-issued or delayed delivery
basis, there is a possibility that the Portfolio will experience greater
fluctuation in the market value of its assets.
Furthermore, when the time comes for the Portfolio to meet its
obligations under when-issued or delayed delivery commitments, the Portfolio
will do so by use of its then available cash, by the sale of
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segregated securities, by the sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued or delayed
delivery securities themselves (which may have a market value greater or less
than the Portfolio's payment obligation thereunder). The sale of securities to
meet such obligations carries with it a greater potential for the realization of
net short-term capital gains, which are not exempt from federal income taxes.
The value of when-issued or delayed delivery securities on the settlement date
may be more or less than the purchase price.
In a delayed delivery transaction, the Portfolio relies on the other
party to complete the transaction. If the transaction is not completed, the
Portfolio may miss a price or yield considered to be advantageous.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Portfolio may invest in Municipal Securities which have variable
or floating interest rates which are readjusted periodically. Such readjustment
may be based either upon a predetermined standard, such as a bank prime rate or
the U.S. Treasury bill rate, or upon prevailing market conditions. Variable or
floating interest rates generally reduce changes in the market price of
Municipal Securities from their original purchase price. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable or floating rate Municipal Securities than for
fixed rate obligations.
Many Municipal Securities with variable or floating interest rates
purchased by the Portfolio are subject to payment of principal and accrued
interest (usually within seven days) on the Portfolio's demand. The terms of
such demand instruments require payment of principal and accrued interest from
the issuer, a guarantor and/or a liquidity provider. All variable or floating
rate instruments will meet the quality standards of the Portfolio. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
Municipal Securities held by the Portfolio.
SYNTHETIC MUNICIPAL INSTRUMENTS
The Portfolio may invest in synthetic municipal instruments the value
of and return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Portfolio may invest include tender
option bonds and variable rate trust certificates. Both types of instruments
involve the deposit into a trust or custodial account of one or more long-term
tax-exempt bonds or notes ("Underlying Bonds"), and the sale of certificates
evidencing interests in the trust or custodial account to investors such as the
Portfolio. The trustee or custodian receives the long-term fixed rate interest
payments on the Underlying Bonds, and pays certificate holders short-term
floating or variable interest rates which are reset periodically. A "tender
option bond" provides a certificate holder with the conditional right to sell
(put) its certificate to the Sponsor or some designated third party at specified
intervals and receive the par value of the certificate plus accrued interest. A
"variable rate trust certificate" evidences an interest in a trust entitling the
certificate holder to receive variable rate interest based on prevailing short-
term interest rates and also typically providing the certificate holder with the
conditional right to put its certificate at par value plus accrued interest.
Because synthetic municipal instruments involve a trust or custodial
account and a third party conditional put feature, they involve complexities and
potential risks that may not be present where a municipal security is owned
directly. For further information regarding certain risks associated with
investing in synthetic municipal instruments see the Prospectus under the
caption "Investment Program--Synthetic Municipal Instruments."
INVESTMENT RESTRICTIONS
The most significant investment restrictions applicable to the
Portfolio's investment program are set forth in the Prospectus. Additionally,
as a matter of fundamental policy which may not be changed without a vote of all
classes of shareholders of the Portfolio, the Portfolio will not:
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(1) purchase any industrial development bond, if, as a result of such
purchase, more than 5% of the Portfolio's total assets would be invested in
securities of issuers, which, together with their predecessors, have been in
business for less than three years;
(2) borrow money or pledge, mortgage or hypothecate the assets of the
Portfolio except for temporary or emergency purposes and then only in an amount
not exceeding 10% of the value of the Portfolio's total assets, except that the
Portfolio may purchase when-issued securities consistent with the Portfolio's
investment objectives and policies; provided that the Portfolio will repay all
borrowings (other than when-issued purchases) before making additional
investments;
(3) lend money or securities except to the extent that the Portfolio's
investments may be considered loans;
(4) purchase or sell puts, calls, straddles, spreads or combinations
thereof, except that the Portfolio may purchase Stand-by Commitments;
(5) invest in shares of any other investment company, other than in
connection with a merger, consolidation, reorganization or acquisition of
assets, except that the Portfolio may invest up to 10% of its assets in
securities of other investment companies and then only for temporary purposes in
those investment companies whose dividends are tax-exempt; provided that the
Portfolio will not invest more than 5% of its assets in securities of any
investment company nor purchase more than 3% of the outstanding voting stock of
any investment company;
(6) invest in companies for the purpose of exercising control;
(7) underwrite any issue of securities, except to the extent that the
purchase of securities, either directly from the issuer or from an underwriter
for an issuer, and the later disposition of such securities in accordance with
the Portfolio's investment program, may be deemed an underwriting;
(8) purchase or sell real estate, but this shall not prevent
investments in securities secured by real estate or interests therein;
(9) sell, securities short or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions;
(10) 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
(11) purchase or sell commodities or commodity futures contracts or
interests in oil, gas or other mineral exploration or development programs.
The Company may, from time to time in order to qualify shares of the
Portfolio for sale in a particular state, agree to certain investment
restrictions in addition to or more stringent than those set forth above. Such
restrictions are not fundamental and may be changed without the approval of
shareholders.
Pursuant to an undertaking made to the Ohio Department of Commerce,
Division of Securities, the Portfolio will not purchase the securities of any
issuer if, as to 75% of the total assets of the Portfolio, more than 10% of the
voting securities of such issuer would be held by the Portfolio at the time of
purchase.
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PORTFOLIO TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the
Company, for selection of broker-dealers and for negotiation of commission
rates. Since purchases and sales of portfolio securities by the Company are
usually principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Company may also purchase securities from underwriters at prices
which include a commission paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order. To the
extent that the executions 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 Company. Similarly, any research services received by AIM
through placement of portfolio transactions of other clients may be of value to
AIM in fulfilling its obligations to the Company. AIM is of the opinion that
the material received is beneficial in supplementing AIM's research and
analysis; and therefore, such material may benefit the Company by improving the
quality of AIM's investment advice. The advisory fee paid by the Portfolio is
not reduced because AIM receives such services; however, because AIM must
evaluate information received as a result of such services, receipt of such
services does not reduce AIM's workload.
Under the 1940 Act, persons affiliated with the Company are prohibited
from dealing with the Company as principal in any purchase or sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC.
Furthermore, the 1940 Act prohibits the Company from purchasing a security being
publicly underwritten by a syndicate of which persons affiliated with the
Company are a member except in accordance with certain conditions. These
conditions may restrict the ability of the Portfolio to purchase Municipal
Market obligations being publicly underwritten by such a syndicate, and the
Portfolio may be required to wait until the syndicate has been terminated before
buying such securities. At such time, the market price of the securities may be
higher or lower than the original offering price. A person affiliated with the
Company may, from time to time, serve as placement agent or financial advisor to
an issuer of Municipal Market obligations and be paid a fee by such issuer. The
Portfolio may purchase such Municipal Market obligations directly from the
issuer, provided that the purchase made in accordance with procedures adopted by
the Company's Board of Directors and any such purchases are reviewed at least
quarterly by the Company's Board of Directors and a determination is made that
all such purchases were effected in compliance with such procedures, including a
determination that the placement fee or other remuneration paid by the issuer
to the person affiliated with the Company was fair and reasonable in relation to
the fees charged by others performing similar services. During the fiscal years
ended March 31, 1996, 1995 and 1994, no securities or instruments were purchased
by the Portfolio from issuers who paid placement fees or other compensation to a
broker affiliated with the Portfolio.
From time to time, the Company may sell a security, or purchase a
security from an AIM Fund or another investment account advised by AIM or A I M
Capital Management, Inc. ("AIM Capital"), when such transactions comply with
applicable rules and regulations and are deemed consistent with the investment
objective(s) and policies of the investment accounts advised by AIM or AIM
Capital. Procedures pursuant to Rule 17a-7 under the 1940 Act regarding
transactions between investment accounts advised by AIM or
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AIM Capital have been adopted by the Boards of Directors/Trustees of the various
AIM Funds, including the Company. Although such transactions may result in
custodian, tax or other related expenses, no brokerage commissions or other
direct transaction costs are generated by transactions among the investment
accounts advised by AIM or AIM Capital.
Provisions of the 1940 Act and rules and regulations thereunder have
also been construed to prohibit the Company from purchasing securities or
instruments from, or selling securities or instruments to, any holder of 5% or
more of the voting securities of any investment company managed or advised by
AIM. The Company has obtained an order of exemption from the SEC which permits
the Company to engage in certain transactions with such 5% holder, if the
Company complies with conditions and procedures designed to ensure that such
transactions are executed at fair market value and present no conflicts of
interest.
Some of the AIM Funds may have objectives similar to those of the
Portfolio. It is possible that at times, identical securities will be
acceptable for one or more of such investment companies. However, the position
of each account in the securities of the same issue may vary and the length of
time that each account may choose to hold its investment in the securities of
the same issue may likewise vary. The timing and amount of purchase by each
account will also be determined by its cash position. If the purchase or sale
of securities consistent with the investment policies of the Portfolio and one
or more of these accounts is considered at or about the same time, transactions
in such securities will be allocated in good faith among the Portfolio and such
accounts in a manner deemed equitable by AIM. AIM may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution. Simultaneous
transactions could adversely affect the ability of the Portfolio to obtain or
dispose of the full amount of a security which it seeks to purchase or sell.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Net investment income for the Portfolio is declared as a dividend to
the shareholders of record of the Company on each business day of the Company.
