<PAGE>
As filed with the Securities and Exchange Commission on May 22, 1998
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. 25 X
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 26
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(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 Martha J. Hays, Esquire
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza, Suite 100 1735 Market Street, 51st Floor
Houston, Texas 77046 Philadelphia, Pennsylvania 19103-7599
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of
this Registration Statement
It is proposed that this filing will become effective (check appropriate box)
______ immediately upon filing pursuant to paragraph (b) of Rule 485
______ on (date) pursuant to paragraph (b) of Rule 485
______ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
X on July 24, 1998 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.
______ Title of Securities Being Registered: Common Stock
<PAGE>
TAX-FREE INVESTMENTS CO.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
NOTE: The Registrant offers shares of one investment portfolio, the Cash
Reserve Portfolio. The Cash Reserve Portfolio is comprised of two classes of
shares, the Private Investment Class and the Institutional Cash Reserve Shares.
Each class of shares is offered pursuant to a separate Prospectus and Statement
of Additional Information.
I. Institutional Cash Reserve Shares
Part A - Prospectus
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
<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 Company
of Securities - 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>
<S> <C>
General Information about the Company - Custodian and Transfer Agent; Reports
17. Brokerage Allocation 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 Redemptions
Securities Being Offered
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>
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 the Company
of Securities - 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 Securities Share Purchases and Redemptions Dividends
Being Offered
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.
<TABLE> PROSPECTUS
- -------------------------------------------------------------------
<S> <C>
INSTITUTIONAL Tax-Free Investments Co. (the "Company") is a mutual
CASH RESERVE fund designed for institutions and individuals
SHARES seeking current income which is exempt from federal
income taxes. Pursuant to this Prospectus, the
Company offers shares representing interests in
JULY 24, 1998 Institutional Cash Reserve Shares (the "Institutional
Class") of its Cash Reserve Portfolio.
The Cash Reserve Portfolio is a "money market fund,"
the investment objective of which is the generation
of as high a level of tax-exempt income as is con-
sistent with preservation of capital and maintenance
of liquidity by investing in high quality, short-term
municipal obligations. The Cash Reserve Portfolio
attempts to maintain a constant net asset value of
$1.00 per share. No assurance 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 Reserve Portfolio, the Private
Investment Class, is offered to individuals and to
financial institutions pursuant to a separate
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE 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 24, 1998 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
[LOGO APPEARS HERE] CASH RESERVE PORTFOLIO INVOLVE INVESTMENT RISKS,
Fund Management Company 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 CLASS. 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*......................................................... 0.16%
Other expenses........................................................... 0.04%
-----
Total operating expenses of the shares*.................................. 0.20%
=====
</TABLE>
- ------
* After fee waivers. Had there been no fee waivers during the fiscal year,
management fees would have been 0.23% and total fund operating expenses
would have been 0.27%. 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, aimfunds.com, La
Familia AIM de Fondos and La Familia AIM de Fondos and Design are registered
service marks and Invest With Discipline and AIM Bank Connection 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, 1998, 1997, 1996, 1995, 1994,
1993, 1992, 1991 and 1990, the eleven months ended March 31, 1989 and the fis-
cal year ended April 30, 1988. 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,
--------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- ---------- ---------- ---------- -------- ---------- ---------- ----------
<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 0.03 0.04 0.03 0.02 0.03 0.04 0.06 0.06
- ---------------- -------- -------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Less
distributions:
Dividends from
net investment
income (0.03) (0.03) (0.04) (0.03) (0.02) (0.03) (0.04) (0.06) (0.06)
- ---------------- -------- -------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Net asset value,
end of period $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
================ ======== ======== ========== ========== ========== ======== ========== ========== ==========
Total return 3.55% 3.33% 3.67% 3.06% 2.33% 2.66% 4.09% 5.68% 6.22%
================ ======== ======== ========== ========== ========== ======== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $896,904 $966,567 $1,009,039 $1,009,891 $1,040,595 $994,828 $1,191,209 $1,156,557 $1,114,813
================ ======== ======== ========== ========== ========== ======== ========== ========== ==========
Ratio of
expenses to
average net
assets(b) 0.20%(c) 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
================ ======== ======== ========== ========== ========== ======== ========== ========== ==========
Ratio of net
investment
income to
average net
assets(d) 3.49%(c) 3.27% 3.59% 3.01% 2.30% 2.66% 4.00% 5.52% 6.03%
================ ======== ======== ========== ========== ========== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
1989 1988
-------------- -----------
<S> <C> <C>
Net asset value,
beginning of
period $1.00 $1.00
- -------------------- -------------- -----------
Income from
investment
operations:
Net investment
income 0.05 0.04
- -------------------- -------------- -----------
Less
distributions:
Dividends from
net investment
income (0.05) (0.04)
- -------------------- -------------- -----------
Net asset value,
end of period $1.00 $1.00
==================== ============== ===========
Total return 5.67%(a) 4.56%
==================== ============== ===========
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $1,062,479 $1,192,604
==================== ============== ===========
Ratio of
expenses to
average net
assets(b) 0.20%(a) 0.21%
==================== ============== ===========
Ratio of net
investment
income to
average net
assets(d) 5.52%(a) 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 0.27%, 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 1998-
1988, respectively.
(c) Ratios are based on average net assets of $998,079,371.
(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 3.42%, 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
1998-1988, 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 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 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 a majority of the Portfolio's
outstanding shares (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 debt obligations by two NRSROs, or, if only rated by
one NRSRO, are rated in the highest rating category by that NRSRO, or, if
unrated, are determined by the Portfolio's investment advisor (under the super-
vision of and pursuant to guidelines established by the Board of Directors) to
be of comparable quality to a rated security that meets the foregoing quality
standards, as well as securities issued by a registered investment company that
is a money market fund and U.S. government securities.
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 on set dates (such as the last day of
the month or calendar quarter) in the case of variable rates or whenever a
specified interest rate change occurs in the case of a floating rate instru-
ment. 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 be-
cause, upon readjustment, such rates approximate market rates. 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 (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 their certificates at
stated times and prices (a demand feature). Typically, a certificate holder
cannot exercise the demand feature 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 demand 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 regulatory
limitations. These restrictions provide that the Portfolio will not:
(1) purchase the securities of any issuer if, as a result, the Portfolio
would fail to be a diversified company within the meaning of the 1940 Act,
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time; provided, however, that the
Portfolio may purchase securities of other investment companies to the
extent permitted by the 1940 Act and the rules and regulations promulgated
thereunder (as such statute, rules and regulations are amended from time to
time) or to the extent permitted by exemptive order or other similar relief;
or
(2) concentrate 25% or more of its total assets in the securities of
issuers in a particular industry; provided, however, that securities issued
or guaranteed by banks or subject to financial guaranty insurance are not
subject to this limitation; and provided further, that securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities and
tax-exempt securities issued by state and local governments and their
political subdivisions, are not included within this restriction.
The foregoing restrictions are matters of fundamental policy and may not be
changed without shareholder approval. A description of further investment re-
strictions applicable to the Portfolio that may not be changed without share-
holder approval is contained in the Statement of Additional Information.
In pursuit of its objectives, the Portfolio will also adhere to the following
non-fundamental investment policies, which may be altered by the Portfolio's
Board of Directors without approval of holders of the Portfolio's voting secu-
rities:
(1) the Portfolio will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days;
(2) the Portfolio does not intend to purchase securities of an issuer if,
after giving effect to such purchase, 25% or more of the value of the
Portfolio's total assets would be invested in securities of one or more
issuers conducting their principal activities in the same state. The
Portfolio may invest 25% or more of its total assets industrial development
bonds; and
(3) the Portfolio does not intend to purchase securities of an issuer if,
after giving effect to such purchase, 25% or more of the value of the
Portfolio's total assets would be invested in securities the interest on
which is paid from revenues of projects with similar characteristics. This
policy applies to industrial development bonds as well as other tax-exempt
securities. This policy shall not apply, however, in the event such
securities are subject to a guarantee. With respect to securities that are
subject to a guarantee, the Portfolio does not intend to purchase any such
security if, after giving effect to such purchase, 25% or more of its total
assets would be invested in securities issued or guaranteed by entities in a
particular industry. Securities issued or guaranteed by a bank or subject to
financial guaranty insurance are not subject to this policy.
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.
6
<PAGE>
PURCHASE OF SHARES
The Company sells shares of the Institutional Class on a continuous basis at
the net asset value of the shares next determined after the Company receives an
order. The Company determines the net asset value of the Portfolio twice each
Business Day at 12:30 and 3:00 p.m. Eastern time. A "Business Day" is any day
on which member banks of the New York Federal Reserve are open for business. It
is expected that these banks will be closed during the next twelve months on
Saturdays and Sundays and on New Year's Day, Martin Luther King, Jr. Day,
President's Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day. The Company may change the
time it determines the net asset value of the Portfolio and therefore the time
for which purchase orders for shares of the Institutional Class must be
submitted to and received by AFS for execution on the same day, on any Business
Day when the U.S. primary broker-dealer community is closed for business or
trading is restricted due to national holidays.
Shareholders should submit purchase orders to the Company's transfer agent,
A I M Fund Services, Inc. (the "Transfer Agent" or "AFS"). A purchase order is
considered received at the time federal funds are wired to AFS and notice of
such order is provided to the Transfer Agent. Prior to the initial purchase of
shares of the Institutional Class, a shareholder must complete and send an Ac-
count Application to AFS at P.O. Box 4333, Houston, Texas 77210-4333.
The minimum initial investment for the purchase of shares of the Institutional
Class is $1 million. A shareholder may aggregate its Master Account(s) and
subaccounts to satisfy the minimum initial investment. There is no minimum for
any subsequent investment. A shareholder may make subsequent investments via
AIM LINK--Registered Trademark-- Remote, a personal computer application
software product.
The Company sells shares of the Institutional Class without any sales charge.
Banks or other institutions, however, may charge record keeping, account main-
tenance or other fees to their customers. Beneficial owners of the Institu-
tional Class should consult with such institutions to obtain a schedule of such
fees.
The Company reserves the right to reject any purchase order and to withdraw
all or any part of the offering made by this Prospectus. The Company will
promptly return to an investor any funds it receives with respect to an order
that the Company has not accepted or has not received.
Any request for correction to a transaction of Portfolio shares must be sub-
mitted in writing to the Transfer Agent. The Transfer Agent reserves the right
to reject any such request. When a correction results in a dividend adjustment,
the institution must agree in writing to reimburse the Portfolio for any loss
resulting from the correction. Failure to deliver purchase proceeds on the re-
quested settlement date may result in a claim against the institution for an
amount equal to the overdraft charge incurred by the Portfolio.
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 AFS 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 AFS receives a redemption request on a Business Day prior to the 12:30
p.m. Eastern time net asset value determination, the redemption will be ef-
fected at the net asset value of the Portfolio determined as of 12:30 p.m.
Eastern time and the Company will normally wire redemption proceeds on that
day. A redemption request received by AFS between 12:30 p.m. Eastern time and
3:00 p.m. Eastern time will be effected at the net asset value of the Portfolio
determined as of 3:00 p.m. Eastern time and proceeds will normally be wired on
the next Business Day. If proceeds are not wired on the same day, shareholders
will accrue dividends until the day the proceeds are wired. If AFS receives a
redemption request on a Business Day after 3:00 p.m. Eastern time, the redemp-
tion will be effected at the net asset value of the Portfolio determined as of
12:30 p.m. Eastern time on the next Business Day of such Portfolio, and the
Company will normally wire redemption proceeds on such next Business Day. The
Company may change the time it determines net asset value of the Institutional
Class under the circumstances described above in "Purchase of Shares." Any such
change may affect the processing of redemption requests.
7
<PAGE>
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 AFS.
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.
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.
Any request for correction to a redemption transaction of Portfolio shares
must be submitted in writing to the Transfer Agent as described above in "Pur-
chase of Shares."
DETERMINATION OF NET ASSET VALUE
The Company determines the net asset value of its shares as of 12:30 p.m. and
3:00 p.m. Eastern time on each Business Day. Net asset value 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 determi-
nation 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 as-
sets include portfolio securities valued at their market value as well as in-
come accrued but not yet received. Portfolio securities in the Portfolio are
valued on the basis of amortized cost.
DIVIDENDS
The Company declares a dividend from net investment income (not including any
net short-term capital gains) earned by the Portfolio on each Business Day of
the Company. Dividends are paid to settled shareholders of the Company as of
3:00 p.m. Eastern time on such Business Day. Shareholders whose purchase orders
have been received by the Company prior to 3:00 p.m. Eastern time and share-
holders whose redemption proceeds have not been wired to them on any Business
Day are settled and eligible to receive dividends on that Business Day. The
dividend declared on any day preceding a non-Business 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 nor-
mally distributed annually. The Portfolio does not expect to realize any long-
term capital gains and losses. Dividends and distributions are paid in cash un-
less the shareholder has elected to have such dividends and distributions rein-
vested in the form of additional full and fractional shares at the net asset
value thereof.
The dividend accrued and paid for each class of shares of the Company will
consist of: (a) interest accrued and original issue discount earned less 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.
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
8
<PAGE>
is a function of the type and quality of the Portfolio's investments as well as
its operating expenses. Performance information for the shares of the Institu-
tional 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 perfor-
mance.
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 subsidiaries may waive all
or a portion of advisory or distribution fees and/or assume certain expenses of
the Portfolio. Such a practice will have the effect of increasing the Portfo-
lio's yield and total return.
The current yield and effective yield (which assumes the reinvestment of divi-
dends for a 365 day year and a return for the entire year equal to the average
annualized current yield for the period) for the Institutional Class are calcu-
lated according to a formula prescribed by the SEC. See "Performance Informa-
tion" in the Statement of Additional Information. For the seven-day period
ended March 31, 1998, the current yield and effective yield for the Institu-
tional Class were 3.52% and 3.58%, 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 Portfolio, which may differ significantly from the fed-
eral income tax consequences described above.
9
<PAGE>
Foreign persons who file a United States tax return for a U.S. tax refund and
who are not eligible to obtain a social security number must apply to the In-
ternal Revenue Service ("IRS") for an individual taxpayer identification num-
ber, using IRS Form W-7. For a copy of the IRS Form W-7 and accompanying in-
structions, please contact your tax advisor or AFS.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested in
its Board of Directors. The Board of Directors approves all significant
agreements between the Company, 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. AMVESCAP PLC and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Information concerning the Board of Directors may be found
in the Statement of Additional Information.
