<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1997
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. 24 X
---- ---
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 25
----
(Check appropriate box or boxes.)
TAX-FREE INVESTMENTS CO.
-----------------------------------
(Exact name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, TX 77046
--------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (713) 626-1919
------------------
Charles T. Bauer
11 Greenway Plaza, Suite 100, Houston, TX 77046
----------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
Stephen I. Winer, Esquire
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
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)
X immediately upon filing pursuant to paragraph (b) of Rule 485
---
___ on (date) 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>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Per Offering Registration
Registered Registered* Share** Price Fee
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Par Value $0.01 40,471,176 $1.00 40,471,176 $100.00
</TABLE>
- ----------------
* 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, 1997 on May 28, 1997.
** Registrant elects to calculate the maximum offering price pursuant to
Rule 24e-2. 4,991,748,138 shares were redeemed during the Registrant's
fiscal year ended March 31, 1997. 4,951,606,962 shares were used for
reduction pursuant to Paragraph (c) of Rule 24f-2 during the current
year. 40,141,176 shares is the amount of redeemed shares being used for
reduction in this amendment. Pursuant to Rule 457(d) under the Securities
Act of 1933, the offering price per share of common stock of the
Registrant of $1.00 per share on July 29, 1997, is the price used as the
basis for these calculations. While no fee is required for the 40,141,176
shares of the Registrant, the Registrant has elected to register for
$100, an additional 330,000 shares.
<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.
<TABLE>
<CAPTION>
I. Institutional Cash Reserve Shares
---------------------------------
Part A - Prospectus
Item No. Location
- ----------- --------
<C> <S> <C>
1. Cover Page Cover Page
2. Synopsis Table of Fees and Expenses
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant Cover Page; Organization of the Company;
General Information; Investment Program
5. Management of the Fund General Information - Transfer
Agent and Custodian; Management of the Company
5a. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities General Information -
Organization and Description of Shares;
General Information -
Shareholder Inquiries;
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 Registrant General Information about the Company
- Directors and Officers
15. Control Persons and Principal Holders General Information about the
of Securities Company - Principal Holders of Securities
16. Investment Advisory and Other Services General Information about the Company -
The Investment Advisor;
General Information about the Company -
Expenses;
General Information about the Company -
The Distributor;
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Item No. Location
- ----------- --------
<C> <S> <C>
17. Brokerage Allocation General Information about the Company -
Custodian and Transfer Agent; Reports
Fund Transactions
18. Capital Stock and Other Securities General Information about the Company -
The Company and Its Shares
19. Purchase, Redemption and Pricing of Share Purchases and
Securities Being Offered Redemptions
20. Tax Status Dividends, Distributions and Tax Matters
21. Underwriters General Information About the Company -
The Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
II. Private Investment Class
------------------------
Part A - Prospectus
Item No. Location
- ----------- --------
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 General Information -
Transfer Agent and
Custodian;
Summary;
Management of the Company
5a. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities General Information -
Organization and
Description of Shares;
General Information -
Shareholder Inquiries
Summary; Dividends; Taxes
7. Purchase of Securities Being Offered Summary - Distributor and
Distribution of Plan;
Management of the Company -
Distributor; Purchase of
Shares;
Net Asset Value; Summary -
Purchase of Shares;
Management of the Company -
Distribution Plan
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
2
<PAGE>
Item No. Location
- ----------- --------
Part B - Statement of Additional Information
<TABLE>
<CAPTION>
Item No. Location
- ----------- --------
<S> <C>
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 Registrant General Information about
the Company - Directors and
Officers
15. Control Persons and Principal Holders General Information about
of Securities the Company - Principal Holders
of Securities;
16. Investment Advisory General Information about the Company -
Expenses;
Share Purchases and Redemptions
- Distribution Plan;
General Information about
the Company - Transfer Agent
and Custodian; General
Information about the Company
- Reports
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities General Information about
the Company - The Company and
Its Shares
19. Purchase Redemption and Pricing of Share Purchases and Redemptions
Securities Being Offered Dividends
20. Tax Status Distributions and Tax Matters
21. Underwriters Share Purchases and Redemptions
- The Distribution
Agreement; Share Purchases and
Redemptions - Distribution Plan
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
III. All Classes and Series of Registrant
------------------------------------
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
3
<PAGE>
TAX-FREE
INVESTMENTS CO.
PROSPECTUS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<C> <S>
INSTITUTIONAL Tax-Free Investments Co. (the "Company") is a mutual fund designed for insti-
CASH RESERVE tutions and individuals seeking current income which is exempt from federal in-
SHARES come taxes. Pursuant to this Prospectus, the Company offers shares representing
interests in Institutional Cash Reserve Shares (the "Institutional Class") of
JULY 29, 1997 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 them-
selves 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 Re-
serve 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, 1997 HAS BEEN FILED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") AND IS HEREBY INCORPORATED BY REFERENCE. A COPY
OF THE STATEMENT OF ADDITIONAL INFORMATION IS INCLUDED AS AN APPENDIX TO THIS
PROSPECTUS. THE SEC MAINTAINS A WEB SITE AT HTTP://WWW.SEC.GOV THAT CONTAINS
MATERIAL INCORPORATED BY REFERENCE AND OTHER INFORMATION REGARDING THE COMPANY.
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
[LOGO APPEARS HERE] RESERVE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 659-1005
</TABLE>
<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. The
purpose of the following 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.
TABLE OF FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases
(as a percentage of offering price)...................................... None
Maximum sales load on reinvested dividends
(as a percentage of offering price)...................................... None
Deferred sales load (as a percentage of original
purchase price or redemption proceeds, as applicable).................... None
Redemption fees (as a percentage of amount
redeemed, if applicable)................................................. None
Exchange fee.............................................................. None
ANNUAL OPERATING EXPENSES OF THE SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management fees*.......................................................... .16%
Other expenses............................................................ .04%
----
Total operating expenses of the shares*................................... .20%
====
</TABLE>
- ------
* After fee waivers. 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 fi-
nancial 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, AIM Institutional Funds, La
Familia AIM de Fondos and La Familia AIM de Fondos and Design are registered
service marks and aimfunds.com and Invest With Discipline are service marks of
A I M 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, 1997, 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>
MARCH 31,
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <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 $1.00 $1.00
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Income from
investment
operations:
Net investment
income 0.03 0.04 0.03 0.02 0.03 0.04 0.06 0.06 0.05
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Less
distributions:
Dividends from
net investment
income (0.03) (0.04) (0.03) (0.02) (0.03) (0.04) (0.06) (0.06) (0.05)
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Total return 3.33% 3.67% 3.06% 2.33% 2.66% 4.09% 5.68% 6.22% 5.67%(a)
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $966,567 $1,009,039 $1,009,891 $1,040,595 $994,828 $1,191,209 $1,156,557 $1,114,813 $1,062,479
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Ratio of
expenses to
average net
assets(b) 0.20%(c) 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%(a)
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Ratio of net
investment
income to
average net
assets(d) 3.27%(c) 3.59% 3.01% 2.30% 2.66% 4.00% 5.52% 6.03% 5.52%(a)
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1988 1987
----------- ---------
<S> <C> <C>
Net asset value,
beginning of
period $1.00 $1.00
- -------------------- -------------- -----------
Income from
investment
operations:
Net investment
income 0.04 0.04
- -------------------- -------------- -----------
Less
distributions:
Dividends from
net investment
income (0.04) (0.04)
- -------------------- -------------- -----------
Net asset value,
end of period $1.00 $1.00
- -------------------- -------------- -----------
Total return 4.56% 4.24%
- -------------------- -------------- -----------
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $1,192,604 $983,392
- -------------------- -------------- -----------
Ratio of
expenses to
average net
assets(b) 0.21% 0.21%
- -------------------- -------------- -----------
Ratio of net
investment
income to
average net
assets(d) 4.47% 4.14%
- -------------------- -------------- -----------
</TABLE>
(a)Annualized.
(b) After waiver of advisory fees and/or expense reimbursements. Ratios of
expenses to average net assets prior to waiver of advisory fees and/or
expense reimbursements were 0.26%, 0.26%, 0.26%, 0.28%, 0.26%, 0.26%,
0.27%, 0.28%, 0.28% (annualized), 0.29% and 0.29%, for the periods 1997-
1987, respectively.
(c) Ratios are based on average net assets of $1,013,970,754.
(d) After waiver of advisory fees and/or expense reimbursements. Ratios of net
investment income to average net assets prior to waiver of advisory fees
and/or expense reimbursements were 3.21%, 3.53%, 2.95%, 2.22%, 2.60%,
3.94%, 5.46%, 5.95%, 5.44% (annualized), 4.40% and 4.06%, for the periods
1997-1987, respectively.
3
<PAGE>
SUITABILITY FOR INVESTORS
The Institutional Class is intended for use by banks and other institutions,
investing for themselves or in a fiduciary, advisory, agency, custodial or
other similar capacity. The Institutional Class is designed to be a convenient
and economical vehicle in which such shareholders can invest in high quality
municipal obligations with remaining maturities of 397 days or less while main-
taining 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.
This objective will not be changed without the approval of a majority of the
Portfolio's outstanding shares (within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act")).
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 (within the meaning of the 1940 Act).
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 1940 Act. Generally,
"First Tier" securities are securities that are rated in the highest rating
category for short-term obligations by two NRSROs, or, if only rated by one
NRSRO, are rated in the highest rating category by that NRSRO, or, if unrated,
are determined by the Portfolio's investment advisor (under the supervision of
and pursuant to guidelines established by the Board of Directors) to be of com-
parable 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 and
except that the Portfolio may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(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, which governs the opera-
tions of money market funds and may be more restrictive. A description of fur-
ther 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 institutions may charge record keeping,
account maintenance or other fees to their customers. Beneficial holders in the
Institutional 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 A I M Institutional Fund Services, Inc. (the "Transfer Agent" or "AIFS")
6
<PAGE>
prior to the determination of net asset value (12:00 noon Eastern 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, Presidents' Day,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanks-
giving Day and Christmas Day. Further, the Portfolio reserves the right to
change the time for which purchase orders for shares of the Institutional Class
must be submitted to and received by AIFS for execution on the same day on any
day when the U.S. primary broker-dealer community is closed for business or
trading is restricted due to national holidays. Subject to the Company's right
to reject any purchase order, purchase orders received prior to the net asset
value determination on any business day will be effective on such day and pay-
ment for such shares must be made in the form of federal funds wired to AIFS on
the day of purchase. Following the initial investment, subsequent purchases of
shares of the Class may also be made via AIM LINK--Registered Trademark--
Remote, a personal com-puter application software product.
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 4333, Houston, Texas 77210-4333. 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--Registered Trademark--
Remote. Payment for redeemed shares of the Institutional Class is normally made
by Federal Reserve wire to the commercial bank account designated in the
shareholder's Account Application on the day specified below, but may be
remitted by check upon request by a shareholder.
If a redemption request is received by 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. The Portfolio reserves the right to change the time for which redemption
requests must be submitted to and received by AIFS for execution on the same
day on any day when the U.S. primary broker-dealer community is closed for
business or trading is restricted due to national holidays.
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.
Shareholders may request a redemption by telephone. Neither the Transfer Agent
nor FMC will be liable for any loss, expense or cost arising out of any tele-
phone 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 verifi-
cation 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 of the Institutional Class redeemed by mail and payment for
telephone redemptions in amounts of less than $10,000 may 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.
7
<PAGE>
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 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. 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.
8
<PAGE>
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, 1997, the current yield and effective yield for the Institu-
tional Class were 3.29% and 3.35%, 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.
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.
Foreign persons who file a United States tax return after December 31, 1996
for a U.S. Tax refund and who are not eligible to obtain a social security num-
ber must apply to the Internal Revenue Service ("IRS") for an individual tax-
payer identification number, using IRS Form W-7. For a copy of the IRS Form W-7
and accompanying instructions, please contact your tax advisor or AIFS.
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, on behalf of the Portfolio, and persons or companies
furnishing services to the Company, including the Company's agreements with the
Portfolio'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 Portfolio and
to the general supervision of the Board of Directors. AIM also furnishes or
procures on behalf of the Company all services necessary to the proper conduct
of the Company's business. Certain directors and officers of the Company are
affiliated with AIM and A I M Management Group Inc. ("AIM Management"), the
parent corporation of AIM. AIM Management is a holding company engaged in the
financial services business and is an indirect, wholly owned subsidiary of
AMVESCAP plc, a publicly-traded holding company that, through its subsidiaries
engages in the financial services business on an international basis. Informa-
tion concerning the Board of Directors may be found in the Statement of Addi-
tional Information.
9
<PAGE>
DISTRIBUTOR
The Company has entered into a distribution agreement dated as of February 28,
1997 (the "Distribution Agreement") with FMC, a wholly owned subsidiary of AIM,
with respect to the Institutional Class. The address of FMC is 11 Greenway Pla-
za, Suite 100, Houston, Texas 77046-1173. Mail addressed to FMC should be sent
to P.O. Box 4333, Houston, Texas 77210-4333. FMC does not receive any fees from
the Company under the Distribution Agreement. Two directors and several offi-
cers 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.
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173,
acts as the Company's investment advisor with respect to the Fund pursuant to a
Master Investment Advisory Agreement dated as of February 28, 1997 (the "Advi-
sory Agreement"). AIM, which was organized in 1976, together with its subsidi-
aries, advises or manages 53 investment company portfolios. As of July 15,
1997, the total assets of the investment company portfolios advised or managed
by AIM or its subsidiaries were approximately $76.0 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, 1997, 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, 1997, 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).
10
<PAGE>
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.
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 100, 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 Institutional Class concerning the status of an
account should be directed to the Portfolio or an AIFS investment representa-
tive by calling (800) 659-1005.
11
<PAGE>
APPENDIX
STATEMENT OF
ADDITIONAL INFORMATION
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA, SUITE 100
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, 1997
RELATING TO THE PROSPECTUS DATED: JULY 29, 1997
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, 1997 (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 at least the last five years are set forth below. Unless otherwise noted,
the address of each such director and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173.
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
POSITIONS HELD WITH PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE REGISTRANT DURING PAST 5 YEARS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<C> <C> <S>
**CHARLES T. BAUER (78) Director and Chairman Chairman of the Board of
11 Greenway Plaza, Suite 100 Directors, A I M
Houston, TX 77046 Management Group Inc.;
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; and
Vice Chairman and
Director, AMVESCAP plc.
- -------------------------------------------------------------------------------
BRUCE L. CROCKETT (53) Director Director, ACE Limited
906 Frome Lane (insurance company).
McLean, VA 22102 Formerly, Director,
President and Chief
Executive Officer,
COMSAT Corporation and
Chairman, Board of
Governors of INTELSAT
(international
communications company).
- -------------------------------------------------------------------------------
OWEN DALY II (72) Director Director, Cortland Trust
Six Blythewood Road Inc. (investment
Baltimore, MD 21210 company). Formerly,
Director, CF & I Steel
Corp., Monumental Life
Insurance Company and
Monumental General
Insurance Company; and
Chairman of the Board of
Equitable
Bancorporation.
- -------------------------------------------------------------------------------
JACK FIELDS (45) Director Formerly, Member of the
2607 Old Humble Road U.S. House of
Humble, Texas 77396 Representatives.
- -------------------------------------------------------------------------------
*CARL FRISCHLING (60) Director Partner, Kramer, Levin,
919 Third Avenue Naftalis & Frankel (law
New York, NY 10022 firm). Director, ERD
Waste, Inc. (waste
management company),
Aegis Consumer Finance
(auto leasing company)
and Lazard Funds, Inc.
(investment companies).
Formerly, Partner, Reid
& Priest (law firm); and
prior thereto, Partner,
Spengler Carlson Gubar
Brodsky & Frischling
(law firm).
- -------------------------------------------------------------------------------
**ROBERT H. GRAHAM (50) Director and President Director, President and
11 Greenway Plaza, Suite 100 Chief Executive Officer,
Houston, TX 77046 A I M Management Group
Inc.; Director and
President, A I M
Advisors, Inc.; 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; and
Director, AMVESCAP plc.
</TABLE>
- ------
*A director who is an "interested person" of the Company as defined in the 1940
Act.
**A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
A-4
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
POSITIONS HELD WITH PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE REGISTRANT DURING PAST 5 YEARS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<C> <C> <S>
JOHN F. KROEGER (72) Director Director, Flag Investors
37 Pippins Way International Fund, Inc.,
Morristown, NJ 07960 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 (54) Director Attorney in private
6363 Woodway, Suite 825 practice in Houston,
Houston, TX 77057 Texas.
- -------------------------------------------------------------------------------
IAN W. ROBINSON (74) Director Formerly, Executive Vice
183 River Drive President and Chief
Tequesta, FL 33469 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 (57) Director Executive Vice President,
Transco Tower, 50th Floor Development and
2800 Post Oak Blvd. Operations, Hines
Houston, TX 77056 Interests Limited
Partnership (real estate
development).
- -------------------------------------------------------------------------------
***JOHN J. ARTHUR (52) Senior Vice President Senior Vice President and
11 Greenway Plaza, Suite 100 and Treasurer Treasurer, A I M
Houston, TX 77046 Advisors, Inc.; Vice
President and Treasurer,
A I M Management Group
Inc., A I M Capital
Management, Inc., A I M
Distributors, Inc., A I M
Fund Services, Inc.,
A I M Institutional Fund
Services, Inc. and Fund
Management Company.
- -------------------------------------------------------------------------------
GARY T. CRUM (49) Senior Vice President Director and President,
11 Greenway Plaza, Suite 100 A I M Capital Management,
Houston, TX 77046 Inc.; Director and Senior
Vice President, A I M
Management Group Inc. and
A I M Advisors, Inc.; and
Director, A I M
Distributors, Inc. and
AMVESCAP plc.
- -------------------------------------------------------------------------------
***CAROL F. RELIHAN (42) Senior Vice President Senior Vice President,
11 Greenway Plaza, Suite 100 and Secretary General Counsel and
Houston, TX 77046 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.
- -------------------------------------------------------------------------------
DANA R. SUTTON (38) Vice President and Vice President and Fund
11 Greenway Plaza, Suite 100 Assistant Treasurer Controller, A I M
Houston, TX 77046 Advisors, Inc.; and
Assistant Vice President
and Assistant Treasurer,
Fund Management Company.
- -------------------------------------------------------------------------------
STUART W. COCO (42) Vice President Senior Vice President,
11 Greenway Plaza, Suite 100 A I M Capital Management,
Houston, TX 77046 Inc.; and Vice President,
A I M Advisors, Inc.
</TABLE>
- ------
***Mr. Arthur and Ms. Relihan are married to each other.
A-5
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
POSITIONS HELD
WITH PRINCIPAL OCCUPATION DURING PAST
NAME, ADDRESS AND AGE REGISTRANT 5 YEARS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<C> <C> <S>
MELVILLE B. COX (53) Vice President Vice President and Chief
11 Greenway Plaza, Suite 100 Compliance Officer, A I M
Houston, TX 77046 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.
- -------------------------------------------------------------------------------
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M
11 Greenway Plaza, Suite 100 Capital Management, Inc.; and
Houston, TX 77046 Vice President, A I M Advisors,
Inc.
- -------------------------------------------------------------------------------
J. ABBOTT SPRAGUE (42) Vice President Director, Fund Management
11 Greenway Plaza, Suite 100 Company; Director and Senior
Houston, TX 77046 Vice President, A I M Advisors,
Inc. and A I M Institutional
Fund Services, Inc.; and Senior
Vice President, A I M Management
Group Inc.
</TABLE>
The standing committees of the Board of Directors are the Audit Committee, the
Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit Commit-
tee is responsible for meeting with the Company's auditors to review audit pro-
cedures 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 or its internal accounting controls, and for consid-
ering such matters as may from time to time be set forth in a charter adopted
by the Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The In-
vestments Committee is responsible for reviewing portfolio compliance, broker-
age allocation, portfolio investment pricing issues, interim dividend and dis-
tribution issues, and considering such matters as may from time to time be set
forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs. Crockett,
Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The Nominating
and Compensation Committee is responsible for considering and nominating indi-
viduals to stand for election as directors who are not interested persons as
long as the Company maintains a distribution plan pursuant to Rule 12b-1 under
the 1940 Act, reviewing from time to time the compensation payable to the dis-
interested directors, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors 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......... $1,530 $38,621 $68,000
Owen Daly II.............. $1,524 $82,607 $68,000
Jack Fields(4)............ $ 96 -0- -0-
Carl Frischling........... $1,530 $56,683 $68,000(5)
Robert H. Graham.......... -0- -0- -0-
John F. Kroeger........... $1,471 $83,654 $66,000
Lewis F. Pennock.......... $1,497 $33,702 $67,000
Ian W. Robinson........... $1,530 $64,973 $68,000
Louis S. Sklar............ $1,495 $47,593 $66,500
</TABLE>
- ------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended March 31, 1997, including interest earned
thereon, was $6,960.
(2) During the fiscal year ended March 31, 1997, the total amount of expenses
allocated to the Company in respect of such retirement benefits was $7,529.
Data reflect compensation for the calendar year ended December 31, 1996.
(3) Each Director serves as a director or trustee of a total of 11 registered
investment companies advised by AIM (comprised of 55 portfolios). Data re-
flects total compensation for the calendar year ended December 31, 1996.
(4) Mr. Fields did not serve as a Director during the calendar year ended De-
cember 31, 1996.
(5) 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 the retainer amount reflected be-
low and various years of service. The estimated credited years of service as of
March 31, 1997, for Messrs. Crockett, Daly, Fields, Frischling, Kroeger,
Pennock, Robinson and Sklar are 10, 10, 0, 19, 19, 15, 10, and 7 years, respec-
tively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
ANNUAL RETAINER PAID
BY ALL AIM FUNDS
--------------------
NUMBER OF YEARS OF SERVICE WITH
THE AIM FUNDS $80,000
------------------------------- -------
<S> <C>
10................................................. $60,000
9................................................. $54,000
8................................................. $48,000
7................................................. $42,000
6................................................. $36,000
5................................................. $30,000
</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 five (5) or
ten (10) years (depending on the Agreement) 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 distribu-
tion 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 defer-
ral 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, 1996, the Fund paid legal fees of $7,203 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 February 28, 1997 (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 100, Houston,
Texas 77046. Mail addressed to FMC should be sent to P.O. Box 4333, Houston,
Texas 77210-4333.
The Distribution Agreement provides that FMC has the exclusive right to 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 serv-
ices provided under the Distribution Agreement.
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 100, Houston, Texas 77046,
serves as investment advisor to the Portfolio pursuant to a Master Investment
Advisory Agreement dated as of February 28, 1997 (the "Advisory Agreement").
AIM, which was organized in 1976, is the investment advisor or manager of 53
investment company portfolios. As of July 15, 1997 the total assets advised or
managed by AIM or its subsidiaries were approximately $76.0 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.
The Advisory Agreement provides that it will continue in effect from year to
year only if such continuance 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 agreement or "interested persons" of any
such party (the "Qualified Directors") by votes cast in person at a meeting
called for such purpose. The Advisory Agreement was approved by the Company's
Board of Directors (including the affirmative vote of all the Qualified Direc-
tors) on December 11, 1996. The Advisory Agreement was approved by the Portfo-
lio's shareholders on February 7, 1997. The agreement became effective as of
February 28, 1997 and provides that either party may terminate such agreement
on 60 days' written notice without penalty. The agreement terminates automati-
cally in the event of its assignment.
AIM is a direct, wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), and is the sole shareholder of the Portfolio's principal under-
writer, FMC. AIM Management is an indirect wholly owned subsidiary of AMVESCAP
plc, 11 Devonshire Square, London EC2M 4YR, United Kingdom.
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, 1997, 1996 and 1995, the
fees paid by the Company to AIM with respect to the Portfolio were $1,720,635,
$1,819,232 and $1,824,453, respectively (after giving effect to fee waivers for
the fiscal years ended March 31, 1997, 1996 and 1995 of $625,513, $690,397 and
$659,533, 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, 1997, 1996 and 1995, AIM was reimbursed $70,077,
$75,960 and $78,184, 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.
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
100, 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.
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--Registered Trademark-- Remote, a personal computer application software
product, may receive sub-accounting services via such software.
A-10
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Company, the names and addresses of the holders
of 5% or more of the outstanding shares of the Institutional Cash Reserve
Shares as of July 15, 1997, 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. 22.41%
1401 Elm Street, 11th floor
P.O. Box 831000
Dallas, TX 75283-1000
Liberty Bank and Trust Company of Tulsa 9.64%
P.O. Box 25848
Oklahoma City, OK 73125
Texas Commerce Bank 7.24%
17 HCB 98
P.O. Box 2558
Houston, TX 77252-8098
Trust Company Bank 10.30%
Center 3131
P.O. Box 105504
Atlanta, GA 30348
U.S. Bank of Oregon 9.60%
555 Southwest Oak
Portland, OR 97204-1752
Frost National Bank of Texas 6.88%
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, 1997, 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 53.27%**
4 Fisher Lane
White Plains, NY 10603
Cullen/Frost Discount Brokers 23.32%
P.O. Box 2358
San Antonio, TX 78299
Huntington Capital Corporation 7.03%
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>
Mark Twain Capital Market Grp. 9.93%
1345 Chestnut St.
FC 1-1-9-49
Philadelphia, PA 19101
</TABLE>
- ------
* The Company has no knowledge as to whether all or any portfolio of the shares
owned of record only are also owned beneficially.