The dividend declared on any day preceding a non-business day will include the
income accrued on such non-business day. Dividends will be paid monthly. Net
realized capital gains, if any, are normally distributed annually. The Company
may distribute realized capital gains of the Portfolio more often if deemed
necessary in order to maintain the net asset value of the Portfolio at $1.00 per
share. However, the Company does not expect the Portfolio to realize net long-
term capital gains. Dividends and distributions are paid in cash unless the
shareholder has elected to reinvest such dividends and distributions in
additional full and fractional shares at the net asset value thereof.
The dividend accrued and paid for each class will consist of: (a)
income for the Portfolio, the allocation of which is based upon each such
class's pro rata share of the total shares outstanding which relate to the
Portfolio, less (b) Company expenses accrued for the applicable dividend period
attributable to the Portfolio, such as custodian fees, directors' fees,
accounting and legal expenses, allocated based upon each class's pro rata share
of the net assets of the Portfolio, less (c) expenses directly attributable to
each class which are accrued for the applicable dividend period, such as
distribution expenses, if any, transfer agent fees or registration fees which
may be unique to such class. Dividends are accrued for the Class as follows:
dividends are declared to shareholders of record immediately following the
determination of the net asset value of the Portfolio. Accordingly, dividends
accrue on the first day that a purchase order for shares is effective, but not
on the day that a redemption order is effective. Thus, if a purchase order is
accepted prior to 12:00 noon Eastern Time, the shareholder will receive its pro
rata share of dividends beginning with those declared on that day.
Should the Company incur or anticipate any unusual expense, loss or
depreciation, which would adversely affect the net asset value per share of the
Portfolio or the net income per share of a class of the Portfolio for a
particular period, the Board of Directors would at that time consider whether to
adhere to the present dividend policy described above or to revise it in light
of then prevailing circumstances. For example,
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if the net asset value per share of the Portfolio were reduced, or were
anticipated to be reduced, below $1.00, the Board of Directors might suspend
further dividend payments on shares of the Portfolio until the net asset value
returns to $1.00. Thus, such expense or loss or depreciation might result in a
shareholder receiving no dividends for the period during which it held shares of
the Portfolio and/or in its receiving upon redemption a price per share lower
than that which it paid.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Portfolio has elected to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least (a)
90% of its investment company taxable income (i.e., net investment income and
the excess of net short-term capital gain over net long-term capital loss) and
(b) 90% of its tax-exempt income (net of allocable expenses and amortized bond
premium) for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Distributions
by the Portfolio made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income from the sale or other disposition of stock,
securities or foreign currencies (or options, futures or forward contracts
thereon) held for less than three months (the "Short-Short Gain Test"). Because
of the Short-Short Gain Test, the Portfolio may have to limit the sale of
appreciated securities that it has held for less than three months. However,
the Short-Short Gain Test will not prevent the Portfolio from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by the Portfolio at maturity or upon the disposition of
a security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In addition to satisfying the requirements described above, the
Portfolio must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter of
the Portfolio's taxable year, at least 50% of the value of the Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value of
the Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses.
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If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Portfolio's current and accumulated
earnings and profits.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. Undistributed
tax-exempt interest on Municipal Securities is not subject to the excise tax.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Portfolio may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
DISTRIBUTIONS
The Portfolio intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Portfolio's
taxable year at least 50% of the Portfolio's total assets consists of Municipal
Securities. Distributions from the Portfolio will constitute exempt-interest
dividends to the extent of the Portfolio's tax-exempt interest income (net of
allocable expenses and amortized bond premium). Exempt-interest dividends
distributed to shareholders of the Portfolio are excluded from gross income for
federal income tax purposes. However, shareholders required to file a federal
income tax return will be required to report the receipt of exempt-interest
dividends on their returns. Moreover, while exempt-interest dividends are
excluded from gross income for federal income tax purposes, they may be subject
to alternative minimum tax ("AMT") in certain circumstances and may have other
collateral tax consequences as discussed below. Distributions by the Portfolio
of any investment company taxable income or of any net capital gain will be
taxable to shareholders as discussed below.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed 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.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income subject to federal income
tax. Further, a shareholder of the Portfolio is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the
Portfolio. Moreover, a shareholder who is (or is related to) a "substantial
user" of a facility financed by industrial development bonds held by the
Portfolio will likely be subject to tax on dividends paid by the Portfolio which
are derived from interest on such bonds. Receipt of exempt-interest dividends
may result in other collateral federal income tax consequences to certain
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taxpayers, including financial institutions, property and casualty insurance
companies and foreign corporations engaged in a trade or business in the United
States. Prospective investors should consult their own tax advisers as to such
consequences.
The Portfolio anticipates distributing substantially all of its
investment company taxable income, if any, for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will not qualify for the
dividends-received deduction for corporations.
The Portfolio may either retain or distribute to shareholders its net
capital gain, if any, for each taxable year. If net capital gain is distributed
and designated as a capital gain dividend, it will be taxable to shareholders as
long-term capital gain, regardless of the length of time the shareholder has
held his shares or whether such gain was recognized by the Portfolio prior to
the date on which the shareholder acquired his shares. Realized market discount
on Municipal Securities purchased after April 30, 1993, will be treated as
ordinary income and not as capital gain.
Distributions by the Portfolio that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of his
shares.
Distributions by the Portfolio will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another portfolio). Shareholders
electing to reinvest a distribution in additional shares will be treated as
receiving a distribution in an amount equal to the net asset value of the shares
acquired, determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by the
Portfolio into account in the year in which the distributions are made.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a specified date in such a month will be
deemed to have been received by the shareholders (and made by the Portfolio) on
December 31 of such calendar year if such dividends are actually paid in January
of the following year. Shareholders will be advised annually as to the U.S.
federal income tax consequences of distributions made (or deemed made) during
the year.
The Portfolio will be required in certain cases to withhold and remit
to the U.S. Treasury 31% of ordinary income dividends and capital gain
dividends, if any, and the proceeds of redemption of shares, paid to any
shareholder (1) who has provided either an incorrect tax identification number
or no number at all, (2) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to a Portfolio that it is not subject
to backup withholding or that it is a corporation or other "exempt recipient."
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Portfolio is "effectively connected" with a U.S. trade or business carried
on by such shareholder.
If the income from the Portfolio is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends (including short-term capital gains) and return of capital
distributions will be subject to U.S. withholding tax at the rate of 30% (or
lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Portfolio, capital gain dividends (if any)
and exempt-interest dividends.
If the income from the Portfolio is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends (if any) and any gains realized
29
<PAGE>
upon the sale of shares of the Portfolio will be subject to U.S. federal income
tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Portfolio may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
(other than exempt-interest dividends) that are otherwise exempt from
withholding tax (or taxable at a reduced treaty rate) unless such shareholders
furnish the Portfolio with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Recently proposed regulations may change information provided here.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Portfolio,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Shareholders are urged to consult their tax advisers as to the
consequences of these and other state and local tax rules affecting investment
in the Portfolio.
30
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Tax-Free Investments Co.
We have audited the accompanying statement of assets and liabilities of the
Cash Reserve Portfolio (a Portfolio of Tax-Free Investments Co.), including the
schedule of investments, as of March 31, 1996, 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 four-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cash Reserve Portfolio as of March 31, 1996, 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 four-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 3, 1996
FS-1
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1996
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA - 4.02%
