<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1996
Registration No. 2-58286
Investment Company Act No. 811-2731
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No. ____ ____
Post-Effective Amendment No. 23 X
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 24
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(Check appropriate box or boxes.)
TAX-FREE INVESTMENTS CO.
-----------------------------------
(Exact name of Registrant as Specified in Charter)
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11 Greenway Plaza, Suite 1919, Houston, TX 77046
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (713) 626-1919
------------------
Charles T. Bauer
11 Greenway Plaza, Suite 1919, Houston, TX 77046
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(Name and Address of Agent for Service)
Copy to:
Stephen I. Winer, Esquire
A I M Advisors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of
this Registration Statement
It is proposed that this filing will become effective (check appropriate box)
______ immediately upon filing pursuant to paragraph (b) of Rule 485
X on July 29, 1996 pursuant to paragraph (b) of Rule 485
------
______ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
______ on (date) pursuant to paragraph (a)(1) of Rule 485
______ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
______ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following:
______ This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
(Continued on next page)
<PAGE>
Registrant continues its election to register an indefinite number of its shares
of common stock under Rule 24f-2 under the Investment Company Act of 1940 and
filed its Rule 24f-2 Notice for the fiscal year ended March 31, 1996 on May 26,
1996.
<PAGE>
TAX-FREE INVESTMENTS CO.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
NOTE: The Registrant offers shares of one investment portfolio, the Cash
Reserve Portfolio. The Cash Reserve Portfolio is comprised of two classes of
shares, the Private Investment Class and the Institutional Cash Reserve Shares.
Each class of shares is offered pursuant to a separate Prospectus and Statement
of Additional Information.
I. Institutional Cash Reserve Shares
---------------------------------
<TABLE>
<CAPTION>
Part A - Prospectus
Item No. Location
- -------- --------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Table of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Organization of the Company; General
Information; Investment Program
5. Management of the Fund Management of the Company; General Information
5A. Management's Discussion of Fund Performance [included in Annual Report]
6. Capital Stock and Other Securities General Information; Dividends; Tax Matters
7. Purchase of Securities Being Offered Purchase of Shares; Determination of Net Asset Value
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
Part B - Statement of Additional Information
Item No. Location
- -------- --------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information about the Company
13. Investment Objectives and Policies Investment Program and Restrictions
14. Management of the Fund General Information about the Company
15. Control Persons and Principal Holders General Information about the Company
of Securities
16. Investment Advisory and Other Services General Information about the Company
17. Brokerage Allocation and Other Practices Fund Transactions
18. Capital Stock and Other Securities General Information about the Company
19. Purchase, Redemption and Pricing of Share Purchases and Redemptions
Securities Being Offered
20. Tax Status Dividends, Distributions and Tax Matters
21. Underwriters General Information about the Company
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
II. Private Investment Class
------------------------
Part A - Prospectus
Item No. Location
- -------- --------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Summary; Table of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Summary; Investment Program; General
Information
5. Management of the Fund Management of the Company; General Information; Summary
5A. Management's Discussion of Fund Performance [included in Annual Report]
6. Capital Stock and Other Securities General Information; Summary; Dividends; Taxes
7. Purchase of Securities Being Offered Summary; Management of the Company;
Purchase of Shares; Net Asset Value
8. Redemption or Repurchase Summary; Redemption of Shares
9. Pending Legal Proceedings Not Applicable
Part B - Statement of Additional Information
Item No. Location
- -------- --------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information about the Company
13. Investment Objectives and Registrant Investment Program and Restrictions
14. Management of the Registrant General Information about the Company
15. Control Persons and Principal Holders General Information about the Company
of Securities
16. Investment Advisory and Other Services General Information about the Company;
Share Purchases and Redemptions
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities General Information about the Company
19. Purchase Redemption and Pricing of Securities Share Purchases and Redemptions
Being Offered
20. Tax Status Dividends, Distributions and Tax Matters
21. Underwriters Share Purchases and Redemptions
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
III. All Classes and Series of Registrant
------------------------------------
Part C
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Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
2
<PAGE>
<TABLE>
<S> <C>
TAX-FREE
INVESTMENTS CO. PROSPECTUS
- -------------------------------------------------------------------------------------------------------
INSTITUTIONAL
CASH RESERVE Tax-Free Investments Co. (the "Company") is a mutual fund designed for insti-
SHARES tutions and individuals seeking current income which is exempt from federal in-
come taxes. Pursuant to this Prospectus, the Company offers shares representing
JULY 29, 1996 interests in Institutional Cash Reserve Shares (the "Institutional Class") of
its Cash Reserve Portfolio.
The Cash Reserve Portfolio is a "money market fund," the investment objective
of which is the generation of as high a level of tax-exempt income as is con-
sistent 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 assur-
ance can be given that such a net asset value can be maintained.
This Prospectus relates solely to the Institutional Class. The Institutional
Class is offered primarily to banks and other institutions acting for themselves
or in a fiduciary, advisory, agency, custodial or similar capacity, and is
designed as a convenient and economical vehicle in which such institutions can
invest short-term cash reserves. Another class of shares of the Cash Reserve
Portfolio, the Private Investment Class, is offered to individuals and to
financial institutions pursuant to a separate prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT 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. A COPY OF THE
STATEMENT OF ADDITIONAL INFORMATION IS INCLUDED AS AN APPENDIX TO THIS
PROSPECTUS.
SHARES OF THE CASH RESERVE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE CASH RESERVE PORTFOLIO'S SHARES
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THERE CAN BE NO ASSURANCE THAT THE CASH RESERVE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE CASH
RESERVE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
</TABLE>
[LOGO APPEARS HERE]
Fund Management Company
11 Greenway Plaza
Suite 1919
Houston, TX 77046-1173
(800) 659-1005
<PAGE>
ORGANIZATION OF THE COMPANY
The Company is a Maryland corporation organized as an open-end, diversified,
series investment company, which currently has one portfolio, the Cash Reserve
Portfolio, which is referred to herein as the "Portfolio."
The Portfolio currently offers two classes of shares, the Institutional Cash
Reserve Shares and the Private Investment Class. The Institutional Cash Reserve
Shares, offered pursuant to this Prospectus, are referred to herein as the "In-
stitutional Class." The Institutional Class is offered primarily to banks and
other institutions investing for themselves or in a fiduciary, advisory, agen-
cy, custodial or other similar capacity.
THIS PROSPECTUS RELATES SOLELY TO THE INSTITUTIONAL CASH RESERVE SHARES.
TABLE OF FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases
(as a percentage of offering price)..................................... None
Maximum sales load on reinvested dividends
(as a percentage of offering price)..................................... None
Deferred sales load (as a percentage of original
purchase price or redemption proceeds, as applicable)................... None
Redemption fees (as a percentage of amount
redeemed, if applicable)................................................ None
Exchange fee............................................................. None
ANNUAL OPERATING EXPENSES OF THE SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(AFTER FEE WAIVERS)
Management fees (after fee waivers)...................................... .16%*
Other expenses........................................................... .04%
----
Total operating expenses of the shares (after fee waivers)............... .20%
====
</TABLE>
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* After fee waivers.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Institutional Class will
bear directly or indirectly. Had there been no fee waivers during the fiscal
year, management fees would have been 0.22% and total fund operating expenses
would have been 0.26%. A beneficial holder of shares of the Institutional Class
should also consider the effect of any account fees charged by the financial
institution managing his or her account.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 year.................................................................. $ 2
3 years................................................................. $ 6
5 years................................................................. $11
10 years................................................................. $26
</TABLE>
THE EXAMPLES SHOWN IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED TO BE AN
ACCURATE REPRESENTATION OF PAST OR FUTURE PERFORMANCE AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN.
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 De-
sign are service marks of AIM Management Group Inc.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are the per share income and capital changes for a share out-
standing during the fiscal years ended March 31, 1996, 1995, 1994, 1993, 1992,
1991 and 1990, the eleven months ended March 31, 1989 and the fiscal years
ended April 30, 1988 and 1987. The following information has been audited by
KPMG Peat Marwick LLP, independent auditors, whose report on the financial
statements and the related notes appears in the Statement of Additional Infor-
mation.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
investment
operations:
Net investment
income......... 0.04 0.03 0.02 0.03 0.04 0.06 0.06
---------- ---------- ---------- -------- ---------- ---------- ----------
Less
distributions:
Dividends from
net investment
income......... (0.04) (0.03) (0.02) (0.03) (0.04) (0.06) (0.06)
---------- ---------- ---------- -------- ---------- ---------- ----------
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ======== ========== ========== ==========
Total return..... 3.67% 3.06% 2.33% 2.66% 4.09% 5.68% 6.22%
========== ========== ========== ======== ========== ========== ==========
Ratios/Supplemental
Data
Net assets, end
of period (000s
omitted)....... $1,009,039 $1,009,891 $1,040,595 $994,828 $1,191,209 $1,156,557 $1,114,813
========== ========== ========== ======== ========== ========== ==========
Ratio of
expenses to
average net
assets......... 0.20%(b)(c) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b)
========== ========== ========== ======== ========== ========== ==========
Ratio of net
investment
income to
average net
assets......... 3.59%(b)(c) 3.01%(b) 2.30%(b) 2.66%(b) 4.00%(b) 5.52%(b) 6.03%(b)
========== ========== ========== ======== ========== ========== ==========
<CAPTION>
FOR THE
PERIOD FOR THE YEAR ENDED
ENDED APRIL 30,
MARCH 31, ---------------------------
1989 1988 1987
---------- -------------- ------------
<S> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00
Income from
investment
operations:
Net investment
income......... 0.05 0.04 0.04
---------- -------------- ------------
Less
distributions:
Dividends from
net investment
income......... (0.05) (0.04) (0.04)
---------- -------------- ------------
Net asset value,
end of period... $ 1.00 $ 1.00 $ 1.00
========== ============== ============
Total return..... 5.67%(a) 4.56% 4.24%
========== ============== ============
Ratios/Supplemental
Data
Net assets, end
of period (000s
omitted)....... $1,062,479 $1,192,604 $993,392
========== ============== ============
Ratio of
expenses to
average net
assets......... 0.20%(a)(b) 0.21%(b) 0.21%(d)
========== ============== ============
Ratio of net
investment
income to
average net
assets......... 5.52%(a)(b) 4.47%(b) 4.14%(d)
========== ============== ============
</TABLE>
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(a) Annualized.
(b) After waiver of advisory fees.
(c) Ratios are based on average net assets of $1,097,089,368. Ratios of
expenses and net investment income to average net assets prior to waiver of
advisory fees are 0.26% and 3.53%, respectively.
(d) After waiver of advisory fees and distribution fees.
3
<PAGE>
SUITABILITY FOR INVESTORS
The Institutional Class is intended for use by banks and other financial in-
stitutions, investing for themselves or in a fiduciary, advisory, agency, cus-
todial or other similar capacity. The Institutional Class is designed to be a
convenient and economical vehicle in which such shareholders can invest in high
quality municipal obligations with remaining maturities of 397 days or less
while maintaining liquidity. The municipal obligations purchased for investment
by the Portfolio are hereinafter referred to as "Municipal Securities."
Shares of the Institutional Class may not be purchased directly by individu-
als, although institutions may purchase the Institutional Class for accounts
maintained for individuals. Prospective investors should determine if an in-
vestment in the Institutional Class is consistent with the investment objec-
tives of their clients and with applicable state and federal laws and regula-
tions. Certain financial institutions may impose changes in connection with
opening or maintaining their customers' accounts or for providing recordkeeping
or sub-accounting services with respect to the Institutional Class. Beneficial
owners of the Institutional Class held of record by an institutional investor
should read this Prospectus in light of the terms governing their institutional
accounts, and should obtain from such institution information concerning any
recordkeeping, account maintenance or other fees charged to their accounts. The
minimum amount required for an initial investment in the Institutional Class is
$1 million.
An investment in the Institutional Class may relieve the institution of many
of the investment and administrative burdens encountered when investing in Mu-
nicipal Securities directly, including: selection of portfolio investments;
surveying the market for the best price at which to buy and sell; valuation of
portfolio securities; selection and scheduling of maturities; receipt, delivery
and safekeeping of securities; and portfolio recordkeeping. At the same time,
the expenses of the Company attributable to the Institutional Class are ex-
pected to be relatively small due primarily to the fact that there will be only
a small number of shareholders in the Institutional Class. These shareholders
of the Institutional Class do not need many of the services provided by other
tax-exempt investment companies, thereby resulting in lower transfer agent fees
and costs for printing reports and any necessary proxy statements. In addition,
sales of the Institutional Class to institutions acting for themselves or in a
fiduciary capacity are exempt from the registration requirements of most state
securities laws, thereby resulting in reduced state registration fees.
It is anticipated that most shareholders of the Institutional Class will per-
form their own sub-accounting.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVES
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 Securities.
There can be no assurance that the Portfolio will achieve its investment ob-
jective.
MUNICIPAL SECURITIES
Municipal Securities include debt obligations issued to obtain funds for vari-
ous public purposes, including the construction of a wide range of public fa-
cilities, the refunding of outstanding obligations, the obtaining of funds for
general operating expenses and the lending of such funds to other public insti-
tutions and facilities. In addition, certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to pro-
vide for the construction, equipment, repair or improvement of privately oper-
ated facilities. As used in this Prospectus and the Statement of Additional In-
formation, 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 alterna-
tive 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 fol-
lowing investment policies becomes effective. Policies which are noted as fun-
damental may be changed only with the approval of the shareholders of the Port-
folio.
4
<PAGE>
QUALITY STANDARDS
The policies set forth below with respect to quality standards are fundamental
and may be changed only with shareholder approval. The quality standards apply
at the time of purchase of a security. Since the Portfolio invests in securi-
ties backed by banks and other financial institutions, changes in the credit
quality of these institutions could cause losses to the Portfolio and affect
its share price. Information concerning the ratings criteria of Moody's Invest-
ors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P") and cer-
tain other nationally recognized statistical rating organizations ("NRSROs")
appears in the Statement of Additional Information.
The Fund will limit its purchases of Municipal Securities to those which are
"First Tier" securities as defined in Rule 2a-7 under the Investment Company
Act of 1940 (the "1940 Act").
Generally, "First Tier" securities are securities that are rated in the high-
est 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 super-
vision 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 at-
tempts 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.
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 float-
ing 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 Munici-
pal Securities from their original purchase price. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation or deprecia-
tion 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 (usu-
ally within seven days) on the Portfolio's demand. The terms of such demand in-
struments require payment of principal and accrued interest from the issuer, a
guarantor and/or a liquidity provider. Frequently such obligations include let-
ters of credit or other credit support arrangements provided by financial in-
stitutions. All variable or floating rate instruments will meet the quality
standards of the Portfolio. A I M Advisors, Inc. ("AIM") will monitor the pric-
ing, quality and liquidity of the variable or floating rate Municipal Securi-
ties held by the Portfolio.
SYNTHETIC MUNICIPAL INSTRUMENTS
AIM believes that certain synthetic municipal instruments provide opportuni-
ties for mutual funds to invest in high credit quality securities providing at-
tractive 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 in-
struments 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 ("Under-
lying Bonds"), and the sale of certificates evidencing interests in the trust
or custodial account to investors such as the Portfolio. The trustee or custo-
dian 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 ("Spon-
sor"). 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 caption "In-
vestment Program and Restrictions--Synthetic Municipal Instruments" in the
Statement of Additional Information.
5
<PAGE>
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 creditwor-
thiness of the issuer of the Underlying Bond, the Sponsor and the party provid-
ing certificate holders with a conditional right to sell (put) their certifi-
cates at stated times and prices. Typically, a certificate holder cannot exer-
cise its put upon the occurrence of certain conditions, such as where the is-
suer of the Underlying Bond defaults on interest payments. Moreover, because
synthetic municipal instruments involve a trust or custodial account and a
third party conditional put feature, they involve complexities and potential
risks that may not be present where a municipal security is owned directly.
The tax-exempt character of the interest paid to certificate holders is based
on the assumption that the holders have an ownership interest in the Underlying
Bonds; however, the Internal Revenue Service has not issued a ruling addressing
this issue. In the event the Internal Revenue Service issues an adverse ruling
or successfully litigates this issue, it is possible that the interest paid to
the Portfolio on certain synthetic municipal instruments would be deemed to be
taxable. The Portfolio relies on opinions of special tax counsel on this owner-
ship 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 re-
strictions which reflect self-imposed standards as well as federal and state
regulatory limitations. 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 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 described above, the Company must also comply
with the requirements of Rule 2a-7 under the 1940 Act, as amended, which gov-
erns the operations of money market funds and may be more restrictive. A de-
scription 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 such 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 securi-
ties, which generally have less liquidity and greater fluctuation in value. The
net asset value per share of the Institutional Class will normally remain con-
stant at $1.00, although there can be no assurance that such net asset value
will not change.
PURCHASE OF SHARES
Shares of the Institutional Class are sold on a continuing basis at their net
asset value next determined after an order has been received by the Company. As
discussed below, the Fund reserves the right to reject any purchase order. Al-
though no sales charge is imposed in connection with the purchase of shares of
the Institutional Class, banks or other financial institutions may charge rec-
ord keeping, account maintenance or other fees to their customers. Beneficial
holders in the Class of the Portfolio should consult with such institutions to
obtain a schedule of such fees. In order to be accepted for execution, purchase
orders for shares of the Institutional Class must be submitted to and received
by the Company prior to the determination of net asset value (12:00 noon East-
ern Time) on a "business day" of the Portfolio, which means any day on which
commercial banks in the New York Federal district are open for business. It is
expected that commercial banks will be closed during the next twelve months on
Saturdays and Sundays and on New Year's Day, Martin Luther King, Jr. Day, Pres-
idents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day and Christmas Day. Subject to the Company's right to re-
ject any purchase order, purchase orders received prior to the net asset value
determination on any business day will be effective on such day and payment for
such shares must be made in the form of federal funds wired to A I M Institu-
tional Fund Services, Inc. (the "Transfer Agent" or "AIFS") on the day of pur-
chase.
6
<PAGE>
The minimum initial investment for the purchase of shares of the Institutional
Class is $1 million. An institution's Master Account(s) and sub-accounts may be
aggregated for the purpose of the minimum investment requirement. No minimum
amount is required for subsequent investments.
Prior to the initial purchase of shares of the Institutional Class, an Account
Application must be completed and sent to A I M Institutional Fund Services,
Inc., at P.O. Box 4497, Houston, Texas 77210-4497. Account Applications may be
obtained from AIFS. Any funds received in respect of an order to purchase
shares which is not accepted by the Company and any funds received for which an
order has not been received will be promptly returned to the investor.
The Company reserves the right in its sole discretion to withdraw all or any
part of the offering made by this Prospectus or to reject any purchase order.
REDEMPTION OF SHARES
Shareholders may redeem any or all of their shares of the Institutional Class
at the net asset value next determined after receipt of a redemption request in
proper form by the Company. There is no charge for redemption. The value of
shares of the Institutional Class on redemption may be more or less than the
shareholder's initial cost, depending upon the value of the Portfolio's invest-
ments at the time of redemption. It is expected that the net asset value of the
Portfolio will remain constant at $1.00 per share. See "Share Purchases and Re-
demptions--Net Asset Value Determination" in the Statement of Additional Infor-
mation.
Redemption requests with respect to the Institutional Class are normally made
by calling AIFS at (800) 659-1005. Redemption requests with respect to the In-
stitutional Class may also be made via AIM LINK(R), a personal computer appli-
cation software product. Payment for redeemed shares of the Institutional Class
is normally made by Federal Reserve wire to the commercial bank account desig-
nated in the shareholder's Account Application on the day specified below, but
may be remitted by check upon request by a shareholder.
If a redemption request is received by 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 of the Portfolio determined as of 12:00 noon Eastern Time and the
redemption proceeds will normally be wired on the same day. A redemption re-
quest received by AIFS after 12:00 noon Eastern Time or on other than a busi-
ness day of the Portfolio will be effected at the net asset value of the Port-
folio determined as of 12:00 noon Eastern Time on the next business day of such
Portfolio, and the proceeds of such redemption will normally be wired on that
day.
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Company. The authorized signature on the no-
tice must be guaranteed by a commercial bank or trust company (which may in-
clude the shareholder). Additional documentation may be required when deemed
appropriate by the Portfolio or AIFS or its 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 tele-
phone transactions may include recordings of telephone transactions (maintained
for six months), and mailings of confirmation promptly after the transaction.
Payment for shares of the Institutional Class redeemed by mail and payment for
telephone redemptions in amounts of less than $10,000 will be made by check
mailed within seven days after receipt of the redemption request in proper
form. The Company may make payment for telephone redemptions in excess of
$10,000 by check when it is considered to be in the Company's best interest to
do so.
Dividends payable up to the date of redemption on redeemed shares of the In-
stitutional Class will normally be paid on the next dividend payment date. How-
ever, if all of the shares of the Institutional Class in a shareholder's ac-
count are redeemed, dividends payable up to the date of redemption will nor-
mally be paid within five days of the date of redemption.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of the Portfolio is determined
as of 12:00 noon Eastern Time on each "business day" of the Portfolio, as pre-
viously 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
per share is made in accordance with generally accepted accounting
7
<PAGE>
principles. Among other items, the Portfolio's liabilities include accrued ex-
penses and dividends payable, and its total assets include portfolio securities
valued at their market value as well as income accrued but not yet received.
Portfolio securities in the Portfolio are valued on the basis of amortized
cost.
DIVIDENDS
Net investment income (not including any net short-term gains) earned by the
Portfolio is declared as a dividend to the shareholders of record on each busi-
ness day of the Company. The dividend declared on any day preceding a non-busi-
ness day of the Portfolio will include the income accrued on such non-business
day. Dividends will be paid monthly. Net realized capital gains (including net
short-term gains) are normally distributed annually. The Portfolio does not ex-
pect to realize any long-term capital gains and losses. Dividends and distribu-
tions are paid in cash unless the shareholder has elected to have such divi-
dends and distributions reinvested in the form of additional full and frac-
tional shares at the net asset value thereof.
The dividend accrued and paid for each class of shares of the Company will
consist of: (a) interest accrued and original issue discount earned less amor-
tization of premiums, if any, for the portfolio to which such class relates,
allocated based upon such class' pro rata share of the total shares outstanding
which relate to such portfolio, less (b) Company expenses accrued for the ap-
plicable dividend period attributable to such portfolio, such as custodian fees
and accounting expenses, allocated based upon each such class's pro rata share
of the net assets of such portfolio, less (c) expenses directly attributable to
each class which are accrued for the applicable dividend period, such as dis-
tribution expenses, if any.
Dividends are declared to shareholders of record immediately after 3:00 p.m.
Eastern Time on the day of declaration. Accordingly, dividends accrue on the
first day that a purchase order for shares of the Institutional Class is effec-
tive, but not on the day that a redemption order is effective. Thus, if a pur-
chase order is accepted prior to 12:00 noon Eastern Time, the shareholder will
receive its pro rata share of dividends declared on that day. Information con-
cerning the amount of the dividends declared on any particular day will nor-
mally be available by 4:00 p.m. Eastern Time on that day.
PERFORMANCE INFORMATION
Performance information for the Institutional Class can be obtained by calling
the Company at (800) 659-1005. Performance will vary from time to time and past
results are not necessarily indicative of future results. Investors should un-
derstand that performance is a function of the type and quality of the Portfo-
lio's investments as well as its operating expenses. Performance information
for the shares of the Institutional Class may not provide a basis for compari-
son with investments which pay fixed rates of interest for a stated period of
time, with other investments or with investment companies which use a different
method of calculating performance.
Comparative performance information using data from industry publications may
be used from time to time in advertising or marketing the Institutional Class.
The yield of the Institutional Class, calculated as described below, will
fluctuate from day to day. Calculations of yield will take into account the to-
tal income received by the Portfolio, including taxable income, if any; howev-
er, 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 yields of such classes
can be expected to vary. To the extent that institutions charge fees in connec-
tion with services provided in conjunction with the Fund, 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 Portfo-
lio's yield and total return.
The current yield and effective yield (which assumes the reinvestment of divi-
dends for a 365 day year and a return for the entire year equal to the average
annualized current yield for the period) for the Institutional Class are calcu-
lated according to a formula prescribed by the SEC. See "Performance Informa-
tion" in the Statement of Additional Information. For the seven-day period
ended March 31, 1996 the current yield and effective yield for the Institu-
tional Class were 3.20% and 3.25%, respectively.
TAX MATTERS
The Portfolio has qualified and intends to qualify for treatment as a regu-
lated 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 is not subject to federal income taxes on amounts distributed to
shareholders.
8
<PAGE>
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 ex-
empt-interest dividends and other tax-exempt interest on their federal income
tax returns. Moreover, exempt-interest dividends from the Portfolio may be sub-
ject to state income taxes, may give rise to a federal alternative minimum tax
liability, may affect the amount of social security benefits subject to federal
income tax, may affect the deductibility of interest on certain indebtedness of
a shareholder and may have other collateral federal income tax consequences.
The Portfolio intends to avoid investment in Municipal Securities the interest
on which will constitute an item of tax preference and therefore could give
rise to a federal alternative minimum tax liability. For additional information
concerning the alternative minimum tax and certain collateral tax consequences
of the receipt of exempt-interest dividends, see the Statement of Additional
Information.
The 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 real-
ized short-term capital gains, they will constitute ordinary income for federal
income tax purposes, whether received in cash or additional shares. Distribu-
tions of net long-term capital gains (capital gain dividends), if any, will be
taxable as long-term capital gains, whether received in cash or additional
shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on Munici-
pal Securities. If such a proposal were enacted, the ability of the Portfolio
to pay exempt-interest dividends might be adversely affected.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their tax advisors concerning the impact of the Code on their investments in
the Portfolio, and concerning the application of state, local and foreign taxes
to investments in the Fund, which may differ significantly from the federal in-
come tax consequences described above.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested in
its Board of Directors. The Board of Directors approves all significant agree-
ments between the Company and persons or companies furnishing services to the
Company, including the Company's agreements with the Portfolio's investment ad-
visor, 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 Portfolio and to the general supervision
of the Board of Directors. AIM also furnishes or procures on behalf of the Com-
pany all services necessary to the proper conduct of the Company's business.
Certain directors and officers of the Company are affiliated with AIM and A I M
Management Group Inc. ("AIM Management"), the parent of AIM. AIM Management is
a holding company engaged in the financial services business. Information con-
cerning the Board of Directors may be found in the Statement of Additional In-
formation.
DISTRIBUTOR
The Company has entered into a distribution agreement dated as of October 18,
1993 (the "Distribution Agreement") with FMC, a wholly-owned subsidiary of AIM,
with respect to the Institutional Class. FMC does not receive any fees from the
Company. Two directors and several officers of the Company are affiliated with
FMC.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to banks or dealers who sell a minimum dollar amount of the shares
of the Portfolio during a specific period of time. In some instances, these in-
centives may be offered only to certain banks or dealers who have sold or may
sell significant amounts of shares. The total amount of such additional bonus
payments or other consideration shall not exceed 0.05% of the net asset value
of the shares sold. Any such bonus or incentive programs will not change the
price paid by investors for the purchase of the Portfolio's shares or the
amount that the Portfolio will receive as proceeds from such sales. Banks or
dealers may not use sales of the Portfolio's shares to qualify for any incen-
tives to the extent that such incentives may be prohibited by the laws of any
jurisdiction.
9
<PAGE>
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, acts as the Company's investment advisor with respect to the Fund pursu-
ant to an Investment Advisory Agreement dated as of October 18, 1993 (the "Ad-
visory Agreement"). AIM, which was organized in 1976, together with its affili-
ates advises or manages 43 investment company portfolios. As of July 15, 1996,
the total assets of the investment company portfolios advised or managed by AIM
or its affiliates were approximately $50.8 billion.
Pursuant to the terms of the Advisory Agreement, AIM manages the investments
of the Fund. AIM obtains and evaluates economic, statistical and financial in-
formation 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
willful misfeasance, bad faith, gross negligence or reckless disregard of duty;
provided, however, that AIM may be liable for certain breaches of duty under
the 1940 Act.
FEES AND EXPENSES
Pursuant to the Advisory Agreement, the Company pays AIM a fee with respect to
the 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 the Portfolio's aver-
age daily net assets in excess of $500 million.
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 aver-
age net assets. During such fiscal year, those expenses of the Company which
were borne by the Institutional Class, including fees paid to AIM, amounted to
0.20% of the Institutional Class' average net assets. For the fiscal year ended
March 31, 1996, AIM waived a portion of its fees with respect to the Portfolio.
Had AIM not waived its fee, AIM would have received an amount from the Company
pursuant to the Advisory Agreement which represented 0.22% of the Portfolio's
average daily net assets.
The Company pays or causes to be paid all expenses of the Company which are
not borne by its distributor or AIM. See the Statement of Additional Informa-
tion for a detailed description of these other charges.
FEE WAIVERS
In order to increase the yield to investors, AIM or its affiliates may from
time to time voluntarily 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
Advisory Agreement, may be rescinded, however, at any time without further no-
tice to investors, provided, however, that the fee waiver described below will
be continued in effect until sixty days following notice to the Board of Direc-
tors that such fee waiver will be terminated.
AIM has agreed to reduce its fee from the Portfolio to the extent necessary to
cause the expense ratio of the Company attributable to the operations of the
Institutional Class not to exceed 0.20% (exclusive of interest, taxes, broker-
age commissions, directors' fees, and registration fees payable to the SEC).
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was originally incorporated in Maryland on January 24, 1977, but
had no operations prior to March 21, 1983. On August 30, 1985, the Company was
reorganized as a Massachusetts business trust. On May 1, 1992, the Company was
reorganized as a Maryland corporation. The Company currently has one portfolio,
the Cash Reserve Portfolio. The Portfolio currently offers two classes of
shares, the Institutional Cash Reserve Shares and the Private Investment Class.
The Private Investment Class is offered pursuant to a separate prospectus.
All shares of the Company have equal rights with respect to voting, except
that the holders of shares of a particular class will have the exclusive right
to vote on matters pertaining to distribution plans or shareholder service
plans, if any such plans are adopted, relating solely to such class. The hold-
ers of each class have distinctive rights with respect to dividends which are
more fully described in the Statement of Additional Information. There will not
normally be annual shareholders' meetings. 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's shares without shareholder approval.
10
<PAGE>
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 1919, Hous-
ton, Texas 77046-1173, acts as transfer agent for the Institutional Class of-
fered 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 port-
folio securities and cash for the Institutional Class offered pursuant to this
Prospectus.
SHAREHOLDER INQUIRIES
Inquiries by holders of the Class concerning the status of an account should
be directed to the Portfolio or an AIFS investment representative by calling
(800) 659-1005.