As of July 15, 1997, 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.
A "business day" of the Portfolio is any day on which commercial banks in the
New York Federal district are open for business. The Portfolio, however, re-
serves the right to change the time for which purchase and redemption requests
must be submitted to the Portfolio for execution on the same day on any day
when the U.S. primary broker-dealer community is closed for business or trading
is restricted due to national holidays.
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
A-13
<PAGE>
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
A-14
<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, which are exempt from federal income tax. Distributions from the
Portfolio will constitute exempt-interest dividends to the extent of the Port-
folio'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. How-
ever, shareholders required to file a federal income tax return will be re-
quired 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. Exempt-interest dividends de-
rived 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 is-
sue, 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 in-
cluded in an individual shareholder's gross income subject to federal income
tax. Further, a
A-15
<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 July
16, 1997. 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 con-
templated 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, 1997, the current yield and effective
yield for the Institutional Class were 3.29% and 3.35%, respectively. Assuming
a corporate tax rate of 35%, those yields for the Institutional Class on a tax-
equivalent basis were 5.06% and 5.15%, 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 relevant in its
determination of whether the Portfolio should continue to hold the security. To
the
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extent that the ratings applied by an NRSRO to Municipal Securities may change
as a result of changes in these rating systems, the Company will attempt to use
comparable ratings as standards for its investments in Municipal Securities in
accordance with the investment policies described herein.
The Portfolio may, from time to time, invest in taxable short-term investments
("Temporary Investments") consisting of obligations of the U.S. Government, its
agencies or instrumentalities and repurchase agreements (instruments under
which the seller agrees to repurchase the security at a specified time and
price) relating thereto; commercial paper rated within the highest rating 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.
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The yields on Municipal Securities depend on a variety of factors, including
general economic and monetary conditions, money market factors, conditions of
the Municipal Securities market, size of a particular offering, maturity of the
obligation, and rating of the issue. The yield realized by holders of a class
of the 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 Port-
folio will be affected by changes in the yields available on similar securi-
ties. 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 ("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.
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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).
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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.
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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.
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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 companies for the purpose of exercising control, except that
the Portfolio may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order;
(6) 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;
(7) purchase or sell real estate, but this shall not prevent investments
in securities secured by real estate or interests therein;
(8) sell, securities short or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions;
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<PAGE>
(9) 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
(10) 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, 1997, 1996 and 1995 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
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<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.
A-25
<PAGE>
TAX-FREE INVESTMENTS CO.
INSTITUTIONAL CASH RESERVE SHARES
FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED
MARCH 31, 1997
A-26
<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, 1997, 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 eight-year period then ended, the eleven-
month period ended March 31, 1989, and the year ended April 30, 1988. These fi-
nancial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these finan-
cial 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, 1997, 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, 1997, 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 eight-year period then ended, the eleven-month period ended March 31,
1989, and the year ended April 30, 1988, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
----------------------------------
KPMG Peat Marwick LLP
Houston, Texas
May 2, 1997
A-27
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1997
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA - 2.04%
Birmingham (City of) (YMCA-Birmingham);
Public Park
and Recreation Board RB
3.55% 06/01/16(b)(c) -- VMIG-1 $ 3,390 $ 3,390,000
- -------------------------------------------------------------------------------
BMC Special Care Facilities Financing
Authority (VHA of Alabama Inc. Capital
Asset Financing Program); Variable Rate
Hospital
Series 1985 RB
3.45% 12/01/30(b)(d) A-1 Aaa 4,000 4,000,000
- -------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Warrants
3.50% 02/01/12(b)(c) A-1+ -- 2,775 2,775,000
- -------------------------------------------------------------------------------
Port City Medical Board of Mobile Alabama
(The) (Mobile Infirmary Association);
Series 1992 A RB
3.50% 07/25/97(c)(e) A-1+ P-1 10,300 10,300,000
- -------------------------------------------------------------------------------
20,465,000
- -------------------------------------------------------------------------------
ALASKA - 1.13%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
3.45% 06/01/26(b) A-1+ VMIG-1 8,900 8,900,000
- -------------------------------------------------------------------------------
Valdez (City of) (ARCO Transportation
Alaska, Inc. Project); Marine Terminal
Refunding Series 1994 A RB
3.45% 05/16/97(e) A-1 VMIG-1 2,400 2,400,000
- -------------------------------------------------------------------------------
11,300,000
- -------------------------------------------------------------------------------
ARIZONA - 2.42%
Apache (County of) Industrial Development
Authority (Tucson Electric); Series 1983
C IDR
3.45% 12/15/18(b)(c) A-1 VMIG-1 5,900 5,900,000
- -------------------------------------------------------------------------------
Arizona (State of) Agricultural
Improvement and Power District (Salt
River Project); Promissory Notes
3.45% 04/07/97 A-1+ P-1 3,000 3,000,140
- -------------------------------------------------------------------------------
3.55% 06/13/97 A-1+ P-1 9,570 9,570,000
- -------------------------------------------------------------------------------
Maricopa (County of) Union High School
District No. 210; Series 1995 A GO
5.75% 07/01/97 AA Aa 1,000 1,004,836
- -------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Tucson Electric Co. Project);
Refunding Series 1982 A IDR
3.50% 06/15/22(b)(c) A-1+ VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
</TABLE>
A-28
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Arizona - (continued)
Tempe (City of) Industrial Development
Authority (Elliot's Crossing Apartment
Project); Variable Rate Demand
Multifamily Housing Series RB
3.45% 10/01/08(b)(c) A-1+ -- $ 2,800 $ 2,800,000
- -------------------------------------------------------------------------------
24,274,976
- -------------------------------------------------------------------------------
COLORADO - 3.49%
Adams (County of) Industrial Development
(Clear Creek Business); Series 1984 RB
3.55% 11/01/08(b)(c) -- VMIG-1 8,300 8,300,000
- -------------------------------------------------------------------------------
Colorado (State of) General Fund; Series
1996 A TRAN
4.50% 06/27/97 SP-1+ -- 5,000 5,007,338
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Coventry Village Project); Multifamily
Housing Revenue Series 1996 B RB
3.55% 10/15/16(b)(c) A-1+ -- 5,370 5,370,000
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Winridge Project); Adjustable
Refunding Multifamily Housing Series
1993 RB
3.50% 02/01/23(b)(c) A-1+ -- 12,715 12,715,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.45% 07/01/06(b)(c) -- VMIG-1 3,700 3,700,000
- -------------------------------------------------------------------------------
35,092,338
- -------------------------------------------------------------------------------
CONNECTICUT - 0.36%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special
Tax Obligation RB
3.40% 12/01/10(b)(c) A-1+ VMIG-1 2,225 2,225,000
- -------------------------------------------------------------------------------
Connecticut (State of) Power and Light
Development Authority; Series 1993 A RB
3.50% 09/01/28(b)(c) A-1+ VMIG-1 1,425 1,425,000
- -------------------------------------------------------------------------------
3,650,000
- -------------------------------------------------------------------------------
DELAWARE - 0.10%
Delaware Transportation Authority
System; RB
7.00% 07/01/97(d) AAA Aaa 1,000 1,008,198
- -------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 0.38%
District of Columbia (The American
University Issue); Variable Rate Weekly
Demand Series 1985 RB
3.45% 10/01/15(b)(c) -- VMIG-1 3,800 3,800,000
- -------------------------------------------------------------------------------
</TABLE>
A-29
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
FLORIDA - 4.49%
Alachua (County of) Health Facility
Authority (Shands Teaching Hospital);
Series 1996 B RB
3.50% 12/01/26(b)(d) A-1+ VMIG-1 $13,700 $ 13,700,000
- -------------------------------------------------------------------------------
Brevard (County of) Housing Finance
Authority (Palm Place Project);
Multifamily Housing Series 1985 RB
3.55% 12/01/07(b)(c) -- VMIG-1 7,500 7,500,000
- -------------------------------------------------------------------------------
Florida Housing Finance Agency (Woodlands
Project); Adjustable Rate Multifamily
Housing Series 1985 SS RB
3.45% 12/01/07(b)(c) A-1+ VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Gulf Breeze (City of) (Florida Municipal
Bond Fund); Variable Rate Demand Series
1995 A RB
3.46% 03/31/21(b)(c) A-1 -- 10,000 10,000,000
- -------------------------------------------------------------------------------
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Cooperative Finance Corp. Guaranteed
Floating/Fixed Rate Pooled Series 1984 H-
1 PCR
3.45% 03/15/14(b)(c) A-1+ P-1 3,915 3,915,000
- -------------------------------------------------------------------------------
Sunshine State Governmental Financing
Commission (Florida State Board of
Administration); Government Financing
Program Tax Exempt Commercial Notes
3.55% 06/20/97(d) A-1+ -- 8,000 8,000,000
- -------------------------------------------------------------------------------
45,115,000
- -------------------------------------------------------------------------------
GEORGIA - 3.81%
Cobb (County of) Housing Authority
(Greenhouse Frey Apartment Project);
Multifamily Housing RB
3.45% 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Decatur County Bainbridge Industrial
Development Authority (Kaiser Agriculture
Chemical Inc. Project); Series 1985 IDR
3.50% 12/01/02(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Dekalb (County of) Housing Authority
(Camden Brook Project); Multifamily
Housing Series 1995 RB
3.45% 06/15/25(b)(c) A-1+ VMIG-1 6,000 6,000,000
- -------------------------------------------------------------------------------
Dekalb (County of) Housing Authority
(Clairmont Crest Project); Multifamily
Housing Series 1995 RB
3.45% 06/15/25(b)(c) A-1+ -- 7,600 7,600,000
- -------------------------------------------------------------------------------
</TABLE>
A-30
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Georgia - (continued)
Dekalb (County of) Private Hospital
Authority (Egleston Children's Hospital at
Emory University Health Care System
Project); Variable Rate Demand Series 1995
A RAN
3.45% 03/01/24(b)(c) A-1+ VMIG-1 $ 3,000 $ 3,000,000
- -------------------------------------------------------------------------------
Development Authority of Dekalb County
(Radiation Sterilizers, Inc. Project);
Variable Rate Demand Series 1985 IDR
3.60% 03/01/05(b)(c) A-1 -- 4,600 4,600,000
- -------------------------------------------------------------------------------
Municipal Gas Authority of Georgia (Agency
Project); Series 1996 A RB
3.45% 11/01/06(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Roswell (City of) Housing Authority;
Multifamily
Housing RB
3.45% 08/01/30(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
38,300,000
- -------------------------------------------------------------------------------
ILLINOIS - 12.21%
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
3.55% 10/31/97(c)(e) SP-1+ MIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
Cook (County of) (Catholic Charities
Housing Development Corp. Project);
Adjustable Demand Series 1988 A-1 RB
3.50% 01/01/28(b)(c) -- VMIG-1 1,700 1,700,000
- -------------------------------------------------------------------------------
Cook (County of) High School District No.
201 (Cicero); GO
7.30% 12/01/97(d) AAA Aaa 6,500 6,652,936
- -------------------------------------------------------------------------------
Du Page Water Commission; RB
6.875% 05/01/97(f) AAA -- 1,000 1,022,598
- -------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily Housing
Series 1983 RB
3.65% 06/01/08(b)(c) -- Aa3 6,070 6,070,000
- -------------------------------------------------------------------------------
Illinois (State of); Sales Tax Series E RB
8.10% 06/15/97(f) AAA Aaa 1,435 1,475,693
- -------------------------------------------------------------------------------
Illinois Development Finance Authority;
Variable Rate Demand Notes Series 1996-
1997A
3.50% 06/30/97(b)(c) A-1+ -- 6,600 6,600,000
- -------------------------------------------------------------------------------
</TABLE>
A-31
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Illinois - (continued)
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB
3.45% 08/01/26(b)(c) A-1+ -- $10,000 $ 10,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Chicago Symphony Orchestra Project);
Variable/Fixed Rate Demand Series 1996 RB
3.50% 06/01/31(b)(c) A-1+ VMIG-1 5,129 5,129,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Commonwealth Edison Co.); PCR
3.45% Series A 12/01/06(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Institutional Gas Technology Project);
Variable Rate Series 1993 RB
3.50% 09/01/18(b)(c) A-1+ -- 2,600 2,600,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Revenue Anticipation
Notes Program); Variable Rate Demand
Series 1996-1997B RAN
3.50% 06/30/97(b)(c) A-1+ -- 5,225 5,225,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Museum of Science & Industry); Variable
Rate Series 1992 RB
3.50% 10/15/06(c)(e) -- VMIG-1 9,000 9,000,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Pooled Financing Program); Adjustable
Rate Series 1985 RB
3.50% 12/01/05(b)(d) A-1+ VMIG-1 3,780 3,780,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled Series D
3.50% 08/01/15(b)(c) A-1+ VMIG-1 4,550 4,550,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Streetville Corp.); Variable Rate Series
1994 RB
3.50% 08/15/24(b)(c) A-1+ P-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Advocate Health Care Network); Variable
Rate Series 1997 B RB
3.55% 08/15/22(b)(d) A-1+ VMIG-1 10,140 10,140,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Series 1995 RB
4.00% 08/15/25(b)(d) A-1+ VMIG-1 7,800 7,800,000
- -------------------------------------------------------------------------------
Marseilles (City of) (Kaiser Agricultural
Chemicals Inc. Project); Variable Rate
Demand Series 1985 IDR
3.50% 01/01/98(b)(c) A-1+ -- 3,750 3,750,000
- -------------------------------------------------------------------------------
</TABLE>
A-32
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Illinois - (continued)
Oak Forest (City of) (Homewood Pool);
Series 1989 RB
3.50% 07/01/24(b)(c) -- VMIG-1 $ 3,000 $ 3,000,000
- -------------------------------------------------------------------------------
Village of Lisle (Four Lakes Project Phase
Five); Multifamily Housing Revenue
Refunding Series 1996
3.45% 09/15/26(b)(c) A-1+ -- 15,380 15,380,000
- -------------------------------------------------------------------------------
Village of Northbrook (Euromarket Designs,
Inc. Project); Variable Rate Demand
Refunding Series 1993 IDR
3.50% 07/01/02(b)(c) A-1+ -- 3,100 3,100,000
- -------------------------------------------------------------------------------
122,575,227
- -------------------------------------------------------------------------------
INDIANA - 2.51%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate Demand Economic
Development Series 1985 RB
3.55% 07/01/10(b)(c) -- VMIG-1 1,200 1,200,000
- -------------------------------------------------------------------------------
Indianapolis (City of); Local Public
Improvement Series 1996 F RB
4.125% 07/10/97 SP-1 -- 3,000 3,004,789
- -------------------------------------------------------------------------------
Indianapolis (City of) (Childrens Museum
Project); Economic Development Floating
Rate Series 1995 RB
3.45% 10/01/25(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Indianapolis (City of) (Jewish Community
Campus Project); Variable Rate Economic
Development RB
3.45% 04/01/05(b)(c) -- VMIG-1 2,395 2,395,000
- -------------------------------------------------------------------------------
Petersburg (City of) (Indianapolis Power
and Light Co. Project); Adjustable Rate
Tender Securities Series 1995 B PCR
3.45% 01/01/23(b)(d) A-1+ VMIG-1 2,700 2,700,000
- -------------------------------------------------------------------------------
Rockport (City of) Indiana Development
Authority (AEP Generating Company
Project); Series 1995 A PCR
3.80% 07/01/25(b)(d) A-1c Aaa 3,900 3,900,000
- -------------------------------------------------------------------------------
Rockport (City of) Indiana Development
Authority (AEP Generating Company Project
B); Series 1995 B PCR
3.85% 07/01/25(b)(d) A-1c Aaa 1,600 1,600,000
- -------------------------------------------------------------------------------
Sullivan (City of) (Hoosier Energy Rural
Electric Cooperative, Inc.); National
Rural Utilities Cooperative Finance Corp.
Series 1985 L-1 Commercial Notes
3.40% 05/16/97(c)(e) A-1+ P-1 5,400 5,400,000
- -------------------------------------------------------------------------------
25,199,789
- -------------------------------------------------------------------------------
</TABLE>
A-33
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
IOWA - 0.17%
Iowa Higher Education Loan Authority;
Private College Facility RB
3.45% 12/01/15(b)(d) A-1+ VMIG-1 $ 1,700 $ 1,700,000
- -------------------------------------------------------------------------------
KANSAS - 0.50%
Mission (City of) (Silverwood Apartment
Project); Multifamily RB
3.45% 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
KENTUCKY - 1.32%
Mason County (East Kentucky Power
Cooperative, Inc. Project); National Rural
Utilities Cooperative Finance Corp.
Guaranteed Floating/Fixed Rate Pooled
Series 1984 B-2 PCR
3.45% 10/15/14(b)(c) A-1 Aa3 9,150 9,150,000
- -------------------------------------------------------------------------------
Mayfield (City of) (Kentucky League of
Cities Funding Trust Pooled Lease Financing
Program); Variable Rate Multi-City Lease
Series 1996 RB
3.55% 07/01/26(b)(c) A-1 VMIG-1 4,100 4,100,000
- -------------------------------------------------------------------------------
13,250,000
- -------------------------------------------------------------------------------
LOUISIANA - 0.95%
East Baton Rouge Mortgage Finance Authority
(GNMA and FNMA Mortgage-Backed Securities
Program); Single Family Mortgage Refunding
Series 1996 C-1 RB
3.85% 04/03/97(e)(f) -- VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Greenbriar Hospital Inc. Project);
Variable Rate Demand Series 1984 RB
3.50% 11/01/14(b)(c) -- Aa2 2,500 2,500,000
- -------------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Willi-Knighton Medical Center Project);
Hospital Series 1995 RB
3.50% 09/01/25(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
9,500,000
- -------------------------------------------------------------------------------
MARYLAND - 0.35%
Prince George (County of) Housing Authority
(Laurel-Oxford Associates Apartment
Project); Mortgage Series 1985 RB
3.525% 10/01/07(b)(c) -- VMIG-1 3,500 3,500,000
- -------------------------------------------------------------------------------
</TABLE>
A-34
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MASSACHUSETTS - 0.15%
Massachusetts Health & Educational
Facilities Authority (Harvard
University Issue); Variable Rate
Demand Series 1 RB
3.30% 08/01/17(b)(d) A-1+ VMIG-1 $ 1,500 $ 1,500,000
- -----------------------------------------------------------------------------
MICHIGAN - 5.89%
Jackson County Economic Development
Corp. (Sealed Power Corp.); Economic
Development Variable Refunding RB
3.55% 10/01/19(b)(c) -- VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------------------
Michigan (State of); Full Faith &
Credit General Obligation Notes
Series 1997
4.50% 09/30/97 SP-1+ MIG-1 7,000 7,035,340
- -----------------------------------------------------------------------------
Michigan State Hospital Finance
Authority
(Hospital Equipment Loan Program);
Hospital RB
3.55% Pooled Series 1994 A
12/01/23(b)(c) -- VMIG-1 5,600 5,600,000
- -----------------------------------------------------------------------------
3.55% Pooled Series 1995 A
12/01/23(b)(c) -- VMIG-1 2,900 2,900,000
- -----------------------------------------------------------------------------
3.55% Pooled Series 1996 A
12/01/23(b)(c) -- VMIG-1 6,900 6,900,000
- -----------------------------------------------------------------------------
Michigan State Strategic Fund (Detroit
Edison Co.);
Limited Obligation RB
4.00% 09/01/30(b)(c) A-1+ P-1 5,000 5,000,000
- -----------------------------------------------------------------------------
Michigan State Strategic Fund
(Peachwood Center Association
Project); Limited Obligation Series
1995 RB
3.45% 06/01/16(b)(c) A-1+ -- 2,350 2,350,000
- -----------------------------------------------------------------------------
Michigan State Underground Storage
Tank Financial Assurance Authority;
Series I RB
5.00% 05/01/97(d) AAA Aaa 6,500 6,505,948
- -----------------------------------------------------------------------------
Michigan Strategic Fund (Consumer's
Power Corp.); Variable Rate Demand
Series 1988 A PCR
3.80% 04/15/18(b)(c) -- P-1 4,844 4,843,500
- -----------------------------------------------------------------------------
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited
Obligation Series 1985 RB
3.40% 10/01/15(b)(c) -- VMIG-1 3,650 3,650,000
- -----------------------------------------------------------------------------
Michigan Strategic Fund (The Norcor
Corp. Project); IDR
3.45% 12/01/00(b)(c) -- P-1 4,400 4,400,000
- -----------------------------------------------------------------------------
Monroe (County of) (Detroit Edison
Co.); Limited Obligation Revenue
Adjusting Refunding Series 1992 CC RB
4.00% 10/01/24(b)(c) -- P-1 4,000 4,000,000
- -----------------------------------------------------------------------------
</TABLE>
A-35
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Michigan - (continued)
Wayne County School District; State
School Aid
Limited Tax Series 1996 GO
4.50% 05/01/97 SP-1+ -- $ 5,000 $ 5,002,189
- -------------------------------------------------------------------------------
59,186,977
- -------------------------------------------------------------------------------
MINNESOTA - 1.90%
Bloomington (City of) Port Authority
(Mall of America Project); Special Tax
Revenue Series 1996 B RB
3.50% 02/01/13(b)(d) A-1+ VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Duluth (City of) (Miller-Dwan Medical
Center); Variable Rate Demand Health
Facilities Series 1996 RB
3.80% 06/01/19(b)(c) A-1+ -- 7,000 7,000,000
- -------------------------------------------------------------------------------
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
3.55% 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
3.50% 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
3.55% 03/01/11(b)(d) AA- A1 1,200 1,200,000
- -------------------------------------------------------------------------------
19,100,000
- -------------------------------------------------------------------------------
MISSOURI - 2.22%
Kansas (City of) (Sleepy Hollow
Apartment Project); Multifamily Housing
Series 1996 RB
3.45% 09/15/26(b)(c) A-1+ -- 7,500 7,500,000
- -------------------------------------------------------------------------------
Missouri Health & Educational Facilities
Authority (St. Francis Medical Center);
Variable Rate Demand Health Facilities
Series 1996 A RB
3.80% 06/01/26(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
Missouri State Environmental Improvement
& Energy Resource Authority (Associated
Electric Cooperative, Inc. Project);
Pooled Series 1993-M RB
3.45% 12/15/03(b)(c) AA- VMIG-1 2,490 2,490,000
- -------------------------------------------------------------------------------
Saint Louis County Industrial
Development Authority (Bonhomme Village
Apartments Association Project);
Variable Rate Demand Housing Series
1985 RB
3.65% 10/01/07(b)(c) -- VMIG-1 6,900 6,900,000
- -------------------------------------------------------------------------------
</TABLE>
A-36
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Missouri - (continued)
Sikeston (City of) Missouri; Electric
Revenue RB
5.10% 06/01/97(d) AAA Aaa $ 1,865 $ 1,869,650
- -------------------------------------------------------------------------------
22,259,650
- -------------------------------------------------------------------------------
MISSISSIPPI - 1.60%
Jackson (County of) (Chevron U.S.A. Inc.
Project); Series 1993 PCR
3.80% 12/01/16(b) -- P-1 2,900 2,900,000
- -------------------------------------------------------------------------------
3.80% 06/01/23(b) -- P-1 6,100 6,100,000
- -------------------------------------------------------------------------------
Perry (County of) (Leaf River Forest
Project); Series 1989 PCR
3.50% 10/01/12(b)(c) -- P-1 7,100 7,100,000
- -------------------------------------------------------------------------------
16,100,000
- -------------------------------------------------------------------------------
MONTANA - 0.40%
Montana (State of); Series 1996 TRAN
4.50% 06/27/97 SP-1+ MIG-1 4,000 4,007,483
- -------------------------------------------------------------------------------
NEVADA - 0.20%
Clark (County of) (Nevada Power Co.
Project);
Series 1995 D-1 PCR
3.45% 10/01/11(b)(c) A-1+ -- 2,000 2,000,000
- -------------------------------------------------------------------------------
NEW HAMPSHIRE - 1.33%
New Hampshire Higher Educational and
Health Facilities Authority (VHA of New
England Capital Asset Financial
Program); Variable Rate Hospital Series
1985 G RB
3.45% Series G 12/01/25(b)(d) A-1 Aaa 7,925 7,925,000
- -------------------------------------------------------------------------------
New Hampshire Housing Finance Authority
(EQR-Bond Partnership-Manchester
Project); Multifamily Housing Refunding
Series 1996 RB
3.45% 09/15/26(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
New Hampshire Industrial Development
Authority (Bangor Hydro-Electric Co.
Project); Variable Rate Demand Series
1983 PCR
3.40% 01/01/09(b)(c) A-1+ -- 400 400,000
- -------------------------------------------------------------------------------
13,325,000
- -------------------------------------------------------------------------------
NEW MEXICO - 1.96%
Farmington (City of) (Public Service Co.
of New Mexico San Juan Project); Series
1997 B PCR
3.45% 04/01/22(b)(c) A-1+ P-1 14,000 14,000,000
- -------------------------------------------------------------------------------
</TABLE>
A-37
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
New Mexico - (continued)
Hurley (Town of) (Kennecott Santa Fe Corp.