DISTRIBUTOR
The Company has entered into a distribution agreement dated as of 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.
For a discussion of AIM Management and its subsidiaries' Year 2000 Compliance
Project, see "General Information--Year 2000 Compliance Project."
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173,
serves 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 "Ad-
visory Agreement"). AIM, which was organized in 1976, together with its subsid-
iaries, advises or manages over 50 investment company portfolios encompassing a
broad range of investment objectives.
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.
10
<PAGE>
For the fiscal year ended March 31, 1998, 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, 1998, 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 0.23% 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 subsidiaries may from
time to time voluntarily waive or reduce its advisory or distribution fees
while retaining the right to be reimbursed for such fees prior to the end of
each fiscal year. Fee waivers or reductions, other than those set forth in the
Advisory Agreement, may be rescinded, however, at any time without further no-
tice to investors, provided, however, that the fee waiver described below will
be continued in effect until sixty days following notice to the Board of Direc-
tors that such fee waiver will be terminated.
AIM has agreed to reduce its fee from the Portfolio to the extent necessary to
cause the expense ratio of the Company attributable to the operations of the
Institutional Class not to exceed 0.20% (exclusive of interest, taxes, broker-
age commissions, directors' fees, and registration fees payable to the SEC).
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was originally incorporated in Maryland on January 24, 1977, but
had no operations prior to March 21, 1983. On August 30, 1985, the Company was
reorganized as a Massachusetts business trust. On May 1, 1992, the Company was
reorganized as a Maryland corporation. The Company currently has one portfolio,
the Cash Reserve Portfolio. The Portfolio currently offers two classes of
shares, the Institutional Cash Reserve Shares and the Private Investment Class.
The Private Investment Class is offered pursuant to a separate prospectus.
All shares of the Company have equal rights with respect to voting, except
that the holders of shares of a particular class will have the exclusive right
to vote on matters pertaining to distribution plans or shareholder service
plans, if any such plans are adopted, relating solely to such class. The hold-
ers of each class have distinctive rights with respect to dividends which are
more fully described in the Statement of Additional Information. There will not
normally be annual shareholders' meetings. Shareholders may remove directors
from office by votes cast at a meeting of shareholders or by written consent,
and a meeting of shareholders may be called at the request of the holders of
10% or more of the Company's outstanding shares.
There are no preemptive or conversion rights applicable to any of the
Company's shares. The Company's shares, when issued, will be fully paid and
non-assessable. The Board of Directors may create additional classes or series
of the Company's shares without shareholder approval.
As of May 1, 1998, NationsBank of Texas, N.A., was the owner of record of
29.41% of the outstanding shares of the Portfolio, and, therefore could be
deemed to "control" the Portfolio, as the term is defined in the 1940 Act.
TRANSFER AGENT AND CUSTODIAN
A I M Fund Services, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-
1173, acts as transfer agent for the Institutional 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 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 AFS investment representative
by calling (800) 659-1005.
11
<PAGE>
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Portfolio, AIM Management and its subsidiaries
rely on both internal software systems as well as external software systems
provided by third parties. Many software systems in use today are unable to
distinguish between the year 2000 and the year 1900. This defect if not cured
will likely adversely affect the services that AIM Management, its subsidiaries
and other service providers provide the Portfolio and its shareholders.
To address this issue, AIM Management and its subsidiaries, together with in-
dependent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases,
namely (i) inventorying every software application in use at AIM Management and
its subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has com-
menced. The Project is scheduled to be completed during the fourth quarter of
1998. Software applications acquired by AIM Management and its subsidiaries af-
ter completion of the Project will be reviewed to confirm Year 2000 compliance
upon installation.
12
<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 24, 1998
RELATING TO THE PROSPECTUS DATED: JULY 24, 1998
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-10
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-13
Dividends and Distributions............................... A-13
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-16
Performance Information..................................... A-17
Investment Program and Restrictions......................... A-17
Investment Program........................................ A-17
Municipal Securities...................................... A-18
Diversification Requirements.............................. 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
Portfolio Transactions...................................... A-24
General Brokerage Policy.................................. A-24
Allocation of Portfolio Transactions...................... A-24
Section 28(e) Standards................................... A-25
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 24, 1998 (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 DURING
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<C> <C> <S>
**CHARLES T. BAUER (79) Director and Chairman Chairman of the Board of
Directors, A I M 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. and Fund
Management Company; and Vice
Chairman and Director,
AMVESCAP PLC.
- -------------------------------------------------------------------------------
BRUCE L. CROCKETT (54) Director Director, ACE Limited
906 Frome Lane (insurance company). Formerly,
McLean, VA 22102 Director, President and Chief
Executive Officer, COMSAT
Corporation and Chairman,
Board of Governors of INTELSAT
(international communications
company).
- -------------------------------------------------------------------------------
OWEN DALY II (73) Director Director, Cortland Trust Inc.
Six Blythewood Road (investment company).
Baltimore, MD 21210 Formerly, Director, CF & I
Steel Corp., Monumental Life
Insurance Company and
Monumental General Insurance
Company; and Chairman of the
Board of Equitable
Bancorporation.
- -------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (62) Director Chairman of the Board of
P.O. Box 1477 Directors, Mercantile Mortgage
Baltimore, MD 21203 Corp.; and Director, AEGON USA
(insurance company). Formerly,
Vice Chairman of the Board of
Directors and President,
Mercantile-Safe Deposit &
Trust Co.; and President,
Mercantile Bankshares.
- -------------------------------------------------------------------------------
JACK FIELDS (46) Director Chief Executive Officer,
8810 Will Clayton Pkwy. Texana Global, Inc. (foreign
Jetero Plaza, Suite E trading company). Formerly,
Humble, Texas 17338 Member of the U.S. House of
Representatives.
- -------------------------------------------------------------------------------
*CARL FRISCHLING (61) Director Partner, Kramer, Levin,
919 Third Avenue Naftalis & Frankel (law firm).
New York, NY 10022 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).
</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 DURING
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<C> <C> <S>
**ROBERT H. GRAHAM (51) Director and President Director, President and
Chief Executive Officer,
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.
and Fund Management
Company; and Director and
Chief Executive Officer,
AMVESCAP PLC .
- -------------------------------------------------------------------------------
JOHN F. KROEGER (73) 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 (55) Director Attorney in private
6363 Woodway, Suite 825 practice in Houston, Texas.
Houston, TX 77057
- -------------------------------------------------------------------------------
IAN W. ROBINSON (75) 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 (58) Director Executive Vice President,
Transco Tower, 50th Floor Development and Operations,
2800 Post Oak Blvd. Hines Interests Limited
Houston, TX 77056 Partnership (real estate
development).
- -------------------------------------------------------------------------------
***JOHN J. ARTHUR (53) Senior Vice President Senior Vice President,
and Treasurer Treasurer and Director,
A I M Advisors, Inc.; Vice
President and Treasurer,
A I M Management Group
Inc., A I M Capital
Management, Inc., A I M
Distributors, Inc., A I M
Fund Services, Inc. and
Fund Management Company.
- -------------------------------------------------------------------------------
GARY T. CRUM (50) Senior Vice President Director and President,
A I M Capital Management,
Inc.; Director and Senior
Vice President, A I M
Management Group Inc. and
A I M Advisors, Inc.; and
Director, A I M
Distributors, Inc. and
AMVESCAP PLC.
- -------------------------------------------------------------------------------
***CAROL F. RELIHAN (43) Senior Vice President Senior Vice President,
and Secretary General Counsel, Secretary
and Director, A I M
Advisors, Inc.; Vice
President, General Counsel
and Secretary, A I M
Management Group Inc.; Vice
President, General Counsel
and Director, Fund
Management Company; Vice
President, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and
Vice President and General
Counsel, A I M Fund
Services, Inc.
</TABLE>
- ------
** A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
***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>
DANA R. SUTTON (39) Vice President and Vice President and Fund
Assistant Treasurer Controller, A I M Advisors, Inc.;
and Assistant Vice President and
Assistant Treasurer, Fund
Management Company.
- -------------------------------------------------------------------------------
STUART W. COCO (43) Vice President Senior Vice President, A I M
Capital Management, Inc.; and
Vice President, A I M Advisors,
Inc.
- -------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief
Compliance Officer, A I M
Advisors, Inc.; A I M Capital
Management, Inc.; A I M
Distributors, Inc., A I M Fund
Services, Inc. and Fund
Management Company.
- -------------------------------------------------------------------------------
KAREN DUNN KELLEY (38) Vice President Senior Vice President, A I M
Capital Management, Inc.; and
Vice President, A I M Advisors,
Inc.
- -------------------------------------------------------------------------------
J. ABBOTT SPRAGUE (43) Vice President Director, Fund Management
Company; Senior Vice President,
A I M Advisors, 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, Dunn, 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), Dunn, Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. The
Investments Committee is responsible for reviewing portfolio compliance, bro-
kerage 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, Dunn, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The Nomi-
nating 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 un-
der 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 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......... $1,639 $ 67,774 $84,000
Owen Daly II.............. $1,639 $103,542 $84,000
Edward K. Dunn, Jr.(4).... $ 110 -0- -0-
Jack Fields............... $1,628 -0- $71,000
Carl Frischling........... $1,639 $ 96,520 $84,000(5)
Robert H. Graham.......... $ -0- -0- -0-
John F. Kroeger........... $1,586 $ 94,132 $82,500
Lewis F. Pennock.......... $1,639 $ 55,777 $84,000
Ian W. Robinson........... $1,639 $ 85,912 $84,000
Louis S. Sklar............ $1,629 $ 84,370 $83,500
</TABLE>
- ------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended March 31, 1998, including interest earned
thereon, was $9,056.
(2) During the fiscal year ended March 31, 1998, the total amount of expenses
allocated to the Company in respect of such retirement benefits was $6,544.
Data reflect compensation for the calendar year ended December 31, 1997.
(3) Each Director serves as a director or trustee of a total of 12 registered
investment companies advised by AIM (comprised of over 50 portfolios). Data
reflects total compensation for the calendar year ended December 31, 1997.
(4) Mr. Dunn did not serve as a Director during the calendar year ended Decem-
ber 31, 1997.
(5) The Fund paid the law firm of Kramer, Levin, Naftalis & Frankel $4,852 in
legal fees for services provided to the Fund during the fiscal year ended
March 31, 1998. Mr. Frischling, a director of the Company, is a partner in
such 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, 1998, for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger,
Pennock, Robinson and Sklar are 10, 11, 0, 1, 20, 20, 16, 10, and 8 years, re-
spectively.
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 up to 100% of their
compensation payable by the Company, and such amounts are placed into a defer-
ral 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) to
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.
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 over
50 investment company portfolios encompassing a broad range of investment ob-
jectives.
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
A-8
<PAGE>
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 em-
ployees 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 Eth-
ics 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 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"), a holding company that has been engaged in the financial services
business since 1976. AIM 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. AMVESCAP
PLC and its subsidiaries are an independent investment management group engaged
in the business of investment management on an international basis.
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, 1998, 1997 and 1996, the
fees paid by the Company to AIM with respect to the Portfolio were $1,670,427,
$1,720,635 and $1,819,232, respectively (after giving effect to fee waivers for
the fiscal years ended March 31, 1998, 1997 and 1996 of $683,910, $625,513 and
$690,397, 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, 1998, 1997 and 1996, AIM was reimbursed $66,515,
$70,077 and $75,960, respectively, by the Portfolio for such expenses.
Expenses of the Company except those stated below are pro-rated among all
classes of the Company based upon the relative net assets of each class. Dis-
tribution expenses of a class are charged against the income available for dis-
tribution as dividends to such class.
TRANSFER AGENT AND CUSTODIAN
A I M Fund Services, Inc., ("AFS") 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173, serves as transfer agent and dividend disbursing agent for
the shares of the Institutional Class and receives an annual fee from the Com-
pany for its services in such capacity in the amount of 0.009% of average daily
net assets of the Company, payable monthly. Such compensation may be changed
from time to time as is agreed to by AFS 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 ca-
pacity 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, LLP, Philadelphia, Pennsyl-
vania, serves as counsel to the Company.
SUB-ACCOUNTING
The Company and FMC have arranged for AFS 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 May 1, 1998, and the amount of the outstanding shares held of rec-
ord 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. 31.61%**
1401 Elm Street, 11th floor
P.O. Box 831000
Dallas, TX 75283-1000
Frost National Bank 11.40%
P.O. Box 2358
San Antonio, Tx 78299
SunTrust Bank 10.95%
P.O. Box 105504
Atlanta, GA 30308
Chase Bank of Texas 10.05%
Attn: STIF UNIT, 18-HCB-340
P.O. Box 2558
Houston, TX 77252-2558
U.S. Banks 7.18%
First Trust/Var & Co
Funds Control Suite 0404
180 East Fifth Street
St. Paul, MN 55101
</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 May 1, 1998, 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 36.74%
4 Fisher Lane
White Plains, NY 10603
Cullen/Frost Discount Brokers 36.03%
P.O. Box 2358
San Antonio, TX 78299
Oppenheimer & Co., Inc. 5.13%
Oppenheimer Tower
World Financial Center
New York, NY 10281
</TABLE>
- ------
* The Company has no knowledge as to whether all or any portfolio of the shares
owned of record are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of the
Portfolio may be presumed to be in "control" of the Portfolio as defined in
the 1940 Act.
A-11
<PAGE>
As of May 1, 1998, 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,
Houston, Texas 77002, as the Company's independent auditors 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 member banks of the New
York Federal Reserve are open for business. The Portfolio, however, reserves
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 re-
stricted due to national holidays.
NET ASSET VALUE DETERMINATION
The net asset value of a share of the Portfolio is determined twice daily as
of the times 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 Port-
folio 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 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 will invest only in "Eligible Securities," as defined in Rule 2a-7 of
the 1940 Act, which the Board of Directors has determined present minimal
credit risks. Rule 2a-7 also requires, among other things, that the Portfolio
maintain a dollar-weighted portfolio maturity of 90 days or less and purchase
only U.S. dollar-denominated instruments having remaining maturities of 397
calendar days or less.