11
<PAGE>
APPENDIX
STATEMENT OF
ADDITIONAL INFORMATION
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA, SUITE 1919
HOUSTON, TEXAS 77046
(800) 659-1005
------------
INSTITUTIONAL CASH RESERVE SHARES
------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS THAT PRECEDES
THIS APPENDIX, ADDITIONAL COPIES OF WHICH MAY BE OBTAINED BY WRITING
FUND MANAGEMENT COMPANY
P.O. BOX 4333
HOUSTON, TEXAS 77210-4333
OR CALLING (800) 659-1005
------------
STATEMENT OF ADDITIONAL INFORMATION DATED: JULY 29, 1996
RELATING TO THE PROSPECTUS DATED: JULY 29, 1996
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction................................................ A-3
General Information about the Company....................... A-3
The Company and Its Shares................................ A-3
Directors and Officers.................................... A-4
Remuneration of Directors................................. A-6
AIM Funds Retirement Plan for Eligible Directors/Trustees. A-7
Deferred Compensation Agreements.......................... A-8
The Distributor........................................... A-8
The Investment Advisor.................................... A-8
Expenses.................................................. A-9
Transfer Agent and Custodian ............................. A-10
Legal Counsel............................................. A-10
Sub-Accounting............................................ A-11
Principal Holders of Securities........................... A-11
Reports................................................... A-12
Share Purchases and Redemptions............................. A-13
Purchases and Redemptions................................. A-13
Net Asset Value Determination............................. A-13
Dividends, Distributions and Tax Matters.................... A-14
Dividends and Distributions............................... A-14
Tax Matters............................................... A-14
Qualification as a Regulated Investment Company........... A-14
Excise Tax on Regulated Investment Companies.............. A-15
Distributions............................................. A-15
Foreign Shareholders...................................... A-16
Effect of Future Legislation; Local Tax Considerations.... A-17
Performance Information..................................... A-17
Investment Program and Restrictions......................... A-17
Investment Program........................................ A-17
Municipal Securities...................................... A-18
Investment Ratings........................................ A-19
When-Issued Securities and Delayed Delivery Transactions.. A-22
Variable or Floating Rate Instruments..................... A-22
Synthetic Municipal Instruments........................... A-23
Investment Restrictions................................... A-23
Fund Transactions........................................... A-24
Financial Statements........................................ A-26
</TABLE>
A-2
<PAGE>
INTRODUCTION
Tax-Free Investments Co. (the "Company") is a mutual fund organized with one
portfolio, the Cash Reserve Portfolio, which is referred to herein as the
"Portfolio." The Portfolio may have one or more classes of shares. The rules
and regulations of the United States Securities and Exchange Commission (the
"SEC") require all mutual funds to furnish prospective investors with certain
information concerning the activities of the fund being considered for invest-
ment. This information is included in the Prospectus dated July 29, 1996 (the
"Prospectus") for Institutional Cash Reserve Shares (the "Institutional
Class"), a class of the Portfolio of the Company. This Statement of Additional
Information is intended to furnish investors with additional information con-
cerning the Institutional Class. Some of the information set forth in this
Statement of Additional Information is also included in the Prospectus and, in
order to avoid repetition, reference will be made to sections of the Prospec-
tus. Additional information is contained in the Company's registration state-
ment filed with the SEC. Copies of the registration statement may be obtained
from the SEC by paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE COMPANY
THE COMPANY AND ITS SHARES
The Company is an open-end diversified series management investment company
initially organized as a corporation under the laws of the State of Maryland on
January 24, 1977. The Company was reorganized as a business trust under the
laws of the Commonwealth of Massachusetts on August 30, 1985, and was formerly
known as "Tax-Free Investments Trust." The Company was reorganized as a Mary-
land corporation under the name "Tax-Free Investments Co." on May 1, 1992.
Shares of the Company are redeemable at the net asset value thereof at the op-
tion of the holders thereof or at the option of the Company in certain circum-
stances. Information concerning the methods of redemption and the rights of
share ownership are set forth in the Prospectus under "General Information" and
"Redemption of Shares."
As used in the Prospectus, the term "majority of the outstanding shares" of
the Company, the Portfolio or a particular class of shares of the Company
means, respectively, the vote of the lesser of (i) 67% or more of the shares of
the Company or Portfolio or class present at a meeting, if the holders of more
than 50% of the outstanding shares of the Company or Portfolio or class are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Company or Portfolio or class.
Shareholders of the Company do not have cumulative voting rights, and there-
fore the holders of a majority of a quorum of the outstanding shares of all
classes voting together for election of directors may elect all of the members
of the Board of Directors of the Company. In such event, the remaining holders
cannot elect any members of the Board of Directors of the Company.
The Board of Directors may classify or reclassify any unissued shares of any
class or classes in addition to those already authorized by setting or changing
in any one or more respects, from time to time and prior to the issuance of
such shares, the preferences, conversion or other rights, voting powers, re-
strictions, limitations as to dividends, qualifications, or terms or conditions
of redemption, of such shares. Any such classification or reclassification will
comply with the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act").
The Articles of Incorporation permit the directors to issue 6,000,000,000
shares of common stock, of $.001 par value. A share of the Company's common
stock represents an equal proportionate interest in the Portfolio and is enti-
tled to a proportionate interest in the dividends and distributions with re-
spect to its class of the Portfolio. Additional information concerning the
rights of share ownership is set forth in the Prospectus.
The assets received by the Company for the issuance of shares of each class
relating to the Portfolio and all income, earnings, profits, losses and pro-
ceeds therefrom, subject only to the rights of creditors, are allocated to the
Portfolio and constitute the underlying assets of the Portfolio. The underlying
assets of the Portfolio are charged with the expenses attributable to the Port-
folio. See "Expenses."
The Articles of Incorporation provide that the directors will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the Ar-
ticles of Incorporation protects a director against any liability to which such
director would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. The Articles of Incorporation provide for indemnifica-
tion by the Company of the directors and the officers of the Company except
with respect to any matter as to which any such person did not act in good
faith in the reasonable belief that his action was in, or not opposed to, the
best interests of the Company. Such person may not be indemnified against any
liability to the Company or the Company's shareholders to which he would other-
wise be subject by reason of his willful misfeasance, bad faith, gross negli-
gence or reckless disregard of the duties involved in the conduct of his of-
fice. The Articles of Incorporation also authorize the purchase of liability
insurance on behalf of the Company's directors and officers.
A-3
<PAGE>
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 of-
fice by a written consent signed by the holders of two-thirds of the Company's
outstanding shares and filed with the Company's transfer agent or by a vote of
the holders of two-thirds of the Company's outstanding shares at a meeting duly
called for the purpose. Upon written request by ten or more shareholders, who
have been such for at least six months and who hold shares constituting at
least 1% of the Company's outstanding shares, stating that such shareholders
wish to communicate with the other shareholders for the purpose of obtaining
the signatures necessary to demand a meeting to consider removal of a director,
the Company has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as otherwise disclosed in the Prospectus and in this Statement of Addi-
tional Information, the directors shall continue to hold office and may appoint
their successors.
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal occupations dur-
ing the last five years are set forth below. Unless otherwise noted, the ad-
dress of each such director and officer is 11 Greenway Plaza, Suite 1919, Hous-
ton, Texas 77046-1173.
*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, 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.
A-4
<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 In-
vestors 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 Associ-
ates, 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 Atlan-
tic 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 Lim-
ited 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 Presi-
dent 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 Institu-
tional Fund 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 Direc-
tor, 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 Presi-
dent, 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.
A-5
<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.
and 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 Offi-
cer, Charles Schwab Investment Management, Inc.; and Vice President, Inte-
grated 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 meet-
ing with the Portfolio'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 Portfolio'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 com-
mittee.
The Board of Directors also has an Investments Committee, consisting of
Messrs. Daly (Chairman), Bauer, Crockett, Kroeger and Pennock, which is respon-
sible for considering matters relating to investment management, or for consid-
ering 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 respon-
sible for considering and nominating individuals to stand for election as di-
rectors who are not "interested persons" (as defined by the 1940 Act) as long
as the Company maintains a Distribution Plan on behalf of the Portfolio pursu-
ant to Rule 12b-1 under the 1940 Act, or considering such matters as may from
time to time be set forth in a charter adopted by the Board and such committee.
All of the Company's directors also serve as directors or trustees of some or
all of the other investment companies managed or advised by A I M Advisors,
Inc. ("AIM") or distributed and administered by Fund Management Company. All of
the Company's executive officers hold similar offices with some or all of such
investment companies.
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 man-
aged, administered or distributed by AIM or its affiliates (the "AIM Funds").
Each such director receives a fee, allocated among the AIM Funds for which he
serves as a director or trustee, which consists of an annual retainer component
and a meeting fee component.
A-6
<PAGE>
Set forth below is information regarding compensation paid or accrued for each
director of the Company:
<TABLE>
<CAPTION>
RETIREMENT TOTAL
AGGREGATE BENEFITS COMPENSATION
COMPENSATION ACCRUED FROM ALL
FROM BY ALL AIM
DIRECTOR COMPANY(/1/) AIM FUNDS(/2/) FUNDS(/3/)
-------- ------------ -------------- ------------
<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, Robin-
son and Sklar each serves as a Director or Trustee of a total of 10 AIM
Funds. Data reflects total compensation for the calendar year ended Decem-
ber 31, 1995.
(4) See also page A-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 an 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 eli-
gible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies man-
aged, administered or distributed by AIM or its affiliates (the "Applicable AIM
Funds"). Each eligible director is entitled to receive an annual benefit from
the Applicable AIM Funds commencing on the first day of the calendar quarter
coincident with or following his date of retirement equal to 75% of the re-
tainer paid or accrued by the AIM Funds for such director during the twelve-
month period immediately preceding the director's retirement (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 bene-
fit is payable to each eligible director in quarterly installments. If an eli-
gible director dies after attaining the normal retirement date but before re-
ceipt 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 for Messrs. Crockett,
Daly, Frischling, Kroeger, Pennock, Robinson and Sklar are 9, 9, 18, 19, 14, 9,
and 6 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
PAID BY ALL AIM FUNDS
-----------------------
NUMBER OF YEARS OF SERVICE WITH
THE AIM FUNDS $55,000 $60,000 $65,000
------------------------------- ------- ------- -------
<S> <C> <C> <C>
10.............................................. $41,250 $45,000 $48,750
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>
A-7
<PAGE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred Com-
pensation Agreement (collectively, the "Agreements"). Pursuant to the Agree-
ments, the deferring directors elected to defer receipt of 100% of their com-
pensation 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 be-
ginning on the date the deferring director's retirement benefits commence under
the Plan. The Company's Board of Directors, in its sole discretion, may accel-
erate 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 benefi-
ciary 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 pay-
ments 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 Fund paid legal fees of $6,329 for services ren-
dered 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.
THE DISTRIBUTOR
Fund Management Company ("FMC") serves as the distributor of the Institutional
Class pursuant to a Distribution Agreement dated as of October 18, 1993 (the
"Distribution Agreement"). FMC is a registered broker-dealer and a wholly-owned
subsidiary of AIM. The address of FMC is 11 Greenway Plaza, Suite 1919, Hous-
ton, Texas 77046. Mail addressed to FMC should be sent to P.O. Box 4333, Hous-
ton, Texas 77210-4333.
The Distribution Agreement provides that FMC has the exclusive right to dis-
tribute shares of the Institutional Class either directly or through other bro-
ker-dealers. Pursuant to the Distribution Agreement, AIM Distributors (a) so-
licits and receives orders for the purchase of shares of the Institutional
Class, accepts or rejects such orders on behalf of the Company in accordance
with the Company's currently effective Prospectus, and transmits such orders as
are accepted to the Company's transfer agent as promptly as possible; (b) re-
ceives requests for redemptions and transmits such redemption requests to the
Company's transfer agent as promptly as possible; (c) responds to inquiries
from shareholders concerning the status of their accounts and the operations of
the Company; and (d) provides information concerning yields and dividend rates
to shareholders. FMC does not receive any fees from the Company for its servic-
es.
FMC has not undertaken to sell any specific number of shares of the Institu-
tional Class. The Distribution Agreement further provides that, in connection
with the distribution of shares of the Institutional Class, FMC will pay all of
the promotional expenses, including the incremental costs of printing prospec-
tuses, statements of additional information, annual reports and other periodic
reports for distribution to prospective investors and the costs of preparing
and distributing any other supplemental sales material to prospective invest-
ors. The services of FMC to the Company are not exclusive so it is free to ren-
der similar services to others. FMC shall not be liable to the Company or the
shareholders of the Institutional Class for any act or omission by FMC or for
any loss sustained by the Company or the shareholders of the Institutional
Class except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to dealers or banks who sell a minimum dollar amount of the Insti-
tutional Class during a specific period of time. In some instances, these in-
centives 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 as-
set value per share of the Institutional Class sold. Any such bonus or incen-
tive programs will not change the price paid by investors for the purchase of
shares of the Institutional Class or the amount received as proceeds from such
sales. Dealers or institutions may not use sales of the shares of the Institu-
tional Class to qualify for any incentives to the extent that such incentives
may be prohibited by the laws of any jurisdiction.
THE INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046,
serves as investment advisor to the Portfolio pursuant to an Investment Advi-
sory Agreement dated as of October 18, 1993 (the "Advisory Agreement"). AIM,
which was organized in 1976, is the investment advisor or manager of 43 invest-
ment company portfolios. As of July 15, 1996, the total assets advised or man-
aged by AIM or its affiliates were approximately $50.8 billion.
A-8
<PAGE>
AIM and the Company have adopted a Code of Ethics which requires investment
personnel and certain other employees (a) to pre-clear personal securities
transactions subject to the Code of Ethics, (b) to file reports or duplicate
confirmations regarding such transactions, (c) to refrain from personally en-
gaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same secu-
rity, and (iii) transactions involving securities being considered for invest-
ment 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 Di-
rectors reviews quarterly and annual reports (including information on any sub-
stantial violations of the Code of Ethics). Sanctions for violations of the
Code of Ethics may include censure, monetary penalties, suspension or termina-
tion of employment.
On May 14, 1996, the Board of Directors (including the affirmative vote of all
the directors who were not parties to such agreement or "interested persons" of
any such party) last approved the Advisory Agreement, which will be in effect
until June 30, 1997. The Advisory Agreement will continue in effect from year
to year thereafter if it is specifically approved at least annually by the af-
firmative vote of a majority of the directors who are not parties to the Advi-
sory Agreement or "interested persons" of any such party by votes cast in per-
son 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 man-
ages 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 Com-
pany, 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 supple-
ments thereto), proxy materials, tax returns, reports to the Portfolio's share-
holders and reports to and filings with the SEC and state Blue Sky authorities;
(e) provides the Company's Board of Directors on a regular basis with financial
reports and analyses of the Portfolio's operations and the operation of compa-
rable 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 Portfolio and whether
concerning the individual issuers whose securities are included in the Portfo-
lio; (g) determines which issuers and securities shall be represented in the
Portfolio and regularly reports thereon to the Board of Directors; (h) formu-
lates 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 be necessary to carry into effect such purchase and sale programs,
including the placing of orders for the purchase and sale of portfolio securi-
ties. 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 Portfolio or its shareholders for any act or omission by AIM or for any
loss sustained by the Portfolio or its shareholders, except in the case of
AIM's willful misfeasance, bad faith, gross negligence or reckless disregard of
duty; provided, however, that AIM may be liable for certain breaches of duty
under the 1940 Act.
As compensation for its services, AIM receives a fee from the Company with re-
spect 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 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).
In addition, in order to increase the yield to investors, AIM may, from time
to time, waive or reduce its fee while retaining the right to be reimbursed
prior to year end. Fee waivers or reductions, other than those set forth in the
Advisory Agreement, may be rescinded, however, at any time without further no-
tice to investors. The fee waivers currently in effect are shown in the Pro-
spectus.
EXPENSES
AIM and FMC furnish, without cost to the Company, the services of the Presi-
dent, 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 Distribu-
tion 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 Portfolio. FMC bears the
expenses of printing and distributing prospectuses and statements of additional
information (other than those prospectuses and statements of additional infor-
mation distributed to existing holders of shares) and any other promotional or
sales literature used by FMC or furnished by FMC to purchasers or dealers in
connection with the public offering of shares of the Institutional Class.
A-9
<PAGE>
The Company pays, or causes to be paid, all other expenses of the Company; in-
cluding, 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 Portfolio; all taxes, including secu-
rities 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 main-
tenance 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 pro-
spectuses 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 accoun-
tants; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including of-
ficers and directors) of the Company; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any in-
demnification 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 of-
ficer 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 Portfo-
lio's net asset value and the daily dividend for its several classes. The
method of calculating such reimbursements must be approved annually, and the
amounts paid will be reviewed periodically by 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 for such expenses.
Expenses of the Company which are not directly attributable to the operations
of any class are pro-rated among all classes of the Company based upon the rel-
ative net assets of each class. Expenses of the Company which are directly at-
tributable to a class are charged against the income available for distribution
as dividends to such class.
AIM has agreed to reduce its fee for any fiscal year, or reimburse the Portfo-
lio, 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 Com-
pany does not exceed the expense limitations applicable to the Portfolio im-
posed by the securities laws or regulations of those states or jurisdictions in
which the Shares are registered or qualified for sale. Currently, the most re-
strictive 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 fis-
cal 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 ex-
cess of $100 million.
Expenses of the Portfolio which are not directly attributable to the opera-
tions of any class are pro-rated among the classes of the Portfolio based upon
the relative net assets of each class. Expenses of the Portfolio which are di-
rectly 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") 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173, serves as transfer agent and dividend disburs-
ing agent for the shares of the Institutional 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 and the Company. 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.
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania,
serves as counsel to the Company.
A-10
<PAGE>
SUB-ACCOUNTING
The Company and FMC have arranged for AIFS or the Portfolio to offer sub-ac-
counting services to shareholders of the Institutional Class and to maintain
information with respect to the underlying beneficial ownership of the shares.
Investors who purchase shares of the Institutional Class for the account of
others can make arrangements through the Company or FMC for these sub-account-
ing services. In addition, shareholders utilizing certain versions of AIM
LINK(R), a personal computer application software product, may receive sub-ac-
counting services via such software.
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Company, the names and addresses of the holders
of 5% or more of the outstanding shares of the Institutional Cash Reserve
Shares as of July 15, 1996, and the amount of the outstanding shares held of
record by such shareholders are set forth below:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF OWNED OF
RECORD OWNER RECORD*
------------------- --------
<S> <C>
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
</TABLE>
To the best knowledge of the Company, the names and addresses of the holders
of 5% or more of the outstanding shares of the Private Investment Class of the
Portfolio as of July 15, 1996, and the amount of the outstanding shares held of
record by such shareholders, are set forth below:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF OWNED OF
RECORD OWNER RECORD*
------------------- --------
<S> <C>
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
</TABLE>
- ------
* The Company has no knowledge as to whether all or any portfolio of the shares
owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
A-11
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF OWNED OF
RECORD OWNER RECORD*
------------------- --------
<S> <C>
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 60610-0126
</TABLE>
As of July 15 1996, the directors and officers of the Company owned less than
1% of the Institutional Cash Reserve Shares and the Private Investment Class
Shares.
REPORTS
The Company furnishes shareholders of the Institutional Class with semi-annual
reports containing information about the Company and its operations, including
a schedule of investments held in the Portfolio, and its financial statements.
The annual financial statements are audited by the Company's independent audi-
tors. The Board of Directors has selected KPMG Peat Marwick LLP, 700 Louisiana,
NationsBank Building, Houston, Texas 77002, as the Company's independent audi-
tors to audit the Company's financial statements and review the Company's tax
returns.
A-12
<PAGE>
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which shares of the Institutional
Class may be purchased, redeemed or exchanged appears in the Prospectus under
the heading "Purchase of Shares."
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange ("NYSE") is restricted, as deter-
mined 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.
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 de-
fined 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) de-
ducting 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 amor-
tized cost. This method involves valuing an instrument at its cost and thereaf-
ter 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 re-
sult 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 portfo-
lio.
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 av-
erage portfolio maturity of 90 days or less, to purchase only instruments hav-
ing remaining maturities of 397 days or less, and to invest only in securities
determined by AIM, pursuant to guidelines established by the Board of Direc-
tors, to be "Eligible Securities" (as defined in Rule 2a-7 under the 1940 Act)
and to present minimal credit risk to the Portfolio. The Portfolio adheres to a
policy of purchasing only "First Tier" securities (as defined in Rule 2a-7 un-
der the 1940 Act), which is a higher quality standard and more restrictive than
required by such rules.
Eligible Securities generally include (1) U.S. Government securities; (2) se-
curities that (a) are rated (at the time of purchase) by two or more nationally
recognized statistical rating organizations ("NRSROs") in the two highest rat-
ing categories for such securities (e.g., commercial paper rated "A-1" or "A-2"
by Standard & Poor's Corporation ("S&P"), or rated "Prime-1" or "Prime-2" by
Moody's Investors Service, Inc. ("Moody's"), or (b) are rated (at the time of
purchase) by only one NRSRO in one of its two highest rating categories for
such securities; (3) short-term obligations and long-term obligations that have
remaining maturities of 397 calendar days or less, provided in each instance
that such obligations have no short-term rating and are comparable in priority
and security to a class of short-term obligations of the issuer that has been
rated in accordance with (2)(a) or (b) above ("comparable obligations"); (4)
securities that are not rated and are issued by an issuer that does not have
comparable obligations rated by an NRSRO ("Unrated Securities"), provided that
such securities are determined to be of comparable quality to a security satis-
fying (2) or (3) above; and (5) long-term obligations that have remaining matu-
rities in excess of 397 calendar days that are subject to a demand feature or
put (such as a guarantee, a letter of credit or similar credit enhancement)
("demand instrument") (a) that are unconditional (readily exercisable in the
event of default), provided that the demand feature satisfies (2), (3) or (4)
above, and the demand instrument or long-term obligations of the issuer satisfy
(2) or (4) above for long-term debt obligations. The Board of Directors will
approve or ratify any purchases by the Portfolio of securities that are rated
by only one NRSRO or that are unrated securities.
The Board of Directors is required to establish procedures designed to stabi-
lize, 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 in-
clude review of the portfolio holdings by the Board of Directors, at such in-
tervals 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 exist-
ing 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
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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 estab-
lishment of a net asset value per share by using available market quotations.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Net investment income for the Portfolio is declared as a dividend to the
shareholders of record of the Institutional Class on each business day of the
Portfolio. 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 real-
ize net long-term capital gains. Dividends and distributions are paid in cash
unless the shareholder has elected to reinvest such dividends and distributions
in additional full and fractional shares of the Institutional Class at the net
asset value thereof.
The dividend accrued and paid for each class will consist of: (a) income for
the Portfolio to which such class relates, the allocation of which is based
upon each such class' pro rata share of the total shares outstanding which re-
late to the Portfolio, less (b) Company expenses accrued for the applicable
dividend period attributable to the Portfolio, such as custodian fees and ac-
counting expenses, allocated based upon each such class' pro rata share of the
net assets of the Portfolio, less (c) expenses directly attributable to each
class which are accrued for the applicable dividend period, such as distribu-
tion expenses, if any.
Dividends with respect to the Institutional Class are declared to shareholders
of record immediately after 3:00 p.m. Eastern Time on the date of declaration.
Accordingly, dividends accrue on the first day that a purchase order for shares
of the Institutional Class is effective, but not on the day that a redemption
order is effective. Thus, if a purchase order is accepted prior to 12:00 noon
Eastern Time, the shareholder will receive its pro rata share of dividends be-
ginning with those declared on that day.
Should the Company incur or anticipate any unusual expense, loss or deprecia-
tion, which would adversely affect the net asset value per share of the Portfo-
lio or the net income per share of a class of the Portfolio for a particular
period, the Board of Directors would at that time consider whether to adhere to
the present dividend policy described above or to revise it in light of then
prevailing circumstances. For example, if the net asset value per share of the
Portfolio were reduced, or were anticipated to be reduced, below $1.00, the
Board of Directors might suspend further dividend payments on shares of the
Portfolio until the net asset value returns to $1.00. Thus, such expense or
loss or depreciation might result in a shareholder receiving no dividends 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 gen-
erally 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, divi-
dends 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 distrib-
utes to shareholders, provided that it distributes an amount at least equal to
the sum of (a) 90% of its investment company taxable income (i.e., net invest-
ment income and the excess of net short-term capital gain over net long-term
capital loss) and (b) 90% of its tax-exempt income (net of allocable expenses
and amortized bond premium allocable thereto) for the taxable year (the "Dis-
tribution Requirement"), and satisfies certain other requirements of the Code
that are described below. Distributions by the Portfolio made during the tax-
able 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, inter-
est, 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
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<PAGE>
company's principal business of investing in stock or securities) and other in-
come (including but not limited to gains from options, futures or forward con-
tracts) derived with respect to its business of investing in such stock, secu-
rities or currencies (the "Income Requirement"); and (2) derive less than 30%
of its gross income from the sale or other disposition of stock, securities or
certain foreign currencies (or options, futures or forward contracts thereon)
held for less than three months (the "Short-Short Gain Test"). 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 of
a loss, since the recognition of a loss before the expiration of the three-
month holding period is disregarded. Interest (including original issue dis-
count) received by the Portfolio at maturity or upon the disposition of a secu-
rity held for less than three months will not be treated as gross income de-
rived 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 dis-
position 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 in-
vestment company. Under this test, at the close of each quarter of the Portfo-
lio'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 to-
tal 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 securi-
ties 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 busi-
nesses.
If for any taxable year the Portfolio does not qualify as a regulated invest-
ment company, all of its taxable income (including its net capital gain) will
be subject to tax at regular corporate rates without any deduction for distri-
butions 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 ordi-
nary 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 liq-
uidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
DISTRIBUTIONS
The Portfolio intends to qualify to pay exempt-interest dividends by satisfy-
ing the requirement that at the close of each quarter of the Portfolio's tax-
able 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 dis-
tributed 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 ex-
cluded 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 tax-
able years beginning after 1986 and before 1996 at the rate of 0.12% on the ex-
cess 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 ex-
cess of a corporate taxpayer's adjusted current earnings over its AMTI (deter-
mined 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 in-
cluded in an individual shareholder's gross income subject to federal income
tax. Further, a
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<PAGE>
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 fi-
nanced by industrial development bonds held by the Portfolio will likely be
subject to tax on dividends paid by the Portfolio which are derived from inter-
est on such bonds. Receipt of exempt-interest dividends may result in other
collateral federal income tax consequences to certain taxpayers, including fi-
nancial 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 fed-
eral income tax purposes, but they will not qualify for the dividends-received
deduction for corporations.
The Portfolio may either retain or distribute to shareholders its net capital
gain, if any, for each taxable year. The Portfolio currently intends to dis-
tribute any such amounts. If net capital gain is distributed and designated as
a capital gain dividend, it will be taxable to shareholders as long-term capi-
tal 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 Se-
curities 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 divi-
dends, 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 ad-
ditional shares of the Portfolio (or of another portfolio). Shareholders elect-
ing to reinvest a distribution in additional shares will be treated as receiv-
ing a distribution in an amount equal to the net asset value of the shares re-
ceived, 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, divi-
dends 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 the 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 partner-
ship ("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 divi-
dends (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 upon the sale of shares
of the Portfolio will be subject to U.S. federal income tax at the rates appli-
cable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Portfolio may be re-
quired to withhold U.S. federal income tax at a rate of 31% on distributions
(other than exempt-interest dividends) that are otherwise exempt from withhold-
ing tax (or taxable at a reduced treaty rate) unless such shareholders furnish
the Portfolio with proper notification of their foreign status.
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<PAGE>
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein. Re-
cently proposed regulations may change the 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, includ-
ing 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 admin-
istrative changes or court decisions may significantly change the conclusions
expressed herein, and any such changes or decisions may have a retroactive ef-
fect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-inter-
est 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 Portfo-
lios.
PERFORMANCE INFORMATION
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 100% of its annual interest income will be tax-ex-
empt. To the extent that institutions charge fees in connection with services
provided in conjunction with the Institutional Class, the yield will be lower
for those beneficial owners paying such fees.
The current yields quoted for the Institutional Class will be the net average
annualized yield for an identified period, usually seven consecutive calendar
days. Yields for the Institutional Class will be computed by assuming that an
account was established with a single share (the "Single Share Account") on the
first day of the period. To arrive at the quoted yield, the net change in the
value of that Single Share Account for the period (which would include divi-
dends accrued with respect to the share, and dividends declared on shares pur-
chased with dividends accrued and paid, if any, but would not include any real-
ized gains and losses or unrealized appreciation or depreciation) will be mul-
tiplied by 365 and then divided by the number of days in the period, with the
resulting figure carried to the nearest hundredth of one percent. The Company
may also furnish a quotation of effective yields for the Institutional Class
that assumes the reinvestment of dividends for a 365 day year and a return for
the entire year equal to the average annualized yields for the period, which
will be computed by compounding the unannualized current yields for the period
by adding 1 to the unannualized current yields, raising the sum to a power
equal to 365 divided by the number of days in the period, and then subtracting
1 from the result.
For the seven-day period ended March 31, 1996, the current yield and effective
yield for the Institutional Class were 3.20% and 3.25%, respectively. Assuming
a corporate tax rate of 35%, those yields for the Institutional Class on a tax-
equivalent basis were 4.92% and 5.00%, respectively.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Portfolio's investment objectives 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 se-
curities 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 instruments eligible for purchase by the Port-
folio, 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 se-
curities to
(i) "First Tier" securities, as such term is defined from time to time in
Rule 2a-7 under the 1940 Act, or
(ii) securities guaranteed as to payment of principal and interest by the
U.S. Government.
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
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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 Com-
pany will attempt to use comparable ratings as standards for its investments in
Municipal Securities in accordance with the investment policies described here-
in.
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 cate-
gory 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 Invest-
ments, for example, due to market conditions or pending the investment of pro-
ceeds 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,
in short-term tax-exempt securities, which may include shares of other invest-
ment companies whose dividends are tax-exempt. See "Investment Restrictions" in
the Prospectus for limitations on the Portfolio's ability to invest in repur-
chase agreements and in shares of other investment companies. It is a fundamen-
tal 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 tax-
es, and it is the Company's present intention (but it is not a fundamental pol-
icy) 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.
The Portfolio may, from time to time in order to qualify shares of the Portfo-
lio 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 se-
curities of such issuer would be held by the Portfolio at the time of purchase.
MUNICIPAL SECURITIES
Municipal Securities include debt obligations issued to obtain funds for vari-
ous public purposes, including the construction of a wide range of public fa-
cilities such as airports, bridges, highways, housing, hospitals, mass trans-
portation, schools, streets and water and sewer works. Other public purposes
for which Municipal Securities may be issued include the refunding of outstand-
ing 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 au-
thorities to obtain funds to provide for the construction, equipment, repair or
improvement of privately operated housing facilities and certain local facili-
ties 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 pro-
vided that the interest paid thereon, in the opinion of bond counsel, qualifies
as exempt from federal income tax. However, interest on Municipal Securities
may give rise to a federal alternate minimum tax liability and may have other
collateral federal income tax consequences. See "Dividends, Distributions and
Tax Matters -- Tax Matters" in this Statement of Additional Information.