Project); Unit Priced Demand Adjustable
Series 1985 PCR
3.80% 12/01/15(b)(d) A-1+ P-1 $ 4,600 $ 4,600,000
- ------------------------------------------------------------------------------
Las Cruces (City of); Joint Utility
Refunding and Improvement Series 1997 A
RB
4.00% 07/01/97 AAA Aaa 1,070 1,071,034
- ------------------------------------------------------------------------------
19,671,034
- ------------------------------------------------------------------------------
NEW YORK - 18.25%
Eagle Tax Exempt Trust; Class A COP(g)
3.56% Series 97C4703 01/01/01(e)(f) A-1+c Aaa 10,800 10,800,000
- ------------------------------------------------------------------------------
3.61% Series 1993 E 08/01/06(b)(d) A-1+c -- 15,000 15,000,000
- ------------------------------------------------------------------------------
3.61% Series 1993 F 08/01/06(b)(d) A-1+c -- 20,500 20,500,000
- ------------------------------------------------------------------------------
3.61% Series 943902 05/01/07(b)(d) A-1+c -- 17,800 17,800,000
- ------------------------------------------------------------------------------
3.61% Series 943901 06/15/07(b)(d) A-1+c -- 14,500 14,500,000
- ------------------------------------------------------------------------------
3.61% Series 94C2102 06/01/14(b)(c) A-1+c -- 10,100 10,100,000
- ------------------------------------------------------------------------------
3.56% Series 97C4702 01/01/20(b)(d) A-1+c Aa1 9,500 9,500,000
- ------------------------------------------------------------------------------
3.61% Series 950901 06/01/21(b)(d) A-1+c -- 12,700 12,700,000
- ------------------------------------------------------------------------------
3.56% Series 943207 07/01/29(b)(d) A-1+c -- 14,200 14,200,000
- ------------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington Public
Power Supply System Project No. 2);
Series 964703 Class A COP
3.56% 07/01/11(b)(d)(g) A-1+c -- 5,600 5,600,000
- ------------------------------------------------------------------------------
Merrill Lynch Group Float Program, New
York State Medical Facilities Finance
Agency (St. Lukes-Roosevelt Hospital
Center); Floating Option Tax-Exempt
Receipts Series PA-113 1993 A Mortgage RB
3.55% 02/15/29(b)(d) A-1+c -- 9,700 9,700,000
- ------------------------------------------------------------------------------
New York (City of); General Obligation
Fiscal Series 1997 B RAN
4.50% 06/30/97(c) SP-1+ MIG-1 20,500 20,546,728
- ------------------------------------------------------------------------------
New York City Housing Development Corp.
(Parkgate Tower); Variable Rate Demand
Resolution Series 1 1985 RB
3.30% 12/01/07(b)(c) A-1+ VMIG-1 5,870 5,870,000
- ------------------------------------------------------------------------------
New York City Municipal Water Finance
Authortiy; Water and Sewer System
Adjustable Rate Series 1994 G RB
3.85% 06/15/24(b)(d) A-1+ VMIG-1 2,000 2,000,000
- ------------------------------------------------------------------------------
New York State Energy Research and
Development Authority (Niagara Mohawk
Power Corp.); PCR
3.80% Series 1985 A 07/01/15(b)(c) A-1+ -- 6,800 6,800,000
- ------------------------------------------------------------------------------
3.80% Series 1985 C 12/01/25(b)(c) -- P-1 2,600 2,600,000
- ------------------------------------------------------------------------------
</TABLE>
A-38
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
New York - (continued)
Triborough (The) Bridge and Tunnel
Authority; Special Obligation Variable
Rate Demand Series 1994 RB
3.45% 01/01/24(b)(d) A-1+ VMIG-1 $ 5,000 $ 5,000,000
- -------------------------------------------------------------------------------
183,216,728
- -------------------------------------------------------------------------------
NORTH CAROLINA - 2.87%
Alamance (County of) Industrial
Facilities & Pollution Control
Financing Authority (Science
Manufacturing Inc. Project); Series
1985 IDR
3.90% 04/01/15(b)(c) -- P-1 3,000 3,000,000
- -------------------------------------------------------------------------------
New Hanover (County of) Industrial
Facilities and Pollution Control
Financing Authority (Gang-Nail Systems,
Inc. Project); Series 1984 IDR
3.50% 12/01/99(b)(c) -- P-1 5,600 5,600,000
- -------------------------------------------------------------------------------
North Carolina Educational Facilities
Finance Agency (Elon College); Series
1997 RB
3.35% 01/01/19(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
North Carolina Educational Facilities
Finance Agency (Guillford College
Project); Variable Rate Demand/Fixed
Rate Series 1993 RB
3.80% 09/01/23(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
North Carolina Medical Care Commission
Retirement Community (Adult Communities
Total Services Inc.); Variable Rate
Demand Series 1996 RB
3.50% 11/15/09(b)(c) A-1+ -- 5,655 5,655,000
- -------------------------------------------------------------------------------
North Carolina Medical Care Community
Hospital (Baptist Hospitals Project);
RB
3.45% 06/01/12(b)(c) A-1+ VMIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
North Carolina Municipal Power Agency
Number 1 (Catawba Project) Tax Exempt
Commercial Notes
3.40% 05/21/97(c) A-1+ P-1 3,500 3,500,000
- -------------------------------------------------------------------------------
28,855,000
- -------------------------------------------------------------------------------
OHIO - 2.14%
Cuyahoga (County of) (S&R Playhouse
Realty Co.); Adjustable Rate Demand
Series 1984 IDR
3.65% 12/01/09(b(c) -- MIG-1 635 635,000
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.65% 11/01/14(b)(c) -- P-1 8,800 8,800,000
- -------------------------------------------------------------------------------
</TABLE>
A-39
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Ohio - (continued)
Lucas (County of) (Lutheran Homes
Society Project); Adjustable Rate
Demand Health Care Facilities Series
1996 RB
3.45% 11/01/19(b)(c) A-1+ -- $ 2,800 $ 2,800,000
- -------------------------------------------------------------------------------
Marion (County of) (Pooled Lease
Program); Hospital RB
3.55% 10/01/22(b)(c) A-1+ -- 2,095 2,095,000
- -------------------------------------------------------------------------------
Ohio Building Authority (Art Facilities
Building Fund Projects); State
Facilities Series 1997 A RB
4.00% 10/01/97 AA- Aa3 3,180 3,184,889
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.35% 12/01/15(b)(c) -- VMIG-1 956 956,000
- -------------------------------------------------------------------------------
Summit (County of) Various Purpose
Notes; Series 1996 B General
Obligation BAN
4.00% 06/05/97 -- MIG-1 3,000 3,001,800
- -------------------------------------------------------------------------------
21,466 21,472,689
- -------------------------------------------------------------------------------
OKLAHOMA - 1.00%
Oklahoma Water Resource Board State
Loan Program;
Series 1994 A RB
3.50% 09/01/97(e) A-1+ -- 10,000 10,000,000
- -------------------------------------------------------------------------------
OREGON - 0.59%
Portland (City of) (South Park Block
Project); Multifamily Housing
Refunding Series 1988 A RB
3.45% 12/01/11(b)(c) A-1+ -- 5,900 5,900,000
- -------------------------------------------------------------------------------
PENNSYLVANIA - 2.78%
Commonwealth of Pennsylvania; First
Series 1996-1997 TAN
4.50% 06/30/97 SP-1+ MIG-1 14,550 14,582,217
- -------------------------------------------------------------------------------
Delaware County Industrial Development
Authority (Henderson-Radnor Joint
Venture Project); Limited Obligation
Series 1985 IDR
3.55% 04/01/15(b)(c) -- Aa3 855 855,000
- -------------------------------------------------------------------------------
Emmaus (City of) General Authority;
Series 1996 RB
3.65% 12/01/28(b)(d) A-1+ -- 3,000 3,000,000
- -------------------------------------------------------------------------------
Schuykill County Industrial Development
Authority (Gilberton Power Project);
Variable Rate Resources Recovery
Series 1985 RB
3.45% 12/01/02(b)(c) A-1 -- 2,300 2,300,000
- -------------------------------------------------------------------------------
</TABLE>
A-40
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Pennsylvania - (continued)
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
- -------------------------------------------------------------------------------
York (City of) General Authority;
Adjustable Rate Pooled Financing Series
1996 RB
3.50% 09/01/26(b)(c) A-1 -- 4,900 4,900,000
- -------------------------------------------------------------------------------
27,937,217
- -------------------------------------------------------------------------------
RHODE ISLAND - 0.13%
Rhode Island and Providence Plantations;
Lease Participation Certificates
Correctional Facilities Refunding Series
1997 RB
4.75% 10/01/97(d) AAA Aaa 1,290 1,296,734
- -------------------------------------------------------------------------------
SOUTH CAROLINA - 0.89%
Horry (County of) (Carolina Treatment
Center); Variable Rate Demand Series
1984 RB
3.45% 12/01/14(b)(c) -- Aa2 2,300 2,300,000
- -------------------------------------------------------------------------------
Rock Hill (City of); Utilities System RB
3.45% 01/01/22(b)(d) A-1+ VMIG-1 6,675 6,675,000
- -------------------------------------------------------------------------------
8,975,000
- -------------------------------------------------------------------------------
TENNESSEE - 3.39%
Health, Educational and Housing Facility
Board of Shelby County (Rhodes College);
Variable Rate Demand Educational
Facilities Series 1985 RB
3.45% 08/01/10(b)(c) A-1+ -- 2,075 2,075,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Knoxville (Toys "R" Us Inc.,
Project); Series 1984 IDR
3.65% 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
3.35% 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 IDR
3.35% 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
3.35% 12/01/14(b)(c) A-1+ -- 2,900 2,900,000
- -------------------------------------------------------------------------------
</TABLE>
A-41
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Tennessee - (continued)
Knox County Industrial Development Board
(Weisgarber Partners Ltd Project);
Floating Rate Series 1984 IDR
3.35% 12/01/14(b)(c) A-1+ -- $ 700 $ 700,000
- ------------------------------------------------------------------------------
Nashville and Davidson (County of)
Industrial Development Board of Metro
Government (Amberwood Ltd Project);
Multifamily Housing RB
3.76% Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,345 2,345,000
- ------------------------------------------------------------------------------
3.76% Series 1993 B 07/01/13(b)(c) A-1 VMIG-1 1,990 1,990,000
- ------------------------------------------------------------------------------
Tennessee State School Bond Authority;
Higher Educational Facilities BAN
3.45% Series 1997 A 03/01/98(b)(d) A-1+ VMIG-1 7,000 7,000,000
- ------------------------------------------------------------------------------
3.45% Series A 07/02/01(b) A-1+ VMIG-1 2,000 2,000,000
- ------------------------------------------------------------------------------
3.45% Series C 07/02/01(b) A-1+ VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
34,060,000
- ------------------------------------------------------------------------------
TEXAS - 10.44%
Angelina & Neches River Authority
Industrial Development Corp.; Solid
Waste Disposal Series 1984 C RB
4.00% 05/01/14(b)(c) -- P-1 2,700 2,700,000
- ------------------------------------------------------------------------------
Angelina & Neches River Authority
Industrial Development Corp. (Temple
Inland Marine); Series 1984 D RB
4.00% 05/01/14(b)(c) -- P-1 3,300 3,300,000
- ------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apartments);
Multifamily RB
3.45% 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- ------------------------------------------------------------------------------
Brazos River Harbor Navigation District
of Brazoria County (Hoffman-La Roche
Inc. Project); Series 1985 RB
3.425% 04/01/02(b)(c) -- A1 2,750 2,750,000
- ------------------------------------------------------------------------------
Dallas Area Rapid Transit; Sales Tax
Revenue Series B Commercial Paper Notes
3.55% 05/28/97(c) A-1+ P-1 5,000 5,000,000
- ------------------------------------------------------------------------------
Harris (County of); Sub Lein Toll Road
Series D RB
3.30% 08/01/15(b)(c) A-1+ VMIG-1 8,400 8,400,000
- ------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Buckner Retirement
Services, Inc. Project); Series 1996 RB
3.50% 08/15/26(b)(c) -- VMIG-1 17,800 17,800,000
- ------------------------------------------------------------------------------
</TABLE>
A-42
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
Texas - (continued)
Harris County Health Facilities
Development Corp. (Greater Houston
Pooled Health); Series 1985 A RB
3.55% 11/01/25(b)(c) A-1 -- $ 2,900 $ 2,900,000
- ------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 RB
3.45% 04/01/17(b)(c) A-1 -- 3,450 3,450,000
- ------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Memorial Hospital
System Project); Series 1997 B RB
3.35% 06/01/24(b)(d) -- VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
North Central Texas Health Facilities
Development Authority (Presbyterian
Medical Center); Series
1985 C RB
3.80% 12/01/15(b)(d) A-1 VMIG-1 2,300 2,300,000
- ------------------------------------------------------------------------------
Nueces County Health Facilities
Development Corp. (Driscoll Childrens
Hospital); Floating Rate Demand
Hospital Series 1985 RB
3.45% 07/01/15(b)(c) -- VMIG-1 2,570 2,570,000
- ------------------------------------------------------------------------------
Tarrant (County of) Texas Housing
Finance Corp. (Windcastle Project);
Multifamily Housing RB
3.55% 08/01/26(b)(c) A-1+ -- 2,100 2,100,000
- ------------------------------------------------------------------------------
Texas (State of); Series 1996 TRAN
4.75% 08/29/97 SP-1+ MIG-1 21,000 21,074,669
- ------------------------------------------------------------------------------
Texas Department of Housing and
Community Affairs; SFM Tax Exempt
Refunding Series B Commercial Paper
Notes
3.60% 06/26/97(d) A-1+ -- 2,655 2,655,000
- ------------------------------------------------------------------------------
Texas Department of Housing and Urban
Affairs (Remington Hill Department);
Multifamily Housing Refunding Series
1993 B RB
3.50% 02/01/23(b)(c) A-1+ -- 13,880 13,880,000
- ------------------------------------------------------------------------------
Texas State Public Finance Authority;
Building RB
6.40% 02/01/98(d) AAA Aaa 1,850 1,891,505
- ------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
3.60% Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
- ------------------------------------------------------------------------------
3.60% Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
- ------------------------------------------------------------------------------
104,921,174
- ------------------------------------------------------------------------------
</TABLE>
A-43
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
UTAH - 2.06%
Bountiful (City of) (Bountiful Gateway
Park Project); Adjustable Rate Refunding
Series 1987 IDR
3.75% 12/01/97(b)(c) A-1+ -- $ 3,785 $ 3,785,000
- -------------------------------------------------------------------------------
Intermountain Power Agency; Variable Rate
Power Supply Refunding Series 1985 E
Commercial Notes
3.50% 08/22/97(c) A-1+ VMIG-1 8,200 8,200,000
- -------------------------------------------------------------------------------
State Board of Regents of the State of
Utah (University Inn Project); Variable
Rate Demand Series 1985 IDR
4.00% 12/01/15(b)(c) -- P-1 8,655 8,655,000
- -------------------------------------------------------------------------------
20,640,000
- -------------------------------------------------------------------------------
VERMONT - 0.71%
Vermont Educational and Health Buildings
(VHA New England); Financing Agency RB
3.45% Series E 12/01/25(b)(d) A-1 Aaa 2,500 2,500,000
- -------------------------------------------------------------------------------
3.45% Series F 12/01/25(b)(d) A-1+ Aaa 2,100 2,100,000
- -------------------------------------------------------------------------------
Vermont (State of) Health and Education
Building Finance Agency (VHA of New
England Capital Asset Finance Program);
Variable Rate Hospital Series 1985 G RB
3.45% 12/01/25(b)(d) A-1+ Aaa 2,560 2,560,000
- -------------------------------------------------------------------------------
7,160,000
- -------------------------------------------------------------------------------
VIRGINIA - 2.30%
Henrico (County of) Virginia Industrial
Development Authority (Hermitage
Project); Variable Rate Health
Facilities Bonds Series 1994 RB
3.90% 05/01/24(b)(c) -- VMIG-1 6,071 6,070,500
- -------------------------------------------------------------------------------
Industrial Development Authority of the
City of Lynchburg (VHA Mid-Atlantic
States, Inc.); Capital Asset Financing
Program Variable Rate Hospital Series
1985 F RB
3.50% 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
Industrial Development Authority of the
City of Norfolk (Sentara Hospitals-
Norfolk Project); Series 1990 A
Commercial Paper Notes
3.50% 05/22/97(e) A-1+ VMIG-1 14,985 14,985,000
- -------------------------------------------------------------------------------
Peninsula Ports Authority of Virginia
(Dominion Terminal Associates Project);
Coal Terminal Refunding Series 1987 D RB
3.70% 07/01/16(b)(c) -- P-1 1,000 1,000,000
- -------------------------------------------------------------------------------
23,055,500
- -------------------------------------------------------------------------------
</TABLE>
A-44
<PAGE>
<TABLE>
RATING(A) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WASHINGTON - 0.14%
Clark (County of) (Evergreen School
District No. 114); Unlimited Tax
Series 1996 GO
6.00% 06/01/97(c) AAA Aaa $ 1,440 $ 1,445,183
- -----------------------------------------------------------------------------
WEST VIRGINIA - 2.35%
West Virginia Hospital Finance
Authority (VHA
Mid-Atlantic States, Inc. Capital
Asset Financing Program); RB
3.50% Series 1985 B 12/01/25(b)(d) A-1+ Aaa 3,000 3,000,000
- -----------------------------------------------------------------------------
3.50% Series 1985 C 12/01/25(b)(d) A-1 Aaa 3,500 3,500,000
- -----------------------------------------------------------------------------
3.50% Series 1985 D 12/01/25(b)(d) A-1 -- 1,400 1,400,000
- -----------------------------------------------------------------------------
3.50% Series 1985 E 12/01/25(b)(d) A-1 Aaa 1,400 1,400,000
- -----------------------------------------------------------------------------
3.50% Series 1985 F 12/01/25(b)(d) A-1 Aaa 5,700 5,700,000
- -----------------------------------------------------------------------------
3.50% Series 1985 H 12/01/25(b)(d) A-1 Aaa 8,600 8,600,000
- -----------------------------------------------------------------------------
23,600,000
- -----------------------------------------------------------------------------
WISCONSIN - 1.10%
Wisconsin (State of); GO
4.50% 06/16/97 SP-1+ MIG-1 6,000 6,007,766
- -----------------------------------------------------------------------------
Wisconsin (State of); Series C GO
7.00% 05/01/97(e)(f) AAA AAA 1,000 1,012,524
- -----------------------------------------------------------------------------
Wisconsin Health and Education
Facilities Authority (Wheaton
Franciscan Services, Inc. System);
Variable Rate Demand Series 1997 RB
3.35% 08/15/16(b)(c) A-1+ VMIG-1 4,000 4,000,000
- -----------------------------------------------------------------------------
11,020,290
- -----------------------------------------------------------------------------
WYOMING - 0.25%
Uinta (County of) (Chevron USA
Project); Series
1993 PCR
3.80% 08/15/20(e) -- P-1 2,500 2,500,000
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS - 103.27% 1,036,936,187(h)
- -----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -
(3.27%) (32,825,030)
- -----------------------------------------------------------------------------
NET ASSETS - 100.00% $1,004,111,157
- -----------------------------------------------------------------------------
</TABLE>
A-45
<PAGE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<S> <C> <C> <C>
BAN Bond Anticipation Notes RAN Revenue Anticipation Notes
COP Certificates of Participation RB Revenue Bonds
GO General Obligation Bonds TAN Tax Anticipation Notes
IDR Industrial Development Revenue Bonds TRAN Tax and Revenue Anticipation Notes
PCR Pollution Control Revenue Bonds
</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 Auditor's Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rate shown is the rate in effect on March 31, 1997.
(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 of which the value
and return 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
sales 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
complexitites and potential risks that may not be present where a municipal
security is owned directly.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
A-46
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,036,936,187
- ------------------------------------------------------------------------
Cash 71,176
- ------------------------------------------------------------------------
Receivables for:
Investments sold 245,000
- ------------------------------------------------------------------------
Interest 6,171,284
- ------------------------------------------------------------------------
Reimbursement from advisor 13,000
- ------------------------------------------------------------------------
Investment for deferred compensation plan 24,694
- ------------------------------------------------------------------------
Other assets 70,953
- ------------------------------------------------------------------------
Total assets 1,043,532,294
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 36,361,701
- ------------------------------------------------------------------------
Dividends 2,820,829
- ------------------------------------------------------------------------
Deferred compensation 24,694
- ------------------------------------------------------------------------
Accrued advisory fees 135,309
- ------------------------------------------------------------------------
Accrued directors' fees 5,570
- ------------------------------------------------------------------------
Accrued administrative service fees 11,662
- ------------------------------------------------------------------------
Accrued transfer agent fees 8,000
- ------------------------------------------------------------------------
Accrued distribution fees 7,733
- ------------------------------------------------------------------------
Accrued operating expenses 45,639
- ------------------------------------------------------------------------
Total liabilities 39,421,137
- ------------------------------------------------------------------------
NET ASSETS $1,004,111,157
========================================================================
NET ASSETS:
Institutional Shares $ 966,567,457
========================================================================
Private Investment Class $ 37,543,700
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
- ------------------------------------------------------------------------
Outstanding 966,579,148
========================================================================
Private Investment Class:
Authorized 1,000,000,000
- ------------------------------------------------------------------------
Outstanding 37,544,154
========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
A-47
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $36,350,163
- -----------------------------------------------------------------------
EXPENSES:
Advisory fees 2,346,148
- -----------------------------------------------------------------------
Transfer agent fees 85,916
- -----------------------------------------------------------------------
Administrative service fees 70,077
- -----------------------------------------------------------------------
Directors' fees 15,006
- -----------------------------------------------------------------------
Distribution fees (Note 2) 169,413
- -----------------------------------------------------------------------
Other expenses 232,418
- -----------------------------------------------------------------------
Total expenses 2,918,978
- -----------------------------------------------------------------------
Less fees waived and expenses assumed by advisor (733,219)
- -----------------------------------------------------------------------
Net expenses 2,185,759
- -----------------------------------------------------------------------
Net investment income 34,164,404
- -----------------------------------------------------------------------
Net realized gain on sales of investments 79,682
- -----------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (5,777)
- -----------------------------------------------------------------------
Net increase in net assets resulting from operations $34,238,309
=======================================================================
</TABLE>
See Notes to Financial Statements.
A-48
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 34,164,404 $ 40,503,678
- -----------------------------------------------------------------------------
Net realized gain on sales of investments 79,682 292,222
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (5,777) (30,577)
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 34,238,309 40,765,323
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (33,140,042) (39,402,142)
- -----------------------------------------------------------------------------
Private Investment Class (1,024,362) (1,101,536)
- -----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Shares (42,543,201) (1,106,286)
- -----------------------------------------------------------------------------
Private Investment Class 2,402,025 5,845,831
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (40,067,271) 5,001,190
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,044,178,428 1,039,177,238
- -----------------------------------------------------------------------------
End of period $1,004,111,157 $1,044,178,428
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Shares $ 966,579,148 $1,009,122,349
- -----------------------------------------------------------------------------
Private Investment Class 37,544,154 35,142,129
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (12,145) (91,827)
- -----------------------------------------------------------------------------
Unrealized appreciation of investments -- 5,777
- -----------------------------------------------------------------------------
$1,004,111,157 $1,044,178,428
=============================================================================
</TABLE>
See Notes to Financial Statements.
A-49
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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 - Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are applicable to more than one class are allocated between
the classes.
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 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
A-50
<PAGE>
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, 1997,
AIM reduced its advisory fee from the Fund by $625,513 and assumed expenses of
$23,000.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended March 31, 1997, the Fund
reimbursed AIM $70,077 for such services.
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, 1997, the Private Investment Class
accrued $169,413 as compensation to FMC under the Plan. FMC waived fees of
$84,706 duirng the same period.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Institutional Fund Services, Inc. ("AIFS") a fee for providing
transfer agent and shareholder services to the Fund. During the year ended
March 31, 1997, the Fund paid AIFS $85,916 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, 1997, the Fund paid legal fees of $7,203 for
services rendered by Kramer, Levin, Naftalis & 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, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 4,746,443,085 $ 4,746,443,085 5,051,588,995 $ 5,051,588,995
- -----------------------------------------------------------------------------------------
Private Investment
Class 204,111,511 204,111,511 218,503,050 218,503,050
- -----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 192,345 192,345 99,312 99,312
- -----------------------------------------------------------------------------------------
Private Investment
Class 860,021 860,021 1,064,127 1,064,127
- -----------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (4,789,178,631) (4,789,178,631) (5,052,794,593) (5,052,794,593)
- -----------------------------------------------------------------------------------------
Private Investment
Class (202,569,507) (202,569,507) (213,721,346) (213,721,346)
- -----------------------------------------------------------------------------------------
Net increase (de-
crease) (40,141,176) $ (40,141,176) 4,739,545 $ 4,739,545
=========================================================================================
</TABLE>
A-51
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Institutional Share's capital
stock outstanding during each of the years in the eight-year period ended March
31, 1997, the eleven months ended March 31, 1989 and the year ended April 30,
1988.