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 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.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
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, provided that the purchase order has
been accepted prior to 3:00 p.m. Eastern time and payment in the form of fed-
eral funds wired has been received by AFS. Dividends do not accrue on the day
that a redemption order is effective, unless the redemption is effective after
12:30 p.m. on that day and redemption proceeds have not been wired to the
shareholder on the same day. Thus, if a purchase order is accepted prior to
3:00 p.m. Eastern time, the shareholder will receive its pro rata share of div-
idends beginning with those declared on that day.
A-13
<PAGE>
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 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 prin-
cipal 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 curren-
cies.
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.
A-14
<PAGE>
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.
Pursuant to the Taxpayer Relief Act of 1997, certain small corporations are
wholly exempt from AMT.
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 shareholder of the Portfolio is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the Port-
folio. 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 de-
rived from interest on such bonds. Receipt of exempt-interest dividends may re-
sult 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. Pro-
spective investors should consult their own tax advisers as to such conse-
quences.
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."
A-15
<PAGE>
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.
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 May 1,
1998. Future legislative or administrative changes or court decisions may sig-
nificantly change the conclusions expressed herein, and any such changes or de-
cisions may have a retroactive effect with respect to the transactions contem-
plated 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-
lio.
A-16
<PAGE>
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 and income
other than investment income) will be multiplied by 365 and then divided by the
number of days in the period, with the resulting figure carried to the nearest
hundredth of one percent. The Company may also furnish a quotation of effective
yields for the Institutional Class that assumes the reinvestment of dividends
for a 365 day year and a return for the entire year equal to the average
annualized yields for the period, which will be computed by compounding the
unannualized current yields for the period by adding 1 to the unannualized cur-
rent 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, 1998, the current yield and effective
yield for the Institutional Class were 3.52% and 3.58%, respectively. Assuming
a corporate tax rate of 39.6%, those yields for the Institutional Class on a
tax-equivalent basis were 5.83% and 5.93%, 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 U.S. dollar-denominated securities which are "First Tier" securi-
ties, as such term is defined from time to time in Rule 2a-7 under the 1940
Act. A First Tier Security is generally a security that: (i) has received a
short-term rating, or is subject to a guarantee that has received a short-term
rating, or, in either case, is issued by an issuer with a short-term rating
from the Requisite NRSROs in the highest short-term rating category for debt
obligations; (ii) is an unrated security that the Portfolio's investment ad-
viser has determined is of comparable quality to a rated security described in
(i); (iii) is a security issued by a registered investment company that is a
money market fund; or (iv) is a Government Security. The term "Requisite
NRSROs" means (a) any two nationally recognized statistical rating organiza-
tions that have issued a rating with respect to a security or class of debt ob-
ligations of an issuer, or (b) if only one NRSRO has issued a rating with re-
spect to such security or issuer at the time the Portfolio acquires the securi-
ty, the NRSRO. At present, the NRSROs are: Standard & Poor's Corp., Moody's In-
vestors Services, Inc., Thomson Bankwatch, One, Duff and Phelps, Inc., Fitch
Investors Services, Inc. and, with regard to certain types of securities, IBCA
Ltd and its subsidiary, IBCA, Inc. Subcategories or gradations in ratings (such
as "+" or "-") do not count as rating categories.
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 Securi-
ties 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
A-17
<PAGE>
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, in short-term tax-exempt securities, which
may include shares of other investment companies whose dividends are tax-ex-
empt. See "Investment Restrictions" in the Prospectus for limitations on the
Portfolio's ability to invest in repurchase agreements and in shares of other
investment companies. It is a fundamental policy of the Company that the Port-
folio'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 in-
tention (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. Ac-
cordingly, 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 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.
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.
DIVERSIFICATION REQUIREMENTS
As a money market fund, the Portfolio is subject to the diversification re-
quirements of Rule 2a-7 under the 1940 Act. This Rule sets forth two different
diversification requirements: one applicable to the issuer of Municipal Securi-
ties (provided that such securities are not subject to a demand feature or a
guarantee), and one applicable to Municipal Securities with demand features or
guarantees.
The issuer diversification requirement provides that the Portfolio may not in-
vest in the securities of any issuer if, as a result, more than 5% of its total
assets would be invested in securities issued by such issuer. If the securities
are subject to a demand feature or guarantee, however, they are not subject to
this requirement. Moreover, for purposes of this requirement, the issuer of a
security is not always the nominal issuer. Instead, in certain circumstances,
the underlying obligor of a security is deemed to be the issuer of the securi-
ty. Such circumstances arise for example when another political subdivision
agrees to be ultimately responsible for payments of principal of an interest on
a security or when the assets and revenues of a non-governmental user of the
facility financed with the Municipal Securities secures repayment of such secu-
rities.
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The diversification requirement applicable to Municipal Securities subject to
a demand feature or guarantee provides that, with respect to 75% of its total
assets, the Portfolio may not invest more than 10% of its total assets in secu-
rities issued by or subject to demand features or guarantees from the same en-
tity. A demand feature permits the Portfolio to sell a Municipal Security at
approximately its amortized cost value plus accrued interest at specified in-
tervals upon no more than 30 days' notice. A guarantee includes a letter of
credit, bond insurance and an unconditional demand feature (provided the demand
feature is not provided by the issuer of the security.)
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
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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 mar-
ket 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 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.
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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 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 collateralize the when-issued or
delayed delivery commitment by segregating liquid assets of a dollar value suf-
ficient at all times to make payment for the when-issued or delayed-delivery
securities. Such segregated liquid assets will be marked-to-market, and the
amount segregated will be increased if necessary to maintain adequate coverage
of the Portfolio's when-issued or delayed delivery commitments.
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 liquid assets, 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 on set dates (such as the last day of
the month or calendar quarter) in the case of variable rates or whenever a
specified interest rate change occurs in the case of a floating rate instru-
ment. 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 be-
cause, upon readjustment, such
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<PAGE>
rates approximate market rates. Accordingly, as interest rates decrease or in-
crease, the potential for capital appreciation or depreciation is less for
variable or floating rate Municipal Securities than for fixed rate obligations.
Rule 2a-7 under the 1940 Act provides special rules for calculating the matu-
rity date of variable and floating rate securities for purposes of determining
whether such securities qualify as "Eligible Securities."
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 its certifi-
cate to the Sponsor or some designated third party at specified intervals and
receive the par value of the certificate plus accrued interest (a demand fea-
ture). A "variable rate trust certificate" evidences an interest in a trust en-
titling the certificate holder to receive variable rate interest based on pre-
vailing short-term interest rates and also typically providing the certificate
holder with the conditional demand feature the right to tender its certificate
at par value plus accrued interest.
Because synthetic municipal instruments involve a trust or custodial account
and a third party conditional demand feature, they involve complexities and po-
tential risks that may not be present where a municipal security is owned di-
rectly. For further information regarding certain risks associated with invest-
ing 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) 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;
(2) lend money or securities except to the extent that the Portfolio's
investments may be considered loans;
(3) purchase or sell puts, calls, straddles, spreads or combinations
thereof;
(4) 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;
(5) 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;
(6) purchase or sell real estate, but this shall not prevent investments
in securities secured by real estate or interests therein;
(7) sell, securities short or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions; or
(8) purchase or sell commodities or commodity futures contracts.
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<PAGE>
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for the Portfolio, selects bro-
ker-dealers, effects the Portfolio's investment transactions, allocates broker-
age fees in such transactions, and where applicable, negotiates commissions and
spreads on transactions. Since purchases and sales of portfolio securities by
the Portfolio are usually principal transactions, the Portfolio incurs little
or no brokerage commission. AIM's primary consideration in effecting a security
transaction is to obtain the most favorable execution of the order, which in-
cludes the best price on the security and a low commission rate (as applica-
ble). While AIM seeks reasonably competitive commission rates, the Portfolio
may not pay the lowest commission or spread available. See "Section 28(e) Stan-
dards" below.
In the event the Portfolio purchases securities traded over-the-counter, the
Portfolio deals directly with dealers who make markets in the securities in-
volved, except when better prices are available elsewhere. Portfolio transac-
tions placed through dealers who are primary market makers are effected at net
prices without commissions, but which include compensation in the form of a
mark up or mark down.
AIM may determine target levels of commission business with various brokers on
behalf of its clients (including the Portfolio) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the broker; (2) the research services provided
by the broker; and (3) the broker's interest in mutual funds in general and in
the Portfolio and other mutual funds advised by AIM or A I M Capital Manage-
ment, Inc. (collectively, the "AIM Funds") in particular, including sales of
the Portfolio and of the other AIM Funds. In connection with (3) above, the
Portfolio's trades may be executed directly by dealers which sell shares of the
AIM Funds or by other broker-dealers with which such dealers have clearing ar-
rangements. AIM will not use a specific formula in connection with any of these
considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of the Portfo-
lio any commissions, fees, brokerage or similar payments paid by the Portfolio
on portfolio transactions. Normally, the only fees which AIM can recapture are
the soliciting dealer fees on the tender of the Portfolio's securities in a
tender or exchange offer.
The Portfolio may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting secu-
rities of the Portfolio, provided the conditions of an exemptive order received
by the Portfolio from the SEC are met. In addition, the Portfolio may purchase
or sell a security from or to another AIM Fund provided the Portfolio follows
procedures adopted by the Board of Directors/Trustees of the various AIM Funds,
including the Company. These inter-fund transactions do not generate brokerage
commissions but may result in custodial fees or taxes or other related ex-
penses.
Under the 1940 Act, certain persons affiliated with the Company are prohibited
from dealing with the Company as principal in any purchase or sale of securi-
ties unless an exemptive order allowing such transactions is obtained from the
SEC. The 1940 Act also prohibits the Company from purchasing a security being
publicly underwritten by a syndicate of which certain persons affiliated with
the Company are members except in accordance with certain conditions. These
conditions may restrict the ability of the Portfolio to purchase municipal se-
curities being publicly underwritten by such syndicate, and the Portfolio may
be required to wait until the syndicate has been terminated before buying such
securities. At such time, the market price of the securities may be higher or
lower than the original offering price. A person affiliated with the Company
may, from time to time, serve as placement agent or financial advisor to an is-
suer of Municipal 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
a 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, 1998, 1997 and 1996, no securities or instruments were pur-
chased by the Portfolio from issuers who paid placement fees or other compensa-
tion to a broker affiliated with the Portfolio.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some of these
accounts may have investment objectives similar to the Portfolio. Occasionally,
identical securities will be appropriate for investment by the Portfolio and
one or more of these investment accounts. However, the position of each account
in the same securities and the length of time that each account may hold its
investment in the same securities may 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 is consistent with the investment policies of the Portfo-
lios and one or more of these accounts, and is considered at or about the same
time, AIM will fairly allocate transactions in such securities among the Port-
folios and these accounts. AIM may combine such transactions, in accordance
with applicable laws and regulations, to obtain
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<PAGE>
the most favorable execution. Simultaneous transactions could, however, ad-
versely affect the Portfolio's ability to obtain or dispose of the full amount
of a security which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the vari-
ous investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to the Portfolio. In making such allo-
cations, AIM considers the investment objectives and policies of its advisory
clients, the relative size of portfolio holdings of the same or comparable se-
curities, the availability of cash for investment, the size of investment com-
mitments generally held, and the judgments of the persons responsible for rec-
ommending the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934, as amended, provides
that AIM, under certain circumstances, lawfully may cause an account to pay a
higher commission than the lowest available. Under Section 28(e), AIM must make
a good faith determination that the commissions paid are "reasonable in rela-
tion to the value of the brokerage and research services provided . . . viewed
in terms of either that particular transaction or [AIM's] overall responsibili-
ties with respect to the accounts as to which it exercises investment discre-
tion." The services provided by the broker also must lawfully and appropriately
assist AIM in the performance of its investment decision-making responsibili-
ties. Accordingly, in recognition of research services provided to it, the
Portfolio may pay a broker higher commissions than those available from another
broker.
Research services received from broker-dealers supplement AIM's own research
(and the research of its affiliates), and may include the following types of
information: statistical and background information on the U.S. and foreign
economies, industry groups and individual companies; forecasts and interpreta-
tions with respect to the U.S. and foreign economies, securities, markets, spe-
cific industry groups and individual companies; information on federal, state,
local and foreign political developments; portfolio management strategies; per-
formance information on securities, indexes and investment accounts; informa-
tion concerning prices of securities; and information supplied by specialized
services to AIM and to the Company's directors with respect to the performance,
investment activities, and fees and expenses of other mutual funds. Broker-
dealers may communicate such information electronically, orally or in written
form. Research services may also include the providing of custody services, as
well as the providing of equipment used to communicate research information,
the providing of specialized consultations with AIM personnel with respect to
computerized systems and data furnished to AIM as a component of other research
services, the arranging of meetings with management of companies, and the pro-
viding of access to consultants who supply research information.
The outside research assistance is useful to AIM since the broker-dealers used
by AIM tend to follow a broader universe of securities and other matters than
AIM's staff can follow. In addition, the research provides AIM with a diverse
perspective on financial markets. Research services provided to AIM by broker-
dealers are available for the benefit of all accounts managed or advised by AIM
or by its affiliates. Some broker-dealers may indicate that the provision of
research services is dependent upon the generation of certain specified levels
of commissions and underwriting concessions by AIM's clients, including the
Portfolio. However, the Portfolio is not under any obligation to deal with any
broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the broker-dealer
providing them. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM believes that the research
services are beneficial in supplementing AIM's research and analysis and that
they improve the quality of AIM's investment advice. The advisory fee paid by
the Portfolio is not reduced because AIM receives such services. However, to
the extent that AIM would have purchased research services had they not been
provided by broker-dealers, the expenses to AIM could be considered to have
been reduced accordingly.
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TAX-FREE INVESTMENTS CO.