The two major classifications of Municipal Securities are bonds and notes.
Bonds may be further categorized as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenues derived from a particular facility or class
of facilities, or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from the general taxing power. Tax-ex-
empt 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 mu-
nicipalities or agencies and are sold in anticipation of a bond sale, collec-
tion of taxes or receipt of other revenues. There are, of course, variations in
the risks associated with Municipal Securities, both within a particular clas-
sification 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 purpose of the diversification requirements applicable to the Portfolio,
the identification of the issuer of the Municipal Securities depends on the
terms and conditions of the security. When the assets and revenues of an agen-
cy, authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed
only by the assets and revenues of the subdivision, such subdivision will be
deemed to be the sole issuer. Similarly, in the case of an industrial revenue
bond, if that bond is backed only by the assets and revenues of the non-govern-
mental user, then such non-governmental user will be deemed to be the sole is-
suer. 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 Port-
folio. Certain Municipal Securities may be secured by the guaranty or irrevoca-
ble letter of credit of a major banking institution, or the payment of princi-
pal and interest when due may be insured by an insurance company.
The yields on Municipal Securities depend on a variety of factors, including
general economic and monetary conditions, money market factors, conditions of
the Municipal Securities market, size of a particular offering, maturity of the
obligation, and rating of
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the issue. The yield realized by holders of a class of the 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 mar-
ket 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 Munici-
pal 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 ("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 sta-
ble 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 pro-
tection 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 in-
vestment attributes are designated by the symbol Aa1.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in the Aa group
when assigning ratings to: industrial development bonds; and bonds secured by
either a letter of credit or bond insurance. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are assigned; one
representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of
the degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be desig-
nated Moody's Investment Grade (or MIG). Such ratings recognize the differences
between short-term credit risk and long-term risk. Factors affecting the li-
quidity of the borrower and short-term cyclical elements are critical in short-
term ratings, while other factors of major importance in bond risk, long-term
secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand feature
(i.e., a variable rate demand obligation or VRDO). Short-term ratings on issues
with demand features are differentiated by the use of the VMIG symbol to re-
flect 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.
A-19
<PAGE>
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 re-
pay 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 supe-
rior 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 finan-
cial charges and high internal cash generation; and well-established access to
a range of financial markets and assured sources of alternate liquidity.
Note: A Moody's commercial paper rating may also be assigned as an evaluation
of the demand feature of a short-term or long-term security with a put option.
S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the creditworthiness of
an obligor with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations:
likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; nature of and provisions of the obligation; and pro-
tection 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 inter-
est 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 inter-
est as due, and the second rating addresses only the demand feature. The long-
term debt rating symbols are used for bonds to denote the long-term maturity
and the commercial paper rating symbols for the put option (e.g., AAA/A-1+).
With short-term demand debt, the note rating symbols are used with the commer-
cial paper rating symbols (e.g., SP-1+/A-1+).
S&P MUNICIPAL NOTE RATINGS
A S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment: am-
ortization 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).
A-20
<PAGE>
The highest note rating symbol is as follows:
SP-1
Category denotes very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
S&P COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
The highest rating category is as follows:
A-1
This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
FITCH BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in determin-
ing the credit risk associated with a particular security. The ratings repre-
sent 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 rela-
tionship to other obligations of the issuer, the current and prospective finan-
cial condition and operating performance of the issuer and any guarantor, as
well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same ratings are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small differ-
ences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security. Rat-
ings do not comment on the adequacy of market price, the suitability of any se-
curity 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. Rat-
ings 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 princi-
pal, 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 develop-
ments, short-term debt of these issuers is generally rated "F-l."
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR -- Indicates that Fitch does not rate the specific issue.
A-21
<PAGE>
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on de-
mand or have original maturities of generally up to three years, including com-
mercial 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 obliga-
tion 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 Se-
curities 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
Portfolio will direct its custodian bank to segregate cash or other high grade
securities (including Temporary Investments and Municipal Securities) of the
Portfolio in an amount equal to the when-issued or delayed delivery commitment.
The segregated securities will be valued at market for the purpose of determin-
ing the adequacy of the segregated securities. If the market value of such se-
curities declines, additional cash or securities will be segregated on a daily
basis so that the market value of the segregated assets will equal the amount
of the 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 secu-
rities 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 secu-
rities 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 mar-
ket value of its assets.
Furthermore, when the time comes for the Portfolio to meet its obligations un-
der when-issued or delayed delivery commitments, the Portfolio will do so by
use of its then available cash, by the sale of the segregated securities, by
the sale of other securities or, although it would not normally expect to do
so, by directing the sale of the when-issued or delayed delivery securities
themselves (which may have a market value greater or less than the 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 capi-
tal 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 float-
ing 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 Munici-
pal Securities from their original purchase price. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation or deprecia-
tion is less for variable or floating rate Municipal Securities than for fixed
rate obligations.
A-22
<PAGE>
Many Municipal Securities with variable or floating interest rates purchased
by the Portfolio are subject to payment of principal and accrued interest (usu-
ally within seven days) on the Portfolio's demand. The terms of such demand in-
struments require payment of principal and accrued interest from the issuer, a
guarantor and/or a liquidity provider. All variable or floating rate instru-
ments will meet the quality standards of the Portfolio. AIM will monitor the
pricing, quality and liquidity of the variable or floating rate Municipal Secu-
rities 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-ex-
empt bonds or notes ("Underlying Bonds"), and the sale of certificates evidenc-
ing interests in the trust or custodial account to investors such as the Port-
folio. The trustee or custodian receives the long-term fixed rate interest pay-
ments 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 cer-
tificate 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 certifi-
cate 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 poten-
tial risks that may not be present where a municipal security is owned direct-
ly. For further information regarding certain risks associated with investing
in synthetic municipal instruments see the Prospectus under the caption "In-
vestment 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:
(1) purchase any industrial development bond, if, as a result of such
purchase, more than 5% of the Portfolio's total assets would be invested in
securities of issuers, which, together with their predecessors, have been in
business for less than three years;
(2) borrow money or pledge, mortgage or hypothecate the assets of the
Portfolio except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of the Portfolio's total assets,
except that the Portfolio may purchase when-issued securities consistent
with the Portfolio's investment objective and policies; provided that the
Portfolio will repay all borrowings (other than when-issued purchases)
before making additional investments;
(3) lend money or securities except to the extent that the Portfolio's
investments may be considered loans;
(4) purchase or sell puts, calls, straddles, spreads or combinations
thereof, except that the Portfolio may purchase Stand-by Commitments;
(5) invest in shares of any other investment company, other than in
connection with the merger, consolidation, reorganization or acquisition of
assets, except that the Portfolio may invest up to 10% of its assets in
securities of other investment companies and then only for temporary
purposes in those investment companies whose dividends are tax-exempt;
provided that the Portfolio will not invest more than 5% of its assets in
securities of any investment company nor purchase more than 3% of the
outstanding voting stock of any investment company;
(6) invest 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;
A-23
<PAGE>
(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 Portfo-
lio 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 se-
curities of such issuer would be held by the Portfolio at the time of purchase.
FUND TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the Portfolio,
for selection of broker-dealers and for negotiation of commission rates. Since
purchases and sales of portfolio securities by the Portfolio are usually prin-
cipal 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 Port-
folio 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 sta-
tistical 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 in-
terpretations with respect to U.S. and foreign economies, money market fixed
income markets, equity markets, specific industry groups and individual compa-
nies; 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 pro-
viding of equipment used to communicate research information; the arranging of
meetings with management of companies; and the providing of access to consul-
tants who supply research information. Certain research services furnished by
dealers may be useful to AIM with clients other than the Portfolio. Similarly,
any research services received by AIM through placement of portfolio transac-
tions of other clients may be of value to AIM in fulfilling its obligations to
the Portfolio. 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 Portfolio 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 un-
less an exemptive order allowing such transactions is obtained from the SEC.
Furthermore, the 1940 Act prohibits the Company from purchasing a security be-
ing publicly underwritten by a syndicate of which persons affiliated with the
Company are a member except in accordance with certain conditions. These condi-
tions may restrict the ability of the Portfolio to purchase Municipal Securi-
ties being publicly underwritten by such a syndicate, and the Portfolio may be
required to wait until the syndicate has been terminated before buying such se-
curities. 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 is-
suer of Municipal Securities and be paid a fee by such issuer. The Portfolio
may purchase such Municipal Securities directly from the issuer, provided that
the purchase is reviewed by the Company's Board of Directors and a determina-
tion is made that the placement fee or other remuneration paid by the issuer to
the person affiliated with the Company is fair and reasonable in relation to
the fees charged by others performing similar services. During the fiscal years
ended March 31, 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 objec-
tive(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 be-
tween investment accounts advised by
A-24
<PAGE>
AIM or AIM Capital have been adopted by the Boards of Directors/Trustees of the
various AIM Funds, including the Company. Although such transactions may result
in custodian, tax or other related expenses, no brokerage commissions or other
direct transaction costs are generated by transactions among the investment ac-
counts advised by AIM or AIM Capital.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Portfolio 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 Com-
pany has obtained an order of exemption from the SEC which permits the Portfo-
lio to engage in certain transactions with such 5% holder, if the Portfolio
complies with conditions and procedures designed to ensure that such transac-
tions are executed at fair market value and present no conflicts of interest.
Purchases from these 5% holders will be subject to quarterly review by the
Board of Directors, including those directors who are not "interested persons"
of the Company.
Some of the AIM Funds may have objectives similar to that 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 like-
wise vary. The timing and amount of purchase by each account will also be de-
termined 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 abil-
ity of the Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Under the 1940 Act, persons affiliated with the Company are prohibited from
dealing with the Company as principal in any purchase or sale of securities un-
less an exemptive order allowing such transactions is obtained from the SEC.
Furthermore, the 1940 Act prohibits the Company from purchasing a security be-
ing publicly underwritten by a syndicate of which persons affiliated with the
Company are a member except in accordance with certain conditions. These condi-
tions 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 is-
suer of Municipal Market obligations and be paid a fee by such issuer. The
Portfolio may purchase such Municipal Market obligations directly from the is-
suer, 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 com-
pensation to a broker affiliated with the Portfolio.
A-25
<PAGE>
TAX-FREE INVESTMENTS CO.
INSTITUTIONAL CASH RESERVE SHARES
FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED
MARCH 31, 1996
A-26
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1996
<TABLE>
<S> <C> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- ------------------------------------------------------------------------------
</TABLE>
A-27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Arizona - (continued)
Phoenix (City of); Series 1995 A-2 RB
3.80% 06/01/20(b) A-1+ Aa1 $ 1,000 $ 1,000,000
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Florida - (continued)
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Illinois - (continued)
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Illinois - (continued)
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Louisiana - (continued)
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
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
</TABLE>
A-34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Michigan - (continued)
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
- -------------------------------------------------------------------------------
</TABLE>
A-35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Missouri - (continued)
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
- -------------------------------------------------------------------------------
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 Facililies 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
- -------------------------------------------------------------------------------
</TABLE>
A-36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-38
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
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 Hospi-
tal (St. Francis Medical Center Proj-
ect); Series A RB
5.10% 06/01/96(d) AAA Aaa 1,395 1,398,846
- -------------------------------------------------------------------------------
</TABLE>
A-39
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Pennsylvania - (continued)
Delaware County Industrial Development
Authority (Henderson-Radnor Joint Ven-
ture Project); Limited Obligation Se-
ries 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 Fa-
cilities 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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
</TABLE>
A-40
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
South Carolina - (continued)
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>
A-41
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Tennessee - (continued)
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>
A-42
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
</TABLE>
A-43
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Texas - (continued)
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
- ------------------------------------------------------------------------------
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 Com-
mercial 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 Re-
funding 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; Sin-
gle 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
- ------------------------------------------------------------------------------
</TABLE>
A-44
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
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
- -------------------------------------------------------------------------------
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); Vari-
able 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); Vari-
able 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-Nor-
folk 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 Sys-
tems (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 Sys-
tems (Nuclear Project No. 1 & 3); Re-
funding Electric Series 1993 RB
3.35% 07/01/17(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
</TABLE>
A-45
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Washington - (continued)
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
- -------------------------------------------------------------------------------
WISCONSIN - 0.63%
City of Milwaukee Housing Authority
(Yankee Hill Apartments Project); Mul-
ti-Family Housing 1986 Issue Variable
Bonds
3.40% 12/01/09(b)(c) A-1+ -- 5,500 5,500,000
- -------------------------------------------------------------------------------
Wisconsin (State of) Transportation Au-
thority; 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 Proj-
ect); 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.
A-46
<PAGE>
(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.
A-47
<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.
A-48
<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.
A-49
<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.
A-50
<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)
A-51
<PAGE>
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.
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 (de-
crease) 4,739,545 $ 4,739,545 (17,620,938) $ (17,620,938)
=========================================================================================
</TABLE>
A-52
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of the Institu-
tional Shares capital stock outstanding during each of the years in the seven-
year period ended March 31, 1996, the eleven months ended March 31, 1989 and
each of the years in the two-year period ended April 30, 1988.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Income from
investment
operations:
Net investment
income 0.04 0.03 0.02 0.03 0.04 0.06 0.06
- ---------------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Less
distributions:
Dividends from
net investment
income (0.04) (0.03) (0.02) (0.03) (0.04) (0.06) (0.06)
- ---------------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
================ ========== ========== ========== ======== ========== ========== ==========
Total return 3.67% 3.06% 2.33% 2.66% 4.09% 5.68% 6.22%
================ ========== ========== ========== ======== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end
of period (000s
omitted) $1,009,039 $1,009,891 $1,040,595 $994,828 $1,191,209 $1,156,557 $1,114,813
================ ========== ========== ========== ======== ========== ========== ==========
Ratio of
expenses to
average net
assets 0.20%(b)(c) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b) 0.20%(b)
================ ========== ========== ========== ======== ========== ========== ==========
Ratio of net
investment
income to
average net
assets 3.59%(b)(c) 3.01%(b) 2.30%(b) 2.66%(b) 4.00%(b) 5.52%(b) 6.03%(b)
================ ========== ========== ========== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, APRIL 30,
---------- -----------------------
1989 1988 1987
---------- ---------- --------
<S> <C> <C> <C>
Net asset value,
beginning of
period $1.00 $1.00 $1.00
- ---------------- ---------- ---------- --------
Income from
investment
operations:
Net investment
income 0.05 0.04 0.04
- ---------------- ---------- ---------- --------
Less
distributions:
Dividends from
net investment
income (0.05) (0.04) (0.04)
- ---------------- ---------- ---------- --------
Net asset value,
end of period $1.00 $1.00 $1.00
================ ========== ========== ========
Total return 5.67%(a) 4.56% 4.24%
================ ========== ========== ========
Ratios/supplemental
data:
Net assets, end
of period (000s
omitted) $1,062,479 $1,192,604 $993,392
================ ========== ========== ========
Ratio of
expenses to
average net
assets 0.20%(a)(b) 0.21%(b) 0.21%(d)
================ ========== ========== ========
Ratio of net
investment
income to
average net
assets 5.52%(a)(b) 4.47%(b) 4.14%(d)
================ ========== ========== ========
</TABLE>
(a)Annualized.
(b)After waiver of advisory fees.
(c) Ratios are based on average net assets of $1,097,089,368. Ratios of
expenses and net investment income to average net assets prior to waiver of
advisory fees are 0.26% and 3.53%, respectively.
(d)After waiver of advisory fees and distribution fees.
A-53
<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 op-
erations 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 high-
lights for each of the years in the seven-year period then ended, the eleven-
month period ended March 31, 1989, and each of the years in the two-year period
ended April 30, 1988. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
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 seven-year period then ended, the eleven-month period ended March 31,
1989, and each of the years in the two-year period ended April 30, 1988, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 3, 1996
A-54
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------ ------------------------------------------------
- ------------------------------------------ ------------------------------------------------
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173 PROSPECTUS
(713) 626-1919
DISTRIBUTOR JULY 29, 1996
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
(800) 659-1005
AUDITORS TAX-FREE
KPMG PEAT MARWICK LLP INVESTMENTS CO.
700 Louisiana, NationsBank Building
Houston, Texas 77002
CUSTODIAN INSTITUTIONAL CASH
THE BANK OF NEW YORK RESERVE SHARES
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT 11 GREENWAY PLAZA, SUITE 1919
A I M INSTITUTIONAL FUND SERVICES, INC. HOUSTON, TEXAS 77046-1173
P.O. Box 4497
Houston, Texas 77210-4497
NO PERSON HAS BEEN AUTHORIZED TO GIVE Organization of the Company.......... 2
ANY INFORMATION OR TO MAKE ANY REPRE- Table of Fees and Expenses........... 2
SENTATIONS NOT CONTAINED IN THIS Financial Highlights................. 3
PROSPECTUS IN CONNECTION WITH THE Suitability for Investors............ 4
OFFERING MADE BY THIS PROSPECTUS, Investment Program................... 4
AND IF GIVEN OR MADE, SUCH Purchase of Shares................... 6
INFORMATION OR REPRESENTATIONS Redemption of Shares................. 7
MUST NOT BE RELIED UPON AS Determination of Net Asset Value..... 7
HAVING BEEN AUTHORIZED BY THE Dividends............................ 8
FUND OR THE DISTRIBUTOR. THIS Performance Information.............. 8
PROSPECTUS DOES NOT CONSTITUTE Tax Matters.......................... 8
AN OFFER IN ANY JURISDICTION Management of the Company............ 9
TO ANY PERSON TO WHOM SUCH General Information.................. 10
OFFERING MAY NOT LAWFULLY Appendix............................. A-1
BE MADE.
- ------------------------------------------ ------------------------------------------------
- ------------------------------------------ ------------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS
----------
PRIVATE INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA, SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 877-7748
----------------
The Private Investment Class of the Cash Reserve Portfolio of Tax-Free
Investments Co. (the "Company") is designed to be a convenient vehicle in
which customers of banks, certain broker-dealers and other financial
institutions can invest in a diversified, open-end money market fund which is
exempt from federal income taxes.
Pursuant to this Prospectus, the Company offers one class of shares which
represents interests in the Cash Reserve Portfolio. Shares of the
Institutional Class of the Cash Reserve Portfolio are offered pursuant to a
separate prospectus. The Cash Reserve Portfolio is a "money market fund," the
investment objective of which is the generation of as high a level of tax-
exempt income as is consistent with preservation of capital and maintenance of
liquidity by investing in high quality, short-term municipal obligations. The
Cash Reserve Portfolio attempts to maintain a constant net asset value of
$1.00 per share. No assurance can be given that such a net asset value can be
maintained.
This Prospectus relates solely to the Private Investment Class of the Cash
Reserve Portfolio.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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>
<CAPTION>
PAGE
----
<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
<PAGE>
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."
3
<PAGE>
TABLE OF FEES AND EXPENSES
The following table is designed to help an investor understand the various
costs and expenses that an investor in the shares of the Class will bear
directly or indirectly. If management fees were not being waived and other
expenses were not being reimbursed, management fees, 12b-1 fees, and other
expenses would be 0.22%, 0.50% and 0.10%, 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
-----------------
<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%
----
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
-----------------
<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.
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.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are the per share income and capital changes for a share of the
Class outstanding during the fiscal years ended March 31, 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>
- --------
(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 financial institutions who seek a convenient and
economical vehicle in which to invest in an open-end, diversified money market
fund, the income from which is exempt from federal income taxes. The minimum
initial investment is $10,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and
maintenance of liquidity by investing in high quality, short-term municipal
obligations.
There can be no assurance that the Portfolio will achieve its investment
objective.
5
<PAGE>
MUNICIPAL SECURITIES
"Municipal Securities" include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the lending of such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated facilities. As used in this Prospectus and its related
Statement of Additional Information, interest which is "tax-exempt" or "exempt
from federal income taxes" means interest on Municipal Securities which is
excluded from gross income for federal income tax purposes, and which does not
give rise to a federal alternative minimum tax liability. See "Tax Matters"
herein and in the Statement of Additional Information.
INVESTMENT POLICIES
Except where noted, the investment policies stated below are not fundamental
and may be changed by the Board of Directors of the 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 financial 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 to customers of banks, certain broker-dealers
and other financial institutions (individually, "Institution," or
collectively, "Institutions"). Individuals, corporations, partnerships and
other businesses that maintain qualified accounts at an Institution may invest
in shares of the Class. Each institution will render administrative support
services to its customers who are the beneficial owners of the shares of the
Class. Such services include, among other things, establishment and
maintenance of shareholder accounts and records; assistance in processing
purchase and redemption transactions in shares of the Class; providing
periodic statements showing a client's account balance in shares of the Class;
distribution of 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.
11
<PAGE>
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.
14
<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.
11 Greenway Plaza, Suite 1919 TAX-FREE
Houston, Texas 77046-1173 INVESTMENTS CO.
(713) 626-1919 (TFIC)
DISTRIBUTOR PRIVATE
FUND MANAGEMENT COMPANY INVESTMENT CLASS
11 Greenway Plaza, Suite 1919 OF THE
Houston, Texas 77046-1173 -------------------------------------
CASH RESERVE PROSPECTUS
(800) 877-7748 PORTFOLIO
AUDITORS
KPMG PEAT MARWICK LLP
JULY 29, 1996
700 Louisiana
NationsBank Building
Houston, Texas 77002
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 [LOGO APPEARS HERE]
NOT CONSTITUTE AN OFFER IN ANY FUND MANAGEMENT COMPANY
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.
10
<PAGE>
INSTITUTIONAL CASH RESERVE SHARES OF THE CASH RESERVE PORTFOLIO
To the best knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of the Institutional Cash
Reserve Shares as of July 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.
11
<PAGE>
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.
- ----------------------
* 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.
12
<PAGE>
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.
13
<PAGE>
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.
14
<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.
24
<PAGE>
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
25
<PAGE>
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,
26
<PAGE>
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.
27
<PAGE>
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
28
<PAGE>
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
<PAGE>
PART C
OTHER INFORMATION
Item 24 (a) Financial Statements
1. Institutional Cash Reserve Shares of the Cash Reserve Portfolio
In Part A: Financial Highlights as of March 31, 1996 (audited)
In Part B: (i) Independent Auditors' Report
(ii) Financial Statements as of March 31, 1996
(audited)
In Part C: None
2. Private Investment Class of the Cash Reserve Portfolio
In Part A: Financial Highlights as of March 31, 1996 (audited)
In Part B: (i) Independent Auditors' Report
(ii) Financial Statements as of March 31, 1996
(audited)
In Part C: None
(b) Exhibits
Exhibit
Number Description
- ------ -----------
(1) (a) Articles of Incorporation of Registrant were filed as an Exhibit to
Registrant's Post-Effective Amendment No. 16 on March 23, 1992, and are
filed electronically herewith.
(b) Articles Supplementary of Registrant were filed as an Exhibit to
Registrant's Post-Effective Amendment No. 21 on July 29, 1994, and are
filed electronically herewith.
(2) (a) By-Laws of Registrant were initially filed as an Exhibit to
Registrant's Post-Effective Amendment No. 16 on March 23, 1992, and
were filed electronically as an Exhibit to Post-Effective Amendment No.
22 on July 28, 1995, and are hereby incorporated by reference.
(b) First Amendment, dated May 10, 1994, to By-Laws of Registrant was filed
electronically as an Exhibit to Post-Effective Amendment No. 22 on
July 28, 1995, and are hereby incorporated by reference.
C-1
<PAGE>
Exhibit
Number Description
- ------ -----------
(c) Second Amendment, dated March 14, 1995, to By-Laws of Registrant was
filed electronically as an Exhibit to Post-Effective Amendment No. 22
on July 28, 1995, and are hereby incorporated by reference.
(3) Certain Voting Trust Agreements - None.
(4) (a) Form of specimen share certificate for Institutional Cash Reserve
Shares of the Cash Reserve Portfolio was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 16 on March 23, 1992.
(b) Form of specimen share certificate for Private Investment Class of the
Cash Reserve Portfolio was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 16 on March 23, 1992.
(5) (a) Investment Advisory Agreement, dated October 18, 1993, between A I M
Advisors, Inc. and Registrant, on behalf of the Cash Reserve Portfolio
was filed as an Exhibit to Registrant's Post-Effective Amendment No. 21
on July 29, 1994, and is filed electronically herewith.
(6) (a) Master Distribution Agreement, dated October 18, 1993, between Fund
Management Company and Registrant was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 21 on July 29, 1994, and is
filed electronically herewith.
(7) (a) AIM Funds Retirement Plan for Eligible Directors/Trustees was filed as
an Exhibit to Registrant's Post-Effective Amendment No. 21 on July 29,
1994.
(b) AIM Funds Retirement Plan for Eligible Directors/Trustees, effective as
of March 8, 1994, as restated September 18, 1995, is filed
electronically herewith.
(c) Form of Deferred Compensation Agreement was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 21 on July 29, 1994.
(d) Form of Deferred Compensation Plan for Eligible Directors/Trustees as
approved on December 5, 1995, is filed electronically herewith.
(8) (a) Custody Agreement, dated October 19, 1995, between The Bank of
New York and Registrant is filed electronically herewith.
(9) (a) Transfer Agency and Service Agreement, dated September 16, 1994,
between A I M Institutional Fund Services, Inc. and Registrant was
filed electronically as an Exhibit to Post-Effective Amendment No. 22
on July 28, 1995, and are hereby incorporated by reference.
(b) Amendment No. 1, dated July 1, 1995, to Transfer Agency and Service
Agreement, dated September 16, 1994, between A I M Institutional Fund
Services, Inc. and Registrant was filed electronically as an Exhibit to
C-2
<PAGE>
Exhibit
Number Description
- ------ -----------
Post-Effective Amendment No. 22 on July 28, 1995, and are hereby
incorporated by reference.
(10) (a) Opinion and Consent of Messrs. Spangler, Carlson, Gubar & Frischling
was filed as an Exhibit to Registrant's Post-Effective Amendment No. 4
on August 27, 1985.
(b) Opinion of Ballard Spahr Andrews & Ingersoll was filed as an exhibit to
Registrant's 24f-2 Notice for fiscal year ended March 31, 1996.
(11) (a) Consent of Ballard Spahr Andrews & Ingersoll is filed herewith
electronically.
(b) Consent of KPMG Peat Marwick LLP is filed herewith electronically.
(12) Other Financial Statements - None.
(13) Agreement Concerning Initial Capitalization - None.
(14) Retirement Plans - None.
(15) (a) Rule 12b-1 Plan on behalf of the Private Investment Class of the Cash
Reserve Portfolio and related agreements were filed as an Exhibit to
Registrant's Post-Effective Amendment No. 21 on July 29, 1994.
(b) Distribution Plan for Registrant on behalf of the Private Investment
Class of the Cash Reserve Portfolio is filed electronically herewith.
(16) Schedule of Sample Performance Quotation Calculations was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 21 on July 29,
1994.
(17) Price Make-up Sheet - None.
(18) Copy of Rule 18f-3 Plan - None.
(27) Financial Data Schedule is filed herewith electronically.
Item 25. Persons Controlled by or under Common Control With Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant and as to each such person
indicate (1) If a company, the state or other sovereign power under the laws of
which it is organized, and (2) the percentage of voting securities owned or
other basis of control by the person, if any, immediately controlling it.
None.
C-3
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of each
class of securities of the Registrant.
Number of Record Holders
Title Class as of July 15, 1996
----------- ------------------------
Institutional Cash Reserve Shares 30
Private Investment Class 6
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability which
may be incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Under the terms of the Maryland General Corporation Law and the
Registrant's Charter and By-Laws, the Registrant may indemnify any person
who was or is a director, officer or employee of the Registrant to the
maximum extent permitted by the Maryland General Corporation Law. The
specific terms of such indemnification are reflected in the Registrant's
Charter and By-Laws, which are incorporated herein as part of this
Registration Statement. No indemnification will be provided by the
Registrant to any director or officer of the Registrant for any liability
to the Registrant or shareholders to which such director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Investment Company Act of 1940 and is, therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Investment Company Act of 1940 and will be governed by the final
adjudication of such issue. Insurance coverage is provided under a joint
Mutual Fund & Investment Advisory Professional and Directors & Officers
Liability Policy, issued by ICI Mutual Insurance Company, with a
$15,000,000 limit of liability.
C-4
<PAGE>
Item 28. Business and Other Connections of Investment Advisor
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner, or trustee.
See Statement of Additional Information, Part B under headings "General
Information about the Company - Directors and Officers", "General
Information about the Company - The Investment Advisor" for information
concerning A I M Advisors, Inc.
Item 29. Principal Underwriters
----------------------
(a) Fund Management Company, the registrant's principal underwriter, also acts
as principal underwriter, depositor or investment advisor to the following
investment companies:
AIM Equity Funds, Inc. (Institutional Classes)
AIM Investment Securities Funds (Limited Maturity Treasury Portfolio -
Institutional Shares)
Short-Term Investments Trust
Short-Term Investments Co.
C-5
<PAGE>
(b)
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ------------------- -------------------------- ---------------------
<S> <C> <C>
Charles T. Bauer Chairman of the Board of Directors Chairman & Director
J. Abbott Sprague President & Director Vice President
Robert H. Graham Senior Vice President & Director President & Director
Mark E. McMeans Senior Vice President None
Mark D. Santero Senior Vice President None
John J. Arthur Vice President & Treasurer Senior Vice President & Treasurer
Jesse H. Cole Vice President None
Melville B. Cox Vice President & Chief Compliance Officer Vice President
Carol F. Relihan Vice President & General Counsel Secretary & Vice President
Stephen I. Winer Vice President, Assistant Assistant Secretary
General Counsel & Assistant Secretary
Kathleen J. Pflueger Secretary Assistant Secretary
David E. Hessel Assistant Vice President, None
Assistant Treasurer & Controller
Jeffrey L. Horne Assistant Vice President None
Margaret A. Reilly Assistant Vice President None
Dana R. Sutton Assistant Vice President & Vice President & Assistant
Assistant Treasurer Treasurer
Nicholas D. White Assistant Vice President None
David L. Kite Assistant General Counsel & Assistant Secretary
Assistant Secretary
Nancy L. Martin Assistant General Counsel & Assistant Secretary
Assistant Secretary
Ofelia M. Mayo Assistant General Counsel & Assistant Secretary
Assistant Secretary
</TABLE>
- ----------
* 11 Greenway Plaza, Suite 1919, Houston, Texas 77046
C-6
<PAGE>
Samuel D. Sirko Assistant General Counsel & Assistant Secretary
Assistant Secretary
(c) Not Applicable
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270.31a-1 to
31a-3) promulgated thereunder, furnish the name and address of each person
maintaining physical possession of each such account, book or other document.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, will maintain physical possession of each such account, book or other
document of the Registrant at its principal executive offices, except for
those maintained by the Registrant's Custodian, The Bank of New York, 90
Washington Street, 11th Floor, New York, New York 10286, and the
Registrant's Transfer Agent and Dividend Paying Agent, A I M Institutional
Fund Services, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any management related
service contract not discussed in Part I of this Form (because the contract was
not believed to be material to a purchaser of securities of the Registrant)
under which services are provided to the Registrant, indicating the parties to
the contract, the total dollars paid and by whom for the last three fiscal
years.