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <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 $1.00 $1.00
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Income from
investment
operations:
Net investment
income 0.03 0.04 0.03 0.02 0.03 0.04 0.06 0.06 0.05
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Less
distributions:
Dividends from
net investment
income (0.03) (0.04) (0.03) (0.02) (0.03) (0.04) (0.06) (0.06) (0.05)
- ---------------- -------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
================ ======== ========== ========== ========== ======== ========== ========== ========== ==========
Total return 3.33% 3.67% 3.06% 2.33% 2.66% 4.09% 5.68% 6.22% 5.67%(a)
================ ======== ========== ========== ========== ======== ========== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $966,567 $1,009,039 $1,009,891 $1,040,595 $994,828 $1,191,209 $1,156,557 $1,114,813 $1,062,479
================ ======== ========== ========== ========== ======== ========== ========== ========== ==========
Ratio of
expenses to
average
net assets(b) 0.20%(c) 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%(a)
================ ======== ========== ========== ========== ======== ========== ========== ========== ==========
Ratio of net
investment
income to
average net
assets(d) 3.27%(c) 3.59% 3.01% 2.30% 2.66% 4.00% 5.52% 6.03% 5.52%(a)
================ ======== ========== ========== ========== ======== ========== ========== ========== ==========
<CAPTION>
APRIL 30,
1988
-----------
<S> <C>
Net asset value,
beginning of
period $1.00
- -------------------- -----------
Income from
investment
operations:
Net investment
income 0.04
- -------------------- -----------
Less
distributions:
Dividends from
net investment
income (0.04)
- -------------------- -----------
Net asset value,
end of period $1.00
==================== ==========
Total return 4.56%
==================== ==========
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $1,192,604
==================== ==========
Ratio of
expenses to
average
net assets(b) 0.21%
==================== ==========
Ratio of net
investment
income to
average net
assets(d) 4.47%
==================== ==========
</TABLE>
(a)Annualized.
(b) After waiver of advisory fees and/or expense reimbursements. Ratios of
expenses to average net assets prior to waiver of advisory fees and/or
expense reimbursements were 0.26%, 0.26%, 0.26%, 0.28%, 0.26%, 0.26%,
0.27%, 0.28%, 0.28%(annualized) and 0.29% for the periods 1997-1988,
respectively.
(c) Ratios are based on average net assets of $1,013,970,754.
(d) After waiver of advisory fees and/or expense reimbursements. Ratios of net
investment income to average net assets prior to waiver of advisory fees
and/or expense reimbursements were 3.21%, 3.53%, 2.95%, 2.22%, 2.60%,
3.94%, 5.46%, 5.95%, 5.44%(annualized) and 4.40%, for the periods 1997-
1988, respectively.
A-52
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------- -----------------------------------------------
- -------------------------------------------- -----------------------------------------------
INVESTMENT ADVISOR PROSPECTUS
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100 JULY 29, 1997
Houston, Texas 77046-1173
(713) 626-1919
TAX-FREE
DISTRIBUTOR INVESTMENTS CO.
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100
Houston, Texas 77046 INSTITUTIONAL CASH
(800) 659-1005 RESERVE SHARES
AUDITORS 11 GREENWAY PLAZA, SUITE 100
KPMG PEAT MARWICK LLP HOUSTON, TEXAS 77046-1173
700 Louisiana, NationsBank Building
Houston, Texas 77002
CUSTODIAN PAGE
THE BANK OF NEW YORK ----
90 Washington Street, 11th Floor Organization of the Company.......... 2
New York, New York 10286 Table of Fees and Expenses........... 2
Financial Highlights................. 3
TRANSFER AGENT Suitability for Investors............ 4
A I M INSTITUTIONAL FUND SERVICES, INC. Investment Program................... 4
P.O. Box 4333 Purchase of Shares................... 6
Houston, Texas 77210-4333 Redemption of Shares................. 7
Determination of Net Asset Value..... 8
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY Dividends............................ 8
INFORMATION OR TO MAKE ANY REPRESENTATIONS Performance Information.............. 8
NOT CONTAINED IN THIS PROSPECTUS IN Tax Matters.......................... 9
CONNECTION WITH THE OFFERING MADE BY THIS Management of the Company............ 9
PROSPECTUS, AND IF GIVEN OR MADE, SUCH General Information.................. 11
INFORMATION OR REPRESENTATIONS MUST NOT BE Appendix............................. A-1
RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE FUND OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
IN ANY JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
- -------------------------------------------- -----------------------------------------------
- -------------------------------------------- -----------------------------------------------
</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 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, 1997 HAS BEEN FILED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") 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.
THE SEC MAINTAINS A WEB SITE AT HTTP://WWW.SEC.GOV THAT CONTAINS THE STATEMENT
OF ADDITIONAL INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER
INFORMATION REGARDING THE COMPANY.
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, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <S> <C>
SUMMARY..................... 2 DIVIDENDS.................. 11
TABLE OF FEES AND EXPENSES.. 4 TAXES...................... 12
FINANCIAL HIGHLIGHTS........ 5 NET ASSET VALUE............ 13
SUITABILITY FOR INVESTORS... 5 YIELD INFORMATION.......... 13
INVESTMENT PROGRAM.......... 5 REPORTS TO SHAREHOLDERS.... 14
PURCHASE OF SHARES.......... 9 MANAGEMENT OF THE COMPANY.. 14
REDEMPTION OF SHARES........ 10 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, 1997, 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,
1997, AIM waived a portion of its fees from the Company with respect to the
Portfolio. Had AIM not waived its fee, AIM would have received an amount from
the Company pursuant to the Investment Advisory Agreement with respect to the
Portfolio which represented 0.22% of the Portfolio's average daily net assets.
AIM is primarily engaged in the business of acting as manager or advisor to
investment companies. See "Management of the Company--Investment Advisor."
DISTRIBUTOR AND DISTRIBUTION PLAN
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Class. Pursuant to a Distribution Plan (the "Plan") adopted by
the Company pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "1940 Act") with respect to the Class, the Company may pay up
to 0.50% of the Portfolio's average net asset value attributable to the shares
of the Class to FMC and/or to certain broker-dealers or other financial
institutions. Of this amount, up to 0.25% may be for continuing personal
services to shareholders provided by broker-dealers or institutions and the
balance would be deemed an asset-based sales charge. See "Purchase of Shares"
and "Distribution Plan."
SPECIAL CONSIDERATIONS
The Portfolio may invest in repurchase agreements on a temporary basis or
for defensive purposes. Accordingly, an investment in the shares of the Class
may entail somewhat different risks from an investment in an investment
company that does not engage in such investment practices. There can be no
assurance that the Portfolio will be able to maintain a stable net asset value
of $1.00 per share. See "Investment Program."
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, La Familia AIM
de Fondos and La Familia AIM de Fondos and Design are registered service marks
and aimfunds.com and Invest With Discipline are service marks of A I M
Management Group Inc.
3
<PAGE>
TABLE OF FEES AND EXPENSES
<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>
The purpose of the foregoing 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 0.11%, respectively, of the
average net assets of the shares of the Class and total fund operating
expenses would have been 0.83%. 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.
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.
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, 1997, 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>
1997 1996 1995 1994 1993
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income.......... 0.03 0.03 0.03 0.02 0.02
Less distributions:
Dividends from net investment
income........................ (0.03) (0.03) (0.03) (0.02) (0.02)
------- ------- ------- ------- ------
Net asset value, end of period.. $ 1.00 $1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======
Total return.................... 3.07% 3.41% 2.80% 2.07% 2.43%
======= ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)...................... $37,544 $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% 0.45%
======= ======= ======= ======= ======
Ratio of net investment income
to average net assets(c)...... 3.02%(b) 3.35% 2.89% 2.05% 2.22%
======= ======= ======= ======= ======
</TABLE>
- --------
(a) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waivers and/or expense reimbursements were
0.83%, 0.76%, 1.17%, 1.15% and 1.40% (annualized), respectively, for the
periods 1997-1993.
(b) Ratios are based on average net assets of $33,882,675.
(c) After waiver of fees and/or expense reimbursements. Ratios of net
investment income to average net assets prior to waivers and/or expense
reimbursements were 2.65%, 3.04%, 2.17%, 1.35% and 1.28% (annualized),
respectively, for the periods 1997-1993.
SUITABILITY FOR INVESTORS
The Class is intended for use primarily by customers of banks, certain
broker-dealers and other institutions who seek a convenient and economical
vehicle in which to invest in an open-end, diversified money market fund, the
income from which is exempt from federal income taxes. The minimum initial
investment is $10,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and
maintenance of liquidity by investing in high quality, short-term municipal
obligations. This objective will not be changed without the approval of a
majority of the Portfolio's outstanding shares (within the meaning of the 1940
Act).
There can be no assurance that the Portfolio will achieve its investment
objective.
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MUNICIPAL SECURITIES
"Municipal Securities" include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the lending of such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated facilities. As used in this Prospectus and its related
Statement of Additional Information, interest which is "tax-exempt" or "exempt
from federal income taxes" means interest on Municipal Securities which is
excluded from gross income for federal income tax purposes, and which does not
give rise to a federal alternative minimum tax liability. See "Tax Matters"
herein and in the Statement of Additional Information.
INVESTMENT POLICIES
Except where noted, the investment policies stated below are not fundamental
and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the following investment policies becomes effective. Policies which are
noted as fundamental may be changed only with the approval of the shareholders
of the Portfolio.
QUALITY STANDARDS
The policies set forth below with respect to quality standards are
fundamental and may be changed only with shareholder approval. The quality
standards apply at the time of purchase of a security. 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.
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The maturity of a security held by the Portfolio is determined in compliance
with applicable rules and regulations. Certain securities bearing interest at
rates that are adjusted prior to the stated maturity of the instrument or 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.
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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 and except that the Portfolio may purchase securities of
other investment companies to the extent permitted by applicable law or
exemptive order;
(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).
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PURCHASE OF SHARES
Shares of the Class are sold on a continuing basis at their net asset value
next determined after an order has been received by the Company. As discussed
below, the Fund reserves the right to reject any purchase order. Although no
sales charges are imposed in connection with the purchase of shares of the
Class, banks or other institutions may charge recordkeeping, account
maintenance or other fees to their customers, and beneficial holders of shares
of the Portfolio should consult with such institutions to obtain a schedule of
such fees. In order to maximize its income, the Portfolio attempts to remain
as fully invested as practicable. Accordingly, in order to be accepted for
execution, purchase orders must be submitted to and received by A I M
Institutional Fund Services, Inc. (the "Transfer Agent" or "AIFS") 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. Following the initial
investment, subsequent purchases of shares of the class may also be made via
AIMLINK--Registered Trademark-- Remote, a personal computer application product.
The Portfolio reserves the right to change the time for which purchase orders
for shares of the Class must be submitted to and received by AIFS for execution
on the same day on any day when the U.S. primary broker-dealer community is
closed for business or trading is restricted due to national holidays.
Shares of the Class are sold primarily to customers of banks, certain
broker-dealers and other institutions (individually, "Institution," or
collectively, "Institutions"). Individuals, corporations, partnerships and
other businesses that maintain qualified accounts at an Institution may invest
in shares of the Class. Each institution will render administrative support
services to its customers who are the beneficial owners of the shares of the
Class. Such services include, among other things, establishment and
maintenance of shareholder accounts and records; assistance in processing
purchase and redemption transactions in shares of the Class; providing
periodic statements showing a client's account balance in shares of the Class;
distribution of Company proxy statements, annual reports and other
communications to shareholders whose accounts are serviced by the Institution;
and such other services as the Company may reasonably request. Institutions
will be required to certify to the Company that they comply with applicable
state law regarding registration as broker-dealers, or that they are exempt
from such registration.
Prior to the initial purchase of shares, an Account Application, which can
be obtained from AIFS, must be completed and sent to AIFS, P.O. Box 4333,
Houston, Texas 77210-4333. 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. 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. 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.
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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 Bank of New York, the Company's custodian
bank in the form described above and notice of such order is provided to the
Transfer Agent (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-- Remote. 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. The Portfolio reserves the right to change
the time for which redemption requests must be submitted to and received by
AIFS for execution on the same day on any day when the U.S. primary broker-
dealer community is closed for business or trading is restricted due to
national holidays.
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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
AIFS.
Shareholders may request a redemption by telephone. Neither the Transfer
Agent nor FMC will 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 may 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 4333, Houston, TX 77210-
4333 and will become effective with dividends paid after its receipt by AIFS.
If a shareholder redeems all the shares in his account at any time during the
month, all dividends declared through the date of redemption are paid to the
shareholder along with the proceeds of the redemption.
The dividend accrued and paid for each class of the Portfolio will consist
of: (a) interest accrued and original issue discount earned less amortization
of premiums if any, for the Portfolio, the allocation of which is based upon
each such class' pro rata share of the total shares outstanding, less (b)
Company expenses accrued for the applicable dividend period, such as custodian
fees and accounting expenses, based upon each such class' pro rata share of
the net assets of the Portfolio, less (c) expenses directly attributable to
each class that are accrued for the applicable dividend period, such as
distribution expenses, if any.
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The Company uses its best efforts to maintain the net asset value per share
of the Portfolio at $1.00 for purposes of sales and redemptions. See "Net
Asset Value." Should the Company incur or anticipate any unusual expense, loss
or depreciation which could adversely affect the income or net asset value of
the Portfolio, the Company's Board of Directors would at that time consider
whether to adhere to the present dividend policy described above or to revise
it in light of the then prevailing circumstances. For example, under such
unusual circumstances the Board of Directors might reduce or suspend the daily
dividend in order to prevent to the extent possible the net asset value per
share of the Portfolio from being reduced below $1.00. Thus, such expenses,
losses or depreciation may result in a shareholder receiving no dividends for
the period during which shares of the Class were held and cause such a
shareholder to receive upon redemption a price per share lower than the
shareholder's original cost.
TAXES
The Portfolio has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Portfolio qualifies for this
tax treatment, it will not be subject to federal income taxes on amounts
distributed to shareholders.
Shareholders will not be required to include the "exempt-interest" portion
of dividends paid by the Portfolio in their gross income for federal income
tax purposes. However, shareholders will be required to report the receipt of
exempt-interest dividends and other tax-exempt interest on their federal
income tax returns. Moreover, exempt-interest dividends from the Portfolio may
be subject to state income taxes, may give rise to a federal alternative
minimum tax liability, may affect the amount of social security benefits
subject to federal income tax, may affect the deductibility of interest on
certain indebtedness of the shareholder and may have other collateral federal
income tax consequences. The Portfolio intends to avoid investment in those
Municipal Securities where the interest thereon will constitute an item of tax
preference, and therefore which could give rise to a federal alternative
minimum tax liability. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of exempt-
interest dividends, see the Statement of Additional Information.
The Portfolio may pay dividends to shareholders which are taxable, but will
endeavor to avoid investments which would result in taxable dividends. Unless
otherwise required by Treasury regulations, the percentage of dividends which
constitutes exempt-interest dividends, and the percentage thereof (if any)
which constitutes an item of tax preference, will be determined annually and
will be applied uniformly to all dividends declared during that year. These
percentages may differ from the actual percentages for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains (capital gain dividends), whether received in cash or additional
shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Portfolio to pay exempt-interest dividends would be adversely affected.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their tax advisors concerning the impact of the Code on their investments in
the Portfolio, and concerning the application of state, local and foreign
taxes to investments in the Portfolio, which may differ significantly from the
federal income tax consequences described above.
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Foreign persons who file a United States tax return after December 31, 1996
for a U.S. Tax refund and who are not eligible to obtain a social security
number must apply to the Internal Revenue Service ("IRS") for an individual
taxpayer identification number, using IRS Form W-7. For a copy of the IRS Form
W-7 and accompanying instructions, please contact your tax advisor or AIFS.
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.
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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.
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, 1997, the current and effective yield for the
Class were 3.04% and 3.09%, 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, on behalf of the Portfolio, 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 corporation of AIM. AIM Management is a
holding company engaged in the financial services business and is an indirect,
wholly owned subsidiary of AMVESCAP plc, a publicly-traded holding company
that, through its subsidiaries, engages in the financial services business on
an international basis. 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 100, Houston, Texas 77046-
1173, acts as the investment advisor for the Portfolio pursuant to a Master
Investment Advisory Agreement dated as of February 28, 1997 (the "Agreement").
AIM was organized in 1976 and, together with its subsidiaries, manages or
advises 53 investment company portfolios. As of July 15, 1997, the total assets
of the investment company portfolios managed or advised by AIM and its
subsidiaries were approximately $76.0 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.
14
<PAGE>
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.
For the fiscal year ended March 31, 1997, 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, 1997, 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 $23,000 with
respect to the Class for the year ended March 31, 1997.
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 February
28, 1997 (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 100,
Houston, Texas 77046-1173. Mail addressed to FMC should be sent to P.O. Box
4333, Houston, Texas 77210-4333. 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, an indirect wholly owned subsidiary
of AMVESCAP plc. 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
AMVESCAP plc.
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 will 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 13,
1997. 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 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
13, 1997, the Board of Directors, including the Qualified Directors, voted to
continue the Plan until June 30, 1998.
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, 1997, AIM reduced its fees from the Portfolio by $625,513. AIM also
assumed expenses of $23,000 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.
As of July 15, 1997, The Bank of New York, through its separate accounts,
owned more than 25 percent of the shares of the Private Investment Class, and,
therefore could be deemed to "control" such Class, as that term is defined in
the Investment Company Act of 1940.
17
<PAGE>
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 100,
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 4333, Houston,
Texas 77210-4333, or may be made by calling (800) 877-7748.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know
about the Company prior to investing. A Statement of Additional Information
has been filed with the SEC. Copies of the Statement of Additional Information
are available upon request and without charge by writing or calling the
Company or FMC. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration
statement, including items omitted herein, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
18
<PAGE>
INVESTMENT ADVISOR
A I M ADVISORS, INC.
TAX-FREE
11 Greenway Plaza, Suite 100 INVESTMENTS CO.
Houston, Texas 77046-1173 (TFIC)
(713) 626-1919
DISTRIBUTOR PRIVATE
FUND MANAGEMENT COMPANY INVESTMENT CLASS
OF THE
11 Greenway Plaza, Suite 100 -------------------------------------
Houston, Texas 77046-1173 CASH RESERVE PROSPECTUS
(800) 877-7748 PORTFOLIO
AUDITORS
KPMG PEAT MARWICK LLP JULY 29, 1997
700 Louisiana
NationsBank Building
Houston, Texas 77002 [Logo Appears Here]
Fund Management Company
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT
A I M INSTITUTIONAL FUND SERVICES, INC.
P.O. Box 4333
Houston, Texas 77210-4333
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
PRIVATE INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA
SUITE 100
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, 1997
RELATING TO THE PROSPECTUS DATED: JULY 29, 1997
<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...................................... 2
Remuneration of Directors................................... 6
AIM Funds Retirement Plan for Eligible Directors/Trustees... 7
Deferred Compensation Agreements............................ 8
The Investment Advisor...................................... 9
Expenses.................................................... 10
Transfer Agent and Custodian................................ 11
Reports..................................................... 11
Sub-Accounting.............................................. 11
Principal Holders of Securities............................. 12
SHARE PURCHASES AND REDEMPTIONS............................... 13
Purchases and Redemptions................................... 13
Net Asset Value Determination............................... 14
The Distribution Agreement.................................. 15
Distribution Plan........................................... 15
PERFORMANCE INFORMATION....................................... 17
INVESTMENT PROGRAM AND RESTRICTIONS........................... 18
Investment Program.......................................... 18
Municipal Securities........................................ 18
Investment Ratings.......................................... 19
When-Issued Securities and Delayed Delivery Transactions.... 24
Variable or Floating Rate Instruments....................... 24
Synthetic Municipal Instruments............................. 25
Investment Restrictions..................................... 25
PORTFOLIO TRANSACTIONS........................................ 26
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS...................... 28
Dividends and Distributions................................. 28
Tax Matters................................................. 28
Qualification as a Regulated Investment Company............. 28
Excise Tax on Regulated Investment Companies................ 29
Distributions............................................... 30
Foreign Shareholders........................................ 31
Effect of Future Legislation; Local Tax Considerations...... 31
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, 1997.
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 100, 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,
1
<PAGE>
limitations as to dividends, qualifications, or terms or conditions of
redemption, of such shares. Any such classification or reclassification will
comply with the provisions of the Investment Company Act of 1940, as amended
(the "1940 Act").
The Articles of Incorporation permit the directors to issue 6,000,000,000
shares of common stock at $.001 par value. A share of the Portfolio represents
an equal proportionate interest in the Portfolio with each other share of the
Portfolio and is entitled to a proportionate interest in the dividends and
distributions with respect to its class. Additional information concerning the
rights of share ownership is set forth in the Prospectus.
The assets received by the Company for the issue or sale of shares of each
class relating to a Portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, constitute the
underlying assets of that Portfolio. The underlying assets of the Portfolio are
segregated and are charged with the expenses with respect to the Portfolio. See
"Expenses."
The Articles of Incorporation further provide that the directors will not
be liable for errors of judgment or mistakes of fact or law. However, nothing
in the Articles of Incorporation protects a director against any liability to
which a director would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. The Articles of Incorporation provide for
indemnification by the Company of the directors and the officers of the Company
except with respect to any matter as to which any such person did not act in
good faith and in the reasonable belief that his action was in or not opposed to
the best interests of the Company. Such person may not be indemnified against
any liability to the Company or the Company's shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. The Articles of Incorporation also authorize the purchase of liability
insurance on behalf of the Company's directors and officers.
As described in the Prospectus, the Company will not normally hold annual
shareholders' meetings. A special meeting shall be held upon written request of
the holders of not less than 10% of the outstanding shares of the Company. At
such time as less than a majority of the directors have been elected by the
shareholders, the directors then in office will call a shareholders' meeting for
the election of directors. In addition, directors may be removed from office by
a written consent signed by the holders of two-thirds of the outstanding shares
of the Company and filed with the Company's transfer agent or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for the
purpose. Upon written request by ten or more shareholders, who have been such
for at least six months and who hold shares constituting 1% of the outstanding
shares, stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a director, the Company has undertaken to provide
a list of shareholders or to disseminate appropriate materials (at the expense
of the requesting shareholders).
Except as otherwise disclosed in the Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and their principal
occupations during at least the last five years are set forth below. Unless
otherwise indicated, the address of each director and executive officer is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
2
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
============================================================================================================
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of Directors, A I M
11 Greenway Plaza, Suite 100 Chairman Management Group Inc.; A I M Advisors, Inc., A I M
Houston, TX 77046 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; and
Vice Chairman and Director, AMVESCAP plc.
------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief Executive
McLean, VA 22102 Officer, COMSAT Corporation and Chairman, Board
of Governors of INTELSAT (international
communications company).
------------------------------------------------------------------------------------------------------------
OWEN DALY II (72) Director Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental
Baltimore, MD 21210 Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of
Equitable Bancorporation.
- ------------------------------------------------------------------------------------------------------------
JACK FIELDS (45) Director Formerly, Member of the U.S. House of
2607 Old Humble Road Representatives.
Humble, Texas 77396
- ------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (60) Director Partner, Kramer, Levin, Naftalis & Frankel (law firm).
919 Third Avenue Director, ERD Waste, Inc. (waste management
New York, NY 10022 company), Aegis Consumer Finance (auto leasing
company) and Lazard Funds, Inc. (investment
companies). Formerly, Partner, Reid & Priest (law
firm); and prior thereto, Partner, Spengler Carlson
Gubar Brodsky & Frischling (law firm).
- ------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (50) Director and Director, President and Chief Executive Officer, A I M
11 Greenway Plaza, Suite 100 President Management Group Inc.; Director and President,
Houston, TX 77046 A I M Advisors, Inc.; 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; and Director, AMVESCAP
plc.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
* 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>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
============================================================================================================
<S> <C> <C>
JOHN F. KROEGER (72) Director Director, Flag Investors International Fund, Inc., Flag
37 Pippins Way Investors Emerging Growth Fund, Inc., Flag
Morristown, NJ 07960 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 (54) Director Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
- ------------------------------------------------------------------------------------------------------------
IAN W. ROBINSON (74) Director Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management Services,
Tequesta, FL 33469 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 (57) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited Partnership (real
2800 Post Oak Blvd. estate development).
Houston, TX 77056
- ------------------------------------------------------------------------------------------------------------
***JOHN J. ARTHUR (52) Senior Vice Senior Vice President and Treasurer, A I M Advisors,
11 Greenway Plaza, Suite 100 President and Inc.; Vice President and Treasurer, A I M
Houston, TX 77046 Treasurer Management Group 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.
- ------------------------------------------------------------------------------------------------------------
GARY T. CRUM (49) Senior Vice Director and President, A I M Capital Management,
11 Greenway Plaza, Suite 100 President Inc.; Director and Senior Vice President, A I M
Houston, TX 77046 Management Group Inc. and A I M Advisors, Inc.;
and Director, A I M Distributors, Inc. and AMVESCAP
plc.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
*** Mr. Arthur and Ms. Relihan are married to each other.
4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
============================================================================================================
<S> <C> <C>
***CAROL F. RELIHAN (42) Senior Vice Senior Vice President, General Counsel and
11 Greenway Plaza, Suite 100 President Secretary, A I M Advisors, Inc.; Vice President,
Houston, TX 77046 and Secretary 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.
- ------------------------------------------------------------------------------------------------------------
DANA R. SUTTON (38) Vice President Vice President and Fund Controller, A I M Advisors,
11 Greenway Plaza, Suite 100 and Assistant Inc.; and Assistant Vice President and Assistant
Houston, TX 77046 Treasurer Treasurer, Fund Management Company.