INSTITUTIONAL CASH RESERVE SHARES
FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED
MARCH 31, 1998
<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, 1998, 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 five-year period then ended. These finan-
cial statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and the financial highlights. Our procedures included confirmation
of securities owned as of March 31, 1998, 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 reason-
able 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, 1998, 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 ac-
counting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
May 1, 1998
A-26
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
SHORT-TERM MUNICIPAL OBLIGATIONS -
102.40%
ALABAMA - 1.73%
Birmingham (City of)(YMCA-Birmingham);
Public Park and Recreation Board RB
3.75%, 06/01/16(b)(c) -- VMIG-1 $ 3,255 $ 3,255,000
- -------------------------------------------------------------------------------
BMC Special Care Facilities Financing
Authority (VHA of Alabama Inc. Capital
Asset Financing Program); Variable Rate
Hospital RB
3.65%, Series 1985 E 12/01/30(b)(d) A-1 Aaa 4,600 4,600,000
- -------------------------------------------------------------------------------
3.65%, Series 1985 G 12/01/30(b)(d) A-1 Aaa 6,390 6,390,000
- -------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Warrants
3.80%, 02/01/12(b)(c) A-1+ -- 2,695 2,695,000
- -------------------------------------------------------------------------------
16,940,000
- -------------------------------------------------------------------------------
ALASKA - 1.58%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
3.70%, 06/01/26(b) A-1+ VMIG-1 5,200 5,200,000
- -------------------------------------------------------------------------------
Alaska Housing Finance Corp. (University
L.C. of Alaska); Governmental Purpose
Series 1997 A RB
3.75%, 12/01/27(b)(d) A-1 VMIG-1 5,200 5,200,000
- -------------------------------------------------------------------------------
Valdez (City of) (ARCO Transportation
Alaska, Inc. Project); Marine Terminal
Refunding Series 1994 B RB
3.70%, 05/01/31(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
15,400,000
- -------------------------------------------------------------------------------
ARIZONA - 1.69%
Apache (County of) Industrial Development
Authority (Tucson
Electric); Series 1983 C IDR
3.85%, 12/15/18(b)(c) A-1 VMIG-1 12,400 12,400,000
- -------------------------------------------------------------------------------
Chandler (City of) Industrial Development
Authority (Southpark
Apartments Project); Multifamily Housing
Series 1989 RB
3.75%, 12/01/02(b)(c) A-1+ -- 4,125 4,125,000
- -------------------------------------------------------------------------------
16,525,000
- -------------------------------------------------------------------------------
ARKANSAS - 0.51%
University of Arkansas Board of Trustees
(UAMS Campus) (Central Arkansas Radia-
tion Therapy); Refunding Series 1998 RB
3.75%, 12/01/19(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
COLORADO - 2.92%
Colorado (State of) General Fund; Series
1997 A TRAN
4.50%, 06/26/98 SP-1+ -- 5,000 5,007,372
- -------------------------------------------------------------------------------
</TABLE>
A-27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
COLORADO - (CONTINUED)
Colorado Housing Finance Authority (Coven-
try Village Project);
Multifamily Housing Refunding Series 1996
B RB
3.75%, 10/15/16(b)(c) A-1+ -- $ 5,370 $ 5,370,000
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Winridge Project); Adjustable
Refunding Multifamily Housing Series 1998
RB
3.70%, 02/15/28(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Denver (City of) (Seasons Apartment Proj-
ect); Refunding Multifamily Housing Se-
ries 1990 RB
3.65%, 10/01/06(b)(c) A-1+ VMIG-1 8,700 8,700,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase Proj-
ect); Variable Rate Demand Multifamily
Housing Series 1985 RB
3.75%, 07/01/06(b)(c) -- VMIG-1 4,450 4,450,000
- -------------------------------------------------------------------------------
28,527,372
- -------------------------------------------------------------------------------
CONNECTICUT - 0.59%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special Tax
Obligation RB
3.65%, 12/01/10(b)(c) A-1+ VMIG-1 2,165 2,165,000
- -------------------------------------------------------------------------------
Connecticut (State of) Power and Light
Development Authority; Series 1993 A RB
3.65%, 09/01/28(b)(c) A-1+ VMIG-1 3,640 3,640,000
- -------------------------------------------------------------------------------
5,805,000
- -------------------------------------------------------------------------------
DELAWARE - 0.32%
Delaware (State of) Economic Development
Authority; Adjustable Rate Hospital Se-
ries C RB
3.70%, 12/01/15(b)(c) A-1+ VMIG-1 3,100 3,100,000
- -------------------------------------------------------------------------------
FLORIDA - 4.10%
Florida State Board of Education; Public
Education Series B GO
5.00%, 06/01/98 AA+ Aa2 1,700 1,703,053
- -------------------------------------------------------------------------------
Gulf Breeze (City of) (Florida Municipal
Bond Fund); Variable Rate Demand Series
1995 A RB
3.80%, 03/31/21(b)(c) A-1 -- 12,900 12,900,000
- -------------------------------------------------------------------------------
Lee (County of) Housing Finance Authority
(Forestwood Apartments Project); Housing
Series 1995 A RB
3.70%, 06/15/25(b)(c) A-1+ -- 8,000 8,000,000
- -------------------------------------------------------------------------------
Putnam County Development Authority (Semi-
nole Electric Cooperative, Inc. Project);
National Rural Utilities Cooperative Fi-
nance Corp. Guaranteed Floating/Fixed
Rate Pooled Series 1984 H-1 PCR
3.80%, 03/15/14(b)(c) A-1+ P-1 3,865 3,865,000
- -------------------------------------------------------------------------------
</TABLE>
A-28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
FLORIDA - (CONTINUED)
University Athletic Association Inc.
(University of Florida Stadium Project);
Capital Improvement Adjustable Series
1990 RB
3.80%, 02/01/20(b)(c) -- VMIG-1 $13,600 $ 13,600,000
- -------------------------------------------------------------------------------
40,068,053
- -------------------------------------------------------------------------------
GEORGIA - 4.14%
Cobb (County of) Housing Authority
(Greenhouse Frey Apartment Project);
Multifamily Housing RB
3.70%, 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
3.70%, 12/01/02(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Dekalb (County of) Housing Authority
(Clairmont Crest Project); Multifamily
Housing Refunding Series 1995 RB
3.70%, 06/15/25(b)(c) A-1+ -- 6,400 6,400,000
- -------------------------------------------------------------------------------
Development Authority of Cobb County
(Institute of Nuclear Power Operations
Project); Series 1998 RB
3.70%, 02/01/13(b)(c) A-1+ VMIG-1 9,170 9,170,000
- -------------------------------------------------------------------------------
Development Authority of Floyd County
(Shorter College Project); Series 1998
RB
3.75%, 06/01/17(b)(c) A-1+ -- 4,000 4,000,000
- -------------------------------------------------------------------------------
Gwinnett (County of) Housing Authority
(Greens Apartment Project); Variable
Rate Demand Multifamily Housing Series
1995 RB
3.70%, 06/15/25(b)(c) A-1+ -- 10,300 10,300,000
- -------------------------------------------------------------------------------
Savannah (City of) Housing Authority
(Somerset Place Project); Variable Rate
Demand Multifamily Housing Series 1996 A
RB
3.70%, 06/15/26(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
40,470,000
- -------------------------------------------------------------------------------
IDAHO - 1.08%
Idaho (State of); Series 1997 TAN
4.625%, 06/30/98 SP-1+ MIG-1 5,000 5,008,840
- -------------------------------------------------------------------------------
Power (County of) (FMC Corporation
Project); PCR
3.80%, 12/01/10(b)(c) -- VMIG-1 5,500 5,500,000
- -------------------------------------------------------------------------------
10,508,840
- -------------------------------------------------------------------------------
ILLINOIS - 8.29%
Burbank (City of) (Service Merchandise
Co. Inc. Project); Floating Rate Monthly
Demand Industrial Building Series 1984
RB
3.35%, 09/15/24(b)(c) A-1+ -- 3,600 3,600,000
- -------------------------------------------------------------------------------
</TABLE>
A-29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
ILLINOIS - (CONTINUED)
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily Housing
Series 1983 RB
3.90%, 06/01/08(b)(c) -- Aa3 $ 5,770 $ 5,770,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Adventist Health System/Sunbelt
Obligated Group); Variable Rate Demand
Series 1997 A RB
3.75%, 11/15/27(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB
3.70%, 08/01/26(b)(c) A-1+ -- 7,700 7,700,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Revenue Anticipation
Note Progam); Variable Rate Demand Series
1997-1998 A RAN
3.75%, 06/30/98(b)(c) A-1+ -- 9,720 9,720,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Museum of Science & Industry);
Adjustable Rate Series 1992 RB
3.70%, 10/01/26(b)(c) -- VMIG-1 1,500 1,500,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Northwestern University); Adjustable
Rate Series 1988 RB
3.75%, 03/01/28(b)(d) A-1+ VMIG-1 6,450 6,450,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Pooled Financing Program); Adjustable
Rate Series 1985 RB
3.70%, 12/01/05(b)(c) A-1+ VMIG-1 3,715 3,715,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled Series D RB
3.70%, 08/01/15(b)(c) A-1+ VMIG-1 3,970 3,970,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Advocate Health Care Network); Variable
Rate Demand Series 1997 B RB
3.75%, 08/15/22(b)(d) A-1+ VMIG-1 9,940 9,940,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Demand Series 1995 RB
3.80%, 08/15/25(b)(d) A-1+ VMIG-1 7,000 7,000,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Streetville Corp.); Variable Rate Series
1994 RB
3.70%, 08/15/24(b)(c) A-1+ P-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Oak Forest (City of) (Homewood Pool);
Series 1989 RB
3.70%, 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 RB
3.70%, 09/15/26(b)(c) A-1+ -- 10,700 10,700,000
- -------------------------------------------------------------------------------
81,065,000
- -------------------------------------------------------------------------------
</TABLE>
A-30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
INDIANA - 4.32%
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
- -------------------------------------------------------------------------------
Indiana (State of) (Advance Funding
Program); Series 1998 A-2 RB
4.00%, 01/20/99 SP-1+ MIG-1 5,000 5,015,577
- -------------------------------------------------------------------------------
Indiana Development Finance Authority
(Southern Indiana Gas and Electric
Project); Series 1998 A PCR
3.65%, 03/01/99(b) AA- VMIG-1 16,000 16,000,000
- -------------------------------------------------------------------------------
Indiana Health Facility Financing
Authority (St. Anthony Medical Center,
Inc.); Variable Rate Demand Series 1997
RB
3.65%, 12/01/17(b)(c) -- VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Indianapolis (City of); Local Improvement
Series 1997 E RB
4.25%, 07/09/98 SP-1+ -- 7,500 7,508,961
- -------------------------------------------------------------------------------
Indianapolis (City of) (Jewish Community
Campus Project); Variable Rate Economic
Development RB
3.70%, 04/01/05(b)(c) -- VMIG-1 2,295 2,295,000
- -------------------------------------------------------------------------------
Petersburg (City of) (Indianapolis Power
and Light Co. Project); Adjustable Rate
Tender Securities Series 1995 B PCR
3.70%, 01/01/23(b)(d) A-1+ VMIG-1 6,000 6,000,000
- -------------------------------------------------------------------------------
Rockport (City of) Indiana Development
Authority (AEP Generating Company
Project B); Series 1995 B PCR
3.80%, 07/01/25(b)(d) A-1+c Aaa 2,235 2,235,000
- -------------------------------------------------------------------------------
42,254,538
- -------------------------------------------------------------------------------
IOWA - 1.74%
Iowa Higher Education Loan Authority;
Private College Facility RB
3.80%, 12/01/15(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Iowa School Corporations (Iowa School
Cash Anticipation Program); Warrant
Certificates Series 1997-1998 A TRAN
4.50%, 06/26/98(c) SP-1+ MIG-1 12,000 12,019,056
- -------------------------------------------------------------------------------
17,019,056
- -------------------------------------------------------------------------------
KANSAS - 1.02%
Mission (City of) (Silverwood Apartment
Project); Multifamily RB
3.70%, 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Wichita (City of); General Obligation
Renewal and Improvement Series 194
Temporary Notes
4.25%, 08/27/98 SP-1+ VMIG-1 5,000 5,012,035
- -------------------------------------------------------------------------------
10,012,035
- -------------------------------------------------------------------------------
</TABLE>
A-31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
KENTUCKY - 1.70%
Kentucky Asset/Liability Commission;
General Fund Series 1998 A RB
3.55%, 06/04/98(b) -- VMIG-1 $ 5,000 $ 5,000,000
- -------------------------------------------------------------------------------
Kentucky Asset/Liability Commission;
General Fund Series 1997 A TRAN
4.50%, 06/25/98 SP-1+ MIG-1 7,500 7,510,929
- -------------------------------------------------------------------------------
Mayfield (City of) (Kentucky League of
Cities Funding Trust Pooled Lease
Financing Program); Variable Rate Multi-
City Lease Series 1996 RB
3.80%, 07/01/26(b)(c) A-1 VMIG-1 4,100 4,100,000
- -------------------------------------------------------------------------------
16,610,929
- -------------------------------------------------------------------------------
LOUISIANA - 3.32%
Louisana Public Facilities Authority
(Sisters of Charity of the Incarnate
Word); Unit Priced Demand Adjustable
Series 1997 E RB
3.70%, 07/01/23(b)(d) A-1+c VMIG-1 9,900 9,900,000
- -------------------------------------------------------------------------------
Louisana Public Facilities Authority
(Willis-Knighton Medical Center
Project); Hospital Series 1995 RB
3.75%, 09/01/25(b)(d) A-1 VMIG-1 17,500 17,500,000
- -------------------------------------------------------------------------------
New Orleans (City of); Aviation Board
Series B RB
3.75%, 08/01/16(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
32,400,000
- -------------------------------------------------------------------------------
MASSACHUSETTS - 0.37%
Massachusetts Health and Educational
Facilities Authority; Variable Rate
Series E RB
3.70%, 01/01/35(b)(c) -- VMIG-1 3,600 3,600,000
- -------------------------------------------------------------------------------
MICHIGAN - 1.98%
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 Hospital Finance Authority
(Hospital Equipment Loan Program);
Adjustable Series 1996 A RB
3.75%, 12/01/23(b)(c) -- VMIG-1 6,600 6,600,000
- -------------------------------------------------------------------------------
Michigan State Strategic Fund (Peachwood
Center Association Project); Limited
Obligation Series 1995 RB
3.65%, 06/01/16(b)(c) A-1+ -- 2,275 2,275,000
- -------------------------------------------------------------------------------
Michigan Strategic Fund (Consumer's Power
Corp.); Variable Rate Demand Series 1988
A PCR
3.80%, 04/15/18(b)(c) -- P-1 1,570 1,570,000
- -------------------------------------------------------------------------------
</TABLE>
A-32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
MICHIGAN - (CONTINUED)
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible Variable
Rate Demand Limited Obligation Series
1985 RB
3.60%, 10/01/15(b)(c) -- VMIG-1 $ 3,550 $ 3,550,000
- -------------------------------------------------------------------------------
Michigan Strategic Fund (The Norcor Corp.