None.
Item 32. Undertakings
------------
None.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Houston, Texas on the 25th day of
July, 1996.
REGISTRANT: TAX-FREE INVESTMENTS CO.
By: /s/ Robert H. Graham
--------------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Charles T. Bauer Chairman & Director July 25, 1996
- ----------------------------------------
(Charles T. Bauer)
/s/ Robert H. Graham Director & President July 25, 1996
- ---------------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ Bruce L. Crockett Director July 25, 1996
- ----------------------------------------
(Bruce L. Crockett)
/s/ Owen Daly II Director July 25, 1996
- ----------------------------------------
(Owen Daly II)
/s/ Carl Frischling Director July 25, 1996
- ----------------------------------------
(Carl Frischling)
/s/ John F. Kroeger Director July 25, 1996
- ----------------------------------------
(John F. Kroeger)
/s/ Lewis F. Pennock Director July 25, 1996
- ----------------------------------------
(Lewis F. Pennock)
/s/ Ian W. Robinson Director July 25, 1996
- ----------------------------------------
(Ian W. Robinson)
/s/ Louis S. Sklar Director July 25, 1996
- ----------------------------------------
(Louis S. Sklar)
Senior Vice President &
/s/ John J. Arthur Treasurer (Principal Financial July 25, 1996
- ---------------------------------------- and Accounting Officer)
(John J. Arthur)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
1(a) Articles of Incorporation of Registrant
1(b) Articles Supplementary of Registrant
2(a) By-Laws of Registrant
2(b) First Amendment to By-Laws of Registrant
2(c) Second Amendment to By-Laws of Registrant
5(a) Investment Advisory Agreement, dated October 18, 1993, between A I M
Advisors, Inc. and Registrant
6(a) Master Distribution Agreement, dated October 18, 1993, between Fund
Management Company and Registrant
7(b) AIM Funds Retirement Plan for Eligible Directors/Trustees
7(d) Form of Deferred Compensation Plan for Eligible Directors/Trustees
8(a) Custody Agreement, dated October 19, 1995, between The Bank of New York
and Registrant
11(a) Consent of Ballard Spahr Andrews & Ingersoll
11(b) Consent of KPMG Peat Marwick LLP
15(b) Distribution Plan for Registrant
27 Financial Data Schedule
<PAGE>
EXHIBIT 1(a)
ARTICLES OF INCORPORATION
OF
TAX-FREE INVESTMENTS CO.
FIRST: Incorporator. The undersigned, Carol F. Relihan, whose address is
Eleven Greenway Plaza, Suite 1919, Houston, Texas 77046, being at least eighteen
years of age, does, under and by virtue of the general laws of the State of
Maryland authorizing the formation of corporations, hereby act as incorporator
with the intention of forming a corporation.
SECOND: Name. The name of the corporation (hereinafter called the
"Corporation") is TAX-FREE INVESTMENTS CO.
THIRD: Purpose. The purpose for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it, is to act
as an open-end management investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to exercise and generally to enjoy all of the powers, rights
and privileges granted to, or conferred upon, corporations by the general laws
of the State of Maryland now or hereafter in force.
FOURTH: Principal Office and Resident Agent. The address of the principal
office of the Corporation in the State of Maryland is c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the
resident agent of the Corporation in the State of Maryland is The Corporation
Trust Incorporated, and the address of such resident agent is 32 South Street,
Baltimore, Maryland 21202.
FIFTH: Capitalization. (a) The total number of shares of common stock
which the Corporation shall have authority to issue is 6,000,000,000 shares with
par value of $.001 each, of which 4,000,000,000 shares are classified as Cash
Reserve Portfolio (of which 3,000,000,000 are classified as Institutional Cash
Reserve Shares and 1,000,000,000 are classified as Private Investment Class
Shares), 1,000,000,000 shares are classified as Intermediate Portfolio shares
(of which 1,000,000,000 are classified as AIM Tax-Free Intermediate Shares), and
the balance of which are unclassified. Unissued shares of common stock, whether
now or hereafter authorized, may be classified and reclassified by the Board of
Directors. The aggregate par value of common stock of all classes is
$6,000,000.
(b) Subject to the power of the Board of Directors to reclassify unissued
shares, the shares of each class or series of stock of the Corporation shall
have the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption:
(i) All consideration received by the Corporation for the issuance or
sale of shares of a particular class or series, together with all income,
earnings, profits and proceeds thereof, shall irrevocably belong to such class
1
<PAGE>
or series for all purposes, subject only to the rights of creditors, and are
herein referred to as "assets belonging to" such class or series.
(ii) The assets belonging to such class or series shall be charged
with the liabilities of the Corporation in respect of such class or series, and
with such class' or series' respective share of the general liabilities of the
Corporation not attributable to any particular class or series, in the latter
case in the proportion that the net asset value of such class or series
(determined without regard to such liabilities) bears to the net asset value of
all classes or series. The determination of the Board of Directors shall be
conclusive as to the allocation of liabilities, including accrued expenses and
reserves, to a class or series.
(iii) Dividends or distributions on shares of any class or series,
whether payable in stock or cash, shall be paid only out of earnings, surplus or
other assets belonging to such class or series.
(iv) In the event of the liquidation or dissolution of the
Corporation, stockholders of each class or series shall be entitled to receive,
as a class or series, out of the assets of the Corporation available for
distribution to stockholders, the assets belonging to such class or series; and
the assets so distributable to the stockholders of such class or series shall be
distributed among such stockholders in proportion to the number of shares of
such class or series held by them and recorded on the books of the Corporation.
In the event that there are any assets available for distribution that are not
attributable to any particular class or series, such assets shall be allocated
to all classes or series in proportion to the net asset value of the respective
classes or series.
(v) All holders of shares of stock shall vote as a single class except
with respect to any matter which affects only one or more classes or series of
stock, in which case only the holders of shares of the classes or series
affected shall be entitled to vote; therefore, to the extent a vote is required,
no holder of shares of any class or series of stock shall be entitled to vote on
(1) any merger of another corporation with and into the Corporation if the
consideration for such merger consists solely of the shares of another class or
series of stock of the Corporation, or (2) transfer of assets of the Corporation
if the assets transferred consist solely of assets of another class or series of
the Corporation.
Except as provided above, all provisions of the Articles of Incorporation
relating to stock of the Corporation shall apply to shares of and to the holders
of shares of all classes or series of stock, whether now or hereafter
classified.
(c) To the extent that the Corporation has funds or property legally
available therefor, each holder of shares of stock of the Corporation, upon
proper written request (including signature guarantees, if required by the Board
of Directors) to the Corporation accompanied, when stock certificates
representing such shares are outstanding, by surrender of the appropriate stock
certificate or certificates in proper form for transfer, or any such form as the
Board of Directors may provide, shall be entitled to require the Corporation to
2
<PAGE>
redeem all or any number of the shares outstanding in the name of such holder on
the books of the Corporation, at the net asset value of such shares next
determined following receipt of such request in proper form. Notwithstanding
the foregoing, the Board of Directors of the Corporation may suspend the right
of the holders of the shares of stock of the Corporation to require the
Corporation to redeem such shares or to receive payment for redeemed shares when
permitted or required to do so by the 1940 Act or any rule or regulation of the
Securities and Exchange Commission promulgated thereunder. The right of a
holder of stock redeemed by the Corporation to receive dividends thereon and all
other rights with respect to the shares shall terminate at the time as of which
the redemption price has been determined, except the right to receive the
redemption price and any dividend or distribution to which that holder had
become entitled as the record holder of the shares on the record date for that
dividend.
The Corporation, without the vote or consent of the stockholders of the
Corporation, may redeem all shares of stock in any stockholder's account in
which the value of such shares is less than $500.00, or such other minimum
amount as the Board of Directors may from time to time establish in its
discretion; provided, that any such redemption is at a price determined in
accordance with the current prospectus of the class or series of stock to be
redeemed.
(d) All persons who shall acquire stock or securities of the Corporation
shall acquire the same subject to the provisions of these Articles of
Incorporation.
SIXTH: Directors. The initial number of directors of the Corporation
shall be three (3), and the names of those who will serve as such until their
successors are duly elected and qualified are as follows:
Charles T. Bauer
Lewis F. Pennock
Louis S. Sklar
The By-Laws of the Corporation may from time to time fix the number of
directors at a number other than three (3), and may authorize the Board of
Directors, by the vote of a majority of the entire Board of Directors, to
increase or decrease the number of directors initially set by these Articles of
Incorporation or by the By-Laws (provided that in no case shall the number of
directors be less than three (3) or the number of stockholders, whichever is
less), and to fill vacancies created by any such increase in the number of
directors. Unless otherwise provided by the By-Laws of the Corporation, the
directors of the Corporation need not be stockholders thereof.
SEVENTH: Other Powers. In furtherance and not in limitation of the powers
conferred by the laws of the State of Maryland, the following provisions are
hereby adopted for the purpose of defining and regulating the powers of the
Corporation and of the directors and stockholders:
(a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, and securities convertible into shares of
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its stock of any class or classes, whether now or hereafter authorized, in each
case upon the terms and conditions and for such consideration as the Board of
Directors shall from time to time determine.
(b) No holder of shares of stock of the Corporation shall, as such holder,
have any right to purchase or subscribe for any shares of stock of the
Corporation, other than such rights, if any, as the Board of Directors, in its
discretion, may from time to time determine.
(c) The Board of Directors is hereby empowered to authorize the issuance
from time to time of fractional shares of stock of this Corporation, whether now
or hereafter authorized, and any fractional shares so issued shall entitle the
holder thereof to exercise voting rights, receive dividends and participate in
the distribution of assets of the Corporation in the event of liquidation or
dissolution to the extent of the proportionate interest represented by such
fractional shares. The Corporation shall not be obligated to issue stock
certificates evidencing fractional shares.
(d) Except to the extent otherwise prohibited by applicable law, the
Corporation may enter into any management or investment advisory contract or
underwriting contract or any other type of contract with, and may otherwise
engage in any transaction or do business with, any person, firm or corporation
or any subsidiary or other affiliate of any such person, firm or corporation,
and may authorize such person, firm or corporation or such subsidiary or other
affiliate to enter into any other contracts or arrangements with any other
person, firm or corporation which relate to the Corporation or the conduct of
its business, notwithstanding that any directors or officers of the Corporation
are or may subsequently become partners, directors, officers, stockholders or
employees of such person, firm or corporation or of such subsidiary or other
affiliate or may have a material financial interest in any such contract,
transaction or business; and except to the extent otherwise provided by
applicable law, no such contract, transaction or business shall be invalidated
or voidable, or in any way affected thereby, nor shall any of such directors or
officers of the Corporation be liable to the Corporation or to any stockholder
or creditor thereof or to any other person for any loss incurred solely because
of the entering into and performance of such contract or the engaging in such
transaction or business or the existence of such material financial interest
therein, provided that such relationship to such person, firm or corporation or
such subsidiary or affiliate or such material financial interest was disclosed
or otherwise known to the Board of Directors prior to the Corporation's entering
into such contract or engaging in such transaction or business, and in the case
of directors of the Corporation, that any requirements of the Maryland General
Corporation Law have been satisfied. Provided further, that nothing herein
shall protect any director or officer of the Corporation from liability to the
Corporation or its security holders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
(e) The net asset value of a share of any class or series of stock of the
Corporation shall be determined by or in accordance with the determination of
the Board of Directors, which is authorized to determine the methods to be used
to
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value the assets of a class or series, the amount and allocation of liabilities
of the Corporation to each class or series, and all other matters in connection
therewith.
(f) Any determination made in good faith by or pursuant to the direction of
the Board of Directors as to the (i) amount of the assets, debts, obligations or
liabilities of the Corporation, (ii) amount of any reserves or charges set up
and the propriety thereof, (iii) time of or purpose for creating such reserves
or charges, (iv) use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created, shall have been paid or discharged, or shall be
then or thereafter required to be paid or discharged), (v) value of any security
or other asset owned or held by the Corporation, (vi) number of shares of the
Corporation outstanding, (vii) net investment income of the Corporation, or
(viii) other matters relating to the issuance, sale, purchase and/or other
acquisition or disposition of securities or shares of the Corporation or the
amount or payment of dividends, shall be final and conclusive, and shall be
binding upon the Corporation and all holders of its shares, past, present and
future. Shares of the Corporation are issued and sold on the condition and
understanding, evidenced by acceptance of certificates for such shares, that any
and all determinations shall be binding as aforesaid.
(g) The stockholders of the Corporation may remove any director of the
Corporation prior to the expiration of such director's term of office, for
cause, and not otherwise, by the affirmative vote of a majority of all votes
entitled to be cast for the election of directors.
(h) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of the holders of a designated proportion
greater than a majority of the shares or votes entitled to be cast, except to
the extent otherwise required by the Investment Company Act of 1940, as amended,
such action shall be effective and valid if taken or authorized by the
affirmative vote of the holders of a majority of the total number of shares
entitled to vote thereon.
NINTH: Limitation of Liability; Indemnification. (a) To the fullest
extent that limitations on the liability of directors and officers are permitted
by the Maryland General Corporation Law, no director or officer of the
Corporation shall have any liability to the Corporation or its stockholders for
damages. This limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding in which liability
is asserted.
(b) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors may by By-Law, resolution or agreement make further provision for
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indemnification of directors, officers, employees and agents of the Corporation
to the fullest extent permitted by the Maryland General Corporation Law.
(c) No provision of this Article shall be effective to protect or purport
to protect any director or officer of the Corporation against any liability to
the Corporation or its security holders 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.
(d) References to Maryland General Corporation Law in this Article are to
the law as amended from time to time. No further amendment to the Articles of
Incorporation shall affect any right of any person under this Article based on
any event, omission or proceeding prior to such amendment.
TENTH: Quorum. At any meeting of stockholders, thirty percent (30%) of
the outstanding shares of stock entitled to vote at such meeting, present in
person or represented by proxy, shall constitute a quorum; provided, that if
there is to be acted on at the meeting an action which requires the affirmative
vote of "a majority of the outstanding voting securities" as such phrase is
defined in the 1940 Act, then a majority of the outstanding shares of stock
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum. If any matter is to be voted on by individual class
or series, then a quorum shall be required as to each such class or series.
ELEVENTH: Amendments. The Corporation reserves the right from time to
time to amend, alter, change, add to, or repeal any provision contained in these
Articles of Incorporation in the manner now or hereafter prescribed or permitted
by statute, including any amendment which alters the contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
stock, and all rights conferred on stockholders and others herein are granted
subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator of TAX-FREE INVESTMENTS
CO., who executed the foregoing Articles of Incorporation on the 3rd day of
March, 1992, hereby acknowledges the same to be her act.
/s/ Carol F. Relihan
-------------------------------
Carol F. Relihan
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EXHIBIT 1(b)
TAX-FREE INVESTMENTS CO.
ARTICLES SUPPLEMENTARY
TAX-FREE INVESTMENTS CO., a Maryland corporation, having its principal
office in the State of Maryland in Baltimore (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors hereby reclassifies the one billion
(1,000,000,000) shares of Common Stock of the Corporation known as Intermediate
Portfolio Shares (of which 1,000,000,000 were classified as AIM Tax-Free
Intermediate Shares) as unclassified Common Stock. Immediately prior to the
reclassification of shares as set forth in this Article FIRST, the Corporation
was authorized to issue 6,000,000,000 shares, all of which were of a par value
of $.001 per share, of which 4,000,000,000 shares were classified as Cash
Reserve Portfolio (of which 3,000,000,000 were classified as Institutional Cash
Reserve Shares and 1,000,000,000 were classified as Private Investment Class
Shares), 1,000,000,000 shares were classified as Intermediate Portfolio shares
(of which 1,000,000,000 were classified as AIM Tax-Free Intermediate Shares),
and the balance of which were unclassified. Immediately prior to the
reclassification, the aggregate par value of all classes of stock which the
Corporation had authority to issue was $6,000,000.
SECOND: As hereby classified, the total number of shares of stock which the
Corporation has authority to issue is 6,000,000,000 shares of Common Stock, all
of which are of a par value of $.001 per share, of which 4,000,000,000 shares
are classified as Cash Reserve Portfolio (of which 3,000,000,000 are classified
as Institutional Cash Reserve Shares and 1,000,000,000 are classified as Private
Investment Class Shares), and the balance of which are unclassified. Pursuant
to the reclassification, the aggregate par value of all classes of stock which
the Corporation has authority to issue is $6,000,000. The total number of
shares of capital stock the Corporation has authority to issue has not been
changed, however the Board of Directors has decreased from 1,000,000,000 to -0-
the number of Intermediate Portfolio shares authorized and increased by
1,000,000,000 the number of unclassified shares of Common Stock which the
Corporation has authority to issue in accordance with Section 2-105(c) of the
Maryland General Corporation Law.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
<PAGE>
FOURTH: The Board of Directors of the Corporation reclassifies the shares
of Intermediate Portfolio under authority contained in the Charter of the
Corporation.
The undersigned President acknowledges these Articles Supplementary to be
the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles with respect to authorization and approval are true in all material
respects and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, TAX-FREE INVESTMENTS CO. has caused these Articles
Supplementary to be executed in its name and on its behalf by its President and
witnessed by its Assistant Secretary on June 21, 1994.
TAX-FREE INVESTMENTS CO.
By: /s/ Robert H. Graham
_________________________
President
Witness:
/s/ Stephen I. Winer
- ----------------------
Assistant Secretary
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EXHIBIT 2(a)
TAX-FREE INVESTMENTS CO.
A MARYLAND CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Time and Place of Meetings. Meetings of the stockholders of
the Corporation need not be held except as required under the general laws of
the State of Maryland, as the same may be amended from time to time. Meetings
of the stockholders shall be held at places designated by the Board of Directors
and set forth in the notice of the meeting.
Section 2. Annual Meetings. If a meeting of the stockholders of the
Corporation is required by the Investment Company Act of 1940, as amended, to
take action with respect to the election of directors, then such matter shall be
submitted to the stockholders at a special meeting called for such purpose,
which shall be deemed the annual meeting of stockholders for that year. In
years in which no such action by stockholders is so required, no annual meeting
of stockholders need be held.
Section 3. Special Meetings. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board of Directors, if
any, by the President or by a majority of the Board of Directors. In addition,
such special meetings shall be called by the Secretary upon receipt of a request
in writing, signed by stockholders entitled to cast at least 10% of all the
votes entitled to be cast at the meeting, which states the purpose of the
meeting and the matters proposed to be acted on at the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at the meeting, a special meeting need not be called to consider any
matter which
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is substantially the same as a matter voted on at a special meeting of the
stockholders held during the preceding twelve (12) months.
Section 4. Notice of Meeting of Stockholders. Written or printed notice
of every meeting of stockholders, stating the time and place thereof (and the
purpose of any special meeting), shall be given, not less than ten (10) days nor
more than ninety (90) days before the date of the meeting, to each stockholder
entitled to vote at the meeting and each other stockholder entitled to notice,
by delivering such notice personally, or leaving such notice at each
stockholder's residence or usual place of business, or by mailing such notice,
postage prepaid, addressed to each stockholder at such stockholder's address as
it appears upon the books of the Corporation. Each person who is entitled to
notice of any meeting shall be deemed to have waived notice if present at the
meeting in person or by proxy, or if such person signs a waiver of notice
(either before or after the meeting) which is filed with the records of
stockholders meetings.
Section 5. Closing of Transfer Books, Record Dates. The Board of
Directors may direct that the stock transfer books of the Corporation be closed
for a stated period not exceeding twenty (20) days for the purpose of making any
proper determination with respect to stockholders, including determining which
stockholders are entitled to notice of and to vote at a meeting, receive a
dividend or be allotted other rights. If such books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of providing for the closing of the stock
transfer books, the Board of Directors may set a date, not more than ninety (90)
days nor less than ten (10) days preceding (a) the date of any meeting of stock-
holders, (b) any dividend payment date, or (c) any date for the allotment of
rights, as a record date for the determination of the stockholders entitled to
notice of and to vote at such meeting, or entitled to receive such dividends
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or rights, as the case may be; and only stockholders of record on such date
shall be entitled to notice of and to vote at such meeting, or to receive such
dividends or rights, as the case may be.
Section 6. Manner of Acting; Adjournment of Meetings. A majority of all
votes cast at a meeting of stockholders at which a quorum is present shall be
sufficient to approve any matter which properly comes before the meeting, unless
otherwise provided by applicable law, the Articles of Incorporation or these By-
Laws. If at any meeting of stockholders there shall be less than a quorum
present, the stockholders present at such meeting may, without further notice,
adjourn the meeting from time to time (but not more than 120 days after the
original record date for such meeting) until a quorum is attained, but no
business shall be transacted at any such adjourned meeting, except business
which might have been lawfully transacted had the meeting not been adjourned.
Section 7. Voting and Inspectors. (a) At all meetings of stockholders,
every stockholder of record entitled to vote may do so either in person or by
written proxy signed by such stockholder or such stockholder's duly authorized
attorney-in-fact. Unless a proxy provides otherwise, such proxy shall not be
valid more than eleven (11) months after its date.
(b) At any meeting of stockholders considering the election of directors,
the Board of Directors prior to the convening of such meeting may, or, if the
Board has not so acted, the Chairman of the meeting may, appoint two (2)
inspectors of election, who shall first subscribe an oath or affirmation to
execute faithfully the duties of inspectors at such election with strict
impartiality and according to the best of their abilities, and shall after the
election certify the result of the vote taken. No candidate for election as a
director shall be appointed to act as an inspector of election.
(c) The Chairman of the meeting may cause a vote by ballot to be taken with
respect to any election or matter.
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Section 8. Conduct of Stockholders Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board, or if the
Chairman shall not be present or if there is no Chairman, by the President, or
if the President shall not be present, by a Vice-President, or if no Vice-
President is present, by a chairman elected for such purpose at the meeting.
The Secretary of the Corporation, if present, shall act as Secretary of such
meetings, or if the Secretary is not present, an Assistant Secretary of the
Corporation shall so act, and if no Assistant Secretary is present, then the
meeting shall elect a secretary for the meeting.
Section 9. Validity of Proxies and Ballots. At every meeting of the
stockholders, all proxies shall be received and maintained by and all ballots
shall be received and canvassed by, the secretary of the meeting, who shall
decide all questions concerning the qualification of voters, the validity of
proxies, and the acceptance or rejection of votes, unless inspectors of election
shall have been appointed, in which case the inspectors of election shall decide
all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and property of the
Corporation shall be conducted and managed under the direction of a Board of
Directors initially consisting of three (3) directors, which number may be
increased or decreased as herein provided. Directors shall hold office until
their respective successors have been duly elected and qualified. Directors
need not be stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors to a number not exceeding eight (8), and may appoint
directors to fill the vacancies created by any increase in the number of
directors, and such
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appointed directors shall hold office until their successors have been duly
elected and qualify. The Board of Directors, by the vote of a majority of the
entire Board, may decrease the number of directors to a number not less than
three (3), but any such decrease shall not affect the term of office of any
director. Vacancies occurring other than by reason of any increase in the
number of directors shall be filled as provided by the Maryland General
Corporation Law.
Section 3. Place of Meetings. The directors may hold their meetings and
keep the books of the Corporation outside the State of Maryland, at any office
or offices of the Corporation or at any other place as they may from time to
time determine; and in the case of meetings, as shall be specified in the
respective notices of such meetings.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the directors may from
time to time determine.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President, or any two (2) or more of the directors, by
oral, telegraphic or written notice duly given to each director not less than
one (1) business day before such meeting, or if sent or mailed to each director,
not less than three (3) business days before such meeting. Each director who is
entitled to notice shall be deemed to have waived notice if such director is
present at the meeting, or either before or after the meeting, such director
signs a waiver of notice which is filed with the minutes of the meeting. Such
notice or waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One third (1/3) of the directors then in office (but
in no event less than two (2) directors), shall constitute a quorum of the Board
of Directors for the transaction of business. If at any meeting of the Board
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there shall be less than a quorum present, a majority of those directors present
may adjourn the meeting from time to time until a quorum shall have been
attained. The act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by applicable law, the Articles of
Incorporation or these By-Laws.
Section 7. Telephonic Meetings. The members of the Board of Directors, or
any committee of the Board of Directors, may participate in a meeting by means
of a conference telephone call or similar communications equipment if all
persons participating in such meeting can simultaneously hear each other, and
participation in a meeting by these means constitutes presence in person at such
meeting.
Section 8. Executive Committee. The Board of Directors may appoint an
Executive Committee consisting of two (2) or more directors. Between meetings
of the Board of Directors, the Executive Committee, if any, shall have and may
exercise any or all of the powers of the Board of Directors with respect to the
management of the business and affairs of the Corporation, except (a) as
otherwise provided by law and (b) the power to increase or decrease the size of,
or fill vacancies on, the Board of Directors. The Executive Committee may
determine its own rules of procedure, and may meet when and as the Executive
Committee determines, or when directed by resolution of the Board of Directors.
The presence of a majority of the Executive Committee shall constitute a quorum.
The Board of Directors shall have the power at any time to change the members
and powers of, to fill vacancies on, and to dissolve the Executive Committee.
In the absence of any member of the Executive Committee, the members present at
any meeting, whether or not they constitute a quorum, may appoint a director to
act in the place of such absent member.
Section 9. Other Committees. The Board of Directors may appoint other
committees which shall in each case consist of such number of directors (not
less
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than two (2)), which shall have and may exercise such powers as the Board may
from time to time determine. A majority of all members of any such committee
may determine its action, and the time and place of its meetings, unless the
Board of Directors shall provide otherwise. The Board of Directors shall have
the power at any time to change the members and powers of, to fill vacancies on,
and to dissolve any such committee. In the absence of any member of such
committee, the members present at any meeting, whether or not they constitute a
quorum, may appoint a director to act in the place of such absent member.
Section 10. Informal Action by Directors. Except to the extent otherwise
specifically provided by applicable law, any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof, may be
taken without a meeting, if a written consent to such action is signed by all
members of the Board or such committee, and such consent is filed with the
minutes of proceedings of the Board or such committee.
Section 11. Compensation of Directors. Directors shall be entitled to
receive such compensation from the Corporation for their services as directors
as the Board of Directors may from time to time determine.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The initial executive officers of the
Corporation shall be elected by the Board of Directors as soon as practicable
after the incorporation of the Corporation. The executive officers may include
a Chairman of the Board, and shall include a President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors), a
Secretary and a Treasurer. The Chairman of the Board, if any, shall be selected
from among the directors. The Board of Directors may also in its discretion
appoint Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers,
and other officers, agents and employees, who shall have such authority and
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perform such duties as the Board may determine. The Board of Directors may fill
any vacancy which may occur in any office. Any two (2) offices, except those of
President and Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument on behalf of the Corporation
in more than one (1) capacity, if such instrument is required by law or by these
By-Laws to be executed, acknowledged or verified by two (2) or more officers.
Section 2. Term of Office. Unless otherwise specifically determined by
the Board of Directors, the officers shall serve at the pleasure of the Board of
Directors. If the Board of Directors in its judgment finds that the best
interests of the Corporation will be served, the Board of Directors may remove
any officer of the Corporation at any time with or without cause.
Section 3. President. The President shall be the chief executive officer
of the Corporation and, subject to the Board of Directors, shall generally
control and manage the business and affairs of the Corporation. If there is no
Chairman of the Board, or if the Chairman of the Board has been appointed but is
absent, the President shall, if present, preside at all meetings of the
stockholders and the Board of Directors.
Section 4. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the stockholders and the Board of Directors, if
the Chairman of the Board is present. The Chairman of the Board shall have such
other powers and duties as shall be determined by the Board of Directors, and
shall undertake such other assignments as may be requested by the President.
Section 5. Other Officers. The Chairman of the Board or one or more Vice
Presidents shall have and exercise such powers and duties of the President in
the absence or inability to act of the President, as may be assigned to them,
respectively, by the Board of Directors or, to the extent not so assigned, by
the President. In the absence or inability to act of the President, the powers
and duties of the President not otherwise assigned by the Board of Directors or
the
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President shall devolve upon the Chairman of the Board, or in the Chairman's
absence, the Vice Presidents in the order of their election.
Section 6. Vice Presidents. In addition to any other duties described in
this Article, the Vice President(s) shall also perform such duties as from time
to time may be assigned to them by the Board of Directors or President.
Section 7. Secretary. The Secretary shall have custody of the seal of the
Corporation, and shall keep the minutes of the meetings of the stockholders,
Board of Directors and any committees thereof, and shall issue all notices of
the Corporation. The Secretary shall have charge of the stock records and such
other books and papers as the Board may direct, and shall perform such other
duties as may be incidental to the office or which are assigned by the Board of
Directors. The Secretary shall also keep or cause to be kept a stock book,
which may be maintained by means of computer systems, containing the names,
alphabetically arranged, of all persons who are stockholders of the Corporation,
showing their places of residence, the number and class or series of any class
of shares of stock held by them, respectively, and the dates when they became
the record owners thereof, and such book shall be open for inspection as
prescribed by the laws of the State of Maryland.
Section 8. Treasurer. The Treasurer shall have the care and custody of
the funds and securities of the Corporation and shall deposit the same in the
name of the Corporation in such bank or banks or other depositories, subject to
withdrawal in such manner as these By-Laws or the Board of Directors may
determine. The Treasurer shall, if required by the Board of Directors, give
such bond for the faithful discharge of duties in such form as the Board of
Directors may require.
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ARTICLE IV
CAPITAL STOCK
Section 1. Stock Certificates. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full number of shares
of each class or series of stock of the Corporation owned by such stockholder,
in such form as the Board of Directors may from time to time determine.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder(s) thereof, in person
or by such holder's duly authorized attorney or legal representative, upon
surrender and cancellation of certificates, if any, for the same number of
shares, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature(s) as the
Corporation or its agents may reasonably require. In the case of shares not
represented by certificates, the same or similar requirements may be imposed by
the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them, respectively, shall be kept at the principal offices of the
Corporation, or if the Corporation has appointed a transfer agent, at the
offices of such transfer agent.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may determine the conditions upon which a new stock certificate of any
class or series may be issued in place of a certificate which is alleged to have
been lost, stolen or destroyed. The Board of Directors may in its discretion
require the owner of such certificate to give bond, with sufficient surety to
the Corporation and the transfer agent, if any, to indemnify the Corporation and
such transfer agent against any and all losses or claims which may arise by
reason of the issuance of a replacement certificate.