- ------------------------------------------------------------------------------------------------------------
STUART W. COCO (42) Vice President Senior Vice President, A I M Capital Management,
11 Greenway Plaza, Suite 100 Inc.; and Vice President, A I M Advisors, Inc.
Houston, TX 77046
- ------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (53) Vice President Vice President and Chief Compliance Officer, A I M
11 Greenway Plaza, Suite 100 Advisors, Inc., A I M Capital Management, Inc., A I M
Houston, TX 77046 Distributors, Inc., A I M Fund Services, Inc., A I M
Institutional Fund Services, Inc. and Fund
Management Company.
- ------------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M Capital Management,
11 Greenway Plaza, Suite 100 Inc.; and Vice President, A I M Advisors, Inc.
Houston, TX 77046
- ------------------------------------------------------------------------------------------------------------
J. ABBOTT SPRAGUE (42) Vice President Director, Fund Management Company; Director and
11 Greenway Plaza, Suite 100 Senior Vice President, A I M Advisors, Inc. and
Houston, TX 77046 A I M Institutional Fund Services, Inc.; and Senior
Vice President, A I M Management Group Inc.
============================================================================================================
</TABLE>
- --------------
*** Mr. Arthur and Ms. Relihan are married to each other.
The standing committees of the Board of Directors are the Audit Committee,
the Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit
Committee 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 or its internal accounting controls, and for
considering such matters as may from time to time be set forth in a charter
adopted by the Board of Directors and such committee.
5
<PAGE>
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investments Committee is responsible for reviewing portfolio compliance,
brokerage allocation, portfolio investment pricing issues, interim dividend and
distribution issues, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not interested
persons as long as the Company maintains a distribution plan pursuant to Rule
12b-1 under the 1940 Act, reviewing from time to time the compensation payable
to the disinterested directors, and considering such matters as may from time to
time be set forth in a charter adopted by the Board of Directors 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 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.
6
<PAGE>
Set forth below is information regarding compensation paid or accrued for
each director of the Company:
<TABLE>
<CAPTION>
===============================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
DIRECTOR FROM COMPANY(1) BY ALL AIM FUNDS(2) FROM ALL AIM FUNDS(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer -0- -0- -0-
- -----------------------------------------------------------------------------------------------
Bruce L. Crockett $1,530 $38,621 $68,000
- -----------------------------------------------------------------------------------------------
Owen Daly II $1,524 $82,607 $68,000
- -----------------------------------------------------------------------------------------------
Jack Fields (4) $ 96 -0- -0-
- -----------------------------------------------------------------------------------------------
Carl Frischling $1,530 $56,683 $68,000(5)
- -----------------------------------------------------------------------------------------------
Robert H. Graham -0- -0- -0-
- -----------------------------------------------------------------------------------------------
John F. Kroeger $1,471 $83,654 $66,000
- -----------------------------------------------------------------------------------------------
Lewis F. Pennock $1,497 $33,702 $67,000
- -----------------------------------------------------------------------------------------------
Ian W. Robinson $1,530 $64,973 $68,000
- -----------------------------------------------------------------------------------------------
Louis S. Sklar $1,495 $47,593 $66,500
===============================================================================================
</TABLE>
- --------------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended March 31, 1997, including interest earned
thereon, was $6,960. .
(2) During the fiscal year ended March 31, 1997, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$7,529. Data reflect compensation for the calendar year ended December 31,
1996.
(3) Each Director serves as a director or trustee of a total of 11 registered
investment companies advised by AIM (comprised of 55 portfolios). Data
reflects total compensation for the calendar year ended December 31, 1996.
(4) Mr. Fields did not serve as a Director during the calendar year ended
December 31, 1996.
(5) See also page 9 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
7
<PAGE>
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 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 the retainer amount reflected
below and various years of service. The estimated credited years of service as
of March 31, 1997, for Messrs. Crockett, Daly, Fields, Frischling, Kroeger,
Pennock, Robinson and Sklar are 10, 10, 0, 19, 19, 15, 10 and 7 years,
respectively.
<TABLE>
<CAPTION>
ESTIMATED BENEFITS
UPON
RETIREMENT
Annual Retainer Paid By
All AIM Funds
<S> <C> <C>
$80,000
Number of 10 $60,000
Years of
Service with 9 $54,000
the
AIM Funds 8 $48,000
7 $42,000
6 $36,000
5 $30,000
</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 five (5) or ten
(10) years (depending on the Agreement) 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.
8
<PAGE>
As of December 31, 1996, the Portfolio paid legal fees of $7,203 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.
THE INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-
1173, serves as investment advisor to the Portfolio pursuant to a Master
Investment Advisory Agreement dated February 28, 1997 (the "Advisory
Agreement"). AIM, which was organized in 1976, is the investment advisor or
manager of 53 investment company portfolios. As of July 15, 1997, the total
assets advised or managed by AIM or its subsidiaries were approximately $76.0
billion.
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM
Management is an indirect wholly owned subsidiary of AMVESCAP plc, a publicly-
traded holding company that, through its subsidiaries, engages in the business
of investment management on an international basis. 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 100, Houston, Texas
77046-1173.
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 provides that it will continue in effect from year
to year only if such continuance 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 agreement or "interested persons" of
any such party (the "Qualified Directors") by votes cast in person at a meeting
called for such purpose. The Advisory Agreement was approved by the Company's
Board of Directors (including the affirmative vote of all the Qualified
Directors) on December 11, 1996. The Advisory Agreement was approved by the
Portfolio's shareholders on February 7, 1997. The agreement became effective as
of February 28, 1997 and provides that either party may terminate such
agreement on 60 days' written notice without penalty. The agreement terminates
automatically in the event of its assignment.
AIM is a direct, wholly owned subsidiary of A I M Management Group Inc.
("AIM Management"), and is the sole shareholder of the Portfolio's principal
underwriter, FMC. AIM Management is an indirect wholly owned subsidiary of
AMVESCAP plc, 11 Devonshire Square, London EC2M 4YR, United Kingdom.
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
9
<PAGE>
periodic updating of prospectuses and statements of additional information (and
supplements thereto), proxy materials, tax returns, reports to the Company's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities; (e) provides the Company's Board of Directors on a regular basis
with financial reports and analyses of the Company's operations and the
operation of comparable funds; (f) obtains and evaluates pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Company and whether concerning the individual issuers whose securities are
included in the Company's Portfolio; (g) determines which issuers and securities
shall be represented in the Portfolio and regularly reports thereon to the Board
of Directors; (h) formulates and implements continuing programs for purchases
and sales of securities for the Portfolio; and (i) takes, on behalf of the
Company, all actions which appear to the Company to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
AIM will at all times be subject to the policies and control of the Board of
Directors. AIM shall not be liable to the Company or its shareholders for any
act or omission by AIM or for any loss sustained by the Company or its
shareholders, except in the case of AIM's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty; provided, however, that AIM may be
liable for certain breaches of duty under the 1940 Act.
As compensation for its advisory services under the Advisory Agreement, AIM
receives a fee from the Company with respect to the Portfolio, calculated daily
and paid monthly, at the annual rate of 0.25% of the first $500 million of the
Portfolio's aggregate average daily net assets, plus 0.20% of the Portfolio's
aggregate average daily net assets in excess of $500 million. For the fiscal
years ended March 31, 1997, 1996 and 1995, the fees paid by the Company to AIM
with respect to the Portfolio were $1,720,635, $1,819,232 and $1,824,453,
respectively (after giving effect to fee waivers for the fiscal years ended
March 31, 1997, 1996 and 1995 of $625,513, $690,397 and $659,533
respectively).
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
10
<PAGE>
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, 1997, 1996 and 1995, AIM was reimbursed $70,077, $75,960 and
$78,184, respectively, by the Portfolio with respect to the Institutional Cash
Reserve Shares.
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 100, 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.
SUB-ACCOUNTING
The Company and FMC have arranged for AIFS or the Portfolio to offer sub-
accounting services to shareholders of the Class and to maintain information
with respect to the underlying beneficial ownership of the shares. Investors
who purchase shares of the Class for the account of others can make arrangements
through the Company or FMC for these sub-accounting services. In addition,
shareholders utilizing certain versions of AIM LINK--Registered Trademark--
Remote, a personal computer application software product, may receive sub-
accounting services via such software.
11
<PAGE>
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.
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, 1997, and the amount of outstanding shares held
of record by such holders are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- -------------
<S> <C>
NationsBank of Texas, N.A. 22.41%
1401 Elm Street, 11th Floor
P.O. Box 831000
Dallas, TX 75283-1000
Liberty Bank and Trust Company of Tulsa 9.64%
P.O. Box 25848
Oklahoma City, OK 73125
Texas Commerce Bank 7.24%
17 HCB 98
P.O. Box 2558
Houston, TX 77252-8098
Trust Company Bank 10.30%
Center 3131
P.O. Box 105504
Atlanta, GA 30348
U.S. Bank of Oregon 9.60%
555 Southwest Oak
Portland, OR 97204-1752
Frost National Bank of Texas 6.88%
P.O. Box 1600
San Antonio, TX 78296
</TABLE>
- --------------
* The Company has no knowledge as to whether all or any portfolio of the
shares owned of record only are also owned beneficially.
12
<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, 1997 , and the amount of outstanding shares held of record by
such holders are set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
--------------- -------------
<S> <C>
The Bank of New York 53.27%**
4 Fisher Lane
White Plains, NY 10603
Cullen/Frost Discount Brokers 23.32%
P.O. Box 2358
San Antonio, TX 78299
Huntington Capital Corporation 7.03%
41 South High Street, 9th Floor
Columbus, OH 43287
Mark Twain Capital Market Grp. 9.93%
1345 Chestnut Street
FC1-1-9-49
Philadelphia, PA 19101
</TABLE>
As of July 15, 1997 , 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
- --------------
* 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.
13
<PAGE>
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.
A "business day of the Company" is any day on which commercial banks are
open for business. The Company, however, reserves the right to change the time
for which purchase and redemption requests must be submitted to the Company for
execution on the same day on any day when the U.S. primary broker-dealer
community is closed for business or trading is restricted due to national
holidays.
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.
14
<PAGE>
THE DISTRIBUTION AGREEMENT
The Company has entered into a distribution agreement dated as of February
28, 1997 (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 100,
Houston, Texas 77046-1173. Mail addressed to FMC should be sent to P.O. Box
4333, Houston, Texas 77210-4333. See "Directors and Officers" and "The
Investment Advisor" for information as to the affiliation of certain directors
and officers of the Company with FMC and AIM Management.
The Distribution Agreement provides that FMC has the exclusive right to
distribute shares either directly or through other broker-dealers. The
Distribution Agreement also provides that, except as may otherwise be provided
in a distribution plan pursuant to Rule 12b-1 adopted by the Company's Board of
Directors, FMC will pay promotional expenses, including the incremental costs of
printing prospectuses and statements of additional information, annual reports
and other periodic reports for distribution to persons who are not shareholders
of the Company and the costs of preparing and distributing any other
supplemental sales literature. FMC has not undertaken to sell any specified
number of shares.
The Distribution Agreement will continue in effect until June 30, 1998 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
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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, 1997, $84,707 (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, 1997, FMC received no compensation pursuant to the Plan.
As required by Rule 12b-1 under the 1940 Act, the Plan was most recently
approved by the Board of Directors, including a majority of the directors who
are not "interested persons" (as defined in the 1940 Act) of the Company and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan ("Qualified Directors") on May 13, 1997. 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, 1998. 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, an indirect wholly owned
subsidiary of AMVESCAP plc. Charles T. Bauer, a Director and Chairman of the
Company, owns shares of AMVESCAP plc and Robert H. Graham, a Director and
President of the Company, also owns shares of AMVESCAP plc.
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.
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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 Conduct Rules 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.
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, 1997, the current and effective
yield for the Class were 3.04% and 3.09%, respectively. Assuming a tax rate of
39.6% these yields for the Class on a tax-equivalent basis were 4.75% and 4.83%,
respectively.
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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.
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
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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 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"):
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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.
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.
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Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly the
same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
Moody's employs the following two designations, each judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
PRIME-1
Issuers (or related supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Note: A Moody's commercial paper rating may also be assigned as an
evaluation of the demand feature of a short-term or long-term security with a
put option.
S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations:
likelihood of default -capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
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.
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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.
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.
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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."
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:
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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 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.
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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:
(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;
25
<PAGE>
(5) invest in companies for the purpose of exercising control, except that
the Portfolio may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order;
(6) 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;
(7) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests therein;
(8) sell, securities short or purchase any securities on margin, except for
such short-term credits as are necessary for the clearance of transactions;
(9) 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
(10) purchase or sell commodities or commodity futures contracts or
interests in oil, gas or other mineral exploration or development programs.
The Company may, from time to time in order to qualify shares of the
Portfolio for sale in a particular state, agree to certain investment
restrictions in addition to or more stringent than those set forth above. Such
restrictions are not fundamental and may be changed without the approval of
shareholders.
Pursuant to an undertaking made to the Ohio Department of Commerce,
Division of Securities, the Portfolio will not purchase the securities of any
issuer if, as to 75% of the total assets of the Portfolio, more than 10% of the
voting securities of such issuer would be held by the Portfolio at the time of
purchase.
PORTFOLIO TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the
Company, for selection of broker-dealers and for negotiation of commission
rates. Since purchases and sales of portfolio securities by the Company are
usually principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Company may also purchase securities from underwriters at prices
which include a commission paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable 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
26
<PAGE>
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, 1997, 1996 and 1995, 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 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.
27
<PAGE>
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, 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
28
<PAGE>
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.
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.
29
<PAGE>
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, which are exempt from federal income tax. 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. Exempt-interest
dividends derived from certain "private activity" Municipal Securities issued
after August 7, 1986 will generally constitute an item of tax preference
includable in AMTI for both corporate and noncorporate taxpayers. In addition,
exempt-interest dividends derived from all Municipal Securities, regardless of
the date of issue, must be included in adjusted current earnings, which are used
in computing an additional corporate preference item (i.e., 75% of the excess of
a corporate taxpayer's adjusted current earnings over its AMTI (determined
without regard to this item and the AMT net operating loss deduction))
includable in AMTI.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income subject to federal income
tax. Further, a shareholder of the Portfolio is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the
Portfolio. Moreover, a shareholder who is (or is related to) a "substantial
user" of a facility financed by industrial development bonds held by the
Portfolio will likely be subject to tax on dividends paid by the Portfolio which
are derived from interest on such bonds. Receipt of exempt-interest dividends
may result in other collateral federal income tax consequences to certain
taxpayers, including financial institutions, property and casualty insurance
companies and foreign corporations engaged in a trade or business in the United
States. Prospective investors should consult their own tax advisers as to such
consequences.
The Portfolio anticipates distributing substantially all of its investment
company taxable income, if any, for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the dividends-
received deduction for corporations.
The Portfolio may either retain or distribute to shareholders its net
capital gain, if any, for each taxable year. 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).
30
<PAGE>
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 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 July 16,
1997. 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.
31
<PAGE>
Rules of state and local taxation of ordinary income dividends, exempt-
interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Shareholders are urged to consult their tax advisers as to the
consequences of these and other state and local tax rules affecting investment
in the Portfolio.
32
<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, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. 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, 1997, 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, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Houston, Texas
May 2, 1997
- --------------------------------------------------------------------------------
FS-1
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
ALABAMA - 2.04%
Birmingham (City of) (YMCA-Birmingham);
Public Park
and Recreation Board RB
3.55% 06/01/16(b)(c) -- VMIG-1 $ 3,390 $ 3,390,000
- -------------------------------------------------------------------------------
BMC Special Care Facilities Financing
Authority (VHA of Alabama Inc. Capital
Asset Financing Program); Variable Rate
Hospital
Series 1985 RB
3.45% 12/01/30(b)(d) A-1 Aaa 4,000 4,000,000
- -------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Warrants
3.50% 02/01/12(b)(c) A-1+ -- 2,775 2,775,000
- -------------------------------------------------------------------------------
Port City Medical Board of Mobile Alabama
(The) (Mobile Infirmary Association);
Series 1992 A RB
3.50% 07/25/97(c)(e) A-1+ P-1 10,300 10,300,000
- -------------------------------------------------------------------------------
20,465,000
- -------------------------------------------------------------------------------
ALASKA - 1.13%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
3.45% 06/01/26(b) A-1+ VMIG-1 8,900 8,900,000
- -------------------------------------------------------------------------------
Valdez (City of) (ARCO Transportation
Alaska, Inc. Project); Marine Terminal
Refunding Series 1994 A RB
3.45% 05/16/97(e) A-1 VMIG-1 2,400 2,400,000
- -------------------------------------------------------------------------------
11,300,000
- -------------------------------------------------------------------------------
ARIZONA - 2.42%
Apache (County of) Industrial Development
Authority (Tucson Electric); Series 1983
C IDR
3.45% 12/15/18(b)(c) A-1 VMIG-1 5,900 5,900,000
- -------------------------------------------------------------------------------
Arizona (State of) Agricultural
Improvement and Power District (Salt
River Project); Promissory Notes
3.45% 04/07/97 A-1+ P-1 3,000 3,000,140
- -------------------------------------------------------------------------------
3.55% 06/13/97 A-1+ P-1 9,570 9,570,000
- -------------------------------------------------------------------------------
Maricopa (County of) Union High School
District No. 210;
Series 1995 A GO
5.75% 07/01/97 AA Aa 1,000 1,004,836
- -------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Tucson Electric Co. Project);
Refunding Series 1982 A IDR
3.50% 06/15/22(b)(c) A-1+ VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Tempe (City of) Industrial Development
Authority (Elliot's Crossing Apartment
Project); Variable Rate Demand
Multifamily Housing Series RB
3.45% 10/01/08(b)(c) A-1+ -- 2,800 2,800,000
- -------------------------------------------------------------------------------
24,274,976
- -------------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
COLORADO - 3.49%
Adams (County of) Industrial Development
(Clear Creek Business); Series 1984 RB
3.55% 11/01/08(b)(c) -- VMIG-1 $ 8,300 $ 8,300,000
- -------------------------------------------------------------------------------
Colorado (State of) General Fund; Series
1996 A TRAN
4.50% 06/27/97 SP-1+ -- 5,000 5,007,338
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Coventry Village Project); Multifamily
Housing Revenue Series 1996 B RB
3.55% 10/15/16(b)(c) A-1+ -- 5,370 5,370,000
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Winridge Project); Adjustable
Refunding Multifamily Housing Series
1993 RB
3.50% 02/01/23(b)(c) A-1+ -- 12,715 12,715,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.45% 07/01/06(b)(c) -- VMIG-1 3,700 3,700,000
- -------------------------------------------------------------------------------
35,092,338
- -------------------------------------------------------------------------------
CONNECTICUT - 0.36%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special
Tax Obligation RB
3.40% 12/01/10(b)(c) A-1+ VMIG-1 2,225 2,225,000
- -------------------------------------------------------------------------------
Connecticut (State of) Power and Light
Development Authority;
Series 1993 A RB
3.50% 09/01/28(b)(c) A-1+ VMIG-1 1,425 1,425,000
- -------------------------------------------------------------------------------
3,650,000
- -------------------------------------------------------------------------------
DELAWARE - 0.10%
Delaware Transportation Authority
System; RB
7.00% 07/01/97(d) AAA Aaa 1,000 1,008,198
- -------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 0.38%
District of Columbia (The American
University Issue); Variable Rate Weekly
Demand Series 1985 RB
3.45% 10/01/15(b)(c) -- VMIG-1 3,800 3,800,000
- -------------------------------------------------------------------------------
FLORIDA - 4.49%
Alachua (County of) Health Facility
Authority (Shands Teaching Hospital);
Series 1996 B RB
3.50% 12/01/26(b)(d) A-1+ VMIG-1 13,700 13,700,000
- -------------------------------------------------------------------------------
Brevard (County of) Housing Finance
Authority (Palm Place Project);
Multifamily Housing Series 1985 RB
3.55% 12/01/07(b)(c) -- VMIG-1 7,500 7,500,000
- -------------------------------------------------------------------------------
Florida Housing Finance Agency
(Woodlands Project); Adjustable Rate
Multifamily Housing Series 1985 SS RB
3.45% 12/01/07(b)(c) A-1+ VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Gulf Breeze (City of)(Florida Municipal
Bond Fund); Variable Rate Demand Series
1995 A RB
3.46% 03/31/21(b)(c) A-1 -- 10,000 10,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Florida - (continued)
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Cooperative Finance Corp. Guaranteed
Floating/Fixed Rate Pooled
Series 1984 H-1 PCR
3.45% 03/15/14(b)(c) A-1+ P-1 $ 3,915 $ 3,915,000
- -------------------------------------------------------------------------------
Sunshine State Governmental Financing
Commission (Florida State Board of
Administration); Government Financing
Program Tax Exempt Commercial Notes
3.55% 06/20/97(d) A-1+ -- 8,000 8,000,000
- -------------------------------------------------------------------------------
45,115,000
- -------------------------------------------------------------------------------
GEORGIA - 3.81%
Cobb (County of) Housing Authority
(Greenhouse Frey Apartment Project);
Multifamily Housing RB
3.45% 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Decatur County Bainbridge Industrial
Development Authority (Kaiser
Agriculture Chemical Inc. Project);
Series 1985 IDR
3.50% 12/01/02(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Dekalb (County of) Housing Authority
(Camden Brook Project); Multifamily
Housing Series 1995 RB
3.45% 06/15/25(b)(c) A-1+ VMIG-1 6,000 6,000,000
- -------------------------------------------------------------------------------
Dekalb (County of) Housing Authority
(Clairmont Crest Project); Multifamily
Housing Series 1995 RB
3.45% 06/15/25(b)(c) A-1+ -- 7,600 7,600,000
- -------------------------------------------------------------------------------
Dekalb (County of) Private Hospital
Authority (Egleston Children's Hospital
at Emory University Health Care System
Project); Variable Rate Demand Series
1995 A RAN
3.45% 03/01/24(b)(c) A-1+ VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Development Authority of Dekalb County
(Radiation Sterilizers, Inc. Project);
Variable Rate Demand Series 1985 IDR
3.60% 03/01/05(b)(c) A-1 -- 4,600 4,600,000
- -------------------------------------------------------------------------------
Municipal Gas Authority of Georgia
(Agency Project); Series 1996 A RB
3.45% 11/01/06(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Roswell (City of) Housing Authority;
Multifamily Housing RB
3.45% 08/01/30(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
38,300,000
- -------------------------------------------------------------------------------
ILLINOIS - 12.21%
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
3.55% 10/31/97(c)(e) SP-1+ MIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Illinois - (continued)
Cook (County of)(Catholic Charities
Housing Development Corp. Project);
Adjustable Demand Series 1988 A-1 RB
3.50% 01/01/28(b)(c) -- VMIG-1 $ 1,700 $ 1,700,000
- -------------------------------------------------------------------------------
Cook (County of) High School District No.