Project); IDR
3.70%, 12/01/00(b)(c) -- P-1 4,400 4,400,000
- -------------------------------------------------------------------------------
19,395,000
- -------------------------------------------------------------------------------
MINNESOTA - 1.23%
Bloomington (City of) Port Authority (Mall
of America Project); Special Tax Revenue
Series 1996 B RB
3.70%, 02/01/13(b)(c) A-1+ VMIG-1 1,900 1,900,000
- -------------------------------------------------------------------------------
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
3.80%, 03/01/11(b) AA- Aa3 2,900 2,900,000
- -------------------------------------------------------------------------------
Minneapolis (City of) Community
Development Agency (Walker Methodist
Health Systems); Adjustable Refunding
Series 1995 RB
3.80%, 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
3.80%, 03/01/11(b)(d) AA- A1 1,200 1,200,000
- -------------------------------------------------------------------------------
12,000,000
- -------------------------------------------------------------------------------
MISSOURI - 1.06%
Kansas City (Sleepy Hollow Apartment
Project); Multifamily Housing Series 1996
RB
3.70%, 09/15/26(b)(c) A-1+ -- 7,500 7,500,000
- -------------------------------------------------------------------------------
Missouri State Development Finance Board
(Science City Union Station);
Infrastructure Facilities Series A RB
3.80%, 12/01/98(b)(c) AA- Aa3 2,850 2,851,739
- -------------------------------------------------------------------------------
10,351,739
- -------------------------------------------------------------------------------
MISSISSIPPI - 1.75%
Mississippi Hospital Equipment and
Facilities Authority (Northern
Mississippi Health Services); Series 1 RB
3.55%, 06/12/98(b)(d) A-1+ VMIG-1 10,000 10,000,000
- -------------------------------------------------------------------------------
Perry (County of) (Leaf River Forest
Project); Series 1989 PCR
3.70%, 10/01/12(b)(c) -- P-1 7,100 7,100,000
- -------------------------------------------------------------------------------
17,100,000
- -------------------------------------------------------------------------------
NEW HAMPSHIRE - 0.96%
New Hampshire Business Finance Authority
(Wheelabrator Concord Company, L.P.
Project); Adjustabe Rate Resource
Recovery Refunding Series 1997 A RB
3.70%, 01/01/18(b)(c) A-1+ -- 4,000 4,000,000
- -------------------------------------------------------------------------------
</TABLE>
A-33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
NEW HAMPSHIRE - (CONTINUED)
New Hampshire Housing Finance Authority
(EQR-Bond
Partnership-Manchester Project);
Multifamily Housing Refunding Series
1996 RB
3.70%, 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
3.50%, 01/01/09(b)(c) A-1+ -- 400 400,000
- -------------------------------------------------------------------------------
9,400,000
- -------------------------------------------------------------------------------
NEW YORK - 18.02%
Eagle Tax Exempt Trust; Class A COP(e)
3.77%, Series 97C4703 01/01/01(b)(c)(f) A-1+c Aaa 10,800 10,800,000
- -------------------------------------------------------------------------------
3.82%, Series 1993 F 08/01/06(b)(d) A-1+c -- 20,500 20,500,000
- -------------------------------------------------------------------------------
3.82%, Series 1993 E 08/01/06(b)(d) A-1+c -- 15,000 15,000,000
- -------------------------------------------------------------------------------
3.77%, Series 943802 05/01/07(b)(d) A-1+c -- 17,800 17,800,000
- -------------------------------------------------------------------------------
3.82%, Series 943901 06/15/07(b)(c) A-1+c -- 14,500 14,500,000
- -------------------------------------------------------------------------------
3.82%, Series 94C2102 06/01/14(b)(c) A-1+c -- 10,000 10,000,000
- -------------------------------------------------------------------------------
3.77%, Series 97C4702 01/01/20(b) A-1+c -- 9,500 9,500,000
- -------------------------------------------------------------------------------
3.82%, Series 950901 06/01/21(b)(f) A-1+c -- 12,700 12,700,000
- -------------------------------------------------------------------------------
3.77%, Series 943207 07/01/29(b)(c) 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
3.77%, 07/01/11(b)(c)(e) A-1+c -- 5,600 5,600,000
- -------------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington State
GO); Series 984701 Class A COP
3.75%, 05/01/18(b)(d)(e) A-1+c -- 14,400 14,400,000
- -------------------------------------------------------------------------------
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
3.77%, 02/15/29(b)(c)(e) A-1+c -- 9,700 9,700,000
- -------------------------------------------------------------------------------
Merrill Lynch Group Float Program, New
York State Mortgage Agency; Floating
Option Tax-Exempt Receipts Series PT 158
RB
3.77%, 04/01/12(b)(c)(e) AA VMIG-1 8,210 8,210,000
- -------------------------------------------------------------------------------
New York (City of); Series 1995 Subseries
B-5 GO
3.70%, 08/15/22(b)(c) A-1+ VMIG-1 7,200 7,200,000
- -------------------------------------------------------------------------------
New York (City of); Series A RAN
4.50%, 06/30/98(c) SP-1+ MIG-1 6,000 6,010,381
- -------------------------------------------------------------------------------
176,120,381
- -------------------------------------------------------------------------------
</TABLE>
A-34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
NORTH CAROLINA - 0.58%
North Carolina Medical Care Commission
Retirement Community (Adult Communities
Total Services Inc.); Variable Rate
Demand Series 1996 RB
3.75%, 11/15/09(b)(c) A-1+ -- $ 5,655 $ 5,655,000
- -------------------------------------------------------------------------------
OHIO - 5.31%
Akron-Summit (County of); Library
Improvement Bonds Series
1998 A GO
4.00%, 12/01/98(c) -- Aaa 2,000 2,005,774
- -------------------------------------------------------------------------------
Cuyahoga (County of) (Cleveland Clinic);
Hospital Series A RB
3.70%, 01/01/24(b)(d) A-1 VMIG-1 33,262 33,262,000
- -------------------------------------------------------------------------------
Cuyahoga (County of) (S&R Playhouse
Realty Co.); Adjustable Rate Demand
Series 1984 IDR
3.60%, 12/01/09(b)(c) -- MIG-1 615 615,000
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.90%, 11/01/14(b)(c) -- P-1 8,500 8,500,000
- -------------------------------------------------------------------------------
Marion (County of) (Pooled Lease Pro-
gram); Hospital RB
3.75%, 10/01/22(b)(c) A-1+ -- 1,540 1,540,000
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.45%, 12/01/15(b)(c) -- VMIG-1 956 956,000
- -------------------------------------------------------------------------------
Summit (County of) Various Purpose Notes;
Series 1997 A General Obligation BAN
4.50%, 06/04/98 SP-1+ MIG-1 5,000 5,005,314
- -------------------------------------------------------------------------------
51,884,088
- -------------------------------------------------------------------------------
OKLAHOMA - 1.02%
Oklahoma Water Resource Board (State Loan
Program);
Series 1994 A RB
3.55%, 09/01/98(g) A-1+ -- 10,000 10,000,000
- -------------------------------------------------------------------------------
OREGON - 2.28%
Klamath Falls (City of) (Salt Caves
Hydroelectric); Adjustable/Fixed RB
4.50%, Series 1986 C 05/01/98(f)(g) SP-1+ -- 10,000 10,005,090
- -------------------------------------------------------------------------------
4.50%, Series E 05/01/98(f) SP-1+ -- 12,250 12,256,857
- -------------------------------------------------------------------------------
22,261,947
- -------------------------------------------------------------------------------
</TABLE>
A-35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
PENNSYLVANIA - 6.30%
Delaware County Industrial Development
Authority (Henderson-Radnor Joint
Venture Project); Limited Obligation
Series 1985 IDR
3.70%, 04/01/15(b)(c) -- Aa3 $ 855 $ 855,000
- -----------------------------------------------------------------------------
Emmaus (City of) General Authority;
Series 1996 RB
3.75%, 12/01/28(b)(c) A-1+ Aaa 3,000 3,000,000
- -----------------------------------------------------------------------------
Philadelphia (City of); Water and
Wastewater Series 1997 B RB
3.82%, 08/05/98(b)(d)(g) A-1+ VMIG-1 3,300 3,300,000
- -----------------------------------------------------------------------------
Philadelphia (City of) Hospital and
Higher Facilities Authority
(Children's Hospital of Philadelphia);
Hospital RB
3.75%, 03/01/27(b)(d) A-1+ VMIG-1 13,160 13,160,000
- -----------------------------------------------------------------------------
Philadelphia School District; Series
1997-1998 TRAN
4.50%, 06/30/98(c) SP-1+ MIG-1 5,000 5,006,521
- -----------------------------------------------------------------------------
Quakertown Hospital Authority (HPF
Group); Series 1985 A RB
3.75%, 07/01/05(b)(c) -- VMIG-1 29,100 29,100,000
- -----------------------------------------------------------------------------
Schuykill County Industrial Development
Authority (Gilberton Power Project);
Variable Rate Resource Recovery Series
1985 RB
3.70%, 12/01/02(b)(c) A-1 -- 2,300 2,300,000
- -----------------------------------------------------------------------------
Wilkes-Barre (City of) Industrial De-
velopment Authority (Toys "R" Us/Penn
Inc. Project); Economic Development
Series 1984 RB
3.575%, 07/01/14(b)(c) -- A1 2,300 2,300,000
- -----------------------------------------------------------------------------
York (City of) General Authority;
Adjustable Rate Pooled Financing
Series 1996 RB
3.80%, 09/01/26(b)(c) A-1 -- 2,575 2,575,000
- -----------------------------------------------------------------------------
61,596,521
- -----------------------------------------------------------------------------
RHODE ISLAND - 0.30%
Rhode Island Port Authority and Eco-
nomic Development Corp.
(Newport Electric Corp. Project); En-
ergy Facilities Series RB
3.70%, 09/01/11(b)(c) A-1+ VMIG-1 2,925 2,925,000
- -----------------------------------------------------------------------------
SOUTH CAROLINA - 4.14%
Rock Hill (City of); Utilities System
RB
3.80%, 01/01/22(b)(c) A-1+ VMIG-1 7,440 7,440,000
- -----------------------------------------------------------------------------
South Carolina Public Service Authority
(Santee Cooper Hydroelectric Project);
Revenue Promissory Notes
3.60%, 06/19/98 A-1+ P-1 15,000 15,000,000
- -----------------------------------------------------------------------------
York (County of) (North Carolina
Electric Membership Corp.); Pooled PCR
3.50%, Series 1984 N-3 09/15/98(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -----------------------------------------------------------------------------
3.50%, Series 1984 N-4 09/15/98(b)(c) A-1+ VMIG-1 13,000 13,000,000
- -----------------------------------------------------------------------------
40,440,000
- -----------------------------------------------------------------------------
</TABLE>
A-36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
TENNESSEE - 1.84%
Health and Educational Facilities Board of
the Metropolitan Government of Nashville
and Davidson County (Vanderbilt
University); Adjustable Rate Series 1985
A RB
3.75%, 01/15/99(b)(d) A-1+ VMIG-1 $ 4,000 $ 4,000,000
- -------------------------------------------------------------------------------
Health, Educational and Housing Facility
Board of Shelby County (Rhodes College);
Variable Rate Demand Educational
Facilities Series 1985 RB
3.55%, 08/01/10(b)(c) A-1+ -- 1,945 1,945,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Hendersonville (Windsor Park Project);
Multifamily Housing Refunding Series 1998
IDR
3.70%, 02/15/28(b)(c) A-1+ -- 2,000 2,000,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Knoxville (Toys "R" Us Inc. Project);
Series 1984 IDR
3.90%, 05/01/14(b)(c) -- A1 1,150 1,150,000
- -------------------------------------------------------------------------------
Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County (Amberwood Ltd. Project);
Multifamily Housing RB
3.97%, Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,250 2,250,000
- -------------------------------------------------------------------------------
3.97%, Series 1993 B 07/01/13(b)(c) A-1 VMIG-1 1,910 1,910,000
- -------------------------------------------------------------------------------
Knox (County of) Industrial Development
Board (Weisgarber Partners); Floating
Rate Series 1984 IDR
3.35%, 12/01/14(b)(c) A-1+ -- 700 700,000
- -------------------------------------------------------------------------------
Shelby (County of); Series 1997 A BAN
3.65%, 05/20/98 A-1+ P-1 4,000 4,000,000
- -------------------------------------------------------------------------------
17,955,000
- -------------------------------------------------------------------------------
TEXAS - 9.81%
Bexar (County of) Texas Housing Finance
Authority (Altamonte Apt. Project);
Series 1996 RB
3.70%, 09/15/26(b)(c) A-1+ -- 5,800 5,800,000
- -------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apartments);
Multifamily RB
3.70%, 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
3.575%, 04/01/02(b)(c) -- A1 2,750 2,750,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Buckner Retirement
Services, Inc. Project); Series 1996 RB
3.75%, 08/15/26(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Greater Houston Pooled
Health); Series 1985 A RB
3.75%, 11/01/25(b)(c) A-1 -- 2,800 2,800,000
- -------------------------------------------------------------------------------
</TABLE>
A-37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
TEXAS - (CONTINUED)
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 Blood
Center RB
3.70%, 04/01/17(b)(c) A-1 -- $ 3,450 $ 3,450,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (TIRR Project); Series
1987 Hospital RB
3.80%, 10/01/17(b)(c) -- VMIG-1 1,900 1,900,000
- -------------------------------------------------------------------------------
Harris County Industrial Development
Corp. (Baytank Inc. Project); Refunding
Series 1998 RB
3.70%, 02/01/20(b)(c) A-1+ -- 25,000 25,000,000
- -------------------------------------------------------------------------------
Houston (City of); Series 1997 TRAN
4.50%, 06/30/98 SP-1+ MIG-1 14,000 14,021,600
- -------------------------------------------------------------------------------
Sabine River Pollution Control Authority
(Texas Utilities Project); Series A RB
3.85%, 03/01/26(b)(d) A-1+c VMIG-1 2,500 2,500,000
- -------------------------------------------------------------------------------
Tarrant (County of) Texas Housing Finance
Corp.