Birmingham (City of); General
Obligation Series 1994-A Warrants
3.60% 06/01/18(b)(c) A-1+ VMIG-1 $ 3,000 $ 3,000,000
- ------------------------------------------------------------------------------
Birmingham (City of); Series 1995
General Obligation
Refunding Bonds
3.45% 06/01/23(b)(c) A-1+ VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
BMC Special Care Facilities Financing
Authority; Variable Rate Hospital
Series 1985 RB
3.30% Series B 12/01/30(b)(d) A-1 Aaa 3,200 3,200,000
- ------------------------------------------------------------------------------
3.30% Series C 12/01/30(b)(d) A-1 Aaa 3,075 3,075,000
- ------------------------------------------------------------------------------
3.30% Series D 12/01/30(b)(d) A-1 Aaa 4,000 4,000,000
- ------------------------------------------------------------------------------
3.30% Series E 12/01/30(b)(d) A-1 Aaa 4,400 4,400,000
- ------------------------------------------------------------------------------
3.30% Series H 12/01/30(b)(d) A-1 Aaa 1,500 1,500,000
- ------------------------------------------------------------------------------
Jefferson (County of); Sewer Series
1995-A Revenue Warrants
3.45% 09/01/25(b)(c) A-1+ VMIG-1 15,000 15,000,000
- ------------------------------------------------------------------------------
Marshall (County of); Special
Obligation School Refunding Series
1994 Warrants
3.50% 02/01/12(b)(c) A-1+ -- 2,850 2,850,000
- ------------------------------------------------------------------------------
42,025,000
- ------------------------------------------------------------------------------
ALASKA - 0.19%
North Slope (Borough of); Series 1994
B GO
5.20% 06/30/96(d) AAA Aaa 2,000 2,008,098
- ------------------------------------------------------------------------------
ARIZONA - 2.21%
Arizona (State of) Agricultural
Improvement and Power District (Salt
River Project); Promissory Notes
3.65% 04/04/96 A-1+ P-1 8,573 8,573,000
- ------------------------------------------------------------------------------
Arizona State University; RB
7.50% 07/01/96(e)(f) -- AAA 1,500 1,545,397
- ------------------------------------------------------------------------------
Chandler (City of) Industrial
Development Authority (Southpark
Apartment Project); Multifamily
Housing Series 1989 RB
3.40% 12/01/02(b)(c) A-1+ -- 1,500 1,500,000
- ------------------------------------------------------------------------------
Maricopa County High School District
No. 210; Series A BAN
3.75% 07/01/96 AA Aa 1,500 1,499,520
- ------------------------------------------------------------------------------
Phoenix (City of); Refunding Series
1992 B GO
5.05% 07/01/96 AA+ Aa1 1,035 1,038,371
- ------------------------------------------------------------------------------
Phoenix (City of); Series 1995 A-2 RB
3.80% 06/01/20(b) A-1+ Aa1 1,000 1,000,000
- ------------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Arizona - (continued)
Phoenix (City of) Industrial
Development Authority (Southwest
Villages Project); Variable Rate
Demand Multifamily Housing Series
1985 A RB
3.40% 12/01/06(b)(c) A-1+ -- $ 4,300 $ 4,300,000
- -------------------------------------------------------------------------------
Scottsdale (City of) Municipal
Property Corp.; Series 1986 COP
7.875% 11/01/96(d)(e) AAA Aaa 1,400 1,460,041
- -------------------------------------------------------------------------------
Tempe (City of) Industrial
Development Authority (Elliot's
Crossing Apartment Project);
Variable Rate Demand Multifamily
Housing Series 1985 RB
3.40% 10/01/08(b)(c) A-1+ -- 2,150 2,150,000
- -------------------------------------------------------------------------------
23,066,329
- -------------------------------------------------------------------------------
ARKANSAS - 0.11%
Arkansas (State of); College Savings
GO
3.65% 06/01/96 AA Aa 1,100 1,099,345
- -------------------------------------------------------------------------------
COLORADO - 2.66%
Adams (County of) Industrial
Development (Clear Creek Business);
RB
3.40% 11/01/08(b)(c) -- VMIG-1 6,500 6,500,000
- -------------------------------------------------------------------------------
Colorado (State of) General Fund;
Series A TRAN
4.50% 06/27/96 SP-1+ - 1,000 1,002,423
- -------------------------------------------------------------------------------
Colorado Health Facilities Authority
(Boulder Community Hospital
Project); Variable Rate Demand
Hospital Series 1989 RB
3.35% 10/01/14(b)(d) A-1+ VMIG-1 3,310 3,310,000
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Winridge Project); Adjustable
Reference Multifamily Housing Series
1993 RB
3.40% 02/01/23(b)(c) A-1+ -- 5,715 5,715,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.40% 07/01/06(b)(c) - VMIG-1 3,700 3,700,000
- -------------------------------------------------------------------------------
Pitkin (County of) (Centennial-Aspen
Project); Multifamily Housing Series
1984 RB
3.40% 04/01/07(b)(c) -- VMIG-1 7,700 7,700,000
- -------------------------------------------------------------------------------
27,927,423
- -------------------------------------------------------------------------------
DELAWARE - 0.10%
Delaware (State of); Series 1986 A GO
7.50% 07/01/96(e)(f) AAA Aaa 1,000 1,030,102
- -------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 2.46%
District of Columbia (American
Association for the Advancement of
Science); Series 1995 RB
3.75% 10/01/22(b)(c) A-1 VMIG-1 21,850 21,850,000
- -------------------------------------------------------------------------------
District of Columbia (The American
University Issue); Variable Rate
Weekly Demand Series 1985 RB
3.40% 10/01/15(b)(c) -- VMIG-1 3,800 3,800,000
- -------------------------------------------------------------------------------
25,650,000
- -------------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
FLORIDA - 6.27%
Dade (County of) Health Facilities
Authority (Miami Children's Hospital
Project); Series 1990 Hospital RB
3.85% 09/01/20(b)(c) - VMIG-1 $ 2,600 $ 2,600,000
- -------------------------------------------------------------------------------
Eagle Tax-Exempt Trust; Series 950901
A COP
3.52% 06/01/21(b)(d)(g) A-1+c -- 12,700 12,700,000
- -------------------------------------------------------------------------------
Florida (State of); Pollution Control
GO
7.125% Series 1986 T 07/01/96(e)(f) -- AAA 900 925,348
- -------------------------------------------------------------------------------
7.20% Series 1986 T 07/01/96(e)(f) -- Aaa 2,495 2,567,116
- -------------------------------------------------------------------------------
Florida State General Services
Department (Florida Facilities
Pool); Facilities Management Series
1986 RB
7.75% 09/01/96(e)(f) AAA Aaa 1,500 1,556,916
- -------------------------------------------------------------------------------
Hillsborough County Industrial
Development Authority (Tampa
Electric Co. Project); Refunding
Series 1990 PCR
3.85% 09/01/25(b)(d) AA VMIG-1 2,800 2,800,000
- -------------------------------------------------------------------------------
Pinellas (County of) Health
Facilities Authority (Pooled
Hospital Loan Program); Series 1985
RB
3.85% 12/01/15(b)(c) A-1 VMIG-1 3,200 3,200,000
- -------------------------------------------------------------------------------
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Cooperative Finance Corp. Guaranteed
Semiannual Adjustable Series 1984 H-
4 PCR
3.25% 09/15/96(c)(e) A-1+ MIG-1 3,500 3,500,000
- -------------------------------------------------------------------------------
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Cooperative Finance Corp. Guaranteed
Floating/Fixed Rate PCR
3.40% Pooled Series 1984H-1
03/15/14(b)(c) A-1+ P-1 4,015 4,015,000
- -------------------------------------------------------------------------------
3.40% Pooled Series 1984H-2
03/15/14(b)(c) A-1+ P-1 1,650 1,650,000
- -------------------------------------------------------------------------------
Sunshine State Governmental Financing
Commission; Commercial Paper Notes
3.25% 05/20/96(d) A-1+ -- 15,000 15,000,000
- -------------------------------------------------------------------------------
3.20% 08/09/96(d) A-1+ -- 15,000 15,000,000
- -------------------------------------------------------------------------------
65,514,380
- -------------------------------------------------------------------------------
GEORGIA - 1.88%
Cobb (County of); Water and Sewer
Series 1985 RB
9.50% 07/01/96(e)(f) AAA Aaa 1,500 1,552,005
- -------------------------------------------------------------------------------
Decatur County Bainbridge Industrial
Development Authority (Kaiser
Agriculture Chemical Inc. Project);
Series 1985 IDR
3.45% 12/01/02(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
Development Authority of DeKalb
County (Radiation Sterilizers, Inc.
Project); Variable Rate Demand
Series 1985 IDR
3.50% 03/01/05(b)(c) A-1 -- 4,600 4,600,000
- -------------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Georgia - (continued)
Housing Authority of Cobb County
(Terrell Mill II Associates, Ltd.
Project); Multifamily Housing
Refunding Series 1993 RB
3.45% 12/01/05(b)(c) A-1 -- $10,000 $ 10,000,000
- -------------------------------------------------------------------------------
19,652,005
- -------------------------------------------------------------------------------
ILLINOIS - 11.90%
Burbank (City of) (Service
Merchandise Co. Inc. Project);
Floating Rate Monthly Demand
Industrial Building Series 1984 RB
3.45% 09/15/24(b)(c) A-1+ -- 3,600 3,600,000
- -------------------------------------------------------------------------------
Chicago (City of) Tender Notes Series
1996 GO
3.10% 02/04/97(c)(e) SP-1 MIG-1 28,300 28,262,618
- -------------------------------------------------------------------------------
Chicago (City of) (O'Hare
International Airport); General
Airport Second Lien Series 1994 C RB
3.35% 01/01/18(b)(c) A-1+ VMIG-1 3,400 3,400,000
- -------------------------------------------------------------------------------
Chicago School Reform Board of
Trustees (Chicago School Reform
Board of Trustees Equipment
Acquisition Project); Series 1995
COP
3.70% 12/01/96(c) AA- -- 4,000 4,000,000
- -------------------------------------------------------------------------------
Cook (County of) (Catholic Charities
Housing Development Corp. Project);
Adjustable Demand Series 1988 A-1 RB
3.45% 01/01/28(b)(c) -- VMIG-1 1,700 1,700,000
- -------------------------------------------------------------------------------
Cook (County of) Township High School
District No. 211 (Palatine and
Schaumburg, Illinois); Limited
School Tax Series 1995 GO
4.25% 12/01/96 AA Aa1 6,140 6,177,754
- -------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East
Peoria Partnership Project);
Multifamily Housing Series 1983 RB
3.55% 06/01/08(b)(c) -- Aa3 6,345 6,345,000
- -------------------------------------------------------------------------------
Illinois (State of); Series 1981 GO
11.00% 11/01/96(e)(f) AAA Aaa 2,000 2,108,026
- -------------------------------------------------------------------------------