201 (Cicero); GO
7.30% 12/01/97(d) AAA Aaa 6,500 6,652,936
- -------------------------------------------------------------------------------
Du Page Water Commission; RB
6.875% 05/01/97(f) AAA -- 1,000 1,022,598
- -------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily
Housing Series 1983 RB
3.65% 06/01/08(b)(c) -- Aa3 6,070 6,070,000
- -------------------------------------------------------------------------------
Illinois (State of); Sales Tax Series E
RB
8.10% 06/15/97(f) AAA Aaa 1,435 1,475,693
- -------------------------------------------------------------------------------
Illinois Development Finance Authority;
Variable Rate Demand Notes Series 1996-
1997A
3.50% 06/30/97(b)(c) A-1+ -- 6,600 6,600,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB
3.45% 08/01/26(b)(c) A-1+ -- 10,000 10,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Chicago Symphony Orchestra Project);
Variable/Fixed Rate Demand Series 1996
RB
3.50% 06/01/31(b)(c) A-1+ VMIG-1 5,129 5,129,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Commonwealth Edison Co.); PCR
3.45% Series A 12/01/06(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Institutional Gas Technology Project);
Variable Rate Series 1993 RB
3.50% 09/01/18(b)(c) A-1+ -- 2,600 2,600,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Revenue Anticipation
Notes Program); Variable Rate Demand
Series 1996-1997B RAN
3.50% 06/30/97(b)(c) A-1+ -- 5,225 5,225,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Museum of Science & Industry); Variable
Rate Series 1992 RB
3.50% 10/15/06(c)(e) -- VMIG-1 9,000 9,000,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Pooled Financing Program); Adjustable
Rate Series 1985 RB
3.50% 12/01/05(b)(d) A-1+ VMIG-1 3,780 3,780,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled Series D
3.50% 08/01/15(b)(c) A-1+ VMIG-1 4,550 4,550,000
- -------------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Illinois - (continued)
Illinois Health Facilities Authority
(Streetville Corp.); Variable Rate
Series 1994 RB
3.50% 08/15/24(b)(c) A-1+ P-1 $ 3,000 $ 3,000,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Advocate Health Care Network); Variable
Rate Series 1997 B RB
3.55% 08/15/22(b)(d) A-1+ VMIG-1 10,140 10,140,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Series 1995 RB
4.00% 08/15/25(b)(d) A-1+ VMIG-1 7,800 7,800,000
- -------------------------------------------------------------------------------
Marseilles (City of) (Kaiser Agricultural
Chemicals Inc. Project); Variable Rate
Demand Series 1985 IDR
3.50% 01/01/98(b)(c) A-1+ -- 3,750 3,750,000
- -------------------------------------------------------------------------------
Oak Forest (City of) (Homewood Pool);
Series 1989 RB
3.50% 07/01/24(b)(c) -- VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Village of Lisle (Four Lakes Project
Phase Five); Multifamily Housing
Revenue Refunding Series 1996
3.45% 09/15/26(b)(c) A-1+ -- 15,380 15,380,000
- -------------------------------------------------------------------------------
Village of Northbrook (Euromarket
Designs, Inc. Project); Variable Rate
Demand Refunding Series 1993 IDR
3.50% 07/01/02(b)(c) A-1+ -- 3,100 3,100,000
- -------------------------------------------------------------------------------
122,575,227
- -------------------------------------------------------------------------------
INDIANA - 2.51%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate Demand Economic
Development Series 1985 RB
3.55% 07/01/10(b)(c) -- VMIG-1 1,200 1,200,000
- -------------------------------------------------------------------------------
Indianapolis (City of); Local Public
Improvement Series 1996 F RB
4.125% 07/10/97 SP-1 -- 3,000 3,004,789
- -------------------------------------------------------------------------------
Indianapolis (City of) (Childrens Museum
Project); Economic Development Floating
Rate Series 1995 RB
3.45% 10/01/25(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Indianapolis (City of) (Jewish Community
Campus Project); Variable Rate Economic
Development RB
3.45% 04/01/05(b)(c) -- VMIG-1 2,395 2,395,000
- -------------------------------------------------------------------------------
Petersburg (City of) (Indianapolis Power
and Light Co. Project); Adjustable Rate
Tender Securities Series 1995 B PCR
3.45% 01/01/23(b)(d) A-1+ VMIG-1 2,700 2,700,000
- -------------------------------------------------------------------------------
Rockport (City of) Indiana Development
Authority (AEP Generating Company
Project); Series 1995 A PCR
3.80% 07/01/25(b)(d) A-1c Aaa 3,900 3,900,000
- -------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Indiana - (continued)
Rockport (City of) Indiana Development
Authority (AEP Generating Company
Project B); Series 1995 B PCR
3.85% 07/01/25(b)(d) A-1c Aaa $ 1,600 $ 1,600,000
- -------------------------------------------------------------------------------
Sullivan (City of) (Hoosier Energy Rural
Electric Cooperative, Inc.); National
Rural Utilities Cooperative Finance
Corp. Series 1985 L-1 Commercial Notes
3.40% 05/16/97(c)(e) A-1+ P-1 5,400 5,400,000
- -------------------------------------------------------------------------------
25,199,789
- -------------------------------------------------------------------------------
IOWA - 0.17%
Iowa Higher Education Loan Authority;
Private College Facility RB
3.45% 12/01/15(b)(d) A-1+ VMIG-1 1,700 1,700,000
- -------------------------------------------------------------------------------
KANSAS - 0.50%
Mission (City of) (Silverwood Apartment
Project); Multifamily RB
3.45% 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
KENTUCKY - 1.32%
Mason County (East Kentucky Power
Cooperative, Inc. Project); National
Rural Utilities Cooperative Finance
Corp. Guaranteed Floating/Fixed Rate
Pooled Sereis 1984 B-2 PCR
3.45% 10/15/14(b)(c) A-1 Aa3 9,150 9,150,000
- -------------------------------------------------------------------------------
Mayfield (City of) (Kentucky League of
Cities Funding Trust Pooled Lease
Financing Program); Variable Rate Multi-
City Lease
Series 1996 RB
3.55% 07/01/26(b)(c) A-1 VMIG-1 4,100 4,100,000
- -------------------------------------------------------------------------------
13,250,000
- -------------------------------------------------------------------------------
LOUISIANA - 0.95%
East Baton Rouge Mortgage Finance
Authority (GNMA and FNMA Mortgage-Backed
Securities Program); Single Family
Mortgage Refunding Series 1996 C-1 RB
3.85% 04/03/97(e)(f) -- VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Greenbriar Hospital Inc. Project);
Variable Rate Demand Series 1984 RB
3.50% 11/01/14(b)(c) -- Aa2 2,500 2,500,000
- -------------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Willi-Knighton Medical Center Project);
Hospital Series 1995 RB
3.50% 09/01/25(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
9,500,000
- -------------------------------------------------------------------------------
MARYLAND - 0.35%
Prince George (County of) Housing
Authority (Laurel-Oxford Associates
Apartment Project); Mortgage Series 1985
RB
3.525% 10/01/07(b)(c) -- VMIG-1 3,500 3,500,000
- -------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
MASSACHUSETTS - 0.15%
Massachusetts Health & Educational
Facilities Authority (Harvard
University Issue); Variable Rate
Demand Series 1 RB
3.30% 08/01/17(b)(d) A-1+ VMIG-1 $ 1,500 $ 1,500,000
- -----------------------------------------------------------------------------
MICHIGAN - 5.89%
Jackson County Economic Development
Corp. (Sealed Power Corp.); Economic
Development Variable Refunding RB
3.55% 10/01/19(b)(c) -- VMIG-1 1,000 1,000,000
- -----------------------------------------------------------------------------
Michigan (State of); Full Faith &
Credit General Obligation Notes
Series 1997
4.50% 09/30/97 SP-1+ MIG-1 7,000 7,035,340
- -----------------------------------------------------------------------------
Michigan State Hospital Finance
Authority
(Hospital Equipment Loan Program);
Hospital RB
3.55% Pooled Series 1994 A
12/01/23(b)(c) -- VMIG-1 5,600 5,600,000
- -----------------------------------------------------------------------------
3.55% Pooled Series 1995 A
12/01/23(b)(c) -- VMIG-1 2,900 2,900,000
- -----------------------------------------------------------------------------
3.55% Pooled Series 1996 A
12/01/23(b)(c) -- VMIG-1 6,900 6,900,000
- -----------------------------------------------------------------------------
Michigan State Strategic Fund (Detroit
Edison Co.);
Limited Obligation RB
4.00% 09/01/30(b)(c) A-1+ P-1 5,000 5,000,000
- -----------------------------------------------------------------------------
Michigan State Strategic Fund
(Peachwood Center Association
Project); Limited Obligation Series
1995 RB
3.45% 06/01/16(b)(c) A-1+ -- 2,350 2,350,000
- -----------------------------------------------------------------------------
Michigan State Underground Storage
Tank Financial Assurance Authority;
Series I RB
5.00% 05/01/97(d) AAA Aaa 6,500 6,505,948
- -----------------------------------------------------------------------------
Michigan Strategic Fund (Consumer's
Power Corp.); Variable Rate Demand
Series 1988 A PCR
3.80% 04/15/18(b)(c) -- P-1 4,844 4,843,500
- -----------------------------------------------------------------------------
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited
Obligation
Series 1985 RB
3.40% 10/01/15(b)(c) -- VMIG-1 3,650 3,650,000
- -----------------------------------------------------------------------------
Michigan Strategic Fund (The Norcor
Corp. Project); IDR
3.45% 12/01/00(b)(c) -- P-1 4,400 4,400,000
- -----------------------------------------------------------------------------
Monroe (County of) (Detroit Edison
Co.); Limited Obligation Revenue
Adjusting Refunding Series 1992 CC RB
4.00% 10/01/24(b)(c) -- P-1 4,000 4,000,000
- -----------------------------------------------------------------------------
Wayne County School District; State
School Aid
Limited Tax Series 1996 GO
4.50% 05/01/97 SP-1+ -- 5,000 5,002,189
- -----------------------------------------------------------------------------
59,186,977
- -----------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
MINNESOTA - 1.90%
Bloomington (City of) Port Authority
(Mall of America Project); Special Tax
Revenue Series 1996 B RB
3.50% 02/01/13(b)(d) A-1+ VMIG-1 $ 2,000 $ 2,000,000
- -------------------------------------------------------------------------------
Duluth (City of) (Miller-Dwan Medical
Center); Variable Rate Demand Health
Facilities Series 1996 RB
3.80% 06/01/19(b)(c) A-1+ -- 7,000 7,000,000
- -------------------------------------------------------------------------------
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
3.55% 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
3.50% 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
3.55% 03/01/11(b)(d) AA- A1 1,200 1,200,000
- -------------------------------------------------------------------------------
19,100,000
- -------------------------------------------------------------------------------
MISSOURI - 2.22%
Kansas (City of) (Sleepy Hollow Apartment
Project); Multifamily Housing Series
1996 RB
3.45% 09/15/26(b)(c) A-1+ -- 7,500 7,500,000
- -------------------------------------------------------------------------------
Missouri Health & Educational Facilities
Authority (St. Francis Medical Center);
Variable Rate Demand Health Facilities
Series 1996 A RB
3.80% 06/01/26(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
Missouri State Environmental Improvement
& Energy Resource Authority (Associated
Electric Cooperative, Inc. Project);
Pooled
Series 1993-M RB
3.45% 12/15/03(b)(c) AA- VMIG-1 2,490 2,490,000
- -------------------------------------------------------------------------------
Saint Louis County Industrial Development
Authority (Bonhomme Village Apartments
Association Project); Variable Rate
Demand Housing Series 1985 RB
3.65% 10/01/07(b)(c) -- VMIG-1 6,900 6,900,000
- -------------------------------------------------------------------------------
Sikeston (City of) Missouri; Electric
Revenue RB
5.10% 06/01/97(d) AAA Aaa 1,865 1,869,650
- -------------------------------------------------------------------------------
22,259,650
- -------------------------------------------------------------------------------
MISSISSIPPI - 1.60%
Jackson (County of) (Chevron U.S.A. Inc.
Project); Series 1993 PCR
3.80% 12/01/16(b) -- P-1 2,900 2,900,000
- -------------------------------------------------------------------------------
3.80% 06/01/23(b) -- P-1 6,100 6,100,000
- -------------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Mississippi - (continued)
Perry (County of) (Leaf River Forest
Project); Series 1989 PCR
3.50% 10/01/12(b)(c) -- P-1 $ 7,100 $ 7,100,000
- -------------------------------------------------------------------------------
16,100,000
- -------------------------------------------------------------------------------
MONTANA - 0.40%
Montana (State of); Series 1996 TRAN
4.50% 06/27/97 SP-1+ MIG-1 4,000 4,007,483
- -------------------------------------------------------------------------------
NEVADA - 0.20%
Clark (County of) (Nevada Power Co.
Project);
Series 1995 D-1 PCR
3.45% 10/01/11(b)(c) A-1+ -- 2,000 2,000,000
- -------------------------------------------------------------------------------
NEW HAMPSHIRE - 1.33%
New Hampshire Higher Educational and
Health Facilities Authority (VHA of New
England Capital Asset Financial
Program); Variable Rate Hospital Series
1985 G RB
3.45% Series G 12/01/25(b)(d) A-1 Aaa 7,925 7,925,000
- -------------------------------------------------------------------------------
New Hampshire Housing Finance Authority
(EQR-Bond Partnership-Manchester
Project); Multifamily Housing Refunding
Series 1996 RB
3.45% 09/15/26(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
New Hampshire Industrial Development
Authority (Bangor Hydro-Electric Co.
Project); Variable Rate Demand Series
1983 PCR
3.40% 01/01/09(b)(c) A-1+ -- 400 400,000
- -------------------------------------------------------------------------------
13,325,000
- -------------------------------------------------------------------------------
NEW MEXICO - 1.96%
Farmington (City of) (Public Service Co.
of New Mexico San Juan Project); Series
1997 B PCR
3.45% 04/01/22(b)(c) A-1+ P-1 14,000 14,000,000
- -------------------------------------------------------------------------------
Hurley (Town of) (Kennecott Santa Fe
Corp. Project); Unit Priced Demand
Adjustable Series 1985 PCR
3.80% 12/01/15(b)(d) A-1+ P-1 4,600 4,600,000
- -------------------------------------------------------------------------------
Las Cruces (City of); Joint Utility
Refunding and Improvement Series 1997 A
RB
4.00% 07/01/97 AAA Aaa 1,070 1,071,034
- -------------------------------------------------------------------------------
19,671,034
- -------------------------------------------------------------------------------
NEW YORK - 18.25%
Eagle Tax Exempt Trust; Class A COP(g)
3.56% Series 97C4703 01/01/01(e)(f) A-1+c Aaa 10,800 10,800,000
- -------------------------------------------------------------------------------
3.61% Series 1993 E 08/01/06(b)(d) A-1+c -- 15,000 15,000,000
- -------------------------------------------------------------------------------
3.61% Series 1993 F 08/01/06(b)(d) A-1+c -- 20,500 20,500,000
- -------------------------------------------------------------------------------
3.61% Series 943902 05/01/07(b)(d) A-1+c -- 17,800 17,800,000
- -------------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
New York - (continued)
3.61% Series 943901 06/15/07(b)(d) A-1+c -- $ 14,500 $ 14,500,000
- ------------------------------------------------------------------------------
3.61% Series 94C2102 06/01/14(b)(c) A-1+c -- 10,100 10,100,000
- ------------------------------------------------------------------------------
3.56% Series 97C4702 01/01/20(b)(d) A-1+c Aa1 9,500 9,500,000
- ------------------------------------------------------------------------------
3.61% Series 950901 06/01/21(b)(d) A-1+c -- 12,700 12,700,000
- ------------------------------------------------------------------------------
3.56% Series 943207 07/01/29(b)(d) A-1+c -- 14,200 14,200,000
- ------------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington
Public Power Supply System Project No.
2); Series 964703 Class A COP
3.56% 07/01/11(b)(d)(g) A-1+c -- 5,600 5,600,000
- ------------------------------------------------------------------------------
Merrill Lynch Group Float Program, New
York State Medical Facilities Finance
Agency (St. Lukes-Roosevelt Hospital
Center); Floating Option Tax-Exempt
Receipts Series PA-113 1993 A Mortgage
RB
3.55% 02/15/29(b)(d) A-1+c -- 9,700 9,700,000
- ------------------------------------------------------------------------------
New York (City of); General Obligation
Fiscal Series 1997 B RAN
4.50% 06/30/97(c) SP-1+ MIG-1 20,500 20,546,728
- ------------------------------------------------------------------------------
New York City Housing Development Corp.
(Parkgate Tower); Variable Rate Demand
Resolution Series 1 1985 RB
3.30% 12/01/07(b)(c) A-1+ VMIG-1 5,870 5,870,000
- ------------------------------------------------------------------------------
New York City Municipal Water Finance
Authortiy; Water and Sewer System
Adjustable Rate Series 1994 G RB
3.85% 06/15/24(b)(d) A-1+ VMIG-1 2,000 2,000,000
- ------------------------------------------------------------------------------
New York State Energy Research and
Development Authority (Niagara Mohawk
Power Corp.); PCR
3.80% Series 1985 A 07/01/15(b)(c) A-1+ -- 6,800 6,800,000
- ------------------------------------------------------------------------------
3.80% Series 1985 C 12/01/25(b)(c) -- P-1 2,600 2,600,000
- ------------------------------------------------------------------------------
Triborough (The) Bridge and Tunnel
Authority; Special Obligation Variable
Rate Demand Series 1994 RB
3.45% 01/01/24(b)(d) A-1+ VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
183,216,728
- ------------------------------------------------------------------------------
NORTH CAROLINA - 2.87%
Alamance (County of) Industrial
Facilities & Pollution Control
Financing Authority (Science
Manufacturing Inc. Project); Series
1985 IDR
3.90% 04/01/15(b)(c) -- P-1 3,000 3,000,000
- ------------------------------------------------------------------------------
New Hanover (County of) Industrial
Facilities and Pollution Control
Financing Authority (Gang-Nail
Systems, Inc. Project);
Series 1984 IDR
3.50% 12/01/99(b)(c) -- P-1 5,600 5,600,000
- ------------------------------------------------------------------------------
North Carolina Educational Facilities
Finance Agency (Elon College); Series
1997 RB
3.35% 01/01/19(b)(c) A-1+ VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
North Carolina - (continued)
North Carolina Educational Facilities
Finance Agency (Guillford College
Project); Variable Rate Demand/Fixed
Rate Series 1993 RB
3.80% 09/01/23(b)(c) A-1+ -- $ 2,100 $ 2,100,000
- -------------------------------------------------------------------------------
North Carolina Medical Care Commission
Retirement Community (Adult Communities
Total Services Inc.); Variable Rate
Demand Series 1996 RB
3.50% 11/15/09(b)(c) A-1+ -- 5,655 5,655,000
- -------------------------------------------------------------------------------
North Carolina Medical Care Community
Hospital (Baptist Hospitals Project);
RB
3.45% 06/01/12(b)(c) A-1+ VMIG-1 4,000 4,000,000
- -------------------------------------------------------------------------------
North Carolina Municipal Power Agency
Number 1 (Catawba Project) Tax Exempt
Commercial Notes
3.40% 05/21/97(c) A-1+ P-1 3,500 3,500,000
- -------------------------------------------------------------------------------
28,855,000
- -------------------------------------------------------------------------------
OHIO - 2.14%
Cuyahoga (County of) (S&R Playhouse
Realty Co.); Adjustable Rate Demand
Series 1984 IDR
3.65% 12/01/09(b(c) -- MIG-1 635 635,000
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.65% 11/01/14(b)(c) -- P-1 8,800 8,800,000
- -------------------------------------------------------------------------------
Lucas (County of) (Lutheran Homes
Society Project); Adjustable Rate
Demand Health Care Facilities Series
1996 RB
3.45% 11/01/19(b)(c) A-1+ -- 2,800 2,800,000
- -------------------------------------------------------------------------------
Marion (County of) (Pooled Lease
Program); Hospital RB
3.55% 10/01/22(b)(c) A-1+ -- 2,095 2,095,000
- -------------------------------------------------------------------------------
Ohio Building Authority (Art Facilities
Building Fund Projects); State
Facilities Series 1997 A RB
4.00% 10/01/97 AA- Aa3 3,180 3,184,889
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.35% 12/01/15(b)(c) -- VMIG-1 956 956,000
- -------------------------------------------------------------------------------
Summit (County of) Various Purpose
Notes; Series 1996 B General Obligation
BAN
4.00% 06/05/97 -- MIG-1 3,000 3,001,800
- -------------------------------------------------------------------------------
21,466 21,472,689
- -------------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
OKLAHOMA - 1.00%
Oklahoma Water Resource Board State Loan
Program;
Series 1994 A RB
3.50% 09/01/97(e) A-1+ -- $ 10,000 $ 10,000,000
- -------------------------------------------------------------------------------
OREGON - 0.59%
Portland (City of) (South Park Block
Project); Multifamily Housing Refunding
Series 1988 A RB
3.45% 12/01/11(b)(c) A-1+ -- 5,900 5,900,000
- -------------------------------------------------------------------------------
PENNSYLVANIA - 2.78%
Commonwealth of Pennsylvania; First
Series 1996-1997 TAN
4.50% 06/30/97 SP-1+ MIG-1 14,550 14,582,217
- -------------------------------------------------------------------------------
Delaware County Industrial Development
Authority (Henderson-Radnor Joint
Venture Project); Limited Obligation
Series 1985 IDR
3.55% 04/01/15(b)(c) -- Aa3 855 855,000
- -------------------------------------------------------------------------------
Emmaus (City of) General Authority;
Series 1996 RB
3.65% 12/01/28(b)(d) A-1+ -- 3,000 3,000,000
- -------------------------------------------------------------------------------
Schuykill County Industrial Development
Authority (Gilberton Power Project);
Variable Rate Resources 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
- -------------------------------------------------------------------------------
York (City of) General Authority;
Adjustable Rate Pooled Financing Series
1996 RB
3.50% 09/01/26(b)(c) A-1 -- 4,900 4,900,000
- -------------------------------------------------------------------------------
27,937,217
- -------------------------------------------------------------------------------
RHODE ISLAND - 0.13%
Rhode Island and Providence Plantations;
Lease Participation Certificates
Correctional Facilities Refunding
Series 1997 RB
4.75% 10/01/97(d) AAA Aaa 1,290 1,296,734
- -------------------------------------------------------------------------------
SOUTH CAROLINA - 0.89%
Horry (County of) (Carolina Treatment
Center); Variable Rate Demand Series
1984 RB
3.45% 12/01/14(b)(c) -- Aa2 2,300 2,300,000
- -------------------------------------------------------------------------------
Rock Hill (City of); Utilities System RB
3.45% 01/01/22(b)(d) A-1+ VMIG-1 6,675 6,675,000
- -------------------------------------------------------------------------------
8,975,000
- -------------------------------------------------------------------------------
TENNESSEE - 3.39%
Health, Educational and Housing Facility
Board of Shelby County (Rhodes
College); Variable Rate Demand
Educational Facilities Series 1985 RB
3.45% 08/01/10(b)(c) A-1+ -- 2,075 2,075,000
- -------------------------------------------------------------------------------
</TABLE>
FS-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Tennessee - (continued)
Industrial Development Board of the City
of Knoxville (Toys "R" Us Inc.,
Project); Series 1984 IDR
3.65% 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
3.35% 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
IDR
3.35% 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
3.35% 12/01/14(b)(c) A-1+ -- 2,900 2,900,000
- ------------------------------------------------------------------------------
Knox County Industrial Development Board
(Weisgarber Partners Ltd Project);
Floating Rate Series 1984 IDR
3.35% 12/01/14(b)(c) A-1+ -- 700 700,000
- ------------------------------------------------------------------------------
Nashville and Davidson (County of)
Industrial Development Board of Metro
Government (Amberwood Ltd Project);
Multifamily Housing RB
3.76% Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,345 2,345,000
- ------------------------------------------------------------------------------
3.76% Series 1993 B 07/01/13(b)(c) A-1 VMIG-1 1,990 1,990,000
- ------------------------------------------------------------------------------
Tennessee State School Bond Authority;
Higher Educational Facilities BAN
3.45% Series 1997 A 03/01/98(b)(d) A-1+ VMIG-1 7,000 7,000,000
- ------------------------------------------------------------------------------
3.45% Series A 07/02/01(b) A-1+ VMIG-1 2,000 2,000,000
- ------------------------------------------------------------------------------
3.45% Series C 07/02/01(b) A-1+ VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
34,060,000
- ------------------------------------------------------------------------------
TEXAS - 10.44%
Angelina & Neches River Authority
Industrial Development Corp.; Solid
Waste Disposal Series 1984 C RB
4.00% 05/01/14(b)(c) -- P-1 2,700 2,700,000
- ------------------------------------------------------------------------------
Angelina & Neches River Authority
Industrial Development Corp. (Temple
Inland Marine); Series 1984 D RB
4.00% 05/01/14(b)(c) -- P-1 3,300 3,300,000
- ------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apartments);
Multifamily RB
3.45% 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- ------------------------------------------------------------------------------
Brazos River Harbor Navigation District
of Brazoria County (Hoffman-La Roche
Inc. Project); Series 1985 RB
3.425% 04/01/02(b)(c) -- A1 2,750 2,750,000
- ------------------------------------------------------------------------------
Dallas Area Rapid Transit; Sales Tax
Revenue Series B Commercial Paper Notes
3.55% 05/28/97(c) A-1+ P-1 5,000 5,000,000
- ------------------------------------------------------------------------------
Harris (County of); Sub Lein Toll Road
Series D RB
3.30% 08/01/15(b)(c) A-1+ VMIG-1 8,400 8,400,000
- ------------------------------------------------------------------------------
</TABLE>
FS-14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Texas - (continued)
Harris County Health Facilities
Development Corp. (Buckner Retirement
Services, Inc. Project); Series 1996
RB
3.50% 08/15/26(b)(c) -- VMIG-1 $ 17,800 $ 17,800,000
- ------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Greater Houston
Pooled Health); Series 1985 A RB
3.55% 11/01/25(b)(c) A-1 -- 2,900 2,900,000
- ------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 RB
3.45% 04/01/17(b)(c) A-1 -- 3,450 3,450,000
- ------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Memorial Hospital
System Project); Series 1997 B RB
3.35% 06/01/24(b)(d) -- VMIG-1 5,000 5,000,000
- ------------------------------------------------------------------------------
North Central Texas Health Facilities
Development Authority (Presbyterian
Medical Center); Series 1985 C RB
3.80% 12/01/15(b)(d) A-1 VMIG-1 2,300 2,300,000
- ------------------------------------------------------------------------------
Nueces County Health Facilities
Development Corp. (Driscoll Childrens
Hospital); Floating Rate Demand
Hospital Series 1985 RB
3.45% 07/01/15(b)(c) -- VMIG-1 2,570 2,570,000
- ------------------------------------------------------------------------------
Tarrant (County of) Texas Housing
Finance Corp. (Windcastle Project);
Multifamily Housing RB
3.55% 08/01/26(b)(c) A-1+ -- 2,100 2,100,000
- ------------------------------------------------------------------------------
Texas (State of); Series 1996 TRAN
4.75% 08/29/97 SP-1+ MIG-1 21,000 21,074,669
- ------------------------------------------------------------------------------
Texas Department of Housing and
Community Affairs; SFM Tax Exempt
Refunding Series B Commercial Paper
Notes
3.60% 06/26/97(d) A-1+ -- 2,655 2,655,000
- ------------------------------------------------------------------------------
Texas Department of Housing and Urban
Affairs (Remington Hill Department);
Multifamily Housing Refunding Series
1993 B RB
3.50% 02/01/23(b)(c) A-1+ -- 13,880 13,880,000
- ------------------------------------------------------------------------------
Texas State Public Finance Authority;
Building RB
6.40% 02/01/98(d) AAA Aaa 1,850 1,891,505
- ------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
3.60% Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
- ------------------------------------------------------------------------------
3.60% Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
- ------------------------------------------------------------------------------
104,921,174
- ------------------------------------------------------------------------------
UTAH - 2.06%
Bountiful (City of) (Bountiful Gateway
Park Project); Adjustable Rate
Refunding Series 1987 IDR
3.75% 12/01/97(b)(c) A-1+ -- 3,785 3,785,000
- ------------------------------------------------------------------------------
</TABLE>
FS-15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
Utah - (continued)
Intermountain Power Agency; Variable Rate
Power Supply Refunding Series 1985 E
Commercial Notes
3.50% 08/22/97(c) A-1+ VMIG-1 $ 8,200 $ 8,200,000
- -------------------------------------------------------------------------------
State Board of Regents of the State of
Utah (University Inn Project); Variable
Rate Demand Series 1985 IDR
4.00% 12/01/15(b)(c) -- P-1 8,655 8,655,000
- -------------------------------------------------------------------------------
20,640,000
- -------------------------------------------------------------------------------
VERMONT - 0.71%
Vermont Educational and Health Buildings
(VHA New England); Financing Agency RB
3.45% Series E 12/01/25(b)(d) A-1 Aaa 2,500 2,500,000
- -------------------------------------------------------------------------------
3.45% Series F 12/01/25(b)(d) A-1+ Aaa 2,100 2,100,000
- -------------------------------------------------------------------------------
Vermont (State of) Health and Education
Building Finance Agency (VHA of New
England Capital Asset Finance Program);
Variable Rate Hospital Series 1985 G RB
3.45% 12/01/25(b)(d) A-1+ Aaa 2,560 2,560,000
- -------------------------------------------------------------------------------
7,160,000
- -------------------------------------------------------------------------------
VIRGINIA - 2.30%
Henrico (County of) Virginia Industrial
Development Authority (Hermitage
Project); Variable Rate Health
Facilities Bonds Series 1994 RB
3.90% 05/01/24(b)(c) -- VMIG-1 6,071 6,070,500
- -------------------------------------------------------------------------------
Industrial Development Authority of the
City of Lynchburg (VHA Mid-Atlantic
States, Inc.); Capital Asset Financing
Program Variable Rate Hospital Series
1985 F RB
3.50% 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
Industrial Development Authority of the
City of Norfolk (Sentara Hospitals-
Norfolk Project); Series 1990 A
Commercial Paper Notes
3.50% 05/22/97(e) A-1+ VMIG-1 14,985 14,985,000
- -------------------------------------------------------------------------------
Peninsula Ports Authority of Virginia
(Dominion Terminal Associates Project);
Coal Terminal Refunding Series 1987 D RB
3.70% 07/01/16(b)(c) -- P-1 1,000 1,000,000
- -------------------------------------------------------------------------------
23,055,500
- -------------------------------------------------------------------------------
WASHINGTON - 0.14%
Clark (County of) (Evergreen School
District No. 114); Unlimited Tax Series
1996 GO
6.00% 06/01/97(c) AAA Aaa 1,440 1,445,183
- -------------------------------------------------------------------------------
</TABLE>
FS-16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
WEST VIRGINIA - 2.35%
West Virginia Hospital Finance
Authority (VHA Mid-Atlantic States,
Inc. Capital Asset Financing
Program); RB
3.50% Series 1985 B 12/01/25(b)(d) A-1+ Aaa $ 3,000 $ 3,000,000
- ------------------------------------------------------------------------------
3.50% Series 1985 C 12/01/25(b)(d) A-1 Aaa 3,500 3,500,000
- ------------------------------------------------------------------------------
3.50% Series 1985 D 12/01/25(b)(d) A-1 -- 1,400 1,400,000
- ------------------------------------------------------------------------------
3.50% Series 1985 E 12/01/25(b)(d) A-1 Aaa 1,400 1,400,000
- ------------------------------------------------------------------------------
3.50% Series 1985 F 12/01/25(b)(d) A-1 Aaa 5,700 5,700,000
- ------------------------------------------------------------------------------
3.50% Series 1985 H 12/01/25(b)(d) A-1 Aaa 8,600 8,600,000
- ------------------------------------------------------------------------------
23,600,000
- ------------------------------------------------------------------------------
WISCONSIN - 1.10%
Wisconsin (State of); GO
4.50% 06/16/97 SP-1+ MIG-1 6,000 6,007,766
- ------------------------------------------------------------------------------
Wisconsin (State of); Series C GO
7.00% 05/01/97(e)(f) AAA AAA 1,000 1,012,524
- ------------------------------------------------------------------------------
Wisconsin Health and Education
Facilities Authority (Wheaton
Franciscan Services, Inc. System);
Variable Rate Demand Series 1997 RB
3.35% 08/15/16(b)(c) A-1+ VMIG-1 4,000 4,000,000
- ------------------------------------------------------------------------------
11,020,290
- ------------------------------------------------------------------------------
WYOMING - 0.25%
Uinta (County of) (Chevron USA
Project); Series 1993 PCR
3.80% 08/15/20(e) -- P-1 2,500 2,500,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 103.27% 1,036,936,187(h)
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -
(3.27%) (32,825,030)
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $1,004,111,157
==============================================================================
</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 Auditor's Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rate shown is the rate in effect on March 31, 1997.