(Windcastle Project); Multifamily
Housing RB
3.75%, 08/01/26(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Texas (State of); Series 1997 TRAN
4.75%, 08/31/98 SP-1+ MIG-1 16,000 16,057,864
- -------------------------------------------------------------------------------
Texas Department of Housing and Community
Affairs; SFM Tax Exempt Refunding Series
B Commercial Paper Notes
3.60%, 07/08/98 A-1+ -- 7,320 7,320,000
- -------------------------------------------------------------------------------
Trinity River Industrial Development Au-
thority (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
- -------------------------------------------------------------------------------
95,849,464
- -------------------------------------------------------------------------------
UTAH - 0.44%
Intermountain Power Agency;
Variable Rate Refunding Series 1985 F RB
3.80%, 06/15/98 A-1+ VMIG-1 3,000 3,001,099
- -------------------------------------------------------------------------------
Salt Lake (City of); Series 1997 TRAN
4.50%, 06/30/98 -- MIG-1 1,300 1,301,878
- -------------------------------------------------------------------------------
4,302,977
- -------------------------------------------------------------------------------
VERMONT - 0.84%
Vermont Educational and Health Buildings
Financing Agency
(VHA New England); Variable Rate Hospi-
tal RB
3.70%, Series B 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
3.70%, Series E 12/01/25(b)(d) A-1 Aaa 2,500 2,500,000
- -------------------------------------------------------------------------------
3.70%, Series F 12/01/25(b)(d) A-1+ Aaa 2,100 2,100,000
- -------------------------------------------------------------------------------
3.70%, Series G 12/01/25(b)(d) A-1+ Aaa 2,560 2,560,000
- -------------------------------------------------------------------------------
8,160,000
- -------------------------------------------------------------------------------
</TABLE>
A-38
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
VIRGINIA - 0.52%
Fairfax (County of); Public Improvement
Series 1997 A GO
5.50%, 06/01/98 AAA -- $ 3,700 $ 3,710,197
- ---------------------------------------------------------------------------------
Henrico (County of) Virginia Industrial
Development Authority (Hermitage
Project); Variable Rate Health
Facilities Series 1994 RB
4.00%, 05/01/24(b)(c) -- VMIG-1 400 400,000
- ---------------------------------------------------------------------------------
Industrial Development Authority of the
City of Lynchburg (VHA
Mid-Atlantic States, Inc.) Capital
Asset Financing Program; Variable Rate
Hospital Series 1985 F RB
3.70%, 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- ---------------------------------------------------------------------------------
5,110,197
- ---------------------------------------------------------------------------------
WASHINGTON - 0.32%
Industrial Development Corp. of Port
Townsend (Port Townsend Paper Corp.
Project); Variable Rate Refunding
Series 1988 A RB
3.65%, 03/01/09(b)(c) -- VMIG-1 3,100 3,100,000
- ---------------------------------------------------------------------------------
WEST VIRGINIA - 1.48%
West Virginia Hospital Finance Authority
(VHA Mid-Atlantic States, Inc. Capital
Asset Financing Program); RB
3.70%, Series 1985 B 12/01/25(b)(c)(d) A-1+ Aaa 3,000 3,000,000
- ---------------------------------------------------------------------------------
3.70%, Series 1985 C 12/01/25(b)(c)(d) A-1+ Aaa 3,500 3,500,000
- ---------------------------------------------------------------------------------
3.70%, Series 1985 H 12/01/25(b)(c)(d) A-1 Aaa 8,000 8,000,000
- ---------------------------------------------------------------------------------
14,500,000
- ---------------------------------------------------------------------------------
WISCONSIN - 2.37%
Milwaukee (City of); Series G GO
5.00%, 06/15/98 AA+ Aa1 2,165 2,170,182
- ---------------------------------------------------------------------------------
Wisconsin (State of); TAN
4.50%, 06/15/98 SP-1+ MIG-1 $21,000 .$ 21,028,515
- ---------------------------------------------------------------------------------
23,198,697
- ---------------------------------------------------------------------------------
WYOMING - 0.43%
Kemmerer (City of) (Exxon Project);
Series 1984 PCR
3.75%, 11/01/14(b)(d) A-1+ P-1 2,400 2,400,000
- ---------------------------------------------------------------------------------
Uinta (County of) (Chevron USA Project);
Series 1992 PCR
3.85%, 12/01/22(b)(d) -- VMIG-1 1,800 1,800,000
- ---------------------------------------------------------------------------------
4,200,000
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS - 102.40% 1,000,811,834(h)
- ---------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES - (2.40%) (23,445,572)
- ---------------------------------------------------------------------------------
NET ASSETS - 100.00% $ 977,366,262
=================================================================================
</TABLE>
A-39
<PAGE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<C> <S> <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 Auditors' Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rates shown are the rates in effect on 03/31/98.
(c) Secured by a letter of credit.
(d) Secured by bond insurance.
(e) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments involve the deposit into a
trust of one or more long-term tax-exempt bonds or notes ("Underlying
Bonds"), and the sale of certificates evidencing interests in the trust to
investors such as the Fund. The trustee receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders
short-term floating or variable interest rates which are reset
periodically. A "variable rate trust certificate" evidences an interest in
a trust entitling the certificate holder to receive variable rate interest
based on prevailing short-term interest rates and also typically providing
the certificate holder with the conditional right to put its certificate at
par value plus accrued interest. Because synthetic municipal instruments
involve a trust and a third party conditional put feature, they involve
complexities and potential risks that may not be present where a municipal
security is owned directly.
(f) Secured by an escrow fund of U.S. Treasury obligations.
(g) Subject to an irrevocable call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
A-40
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,000,811,834
- ------------------------------------------------------------------------
Cash 28,607,473
- ------------------------------------------------------------------------
Interest receivable 7,092,995
- ------------------------------------------------------------------------
Investment for deferred compensation plan 33,476
- ------------------------------------------------------------------------
Other assets 67,106
- ------------------------------------------------------------------------
Total assets 1,036,612,884
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 56,149,839
- ------------------------------------------------------------------------
Dividends 2,801,759
- ------------------------------------------------------------------------
Deferred compensation 33,476
- ------------------------------------------------------------------------
Accrued administrative services fees 5,653
- ------------------------------------------------------------------------
Accrued advisory fees 142,291
- ------------------------------------------------------------------------
Accrued directors' fees 3,167
- ------------------------------------------------------------------------
Accrued transfer agent fees 7,900
- ------------------------------------------------------------------------
Accrued distribution fees 15,595
- ------------------------------------------------------------------------
Accrued operating expenses 86,942
- ------------------------------------------------------------------------
Total liabilities 59,246,622
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 977,366,262
========================================================================
NET ASSETS:
Institutional Shares $ 896,903,856
========================================================================
Private Investment Class $ 80,462,406
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
========================================================================
Outstanding 896,906,132
========================================================================
Private Investment Class:
Authorized 1,000,000,000
========================================================================
Outstanding 80,462,611
========================================================================
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
A-41
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest income $38,794,672
- ------------------------------------------------------------------
EXPENSES:
Advisory fees 2,354,337
- ------------------------------------------------------------------
Administrative services fees 66,515
- ------------------------------------------------------------------
Transfer agent fees 99,968
- ------------------------------------------------------------------
Custody fees 92,785
- ------------------------------------------------------------------
Directors' fees 11,636
- ------------------------------------------------------------------
Distribution fees (Note 2) 270,698
- ------------------------------------------------------------------
Other expenses 184,070
- ------------------------------------------------------------------
Total expenses 3,080,009
- ------------------------------------------------------------------
Less: Fees waived and expenses assumed (819,259)
- ------------------------------------------------------------------
Net expenses 2,260,750
- ------------------------------------------------------------------
Net investment income 36,533,922
- ------------------------------------------------------------------
Net realized gain on sales of investments 9,664
- ------------------------------------------------------------------
Net increase in net assets resulting from operations $36,543,586
==================================================================
</TABLE>
See Notes to Financial Statements.
A-42
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 36,533,922 $ 34,164,404
- -----------------------------------------------------------------------------
Net realized gain on sales of investments 9,664 79,682
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments -- (5,777)
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 36,543,586 34,238,309
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (34,792,247) (33,140,042)
- -----------------------------------------------------------------------------
Private Investment Class (1,741,675) (1,024,362)
- -----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Shares (69,673,016) (42,543,201)
- -----------------------------------------------------------------------------
Private Investment Class 42,918,457 2,402,025
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (26,744,895) (40,067,271)
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,004,111,157 1,044,178,428
- -----------------------------------------------------------------------------
End of period $ 977,366,262 $1,004,111,157
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Shares $ 896,906,132 $ 966,579,148
- -----------------------------------------------------------------------------
Private Investment Class 80,462,611 37,544,154
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (2,481) (12,145)
- -----------------------------------------------------------------------------
$ 977,366,262 $1,004,111,157
=============================================================================
</TABLE>
See Notes to Financial Statements.
A-43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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. Net realized capital gains (including net short-term capital
gains and market discounts), if any, are distributed annually.
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 $85,975 (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 expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable 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, 1998, AIM reduced its advisory fee from the Fund by
$683,910.
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, 1998, the Fund
reimbursed AIM $66,515 for such services.
A-44
<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, 1998, the Private Investment Class paid
$135,349 as compensation to FMC under the Plan. FMC waived fees of $135,349
during the same period.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agent and
shareholder services to the Fund. On September 20, 1997, the Board of Directors
of the Fund approved appointment of AFS as transfer agent of the Fund effective
December 29, 1997. During the year ended March 31, 1998, the Fund paid AFS
$25,471 for such services. Prior to effective date of the agreement with AFS,
the Fund paid A I M Institutional Fund Services, Inc. $74,497 pursuant to a
transfer agency and shareholder services agreement for the period April 1, 1997
through December 28, 1997.
During the year ended March 31, 1998, the Fund paid legal fees of $4,852 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, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 5,302,472,459 $5,302,472,459 4,746,443,085 $ 4,746,443,085
- ----------------------------------------------------------------------------------------
Private Investment
Class 484,657,926 484,657,926 204,111,511 204,111,511
- ----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 2,107,154 2,107,154 192,345 192,345
- ----------------------------------------------------------------------------------------
Private Investment
Class 1,514,378 1,514,378 860,021 860,021
- ----------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (5,374,252,629) (5,374,252,629) (4,789,178,631) (4,789,178,631)
- ----------------------------------------------------------------------------------------
Private Investment
Class (443,253,847) (443,253,847) (202,569,507) (202,569,507)
- ----------------------------------------------------------------------------------------
Net increase
(decrease) (26,754,559) $ (26,754,559) (40,141,176) $ (40,141,176)
========================================================================================
</TABLE>
A-45
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Institutional Shares
capital stock outstanding during each of the years in the five-year period
ended March 31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- ---------- ---------- ----------
<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 0.04 0.03 0.02
- ----------------------- -------- -------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income (0.03) (0.03) (0.04) (0.03) (0.02)
- ----------------------- -------- -------- ---------- ---------- ----------
Net asset value, end of
period $1.00 $1.00 $1.00 $1.00 $1.00
======================= ======== ======== ========== ========== ==========
Total return 3.55% 3.33% 3.67% 3.06% 2.33%
======================= ======== ======== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $896,904 $966,567 $1,009,039 $1,009,891 $1,040,595
======================= ======== ======== ========== ========== ==========
Ratio of expenses to
average net assets(a) 0.20%(b) 0.20% 0.20% 0.20% 0.20%
======================= ======== ======== ========== ========== ==========
Ratio of net investment
income to average net
assets(c) 3.49%(b) 3.27% 3.59% 3.01% 2.30%
======================= ======== ======== ========== ========== ==========
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.27%, 0.26%, 0.26%, 0.26% and 0.28% for the periods 1998-1994,
respectively.
(b) Ratios are based on average net assets of $998,079,371.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 3.42%, 3.21%, 3.53%, 2.95% and 2.22% for the periods
1998-1994, respectively.
A-46
<PAGE>
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
INVESTMENT ADVISOR PROSPECTUS
A I M ADVISORS, INC. JULY 24, 1998
11 Greenway Plaza, Suite 100 TAX-FREE
Houston, Texas 77046-1173 INVESTMENTS CO.
(713) 626-1919
DISTRIBUTOR
FUND MANAGEMENT COMPANY
INSTITUTIONAL CASH
11 Greenway Plaza, Suite 100
RESERVE SHARES
Houston, Texas 77046
11 GREENWAY PLAZA, SUITE 100
(800) 659-1005
HOUSTON, TEXAS 77046-1173
AUDITORS
KPMG PEAT MARWICK LLP
700 Louisiana
Houston, Texas 77002
<TABLE>
CUSTODIAN <CAPTION>
PAGE
THE BANK OF NEW YORK ----
<S> <C>
90 Washington Street, 11th Floor Organization of the Company......... 2
Table of Fees and Expenses.......... 2
New York, New York 10286 Financial Highlights................ 3
Suitability for Investors........... 4
Investment Program.................. 4
TRANSFER AGENT Purchase of Shares.................. 7
Redemption of Shares................ 7
A I M FUND SERVICES, INC. Determination of New Asset Value.... 8
Dividends........................... 8
P.O. Box 4333 Performance Information............. 8
Tax Matters......................... 9
Houston, Texas 77210-4333 Management of the Company........... 10
General Information................. 11
Appendix............................ A-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS 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 DISTRIBU-
TOR. 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 100
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 NOR HAS THE SECURITIES AND EXCHANGE
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 24, 1998 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 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................... 2
TABLE OF FEES AND EXPENSES.. 4
FINANCIAL HIGHLIGHTS........ 5
SUITABILITY FOR INVESTORS... 5
INVESTMENT PROGRAM.......... 5
PURCHASE OF SHARES.......... 9
REDEMPTION OF SHARES........ 11
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DIVIDENDS.................. 11
TAXES...................... 12
NET ASSET VALUE............ 13
YIELD INFORMATION.......... 14
REPORTS TO SHAREHOLDERS.... 14
MANAGEMENT OF THE COMPANY.. 14
GENERAL INFORMATION........ 18
</TABLE>
SUMMARY
THE COMPANY AND ITS INVESTMENT OBJECTIVE
The Company is an open-end, diversified, series management investment
company with one portfolio, the Cash Reserve Portfolio (the "Portfolio").