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ARTICLE V
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in
such form and bearing such inscriptions as it may determine. In lieu of fixing
the Corporation's seal to a document, it is sufficient to meet the requirements
of any law, rule or regulation relating to a corporate seal to place the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board of
Directors.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. The Corporation
shall indemnify its directors and officers who while serving as directors or
officers also serve at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided for by this Article shall continue as to a person who has ceased to be
a director or officer, and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to
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the Corporation or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's office
("disabling conduct").
Section 2. Advances. Any current or former director or officer of
the Corporation seeking indemnification within the scope of this Article shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred in connection with the matter as to which indemnification is
sought, in the manner and to the fullest extent permissible under the Maryland
General Corporation Law. The person seeking indemnification shall provide to
the Corporation a written affirmation of his or her good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met and a written undertaking to repay any such advance if it should ultimately
be determined that the requisite standard of conduct has not been met. In
addition, at least one of the following conditions must be satisfied: (a) the
person seeking indemnification shall provide security in form and amount
acceptable to the Corporation for the foregoing undertaking, (b) the Corporation
shall be insured against losses arising by reason of the advance, or (c) a
majority of a quorum of directors of the Corporation who are neither "interested
persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940,
as amended, nor parties to the proceeding ("disinterested non-party directors"),
or independent legal counsel in a written opinion, shall have determined, based
on a review of facts readily available to the Corporation at the time the
advance is proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
Section 3. Procedure. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been met.
Indemnification shall be made only following: (a) a final decision on the merits
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by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct, or (b) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct by, (i) the vote of a majority of a quorum of disinterested
non-party directors, or (ii) an independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940, as amended.
Section 5. Other Rights. The Board of Directors may make further
provision consistent with law for indemnification and advancement of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided for by this Article shall not be deemed exclusive
of any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance, other agreement,
resolution of stockholders or disinterested directors, or otherwise.
Section 6. Subsequent Changes to Law. References in this Article are
to the Maryland General Corporation Law and to the Investment Company Act of
1940 as from time to time amended. No amendment of these By-Laws shall affect
any right of any person under this Article based on any event, omission or
proceeding occurring prior to such amendment.
ARTICLE VIII
AMENDMENT OF BY-LAWS
These By-Laws may be altered, amended or repealed by the Board of
Directors.
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EXHIBIT 2(b)
FIRST AMENDMENT TO THE BY-LAWS OF
TAX-FREE INVESTMENTS CO.
(A MARYLAND CORPORATION)
ADOPTED MAY 10, 1994
NOW THEREFORE BE IT RESOLVED, that Section 2 of Article II of the By-Laws of
Tax-Free Investments Co. be deleted in its entirety and replaced with the
following:
"Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of directors to a number not exceeding fifteen (15), and may appoint
directors to fill the vacancies created by any increase in the number of
directors, and such appointed directors shall hold office until their successors
have been duly elected and qualify. The Board of Directors, by the vote of a
majority of the entire Board, may decrease the number of directors to a number
not less than three (3) or the number of stockholders, whichever is less, but
any such decrease shall not affect the term of office of any director.
Vacancies occurring other than by reason of any increase in the number of
directors shall be filled as provided by the Maryland General Corporation Law;"
<PAGE>
EXHIBIT 2(C)
TAX-FREE INVESTMENTS CO.
SECOND AMENDMENT, DATED MARCH 14, 1995,
TO BY-LAWS
Article I, Section 7(a) of the By-Laws of Tax-Free Investments Co. is
hereby amended to read in full as follows:
"At all meetings of the stockholders, every stockholder of record
entitled to vote thereat shall be entitled to vote at such meeting either
in person or by written proxy signed by the stockholder or by his duly
authorized attorney in fact. A stockholder may duly authorize such
attorney in fact through written, electronic, telephonic, computerized,
facsimile, telecommunication, telex or oral communication or by any other
form of communication. Unless a proxy provides otherwise, such proxy is
not valid more than eleven months after its date."
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
(CASH RESERVE PORTFOLIO)
THIS AGREEMENT is made this 18th day of October, 1993, by and between Tax-
Free Investments Co., a Maryland corporation (the "Company") with respect to its
Cash Reserve Portfolio (the "Fund") and A I M Advisors, Inc., a Delaware
corporation (the "Advisor"), with respect to the following recital of fact:
RECITAL
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act") as an open-end, diversified management investment
company consisting of multiple series of investment portfolios; and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages in
the business of acting as an investment advisor; and
WHEREAS, the Company's charter authorizes the Board of Directors of the
Company to classify or reclassify authorized but unissued shares of the Company
and, as of the date of this Agreement, the Company's Board of Directors has
authorized the issuance of shares representing interests in: the Cash Reserve
Portfolio (Institutional Cash Reserve Shares and Private Investment Class
shares) (such portfolios and any other portfolios hereafter added to the Company
being referred to collectively herein as the "Portfolios"); and
WHEREAS, the Fund and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Fund's assets on the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Investment Advisory Services. The Advisor shall manage the Fund's
affairs and shall supervise all aspects of the Fund's operations, including the
investment and reinvestment of the cash, securities or other properties
comprising the Fund's assets, subject at all times to the policies and control
of the Company's Board of Directors. The Advisor shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Advisor.
2. Duties of Investment Advisor. In carrying out its obligations under
Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's operations;
(b) provide the Fund with such executive, administrative and clerical
services as are deemed advisable by the Company's Board of Directors;
(c) arrange, but not pay for, the periodic updating of prospectuses
and statements of additional information (including supplements thereto),
proxy material, tax returns, reports to the Fund's shareholders and reports
to and filings with the Securities and Exchange Commission ("SEC") and
state Blue Sky authorities;
(d) provide the Fund with, or obtain for it, adequate office space and
all necessary office equipment and services, including telephone service,
heat, utilities, stationery supplies and similar items for the Fund's
principal office;
(e) provide the Board of Directors of the Company on a regular basis
with financial reports and analyses of the Fund's operations and the
operations of comparable investment companies;
(f) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund,
and whether concerning the individual issuers whose securities are included
in the Fund or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund;
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(g) determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Company's Board
Directors;
(h) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Company's Board of Directors; and
(i) take, on behalf of the Fund, all actions which appear to the Fund
necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities.
3. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Fund, broker-dealer selections, and
negotiation of its brokerage commissions rates. The Advisor's primary
consideration in effecting a security transaction will be execution at the most
favorable price. The Fund understands that a substantial majority of the Fund's
portfolio transactions will be transacted with primary market makers acting as
principal on a net basis, with no brokerage commissions being paid by the Fund.
Such principal transactions may, however, result in a profit to the market
makers. In certain instances the Advisor may make purchases of underwritten
issues at prices which include underwriting fees. In selecting a broker-dealer
to execute each particular transaction, the Advisor will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the broker-
dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any transaction may be less favorable than
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered. Subject
to such policies as the Board of Directors may determine, the Advisor shall not
be deemed to have acted unlawfully or to have breached any duty created by this
agreement or otherwise solely by reason of its having caused the Fund to pay a
broker or dealer that provides brokerage and research services to the Advisor an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Advisor's overall responsibilities
with respect to the Fund. The Advisor is further authorized to allocate the
orders placed by it on behalf of the Fund to such brokers and dealers who also
provide research or statistical material or other services to the Fund or the
Advisor. Such allocation shall be in such amounts and proportions as the Advisor
shall determine and the Advisor will report on said allocations regularly to the
Board of Directors of the Company, indicating the brokers to whom such
allocations have been made and the basis therefor.
4. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as any
other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any directives of the Board of
Directors of the Company.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder as amended; and
(b) the provisions of the Registration Statement of the Company under
the 1933 Act and the 1940 Act; and
(c) the provisions of the corporate charter of the Company, as the
same may be amended from time to time; and
(d) the provisions of the By-Laws of the Company, as the same may be
amended from time to time; and
(e) any other applicable provisions of state and federal law.
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6. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Advisor as follows:
(a) the Advisor shall furnish, at its expense and without cost to the
Company, the services of a President, Secretary and one or more Vice
Presidents of the Company, to the extent that such additional officers may
be required by the Company for the proper conduct of its affairs.
(b) Nothing in subparagraph (a) hereof shall be construed to require
the Advisor to bear:
(i) any of the costs (including applicable office space,
facilities and equipment) of the services of a principal financial
officer of the Company whose normal duties consist of supervising the
maintenance of the financial accounts and books and records of the
Fund, including the review of calculations of daily net asset value
and preparation of tax returns and financial statements; or
(ii) any of the costs (including applicable office space,
facilities and equipment) of the services of any of the personnel
operating under the direction of such principal financial officer.
Notwithstanding the obligation of the Fund to bear the expense of the
functions referred to in clauses (i) and (ii) of this subparagraph (b), the
Advisor may pay the salaries, including any applicable employment or
payroll taxes and other salary costs, of the principal financial officer
and other personnel carrying out such functions and the Fund shall
reimburse the Advisor therefor upon proper accounting.
(c) The Advisor shall maintain, at its expense and without cost to the
Fund, a trading function in order to carry out its obligations under
subparagraph (i) of Section 2 hereof to place orders for the purchase and
sale of portfolio securities for the Fund.
(d) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees and expenses
of any distributor of Fund shares; the charges and expenses of any
registrar, any custodian or depositary appointed by the Company on behalf
of the Fund for the safekeeping of its cash, portfolio securities and other
property, and any stock transfer, dividend or accounting agent or agents
appointed by the Company on behalf of the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions
to which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
share certificates representing shares of the Fund; all costs and expenses
in connection with the registration and maintenance of registration of the
Fund and its shares with the SEC and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel); the
costs and expenses of preparing (including typesetting) prospectuses and
statements of additional information (including supplements thereto) of the
Fund, proxy statements and reports to shareholders, and of printing and
distributing such items to the Fund's shareholders; all expenses of
shareholders' and directors' meetings; fees and travel expenses of
directors or members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any
outside service used for pricing of the Fund's shares; charges and expense
of legal counsel, including counsel to the directors of the Company who are
not interested persons (as defined in the 1940 Act) of the Company, and of
independent accountants in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and directors) of the Company which inure to its benefit;
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 Fund's operation unless otherwise
explicitly provided herein.
7. Delegation of Responsibilities. The Advisor may, but should be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Company's Board of Directors. Such
services will be performed on behalf of the Fund and the Advisor's charge in
rendering such services may be billed monthly to the Fund, subject to
examination by the Advisor's independent accountants. Payment or assumption by
the Advisor of any Fund expense that the Advisor is not required to pay or
assumed under this Agreement shall not relieve the Advisor of any of its
obligations to the Fund nor obligate the Advisor to pay or assume any similar
Fund expense on any subsequent occasions.
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8. Compensation. For the services to be rendered and the expenses assumed
by the Advisor, the Fund shall pay to the Advisor monthly compensation of the
sum of the amounts determined by applying the following annual rates to the
Fund's daily net assets: 0.25% of the first $500 million of the Fund's net
assets, and 0.20% of the Fund's net assets in excess of $500 million. Except as
hereinafter set forth, compensation under this Agreement shall be calculated and
accrued daily and the amounts of the daily accruals shall be paid monthly. If
this Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above. Subject to the provisions of
Section 9 hereof, payment of the Advisor's compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated by Section 9 hereof.
9. Expense Limitation. In the event the operating expenses of the Fund
(including all investment advisory fees, management fees and distribution fees)
for any fiscal year ending on a date on which this Agreement is in effect exceed
either (i) with respect to any portfolio (or class), the expense limitation
applicable to the portfolio (or class) imposed by the securities laws or
regulations thereunder of any state in which the shares of such portfolio (or
class) are qualified for sale, as such limitations may be raised or lowered from
time to time, or (ii) with respect to the Institutional Cash Reserve Shares,
.40% of the average daily net assets attributable to the Institutional Cash
Reserve Shares, the Manager shall reduce its investment management fee to the
extent of its share of such excess expenses and, if required pursuant to any
such laws or regulations, will reimburse the Fund for its share of any annual
operating expenses (after reduction of all advisory fees, investment management
fees and distribution fees) in excess of any expense limitation that may be
applicable; provided, however, there shall be excluded from such expenses the
amount of any interest, taxes, brokerage commissions, and extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto) paid or payable by the Fund.
Such reduction, if any, shall be computed and accrued daily, shall be settled on
a monthly basis and shall be based upon the expense limitation applicable to the
Fund as at the end of the last business day of the month. Should two or more
such expense limitations be applicable at the end of the last business day of
the month, that expense limitation which results in the largest reduction in the
Advisor's fee shall be applicable. For purposes of this paragraph, the
Advisor's share of any excess expenses with respect to any portfolio (or class)
shall be computed by multiplying such excess expense by a fraction the numerator
of which is the amount of the investment advisory fee which would otherwise be
payable to the Advisor with respect to such portfolio (or class) for such fiscal
year were it not for this Section 9 and the denominator of which is the sum of
all investment advisory, management and distribution fees which would otherwise
be payable by the Fund with respect to such portfolio (or class) were it not for
the expense limitation provisions of any investment advisory, management or
distribution agreement to which the Fund is a party.
10. Non-Exclusivity. The services of the Advisor to the Fund are not to
be deemed to be exclusive, and the Advisor shall be free to render investment
advisory and corporate administrative or other services to other (including
other investment companies) and to engage in other activities, so long as its
services under this Agreement are not impaired thereby. It is understood and
agreed that officers or directors of the Advisor may serve as officers or
directors of the Company, and that officers or directors of the Company may
serve as officers or directors of the Advisor to the extent permitted by law;
and that the officers and directors of the Advisor are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm, corporation or trust, including other investment companies.
11. Term. This Agreement shall become effective at the close of business
on the date hereof and shall continue in full force and effect, subject to
Section 13 hereof, until June 30, 1994.
12. Renewal. Following the expiration of its initial term, this Agreement
shall continue in full force and effect from year to year, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Company's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as Fund directors), by votes cast in person at a
meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of the Company's Board of Directors or by
vote of a majority of the Company's outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), or by the Advisor, on sixty (60) days'
written notice to the other
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party. The notice provided for herein may be waived by either party. This
Agreement shall automatically terminate in the event of its assignment, the term
"assignment" having the meaning defined in Section 2(a)(4) of the 1940 Act.
14. Liability of Advisor. In the performance of its duties hereunder, the
Advisor shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to insure the
accuracy of all services performed under this Agreement, but the Advisor shall
not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under this Agreement, provided that the Advisor shall be responsible for
its own negligent failure to perform its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund for
this purpose and that of the Advisor shall be 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046.
16. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the Advisers Act shall be resolved
by reference to such term or provision of the 1940 Act or the Advisers Act and
to interpretations thereof, if any, by the United States Courts or in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the SEC issued pursuant to said Acts. In addition, where the effect
of a requirement of the 1940 Act or the Advisers Act reflected in any provision
of this Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: Tax-Free Investments Co.
/s/ Nancy L. Martin By: /s/ Charles T. Bauer
- ------------------------ ---------------------------
President
Attest: A I M Advisors, Inc.
/s/ Nancy L. Martin By: /s/ Robert H. Graham
- ------------------------ ---------------------------
President
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EXHIBIT 6(a)
MASTER DISTRIBUTION AGREEMENT
BETWEEN
TAX-FREE INVESTMENTS CO.
AND
FUND MANAGEMENT COMPANY
THIS AGREEMENT is made this 18th day of October, 1993, by and
between TAX-FREE INVESTMENTS CO., a Maryland corporation (hereinafter referred
to as the "Company"), and FUND MANAGEMENT COMPANY, a Texas corporation,
(hereinafter referred to as the "Distributor").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: The Company hereby appoints the Distributor as its exclusive agent
for the sale of the shares set forth in Appendix A attached hereto (the
"Shares") of the Company to the public through investment dealers in the United
States and throughout the world in accordance with the terms of the Company's
current prospectus applicable to the Shares.
SECOND: The Company shall not sell any Shares except through the
Distributor and under the terms and conditions set forth in paragraph FOURTH
below. Notwithstanding the provisions of the foregoing sentence, however,
(A) the Company may issue Shares of one or more classes of its shares of
common stock to any other investment company or personal holding company, or to
the shareholders thereof, in exchange for all or a majority of the shares or
assets of any such company; and
(B) the Company may issue Shares at their net asset value in connection
with certain categories of transactions or to certain categories of persons, in
accordance with Rule 22d-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"), provided that any such category is specified in the then
current prospectuses of the Company.
THIRD: The Distributor hereby accepts appointment as exclusive agent for
the sale of the Shares and agrees that it will use its best efforts to sell such
Shares; provided, however, that:
(A) the Distributor may, and when requested by the Company shall, suspend
its efforts to effectuate such sales at any time when, in the opinion of the
Distributor or of the Company, no sales should be made because of market or
other economic considerations or abnormal circumstance of any kind; and
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(B) the Company may withdraw the offering of the Shares (i) at any time with
the consent of the Distributor, or (ii) without such consent when so required by
the provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction. It is mutually understood and agreed
that the Distributor does not undertake to sell any specific amount of the
Shares. The Company shall have the right to specify minimum amounts for initial
and subsequent orders for the purchase of Shares.
FOURTH:
(A) The public offering price of Shares of the Company (the "offering
price") shall be the net asset value per Share. Net asset value per Share shall
be determined in accordance with the provisions of the then current Shares'
prospectus and statement of additional information.
(B) No provision of this Agreement shall be deemed to prohibit any payments
by the Company to the Distributor or by the Company or the Distributor to
investment dealers through whom the Shares are sold where such payments are made
under a distribution plan adopted by the Company, on behalf of the applicable
Shares, pursuant to Rule 12b-1 under the 1940 Act and approved by the Company's
directors and by the holders of the Shares in a manner consistent with such
rule.
FIFTH: The Distributor shall act as agent of the Company in connection with
the sale and repurchase of Shares of the Company. Except with respect to such
sales and repurchases, the Distributor shall act as principal in all matters
relating to the promotion of the sale of Shares of the Company and shall enter
into all of its own engagements, agreements and contracts as principal on its
own account. The Distributor shall enter into Selling Group Agreements with
investment dealers selected by the Distributor, authorizing such investment
dealers to offer and sell Shares of the Company to the public upon the terms and
conditions set forth therein, which shall not be inconsistent with the
provisions of this Agreement. Each Selling Group Agreement shall provide that
the investment dealer shall act as a principal, and not as an agent of the
Company.
SIXTH: The Company shall bear
(A) the expenses of qualification of the Shares for sale in connection with
such public offerings in such states as shall be selected by the Distributor and
of continuing the qualification therein until the Distributor notifies the
Company that it does not wish such qualification continued; and
(B) all legal expenses in connection with the foregoing.
SEVENTH: The Distributor shall bear
(A) the expenses of printing from the final proof and distributing
prospectuses and statements of additional information (including supplements
thereto) of the Company relating to the Shares in connection with public
offerings made by the Distributor pursuant to this Agreement (which shall not
include those prospectuses and statements of additional
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information, and supplements thereto, to be distributed to shareholders by the
Company), and any other promotional or sales literature used by the Distributor
or furnished by the Distributor to dealers in connection with such public
offerings; and
(B) expenses of advertising in connection with such public offerings;
provided however, that the Distributor may be reimbursed for all or a portion of
the expenses described in sections (A) and (B) of this paragraph, or may receive
reasonable compensation for distribution related services, to the extent
permitted by a distribution plan adopted by the Company pursuant to Rule 12b-1
under the 1940 Act.
EIGHTH: The Distributor will accept orders for the purchase of Shares only
to the extent of purchase orders actually received and not in excess of such
orders, and it will not avail itself of any opportunity of making a profit by
expediting or withholding orders. It is mutually understood and agreed that the
Company may reject purchase orders where, in the judgment of the Company, such
rejection is in the best interest of the Company.
NINTH: The Company and the Distributor shall each comply with all
applicable provisions of the 1940 Act, the Securities Act of 1933 and of all
other federal and state laws, rules and regulations governing the issuance and
sale of the Shares.
TENTH:
(A) In absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Distributor, the Company agrees to indemnify the Distributor against any and all
claims, demands, liabilities and expenses which the Distributor may incur under
the Securities Act of 1933, or common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in any
registration statement or prospectuses of the Company, or any omission to state
a material fact therein, the omission of which makes any statement contained
therein misleading, unless such statement or omission was made in reliance upon,
and in conformity with, information furnished to the Company in connection
therewith by or on behalf of the Distributor. The Distributor agrees to
indemnify the Company against any and all claims, demands, liabilities and
expenses which the Company may incur arising out of or based upon any act or
deed of the Distributor or its sales representatives which has not been
authorized by the Company in its prospectuses or in this Agreement.
(B) The Distributor agrees to indemnify the Company against any and all
claims, demands, liabilities and expenses which the Company may incur under the
Securities Act of 1933, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in any registration
statement or prospectuses of the Company, or any omission to state a material
fact therein if such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Company in connection therewith by
or on behalf of the Distributor.
3
<PAGE>
(C) Notwithstanding any other provision of this Agreement, the Distributor
shall not be liable for any errors of the Company's transfer agent or for any
failure of such transfer agent to perform its duties.
ELEVENTH: Nothing herein contained shall require the Company to take any
action contrary to any provision of its charter or to any applicable statute or
regulation.
TWELFTH: This Agreement shall become effective at the close of business on
the date hereof, shall continue until June 30, 1994, and shall continue in force
and effect from year to year thereafter, provided, that such continuance is
specifically approved at least annually (a)(i) by the Board of Directors of the
Company, or (ii) by the vote of a majority of the Company's outstanding voting
securities (as defined in Section 2(a)(42) of the Investment Company Act), and
(b) by vote of a majority of the Company's directors who are not parties to this
Agreement or "interested persons" (as defined in Section 2(a)(19) of the
Investment Company Act) of any party to this Agreement cast in person at a
meeting called for such purpose.
THIRTEENTH:
(A) This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Board of Directors of the Company or by vote of a
majority of the outstanding voting securities of the Company, or by the
Distributor, on sixty (60) days' written notice to the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" having the meaning as defined in Section
2(a)(4) of the Investment Company Act.
FOURTEENTH: Any notice under this Agreement shall be in writing, addressed
and delivered, or mailed, postage paid, to the other party at such address as
such other party may designate for the receipt of such notices. Until further
notice to the other party, it is agreed that the address of both the Company and
the Distributor shall be Eleven Greenway Plaza, Suite 1919, Houston, Texas
77046.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate as of the day and year first above written.
TAX-FREE INVESTMENTS CO.
By: /s/ Charles T. Bauer
------------------------
President
Attest:
/s/ Nancy L. Martin
- ------------------------
FUND MANAGEMENT COMPANY
By: /s/ Carol F. Relihan
--------------------------
Vice President
Attest:
/s/ Nancy L. Martin
- -------------------------
5
<PAGE>
APPENDIX A TO
MASTER DISTRIBUTION AGREEMENT OF
TAX-FREE INVESTMENTS CO.
Cash Reserve Portfolio
- ----------------------
Institutional Class
Private Investment Class
6
<PAGE>
EXHIBIT 7(b)
AIM FUNDS
RETIREMENT PLAN FOR ELIGIBLE
DIRECTORS/TRUSTEES
Effective as of March 8, 1994
As Restated September 18, 1995
<PAGE>
AIM FUNDS
RETIREMENT PLAN FOR ELIGIBLE
DIRECTORS/TRUSTEES
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Accrued Benefit . . . . . . . . . . . . . . . . . . . 1
(b) Actuary . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Administrator . . . . . . . . . . . . . . . . . . . . 1
(d) AIM Funds . . . . . . . . . . . . . . . . . . . . . . 1
(e) Board of Directors . . . . . . . . . . . . . . . . . 1
(f) Code . . . . . . . . . . . . . . . . . . . . . . . . 2
(g) Compensation . . . . . . . . . . . . . . . . . . . . 2
(h) Deferred Retirement Date . . . . . . . . . . . . . . 2
(i) Director . . . . . . . . . . . . . . . . . . . . . . 2
(j) Disability . . . . . . . . . . . . . . . . . . . . . 2
(k) Effective Date . . . . . . . . . . . . . . . . . . . 2
(l) Fund . . . . . . . . . . . . . . . . . . . . . . . . 2
(m) Normal Retirement Date . . . . . . . . . . . . . . . 2
(n) Participant . . . . . . . . . . . . . . . . . . . . . 2
(o) Plan . . . . . . . . . . . . . . . . . . . . . . . . 2
(p) Plan Year . . . . . . . . . . . . . . . . . . . . . . 2
(q) Retirement . . . . . . . . . . . . . . . . . . . . . 2
(r) Retirement Benefit . . . . . . . . . . . . . . . . . 3
(s) Service . . . . . . . . . . . . . . . . . . . . . . . 3
(t) Year of Service . . . . . . . . . . . . . . . . . . . 3
1.2 Plurals and Gender . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II PARTICIPATION . . . . . . . . . . . . . . . . . . . . . 4
2.1 Commencement of Participation . . . . . . . . . . . . . . . . 4
2.2 Termination of Participation . . . . . . . . . . . . . . . . . 4
2.3 Resumption of Participation . . . . . . . . . . . . . . . . . 4
2.4 Determination of Eligibility . . . . . . . . . . . . . . . . . 4
-i-
<PAGE>
Page
----
ARTICLE III BENEFITS UPON RETIREMENT AND OTHER
TERMINATION OF SERVICE. . . . . . . . . . . . . . . . . 4
3.1 Retirement. . .. . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Termination of Service Before Retirement . . . . . . . . . . . 5
3.3 Termination of Service by Reason of Death. . . . . . . . . . . 5
3.4 Benefits Calculated in the Aggregate for all of the AIM Funds. 5
ARTICLE IV DEATH BENEFITS. . . . . . . . . . . . . . . . . . . . . 5
4.1 Death Prior to Commencement of Benefits . . . . . . . . . . . 5
4.2 Death Subsequent to Commencement of Benefits . . . . . . . . 5
4.3 Death of Spouse . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V SUSPENSION OF BENEFITS, ETC. . . . . . . . . . . . . . 6
5.1 Suspension of Benefits Upon Resumption of Service . . . . . . 6
5.2 Payments Due Missing Persons . . . . . . . . . . . . . . . . . 6
ARTICLE VI ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . 7
6.1 Appointment of Administrator . . . . . . . . . . . . . . . . . 7
6.2 Powers and Duties of Administrator . . . . . . . . . . . . . . 7
6.3 Action by Administrator . . . . . . . . . . . . . . . . . . . 8
6.4 Participation by Administrators . . . . . . . . . . . . . . . 8
6.5 Agents and Expenses. . . . . . . . . . . . . . . . . . . . . . 8
6.6 Allocation of Duties . . . . . . . . . . . . . . . . . . . . . 8
6.7 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 9
6.8 Administrator's Action Conclusive . . . . . . . . . . . . . . 9
6.9 Records and Reports . . . . . . . . . . . . . . . . . . . . . 9
6.10 Information from the AIM Funds . . . . . . . . . . . . . . . . 9
6.11 Reservation of Rights by Boards of Directors . . . . . . . . . 9
6.12 Liability and Indemnification. . . . . . . . . . . . . . . . . 9
ARTICLE VII AMENDMENTS AND TERMINATION . . . . . . . . . . . . . . 10
7.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 10
8.1 Rights of Creditors . . . . . . . . . . . . . . . . . . . . . 10
8.2 Liability Limited. . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Incapacity . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Cooperation of Parties . . . . . . . . . . . . . . . . . . . . 11
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11
8.6 Nonguarantee of Directorship . . . . . . . . . . . . . . . . . 12
8.7 Counsel . . . . . . . . . . . . . . . .. . . . . . . . . . . . 12
8.8 Spendthrift Provision . . . . . . . . . . . . . . . . . . . . 12
8.9 Forfeiture for Cause . . . . . . . . . . . . . . . . . . . . . 12
-ii-
<PAGE>
Page
----
ARTICLE IX CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . 12
9.1 Notice of Denial . . . . . . . . . . . . . . . . . . . . . . . 12
9.2 Right to Reconsideration . . . . . . . . . . . . . . . . . . . 13
9.3 Review of Documents. . . . . . . . . . . . . . . . . . . . . . 13
9.4 Decision by Administrator. . . . . . . . . . . . . . . . . . . 13
9.5 Notice by Administrator. . . . . . . . . . . . . . . . . . . . 13
-iii-
<PAGE>
AIM FUNDS
RETIREMENT PLAN FOR ELIGIBLE
DIRECTORS/TRUSTEES
PREAMBLE
Effective as of March 8, 1994, the regulated investment
companies managed, administered and/or distributed by AIM Advisors, Inc. or its
affiliates (the "AIM Funds") have adopted THE AIM FUNDS RETIREMENT PLAN FOR
ELIGIBLE DIRECTORS/TRUSTEES (the "Plan") for the benefit of each of the
directors and trustees of each of the AIM Funds who is not an employee of any
of the AIM Funds, A I M Management Group Inc. or any of their affiliates. As
the Plan does not benefit any employees of the AIM Funds, it is not intended to
be classified as an employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions.
------------
Unless a different meaning is plainly implied by the context,
the following terms as used in this Plan shall have the following meanings:
(a) "Accrued Benefit" shall mean, as of any date prior to
a Participant's Normal Retirement Date, his Retirement Benefit commencing on
his Normal Retirement Date, but based upon his Compensation and Years of
Service computed as of such date of determination.
(b) "Actuary" shall mean the independent actuary selected
by the Administrator.
(c) "Administrator" shall mean the administrative
committee provided for in Article VI.
(d) "AIM Funds" shall mean the regulated investment
companies managed, administered or distributed by A I M Advisors, Inc. or its
affiliates.
(e) "Board of Directors" shall mean the Board of
Directors of each of the AIM Funds.
<PAGE>
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.
(g) "Compensation" shall mean, for any Director, the
amount of the retainer paid or accrued by the AIM Funds for such Director
during the twelve month period immediately preceding the Director's Retirement,
including amounts deferred under a separate agreement between the AIM Funds and
the Director. The amount of such retainer Compensation shall be as determined
by the Administrator.
(h) "Deferred Retirement Date" shall mean the first day
of the month coincident with or next following the date on which a Participant
terminated Service after his Normal Retirement Date.
(i) "Director" shall mean an individual who is a director
or trustee of one or more of the AIM Funds which have adopted the Plan but who
is not an employee of any of the AIM Funds, A I M Management Group Inc. or any
of their affiliates.
(j) "Disability" shall mean the inability of the
Participant to participate in meetings of the Board of Directors, either in
person or by telephone, for a period of at least nine (9) months.
(k) "Effective Date" shall mean March 8, 1994.
(l) "Fund" shall mean an AIM Fund which has adopted this
Plan.
(m) "Normal Retirement Date" shall mean, the date on
which a Participant has both attained age 65 (or at least age 55 in the event
of the Director's termination of Service by reason of death or Disability) and
has completed at least five continuous and non-forfeited Years of Service (and
thirty months of Service with one or more of the AIM Funds).