(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 of which the value
and return 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
sales 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
complexitites and potential risks that may not be present where a municipal
security is owned directly.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-17
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,036,936,187
- ------------------------------------------------------------------------
Cash 71,176
- ------------------------------------------------------------------------
Receivables for:
Investments sold 245,000
- ------------------------------------------------------------------------
Interest 6,171,284
- ------------------------------------------------------------------------
Reimbursement from advisor 13,000
- ------------------------------------------------------------------------
Investment for deferred compensation plan 24,694
- ------------------------------------------------------------------------
Other assets 70,953
- ------------------------------------------------------------------------
Total assets 1,043,532,294
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 36,361,701
- ------------------------------------------------------------------------
Dividends 2,820,829
- ------------------------------------------------------------------------
Deferred compensation 24,694
- ------------------------------------------------------------------------
Accrued advisory fees 135,309
- ------------------------------------------------------------------------
Accrued directors' fees 5,570
- ------------------------------------------------------------------------
Accrued administrative service fees 11,662
- ------------------------------------------------------------------------
Accrued transfer agent fees 8,000
- ------------------------------------------------------------------------
Accrued distribution fees 7,733
- ------------------------------------------------------------------------
Accrued operating expenses 45,639
- ------------------------------------------------------------------------
Total liabilities 39,421,137
- ------------------------------------------------------------------------
NET ASSETS $1,004,111,157
========================================================================
NET ASSETS:
Institutional Shares $ 966,567,457
- ------------------------------------------------------------------------
Private Investment Class $ 37,543,700
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
- ------------------------------------------------------------------------
Outstanding 966,579,148
========================================================================
Private Investment Class:
Authorized 1,000,000,000
- ------------------------------------------------------------------------
Outstanding 37,544,154
========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-18
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest income $36,350,163
- -----------------------------------------------------------------------
EXPENSES:
Advisory fees 2,346,148
- -----------------------------------------------------------------------
Transfer agent fees 85,916
- -----------------------------------------------------------------------
Administrative service fees 70,077
- -----------------------------------------------------------------------
Directors' fees 15,006
- -----------------------------------------------------------------------
Distribution fees (Note 2) 169,413
- -----------------------------------------------------------------------
Other expenses 232,418
- -----------------------------------------------------------------------
Total expenses 2,918,978
- -----------------------------------------------------------------------
Less fees waived and expenses assumed by advisor (733,219)
- -----------------------------------------------------------------------
Net expenses 2,185,759
- -----------------------------------------------------------------------
Net investment income 34,164,404
- -----------------------------------------------------------------------
Net realized gain on sales of investments 79,682
- -----------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (5,777)
- -----------------------------------------------------------------------
Net increase in net assets resulting from operations $34,238,309
=======================================================================
</TABLE>
See Notes to Financial Statements.
FS-19
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 34,164,404 $ 40,503,678
- -----------------------------------------------------------------------------
Net realized gain on sales of investments 79,682 292,222
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (5,777) (30,577)
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 34,238,309 40,765,323
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (33,140,042) (39,402,142)
- -----------------------------------------------------------------------------
Private Investment Class (1,024,362) (1,101,536)
- -----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Shares (42,543,201) (1,106,286)
- -----------------------------------------------------------------------------
Private Investment Class 2,402,025 5,845,831
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (40,067,271) 5,001,190
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,044,178,428 1,039,177,238
- -----------------------------------------------------------------------------
End of period $1,004,111,157 $1,044,178,428
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Shares $ 966,579,148 $1,009,122,349
- -----------------------------------------------------------------------------
Private Investment Class 37,544,154 35,142,129
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (12,145) (91,827)
- -----------------------------------------------------------------------------
Unrealized appreciation of investments -- 5,777
- -----------------------------------------------------------------------------
$1,004,111,157 $1,044,178,428
=============================================================================
</TABLE>
See Notes to Financial Statements.
FS-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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 - Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are applicable to more than one class are allocated between
the classes.
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 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, 1997, AIM reduced its advisory fee from the Fund by
$625,513 and assumed expenses of $23,000.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended March 31, 1997, the Fund
reimbursed AIM $70,077 for such services.
FS-21
<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, 1997, the Private Investment Class
accrued $169,413 as compensation to FMC under the Plan. FMC waived fees of
$84,706 duirng the same period.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Institutional Fund Services, Inc. ("AIFS") a fee for providing
transfer agent and shareholder services to the Fund. During the year ended
March 31, 1997, the Fund paid AIFS $85,916 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, 1997, the Fund paid legal fees of $7,203 for
services rendered by Kramer, Levin, Naftalis & 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, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 4,746,443,085 $ 4,746,443,085 5,051,588,995 $ 5,051,588,995
- -----------------------------------------------------------------------------------------
Private Investment
Class 204,111,511 204,111,511 218,503,050 218,503,050
- -----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 192,345 192,345 99,312 99,312
- -----------------------------------------------------------------------------------------
Private Investment
Class 860,021 860,021 1,064,127 1,064,127
- -----------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (4,789,178,631) (4,789,178,631) (5,052,794,593) (5,052,794,593)
- -----------------------------------------------------------------------------------------
Private Investment
Class (202,569,507) (202,569,507) (213,721,346) (213,721,346)
- -----------------------------------------------------------------------------------------
Net increase
(decrease) (40,141,176) $ (40,141,176) 4,739,545 $ 4,739,545
=========================================================================================
</TABLE>
FS-22
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Private Investment
Class capital stock outstanding during each of the years in the five-year
period ended March 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------- ------- ------- ------- ------- ------
Income from investment
operations:
Net investment income 0.03 0.03 0.03 0.02 0.02
- ------------------------------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net investment
income (0.03) (0.03) (0.03) (0.02) (0.02)
- ------------------------------- ------- ------- ------- ------- ------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
=============================== ======= ======= ======= ======= ======
Total return 3.07% 3.41% 2.80% 2.07% 2.43%
=============================== ======= ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $37,544 $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% 0.45%
=============================== ======= ======= ======= ======= ======
Ratio of net investment income
to average net assets(c) 3.02%(b) 3.35% 2.89% 2.05% 2.22%
=============================== ======= ======= ======= ======= ======
</TABLE>
(a) After waiver of fees and/or expense reimbursements. Ratios of expenses to
average net assets prior to waivers and/or expense reimbursements were
0.83%, 0.76%, 1.17%, 1.15% and 1.40% (annualized), respectively, for the
periods 1997-1993.
(b) Ratios are based on average net assets of $33,882,675.
(c) After waiver of fees and/or expense reimbursements. Ratios of net
investment income to average net assets prior to waivers and/or expense
reimbursements were 2.65%, 3.04%, 2.17%, 1.35% and 1.28% (annualized),
respectively, for the periods 1997-1993.
FS-23
<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, 1997 (audited)
In Part B: (i) Independent Auditors' Report
(ii) Financial Statements as of March 31, 1997 (audited)
In Part C: None
2. Private Investment Class of the Cash Reserve Portfolio
In Part A: Financial Highlights as of March 31, 1997 (audited)
In Part B: (i) Independent Auditors' Report
(ii) Financial Statements as of March 31, 1997 (audited)
In Part C: None
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(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
were filed electronically as an Exhibit to Post-Effective No. 23 on
July 26, 1996, and are hereby incorporated by reference.
(b) Articles Supplementary of Registrant were filed as an Exhibit to
Registrant's Post-Effective Amendment No. 21 on July 29, 1994, and
were filed electronically as an Exhibit to Post-Effective No. 23 on
July 26, 1996, and are hereby incorporated by reference.
(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.
(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.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(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.
(d) Amended and Restated Bylaws of Registrant, dated December 11, 1996 are
filed electronically herewith.
(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 was filed electronically as an
Exhibit to Post-Effective Amendment No. 23 on July 26, 1996.
(b) Investment Advisory Agreement, dated February 28, 1997 between A I M
Advisors, Inc. and Registrant on behalf of the Cash Reserve Portfolio
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 was
filed electronically as an Exhibit to Post-Effective Amendment No. 23
on July 26, 1996.
(b) Master Distribution Agreement dated February 28, 1997 between Fund
Management Company and Registrant 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, was filed
electronically as an Exhibit to Post-Effective Amendment No. 23 on
July 26, 1996, and is hereby incorporated by reference.
(c) Form of Deferred Compensation Agreement was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 21 on July 29, 1994.
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(d) Form of Deferred Compensation Plan for Eligible Directors/Trustees as
approved on December 5, 1995, was filed electronically as an Exhibit
to Post-Effective Amendment No. 23 on July 26, 1996, and is hereby
incorporated by reference.
(8) (a) Custody Agreement, dated October 19, 1995, between The Bank of New
York and Registrant was filed electronically as an Exhibit to Post-
Effective Amendment No. 23 on July 26, 1996, and is hereby
incorporated by reference.
(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 is 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 Post-Effective Amendment No. 22 on July 28, 1995, and is 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, 1997.
(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 was filed electronically as an
Exhibit to Post-Effective Amendment No. 23 on July 26, 1996.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C> <C>
(c) Amended and Restated Master Distribution Plan on behalf of the Private
Investment Class of the Cash Reserve Portfolio is filed herewith
electronically.
(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 is filed herewith electronically.
(27) Financial Data Schedule is filed herewith electronically.
</TABLE>
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.
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.
<TABLE>
<CAPTION>
Number of Record Holders
Title Class as of July 15, 1997
------------------------ -------------------
<S> <C>
Institutional Cash Reserve Shares 74
Private Investment Class 7
</TABLE>
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
C-4
<PAGE>
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.
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>
<TABLE>
<CAPTION>
(b)
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 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 & Senior Vice President
Stephen I. Winer Vice President, Assistant Assistant Secretary
General Counsel & Assistant Secretary
Kathleen J. Pflueger Secretary Assistant Secretary
Nancy A. Beck Assistant Vice President None
David E. Hessel Assistant Vice President, None
Assistant Treasurer & Controller
Jeffrey L. Horne Assistant Vice President None
Robert W. Morris, Jr. Assistant Vice President None
Ann M. Srubar Assistance 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
</TABLE>
_________________
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Nancy L. Martin Assistant General Counsel & Assistant Secretary
Assistant Secretary
Ofelia M. Mayo Assistant General Counsel & Assistant Secretary
Assistant Secretary
Samuel D. Sirko Assistant General Counsel & Assistant Secretary
Assistant Secretary
</TABLE>
(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 100, 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 100, 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 29th day of
July, 1997.
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 29, 1997
- --------------------------------------
(Charles T. Bauer)
/s/ ROBERT H. GRAHAM Director & President July 29, 1997
- -------------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ BRUCE L. CROCKETT Director July 29, 1997
- --------------------------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Director July 29, 1997
- --------------------------------------
(Owen Daly II)
/s/ JACK FIELDS Director July 29, 1997
- --------------------------------------
(Jack Fields)
/s/ CARL FRISCHLING Director July 29, 1997
- --------------------------------------
(Carl Frischling)
/s/ JOHN F. KROEGER Director July 29, 1997
- --------------------------------------
(John F. Kroeger)
/s/ LEWIS F. PENNOCK Director July 29, 1997
- --------------------------------------
(Lewis F. Pennock)
/s/ IAN W. ROBINSON Director July 29, 1997
- --------------------------------------
(Ian W. Robinson)
/s/ LOUIS S. SKLAR Director July 29, 1997
- --------------------------------------
(Louis S. Sklar)
Senior Vice President &
/s/ JOHN J. ARTHUR Treasurer (Principal July 29, 1997
- -------------------------------------- Financial and Accounting
(John J. Arthur) Officer)
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
2(d) Amended and Restated Bylaws of Registrant, dated December 11, 1996
5(b) Investment Advisory Agreement, dated February 28, 1997, between A I M
Advisors, Inc. and Registrant on behalf of the Cash Reserve Portfolio
6(b) Master Distribution Agreement, dated February 28, 1997, between Fund
Management Company and Registrant
11(a) Consent of Ballard Spahr Andrews & Ingersoll
11(b) Consent of KPMG Peat Marwick LLP
15(c) Amended and Restated Master Distribution Plan on behalf of the
Private Investment Class of the Cash Reserve Portfolio
18 Rule 18f-3 Plan
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 2(d)
AMENDED AND RESTATED BYLAWS
OF
TAX-FREE INVESTMENTS CO.,
A MARYLAND CORPORATION
ADOPTED EFFECTIVE DECEMBER 11, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
STOCKHOLDERS........................... - 1 -
Section 1. Time and Place of Meetings................................... - 1 -
Section 2. Annual Meetings.............................................. - 1 -
Section 3. Special Meetings............................................. - 1 -
Section 4. Notice of Meeting of Stockholders............................ - 1 -
Section 5. Closing of Transfer Books, Record Dates...................... - 2 -
Section 6. Quorum, Adjournment of Meeting............................... - 2 -
Section 7. Voting and Inspectors........................................ - 2 -
Section 8. Conduct of Stockholders Meetings............................. - 3 -
Section 9. Validity of Proxies and Ballots.............................. - 3 -
Section 10. Nominations and Stockholder Business......................... - 3 -
ARTICLE II
BOARD OF DIRECTORS......................... - 4 -
Section 1. Number and Term of Office.................................... - 4 -
Section 2. Increase or Decrease in Number of Directors.................. - 4 -
Section 3. Place of Meetings............................................ - 4 -
Section 4. Regular Meetings............................................. - 4 -
Section 5. Special Meetings............................................. - 5 -
Section 6. Quorum....................................................... - 5 -
Section 7. Telephonic Meetings.......................................... - 5 -
Section 8. Executive Committee.......................................... - 5 -
Section 9. Other Committees............................................. - 5 -
Section 10. Informal Action by Directors................................. - 5 -
Section 11. Compensation of Directors.................................... - 6 -
ARTICLE III
OFFICERS.............................. - 6 -
Section 1. Executive Officers........................................... - 6 -
Section 2. Term of Office............................................... - 6 -
Section 3. President.................................................... - 6 -
Section 4. Chairman of the Board........................................ - 6 -
Section 5. Other Officers............................................... - 6 -
Section 6. Secretary.................................................... - 7 -
Section 7. Treasurer.................................................... - 7 -
ARTICLE IV
STOCK................................ - 7 -
Section 1. Stock Certificates........................................... - 7 -
Section 2. Transfer of Shares........................................... - 7 -
Section 3. Stock Ledgers................................................ - 7 -
Section 4. Lost, Stolen or Destroyed Certificates....................... - 7 -
-i-
<PAGE>
Page
----
ARTICLE V
CORPORATE SEAL.......................... - 8 -
ARTICLE VI
FISCAL YEAR............................ - 8 -
ARTICLE VII
INDEMNIFICATION AND ADVANCES FOR EXPENSES............. - 8 -
Section 1. Indemnification of Directors and Officers.................... - 8 -
Section 2. Advances..................................................... - 8 -
Section 3. Procedure.................................................... - 9 -
Section 4. Indemnification of Employees and Agents...................... - 9 -
Section 5. Other Rights................................................. - 9 -
Section 6. Subsequent Changes to Law.................................... - 9 -
ARTICLE VIII
AMENDMENT OF BYLAWS........................ - 9 -
-ii-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
TAX-FREE INVESTMENTS CO.,
A MARYLAND CORPORATION
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 within the United States 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 ten
percent (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 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.
-1-
<PAGE>
Section 5. Closing of Transfer Books, Record Dates. The Board of
Directors may set a record date 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. The record date may not be prior to the
close of business on the day the record date is fixed and shall be not more than
ninety (90) days before the date on which the action requiring the determination
is taken. In the case of a meeting of stockholders, the record date shall be at
least ten (10) days before the date of the meeting. 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. Quorum, Adjournment of Meeting. The presence in person or
by proxy of stockholders entitled to cast thirty percent (30%) of all votes
entitled to be cast at the meeting shall constitute a quorum at all meetings of
the stockholders, except with respect to any matter which by law or the charter
of the Corporation requires the separate approval of one or more classes or
series of the capital stock of the Corporation, in which case the holders of
one-third of the shares of each such class or series (or of such classes or
series voting together as a single class) entitled to vote on the matter shall
constitute a quorum; and a majority, or with respect to the election of
Directors, a plurality, of all votes cast at a meeting (or cast by the holders
of shares of any such classes or series whose separate approval on a matter is
required) 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 Charter of the Corporation or these Bylaws. If at any meeting of the
stockholders there shall be less than a quorum present, the stockholders present
at such meeting may, by a majority of all votes cast and without further notice,
adjourn the same from time to time (but not more than 120 days after the
original record date for such meeting) until a quorum shall attend, 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 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 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 in strict
impartiality and according to the best of their ability, 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.
-2-
<PAGE>
Section 8. Conduct of Stockholders Meetings.
(a) 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 a person designated by the Secretary of the
Corporation shall so act, and if the Secretary has not designated a person, then
the meeting shall elect a secretary for the meeting.
(b) The Board of Directors of the Corporation shall be
entitled to make such rules and regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing: an agenda or order of
business for the meeting; rules and procedures for maintaining order at the
meeting and the safety of those present; limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies, and such other persons as the chairman shall permit;
restrictions on entry to the meeting after the time fixed for the commencement
thereof; limitations on the time allotted to questions or comments by
participants; and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot, unless and to the
extent the Board of Directors or the chairman of the meeting determines that
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
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.
Section 10. Nominations and Stockholder Business.
(a) Annual Meetings of Stockholders.
(1) Nominations of individuals for election to the board
of directors shall be made by the Board of Directors or a nominating committee
of the Board of Directors, if one has been established (the "Nominating
Committee"). Any stockholder of the Corporation may submit names of individuals
to be considered by the Nominating Committee or the Board of Directors, as
applicable, provided, however, (i) that such person was a stockholder of record
at the time of submission of such names and is entitled to vote at the meeting,
and (ii) that the Nominating Committee or the Board of Directors, as applicable,
shall make the final determination of persons to be nominated.
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(2) The business to be considered by the stockholders at
an annual meeting shall be determined by the Board of Directors of the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting.
(c) General.
(1) Only such persons who are nominated in accordance with
the provisions of this Section 10 shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the provisions of this
Section 10. The presiding officer of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the provisions of this Section 10 and,
if any proposed nomination or business is not in compliance with this Section
10, to declare that such defective nomination or proposal be disregarded.
(2) Notwithstanding the foregoing provisions of this
Section 10, a stockholder shall also comply with all applicable requirements of
state law and of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations thereunder with respect to the matters set
forth in this Section 10. Nothing in this Section 10 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and affairs of
the Corporation shall be 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 qualify. 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 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.
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
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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, telephonic or written notice duly given to each director not
less than one (1) business day before such meeting or, 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 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 action of a majority of the directors present at any meeting at
which there is a quorum shall be the action of the Board of Directors, except as
may be otherwise specifically provided by applicable law, the Charter or these
Bylaws.
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 nominees which shall in each case consist of such number of directors (not
less than two (2)), which shall have and may exercise such powers as the Board
may from time to time determine, subject to applicable law. A majority of all
members of any such committee may determine its
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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 prohibited 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
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
Bylaws 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 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
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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 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. 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 7. 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 Bylaws 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.
ARTICLE IV
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, subject
to applicable law.
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.
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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.
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 AND ADVANCES FOR EXPENSES
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 the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross
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negligence or reckless disregard of the duties involved in the conduct of such
person's office ("disabling conduct").
Section 2. Advances. The Corporation shall advance payment to any
current or former director or officer of the Corporation for reasonable expenses
incurred in connection with any proceeding in which the individual is made a
party by reason of service as a director or officer in the manner and to the
fullest extent permissible under the Maryland General Corporation Law. Upon
receipt by the Corporation of 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 individual 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 meet the requisite standard
of conduct.
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
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 Bylaws shall affect
any right of any person under this Article based on any event, omission or
proceeding occurring prior to such amendment.
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ARTICLE VIII
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended or repealed at any meeting of the
Board of Directors without prior notice that such alteration, amendment or
repeal will be considered at such meeting.
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EXHIBIT 5(b)
TAX-FREE INVESTMENTS CO.