Illinois (State of); Series August
1995 RAN
4.50% 05/10/96 SP-1+ MIG-1 5,000 5,003,629
- -------------------------------------------------------------------------------
Illinois (State of); Series August
1995-June 1996 RAN
4.50% 06/10/96 SP-1+ MIG-1 2,060 2,063,058
- -------------------------------------------------------------------------------
Illinois (State of) Metropolitan Fair
and Exposition Authority; Series
1996 RB
8.00% 06/01/96(e)(f) AAA -- 1,000 1,027,035
- -------------------------------------------------------------------------------
Illinois Development Finance
Authority (Institutional Gas
Technology Project); Variable Rate
Series 1993 RB
3.40% 09/01/18(b)(c) A-1+ -- 2,700 2,700,000
- -------------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Illinois - (continued)
Illinois Development Finance Authority
(Jewish Charities Revenue Anticipation
Notes Program); Variable Rate Demand
Series 1995-1996 B RAN
3.50% 06/28/96(b)(c) A-1+ -- $ 5,030 $ 5,030,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(DePaul University Project); Series 1992
CP-1 RB
3.40% 04/01/26(b)(c) A-1+ VMIG-1 8,700 8,700,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Highland Park Hospital); Adjustable Rate
Series 1991 B RB
4.00% 06/01/96(d)(e) A-1+ VMIG-1 8,000 8,000,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Demand Series 1995 RB
3.70% 08/15/25(b)(d) A-1+ VMIG-1 2,600 2,600,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(South Suburban Hospital Project);
Variable Rate Demand Series 1994 RB
3.45% 02/15/14(b)(c) A-1+ -- 12,500 12,500,000
- -------------------------------------------------------------------------------
Marseilles (City of) (Kaiser Agricultural
Chemicals Inc. Project); Variable Rate
Demand Series 1985 IDR
3.45% 01/01/98(b)(c) A-1+ -- 4,650 4,650,000
- -------------------------------------------------------------------------------
Oak Forest (City of) (Homewood Pool);
Series 1989 RB
3.45% 07/01/24(b)(c) -- VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
University of Illinois (University of
Illinois Natural Gas Purchase Project);
Series 1995 COP
4.30% 04/01/96(d) AAA Aaa 1,085 1,085,000
- -------------------------------------------------------------------------------
Village of Lisle (Four Lakes Project);
Multi-Family Housing
Series 1985 A RB
3.45% 04/01/19(b)(c) A-1 -- 1,400 1,400,000
- -------------------------------------------------------------------------------
Village of Northbrook (Euromarket Designs,
Inc. Project); Variable Rate Demand
Refunding Series 1993 IDR
3.40% 07/01/02(b)(c) A-1+ -- 3,400 3,400,000
- -------------------------------------------------------------------------------
Winnebage and Boone (Counties of) School
District No. 206; Tax Anticipation
Warrants Series 1996 GO
4.35% 10/30/96(d) SP-1 MIG-1 7,500 7,551,234
- -------------------------------------------------------------------------------
124,303,354
- -------------------------------------------------------------------------------
INDIANA - 2.00%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate Demand Economic
Development Series 1985 RB
3.50% 07/01/10(b)(c) -- VMIG-1 1,200 1,200,000
- -------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Indiana - (continued)
Indiana (State of) (Advance Funding
Project); Series 1996 A-2 RAN
4.25% 01/09/97 SP-1+ MIG-1 $14,000 $ 14,078,663
- -------------------------------------------------------------------------------
Indiana Housing Finance Authority; Single
Family Mortgage
Series 1994 D RB
3.90% 07/01/96(d)(e) -- VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Indianapolis (City of); Public
Improvement Bond Series F RAN
4.50% 07/11/96(d) A-1+ P-1 1,300 1,302,813
- -------------------------------------------------------------------------------
Jasper (County of) (Northern Indiana
Public Service Co. Project); Variable
Rate Demand Refunding Series 1994 A PCR
3.85% 08/01/10(b)(c) A-1+ VMIG-1 1,300 1,300,000
- -------------------------------------------------------------------------------
20,881,476
- -------------------------------------------------------------------------------
IOWA - 0.74%
Iowa (State of) School Corporations
(Corporations of Iowa School Cash
Anticipation Program); Warrant
Certificates Series 1995-1996 B TRAN
4.25% 01/30/97(d) SP-1+ MIG-1 1,000 1,006,840
- -------------------------------------------------------------------------------
Waterloo (City of) Civic Center Hotel
Company; Series 1983 IDR
3.45% 11/01/08(b)(d) A-1 -- 6,700 6,700,000
- -------------------------------------------------------------------------------
7,706,840
- -------------------------------------------------------------------------------
KANSAS - 0.94%
Kansas State Development Finance
Authority (Water Pollution Control-SRF);
Series 1993 I RB
4.30% 11/01/96 -- Aa1 1,250 1,254,232
- -------------------------------------------------------------------------------
Mission (City of) (Woodland Village
Project); Multifamily Housing Series
1985 RB
3.40% 12/01/97(b)(c) A-1 -- 8,600 8,600,000
- -------------------------------------------------------------------------------
9,854,232
- -------------------------------------------------------------------------------
KENTUCKY - 1.24%
Kentucky State Turnpike Authority;
Economic Development Road Series A RB
7.875% 07/01/96(e)(f) AAA Aaa 3,550 3,660,865
- -------------------------------------------------------------------------------
Mason County (East Kentucky Power
Cooperative, Inc. Project); National
Rural Utilities Cooperative Finance
Corp. Guaranteed Floating/Fixed Rate
Pooled Series 1984 B-1 PCR
3.40% 10/15/14(b)(c) A-1+ Aa3 9,300 9,300,000
- -------------------------------------------------------------------------------
12,960,865
- -------------------------------------------------------------------------------
LOUISIANA - 2.98%
DeSoto (Parish of) (Central Louisiana
Electric Company); Refunding Series 1991
A PCR
3.30% 07/01/18(b)(c) A-1+ VMIG-1 8,410 8,410,000
- -------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Louisiana - (continued)
Louisiana (State of); Series 1993 B GO
4.20% 08/01/96(d) AAA Aaa $ 1,000 $ 1,001,450
- -----------------------------------------------------------------------------
Louisiana Offshore Terminal Authority
(LOOP Inc. Project); Deepwater Port
Refunding Series 1992 A RB
3.85% 09/01/08(b)(c) A-1+ VMIG-1 2,100 2,100,000
- -----------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Greenbriar Hospital Inc. Project);
Variable Rate Demand Series 1984 RB
3.45% 11/01/14(b)(c) -- Aa2 2,000 2,000,000
- -----------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Will-Knighton Medical Center
Project); Hospital Series 1995 RB
3.50% 09/01/25(b)(d) A-1 VMIG-1 11,000 11,000,000
- -----------------------------------------------------------------------------
Plaquemine Port Harbor & Terminal
Authority (TECO Energy, Inc.); Marine
Terminal Facility Refunding Series
1985 D RB
3.45% 04/01/96(d)(e) -- P-1 5,600 5,600,000
- -----------------------------------------------------------------------------
South Louisiana Port Commission Marine
Terminal Facilities (Occidental
Petroleum Corp. Project); Refunding
Series 1991 RB
3.35% 07/01/21(b)(c) A-1+ VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------------------
31,111,450
- -----------------------------------------------------------------------------
MARYLAND - 0.34%
Prince George (County of) Housing
Authority (Laurel-Oxford Associates
Apartment Project); Mortgage Series
1985 RB
3.425% 10/01/07(b)(c) -- VMIG-1 3,500 3,500,000
- -----------------------------------------------------------------------------
MASSACHUSETTS - 0.29%
Massachusetts Muni Wholesale Electric;
Co-power Supply Systems Series A RB
3.60% 07/01/96(d) AAA Aaa 3,000 3,002,480
- -------------------------------------------------------------------------------
MICHIGAN - 4.25%
Charter County of Wayne; Downriver
Sewage Disposal System Adjustable Rate
Series 1994 B Limited Tax GO
3.30% 06/17/96(c)(e) A-1 VMIG-1 8,170 8,170,000
- -----------------------------------------------------------------------------
Jackson County Economic Development
Corp. (Sealed Power Corp.); Economic
Development Variable Refunding RB
3.50% 10/01/19(b)(c) -- VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------------------
Michigan Municipal Bond Authority;
Series 1995 B RB
4.50% 07/03/96 SP-1+ -- 4,000 4,006,851
- -----------------------------------------------------------------------------
Michigan State Hospital Finance
Authority
(Hospital Equipment Loan Program);
Hospital RB
3.55% Pooled Series 1994 A
12/01/23(b)(c) -- VMIG-1 4,200 4,200,000
- -----------------------------------------------------------------------------
3.55% Pooled Series 1995 A
12/01/23(b)(c) -- VMIG-1 3,400 3,400,000
- -----------------------------------------------------------------------------
3.55% Series 1996 A 12/01/23(b)(c) -- VMIG-1 5,000 5,000,000
- -----------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Michigan - (continued)
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited Obligation
Series 1985 RB
3.35% 10/01/15(b)(c) -- VMIG-1 $ 3,750 $ 3,750,000
- -------------------------------------------------------------------------------
Michigan Strategic Fund (The Norcor Corp.
Project); IDR
3.40% 12/01/00(b)(c) -- P-1 4,400 4,400,000
- -------------------------------------------------------------------------------
University of Michigan (University of
Michigan Hospital); Variable Rate Demand
Hospital Refunding Series 1995 A RB
3.85% 12/01/27(b)(d) -- VMIG-1 2,900 2,900,000
- -------------------------------------------------------------------------------
Wayne County School District; State
School Aid
Series 1995 Limited Tax GO
4.50% 05/01/96(e) SP-1+ -- 7,500 7,503,884
- -------------------------------------------------------------------------------
44,330,735
- -------------------------------------------------------------------------------
MINNESOTA - 1.29%
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
3.40% 03/01/11(b)(d) AA- A1 2,900 2,900,000
- -------------------------------------------------------------------------------
Minneapolis (City of) Community
Development Agency (Walker Methodist
Health Systems); Adjustable Refunding
Series 1995 RB
3.45% 04/01/10(b)(c) A-1 -- 6,000 6,000,000
- -------------------------------------------------------------------------------
Red Wing (City of) Industrial Development
Authority (Northern States Power Co.);
Floating Rate Collateralized Series 1985
PCR
3.40% 03/01/11(b)(d) AA- A1 4,600 4,600,000
- -------------------------------------------------------------------------------
13,500,000
- -------------------------------------------------------------------------------
MISSISSIPPI - 0.55%
Jackson (County of) (Chevron
Corporations); Water Systems RB
3.30% 08/01/96(d)(e) -- VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Mississippi (State of); Capital
Improvement Series A GO
5.50% 05/01/96 AA- Aa 2,705 2,708,946
- -------------------------------------------------------------------------------
State Environment Improvement & Energy
Resources Authority (Union Electric Co.