(n) "Participant" shall mean a Director who has met all
of the eligibility requirements of the Plan and who is currently included in
the Plan as provided in Article II hereof.
(o) "Plan" shall mean the "AIM Funds Retirement Plan for
Eligible Directors/Trustees" as described herein or as hereafter amended from
time to time.
(p) "Plan Year" shall mean the calendar year.
(q) "Retirement" shall mean a Director's termination of
his active Service with the AIM Funds on or after his Normal Retirement Date,
due to his death, Disability, or voluntary or involuntary termination of his
Service.
(r) "Retirement Benefit" shall mean the benefit described
under Section 3.1 hereof.
-2-
<PAGE>
(s) "Service" shall mean an individual's serving as a
Director of one or more of the AIM Funds. Furthermore, any unbroken service
provided by a Participant (i) to an AIM Fund immediately prior to its being
managed or administered by A I M Advisors, Inc. (or any of its affiliates) or
(ii) to a predecessor of an AIM Fund immediately prior to its being merged into
such AIM Fund, will be taken into account in determining such Participant's
Years of Service, subject to all restrictions and other forfeiture provisions
contained herein.
(t) "Year of Service" shall mean a twelve consecutive
month period of Service. For all purposes in this Plan, if a Participant's
Service terminates prior to his Retirement, he shall forfeit credit for all
Years of Service completed prior to such termination unless (a) he again
becomes a Director and (b) the number of Years of Service he accumulated prior
to such termination exceeded the number of years in which he did not serve as a
Director.
1.2 Plurals and Gender.
Where appearing in the Plan, the masculine gender shall
include the feminine and neuter genders, and the singular shall include the
plural, and vice versa, unless the context clearly indicates a different
meaning.
1.3 Directors/Trustees.
Where appropriate, the term "director" shall refer to
"trustee", "directorship" shall refer to "trusteeship" and "Board of Directors"
shall refer to "Board of Trustees."
1.4 Headings.
The headings and sub-headings in this Plan are inserted for
the convenience of reference only and are to be ignored in any construction of
the provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or
void, such illegality or invalidity shall not affect the remaining provisions
of this Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provisions had never been inserted
herein.
-3-
<PAGE>
ARTICLE II
PARTICIPATION
-------------
2.1 Commencement of Participation.
------------------------------
Each Director shall become a Participant hereunder on the date
his directorship of one or more of the AIM Funds commences.
2.2 Termination of Participation.
-----------------------------
After commencement or resumption of his participation, a
Director shall remain a Participant until the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death;
(c) The date on which he otherwise incurs a termination
of Service; or
(d) The effective date of the termination of the Plan.
2.3 Resumption of Participation.
----------------------------
Any Participant whose Service terminates and who thereafter
again becomes a Director shall resume participation immediately upon again
becoming a Director except that, as provided in Section 1.1(t) hereof, if his
Service is terminated prior to his Normal Retirement Date, for all purposes of
this Plan he shall forfeit credit for all Years of Service completed prior to
such termination of his Service.
2.4 Determination of Eligibility.
-----------------------------
The Administrator shall determine the eligibility of Directors
in accordance with the provisions of this Article.
ARTICLE III
BENEFITS UPON
-------------
RETIREMENT AND OTHER TERMINATION OF SERVICE
-------------------------------------------
3.1 Retirement.
-----------
Upon Retirement a Participant shall be entitled to receive an
annual benefit from the AIM Funds commencing on the first day of the calendar
quarter coincident with or next following his date of Retirement, payable in
quarterly installments for a period of no more than
-4-
<PAGE>
ten (10) years (or, if less, the number of his Years of Service) equal
to seventy-five percent (75%) of his Compensation.
3.2 Termination of Service Before Retirement.
-----------------------------------------
In the event that a Participant's Service terminates by reason
of death, Disability or removal by the Board for cause (as defined in Section
8.9) prior to his Normal Retirement Date, he shall not be entitled to receive
any benefits hereunder. If a Participant's Service terminates for any other
reason and he has accumulated at least five (5) continuous and non-forfeited
Years of Service, he shall be entitled to receive his Accrued Benefit
determined as of such date of termination.
3.3 Termination of Service by Reason of Death.
------------------------------------------
No benefits will be paid under this Plan with respect to a
Participant after his death other than as provided in Article IV.
3.4 Benefits Calculated in the Aggregate for all of the AIM Funds.
--------------------------------------------------------------
With respect to each Participant, the benefits payable
hereunder shall be based on the aggregate Compensation paid by the AIM Funds
and on the Participant's non-forfeited Years of Service. Each Fund's share of
the obligation to provide such benefits shall be determined by use of
accounting methods adopted by the Administrator.
ARTICLE IV
DEATH BENEFITS
--------------
4.1 Death Prior to Commencement of Benefits.
----------------------------------------
In the event of a Participant's death subsequent to his Normal
Retirement Date, but prior to the commencement of his Retirement Benefits under
Article III hereof, the surviving spouse (if any) of such Participant shall be
entitled to receive a quarterly survivor's benefit for a period of no more than
ten (10) years (or, if less, the number of the Participant's Years of Service)
beginning on the first day of the calendar quarter next following the date of
the Participant's death equal to fifty percent (50%) of the amount of the
quarterly installments of Retirement Benefits that would have been paid to the
Participant under Sections 3.1 or 3.2 hereof had his Retirement occurred on his
date of death.
4.2 Death Subsequent to Commencement of Benefits.
---------------------------------------------
In the event a Participant dies after the commencement of his
Retirement Benefit under Article III, but prior to the cessation of the payment
of such Retirement Benefits, the surviving spouse (if any) of such Participant
shall be entitled to receive survivor's benefits equal to fifty percent (50%)
of the amount of the annual Retirement Benefit payable to the Participant
-5-
<PAGE>
under Article III hereunder, paid at such times, and for such period, as such
Retirement Benefit would have continued to have been paid to the Participant
had he not died.
4.3 Death of Spouse.
----------------
(a) In the event a Participant is not survived by a
spouse, no benefits will be paid hereunder upon the Participant's death.
(b) If a deceased Participant's surviving spouse dies
while receiving survivor's benefits hereunder, any installments not paid at the
time of the surviving spouse's death shall be forfeited.
ARTICLE V
SUSPENSION OF BENEFITS, ETC.
----------------------------
5.1 Suspension of Benefits Upon Resumption of Service.
--------------------------------------------------
In the case of a Participant who, at a time when he is
receiving Retirement Benefits under Article III of this Plan, resumes Service
with any AIM Fund, such Retirement Benefits shall be suspended until his
subsequent Retirement, termination of Service or death. Subject to the Years
of Service limitations of Section 3.1 hereof, in the event of his Retirement
or termination of Service following such a suspension, the quarterly amount of
his remaining Retirement Benefits shall thereafter be adjusted, if
appropriate, to reflect any additional Years of Service completed by, or a
higher rate of Compensation received by, such Participant.
5.2 Payments Due Missing Persons.
-----------------------------
The Administrator shall make a reasonable effort to locate all
persons entitled to benefits (including Retirement Benefits and survivor's
benefits for spouses) under the Plan; however, notwithstanding any provisions
of this Plan to the contrary, if, after a period of 5 years from the date any
of such benefits first become due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before
this provision becomes operative, the Administrator shall send a certified
letter to all such persons (if any) at their last known address advising them
that their benefits under the Plan shall be suspended. Any such suspended
amounts shall be held by the AIM Funds for a period of 3 additional years (or a
total of 8 years from the time the benefits first became payable) and
thereafter such amounts shall be forfeited.
-6-
<PAGE>
ARTICLE VI
ADMINISTRATOR
-------------
6.1 Appointment of Administrator.
-----------------------------
This Plan shall be administered by the Nominating and
Compensation Committees of the Boards of Directors of the AIM Funds. The
members of such committees are not "interested persons" (within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940) of any of the AIM
Funds. The term "Administrator" as used in this Plan shall refer to the
members of such committees, either individually or collectively, as
appropriate.
6.2 Powers and Duties of Administrator.
-----------------------------------
Except as provided below, the Administrator shall have the
following duties and responsibilities in connection with the administration of
this Plan:
(a) To promulgate and enforce such rules, regulations and
procedures as shall be proper for the efficient administration of the Plan;
(b) To determine all questions arising in the
administration, interpretation and application of the Plan, including questions
of eligibility and of the status and rights of Participants and any other
persons hereunder;
(c) To decide any dispute arising hereunder; provided,
however, that no Administrator shall participate in any matter involving any
questions relating solely to his own participation or benefits under this Plan;
(d) To advise the Boards of Directors of the AIM Funds
regarding the known future need for funds to be available for distribution;
(e) To correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan;
(f) To compute the amount of benefits and other payments
which shall be payable to any Participant or surviving spouse in accordance
with the provisions of the Plan and to determine the person or persons to whom
such benefits shall be paid;
(g) To make recommendations to the Boards of Directors of
the AIM Funds with respect to proposed amendments to the Plan;
(h) To file all reports with government agencies,
Participants and other parties as may be required by law, whether such reports
are initially the obligation of the AIM Funds, or the Plan;
-7-
<PAGE>
(i) To engage the Actuary of the Plan and to cause the
liabilities of the Plan to be evaluated by the Actuary; and
(j) To have all such other powers as may be necessary to
discharge its duties hereunder.
6.3 Action by Administrator.
------------------------
The Administrator may elect a Chairman and Secretary from
among its members and may adopt rules for the conduct of its business. A
majority of the members then serving shall constitute a quorum for the
transacting of business. All resolutions or other action taken by the
Administrator shall be by vote of a majority of those present at such meeting
and entitled to vote. Resolutions may be adopted or other action taken without
a meeting upon written consent signed by at least a majority of the members.
All documents, instruments, orders, requests, directions, instructions and
other papers shall be executed on behalf of the Administrator by either the
Chairman or the Secretary of the Administrator, if any, or by any member or
agent of the Administrator duly authorized to act on the Administrator's
behalf.
6.4 Participation by Administrators.
--------------------------------
No Administrator shall be precluded from becoming a
Participant in the Plan if he would be otherwise eligible, but he shall not be
entitled to vote or act upon matters or to sign any documents relating
specifically to his own participation under the Plan, except when such matters
or documents relate to benefits generally. If this disqualification results in
the lack of a quorum, then the Boards of Directors, by majority vote of the
members of a majority of such Boards of Directors (a "Majority Vote"), shall
appoint a sufficient number of temporary Administrators, who shall serve for
the sole purpose of determining such a question.
6.5 Agents and Expenses.
--------------------
The Administrator may employ agents and provide for such
clerical, legal, actuarial, accounting, medical, advisory or other services as
it deems necessary to perform its duties under this Plan. The cost of such
services and all other expenses incurred by the Administrator in connection
with the administration of the Plan shall be allocated to each Fund pursuant to
the method utilized under Section 3.4 hereof with respect to costs related to
benefit accruals. For purposes of the preceding sentence, if an individual
serves as a Director for more than one Fund, he shall be deemed to be a
separate Director for each such Fund in determining the aggregate number of
Directors of the AIM Funds.
6.6 Allocation of Duties.
---------------------
The duties, powers and responsibilities reserved to the
Administrator may be allocated among its members so long as such allocation is
pursuant to written procedures adopted by the Administrator, in which case no
Administrator shall have any liability, with respect to any duties, powers or
responsibilities not allocated to him, for the acts or omissions of any other
Administrator.
-8-
<PAGE>
6.7 Delegation of Duties.
---------------------
The Administrator may delegate any of its duties to employees
of A I M Advisors, Inc. or any of its affiliates or to any other person or
firm, provided that the Administrator shall prudently choose such agents and
rely in good faith on their actions.
6.8 Administrator's Action Conclusive.
----------------------------------
Any action on matters within the discretion of the
Administrator shall be final and conclusive.
6.9 Records and Reports.
--------------------
The Administrator shall maintain adequate records of its
actions and proceedings in administering this Plan and shall file all reports
and take all other actions as it deems appropriate in order to comply with any
federal or state law.
6.10 Information from the AIM Funds.
-------------------------------
The AIM Funds shall promptly furnish all necessary information
to the Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the AIM Funds, unless it knows or should
have known that such information is erroneous.
6.11 Reservation of Rights by Boards of Directors.
---------------------------------------------
When rights are reserved in this plan to the Boards of
Directors, such rights shall be exercised only by Majority Vote of the Boards
of Directors, except where the Boards of Directors, by unanimous written
resolution, delegate any such rights to one or more persons or to the
Administrator. Subject to the rights reserved to the Boards of Directors as
set forth in this Plan, no member of the Boards of Directors shall have any
duties or responsibilities under this Plan, except to the extent he shall be
acting in the capacity of an Administrator.
6.12 Liability and Indemnification.
------------------------------
(a) The Administrator shall perform all duties required
of it under this Plan in a prudent manner. The Administrator shall not be
responsible in any way for any action or omission of the AIM Funds or their
employees in the performance of their duties and obligations as set forth in
this Plan. The Administrator also shall not be responsible for any act or
omission of any of its agents provided that such agents were prudently chosen
by the Administrator and that the Administrator relied in good faith upon the
action of such agents.
(b) Except for its own gross negligence, willful
misconduct or willful breach of the terms of this Plan, the Administrator shall
be indemnified and held harmless by the AIM Funds against any and all
liability, loss, damages, cost and expense which may arise, occur by reason of,
or be based upon, any matter connected with or related to this Plan or its
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<PAGE>
administration (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending any litigation,
commenced or threatened, or in settlement of any such claim).
ARTICLE VII
AMENDMENTS AND TERMINATION
--------------------------
7.1 Amendments.
-----------
The Boards of Directors reserve the right at any time and from
time to time, and retroactively if deemed necessary or appropriate by them, to
amend in whole or in part by Majority Vote any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of a
Participant's or former Participant's Retirement Benefit to be used for, or
diverted to, purposes other than for the exclusive benefit of such Participant
or surviving spouse, except to the extent otherwise provided in this Plan;
(b) No amendment may reduce any Participant's or former
Participant's Retirement Benefit as of the effective date of the amendment;
Amendments may be made in the form of Board of Directors'
resolutions or separate written document.
7.2 Termination.
------------
Except as provided below, the Boards of Directors reserve the
right to terminate this Plan at any time by Majority Vote by giving to the
Administrator notice in writing of such desire to terminate. The Plan shall
terminate upon the date of receipt of such notice and the rights of all
Participants to their Retirement Benefits (determined as of the date the Plan
is terminated) shall become payable upon the effective date of the termination
of the Plan in quarterly installments or in an actuarially equivalent lump sum
as determined by the Administrator.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Rights of Creditors.
--------------------
(a) The Plan is unfunded. Neither the Participants nor
any other persons shall have any interest in any fund or in any specific asset
or assets of any of the AIM Funds by
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<PAGE>
reason of any Accrued or Retirement Benefit hereunder, nor any rights to
receive distribution of any Retirement Benefit except and as to the extent
expressly provided hereunder.
(b) The Accrued and Retirement Benefits of each
Participant are unsecured and shall be subject to the claims of the general
creditors of the AIM Funds.
8.2 Liability Limited.
------------------
Neither the AIM Funds, the Administrator, nor any agents,
employees, officers, directors or shareholders of any of them, nor any other
person shall have any liability or responsibility with respect to this Plan,
except as expressly provided herein.
8.3 Incapacity.
-----------
If the Administrator shall receive evidence satisfactory to it
that a Participant or surviving spouse entitled to receive any benefit under
the Plan is, at the time when such benefit becomes payable, physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or surviving spouse and that no guardian, committee
or other representative of the estate of such Participant or surviving spouse
shall have been duly appointed, the Administrator may make payment of such
benefit otherwise payable to such Participant or surviving spouse to such other
person or institution, and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.
8.4 Cooperation of Parties.
-----------------------
All parties to this Plan and any person claiming any interest
hereunder agree to perform any and all acts and execute any and all documents
and papers which are necessary or desirable for carrying out this Plan or any
of its provisions.
8.5 Governing Law.
--------------
All rights under the Plan shall be governed by and construed
in accordance with rules of Federal law applicable to such plans and, to the
extent not preempted, by the laws of the State of Texas without regard to
principles of conflicts of law. No action shall be brought by or on behalf of
any Participant for or with respect to benefits due under this Plan unless the
person bringing such action has timely exhausted the Plan's claim review
procedure. Any such action must be commenced within three years. This
three-year period shall be computed from the earlier of (a) the date a final
determination denying such benefit, in whole or in part, is issued under the
Plan's claim review procedure or (b) the date such individual's cause of action
first accrued. Any dispute, controversy or claim arising out of or in
connection with this Plan (including the applicability of this arbitration
provision) and not resolved pursuant to the Plan's claim review procedure shall
be determined and settled by arbitration conducted by the American Arbitration
Association ("AAA") in the County and State of the Funds' principal place of
business and in accordance with the then existing rules, regulations, practices
and procedures of the AAA. Any award in such arbitration shall be final,
conclusive and binding upon the
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<PAGE>
parties to the arbitration and may be enforced by either party in any court of
competent jurisdiction. Each party to the arbitration will bear its own costs
and fees (including attorney's fees).
8.6 Nonguarantee of Directorship.
-----------------------------
Nothing contained in this Plan shall be construed as a
guaranty or right of any Participant to be continued as a Director of one or
more of the AIM Funds (or of a right of a Director to any specific level of
Compensation) or as a limitation of the right of the AIM Funds to remove any of
its directors.
8.7 Counsel.
--------
The Administrator may consult with legal counsel, who may be
counsel for one or more of the Boards of Directors of the AIM Funds and for the
Administrator, with respect to the meaning or construction of this Plan, its
obligations or duties hereunder or with respect to any action or proceeding or
any question of law, and they shall be fully protected with respect to any
action taken or omitted by them in good faith pursuant to the advice of legal
counsel.
8.8 Spendthrift Provision.
----------------------
A Participant's interest in his Accrued Benefit or Retirement
Benefit may not be transferred, alienated, assigned nor become subject to
execution, garnishment or attachment, and any attempt to do so will render
benefits hereunder immediately forfeitable.
8.9 Forfeiture for Cause.
---------------------
Notwithstanding any other provision of this Plan to the
contrary, any benefits to which a Participant (or his surviving spouse) may
otherwise be entitled hereunder will be forfeited in the event the
Administrator, in its sole discretion, determines that a Participant's
termination of Service is due to such Participant's willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Director.
ARTICLE IX
CLAIMS PROCEDURE
----------------
9.1 Notice of Denial.
-----------------
If a Participant is denied any Retirement Benefit (or a
surviving spouse is denied a survivor's benefit) under this Plan, either in
total or in an amount less than the full Retirement Benefit to which he would
normally be entitled, the Administrator shall advise the Participant (or
surviving spouse) in writing of the amount of his Retirement Benefit (or
survivor's benefit), if any, and the specific reasons for the denial. The
Administrator shall also furnish the Participant (or surviving spouse) at that
time with a written notice containing:
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<PAGE>
(a) A specific reference to pertinent Plan provisions.
(b) A description of any additional material or
information necessary for the Participant (or surviving spouse) to perfect his
claim, if possible, and an explanation of why such material or information is
needed.
(c) An explanation of the Plan's claim review procedure.
9.2 Right to Reconsideration.
-------------------------
Within 60 days of receipt of the information stated in Section
9.1 above, the Participant (or surviving spouse) shall, if he desires further
review, file a written request for reconsideration with the Administrator.
9.3 Review of Documents.
--------------------
So long as the Participant's (or surviving spouse's) request
for review is pending (including the 60 day period in 9.2 above), the
Participant (or surviving spouse) or his duly authorized representative may
review pertinent Plan documents and may submit issues and comments in writing
to the Administrator.
9.4 Decision by Administrator.
--------------------------
A final and binding decision shall be made by the
Administrator within 60 days of the filing by the Participant (or surviving
spouse) of his request for reconsideration, provided, however, that if the
Administrator, in its discretion, feels that a hearing with the Participant (or
surviving spouse) or his representative present is necessary or desirable, this
period shall be extended an additional 60 days.
9.5 Notice by Administrator.
------------------------
The Administrator's decision shall be conveyed to the
Participant (or surviving spouse) in writing and shall include specific reasons
for the provisions on which the decision is based.
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<PAGE>
EXHIBIT 7(d)
THE AIM GROUP OF FUNDS
DEFERRED COMPENSATION PLAN
FOR ELIGIBLE DIRECTORS/TRUSTEES
<PAGE>
DEFERRED COMPENSATION AGREEMENT
SUMMARY
Your Deferred Compensation Agreement (the "Agreement") allows
you to defer some or all of your annual trustee's fees otherwise payable by the
Funds. Deferred fees are deemed invested in certain mutual funds selected by
you. The deferral is pre-tax, and the deferred amount and the credited gains,
losses and income are not subject to tax until paid out to you.
Your deferrals (and investment experience) are posted to a
bookkeeping account maintained by the Funds in your name. In order for you to
enjoy the tax deferral, the payments due under the Agreement will be paid from
the Funds' general assets, and you are considered a general unsecured creditor
of the Funds; you may not transfer your right to receive payments under the
Agreement to any other person, nor may you pledge that right to secure any debt
or other obligation; finally, an election to defer must be made in writing
before the first day of the calendar year for which the fees are earned (the
"Election Date") and elections can be changed only prospectively, effective for
the next calendar year.
An important change has been made to your Agreement to give
you greater flexibility to select the time of payment of amounts that you
defer: for amounts previously deferred and for future elections you now
designate a specific Payment Date.
PAYMENT DATE ELECTION
Deferred fees (and the income, gains and losses credited
during the deferral period) will be paid out in a single sum in cash within 30
days of the Payment Date elected for that deferral. (For payments in
connection with your termination of service as a trustee, see below.)
Deferrals must be for a minimum three year period (unless the
your retirement date under the Retirement Plan is earlier). Thus, the Payment
Date may be the first day of any calendar quarter that follows the third
anniversary of the applicable Election Date or your retirement date. For your
first Payment Date election that applies to previously deferred fees, the
Election Date is considered to be January 1, 1996. Thus, fees previously
deferred and fees payable for the calendar year beginning January 1, 1996 may
be deferred to the first day of any calendar quarter in any year from 1999.
EXTENDING A PAYMENT DATE
One year prior to any Payment Date, you will have a one-time
opportunity to extend that Date, provided that the additional period of
deferral satisfies the requirements described above.
<PAGE>
TERMINATION OF SERVICE
Upon your death, your account under the Agreement will be paid
out in a single sum in cash as soon as practicable. Payment will be made to
your designated Beneficiary or Beneficiaries or to your estate if there is no
surviving Beneficiary.
Upon termination of your service as trustee for any reason
other than death or your retirement (as defined in the Retirement Plan), your
account will be paid to you as a single sum (or in installments if you had
elected that method) in cash within three months following the end of the
fiscal year in which you terminate, regardless of the Payment Dates you
elected.
<PAGE>
ARTICLE Page
------- ----
1. Definitions of Terms and Construction 1
2. Period During Which Compensation Deferrals are Permitted 2
3. Compensation Deferrals 2
4. Distributions from Deferral Account 4
5. Amendments and Termination 5
6. Miscellaneous
<PAGE>
DEFERRED COMPENSATION AGREEMENT
-------------------------------
AGREEMENT, made on this __ day of _______, 19__, by and
between the registered open-end investment companies listed on Appendix A
hereto (the "Funds"), and
________________________________________________________________ (the
"Director") residing at ___________________________________________________.
WHEREAS, the Funds and the Director have entered into
agreements pursuant to which the Director will serve as a director/trustee of
the Funds; and
WHEREAS, the Funds and the Director have previously entered
into an additional agreement whereby the Funds will provide to the Director a
vehicle under which the Director can defer receipt of directors' fees payable
by the Funds and now desire to amend and restate such agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Director hereby
agree as follows:
1. DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions. Unless a different meaning is plainly implied by
the context, the following terms as used in this Agreement shall have the
following meanings:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after the death
of the Director.
(b) "Boards of Directors" shall mean the respective
Boards of Directors of the Funds.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of directors'
fees paid by each of the Funds to the Director during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or
amounts of the Director's Compensation deferred under the provisions of Section
3 of this Agreement.
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<PAGE>
(f) "Deferral Accounts" shall mean the accounts
maintained to reflect the Director's Compensation Deferrals made pursuant to
Section 3 hereof and any other credits or debits thereto.
(g) "Deferral Year" shall mean each calendar year during
which the Director makes, or is entitled to make, Compensation Deferrals under
Section 3 hereof.
(h) "Retirement" shall have the same meaning as set forth
under the Retirement Plan.
(i) "Retirement Plan" shall mean the "AIM Funds
Retirement Plan for Eligible Directors/Trustees."
(j) "Valuation Date" shall mean the last business day of
each calendar year and any other day upon which the Funds makes valuations of
the Deferral Accounts.
1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.
1.3 Directors and Trustees. Where appearing in this Agreement,
"Director" shall also refer to "Trustee" and "Board of Directors" shall also
refer to "Board of Trustees."
1.4 Headings. The headings and sub-headings in this Agreement are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is drafted,
and shall be construed, as a separate agreement between the Director and each
of the Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
--------------------------------------------------------
2.1 Commencement of Compensation Deferrals. The Director may
elect, on a form provided by, and submitted to, the Presidents of the
respective Funds, to commence Compensation Deferrals under Section 3 hereof for
the period beginning on the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Presidents of the Funds.
2.2 Termination of Deferrals. The Director shall not be eligible
to make Compensation Deferrals after the earliest of the following dates:
(a) The date on which he ceases to serve as a Director of
all of the Funds; or
(b) The effective date of the termination of this
Agreement.
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<PAGE>
3. COMPENSATION DEFERRALS
----------------------
3.1 Compensation Deferral Elections.
(a) On or prior to the first day of any Deferral Year,
the Director may elect, on the form described in Section 2.1 hereof, to defer
the receipt of all or a portion of his Compensation for such Deferral Year.
Such writing shall set forth the amount of such Compensation Deferral (in whole
percentage amounts). Such election shall continue in effect for all subsequent
Deferral Years unless it is canceled or modified as provided below.
(b) Compensation Deferrals shall be withheld from each
payment of Compensation by the Funds to the Director based upon the percentage
amount elected by the Director under Section 3.1(a) hereof.
(c) The Director may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Presidents
of the Funds a revised Compensation Deferral election form. Such change will
be effective as of the first day of the Deferral Year following the date such
revision is submitted to the Presidents of the Funds.
3.2 Valuation of Deferral Account.
(a) Each Fund shall establish a bookkeeping Deferral
Account to which will be credited an amount equal to the Director's
Compensation Deferrals under this Agreement made with respect to Compensation
earned from each such Fund. Compensation Deferrals shall be allocated to the
Deferral Accounts on the first business day following the date such
Compensation Deferrals are withheld from the Director's Compensation. As of
the date of this Agreement, the Deferral Accounts also shall be credited with
the amounts credited to the Director under each other outstanding elective
deferred compensation agreement entered into by and between the Funds and the
Director which is superseded by this Agreement pursuant to Section 6.11 hereof.
The Deferral Accounts shall be debited to reflect any distributions from such
Accounts. Such debits shall be allocated to the Deferral Accounts as of the
date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Accounts are invested in the manner
set forth under Section 3.3, below) attributable to the period following the
next preceding Valuation Date shall be credited to and/or deducted from the
Director's Deferral Accounts.
3.3 Investment of Deferral Account Balances.
(a) (1) The Director may select, from various options
made available by the Funds, the investment media in which all or part of his
Deferral Accounts shall be deemed to be invested.
-3-
<PAGE>
(2) The Director shall make an investment
designation on a form provided by the Presidents of the Funds which shall
remain effective until another valid direction has been made by the Director as
herein provided. The Director may amend his investment designation as of the
end of each calendar quarter by giving written direction to the Presidents of
the Funds at least thirty (30) days prior to the end of such calendar quarter.
A timely change to a Director's investment designation shall become effective
on the first day of the calendar quarter following receipt by the Presidents of
the Funds.
(3) The investment media deemed to be made
available to the Director, and any limitation on the maximum or minimum
percentages of the Director's Deferral Accounts that may be invested any
particular medium, shall be the same as from time-to-time communicated to the
Director by the Presidents of the Funds.
(b) Except as provided below, the Director's Deferral
Accounts shall be deemed to be invested in accordance with his investment
designations, provided such designations conform to the provisions of this
Section. If -
(1) the Director does not furnish the Presidents
of the Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Director are unclear,
then the Director's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force or effect until such time as the Director
shall provide the Presidents of the Funds with complete investment
instructions. Notwithstanding the above, the Boards of Directors, in their
sole discretion, may disregard the Director's election and determine that all
Compensation Deferrals shall be deemed to be invested in a fund determined by
the Boards of Directors. In the event that any fund under which any portion of
the Director's Deferral Accounts is deemed to be invested ceases to exist, such
portion of the Deferral Accounts thereafter shall be held in the successor to
such fund, subject to subsequent deemed investment elections.
The Fund shall provide an annual statement to the Director
showing such information as is appropriate, including the aggregate amount in
the Deferral Accounts, as of a reasonably current date.
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<PAGE>
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNTS
------------------------------------
4.1 Payment Date and Methods.
(a) Designation of Date. Each deferral direction given
pursuant to Section 3.1 shall include designation of the Payment Date for the
value of the amount deferred. Such Payment Date shall be the first day of any
calendar quarter, subject to the limitation set forth in paragraph 4.1(c).
(b) Extension Date. One year before the Payment Date
initially designated pursuant to paragraph 4.1(a) above, the Participant may
irrevocably elect to extend such Payment Date to the first day of any calendar
quarter, subject to the limitation set forth in paragraph 4.1(c).
(c) Limitation. The Director shall select a Payment Date
(or extended Payment Date) that is no sooner than the earlier of (i) the
January 1 that follows the third anniversary of the Participant's deferral
election made pursuant to paragraph 4.1(a) or (b) or (ii) the January 1 of the
year after the Participant's Retirement.
(d) Methods of Payment. Distributions from the
Director's Deferral Accounts shall be paid in cash. A Participant may elect,
at the time a Payment Date is selected, to receive the amount which will become
payable as of such Payment Date in generally equal quarterly installments over
a period not to exceed ten (10) years. Except as may be elected pursuant to
this paragraph, all amounts becoming payable under this Plan shall be paid in a
single sum.