Pursuant to this Prospectus, the Company offers one class of shares of the
Portfolio, known as the Private Investment Class (the "Class"). Shares of such
Class represent an interest in the Portfolio. The investment objective of the
Portfolio is the generation of as high a level of tax-exempt income as is
consistent with preservation of capital and maintenance of liquidity by
investing in high quality, short-term municipal obligations. The Portfolio
attempts to maintain a constant net asset value of $1.00 per share. No
assurance can be given that such a net asset value can be maintained.
The Portfolio currently offers two classes of shares, the Institutional Cash
Reserve Shares and the Class. Shares of the Institutional Cash Reserve Shares
are offered pursuant to a separate prospectus.
Because the Company declares dividends on a daily basis, shares of each
class of the Portfolio are expected to have the same net asset value
(proportionate interest in the net assets of the Portfolio) and bear equally
the expenses, such as the advisory fee, of the Portfolio as a whole. Both
classes of the Portfolio share a common investment objective and portfolio of
investments. However, the classes have different shareholder qualifications,
and are separately allocated certain class expenses, such as those associated
with the distribution of their shares. Therefore, each class will have a
different dividend payment and a different yield.
INVESTORS IN THE COMPANY
The Class is designed to be a convenient vehicle in which customers of
banks, certain broker-dealers and other 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 12:30 p.m.
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 as of 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, 1998, 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,
1998, 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, aimfunds.com,
La Familia AIM de Fondos and La Familia AIM de Fondos and Design are
registered service marks and Invest With Discipline and AIM Bank Connection
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)
Management fees*............................................ 0.16%
12b-1 Fees*................................................. 0.25%
Other expenses*............................................. 0.04%
----
Total fund operating expenses*.............................. 0.45%
====
</TABLE>
- --------
* After fee waivers. Had there been no fee waivers and no expense
reimbursements during the fiscal year, Management fees, 12b-1 fees, Other
expenses and Total fund operating expenses would have been 0.23%, 0.50%,
0.04% and 0.77%. 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.
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.
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, 1998, 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>
1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment income.. 0.03 0.03 0.03 0.03 0.02 0.02
Less distributions:
Dividends from net
investment income..... (0.03) (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 $ 1.00
======= ======= ======= ======= ======= ======
Total return............ 3.29% 3.07% 3.41% 2.80% 2.07% 2.43%
======= ======= ======= ======= ======= ======
Ratios/supplemental da-
ta:
Net assets, end of
period (000s omitted). $80,462 $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% 0.45%
======= ======= ======= ======= ======= ======
Ratio of net investment
income to average net
assets(c)............. 3.24%(b) 3.02% 3.35% 2.89% 2.05% 2.22%
======= ======= ======= ======= ======= ======
</TABLE>
- --------
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.77%, 0.83%, 0.76%, 1.17%, 1.15% and 1.40% (annualized), respectively,
for the periods 1998-1993.
(b) Ratios are based on average net assets of $54,089,253.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 2.92%, 2.65%, 3.04%, 2.17%, 1.35% and 1.28%
(annualized), respectively, for the periods 1998-1993.
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 the 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.
5
<PAGE>
MUNICIPAL SECURITIES
"Municipal Securities" include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the lending of such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated facilities. As used in this Prospectus and its related
Statement of Additional Information, interest which is "tax-exempt" or "exempt
from federal income taxes" means interest on Municipal Securities which is
excluded from gross income for federal income tax purposes, and which does not
give rise to a federal alternative minimum tax liability. See "Tax Matters"
herein and in the Statement of Additional Information.
INVESTMENT POLICIES
Except where noted, the investment policies stated below are not fundamental
and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the following investment policies becomes effective. Policies which are
noted as fundamental may be changed only with the approval of a majority of
the Portfolio's outstanding shares.
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 debt 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, as well as securities issued by a registered
investment company that is a money market fund and U.S. government securities.
MATURITIES
The policies set forth below with respect to maturities are non-fundamental
and may be changed without shareholder approval.
Consistent with its objective of stability of principal, the Portfolio
attempts to maintain a constant net asset value per share of $1.00 and, to
this end, values its assets by the amortized cost method and rounds the per
share net asset value of its shares in compliance with Rule 2a-7, as amended
from time to time. Accordingly, the Portfolio invests only in Municipal
Securities having remaining maturities of 397 days or less and maintains a
dollar weighted average portfolio maturity of 90 days or less.
6
<PAGE>
The maturity of a security held by the Portfolio is determined in compliance
with applicable rules and regulations. Certain securities bearing interest at
rates that are adjusted prior to the stated maturity of the instrument or are
subject to demand features or that are subject to repurchase agreements are
deemed to have maturities shorter than their stated maturities.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Portfolio may invest in Municipal Securities which have variable or
floating interest rates which are readjusted on set dates (such as the last
day of the month or calendar quarter) in the case of variable rates or
whenever a specified interest rate change occurs in the case of a floating
rate instrument. 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 because, upon readjustment, such rates approximate market
rates. 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 their
certificates at stated times and prices (a demand feature). Typically,
7
<PAGE>
a certificate holder cannot exercise the demand feature 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 demand
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 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) purchase the securities of any issuer if, as a result, the Portfolio
would fail to be a diversified company within the meaning of the 1940 Act,
the rules and regulations promulgated thereunder, as such statute, rules
and regulations are amended from time to time; provided, however, that the
Portfolio may purchase securities of other investment companies to the
extent permitted by the 1940 Act and the rules and regulations promulgated
thereunder (as such statute, rules and regulations are amended from time to
time) or to the extent permitted by exemptive order or other similar
relief; or
(2) concentrate 25% or more of its total assets in the securities of
issuers in a particular industry; provided, however, that securities issued
or guaranteed by banks or subject to financial guaranty insurance are not
subject to this limitation; and provided further, that securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities and
tax-exempt securities issued by state and local governments and their
political subdivisions, are not included within this restriction.
The foregoing restrictions are matters of fundamental policy and may not be
changed without shareholder approval. A description of further investment
restrictions applicable to the Portfolio that may not be changed without
shareholder approval is contained in the Statement of Additional Information.
In pursuit of its objectives, the Portfolio will also adhere to the
following non-fundamental investment policies, which may be altered by the
Portfolio's Board of Directors without approval of holders of the Portfolio's
voting securities:
(1) the Portfolio will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements with
remaining maturities in excess of seven days;
(2) the Portfolio does not intend to purchase securities of an issuer if,
after giving effect to such purchase, 25% or more of the value of the
Portfolio's total assets would be invested in securities of one or more
issuers conducting their principal activities in the same state. The
Portfolio may invest 25% or more of its total assets in industrial
development bonds; and
(3) the Portfolio does not intend to purchase securities of an issuer if,
after giving effect to such purchase, 25% or more of the value of the
Portfolio's total assets would be invested in securities the interest on
which is paid from revenues of projects with similar characteristics. This
policy applies to industrial
8
<PAGE>
development bonds as well as other tax-exempt securities. This policy shall
not apply, however, in the event such securities are subject to a
guarantee. With respect to securities that are subject to a guarantee, the
Portfolio does not intend to purchase any such security if, after giving
effect to such purchase, 25% or more of its total assets would be invested
in securities issued or guaranteed by entities in a particular industry.
Securities issued or guaranteed by a bank or subject to financial guaranty
insurance are not subject to this policy.
OTHER CONSIDERATIONS
The ability of the Portfolio to achieve its investment objectives depends
upon the continuing ability of the issuers or guarantors of Municipal
Securities held by the Portfolio to meet their obligations for the payment of
interest and principal when due. The securities in which the Portfolio invests
may not yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and greater fluctuation in
value. The net asset value of the shares of the Class will normally remain
constant at $1.00 per share (although there can be no assurance that such net
asset value will not change).
PURCHASE OF SHARES
The Company sells shares of the Class on a continuous basis at the net asset
value of the shares next determined after the Company receives an order. The
Company determines the net asset value of the Portfolio twice each Business
Day at 12:30 and 3:00 p.m. Eastern time. A "Business Day" is any day on which
member banks of the New York Federal Reserve are open for business. It is
expected that these banks will be closed during the next twelve months on
Saturdays and Sundays and on New Year's Day, Martin Luther King, Jr. Day,
President's Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day. The Company may change the
time it determines the net asset value of the Portfolio and therefore the time
for which purchase orders for shares of the Institutional Class must be
submitted to and received by AFS for execution on the same day, on any
Business Day when the U.S. primary broker-dealer community is closed for
business or trading is restricted due to national holidays.
Shareholders should submit purchase orders to the Company's transfer agent,
A I M Fund Services, Inc. ("AFS"). A purchase order is considered received (i)
at the time the Bank of New York, the Portfolio's custodian bank, receives
federal funds for the order, provided the Transfer Agent has received notice
of the order, or (ii) at the time the Transfer Agent receives the order,
provided the Company is assured of prompt payment. Prior to the initial
purchase of shares of the Class, a shareholder must complete and send an
Account Application to AFS at P.O. Box 4333, Houston, Texas 77210-4333. An
investor must open a Company account through an Institution in accordance with
procedures established by such Institution. An investor may make changes to
the information provided in the Account Application by submitting such changes
in writing to AFS or by completing and submitting to AFS a new Account
Application.
The minimum initial investment for the purchase of shares of the Class is
$10,000. There is no minimum for any subsequent investments. A shareholder may
make subsequent investments via AIM LINK --Registered Trademark-- Remote, a
personal computer application software product.
The Company sells shares of the Class without any sales charge. Banks or
other institutions, however, may charge record keeping, account maintenance or
other fees to their customers. Beneficial owners of the Class should consult
with such institutions to obtain a schedule of such fees.
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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.
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.
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
AFS.
The Company reserves the right to reject any purchase order and to withdraw
all or any part of the offering made by this Prospectus. The Company will
promptly return to an investor any funds it receives with respect to an order
that the Company has not accepted or has not received.
Any request for correction to a transaction of Portfolio shares must be
submitted in writing to the Transfer Agent. The Transfer Agent reserves the
right to reject any such request. When a correction results in a dividend
adjustment, the Institution must agree in writing to reimburse the Portfolio
for any loss resulting from the correction. Failure to deliver purchase
proceeds on the requested settlement date may result in a claim against the
institution for an amount equal to the overdraft charge incurred by the
Portfolio.
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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 AFS receives a
redemption request on a Business Day prior to the 12:30 p.m. Eastern time net
asset value determination, the redemption will be effected at the net asset
value of the Portfolio determined as of 12:30 p.m. Eastern time and the
Company will normally wire redemption proceeds on that day. A redemption
request received by AFS between 12:30 p.m. Eastern time and 3:00 p.m. Eastern
time will be effected at the net asset value of the Portfolio determined as of
3:00 p.m. Eastern time and proceeds will normally be wired on the next
Business Day. If proceeds are not wired on the same day, shareholders will
accrue dividends until the day the proceeds are wired. If AFS receives a
redemption request on a Business Day after 3:00 p.m. Eastern time, the
redemption will be effected at the net asset value of the Portfolio determined
as of 12:30 p.m. Eastern time on the next Business Day of such Portfolio, and
the Company will normally wire redemption proceeds on such next Business Day.
The Company may change the time it determines net asset value of the Class
under the circumstances described above in "Purchase of Shares." Any such
change may affect the processing of redemption requests.
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 AFS.
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.
Any request for correction to a redemption transaction of Portfolio shares
must be submitted in writing to the Transfer Agent as described above in
"Purchase of Shares."
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DIVIDENDS
The Company declares a dividend from net investment income (not including
any net short-term capital gains) earned by the Portfolio on each Business Day
of the Company. Dividends are paid to settled shareholders of the Company as
of 3:00 p.m. Eastern time on such Business Day. Shareholders whose purchase
orders have been received by the Company prior to 3:00 p.m. Eastern time and
shareholders whose redemption proceeds have not been wired to them on any
Business Day are settled and eligible to receive dividends on that Business
Day. The dividend declared on any day preceding on a non-Business 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 expect to
realize any long-term capital gains and losses. Dividends and distributions
are paid in cash unless the shareholder has elected to have such dividends and
distributions reinvested in the form of additional full and fractional shares
at the net asset value thereof. Such election, or any revocation thereof, must
be made in writing and sent by the Institution to AFS at P.O. Box 4333,
Houston, Texas 77210-4333. Such election or revocation will be effective with
dividends paid after it is received by AFS.
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. 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.
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.
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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.
Foreign persons who file a United States tax return 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 AFS.
NET ASSET VALUE
The Company determines the net asset value of its shares as of 12:30 p.m.
and 3:00 p.m. Eastern time on each Business Day. Net asset value 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.
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Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the United States Securities and Exchange
Commission (the "SEC") applicable to money market funds. This method values a
security at its cost on the date of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if the security were sold. During such periods, the
daily yield on shares of the Portfolio computed as described in "Purchases and
Redemptions--Yield Information" in the Statement of Additional Information may
differ somewhat from an identical computation made by an investment company
with identical investments utilizing available indications as to market value
to value its portfolio securities.
YIELD INFORMATION
Yield information for the shares of the Class can be obtained by calling the
Company at (800) 877-7748. Yields will vary from time to time and past results
are not necessarily indicative of future results. Accordingly, the yield
information for the shares of the Class may not provide a basis for comparison
with investments which pay fixed rates of interest for a stated period of
time, with other investments or with investment companies which use a
different method of calculating performance. Yield is a function of the type
and quality of a Portfolio's investments, a Portfolio's maturity and the
operating expense ratio of the Classes and a Portfolio. A SHAREHOLDER'S
INVESTMENT IN THE PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR BY ANY INSTITUTION. THESE FACTORS SHOULD BE CAREFULLY CONSIDERED
BY THE INVESTOR BEFORE MAKING AN INVESTMENT IN THE PORTFOLIO.