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this 28th day of February, 1997, by and between Tax-
Free Investments Co., a Maryland corporation (the "Company") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Company is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
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 one series of shares representing interests in one
investment portfolio (such portfolio and any other portfolio hereafter added to
the Company being referred to individually herein as a "Fund," collectively as
the "Funds"); and
WHEREAS, the Company and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon 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 of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Company's Board of Directors. The Advisor shall
give the Company and the Funds the benefit of its best judgment, efforts and
facilities in rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) 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 Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers
<PAGE>
engage, or with respect to securities which the Advisor considers desirable
for inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in
the Funds' investment portfolios and regularly report thereon to the
Company's Board of Directors; and
(d) 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 take, on behalf of the Company and the Funds, all actions which appear to
the Company and the Funds necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including, but not limited to,
the placing of orders for the purchase and sale of securities for the Funds.
3. Delegation of Responsibilities. Subject to the approval of the Board
of Directors and the shareholders of the Funds, the Advisor may delegate to a
sub-advisor certain of its duties enumerated in Section 2 hereof, provided that
the Advisor shall continue to supervise the performance of any such sub-advisor.
4. Control by Board of Directors. Any investment program undertaken by
the Advisor pursuant to this Agreement, as well as any other activities
undertaken by the Advisor on behalf of the Funds, 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;
(b) the provisions of the registration statement of the Company,
as the same may be amended from time to time under the Securities Act of
1933 and the 1940 Act;
(c) the provisions of the corporate charter of the Company, as the
same may be amended from time to time;
(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, federal or
foreign law.
6. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates. The Advisor's primary consideration
in effecting a security transaction will be to obtain execution at the most
favorable price. 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 the difficulty in executing the order; and the
value of the expected contribution of the broker-dealer to the investment
performance of the Funds on a continuing basis. Accordingly, the price to the
Funds 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 from time to time determine, the Advisor shall not be deemed to
have acted unlawfully
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or to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds 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
a particular Fund, other Funds of the Company, and to other clients of the
Advisor as to which the Advisor exercises investment discretion. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Funds to
such brokers and dealers who also provide research or statistical material, or
other services to the Funds, to the Advisor, or to any sub-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. In making decisions regarding broker-dealer
relationships, the Advisor may take into consideration the recommendations of
any sub-advisor appointed to provide investment research or advisory services in
connection with the Funds, and may take into consideration any research services
provided to such sub-advisor by broker-dealers.
7. Compensation. The Company shall pay the Advisor as compensation for
services rendered to a Fund hereunder an annual fee, payable monthly, based upon
the average daily net assets of such Fund as the same is set forth in Appendix A
attached hereto. Such compensation shall be paid solely from the assets of such
Fund. The average daily net asset value of the Funds shall be determined in the
manner set forth in the corporate charter and registration statement of the
Company, as amended from time to time.
8. Additional Services. Upon the request of the Company's Board of
Directors, the Advisor may perform certain accounting, shareholder servicing or
other administrative services on behalf of the Funds which are not required by
this Agreement. Such services will be performed on behalf of the Funds and the
Advisor may receive from the Funds such reimbursement for costs or reasonable
compensation for such services as may be agreed upon between the Advisor and the
Company's Board of Directors based on a finding by the Board of Directors that
the provision of such services by the Advisor is in the best interests of the
Company and its shareholders. Payment or assumption by the Advisor of any Fund
expense that the Advisor is not otherwise required to pay or assume under this
Agreement shall not relieve the Advisor of any of its obligations to the Funds
nor obligate the Advisor to pay or assume any similar Fund expense on any
subsequent occasions. Such services may include, but are not limited to:
(a) the services of a principal financial officer of the Company
(including applicable office space, facilities and equipment) whose normal
duties consist of maintaining the financial accounts and books and records
of the Company and the Funds, including the review and calculation of daily
net asset value and the preparation of tax returns; and the services
(including applicable office space, facilities and equipment) of any of the
personnel operating under the direction of such principal financial
officer;
(b) the services of staff to respond to shareholder inquiries
concerning the status of their accounts; providing assistance to
shareholders in exchanges among the mutual funds managed or advised by the
Advisor; changing account designations or changing addresses; assisting in
the purchase or redemption of shares; supervising the operations of the
custodian, transfer agent(s) or dividend disbursing agent(s) for the Funds;
or otherwise providing services to shareholders of the Funds; and
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(c) such other administrative services as may be furnished from
time to time by the Advisor to the Company or the Funds at the request of
the Company's Board of Directors.
9. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include, but are not limited to, brokerage
commissions, taxes, legal, accounting, auditing, or governmental fees, the cost
of preparing share certificates, custodian, transfer and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
directors and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Company on behalf of the Funds in connection with membership in investment
company organizations and the cost of printing copies of prospectuses and
statements of additional information distributed to the Funds' shareholders.
10. Expense Limitation. If, for any fiscal year of the Company, the total
of all ordinary business expenses of the Funds, including all investment
advisory fees, but excluding brokerage commissions and fees, taxes, interest and
extraordinary expenses, such as litigation costs, would exceed the applicable
expense limitations imposed by state securities regulations in any state in
which the Funds' shares are qualified for sale, as such limitations may be
raised or lowered from time to time, the aggregate of all such investment
advisory fees shall be reduced by the amount of such excess. In the event the
operating expenses of the Fund (including all investment advisory fees,
management fees and distribution fees) for any fiscal year of the Company with
respect to the Institutional Cash Reserve Shares, exceed 0.40% of the average
daily net assets attributable to the Institutional Cash Reserve Shares, the
Advisor shall reduce its investment advisory fee to the extent of its share of
such excess expenses; 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. The amount of any such reduction to be borne by the
Advisor shall be deducted from the monthly investment advisory fee otherwise
payable to the Advisor during such fiscal year. If required pursuant to such
state securities regulations, the Advisor will, not later than the last day of
the first month of the next succeeding fiscal year, reimburse the Funds for any
such annual operating expenses (after reduction of all investment advisory fees
in excess of such limitation). For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement. The application of expense limitations shall be applied to each Fund
of the Company separately unless the laws or regulations of any state shall
require that the expense limitations be imposed with respect to the Company as a
whole.
11. Non-Exclusivity. The services of the Advisor to the Company and the
Funds are not to be deemed to be exclusive, and the Advisor shall be free to
render investment advisory and administrative or other services to others
(including other investment companies) and to engage in other activities. 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 or trust, including other investment advisory
companies.
4
<PAGE>
12. Term and Approval. This Agreement shall become effective with respect
to a Fund if approved by the shareholders of such Fund, and if so approved, this
Agreement shall thereafter continue in force and effect until February 28, 1999,
and may be continued from year to year thereafter, provided that the
continuation of the Agreement 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" of such Fund (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" (as defined in the
1940 Act) of a party to this Agreement (other than as Company directors),
by votes cast in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated as to the Company or as
to any one or more of the Funds 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
outstanding voting securities of the applicable Fund or by the Advisor, on sixty
(60) days' written notice to the other party. The notice provided for herein
may be waived by the party entitled to receipt thereof. This Agreement shall
automatically terminate in the event of its assignment, the term "assignment"
for purposes of this paragraph having the meaning defined in Section 2(a)(4) of
the 1940 Act.
14. Liability of Advisor and Indemnification. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Company or to
the Funds or to any shareholder of the Funds for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
15. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Company shall be and that of the Advisor shall be Eleven
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 Securities and Exchange Commission 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 the Agreement is revised by rule, regulation
or order of the Securities and Exchange Commission, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
17. License Agreement. The Company shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Company with respect to such series of shares.
5
<PAGE>
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
written above.
TAX-FREE INVESTMENTS CO.
(a Maryland corporation)
Attest:
/s/ DAVID L. KITE By: /s/ ROBERT H. GRAHAM
- ------------------------------ -----------------------------
Assistant Secretary President
(SEAL)
A I M ADVISORS, INC.
Attest:
/s/ OFELIA M. MAYO By: /s/ROBERT H. GRAHAM
- ------------------------------ -----------------------------
Assistant Secretary President
(SEAL)
6
<PAGE>
APPENDIX A
TO
MASTER INVESTMENT ADVISORY AGREEMENT
OF
TAX-FREE INVESTMENTS CO.
The Company shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered and all facilities furnished hereunder, a
management fee for such Fund set forth below. Such fee shall be calculated by
applying the following annual rates to the average daily net assets of such Fund
for the calendar year computed in the manner used for the determination of the
net asset value of shares of such Fund.
CASH RESERVE PORTFOLIO
NET ASSETS ANNUAL RATE
- ---------- -----------
First $500 million................................................. 0.25%
Over $500 million.................................................. 0.20%
7
<PAGE>
EXHIBIT 6(b)
MASTER DISTRIBUTION AGREEMENT
BETWEEN
TAX-FREE INVESTMENTS CO.
AND
FUND MANAGEMENT COMPANY
THIS AGREEMENT is made this 28th day of February, 1997, 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 directly and through investment dealers
and financial institutions 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
(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
-1-
<PAGE>
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 and financial institutions 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 agreements with investment
dealers and financial institutions selected by the Distributor, authorizing such
investment dealers and financial institutions 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 agreement
shall provide that the investment dealer and financial institution 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 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
-2-
<PAGE>
(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.
(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.
-3-
<PAGE>
TWELFTH: This Agreement shall become effective as of the date hereof, shall
continue until February 28, 1999, 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/ ROBERT H. GRAHAM
-------------------------------
Name: Robert H. Graham
Title: President
Attest:
/s/ DAVID L. KITE
- --------------------------------
Name: DAVID L. KITE
Title: ASSISTANT SECRETARY
FUND MANAGEMENT COMPANY
By: /s/ J. ABBOTT SPRAGUE
-------------------------------
Name: J. Abbott Sprague
Title: President
Attest:
/s/ OFELIA M. MAYO
- -------------------------------
Name: OFELIA M. MAYO
Title: ASSISTANT SECRETARY
-5-
<PAGE>
APPENDIX A TO
MASTER DISTRIBUTION AGREEMENT OF
TAX-FREE INVESTMENTS CO.
Cash Reserve Portfolio
- ----------------------
Institutional Cash Reserve Shares
Private Investment Class
-6-
<PAGE>
EXHIBIT 11(a)
CONSENT OF COUNSEL
TAX-FREE INVESTMENTS CO.
------------------------
We hereby consent to the use of our name and to the reference to our
firm under the caption "General Information - Legal Matters" in the Prospectus
for the Private Investment Class of the Cash Reserve Portfolio and under the
caption General Information About the Company - Legal Counsel in the Statement
of Additional Information for the Institutional Cash Reserve Shares, which is
included in Post-Effective Amendment No. 24 to the Registration Statement under
the Securities Act of 1933 (No. 2-58286) and Amendment No. 25 to the
Registration Statement under the Investment Company Act of 1940 (No. 811-2731)
on Form N-1A of the Tax-Free Investments Co.
/s/ Ballard Spahr Andrews & Ingersoll
-------------------------------------
Philadelphia, Pennsylvania
July 18, 1997
<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 Tax-Free Investments Co.) dated May 2, 1997 included herein and the
references to our firm under the headings "Financial Highlights" in the
Prospectus and "Reports" in the Statement of Additional Information.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
July 21, 1997
<PAGE>
EXHIBIT 15(c)
AMENDED AND RESTATED
MASTER DISTRIBUTION PLAN PURSUANT TO RULE 12b-1
OF
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 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 (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
<PAGE>
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. No provision of this Plan shall be interpreted to
prohibit any payments by the Company during periods when the Company has
suspended or otherwise limited sales.
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
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 a
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 a
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 Board
to make an informed determination of the nature and value of such
expenditures.
-2-
<PAGE>
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 a
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.
Attest: /s/ OFELIA M. MAYO By: /s/ CAROL F. RELIHAN
---------------------------- ------------------------------
Assistant Secretary Senior Vice President
Effective as of May 1, 1992, as amended as of July 1, 1993, and as further
amended as of December 5, 1995.
Amended and restated as of June 30, 1997.
-4-
<PAGE>
APPENDIX A
TO
MASTER DISTRIBUTION PLAN
OF
TAX-FREE INVESTMENTS CO.
(DISTRIBUTION FEE)
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 18
AMENDED AND RESTATED MULTIPLE CLASS PLAN
OF
THE AIM FAMILY OF FUNDS
1. This Amended and Restated Multiple Class Plan (the "Plan") adopted in
accordance with Rule 18f-3 under the Act shall govern the terms and
conditions under which the Funds may issue separate Classes of Shares
representing interests in one or more Portfolios of each Fund.
2. Definitions. As used herein, the terms set forth below shall have the
meanings ascribed to them below.
a. Act - Investment Company Act of 1940, as amended.
b. CDSC - contingent deferred sales charge.
c. CDSC Period - the period of years following acquisition of
Shares during which such Shares may be assessed a CDSC upon
redemption.
d. Class - a class of Shares of a Fund representing an interest
in a Portfolio.
e. Class A Shares - shall mean those Shares designated as Class A
Shares in the Fund's organizing documents, as well as those
Shares deemed to be Class A Shares for purposes of this Plan.
f. Class B Shares - shall mean those Shares designated as Class B
Shares in the Fund's organizing documents.
g. Class C Shares - shall mean those Shares designated as Class C
Shares in the Fund's organizing documents, as well as those
Shares deemed to be Class C Shares for purposes of this Plan.
h. Directors - the directors or trustees of a Fund.
i. Distribution Expenses - expenses incurred in activities which
are primarily intended to result in the distribution and sale
of Shares as defined in a Plan of Distribution and/or
agreements relating thereto.
j. Distribution Fee - a fee paid by a Fund to the Distributor to
compensate the Distributor for Distribution Expenses.
k. Distributor - A I M Distributors, Inc. or Fund Management
Company, as applicable.
l. Fund - those investment companies advised by A I M Advisors, Inc.
which have adopted this Plan.
1
<PAGE>
m. Institutional Shares - shall mean Shares of a Fund
representing an interest in a Portfolio offered for sale to
institutional customers as may be approved by the Directors
from time to time and as set forth in the Fund's prospectus.
n. Plan of Distribution - Any plan adopted under Rule 12b-1 under
the Act with respect to payment of a Distribution Fee.
o. Portfolio - a series of the Shares of a Fund constituting a
separate investment portfolio of the Fund.
p. Service Fee - a fee paid to financial intermediaries for the
ongoing provision of personal services to Fund shareholders
and/or the maintenance of shareholder accounts.
q. Share - a share of common stock of or beneficial interest in a
Fund, as applicable.
3. Allocation of Income and Expenses.
a. Distribution and Service Fees - Each Class shall bear directly
any and all Distribution Fees and/or Service Fees payable by
such Class pursuant to a Plan of Distribution adopted by the
Fund with respect to such Class.
b. Transfer Agency and Shareholder Recordkeeping Fees - Each
Class shall bear directly the transfer agency fees and
expenses and other shareholder recordkeeping fees and expenses
specifically attributable to that Class.
c. Allocation of Other Expenses - Each Class shall bear
proportionately all other expenses incurred by a Fund based on
the relative net assets attributable to each such Class.
d. Allocation of Income, Gains and Losses - Except to the extent
provided in the following sentence, each Portfolio will
allocate income and realized and unrealized capital gains and
losses to a Class based on the relative net assets of each
Class. Notwithstanding the foregoing, each Portfolio that
declares dividends on a daily basis will allocate income on
the basis of settled shares.
e. Waiver and Reimbursement of Expenses - A Portfolio's adviser,
underwriter or any other provider of services to the Portfolio
may waive or reimburse the expenses of a particular Class or
Classes.
4. Distribution and Servicing Arrangements. The distribution and
servicing arrangements identified below will apply for the following
Classes offered by a Fund with respect to a Portfolio. The provisions
of the Fund's prospectus describing the distribution and servicing
arrangements in detail are incorporated herein by this reference.
a. Class A Shares. Class A Shares shall be offered at net asset
value plus a front-end sales charge as approved from time to
time by the Directors and set forth in the Fund's prospectus,
may be reduced or eliminated for certain money market fund
2
<PAGE>
shares, for larger purchases, under a combined purchase
privilege, under a right of accumulation, under a letter of
intent or for certain categories of purchasers as permitted by
Rule 22(d) of the Act and as set forth in the Fund's
prospectus. Class A Shares that are not subject to a
front-end sales charge as a result of the foregoing shall be
subject to a CDSC for the CDSC Period set forth in Section
5(a) of this Plan if so provided in the Fund's prospectus.
The offering price of Shares subject to a front-end sales
charge shall be computed in accordance with Rule 22c-1 and
Section 22(d) of the Act and the rules and regulations
thereunder. Class A Shares shall be subject to ongoing
Service Fees and/or Distribution Fees approved from time to
time by the Directors and set forth in the Fund's prospectus.
Although AIM Cash Reserve Shares, AIM Limited Maturity
Treasury Shares, AIM Tax-Free Intermediate Shares and shares
of AIM Tax-Exempt Bond Fund of Connecticut and AIM Tax Exempt
Cash Fund are not designated as "Class A", they are
substantially similar to Class A Shares as defined herein
and shall be deemed to be Class A Shares for the purposes of
this Plan.
b. Class B Shares. Class B Shares shall be (i) offered at net
asset value, (ii) subject to a CDSC for the CDSC Period set
forth in Section 5(b), (iii) subject to ongoing Service Fees
and Distribution Fees approved from time to time by the
Directors and set forth in the Fund's prospectus, and (iv)
converted to Class A Shares eight years from the end of the
calendar month in which the shareholder's order to purchase
was accepted as set forth in the Fund's prospectus.
c. Class C Shares. Class C Shares shall be (i) offered at net
asset value, (ii) subject to a CDSC for the CDSC Period set
forth in Section 5(c), and (iii) subject to ongoing Service
Fees and Distribution Fees approved from time to time by the
Directors and set forth in the Fund's prospectus.
d. Institutional Shares. Institutional Shares shall be (i)
offered at net asset value, (ii) offered only to certain
categories of institutional customers as approved from time to
time by the Directors and as set forth in the Fund's
prospectus and (iii) may be subject to ongoing Service Fees
and/or Distribution Fees as approved from time to time by the
Directors and set forth in the Fund's prospectus.
5. CDSC. A CDSC shall be imposed upon redemptions of Class A Shares that do
not incur a front-end sales charge and of Class B Shares and Class C Shares
as follows:
a. Class A Shares. The CDSC Period for Class A Shares shall be
18 months. The CDSC Rate shall be as set forth in the Fund's
prospectus, the relevant portions of which are incorporated
herein by this reference. No CDSC shall be imposed on Class A
Shares unless so provided in a Fund's prospectus.
b. Class B Shares. The CDSC Period for the Class B Shares shall
be six years. The CDSC Rate for the Class B Shares shall be
as set forth in the Fund's prospectus, the relevant portions
of which are incorporated herein by this reference.
3
<PAGE>
c. Class C Shares. The CDSC Period for the Class C Shares shall
be one year. The CDSC Rate for the Class C Shares shall be as
set forth in the Fund's prospectus, the relevant portions of
which are incorporated herein by reference.
d. Method of Calculation. The CDSC shall be assessed on an
amount equal to the lesser of the then current market value or
the cost of the Shares being redeemed. No sales charge shall
be imposed on increases in the net asset value of the Shares
being redeemed above the initial purchase price. No CDSC
shall be assessed on Shares derived from reinvestment of
dividends or capital gains distributions. The order in which
Shares are to be redeemed when not all of such Shares would be
subject to a CDSC shall be determined by the Distributor in
accordance with the provisions of Rule 6c-10 under the Act.
e. Waiver. The Distributor may in its discretion waive a CDSC
otherwise due upon the redemption of Shares and disclosed in
the Fund's prospectus or statement of additional information
and, for the Class A Shares, as allowed under Rule 6c-10 under
the Act.
6. Exchange Privileges. Exchanges of Shares shall be permitted between
Funds as follows:
a. Class A Shares may be exchanged for Class A Shares of another
Portfolio, subject to certain limitations set forth in the
Fund's prospectus as it may be amended from time to time,
relevant portions of which are incorporated herein by this
reference.
b. Class B Shares may be exchanged for Class B Shares of another
Portfolio at their relative net asset value.
c. Class C Shares may be exchanged for Class C Shares of any
other Portfolio at their relative net asset value.
d. Depending upon the Portfolio from which and into which an
exchange is being made and when the shares were purchased,
shares being acquired in an exchange may be acquired at their
offering price, at their net asset value or by paying the
difference in sales charges, as disclosed in the Fund's
prospectus and statement of additional information.
e. CDSC Computation. The CDSC payable upon redemption of Class
A Shares, Class B Shares and Class C Shares subject to a CDSC
shall be computed in the manner described in the Fund's
prospectus.
7. Service and Distribution Fees. The Service Fee and Distribution Fee
applicable to any Class shall be those set forth in the Fund's
prospectus, relevant portions of which are incorporated herein by this
reference. All other terms and conditions with respect to Service
Fees and Distribution Fees shall be governed by the Plan of
Distribution adopted by the Fund with respect to such fees and Rule
12b-1 of the Act.
4
<PAGE>
8. Conversion of Class B Shares.
a. Shares Received upon Reinvestment of Dividends and
Distributions - Shares purchased through the reinvestment of
dividends and distributions paid on Shares subject to
conversion shall be treated as if held in a separate sub-
account. Each time any Shares in a Shareholder's account
(other than Shares held in the sub-account) convert to Class A
Shares, a proportionate number of Shares held in the
sub-account shall also convert to Class A Shares.
b. Conversions on Basis of Relative Net Asset Value - All
conversions shall be effected on the basis of the relative net
asset values of the two Classes without the imposition of any
sales load or other charge.
c. Amendments to Plan of Distribution for Class A Shares - If any
amendment is proposed to the Plan of Distribution under which
Service Fees and Distribution Fees are paid with respect to
Class A Shares of a Fund that would increase materially the
amount to be borne by those Class A Shares, then no Class B
Shares shall convert into Class A Shares of that Fund until the
holders of Class B Shares of that Fund have also approved the
proposed amendment. If the holders of such Class B Shares do
not approve the proposed amendment, the Directors of the Fund
and the Distributor shall take such action as is necessary to
ensure that the Class voting against the amendment shall
convert into another Class identical in all material respects
to Class A Shares of the Fund as constituted prior to the
amendment.
9. This Plan shall not take effect until a majority of the Directors of a
Fund, including a majority of the Directors who are not interested
persons of the Fund, shall find that the Plan, as proposed and
including the expense allocations, is in the best interests of each
Class individually and the Fund as a whole.
10. This Plan may not be amended to materially change the provisions of
this Plan unless such amendment is approved in the manner specified in
Section 9 above.
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FOR THE INSTITUTIONAL
SHARES OF THE CASH RESERVE PORTFOLIO OF TAX-FREE INVESTMENTS CO. FOR THE YEAR
ENDED MARCH 31, 1997.
</LEGEND>
<CIK> 0000205010
<NAME> TAX FREE INVESTMENTS CO.
<SERIES>
<NUMBER> 002
<NAME> INSTITUTIONAL CLASS OF THE CASH RESERVE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,036,936,187
<INVESTMENTS-AT-VALUE> 1,036,936,187
<RECEIVABLES> 6,429,284
<ASSETS-OTHER> 166,823
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,043,532,294
<PAYABLE-FOR-SECURITIES> 36,361,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,059,436
<TOTAL-LIABILITIES> 39,421,137
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,004,123,302
<SHARES-COMMON-STOCK> 1,004,123,302
<SHARES-COMMON-PRIOR> 1,044,264,478
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,145)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,004,111,157
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,350,163
<OTHER-INCOME> 0
<EXPENSES-NET> (2,185,759)
<NET-INVESTMENT-INCOME> 34,164,404
<REALIZED-GAINS-CURRENT> 79,682
<APPREC-INCREASE-CURRENT> (5,777)
<NET-CHANGE-FROM-OPS> 34,238,309
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,164,404)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,950,554,596
<NUMBER-OF-SHARES-REDEEMED> (4,991,748,138)
<SHARES-REINVESTED> 1,052,366
<NET-CHANGE-IN-ASSETS> (40,067,271)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (91,827)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,346,148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,918,978
<AVERAGE-NET-ASSETS> 1,013,970,754
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<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, 1997.
</LEGEND>
<CIK> 0000205010
<NAME> TAX FREE INVESTMENTS CO.
<SERIES>
<NUMBER> 005
<NAME> PRIVATE INVESTMENT CLASS OF THE CASH RESERVE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1,036,936,187
<INVESTMENTS-AT-VALUE> 1,036,936,187
<RECEIVABLES> 6,429,284
<ASSETS-OTHER> 166,823
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,043,532,294
<PAYABLE-FOR-SECURITIES> 36,361,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,059,436
<TOTAL-LIABILITIES> 39,421,137
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,004,123,302
<SHARES-COMMON-STOCK> 1,004,123,302
<SHARES-COMMON-PRIOR> 1,044,264,478
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,145)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,004,111,157
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,350,163
<OTHER-INCOME> 0
<EXPENSES-NET> (2,185,759)
<NET-INVESTMENT-INCOME> 34,164,404
<REALIZED-GAINS-CURRENT> 79,682
<APPREC-INCREASE-CURRENT> (5,777)
<NET-CHANGE-FROM-OPS> 34,238,309
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,164,404)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,950,554,596
<NUMBER-OF-SHARES-REDEEMED> (4,991,748,138)
<SHARES-REINVESTED> 1,052,366
<NET-CHANGE-IN-ASSETS> (40,067,271)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (91,827)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,346,148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,918,978
<AVERAGE-NET-ASSETS> 33,882,675
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