(e) Irrevocability. Except as provided in paragraph
4.1(b), a designation of a Payment Date and an election of installment payments
shall be irrevocable; provided, however, that payment shall be made or begin on
a different date as follows:
(1) Upon the Director's death, payment shall be
made in accordance with Section 4.2,
(2) Upon the Director's ceasing to serve as a
director of all of the Funds for reasons other than death or Retirement,
payment shall be made or begin within three months after the end of the
calendar year in which such termination occurs in accordance with the method
elected by the Director pursuant to paragraph 4.1(d), except that the Boards of
Directors, in their sole discretion, may accelerate the distribution of such
Deferral Accounts,
(3) Upon termination of this Agreement, payment
shall be made in accordance with Section 5.2, and
(4) In the event of the liquidation, dissolution
or winding up of a Fund or the distribution of all or substantially all of a
Fund's assets and property relating to one or
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<PAGE>
more series of its shares to the shareholders of such series (for this purpose
a sale, conveyance or transfer of a Fund's assets to a trust, partnership,
association or corporation in exchange for cash, shares or other securities
with the transfer being made subject to, or with the assumption by the
transferee of, the liabilities of the Fund shall not be deemed a termination of
the Fund or such a distribution), all unpaid balances of the Deferral Accounts
related to such Fund as of the effective date thereof shall be paid in a lump
sum on such effective date.
4.2 Death Prior to Complete Distribution of Deferral Accounts.
Upon the death of the Director prior to the commencement of the distribution of
the amounts credited to his Deferral Accounts, the balance of such Accounts
shall be distributed to his Beneficiary in a lump sum as soon as practicable
after the Director's death. In the event of the death of the Director after
the commencement of such distribution, but prior to the complete distribution
of his Deferral Accounts, the balance of the amounts credited to his Deferral
Accounts shall be distributed to his Beneficiary over the remaining period
during which such amounts were distributable to the Director under Section 4.1
hereof. Notwithstanding the above, the Boards of Directors, in their sole
discretion, may accelerate the distribution of the Deferral Accounts.
4.3 Designation of Beneficiary. For purposes of Section 4.2
hereof, the Director's Beneficiary shall be the person or persons so designated
by the Director in a written instrument submitted to the Presidents of the
Funds. In the event the Director fails to properly designate a Beneficiary,
his Beneficiary shall be the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Director: the Director's (1) surviving spouse or (2) estate.
4.4 Payments Due Missing Persons. The Funds shall make a
reasonable effort to locate all persons entitled to benefits under this
Agreement. However, notwithstanding any provisions of this Agreement to the
contrary, if, after a period of five (5) years from the date such benefit shall
be due, any such persons entitled to benefits have not been located, their
rights under this Agreement shall stand suspended. Before this provision
becomes operative, the Funds shall send a certified letter to all such persons
to their last known address advising them that their benefits under this
Agreement shall be suspended. Any such suspended amounts shall be held by the
Funds for a period of three (3) additional years (or a total of eight (8) years
from the time the benefits first become payable) and thereafter, if unclaimed,
such amounts shall be forfeited.
5. AMENDMENTS AND TERMINATION
--------------------------
5.1 Amendments.
(a) The Funds and the Director may, by a written
instrument signed by, or on behalf of, such parties, amend this Agreement at
any time and in any manner.
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<PAGE>
(b) The Funds reserve the right to amend, in whole or in
part, and in any manner, any or all of the provisions of this Agreement by
action of their Boards of Directors for the purposes of complying with any
provision of the Code or any other technical or legal requirements, provided
that:
(1) No such amendment shall make it possible for
any part of the Director's Deferral Accounts to be used for, or diverted to,
purposes other than for the exclusive benefit of the Director or his
Beneficiaries, except to the extent otherwise provided in this Agreement;
and
(2) No such amendment may reduce the amount of
the Director's Deferral Accounts as of the effective date of such amendment.
5.2 Termination. The Director and the Funds may, by written
instrument signed by, or on behalf of, such parties, terminate this Agreement
at any time. In the event of the termination of this Agreement, the Boards of
Directors, in their sole discretion, may choose to pay out the Director's
Deferral Accounts prior to the designated Payment Dates. Otherwise, following
a termination of the Plan, such Accounts shall continue to be maintained in
accordance with the provisions of this Plan until the time they are paid out.
6. MISCELLANEOUS.
--------------
6.1 Rights of Creditors.
(a) This Agreement is unfunded. Neither the Director nor
any other persons shall have any interest in any specific asset or assets of
the Funds by reason of any Deferral Accounts hereunder, nor any rights to
receive distribution of his Deferral Accounts except and as to the extent
expressly provided hereunder. The Funds shall not be required to purchase,
hold or dispose of any investments pursuant to this Agreement; however, if in
order to cover their obligations hereunder the Funds elect to purchase any
investments the same shall continue for all purposes to be a part of the
general assets and property of the Funds, subject to the claims of their
general creditors and no person other than the Funds shall by virtue of the
provisions of this Agreement have any interest in such assets other than an
interest as a general creditor.
(b) The rights of the Director and the Beneficiaries to
the amounts held in the Deferral Accounts are unsecured and shall be subject to
the creditors of the Funds. With respect to the payment of amounts held under
the Deferral Accounts, the Director and his Beneficiaries have the status of
unsecured creditors of the Funds. This Agreement is executed on behalf of the
Funds by an officer, or other representative, of the Funds as such and not
individually. Any obligation of the Funds hereunder shall be an unsecured
obligation of the Funds and not of any other person.
-7-
<PAGE>
6.2 Agents. The Funds may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as it deems
necessary to perform their duties under this Agreement. The Funds shall bear
the cost of such services and all other expenses they incur in connection with
the administration of this Agreement.
6.3 Liability and Indemnification. Except for their own gross
negligence, willful misconduct or willful breach of the terms of this
Agreement, the Funds shall be indemnified and held harmless by the Director
against liability or losses occurring by reason of any act or omission of the
Funds or any other person.
6.4 Incapacity. If the Funds shall receive evidence satisfactory
to them that the Director or any Beneficiary entitled to receive any benefit
under the Agreement is, at the time when such benefit becomes payable, a minor,
or is physically or mentally incompetent to receive such benefit and to give a
valid release therefor, and that another person or an institution is then
maintaining or has custody of the Director or Beneficiary and that no guardian,
committee or other representative of the estate of the Director or Beneficiary
shall have been duly appointed, the Funds may make payment of such benefit
otherwise payable to the Director or Beneficiary to such other person or
institution, including a custodian under a Uniform Gifts to Minors Act, or
corresponding legislation (who shall be an adult, a guardian of the minor or a
trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
6.5 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.
6.6 Governing Law. This Agreement is made and entered into in the
State of Texas and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Texas.
6.7 Nonguarantee of Directorship. Nothing contained in this
Agreement shall be construed as a contract or guarantee of the right of the
Director to be, or remain as, a director of any of the Funds or to receive any,
or any particular rate of, Compensation from any of the Funds.
6.8 Counsel. The Funds may consult with legal counsel with
respect to the meaning or construction of this Agreement, their obligations or
duties hereunder or with respect to any action or proceeding or any question of
law, and they shall be fully protected with respect to any action taken or
omitted by them in good faith pursuant to the advice of legal counsel.
6.9 Spendthrift Provision. The Director's and Beneficiaries'
interests in the Deferral Accounts may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred,
-8-
<PAGE>
alienated, assigned nor become subject to execution, garnishment or
attachment and any attempt to do so by any person shall render the Deferral
Accounts immediately forfeitable.
6.10 Notices. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight delivery service providing for a
signed return receipt, addressed to the Director at the home address set forth
in the Funds' records and to the Funds at the address set forth on the first
page of this Agreement, provided that all notices to the Funds shall be
directed to the attention of the Presidents of the Funds or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
6.11 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Director with respect to the payment of
non-qualified elective deferred compensation by the Fund to the Director.
Effective as of the date hereof, this Agreement replaces, and supersedes, all
other non-qualified elective deferred compensation agreements by and between
the Director and the Funds.
6.12 Interpretation of Agreement. Interpretations of, and
determinations (including factual determinations) related to, this Agreement
made by the Funds in good faith, including any determinations of the amounts of
the Deferral Accounts, shall be conclusive and binding upon all parties; and
the Funds shall not incur any liability to the Director for any such
interpretation or determination so made or for any other action taken by it in
connection with this Agreement in good faith.
6.13 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the Funds and their successors and assigns
and to the Director and his heirs, executors, administrators and personal
representatives.
6.14 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.15 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
The Funds
________________________ By:_________________________
Witness Name:
Title:
________________________ ____________________________
Witness Director
-10-
<PAGE>
APPENDIX A
----------
AIM EQUITY FUNDS, INC.
AIMS FUNDS GROUP
AIM INTERNATIONAL FUNDS, INC.
AIM INVESTMENT SECURITIES FUNDS
AIM STRATEGIC INCOME FUND, INC.
AIM SUMMIT FUND, INC.
AIM TAX-EXEMPT FUNDS, INC.
AIM VARIABLE INSURANCE FUNDS, INC.
SHORT-TERM INVESTMENTS CO.
SHORT-TERM INVESTMENTS TRUST
TAX-FREE INVESTMENTS CO.
<PAGE>
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, I hereby make the following elections:
Deferral of Compensation
------------------------
Starting with Compensation to be paid to me with respect to
services provided by me to the AIM Funds after the date this election Form is
received by the AIM Funds, I hereby elect that ______ percent (_____%) of my
Compensation (as defined under the Agreement) be reduced and that the Fund
establish a bookkeeping account credited with amounts equal to the amount so
reduced (the "Deferral Account"). The Deferral Account shall be further
credited with income equivalents as provided under the Agreement. I understand
that this election will remain in effect with respect to Compensation I earn in
subsequent years unless I modify or revoke it. I further understand that such
modification or revocation will be effective only prospectively and will apply
commencing with the Compensation I earn in the calendar year that begins after
the change is received by you.
Payment Date
------------
I hereby designate ________ 1 (select the first month in any
calendar quarter) in the year ______ (select a year that is at least four years
after the year this election is made) as the Payment Date for the amounts
credited to my Deferral Account pursuant to the election made above. If my
Retirement (as defined in the Agreement) occurs sooner, I o do o do not (check
the appropriate box) want payment of such amounts to commence effective the
January 1 following my Retirement. I understand that amounts credited to my
Deferral Account may be paid to me prior to the Payment Date as provided in the
Agreement.
Payment Method
--------------
I hereby elect to receive the amounts credited to my Deferral
Account in (check one)
o a single payment in cash
o annual installments for a period of ____ (select no more than 10
years)
-12-
<PAGE>
beginning within 30 days following the payment date selected above.
I understand that the amounts credited to my Deferral Account
shall remain the general assets of the AIM Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of the AIM Funds. I
may not sell, encumber, pledge, assign or otherwise alienate the amounts
credited to my Deferral Account.
I hereby agree that the terms of the Agreement are
incorporated herein and are made a part hereof. Dated as of the day and year
first above written.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
-13-
<PAGE>
DEFERRED COMPENSATION AGREEMENT
INVESTMENT DIRECTION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, I hereby elect that my Deferral Account under the Agreement be
considered to be invested as follows (in multiples of 10%):
AIM WEINGARTEN FUND ____________%
AIM CONSTELLATION FUND ____________%
AIM HIGH YIELD FUND ____________%
AIM INTERNATIONAL EQUITY FUND ____________%
AIM AGGRESSIVE GROWTH EQUITY FUND __________%
AIM LIMITED MATURITY TREASURY SHARES FUND __________%
AIM VALUE FUND _____________%
AIM MONEY MARKET FUND ___________%
AIM BALANCED FUND ____________%
AIM CHARTER FUND _____________%
I acknowledge that I may amend this Investment Agreement in
the manner, and at such time, as permitted under the Agreement. Furthermore, I
acknowledge that, pursuant to Section 3.3(b) of the Agreement, the Fund has
reserved the right to disregard the elections made above to consider my
Deferral Account to be deemed to be invested in a fund of its choosing.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
<PAGE>
DEFERRED COMPENSATION AGREEMENT
BENEFICIARY DESIGNATION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of _____________ by and between the undersigned and the
AIM Funds, I hereby make the following beneficiary designations:
I. Primary Beneficiary
-------------------
I hereby appoint the following as my Primary Beneficiary(ies)
to receive at my death the amounts credited to my Deferral Account under the
Agreement. In the event I am survived by more than one Primary Beneficiary,
such Primary Beneficiaries shall share equally in such amounts unless I
indicate otherwise on an attachment to this form:
_________________________________________________________________
Name Relationship
_________________________________________________________________
Address
_________________________________________________________________
City State Zip
<PAGE>
II. Secondary Beneficiary
---------------------
In the event I am not survived by any Primary Beneficiary, I
hereby appoint the following as Secondary Beneficiary(ies) to receive death
benefits under the Agreement. In the event I am survived by more than one
Secondary Beneficiary, such Secondary Beneficiaries shall share equally unless
I indicate otherwise on an attachment to this form:
_________________________________________________________________
Name Relationship
_________________________________________________________________
Address
_________________________________________________________________
City State Zip
I understand that I may revoke or amend the above designations
at any time. I further understand that if I am not survived by a Primary or
Secondary Beneficiary, my Beneficiary shall be as set forth under the
Agreement.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
-2-
<PAGE>
INITIAL PAYMENT DATE ELECTION FORM
FOR PREVIOUSLY DEFERRED COMPENSATION
------------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, pursuant to which I have previously elected to defer
Compensation, I hereby designate ________ 1 (select the first month in any
calendar quarter) in the year ______ (select a year that is at least four years
after the year this election is made) as the Payment Date for the amounts
previously credited to my Deferral Account and amounts subsequently credited
thereto. If my Retirement (as defined in the Agreement) occurs sooner, I o do
o do not (check the appropriate box) want payment of such amounts to commence
effective the January 1 following my Retirement. I understand that amounts
credited to my Deferral Account may be paid to me prior to the Payment Date as
provided in the Agreement.
I understand that I may amend this Investment Agreement in the
manner, and at such time, as permitted under the Agreement.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
-3-
<PAGE>
EXHIBIT 8(a)
CUSTODY AGREEMENT
-----------------
Agreement made as of this 19th day of October 1995, between TAX-FREE
INVESTMENTS CO., a Maryland corporation having its principal office and place of
business at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046 (hereinafter
called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized
to do a banking business, having its principal office and place of business at
48 Wall Street, New York, New York 10015 (hereinafter called the "Custodian").
W I T N E S S E T H:
that for and in consideration of the mutual promises hereinafter set forth the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include any person, whether or
not such person is an Officer or employee of the Fund, duly authorized by the
Board of Directors of the Fund to give Oral Instructions and Written
Instructions on behalf of the Fund and listed in the Certificate annexed hereto
as Appendix A or such other Certificate as may be received by the Custodian from
time to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
3. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
4. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the
Custodian which is actually received by the Custodian and signed on behalf of
the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
5. "Certificate" shall mean any notice, instruction, or any other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
1
<PAGE>
6. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
7. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
8. "Depository" shall mean The Depository Trust-Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository"
shall further mean and include any other person authorized to act as a
depository under the Investment Company Act of 1940, its successor or successors
and its nominee or nominees, specifically identified in a certified copy of a
resolution of the Fund's Board of Directors specifically approving deposits
therein by the Custodian.
9. "Financial Futures Contract" shall mean the firm commitment to buy or
sell fixed income securities including, without limitation, U.S. Treasury Bills,
U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit,
and Eurodollar certificates of deposit, during a specified month at an agreed
upon price.
10. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
11. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
12. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
13. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
2
<PAGE>
15. "Officer" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix B or such other Certificate annexed hereto as Appendix B or
such other Certificate as may be received by the Custodian from time to time.
16. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions actually received
by the Custodian from an Authorized Person or from a person reasonably believed
by the Custodian to be an Authorized Person.
18. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
19. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
20. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds and industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
21. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
22. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the
Fund.
23. "Shares" shall mean the shares of stock of the Fund, each of which is
in the case of a Fund having Series allocated to a particular Series.
24. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount
3
<PAGE>
times the difference between the value of a particular stock index at the close
of the last business day of the contract and the price at which the futures
contract is originally struck.
25. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
26. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in connection with each use of the
Terminal Link by or on behalf of the Fund use of an authorization code provided
by the Custodian and at least two access codes established by the Fund.
27. "Written Instructions" shall mean written communications actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person by telex or any other such
system whereby the receiver of such communications is able to verify by codes or
otherwise with a reasonable degree of certainty the identity of the sender of
such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of
the Securities and moneys at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees
to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Directors
4
<PAGE>
of the Fund, substantially in the form of Exhibit B hereto, approving
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys
deposited in either the Book-Entry System or the Depository will be represented
in accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Directors, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and on-
going basis, until instructed to the contrary by a Certificate actually received
by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and address of the
person to whom the payment is to be made, the Series account from which payment
is to be made, and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day the Custodian shall
furnish the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the Book-
Entry System, shall be held by the Custodian in that form; all other Securities
held hereunder may be registered in the name of the Fund, in the name of any
duly appointed registered nominee of the Custodian as the Custodian may from
time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate
5
<PAGE>
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in the name of
the Book-Entry System or the Depository any Securities which it may hold
hereunder and which may from time to time be registered in the name of the Fund.
The Custodian shall hold all such Securities specifically allocated to a Series
which are not held in the Book-Entry System or in the Depository in a separate
account in the name of such Series physically segregated at all times from those
of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix C annexed hereto, which may be amended at
any time by the Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the Federal Income Tax Laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series, all
rights and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of the Fund as owner of any Securities held by the Custodian
hereunder for the Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate in exchange for other Securities or cash
issued or paid in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or the exercise of
any conversion privilege and receive and hold hereunder specifically allocated
to such Series any cash or other Securities received in exchange;
(c) Deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale
6
<PAGE>
of assets of any corporation and receive and hold hereunder specifically
allocated to such Series such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be stated in
such Certificate to be for the purpose of effectuating any duly authorized plan
of liquidation, reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount payable upon Securities
not described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with
Section 17(f) of the Investment Company Act of 1940, as amended, in connection
with the purchase, sale, settlement, closing out or writing of Futures
Contracts, Options, or Futures Contract Options by making payments or deliveries
specified in Certificates received by the Custodian in connection with any such
purchase, sale, writing, settlement or closing out upon its receipt from a
broker, dealer, or futures commission merchant of a statement or confirmation
reasonably believed by the Custodian to be in the form customarily used by
brokers, dealers, or future commission merchants with respect to such Futures
Contracts, Options, or Futures Contract Options, as the case may be, confirming
that such Security is held by such broker, dealer or futures commission
merchant, in book-entry form or otherwise, in the name of the Custodian (or any
nominee of the Custodian) as custodian for the Fund, provided, however, that
payments to or deliveries from the Margin Account shall be made in accordance
with the terms and conditions of the Margin Account Agreement. Whenever any
such instruments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary, make payment
for any Futures Contract, Option, or Futures Contract Option for which such
instruments or such certificates are available only against the delivery to the
Custodian of such instrument or such certificate, and deliver any Futures
Contract, Option or Futures Contract Option for which such instruments or such
instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate,
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and (ii) with respect to each purchase of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specifying with respect
to each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase; (g)
the name of the person from whom or the broker through whom the purchase was
made and the name of the clearing broker, if any; and (h) the name of the broker
to whom payment is to be made. The Custodian shall, upon receipt of Securities
purchased by or for the Fund, pay to the broker specified in the Certificate out
of the moneys held for the account of such Series the total amount payable upon
such purchase, provided that the same conforms to the total amount payable as
set forth in such Certificate, Oral Instructions or Written Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale
of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each such
sale: (a) the Series to which such Securities were specifically allocated; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or principal amount sold, and accrued interest, if any; (d) the date of sale;
(e) the sale price per unit; (f) the total amount payable to the Fund upon such
sale; (g) the name of the broker through whom or the person to whom the sale was
made, and the name of the clearing broker, if any; and (h) the name of the
broker to whom the Securities are to be delivered. The Custodian shall deliver
the Securities specifically allocated to such Series to the broker specified in
the Certificate upon the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall
deliver to the Custodian a Certificate specifying with respect to each Option
purchased: (a) the Series to which such Option is specifically allocated; (b)
the type of Option (put or call); (c) the name of the issuer and the title and
number of shares subject to such Option or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Stock Index
Options purchased; (d) the expiration date; (e) the exercise price; (f) the
dates of purchase and settlement; (g) the total amount payable by the Fund in
connection with such purchase; (h) the name of the Clearing Member through whom
such Option was purchased; and (i) the name of the broker to whom payment is to
be made. The Custodian shall pay, upon receipt of a Clearing Member's statement
confirming the purchase of such Option held by such Clearing Member for the
account of the Custodian (or any duly appointed and registered nominee of the
Custodian) as custodian for the Fund, out of moneys held for the account of the
Series to which such Option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such
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sale: (a) the Series to which such Option was specifically allocated; (b) the
type of Option (put or call); (c) the name of the issuer and the title and
number of shares subject to such Option or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Stock Index
Options sold; (d) the date of sale; (e) the sale price; (f) the date of
settlement; (g) the total amount payable to the Fund upon such sale; and (h) the
name of the Clearing Member through whom the sale was made. The Custodian shall
consent to the delivery of the Option sold by the Clearing Member which
previously supplied the confirmation described in preceding paragraph 1 of this
Article with respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same conforms to the total
amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Put Option: (a) the Series to
which such Put Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the expiration
date; (d) the date of exercise and settlement; (e) the exercise price per share;
(f) the total amount to be paid to the Fund upon such exercise; and (g) the name
of the Clearing Member through whom such Put Option was exercised. The
Custodian shall, upon receipt of the amount payable upon the exercise of the Put
Option deliver or direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
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<PAGE>
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate for the amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to such Put Option: (a)
the Series for which such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian
on the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate, and shall make the withdrawals specified in such
Certificate.
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<PAGE>
10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the number of options
written; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through whom such Option
was written; (h) the premium to be received by the Fund; (i) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; (j) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Collateral Account for such
Series; and (k) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account specified in the
Certificate, and either (1) deliver such receipts, if any, which the Custodian
has specifically agreed to issue, which are in accordance with the customs
prevailing among Clearing Members in Stock Index Options and make the deposits
into the Collateral Account specified in the Certificate, or (2) make the
deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exer cised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call) (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of
the premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
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<PAGE>
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to, any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract, (or with respect to any number of identical Futures Contract(s)): (a)
the Series for which the Futures Contract is being entered; (b) the category of
Futures Contract (the name of the underlying stock index or financial
instrument); (c) the number of identical Futures Contracts entered into; (d) the
delivery or settlement date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f) whether the Fund
is buying (going long) or selling (going short) on such Futures Contract(s); (g)
the amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Series; (h) the name of the
broker, dealer, or futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if any, to be paid
and the name of the broker, dealer, or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the moneys specifically
allocated to such Series of the fee or commission, if any, specified in the
Certificate and deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or
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<PAGE>
from whom payment or delivery is to be made or received; and (d) the amount of
cash and/or Securities to be withdrawn from the Senior Security Account for such
Series. The Custodian shall make the payment or delivery specified in the
Certificate, and delete such Futures Contract from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such Option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically allocated to such Series the total amount to
be paid upon such purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to the amount set
forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Future Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract under
lying the Futures Contract Option; (d) the date of sale; (e) the sale price; (f)
the date of settlement; (g) the total amount payable to the Fund upon such sale;
and (h) the name of the broker of futures commission merchant through whom the
sale was made. The Custodian shall consent to the can cellation of the Futures
Contract Option being closed against payment to the Custodian of the total
amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures
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commission merchant through whom the Futures Contract Option is exercised; (f)
the net total amount, if any, payable by the Fund; (g) the amount, if any, to be
received by the Fund; and (h) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall make, out of the moneys and Securities specifically allocated to
such Series, the payments if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits, if any, to be
made to the Margin Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call
is exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be
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<PAGE>
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a
previously written Futures Contract Option described in this Article in order to
liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accor dance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the
Series for which such short sale was made; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale and settlement;
(e) the sale price per unit; (f) the total amount credited to the Fund upon such
sale, if any, (g) the amount of cash and/or the amount and kind of Securities,
if any, which are to be deposited in a Margin Account and the name in which such
Margin Account has been or is to be established; (h) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for
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which such transaction is being made; (b) the name of the issuer and the title
of the Security; (c) the number of shares or the principal amount, and accrued
interest or dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and settlement; (e) the
purchase price per unit; (f) the net total amount payable to the Fund upon such
closing-out; (g) the net total amount payable to the broker upon such closing-
out; (h) the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Senior Security
Account; and (j) the name of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net total amount payable
to the Fund upon such closing-out, and the return and/or cancellation of the
receipts, if any, issued by the Custodian with respect to the short sale being
closed-out, pay out of the moneys held for the account of the Fund to the broker
the net total amount payable to the broker, and make the withdrawals from the
Margin Account and the Senior Security Account, as the same are specified in the
Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be delivered by
the Fund to such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate, Oral Instructions, or Written Instructions
make the delivery to the broker or dealer, and the deposits, if any, to the
Senior Security Account, specified in such Certificate, Oral Instructions, or
Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and
the Series for which same was entered; (b) the total amount payable by the Fund
in connection with such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series in connection
with such termination; (d) the date of termination; (e) the name of the broker
or dealer with or through whom the Reverse Repurchase Agreement is to be
terminated; and (f) the amount of cash and/or the amount and kind of Securities
to be withdrawn from the Senior Securities Account for such Series. The
Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate, Oral Instructions, or Written
Instructions, make the payment to the broker or dealer, and the withdrawals, if
any, from the Senior Security Account, specified in such Certificate, Oral
Instructions, or Written Instructions.
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ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made, and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
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3. Amounts received by the Custodian as payments or distributions
with respect to Securities deposited in any Margin Account shall be dealt with
in accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest
in and to any property at any time held by the Custodian in any Collateral
Account described herein. In accordance with applicable law the Custodian may
enforce its lien and realize on any such property whenever the Custodian has
made payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a Statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding
the delivery to the Fund of such statement, the Fund shall furnish to the
Custodian a Certificate or Written Instructions specifying the then market value
of the Securities described in such statement. In the event such then market
value is indicated to be less than the Custodian's obligation with respect to
any outstanding Put Option guarantee letter or similar document, the Fund shall
promptly specify in a Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution
of the Board of Directors of the Fund certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or co-
dividend agent of the Fund on the payment date, or (ii) authorizing with respect
to the Series specified therein the declaration of dividends and distributions
on a daily basis and authorizing the Custodian to rely on Oral Instructions,
Written Instructions or a Certificate setting forth the date of the declaration
of such dividend or distribution, the date of payment thereof, the record date
as of which shareholders entitled to payment shall be determined, the amount
payable per Share of such Series to the shareholders of record as of that date
and the total amount payable to the Dividend Agent on the payment date.
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2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of each Series the
total amount payable to the Dividend Agent, and any sub-dividend agent or co-
dividend agent of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in the name of
such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the
foregoing provisions of this Article, the Custodian shall pay, out of the money
held for the account of such Series, all original issue or other taxes required
to be paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth
the Series and number of Shares received by the Transfer Agent for redemption
and that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of
any Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
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ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the separate account of
such Series for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series (except a borrowing for
investment or for temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of paragraph 2 of
this Article), such overdraft or indebtedness shall be deemed to be a loan made
by the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to 1/2% over Custodian's prime
commercial lending rate in effect from time to time, such rate to be adjusted on
the effective date of any change in such prime commercial lending rate but in no
event to be less than 6% per annum. In addition, the Fund hereby agrees that
the Custodian shall have a continuing lien and security interest in and to any
property specifically allocated to such Series at any time held by it for the
benefit of such Series or in which the Fund may have an interest which is then
in the Custodian's possession or control or in possession or control of any
third party acting in the Custodian's behalf. The Fund authorizes the
Custodian, in its sole discretion, at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to such Series' credit on the Custodian's books.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the
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event that the Fund fails to specify in a Certificate the Series, the name of
the issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage including counsel fees, resulting
from its action or omission to act or otherwise, either hereunder or under any
Margin Account Agreement, except for any such loss or damage arising out of its
own negligence or willful misconduct. The Custodian may, with respect to
questions of law arising hereunder or under any Margin Account Agreement, apply
for and obtain the advice and opinion of counsel to the Fund or of its own
counsel, at the expense of the Fund, and shall be fully protected with respect
to anything done or omitted by it in good faith in conformity with such advice
or opinion. The Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased, sold, or
written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend by the
Fund;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that any cash collateral
delivered to it by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might sustain as a result
of such loan. The Custodian specifically, but not by way of limitation, shall
not be under any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund is sufficient
collateral for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be under no duty
or obligation to see that any broker, dealer or financial institution to which
portfolio Securities of the Fund are Ient pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
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(f) The sufficiency or value of any amounts of money and/or Securities
held in any Margin Account, Senior Security Account, Exempt Account or
Collateral Account in connection with transactions by the Fund. In addition,
the Custodian shall be under no duty or obligation to see that any broker,
dealer, futures commission merchant or Clearing Member makes payment to the Fund
of any variation margin payment or similar payment which the Fund may be
entitled to receive from such broker, dealer, futures commission merchant or
Clearing Member, to see that any payment received by the Custodian from any
broker, dealer, futures commission merchant or Clearing Member is the amount the
Fund is entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the Book-
Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange, offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depositary, unless the Custodian shall have actually received timely notice
from the Depositary. In no event shall the Custodian have any responsibility or
liability for the failure of the Depositary to collect, or for the late
collection or late crediting by the Depositary of any amount payable upon
Securities deposited in the Depositary which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depositary the Custodian
shall make a claim against the Depositary on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depositary which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection, of any amount, if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as
Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-
Custodian or Co-Custodians including, but not limited to, banking institutions
located in foreign countries, of Securities and moneys at any time owned by the
Fund, upon such terms and conditions as may be approved in a Certificate or
contained in an agreement executed by the Custodian, the Fund and the appointed
institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it, for
the account of the Fund and specifically
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allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions and any Written Instructions actually
received by the Custodian hereinabove provided for. The Fund agrees to forward
to the Custodian a Certificate or facsimile thereof confirming such Oral
Instructions or Written Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by hand delivery,
telecopier or other similar device, or otherwise, by the close of business of
the same day that such Oral Instructions or Written Instructions are given to
the Custodian. The Fund agrees that the fact that such confirming instructions
are not received by the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized by the
Fund. The Fund agrees that the Custodian shall incur no liability to the Fund
in acting upon Oral Instructions or Written Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the
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Custodian its expenses of providing such copies. Upon reasonable request of the
Fund, the Custodian shall provide in hard copy or on micro-film, whichever the
Custodian elects, any records included in any such delivery which are maintained
by the Custodian on a computer disc, or are similarly maintained, and the Fund
shall reimburse the Custodian for its expenses of providing such hard copy or
micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository, or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with the Custodian's payment or non-payment of checks pursuant to
paragraph 6 of Article XIII as part of any check redemption privilege program of
the Fund, except for any such liability, claim, loss and demand arising out of
the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such Securities.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVI
TERMINAL LINK
1. At not time and under no circumstances shall the Fund be obligated
to have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the
purpose of the Fund providing Certificates to the Custodian with respect to
transactions involving Securities or for the transfer of money to be applied to
the payment of dividends, distributions or redemptions of Fund Shares, and shall
be utilized by the Custodian only for purpose of providing notices to the Fund.