Project); Adjustable-Fixed Rate Series
1984 A PCR
4.00% 06/01/96(c) A-1+ P-1 1,000 1,000,000
- -------------------------------------------------------------------------------
5,708,946
- -------------------------------------------------------------------------------
MISSOURI - 4.80%
Independence (City of) Industrial
Development Authority (The Independence
Ridge Apartment Project); Multi-Family
Housing Series 1985 RB
3.40% 12/01/15(b)(c) A-1+ -- 9,500 9,500,000
- -------------------------------------------------------------------------------
Kansas City (City of) Industrial
Development Authority (The Lorcarno
Multifamily Housing Project); Variable
Rate Demand Multifamily Housing Series
1985 RB
3.40% 12/01/15(b)(c) A-1+ -- 6,600 6,600,000
- -------------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Missouri - (continued)
Missouri Health & Educational Facilities
Authority; School District Advance
Refunding Program Series 1995 Notes
4.50% 08/19/96 SP-1+ -- $ 3,840 $ 3,847,739
- -------------------------------------------------------------------------------
Missouri Health & Educational Facilities
Authority (SSM Health Care Project);
Health Facilities Tax-Exempt Insured
Variable Rate Demand Series 1995 B RB
3.30% 06/01/22(b)(d) A-1+ Aaa 10,700 10,700,000
- -------------------------------------------------------------------------------
Missouri State Environmental Improvement
& Energy Resource Authority (Associated
Electric Cooperative, Inc. Project);
Pooled Series 1993-M RB
3.40% 12/15/03(b)(c) AA- VMIG-1 2,770 2,770,000
- -------------------------------------------------------------------------------
Saint Louis (City of) Industrial
Development Authority (Sugar Pines
Apartment Project); Multifamily Housing
Series 1991 A RB
3.40% 07/15/06(b)(c) A-1+ -- 9,785 9,785,000
- -------------------------------------------------------------------------------
Saint Louis County Industrial Development
Authority (Bonhomme Village Apartments
Association Project); Variable Rate
Demand Housing Series 1985 RB
3.60% 10/01/07(b)(d) -- VMIG-1 6,900 6,900,000
- -------------------------------------------------------------------------------
50,102,739
- -------------------------------------------------------------------------------
MONTANA - 0.68%
Forsyth (City of) (Portland General
Electric Company Colstrip Project);
Flexible Demand Series 1983 A PCR
3.30% 06/01/13(b)(c) A-1+ P-1 7,100 7,100,000
- -------------------------------------------------------------------------------
NEBRASKA - 0.50%
Nebraska Public Power District; Series B
Commercial Paper Notes
3.65% 04/02/96 A-1 P-1 4,165 4,165,000
- -------------------------------------------------------------------------------
Omaha Public Power District; Nebraska
Electric Series 1993 D RB
3.90% 02/01/97 AA Aa 1,000 1,005,712
- -------------------------------------------------------------------------------
5,170,712
- -------------------------------------------------------------------------------
NEVADA - 0.58%
Clark (County of) (Nevada Power Company
Project); Series 1995 D-1 PCR
3.35% 10/01/11(b)(c) A-1+ -- 2,600 2,600,000
- -------------------------------------------------------------------------------
Director of Nevada State Department of
Commerce (FMC Corp. Project); Series
1985 IDR
4.00% 09/15/96(c)(e) -- VMIG-1 3,500 3,500,000
- -------------------------------------------------------------------------------
6,100,000
- -------------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW HAMPSHIRE - 0.67%
Business Finance Authority for the State
of New Hampshire (Connecticut Power &
Light); Series 1993 A PCR
3.35% 12/01/22(b)(c) -- VMIG-1 $ 1,600 $ 1,600,000
- -------------------------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority (VHA of New
England Capital Asset Financial
Program); Variable Rate Hospital RB
3.30% Series 1985 B 12/01/25(b)(d) A-1 -- 4,000 4,000,000
- -------------------------------------------------------------------------------
3.30% Series 1985 G 12/01/25(b)(d) A-1 -- 1,000 1,000,000
- -------------------------------------------------------------------------------
New Hampshire Industrial Development
Authority (Bangor Hydro-Electric Co.
Project); Variable Rate Demand Series
1983 PCR
3.50% 01/01/09(b)(c) A-1+ -- 400 400,000
- -------------------------------------------------------------------------------
7,000,000
- -------------------------------------------------------------------------------
NEW JERSEY - 0.34%
New Jersey Economic Development Authority
(Trailer Marine Transport Corp.
Project); Adjustable Rate Port Facility
Series 1983 RB
3.35% 02/01/02(b)(c) A-1 -- 3,500 3,500,000
- -------------------------------------------------------------------------------
NEW MEXICO - 1.08%
Farmington (City of); Refunding Bonds
Series 1994 B PCR
3.75% 09/01/24(b)(c) A-1+ P-1 3,400 3,400,000
- -------------------------------------------------------------------------------
Hurley (Town of) (Kennecott Santa Fe
Corp. Project); Unit Priced Demand
Adjustable Series 1985 PCR
3.75% 12/01/15(b)(d) A-1+ P-1 3,800 3,800,000
- -------------------------------------------------------------------------------
New Mexico (State of); State Severance
Tax Series 1994 B RB
7.60% 07/01/96(b)(d) AA Aa 4,000 4,040,022
- -------------------------------------------------------------------------------
11,240,022
- -------------------------------------------------------------------------------
NEW YORK - 12.26%
Buffalo (City of); Series 1995-1996A RAN
4.20% 07/16/96(c) SP-1+ MIG-1 2,800 2,806,362
- -------------------------------------------------------------------------------
Eagle Tax Exempt Trust; Class A COP(g)
3.52% Series 1993 E 08/01/06(b) A-1+c -- 15,000 15,000,000
- -------------------------------------------------------------------------------
3.52% Series 943802 05/01/07(b)(d) A-1+c -- 17,800 17,800,000
- -------------------------------------------------------------------------------
3.52% Series 943901 06/15/07(b)(c) A-1+c -- 14,500 14,500,000
- -------------------------------------------------------------------------------
3.52% Series 94C2102 06/01/14(b)(d) A-1+c -- 11,600 11,600,000
- -------------------------------------------------------------------------------
3.47% Series 1994 C-1 06/15/18(b) A-1+c -- 18,000 18,000,000
- -------------------------------------------------------------------------------
3.47% Series 943207 07/01/29(b)(d) A-1+c -- 14,200 14,200,000
- -------------------------------------------------------------------------------
Merrill Lynch Group Float Program; Power
Supply System
Series 1993 A RB
3.40% 01/01/16(b)(d) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
New York (City of); General Obligation
Fiscal Series 1996 D RAN
8.50% 08/01/96(f) -- Aaa 3,385 3,507,326
- -------------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
New York - (continued)
New York (City of); General Obligation
Fiscal 1994 Series B RAN
3.25% 08/15/23(b)(c) A-1+ VMIG-1 $ 6,300 $ 6,300,000
- -------------------------------------------------------------------------------
New York (City of); Variable Rate Demand
Series 1995 Subseries
B-5 GO
3.80% 08/15/22(b)(d) A-1+ VMIG-1 10,000 10,000,000
- -------------------------------------------------------------------------------
New York State Energy Research and
Development Authority (New York Electric
& Gas); Series B PCR
3.40% 02/01/29(b)(c) A-1+ VMIG-1 6,500 6,500,000
- -------------------------------------------------------------------------------
New York State Thruway Authority; Series A
RB
4.20% 04/01/96(d) AAA Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
Trust for the Cultural Resource Authority
(Soloman R Guggenheim Foundation); Series
1990B RB
3.60% 12/01/15(b)(c) A-1 VMIG-1 1,800 1,800,000
- -------------------------------------------------------------------------------
128,013,688
- -------------------------------------------------------------------------------
NORTH CAROLINA - 0.92%
Alamance Industrial Facilities & Pollution
Control Financing Authority (Science
Manufacturing Inc. Project); Series 1985
IDR
3.90% 04/01/15(b)(c) -- P-1 4,400 4,400,000
- -------------------------------------------------------------------------------
North Carolina Eastern Muni Power Systems;
Series A RB
7.50% 01/01/97(e)(f) -- AAA 5,000 5,254,433
- -------------------------------------------------------------------------------
9,654,433
- -------------------------------------------------------------------------------
OHIO - 1.65%
Cleveland (City of) Ohio School District;
Series 1995 RAN
4.50% 06/01/96(d) AAA Aaa 5,000 5,007,903
- -------------------------------------------------------------------------------
Cleveland (City of) Ohio School District;
Series 1991 GO
7.70% 12/01/96(f) -- AAA 1,500 1,539,106
- -------------------------------------------------------------------------------
Cuyahoga (County of) (S&R Playhouse Realty
Co.); Adjustable Rate Demand Series 1984
IDR
3.45% 12/01/09(b)(c) -- MIG-1 655 655,000
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.55% 11/01/14(b)(c) -- P-1 9,000 9,000,000
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community Project);
Variable Rate Demand Multifamily Housing
Series 1985 RB
3.40% 12/01/15(b)(c) -- VMIG-1 980 980,000
- -------------------------------------------------------------------------------
17,182,009
- -------------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OKLAHOMA - 0.39%
Oklahoma State SSM Healthcare System (St.
Anthony's Hospital); Adjustable Rate
Hospital Series 1988 C RB
3.30% 08/29/96(c)(e) -- VMIG-1 $ 4,100 $ 4,100,000
- -------------------------------------------------------------------------------
OREGON - 0.95%
Multnomah County School District No. 1J;
Series 1995 TRAN
4.75% 05/30/96 SP-1+ MIG-1 5,000 5,008,197
- -------------------------------------------------------------------------------
Portland (City of) (South Park Block
Project); Multifamily Housing Refunding
Series 1988 A RB
3.45% 12/01/11(b)(c) A-1+ -- 4,900 4,900,000
- -------------------------------------------------------------------------------
9,908,197
- -------------------------------------------------------------------------------
PENNSYLVANIA - 1.71%
Armstrong (County of) Pennsylvania
Hospital (St. Francis Medical Center
Project); Series A RB
5.10% 06/01/96(d) AAA Aaa 1,395 1,398,846
- -------------------------------------------------------------------------------
Delaware County Industrial Development
Authority (Henderson-Radnor Joint
Venture Project); Limited Obligation
Series 1985 RB
3.55% 04/01/15(b)(c) -- Aa3 900 900,000
- -------------------------------------------------------------------------------
Montour (County of) Geisinger Authority;
Health System
Series B 1992 RB
3.60% 07/01/22(b)(d) A-1+ -- 3,200 3,200,000
- -------------------------------------------------------------------------------
Northeastern Pennsylvania Hospital
Authority (Hospital Central Services
Capital Asset Program); Variable Rate
Demand
Series B RB
3.20% 05/29/96(d)(e) A-1+ Aaa 3,000 3,000,000
- -------------------------------------------------------------------------------
Pennsylvania State Higher Education
Facilities Authority (Carnegie Mellon
University); Series 1995 B RB
3.85% 11/01/27(b)(d) A-1+ -- 3,000 3,000,000
- -------------------------------------------------------------------------------
Quakertown Hospital Authority (HPF
Group); Variable Rate
Series 1985 A RB
3.30% 07/01/05(b)(c) -- VMIG-1 1,800 1,800,000
- -------------------------------------------------------------------------------
Schuykill County Industrial Development
Authority (Gilberton Power Project);
Variable Rate Resource Recovery Series
1985 RB
3.45% 12/01/02(b)(c) A-1 -- 2,300 2,300,000
- -------------------------------------------------------------------------------
Wilkes-Barre (City of) Industrial
Development Authority (Toys "R" Us/Penn
Inc. Project); Economic Development
Series 1984 RB
3.425% 07/01/14(b)(c) -- A1 2,300 2,300,000
- -------------------------------------------------------------------------------
17,898,846
- -------------------------------------------------------------------------------
RHODE ISLAND - 0.48%
Rhode Island State; TAN
4.50% 06/28/96(c) SP-1+ MIG-1 4,000 4,010,607
- -------------------------------------------------------------------------------
</TABLE>
FS-13
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Rhode Island - (continued)
Rhode Island State Health & Education
Building (Roger Williams General
Hospital); RB
11.375% 07/01/96(f) AAA -- $ 1,000 $ 1,019,917
- -----------------------------------------------------------------------------
5,030,524
- -----------------------------------------------------------------------------
SOUTH CAROLINA - 3.68%
Florence (County of) (Stone Container
Corp.); Variable Rate
Series 1984 IDR
3.30% 02/01/07(b)(c) A-1+ -- 14,100 14,100,000
- -----------------------------------------------------------------------------
Goldman Sachs Series 1995 F Tender
Option Certificates
3.45% 06/16/14(b)(c)(g) A-1+c -- 12,500 12,500,000
- -----------------------------------------------------------------------------
Horry (County of) (Carolina Treatment
Center); Variable Rate Demand Series
1984 RB
3.45% 12/01/14(b)(c) -- Aa2 2,500 2,500,000
- -----------------------------------------------------------------------------
Rock Hill (City of); Utilities System
RB
3.30% 01/01/22(b)(d) A-1+ VMIG-1 6,100 6,100,000
- -----------------------------------------------------------------------------
York (County of) (North Carolina
Electric Membership Corp.); Pooled
Series 1984 N-2 PCR
3.40% 09/15/14(b)(c) A-1+ P-1 1,750 1,750,000
- -----------------------------------------------------------------------------
York (County of) (North Carolina
Electric Project National Rural
Utilities); Series 1984 N-6 RB
3.25% 09/15/96(c)(e) A-1+ VMIG-1 1,500 1,500,000
- -----------------------------------------------------------------------------
38,450,000
- -----------------------------------------------------------------------------
SOUTH DAKOTA - 0.90%
Rapid City, (Civic Center Associates
Project); Economic
Development RB
3.40% 12/01/16(b)(c) -- P-1 5,385 5,385,000
- -----------------------------------------------------------------------------
South Dakota School District (Cash Flow
Financing Program); COP
4.75% 07/30/96 SP-1+ -- 4,000 4,015,768
- -----------------------------------------------------------------------------
9,400,768
- -----------------------------------------------------------------------------
TENNESSEE - 4.44%
Health, Educational and Housing
Facility Board of Shelby County
(Rhodes College); Variable Rate Demand
Educational Facilities Series 1985 RB
3.55% 08/01/10(b)(c) A-1+ -- 2,195 2,195,000
- -----------------------------------------------------------------------------
Industrial Development Board of the
City of Franklin (The Landings
Project); Variable Rate Demand
Multifamily Housing
Series 1985 Class A RB
3.40% 12/01/06(b)(c) A-1+ -- 2,000 2,000,000
- -----------------------------------------------------------------------------
Industrial Development Board of the
City of Knoxville (Toys "R" Us Inc.,
Project); Series 1984 IDR
3.55% 05/01/14(b)(c) -- A1 1,150 1,150,000
- -----------------------------------------------------------------------------
</TABLE>
FS-14
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Tennessee - (continued)
Knox (County of) Industrial Development
Authority (Centre Square II, Ltd.
Project); Floating Rate Monthly Demand
Series 1984 IDR
3.40% 12/01/14(b)(c) A-1+ -- $ 5,400 $ 5,400,000
- -------------------------------------------------------------------------------
Knox (County of) Industrial Development
Authority (Old Kingston Properties);
Floating Rate Industrial Series 1984 RB
3.40% 12/01/14(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
Knox (County of) Industrial Development
Authority (Professional Plaza, Ltd.
Project); Floating Rate Monthly Demand
Series 1984 IDR
3.40% 12/01/14(b)(c) A-1+ -- 2,900 2,900,000
- -------------------------------------------------------------------------------
Knox County Industrial Development Board
(Weisgarber Partners); Floating Rate
Series 1984 IDR
3.40% 12/01/4(b)(c) A-1+ -- 700 700,000
- -------------------------------------------------------------------------------
Nashville and Davidson (County of)
Industrial Development Board
of Metro Government (Amberwood, Ltd.
Project); Multifamily Housing RB
3.67% Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,450 2,450,000
- -------------------------------------------------------------------------------
3.67% Series 1993 B 07/01/13(b)(c) -- VMIG-1 2,065 2,065,000
- -------------------------------------------------------------------------------
Tennessee Higher Educational Facilities;
Variable Rate
Series 1993 B BAN
3.35% 03/01/98(b) A-1+ VMIG-1 1,400 1,400,000
- -------------------------------------------------------------------------------
Tennessee State School Bond Authority;
Higher Education Facilities BAN
3.35% Series 1993 A 03/01/98(b) A-1+ VMIG-1 4,525 4,525,000
- -------------------------------------------------------------------------------
3.35% Series 1995 B 03/01/98(b) A-1+ VMIG-1 7,750 7,750,000
- -------------------------------------------------------------------------------
3.35% Series 1994 C 03/01/98(b) A-1+ VMIG-0 6,335 6,335,000
- -------------------------------------------------------------------------------
3.35% Series 1995 C 03/01/98(b) A-1+ VMIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
46,370,000
- -------------------------------------------------------------------------------
TEXAS - 10.10%
Angelina & Neches River Authority
Industrial Development Corp.