Such use shall commence only after the Fund shall have delivered to the
Custodian a Certificate substantially in the form of Appendix 1 and shall have
established access codes and safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes. Each use of the Terminal
Link by the Fund shall constitute a representation and warranty that the
Terminal Link is being used only for the purposes permitted hereby, that at
least two Officers have each utilized in access code, that such safekeeping
procedures have been established by the Fund, and that such use does not
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
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<PAGE>
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part
of, or through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status
of any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund, except that the Custodian shall give
the Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees not to
modify or attempt to modify the Terminal Link without the Custodian's prior
written consent. The Fund acknowledges that any software or procedures provided
the Fund as part of the Terminal Link are the property of the Custodian and,
accordingly, the Fund agrees that any modifications to the Terminal Link,
whether by the Fund or the Custodian and whether with or without the Custodian's
consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes any
warranties or representations, express or implied, in fact or in law, including
but not limited to warranties of merchantability and fitness for a particular
purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers use
the Terminal Link on its behalf, and that the Custodian shall not be responsible
nor liable for use of the Terminal Link on the Fund's behalf by persons other
than Officers or by only a single Officer.
9. (a) Except as otherwise specifically provided in Section 9(b) of
this Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $25,000, provided however, that the
Custodian shall have no liability under this Section 9 if the Fund fails to
comply with the provisions of Section 11.
(b) The Custodian's liability for its negligence in executing or
failing to act in accordance with a Certificate received through Terminal Link
shall be only with respect to a transfer
25
<PAGE>
of funds which is not made in accordance with such Certificate after such
Certificate shall have been duly acknowledged by the Custodian, and shall be
contingent upon the Fund complying with the provisions of Section 11 of this
Article, and shall be limited to (i) restoration of the principal amount
mistransferred, if and to the extent that the Custodian would be required to
make such restoration under applicable law, and (ii) the lesser of (A) the
Fund's actual pecuniary loss incurred by reason of its loss of use of the
mistransferred funds or the funds which were not transferred, as the case may
be, or (B) compensation for the loss of use of the mistransferred funds or the
funds which were not transferred, as the case may be, at a rate per annum equal
to the average federal funds rate as computed from the Federal Reserve Bank of
New York's daily determination of the effective rate for federal funds, for the
period during which the Fund has lost use of such funds. In no event shall the
Custodian have any liability for failing to transfer funds in accordance with a
Certificate received by the Custodian through Terminal Link other than through
the applicable transfer module for the particular instructions contained in such
Certificate.
10. Without limiting the generality of the foregoing, in no event
shall the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or consequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link, even if the Custodian
or any manufacturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall the Custodian or
any such manufacturer or supplier be liable for acts of God, or with respect to
the following to the extent beyond such person's reasonable control: machine or
computer breakdown or malfunction, interruption or malfunction of communication
facilities, labor difficulties or any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care, and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. The Custodian shall verify to the Fund, by use of the Terminal
Link, receipt of each Certificate the Custodian receives through the Terminal
Link, and in the absence of such verification the Custodian shall not be liable
for any failure to act in accordance with such Certificate and the Fund may not
claim that such Certificate was received by the Custodian. Such verification,
which may occur after the Custodian has acted upon such Certificate, shall be
accomplished on the same day on which such Certificate is received.
ARTICLE XVII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. In the event such notice is given by the Fund, it shall
be accompanied by a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant
Clerk, electing to terminate this
26
<PAGE>
Agreement and designating a successor custodian or custodians, each of which
shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant
Clerk, designating a successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a successor custodian which
shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian shall upon receipt of a notice
of acceptance by the successor custodian on that date deliver directly to the
successor custodian all Securities and moneys then owned by the Fund and held by
it as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the event that other
or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers of the Fund. The Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon the signatures of the Officers as set forth in
the last delivered Certificate.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10015, or at such other place as the
Custodian may from time to time designate in writing.
27
<PAGE>
4. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its office at the address
for the Fund first above written, or at such other place as the Fund may from
time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
6. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of the
Fund, authorized or approved by a resolution of the Fund's Board of Directors.
7. This Agreement shall be construed in accordance with the laws of
the State of New York.
8. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
9. The assets of a particular Series of the Fund shall under no
circumstances be charged with liabilities attributable to any other Series of
the Fund and that all persons extending credit to, or contracting with or having
any claim against a particular Series of the Fund shall look only to the assets
of that particular Series for payment of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective Officers, thereunto duly authorized and their respective
seals to be hereunto affixed, as of the day and year first above written.
TAX-FREE INVESTMENTS CO.
By: /S/ JOHN J. ARTHUR
-----------------------------
Attest:
/S/ P. MICHELLE GRACE
- ---------------------------
THE BANK OF NEW YORK
By: /S/ ILLEGIBLE
-----------------------------
Attest:
/S/ MARJORIE MCLAUGHLIN
- ---------------------------
28
<PAGE>
APPENDIX A
I, Robert H. Graham, President and I, Carol F. Relihan, Vice President
and Secretary of TAX-FREE INVESTMENTS CO., a Maryland corporation (the "Fund"),
do hereby certify that:
The following individuals have been duly authorized by the Board of
Directors of the Fund in conformity with the Fund's Articles of Incorporation
and By-Laws to give Oral Instructions and Written Instructions on behalf of the
Fund, and the signatures set forth opposite their respective names are their
true and correct signatures:
NAME SIGNATURE
Charles T. Bauer /S/ Charles T. Bauer
Chairman _______________________________
Robert H. Graham /S/ Robert H. Graham
President _______________________________
John J. Arthur /S/ John J. Arthur
Senior Vice President and Treasurer _______________________________
Gary T. Crum /S/ Gary T. Crum
Senior Vice President _______________________________
Carol F. Relihan /S/ Carol F. Relihan
Vice President and Secretary _______________________________
Stuart W. Coco /S/ Stuart W. Coco
Vice President _______________________________
Melville B. Cox /S/ Melville B. Cox
Vice President _______________________________
Karen Dunn Kelley /S/ Karen Dunn Kelley
Vice President _______________________________
J. Abbott Sprague /S/ J. Abbott Sprague
Vice President _______________________________
Dana R. Sutton /S/ Dana R. Sutton
Vice President and Assistant Treasurer _______________________________
29
<PAGE>
(SEAL) Dated this 19th day of October, 1995
/S/ Robert H. Graham
---------------------------------
Robert H. Graham
/S/ Carol F. Relihan
---------------------------------
Carol F. Relihan
30
<PAGE>
APPENDIX B
I, Robert H. Graham, President and I, Carol F. Relihan, Vice President
and Secretary of TAX-FREE INVESTMENTS Co., a Maryland corporation (the "Fund"),
do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Directors of
the Fund to each such position and qualified therefor in conformity with the
Fund's Articles of Incorporation and By-Laws, and the signatures set forth
opposite their respective names are their true and correct signatures:
NAME SIGNATURE
Charles T. Bauer /S/ Charles T. Bauer
Chairman _______________________________
Robert H. Graham /S/ Robert H. Graham
President _______________________________
John J. Arthur /S/ John J. Arthur
Senior Vice President and Treasurer _______________________________
Gary T. Crum /S/ Gary T. Crum
Senior Vice President _______________________________
Carol F. Relihan /S/ Carol F. Relihan
Vice President and Secretary _______________________________
Stuart W. Coco /S/ Stuart W. Coco
Vice President _______________________________
Melville B. Cox /S/ Melville B. Cox
Vice President _______________________________
Karen Dunn Kelley /S/ Karen Dunn Kelley
Vice President _______________________________
J. Abbott Sprague /S/ J. Abbott Sprague
Vice President _______________________________
Dana R. Sutton /S/ Dana R. Sutton
Vice President and Assistant Treasurer _______________________________
31
<PAGE>
(SEAL) Dated this 19th day of October, 1995
/S/ Robert H. Graham
--------------------------------
Robert H. Graham
/S/ Carol F. Relihan
--------------------------------
Carol F. Relihan
32
<PAGE>
APPENDIX C
I, an Assistant Vice
President with THE BANK OF NEW YORK do hereby designate the following
publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
33
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned,________________________________, hereby certifies
that he or she is the duly elected and acting _______________________________ of
Tax-Free Investments Co., a Maryland corporation (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on ________________________, 1995, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof:
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
October 19, 1995 (the "Custody Agreement"), is authorized and instructed on
a continuous and ongoing basis to deposit in the Book-Entry System, as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Book-Entry System to the extent possible in
connection with its performance thereunder, including, without limitation,
in connection with settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of ___________________________, as of the ____________________ day of
____________________, 1995.
-----------------------------------------
34
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, _______________________________, hereby certifies
that he or she is the duly elected and acting ______________________________ of
Tax-Free Investments Co., a Maryland corporation (the "Fund"), and further
certifies that the following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on ________________________, 1995, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof:
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
October 19, 1995 (the "Custody Agreement"), is authorized and instructed on
a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the Depository to the
extent possible in connection with its performance thereunder, including,
without limitation, in connection with settlements of purchases and sales
of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of ___________________________, as of the ____________________ day of
____________________, 1995.
___________________________
35
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, ________________________________, hereby certifies
that he or she is the duly elected and acting _____________________________ of
Tax-Free Investments Co., a Maryland corporation (the"Fund"), and further
certifies that the following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on ________________________, 1995, at which a
quorum was at all times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
_____________________________, 1995, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis until such time
as it receives a Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options, regardless of the
Series to which the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of ___________________________, as of the ____________________ day of
____________________, 1995.
____________________________
36
<PAGE>
EXHIBIT 11(a)
CONSENT OF COUNSEL
TAX-FREE INVESTMENTS CO.
------------------------
We hereby consent to the use of our name and to the references to our firm
under the captions "General Information --Legal Counsel" in the Prospectus of
the Private Investment Class and "General Information about the Company -- Legal
Counsel" in the Statement of Additional Information of the Institutional Class,
which are included in Post-Effective Amendment No. 23 to the Registration
Statement under the Securities Act of 1933 (No. 2-58286) and Amendment No. 24 to
the Registration Statement under the Investment Company Act of 1940 (No. 811-
2731) on Form N-1A of Tax-Free Investments Co.
/s/ Ballard Spahr Andrews & Ingersoll
-------------------------------------
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
July 25, 1996
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors and Shareholders
AIM Tax-Free Investments Co.:
We consent to the use of our reports on the Cash Reserve Portfolio (a portfolio
of AIM Tax-Free Investments Co.) dated May 3, 1996 included herein and to the
references to our firm under the headings "Financial Highlights" in the
Prospectus and "Audit Reports" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
----------------------------
KPMG Peat Marwick LLP
Houston, Texas
July 18, 1996
<PAGE>
EXHIBIT 15(b)
DISTRIBUTION PLAN PURSUANT TO RULE 12b-1
TAX-FREE INVESTMENTS CO.
WHEREAS, Tax-Free Investments Co. (the "Company") is engaged in business as
an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the shares of common stock of the Company may be divided into a
number of separate series, including the Cash Reserve Portfolio (hereinafter
referred to as the "Portfolio"); and
WHEREAS, the Portfolio is comprised of a Private Investment Class (the
"Retail Shares") and an institutional class, and Retail Shares are offered to
customers through certain banks and broker-dealers that may offer special
shareholder services to such customers; and
WHEREAS, the Company desires to adopt, on behalf of the shares of common
stock set forth in Appendix A attached hereto (the "Shares"), a Plan pursuant to
Rule 12b-1 under the Act with respect to the Shares, and the directors of the
Company have determined that there is a reasonable likelihood that adoption of
this Plan will benefit the Company, the Portfolio and the holders of the Shares;
and
WHEREAS, the Company has employed A I M Advisors, Inc. ("AIM") as its
investment advisor with respect to the Portfolio to supply investment advice;
and
WHEREAS, the Company on behalf of the Portfolio has entered into a Master
Distribution Agreement (the "Distribution Agreement") designating a principal
distributor of the Shares (the "Distributor").
NOW THEREFORE, the Company hereby adopts, on behalf of the Portfolio, the
following terms constituting a Plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Classes of Shares set forth in Appendix A:
1 . The Company may act as a distributor of the Shares of which the
Company is the issuer, pursuant to Rule 12b-1 under the 1940 Act, according to
the terms of this Distribution Plan (the "Plan").
2. Amounts set forth in Appendix A may be expended when and if authorized
in advance by the Company's Board of Directors. Such amounts may be used to
finance any activity which is primarily intended to result in the sale of the
Shares, including, but not limited to, expenses of organizing and conducting
sales seminars, advertising programs, finders fees, 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, supplemental payments to the Distributor and the
costs of administering the Plan. All amounts expended pursuant to the Plan
shall be paid
1
<PAGE>
(i) to the Distributor, as an asset-based sales charge, and
(ii) as a service fee to certain broker-dealers, banks, and other financial
institutions ("Service Providers") who offer continuing personal
shareholder services to their customers who invest in the Shares, and
who have entered into Shareholder Service Agreements substantially in
the form of Exhibit A hereto.
The maximum shareholder service fee payable to any Service Provider shall
not exceed twenty-five one hundredths of one percent (0.25%) per annum. Amounts
paid under the Plan that are not paid as service fees shall be deemed to be
asset-based sales charges.
The activities, the payment of which by the Company are intended to be
within the scope of the Plan, shall include, but not necessarily be limited to,
payments to the Distributor for its distribution-related activities and to
Service Providers as asset-based sales charges or as a service fee in respect of
the Shares owned by shareholders with whom such Service Provider has a
shareholder servicing relationship. Shareholder servicing may include, among
other things: (i) answering client inquiries regarding the Shares and the Prime
Portfolio; (ii) assisting clients 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 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, to the extent such firms are permitted to
engage in such services by applicable statute, rule or regulation.
3. No additional payments are to be made by the Company on behalf of the
Prime Portfolio with respect to the Shares as a result of the Plan other than
the payments such Portfolio is otherwise obligated to make (i) to AlM pursuant
to the Master Investment Advisory Agreement and (ii) for the expenses otherwise
incurred by the Portfolio and the Company on behalf of the Shares in the normal
conduct of the Portfolio's business pursuant to the Master Investment Advisory
Agreement. However, to the extent any payments by the Company on behalf of the
Portfolio to AIM or such Portfolio's shareholder servicing and transfer agent;
by AIM to any Service Providers pursuant to any Shareholder Service Agreement;
or, generally, by the Company on behalf of the Portfolio to any party for the
Portfolio's operating expenses, are deemed to be payments for the financing of
any activity primarily intended to result in the sale of the Portfolio's shares
within the context of Rule 12b-1 under the 1940 Act, then such payments shall be
deemed to be made pursuant to the Plan as set forth herein.
4. Notwithstanding any of the foregoing, while the Plan is in effect, the
following terms and provisions will apply:
a. The officers of the Company shall report quarterly in writing to the
Board of Directors on the amounts and purpose of payments for any of
the activities in paragraph 1 and shall furnish the Board of Directors
with such other information as the Board may reasonably request in
connection with such payments in order to enable the
2
<PAGE>
Board to make an informed determination of the nature and value of
such expenditures.
b. The Plan shall continue in effect for a period of more than one year
from the date written below only so long as such continuance is
specifically approved at least annually by the Company's Board of
Directors, including the non-interested directors, by vote cast in
person at a meeting called for the purpose of voting on the Plan.
c. The Plan may be terminated with respect to any class of Shares at any
time by vote of a majority of the non-interested directors or by vote
of a majority of the outstanding voting securities of the applicable
class of Shares, on not more than sixty (60) days' written notice to
any other party to the Plan.
d. The Plan may not be amended to materially increase the amount to be
spent hereunder or to permit the Company on behalf of the Portfolio to
make payments for distribution other than to the Distributor or with
respect to a Shareholder Service Agreement or without approval by the
holders of the applicable class of Shares, and all material amendments
to the Plan shall be approved by vote of the dis-interested directors
cast in person at a meeting called for the purpose of voting on such
amendment.
e. So long as the Plan is in effect, the selection and nomination of the
Company's dis-interested directors shall be committed to the
discretion of such dis-interested directors.
5. This Plan shall be subject to the laws of the State of Texas and shall
be interpreted and construed to further promote the operation of the Company as
an open-end investment company. As used herein the terms "Net Asset Value,"
"Offering Price," "Investment Company," "Open-End Investment Company,"
"Assignment," "Principal Underwriter," "Interested Person," "Parent,"
"Affiliated Person," and "Majority of the Outstanding Voting Securities" shall
have the meanings set forth in the Securities Act of 1933, as amended, or the
1940 Act, and the rules and regulations thereunder.
6. Nothing herein shall be deemed to protect the parties to any
Shareholder Service Agreement entered into pursuant to this Plan against any
liability to the Company or its shareholders to which they would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties hereunder, or by reason of their reckless disregard
of their obligations and duties hereunder.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this document as
constituting a Plan pursuant to Rule 12b-1.
TAX-FREE INVESTMENTS CO.
By: /s/ ROBERT H. GRAHAM
_________________________________________
President
Plan effective as of May 1, 1992, as amended as of July 1, 1993, and
further amended as of December 5, 1995.
4
<PAGE>
APPENDIX A TO
DISTRIBUTION PLAN
OF
TAX-FREE INVESTMENTS CO.
The Company shall pay the Distributor as full compensation for all services
rendered and all facilities furnished under the Distribution Plan for the Class
designated below, a Distribution Fee* determined by applying the annual rate set
forth below as to the Class to the average daily net assets of the Class for the
plan year, computed in a manner used for the determination of the offering price
of shares of the Class.
CASH RESERVE PORTFOLIO ANNUAL RATE
---------------------- -----------
Private Investment Class 0.50%
- ----------------------
*The amount of the Distribution Fee is subject to any applicable
limitations imposed from time to time by applicable Rules of the National
Association of Securities Dealers, Inc.
5
<PAGE>
EXHIBIT A
[LOGO APPEARS HERE]
FUND MANAGEMENT COMPANY FUND MANAGEMENT COMPANY
SHAREHOLDER SERVICE AGREEMENT
(BROKER-DEALERS AND BANKS)
_________________________, 19_____
Fund Management Company
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Gentlemen:
We desire to enter into an Agreement with Fund Management Company ("FMC") as
agent on behalf of the funds listed on Schedule A hereto (the "Funds"), for the
provision of continuing personal shareholder services to our clients who are
shareholders of, and/or the administration of accounts in, the Funds. We
understand that this Shareholder Service Agreement (the "Agreement") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") by each of the Funds, under a Distribution Plan (the "Plan") adopted
pursuant to said Rule, and is subject to applicable rules of the National
Association of Securities Dealers, Inc. ("NASD"). This Agreement defines the
services to be provided by us for which we are to receive payments pursuant to
the Plan. The Plan and the Agreement have been approved by a majority of the
directors or trustees of the applicable Fund in accordance with the requirements
of Rule 12b-1. The terms and conditions of this Agreement will be as follows:
1. We will provide continuing personal shareholder services and/or
administrative support services to our customers who may from time to time
beneficially own shares of the Funds, including but not limited to, answering
routine customer inquiries regarding the Funds, assisting customers in changing
dividend options, account designations and addresses, and in enrolling into any
of several special investment plans offered in connection with the purchase of
the Funds, forwarding sales literature, assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions, investing dividends and capital gains distributions
automatically in shares of the Funds and providing such other services as FMC or
the customer may reasonably request, and you will pay us a fee periodically. We
represent that we will accept payment of fees hereunder only so long as we
continue to provide such services.
2. Shares of the Funds purchased by us on behalf of our clients may be
registered in our name or the name of our nominee. The client will be the
beneficial owner of the shares of the Funds purchased and held by us in
accordance with the client's instructions and the client may exercise all
applicable rights of a holder of such Shares. We agree to transmit to FMC in a
timely manner, all purchase orders and redemption requests of our clients and to
forward to each client all proxy statements, periodic shareholder reports and
other communications received from FMC by us on behalf of our clients. FMC on
behalf of the Funds agrees to pay all out-of-pocket expenses actually incurred
by us in connection with the transfer by us of such proxy statements and reports
to our clients as required under applicable law or regulation.
<PAGE>
Shareholder Service Agreement Page 2
3. We agree to transfer to the Funds' custodian, in a timely manner as set
forth in the applicable prospectus, federal funds in an amount equal to the
amount of all purchase orders placed by us on behalf of our clients and accepted
by FMC. In the event that FMC fails to receive such federal funds on such date
(other than through the fault of FMC or the Fund's custodian), we will indemnify
the applicable Fund or FMC against any expense (including overdraft charges)
incurred by the applicable Fund or FMC as a result of the failure to receive
such federal funds.
4. We agree to make available, upon FMC's request, such information relating to
our clients who are beneficial owners of Fund shares and their transactions in
such shares as may be required by applicable laws and regulations or as may be
reasonably requested by FMC.
5. We agree to transfer record ownership of a client's Fund shares to the
client promptly upon the request of a client. In addition, record ownership
will be promptly transferred to the client in the event that the person or
entity ceases to be our client.
6. We acknowledge that if we use AIM LINK(TM) we are solely responsible for the
registration of account information for FMC's and A I M Institutional Fund
Services, Inc.'s ("AIFS") subaccounting customers through AIM LINK(TM), and that
neither FMC, AIFS nor any Fund is responsible for the accuracy of such
information; and we will indemnify and hold harmless FMC, AIFS and the Funds for
any claims or expenses resulting from the inaccuracy or inadequacy of such
information.
7. We will provide such facilities and personnel (which may be all or any part
of the facilities currently used in our business, or all or any personnel
employed by us) as may be necessary or beneficial in carrying out the purposes
of this Agreement.
8. Neither we nor any of our employees or agents are authorized to make any
representation to our clients concerning the Funds except those contained in the
then current applicable prospectus applicable to the Funds, copies of which will
be supplied to us by FMC; and we will have no authority to act as agent for any
Fund. Neither a Fund nor A I M Advisors, Inc. ("AIM") will be a party, nor will
they be represented as a party, to any agreement that we may enter into with our
clients and neither a Fund nor AIM will participate, directly or indirectly, in
any compensation that we may receive from our clients in connection with our
acting on their behalf with respect to this Agreement.
9. In consideration of the services and facilities described herein, we will
receive a maximum annual service fee, payable monthly, as set forth in Schedule
A. We understand that this Agreement and the payment of such fees has been
authorized and approved by the Board of Directors or Trustees of the applicable
Fund, and that the payment of fees hereunder is subject to limitations imposed
by the rules of the NASD. Service fees may be remitted to us net of any amounts
due and payable to FMC, AIFS or the Funds from us. A schedule of fees relating
to subaccounting and administration is attached hereto as Schedule B.
10. FMC reserves the right, at its discretion and without notice, to suspend the
sale of any Fund shares or withdraw the sale of shares of a Fund.
11. We represent that our activities on behalf of our clients and pursuant to
this Agreement either (i) are not such as to require our registration as a
broker-dealer with the Securities and
<PAGE>
Shareholder Service Agreement Page 3
Exchange Commission (the "SEC") or in the state(s) in which we engage in such
activities, or (ii) we are registered as a broker-dealer with the SEC and in the
state(s) in which we engage in such activities.
12. If we are a broker-dealer registered with the SEC, we represent that we are
a member in good standing of the NASD, and agree to abide by the Rules of Fair
Practice of the NASD and all other federal and state rules and regulations that
are now or may become applicable to transactions hereunder. Our expulsion from
the NASD will automatically terminate this agreement without notice. Our
suspension from the NASD or a violation by us of applicable state and federal
laws and rules and regulations of authorized regulatory agencies will terminate
this agreement effective upon notice received by us from FMC.
13. This Agreement or Schedule A hereto may be amended at any time without our
prior consent by FMC, by mailing a copy of an amendment to us at the address set
forth below. Such amendment will become effective on the date set forth in such
amendment unless we terminate this Agreement within thirty (30) days of our
receipt of such amendment.
14. This Agreement may be terminated at any time by FMC on not less than 60
days' written notice to us at our principal place of business. We, on 60 days'
written notice addressed to FMC at its principal place of business, may
terminate this Agreement. FMC may also terminate this Agreement for cause on
violation by us of any of the provisions of this Agreement, said termination to
become effective on the date of mailing notice to us of such termination. FMC's
failure to terminate for any cause will not constitute a waiver of FMC's right
to terminate at a later date for any such cause. This Agreement will terminate
automatically in the event of its assignment, the term "assignment" for this
purpose having the meaning defined in Section 2(a) (4) of the 1940 Act.
15. All communications to FMC will be sent to it at P.O. Box 4333, Houston,
Texas 77210-4333. Any notice to us will be duly given if mailed or telegraphed
to us at the address shown on this Agreement.
16. We agree that under this Agreement we will be acting as an independent
contractor and not as your employee or agent, nor as an employee or agent of the
Funds, and we may not hold ourselves out to any other party as your agent with
the authority to bind you or the Funds in any manner.
17. We agree that this Agreement and the arrangement described herein are
intended to be non-exclusive and that either of us may enter into similar
agreements and arrangements with other parties.
<PAGE>
Shareholder Service Agreement Page 4
18. This Agreement will become effective as of the date when it is executed and
dated below by FMC. This Agreement and all rights and obligations of the
parties hereunder will be governed by and construed under the laws of the State
of Texas.
___________________________________________
(Firm Name)
___________________________________________
(Address)
___________________________________________
City/State/Zip/County
BY: ___________________________________
Name: _________________________________
Title: ________________________________
Dated: ________________________________
For administrative convenience, please supply the following
information, which may be updated in writing at any time.
Wiring instructions for service fees payable by FMC:
____________________________ _______________________
(Bank Name) (Bank ABA Number)
______________________________________________________
(Reference Account Name and Number)
Contact person for operational issues:
_____________________________ ______________________
(Name) (Phone Number)
ACCEPTED:
FUND MANAGEMENT COMPANY
BY: ________________________________________________________________
Name: ________________________________________________________________
Title: _______________________________________________________________
Dated: ______________________________________________________________
<PAGE>
Shareholder Service Agreement Page 5
SCHEDULE A
FUNDS FEE
- ----- ---
Short-Term Investments Co.
- --------------------------
Prime Portfolio - Personal Investment Class .40%*
Prime Portfolio - Private Investment Class .25%
Prime Portfolio - Resource Class .16%
Prime Portfolio - Cash Management Class .08%
Liquid Assets Portfolio - Private Investment Class .25%
Liquid Assets Portfolio - Cash Management Class .08%
Short-Term Investments Trust
- ----------------------------
Treasury Portfolio - Personal Investment Class .40%*
Treasury Portfolio - Private Investment Class .25%
Treasury Portfolio - Resource Class .16%
Treasury Portfolio - Cash Management Class .08%
Treasury TaxAdvantage Portfolio - Private Investment Class .25%
Tax-Free Investments Co.
- ------------------------
Cash Reserve Portfolio - Private Investment Class .25%
* Fees in excess of .25% are for services of an administrative nature, as
described in Paragraph 1 of this Agreement.
<PAGE>
Shareholder Service Agreement Page 6
SCHEDULE B
SUBACCOUNTING AND ADMINISTRATION FEES
We will be assessed a fee, payable monthly, in the amount of ______ basis
points of our monthly average net assets managed by your affiliates. As
described in the attached Shareholder Service Agreement, we understand that the
amount of any service fees remitted to us will be net of any amounts due and
payable to FMC, AIFS or the Funds, including the ______ basis points of monthly
average net assets related to subaccounting and administration services provided
to us by AIFS.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR THE INSTITUTIONAL CLASS
OF THE CASH RESERVE PORTFOLIO OF TAX-FREE INVESTMENTS CO. FOR THE YEAR ENDED
MARCH 31, 1996 ANNUAL REPORT.
</LEGEND>
<CIK> 0000205010
<NAME> TAX-FREE INVESTMENTS CO.
<SERIES>
<NUMBER> 2
<NAME> INSTITUTIONAL CLASS OF THE CASH RESERVE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 1,080,105,245
<INVESTMENTS-AT-VALUE> 1,080,105,245
<RECEIVABLES> 8,043,759
<ASSETS-OTHER> 217,999
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,088,367,003
<PAYABLE-FOR-SECURITIES> 40,934,545
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,254,030
<TOTAL-LIABILITIES> 44,188,575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,044,264,478
<SHARES-COMMON-STOCK> 1,044,264,478
<SHARES-COMMON-PRIOR> 1,039,524,933
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (91,827)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,777
<NET-ASSETS> 1,044,178,428
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 42,853,420
<OTHER-INCOME> 0
<EXPENSES-NET> 2,349,742
<NET-INVESTMENT-INCOME> 40,503,678
<REALIZED-GAINS-CURRENT> 292,222
<APPREC-INCREASE-CURRENT> (30,577)
<NET-CHANGE-FROM-OPS> 40,765,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40,503,678)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,270,092,045
<NUMBER-OF-SHARES-REDEEMED> 5,266,515,939
<SHARES-REINVESTED> 1,163,439
<NET-CHANGE-IN-ASSETS> 5,001,190
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (384,049)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,509,629
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,060,139
<AVERAGE-NET-ASSETS> 1,097,089,368
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR THE PRIVATE INVESTMENT
CLASS OF THE CASH RESERVE PORTFOLIO OF TAX-FREE INVESTMENTS CO. FOR THE YEAR
ENDED MARCH 31, 1996 ANNUAL REPORT.
</LEGEND>
<CIK> 0000205010
<NAME> TAX-FREE INVESTMENTS CO.
<SERIES>
<NUMBER> 5
<NAME> PRIVATE INVESTMENT CLASS OF THE CASH RESERVE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 1,080,105,245
<INVESTMENTS-AT-VALUE> 1,080,105,245
<RECEIVABLES> 8,043,759
<ASSETS-OTHER> 217,999
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,088,367,003
<PAYABLE-FOR-SECURITIES> 40,934,545
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,254,030
<TOTAL-LIABILITIES> 44,188,575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,044,264,478
<SHARES-COMMON-STOCK> 1,044,264,478
<SHARES-COMMON-PRIOR> 1,039,524,933
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (91,827)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,777
<NET-ASSETS> 1,044,178,428
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 42,853,420
<OTHER-INCOME> 0
<EXPENSES-NET> 2,349,742
<NET-INVESTMENT-INCOME> 40,503,678
<REALIZED-GAINS-CURRENT> 292,222
<APPREC-INCREASE-CURRENT> (30,577)
<NET-CHANGE-FROM-OPS> 40,765,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40,503,678)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,270,092,045
<NUMBER-OF-SHARES-REDEEMED> 5,266,515,939
<SHARES-REINVESTED> 1,163,439
<NET-CHANGE-IN-ASSETS> 5,001,190
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (384,049)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,509,629
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,060,139
<AVERAGE-NET-ASSETS> 32,863,968
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