(Temple Inland Marine); Solid Waste
Disposal RB
3.80% Series 1984 B 05/01/14(b)(c) -- P-1 2,400 2,400,000
- -------------------------------------------------------------------------------
3.80% Series 1984 E 05/01/14(b)(c) -- P-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Austin (City of) Texas Utility System;
Refunding Combination Series 1992 A RB
5.00% 11/15/96(d) AAA Aaa 1,975 1,992,947
- -------------------------------------------------------------------------------
Beaumont (City of) Texas Health Facilities
Development Authority; Health Facilities
Development Series 1985 RB
3.35% 12/01/10(b)(c) -- VMIG-1 3,265 3,265,000
- -------------------------------------------------------------------------------
Brazos River Harbor Navigation District of
Brazoria County
(Hoffman-La Roche Inc. Project); Series
1985 RB
3.55% 04/01/02(b)(c) -- A1 2,750 2,750,000
- -------------------------------------------------------------------------------
Texas (University of); Prerefunded Series
1986 RB
8.00% 08/15/96(d)(e) AAA Aaa 1,475 1,528,513
- -------------------------------------------------------------------------------
</TABLE>
FS-15
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Texas - (continued)
Corpus Christi (Port of) Authority of
Nueces County Marine Terminal (Reynolds
Metals Company Project); Floating Rate
Demand Series 1984 RB
3.40% 09/01/14(b)(c) A-1+ -- $ 3,000 $ 3,000,000
- -------------------------------------------------------------------------------
Dallas (County of); Series 1986 A GO
6.50% 07/10/96(f) AAA Aaa 1,500 1,511,127
- -------------------------------------------------------------------------------
Fort Worth (City of) Water and Sewer
System; Tax Exempt
Series A Commercial Paper
3.30% 05/15/96 A-1+ P-1 5,300 5,300,000
- -------------------------------------------------------------------------------
Gulf Coast Waste Disposal Authority
(Exxon Project); Series 1989 PCR
3.35% 05/17/96(e) A-1+ P-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (The Methodist
Hospital); Hospital Series 1994 RB
3.85% 12/01/25(b) A-1+ -- 10,000 10,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Greater Houston
Pooled Health); Series 1985 A RB
3.40% 11/01/25(b)(c) A-1 -- 3,100 3,100,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 RB
3.35% 04/01/17(b)(c) A-1 -- 3,550 3,550,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (St. Luke's Episcopal
Hospital Project); Hospital Series 1985
B RB
3.85% 02/15/16(b) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Texas Medical Center
Project); Series 1992 RB
3.85% 02/15/22(b)(d) A-1 VMIG-1 4,300 4,300,000
- -------------------------------------------------------------------------------
Houston (City of); Senior Lien Hotel
Occupancy Tax Refunding Series 1995 RB
5.00% 07/01/96(d) AAA Aaa 650 651,726
- -------------------------------------------------------------------------------
Houston (City of) Texas Water and Sewer
System Revenue Exchange Prior Lien;
Series A RB
7.00% 12/01/96(e) AAA Aaa 1,265 1,320,328
- -------------------------------------------------------------------------------
Nueces County Health Facilities
Development Corp. (Driscoll Childrens
Hospital); Floating Rate Demand Hospital
Series 1985 RB
3.40% 07/01/15(b)(c) -- VMIG-1 2,570 2,570,000
- -------------------------------------------------------------------------------
San Antonio Independent School District;
RB
8.25% 06/15/96(e)(f) -- Aaa 3,250 3,283,386
- -------------------------------------------------------------------------------
Tarrant (County of) Texas Housing Finance
Corp. (Amherst Associates Project);
Multifamily Housing Series 1995 RB
3.40% 12/01/07(b)(c) -- VMIG-1 3,220 3,220,000
- -------------------------------------------------------------------------------
Texas Department of Housing and Urban
Affairs (Remington Hill Development);
Multi-Family Housing Refunding Series
1993 B RB
3.40% 02/01/23(b)(c) A-1+ -- 5,380 5,380,000
- -------------------------------------------------------------------------------
Texas (State of); TRAN
4.75% Series 1995 A 08/30/96 SP-1+ MIG-1 16,200 16,278,278
- -------------------------------------------------------------------------------
3.65% Series 1995 B 08/20/96 A-1+ P-1 4,000 4,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-16
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Texas - (continued)
Texas (University of) Board of Regents
Permanent University Fund; Variable Rate
Series A Notes
3.20% 05/29/96(e) A-1+ VMIG-1 $ 1,800 $ 1,800,000
- ------------------------------------------------------------------------------
Texas (University of) Board of Regents
Revenue Financing System; Series A
Commercial Paper
3.25% 05/31/96 A-1+ P-1 7,516 7,516,000
- ------------------------------------------------------------------------------
Trinity River Authority (Texas Regional
Wastewater System); RB
5.00% 08/01/96(d) AAA Aaa 1,040 1,045,093
- ------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
3.50% Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
- ------------------------------------------------------------------------------
3.50% Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
- ------------------------------------------------------------------------------
105,412,398
- ------------------------------------------------------------------------------
UTAH - 2.53%
Bountiful (City of) (Bountiful Gateway
Park Project); Adjustable Rate Refunding
Series 1987 IDR
3.60% 12/01/97(b)(c) A-1+ -- 3,835 3,835,000
- ------------------------------------------------------------------------------
Intermountain Power Agency Power Supply
Variable Rate RB
3.20% Series 1985 F 05/29/96(c)(e) A-1+ VMIG-1 1,700 1,700,000
- ------------------------------------------------------------------------------
3.90% Series 1993 A 07/01/96 AA- Aa 1,000 1,000,428
- ------------------------------------------------------------------------------
6.90% Series B 07/01/96 AA- Aa 2,000 2,015,491
- ------------------------------------------------------------------------------
7.00% Series 1986-C 07/01/96 AA- Aa 1,000 1,007,459
- ------------------------------------------------------------------------------
4.80% Series 1992 B 07/01/96 AA- Aa 1,130 1,132,795
- ------------------------------------------------------------------------------
State Board of Regents of the State of
Utah (University Inn Project); Variable
Rate Demand Series 1985 IDR
3.85% 12/01/15(b)(c) -- P-1 8,800 8,800,000
- ------------------------------------------------------------------------------
Utah State Housing Finance Agency; Single
Family Mortgage Variable Rate Issue 1993
D RB
3.40% 07/01/16(b) -- VMIG-1 3,400 3,400,000
- ------------------------------------------------------------------------------
West Valley (City of) (Johnson Matthey
Inc. Project); Multi-Modal
Interchangeable Rate Series 1987 IDR
3.95% 11/01/11(b)(c)(h) -- -- 3,550 3,550,000
- ------------------------------------------------------------------------------
26,441,173
- ------------------------------------------------------------------------------
VERMONT - 1.26%
Vermont (State of); General Obligation
Commercial Paper Series F RAN
3.35% 05/23/96 A-1+ P-1 10,000 10,000,000
- ------------------------------------------------------------------------------
Vermont (State of); Series 1993 B GO
6.60% 10/15/96 AA- Aa 2,100 2,132,672
- ------------------------------------------------------------------------------
</TABLE>
FS-17
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Vermont - (continued)
Vermont Educational & Health Building
Finance Authority (VHA New England);
Variable Hospital Series 1985 B RB
3.30% 12/01/25(b)(d) A-1 Aaa $ 1,000 $ 1,000,000
- -------------------------------------------------------------------------------
13,132,672
- -------------------------------------------------------------------------------
VIRGINIA - 1.88%
Fairfax County Redevelopment and Housing
Authority (Chase Commons Project);
Variable Rate Demand Series 1984 A RB
3.425% 12/01/06(b)(c) -- VMIG-1 3,330 3,330,000
- -------------------------------------------------------------------------------
Henrico (County of) Virginia Industrial
Development Authority (Hermitage
Project); Variable Rate Health Facilities
Series 1994 Bonds
3.85% 05/01/24(b)(c) -- VMIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
Industrial Development Authority City of
Lynchburg (VHA Mid-Atlantic States, Inc.
Capital Asset Financing Program);
Variable Rate Hospital Series 1985 G RB
3.30% 12/01/25(b)(d) A-1 Aaa 2,300 2,300,000
- -------------------------------------------------------------------------------
Industrial Development Authority of the
City of Norfolk (Sentara Hospitals-
Norfolk Project); Hospital Series 1990 A
RB
3.25% 05/22/96(e) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Richmond Redevelopment & Housing Authority
(1995 Old Manchester Project); Variable
Rate Demand Series 1995 A RB
3.55% 12/01/25(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
19,630,000
- -------------------------------------------------------------------------------
WASHINGTON - 3.58%
Washington State Public Power Supply
Systems (Nuclear Project No. 3);
Refunding Series B RB
6.70% 07/01/96 AA Aa 1,000 1,007,259
- -------------------------------------------------------------------------------
Washington State Public Power Supply
Systems (Nuclear Project No. 1 & 3);
Refunding Electric Series 1993 RB
3.35% 07/01/17(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Washington State Public Power Supply
Systems (Nuclear Project No. 1);
Adjustable Refunding Series 1993 1A-3 RB
3.30% 07/01/17(b)(c) A-1+ VMIG-1 14,300 14,300,000
- -------------------------------------------------------------------------------
Washington State; Refunding Bonds Series
1986 D GO
8.00% 09/01/96(e)(f) AAA Aaa 14,740 15,034,985
- -------------------------------------------------------------------------------
Washington Suburban Sanitation District;
General Construction RB
7.375% 01/01/97(e)(f) AAA AAA 1,000 1,050,198
- -------------------------------------------------------------------------------
Washington Suburban Sanitation District;
Water Supply Refunding Series 1986 GO
5.90% 11/01/96 AA Aa1 1,000 1,012,477
- -------------------------------------------------------------------------------
37,404,919
- -------------------------------------------------------------------------------
</TABLE>
FS-18
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WISCONSIN - 0.63%
City of Milwaukee Housing Authority
(Yankee Hill Apartments Project);
Multi-Family Housing 1986 Issue
Variable Bonds
3.40% 12/01/09(b)(c) A-1+ -- $ 5,500 $ 5,500,000
- -------------------------------------------------------------------------------
Wisconsin (State of) Transportation
Authority; Transportation Series 1988
A RB
7.50% 07/01/96(e)(f) AAA -- 1,000 1,029,085
- -------------------------------------------------------------------------------
6,529,085
- -------------------------------------------------------------------------------
WYOMING - 1.01%
Sweetwater (City of) (Pacificorp
Project); PCR
3.70% Series 1984 12/01/14(b)(c) A-1+ P-1 4,500 4,500,000
- -------------------------------------------------------------------------------
3.40% Series 1990A 07/01/15(b)(c) -- VMIG-1 6,000 6,000,000
- -------------------------------------------------------------------------------
10,500,000
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 103.44% 1,080,105,245(i)
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (3.44%) (35,926,817)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $1,044,178,428
===============================================================================
</TABLE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<C> <S>
BAN Bond Anticipation Notes
COP Certificates of Participation
GO General Obligation Bonds
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
</TABLE>
<TABLE>
<S> <C>
RAN Revenue Anticipation Notes
RB Revenue Bonds
TAN Tax Anticipation Notes
TRAN Tax and Revenue Anticipation Notes
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are not covered by
Independent Auditors' Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rates shown are the rates in effect on March 31, 1996.
(c) Security is secured by a letter of credit.
(d) Security is secured by bond insurance.
(e) Security has an outstanding call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(f) Security is secured by an escrow fund.
(g) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments involve the deposit into a
trust of one or more long-term tax-exempt bonds or notes ("Underlying
Bonds"), and the sale of certificates evidencing interests in the trust to
investors such as the Fund. The trustee receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders
short-term floating or variable interest rates which are reset
periodically. A "variable rate trust certificate" evidences an interest in
a trust entitling the certificate holder to receive variable rate interest
based on prevailing short-term interest rates and also typically providing
the certificate holder with the conditional right to put its certificate at
par value plus accrued interest. Because synthetic municipal instruments
involve a trust 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.
(h) 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.
(i) Cost for federal income tax purposes is $1,080,099,469.
See Notes to Financial Statements.
FS-19
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,080,105,245
- ------------------------------------------------------------------------
Cash 45,530
- ------------------------------------------------------------------------
Receivables for:
Investments sold 700,785
- ------------------------------------------------------------------------
Interest 7,342,974
- ------------------------------------------------------------------------
Investment for deferred compensation plan 17,593
- ------------------------------------------------------------------------
Other assets 154,876
- ------------------------------------------------------------------------
Total assets 1,088,367,003
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 40,934,545
- ------------------------------------------------------------------------
Dividends 2,946,396
- ------------------------------------------------------------------------
Deferred compensation 17,593
- ------------------------------------------------------------------------
Accrued advisory fees 166,238
- ------------------------------------------------------------------------
Accrued directors' fees 3,296
- ------------------------------------------------------------------------
Accrued accounting service fees 5,920
- ------------------------------------------------------------------------
Accrued transfer agent fees 17,568
- ------------------------------------------------------------------------
Accrued distribution fees 7,674
- ------------------------------------------------------------------------
Accrued operating expenses 89,345
- ------------------------------------------------------------------------
Total liabilities 44,188,575
- ------------------------------------------------------------------------
NET ASSETS $1,044,178,428
========================================================================
NET ASSETS:
Institutional Shares $1,009,039,194
========================================================================
Private Investment Class $ 35,139,234
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
- ------------------------------------------------------------------------
Outstanding 1,009,122,349
========================================================================
Private Investment Class:
Authorized 1,000,000,000
- ------------------------------------------------------------------------
Outstanding 35,142,129
========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-20
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1996
<TABLE>
<CAPTION>
PRIVATE
INSTITUTIONAL INVESTMENT
SHARES CLASS FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $41,603,217 $1,250,203 $42,853,420
- ------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,436,634 72,995 2,509,629
- ------------------------------------------------------------------------
Custodian fees 126,323 1,514 127,837
- ------------------------------------------------------------------------
Transfer agent fees 69,176 2,073 71,249
- ------------------------------------------------------------------------
Registration and filing fees 21,006 22,045 43,051
- ------------------------------------------------------------------------
Accounting service fees 73,569 2,391 75,960
- ------------------------------------------------------------------------
Directors' fees 14,734 382 15,116
- ------------------------------------------------------------------------
Distribution fees (Note 2) -- 82,160 82,160
- ------------------------------------------------------------------------
Other expenses 129,902 5,235 135,137
- ------------------------------------------------------------------------
Total expenses 2,871,344 188,795 3,060,139
- ------------------------------------------------------------------------
Less expenses assumed by advisor (670,269) (40,128) (710,397)
- ------------------------------------------------------------------------
Net expenses 2,201,075 148,667 2,349,742
- ------------------------------------------------------------------------
Net investment income $39,402,142 $1,101,536 40,503,678
- ------------------------------------------------------------------------
Net realized gain on sales of investments 292,222
- ------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (30,577)
- ------------------------------------------------------------------------
Net increase in net assets resulting from operations $40,765,323
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 40,503,678 $ 33,546,101
- -----------------------------------------------------------------------------
Net realized gain (loss) on sales of
investments 292,222 (430,985)
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (30,577) 33,165
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 40,765,323 33,148,281
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (39,402,142) (32,833,365)
- -----------------------------------------------------------------------------
Private Investment Class (1,101,536) (712,736)
- -----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Shares (1,106,286) (30,316,694)
- -----------------------------------------------------------------------------
Private Investment Class 5,845,831 12,695,756
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets 5,001,190 (18,018,758)
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,039,177,238 1,057,195,996
- -----------------------------------------------------------------------------
End of period $1,044,178,428 $1,039,177,238
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Shares $1,009,122,349 $1,010,228,635
- -----------------------------------------------------------------------------
Private Investment Class 35,142,129 29,296,298
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (91,827) (384,049)
- -----------------------------------------------------------------------------
Unrealized appreciation of investments 5,777 36,354
- -----------------------------------------------------------------------------
$1,044,178,428 $1,039,177,238
=============================================================================
</TABLE>
See Notes to Financial Statements.
FS-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Tax-Free Investments Co. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Company is organized as a Maryland
corporation consisting of one portfolio, the Cash Reserve Portfolio (the
"Fund"). The Fund consists of two different classes of shares, the
Institutional Cash Reserve Shares ("Institutional Shares") and the Private
Investment Class. Matters affecting each class are voted on exclusively by the
shareholders of each class. 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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Securities Valuations - The Fund uses the amortized cost method of valuing
investment portfolio securities which has been determined by the Board of
Directors of the Company to represent the fair value of the Fund's
investments.
B. Securities Transactions and Investment Income - Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are computed on the basis of specific identification of the
securities sold. 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.
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 $175,320 (which may be carried forward to offset future
taxable gains, if any) which expires, if not previously utilized, through
the year 2004. 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.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.25% of
the first $500 million of the Fund's average daily net assets plus 0.20% of the
Fund's average daily net assets in excess of $500 million. AIM will, if
necessary, reduce its fees for any fiscal year to the extent required so that
the amount of ordinary expenses of each class (excluding interest, taxes,
brokerage commissions and extraordinary expenses) paid or incurred by each
class for such fiscal year does not exceed the applicable expense limitations
imposed by securities regulations in any state or jurisdiction in which the
Company's shares are qualified for sale. AIM has voluntarily agreed to reduce
its fee from the Fund to the extent necessary so that the amount of ordinary
expenses of the Institutional Shares (excluding interest, taxes, brokerage
commissions, directors' fees, extraordinary expenses and federal registration
fees) paid or incurred by the Institutional Shares does not exceed 0.20% of the
Institutional Shares' average daily net assets. As a result, AIM's advisory fee
on the Private Investment Class is reduced in the same proportion as the
Institutional Shares. For the year ended March 31, 1996, AIM reduced its fees
from the Fund by $690,397. AIM also assumed expenses of $20,000 on the Private
Investment Class during the same period.
FS-23
<PAGE>
Under the terms of a master distribution agreement between Fund Management
Company ("FMC") and the Company, FMC acts as the exclusive distributor of
capital stock of the Institutional Shares and the Private Investment Class. The
Company has adopted a master distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act with respect to the Private Investment Class. The Plan
provides that the Private Investment Class may pay up to a 0.50% maximum annual
rate of the Private Investment Class' average daily net assets. Of this amount,
the Fund may pay an asset-based sales charge to FMC and the Fund may pay a
service fee of 0.25% of the average daily net assets of the Private Investment
Class to selected broker-dealers and other financial institutions who offer
continuing personal shareholder services to their customers who purchase and
own shares of the Private Investment Class. Any amounts not paid as a service
fee under such Plan would constitute an asset-based sales charge. The Plan also
imposes a cap on the total amount of sales charges, including asset-based sales
charges, that may be paid by the Fund with respect to the Private Investment
Class. During the year ended March 31, 1996, the Private Investment Class paid
$82,160 as compensation under the Plan.
The Fund, pursuant to the Company's master investment advisory agreement with
AIM, has agreed to reimburse AIM for certain costs incurred in providing
accounting services to the Fund. During the year ended March 31, 1996, the Fund
reimbursed AIM $75,960 for such services.
Effective July 1, 1995, A I M Institutional Fund Services, Inc. ("AIFS")
became the exclusive transfer agent of the Fund. The Fund, pursuant to a
transfer agent and service agreement, has agreed to pay AIFS a fee for
providing transfer agent and shareholder services to the Fund. During the year
ended March 31, 1996, the Fund paid AIFS $64,592 for such services. Certain
officers and directors of the Company are directors or officers of AIM, AIFS
and FMC.
During the year ended March 31, 1996, the Fund paid legal fees of $6,329 for
services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as
counsel to the Board of Directors. A member of that firm is a director of the
Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. 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, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 5,051,588,995 $ 5,051,588,995 5,223,878,446 $ 5,223,878,446
- -----------------------------------------------------------------------------------------
Private Investment
Class 218,503,050 218,503,050 147,139,503 147,139,503
- -----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 99,312 99,312 74,376 74,376
- -----------------------------------------------------------------------------------------
Private Investment
Class 1,064,127 1,064,127 600,786 600,786
- -----------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (5,052,794,593) (5,052,794,593) (5,254,269,516) (5,254,269,516)
- -----------------------------------------------------------------------------------------
Private Investment
Class (213,721,346) (213,721,346) (135,044,533) (135,044,533)
- -----------------------------------------------------------------------------------------
Net increase
(decrease) 4,739,545 $ 4,739,545 (17,620,938) $ (17,620,938)
=========================================================================================
</TABLE>
FS-24
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of the Private
Investment Class capital stock outstanding during each of the years in the
four-year period ended March 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994 1993
------- ------- ------- ------
<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 0.03 0.03 0.02 0.02
- ------------------------------------- ------- ------- ------- ------
Less distributions:
Dividends from net investment
income (0.03) (0.03) (0.02) (0.02)
- ------------------------------------- ------- ------- ------- ------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
===================================== ======= ======= ======= ======
Total return 3.41% 2.80% 2.07% 2.43%
===================================== ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $35,139 $29,286 $16,601 $9,593
===================================== ======= ======= ======= ======
Ratio of expenses to average net
assets(a) 0.45%(b) 0.45% 0.45% 0.45%
===================================== ======= ======= ======= ======
Ratio of net investment income to
average net assets(a) 3.35%(b) 2.89% 2.05% 2.22%
===================================== ======= ======= ======= ======
</TABLE>
(a) After waiver of advisory fees and expense reimbursements.
(b) Ratios are based on average net assets of $32,863,968. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees and expense reimbursements are 0.51% and 3.29%, respectively.
FS-25