Comparative performance information using data from the industry
publications may be used from time to time in advertising or marketing the
shares of the Class.
The yield of the Class calculated as described below, will fluctuate from
day to day. Calculations of yield will take into account the total income
received by the Portfolio, including taxable income, if any; however, the
Portfolio intends to invest its assets so that one hundred percent (100%) of
its annual interest income will be tax-exempt. To the extent that different
classes of shares bear different expenses, the yield of such classes can be
expected to vary. To the extent that Institutions charge fees in connection
with services provided in conjunction with the Portfolio, the yield will be
lower for those beneficial owners paying such fees.
From time to time and in its discretion, AIM or its subsidiaries 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, 1998, the current and effective yield for the
Class were 3.27% and 3.32%, respectively.
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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, 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. AMVESCAP PLC and its subsidiaries are
an independent investment management group engaged in institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Information concerning the Board of Directors may be found
in the Statement of Additional Information.
For a discussion of AIM Management and its subsidiaries' Year 2000
Compliance Project, see "General Information--Year 2000 Compliance Project."
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-
1173, serves 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 over 50 investment company portfolios encompassing a broad range of
investment objectives. Pursuant to the terms of the Agreement, AIM manages the
investment of the Portfolio's assets. AIM obtains and evaluates economic,
statistical and financial information to formulate and implement investment
programs for the Portfolio. AIM shall not be liable to the Company or to its
shareholders except in the case of AIM's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty; provided, however, that AIM may be
liable for certain breaches of duty under the 1940 Act. Certain of the
directors and officers of AIM are also directors or executive officers of the
Company.
Pursuant to the Agreement, AIM is paid a fee from the Company with respect
to the Portfolio calculated at the annual rate of 0.25% of the first $500
million of the Portfolio's average daily net assets plus 0.20% of such
Portfolio's average daily net assets in excess of $500 million.
For the fiscal year ended March 31, 1998, 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
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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, 1998, 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 0.23% of the
Portfolio's average daily net assets. AIM also reimbursed the Company for
expenses of $135,349 with respect to the Class for the year ended March 31,
1998.
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 Class during a specific period of time. In some
instances, these incentives may be offered only to certain Institutions who
have sold or may sell significant amounts of shares. The total amount of such
additional bonus payments or other consideration shall not exceed 0.05% of the
net asset value of the shares sold. Any such bonus or incentive programs will
not change the price paid by investors for the purchase of shares in the Class
or the amount received as proceeds from such sales. Sales of shares of the
Class may not be used to qualify for any incentives to the extent that such
incentives may be prohibited by the laws of any jurisdiction.
DISTRIBUTION PLAN
The Company has adopted the Plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Class. The Plan provides that the Company may incur
expenses in connection with the distribution of the shares of the Class of up
to 0.50% on an annualized basis of the average daily net assets of the shares
of the Class. Such amounts may be expended when and if authorized by the Board
of Directors and may be used to finance such distribution-related services as
expenses of organizing and conducting sales seminars, printing of prospectuses
and statements of additional information (and supplements thereto) and reports
for other than existing shareholders, preparation and distribution of
advertising material and sales literature, costs of administering the Plan and
payment of service fees to certain Institutions. The Plan provides for payment
of a service fee to Institutions that provide continuing personal shareholder
services to their customers who purchase and own shares of the Class, in
amounts of up to 0.25% of the average net assets of the Class attributable to
the Institutions. Payments to Institutions in excess of such amount and
payments to FMC would be characterized as an asset-based sales charge pursuant
to the Plan. The Plan also imposes a cap on the total amount of sales charges,
including asset-based sales charges, that may be paid by the Portfolio with
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.
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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,
1998. 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, 1998, the Board of Directors, including the Qualified Directors, voted to
continue the Plan until June 30, 1999.
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
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. In the event the Portfolio
purchases securities traded over-the-counter, the Portfolio deals directly
with dealers who make markets in the securities involved, except when better
prices are available elsewhere. Portfolio transactions placed through dealers
who are primary market makers are effected at net prices without commissions,
but which include compensation in the form of a mark up or mark down. The
Portfolio may also purchase securities from underwriters at prices which
include a concession paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the
extent that the execution and prices offered by more than one dealer are
comparable, AIM may, in its discretion, effect transactions with dealers that
furnish statistical, research or other information or services which are
deemed by AIM to be beneficial to the Portfolio's 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.
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FEE WAIVERS
In order to increase the yield to investors, AIM or its subsidiaries 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 Class
(excluding interest, taxes, brokerage commissions, directors' fees,
extraordinary expenses and federal registration fees) paid or incurred by the
Class does not exceed 0.20% of the Class' 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, 1998, AIM
reduced its fees from the Portfolio by $683,910. AIM also assumed expenses of
$135,349 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 May 1, 1998, NationsBank of Texas, N.A., was the owner of record of
29.41% of the outstanding shares of the Portfolio, and, therefore could be
deemed to "control" the Portfolio, as the term is defined in the 1940 Act.
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TRANSFER AGENT AND CUSTODIAN
A I M 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, LLP, 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.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Portfolio, AIM Management and its subsidiaries
rely on both internal software systems as well as external software systems
provided by third parties. Many software systems in use today are unable to
distinguish between the year 2000 and the year 1900. This defect if not cured
will likely adversely affect the services that AIM Management, its
subsidiaries and other service providers provide the Portfolio and its
shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases,
namely (i) inventorying every software application in use at AIM Management
and its subsidiaries, as well as remote, third party software systems on which
AIM Management and its subsidiaries rely, (ii) identifying those applications
that may not function properly after December 31, 1999, and (iii) correcting
and subsequently testing those applications that may not function properly
after December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter
of 1998. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm Year 2000
compliance upon installation.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know
about the Company prior to investing. A Statement of Additional Information
has been filed with the SEC. Copies of the Statement of Additional Information
are available upon request and without charge by writing or calling the
Company or FMC. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration
statement, including items omitted herein, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
19
<PAGE>
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100 TAX-FREE
Houston, Texas 77046-1173 INVESTMENTS CO.
(713) 626-1919 (TFIC)
DISTRIBUTOR PRIVATE
FUND MANAGEMENT COMPANY INVESTMENT CLASS
11 Greenway Plaza, Suite 100 OF THE
Houston, Texas 77046-1173 -------------------------------------
(800) 877-7748 CASH RESERVE PROSPECTUS
PORTFOLIO
AUDITORS
KPMG PEAT MARWICK LLP
700 Louisiana JULY 24, 1998
Houston, Texas 77002
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT
A I M 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.
[LOGO]
FUND MANAGEMENT COMPANY
<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 24, 1998
RELATING TO THE PROSPECTUS DATED: JULY 24, 1998
<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 12
Sub-Accounting 12
Principal Holders of Securities 12
SHARE PURCHASES AND REDEMPTIONS 14
Purchases and Redemptions 14
Net Asset Value Determination 14
The Distribution Agreement 15
Distribution Plan 16
PERFORMANCE INFORMATION 18
INVESTMENT PROGRAM AND RESTRICTIONS 18
Investment Program 18
Municipal Securities 20
Diversification Requirements 20
Investment Ratings 21
When-Issued Securities and Delayed Delivery Transactions 26
Variable or Floating Rate Instruments 26
Synthetic Municipal Instruments 27
Investment Restrictions 27
PORTFOLIO TRANSACTIONS 28
General Brokerage Policy 28
Allocation of Portfolio Transactions 29
Section 28(e) Standards 30
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS 31
Dividends and Distributions 31
Tax Matters 32
Qualification as a Regulated Investment Company 32
Excise Tax on Regulated Investment Companies 33
Distributions 33
Foreign Shareholders 35
Effect of Future Legislation; Local Tax Considerations 35
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 24, 1998.
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, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such
1
<PAGE>
classification or reclassification will comply with the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Articles of Incorporation permit the directors to issue 6,000,000,000
shares of common stock at $.001 par value. A share of the Portfolio represents
an equal proportionate interest in the Portfolio with each other share of the
Portfolio and is entitled to a proportionate interest in the dividends and
distributions with respect to its class. Additional information concerning the
rights of share ownership is set forth in the Prospectus.
The assets received by the Company for the issue or sale of shares of each
class relating to a Portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, constitute the
underlying assets of that Portfolio. The underlying assets of the Portfolio are
segregated and are charged with the expenses with respect to the Portfolio. See
"Expenses."
The Articles of Incorporation further provide that the directors will not
be liable for errors of judgment or mistakes of fact or law. However, nothing
in the Articles of Incorporation protects a director against any liability to
which a director would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. The Articles of Incorporation provide for
indemnification by the Company of the directors and the officers of the Company
except with respect to any matter as to which any such person did not act in
good faith and in the reasonable belief that his action was in or not opposed to
the best interests of the Company. Such person may not be indemnified against
any liability to the Company or the Company's shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. The Articles of Incorporation also authorize the purchase of liability
insurance on behalf of the Company's directors and officers.
As described in the Prospectus, the Company will not normally hold annual
shareholders' meetings. A special meeting shall be held upon written request of
the holders of not less than 10% of the outstanding shares of the Company. At
such time as less than a majority of the directors have been elected by the
shareholders, the directors then in office will call a shareholders' meeting for
the election of directors. In addition, directors may be removed from office by
a written consent signed by the holders of two-thirds of the outstanding shares
of the Company and filed with the Company's transfer agent or by a vote of the
holders of two-thirds of the outstanding shares at a meeting duly called for the
purpose. Upon written request by ten or more shareholders, who have been such
for at least six months and who hold shares constituting 1% of the outstanding
shares, stating that such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures necessary to demand a
meeting to consider removal of a director, the Company has undertaken to provide
a list of shareholders or to disseminate appropriate materials (at the expense
of the requesting shareholders).
Except as otherwise disclosed in the Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
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 (79) Director and Chairman of the Board of Directors, A I M Management
Chairman Group Inc.; A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M Fund
Services, Inc. and Fund Management Company; and Vice
Chairman and Director, AMVESCAP PLC.
BRUCE L. CROCKETT (54) Director Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer,
McLean, VA 22102 COMSAT Corporation and Chairman, Board of
Governors of INTELSAT (international communications
company).
OWEN DALY II (73) Director Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental Life
Baltimore, MD 21210 Insurance Company and Monumental General Insurance
Company; and Chairman of the Board of Equitable
Bancorporation.
EDWARD K. DUNN, JR. (62) Director Chairman of the Board of Directors, Mercantile Mortgage
P. O. Box 1477 Corp.; and Director, AEGON USA (insurance company).
Baltimore, MD 21203 Formerly, Vice Chairman of the Board of Directors and
President, Mercantile - Safe Deposit & Trust Co.; and
President, Mercantile Bankshares.
JACK FIELDS (46) Director Chief Executive Officer, Texana Global, Inc. (foreign
8810 Will Clayton Pkwy. trading company). Formerly, Member of the U.S. House
Jetero Plaza, Suite E of Representatives.
Humble, Texas 77338
**CARL FRISCHLING (61) Director Partner, Kramer, Levin, Naftalis & Frankel (law firm).
919 Third Avenue Director, ERD Waste, Inc. (waste management company),
New York, NY 10022 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).
</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>
*ROBERT H. GRAHAM (51) Director and Director, President and Chief Executive Officer, A I M
President 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. and Fund Management
Company; and Director, AMVESCAP PLC.
JOHN F. KROEGER (73) Director Director, Flag Investors International Fund, Inc., Flag
37 Pippins Way Investors Emerging Growth Fund, Inc., Flag Investors
Morristown, NJ 07960 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 (55) Director Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
IAN W. ROBINSON (75) Director Formerly, Executive Vice President and Chief Financial
183 River Drive Officer, Bell Atlantic Management Services, Inc.
Tequesta, FL 33469 (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 (58) Director Executive Vice President, Development and Operations,
Transco Tower, 50th Floor Hines Interests Limited Partnership (real
2800 Post Oak Blvd. estate development).
Houston, TX 77056
</TABLE>
- ----------------------
* A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
4
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- --------------- ----------------------------------------
<S> <C> <C>
***JOHN J. ARTHUR (53) Senior Vice Senior Vice President, Treasurer and Director, A I M
President and Advisors, Inc.; Vice President and Treasurer, A I M
Treasurer Management Group Inc., A I M Capital Management,
Inc., A I M Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company.
GARY T. CRUM (50) Senior Vice Director and President, A I M Capital Management, Inc.;
President 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 (43) Senior Vice Senior Vice President, General Counsel, Secretary, and
President Director, A I M Advisors, Inc.; Vice President, General
and Secretary Counsel and Secretary, A I M Management Group Inc.;
Vice President, General Counsel and Director, Fund
Management Company; Vice President, A I M Capital
Management, Inc. and A I M Distributors, Inc.; and Vice
President and General Counsel, A I M Fund Services, Inc.
DANA R. SUTTON (39) Vice President Vice President and Fund Controller, A I M Advisors, Inc.;
and Assistant and Assistant Vice President and Assistant Treasurer,
Treasurer Fund Management Company.
STUART W. COCO (43) Vice President Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and Fund
Management Company.
KAREN DUNN KELLEY (38) Vice President Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
J. ABBOTT SPRAGUE (43) Vice President Director, Fund Management Company; Senior Vice
President, A I M Advisors, 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, Dunn,
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
- ----------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
5
<PAGE>
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.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Dunn, 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, Dunn, 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 $1,639 $ 67,774 $ 84,000
Owen Daly II $1,639 $103,542 $ 84,000
Edward K. Dunn, Jr.(4) $ 110 -0- -0-
Jack Fields $1,628 -0- $ 71,000
Carl Frischling $1,639 $ 96,520 $ 84,000(5)
Robert H. Graham -0- -0- -0-
John F. Kroeger $1,586 $ 94,132 $ 82,500
Lewis F. Pennock $1,639 $ 55,777 $ 84,000
Ian W. Robinson $1,639 $ 85,912 $ 84,000
Louis S. Sklar $1,639 $ 84,370 $ 83,500
</TABLE>
- ----------------------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended March 31, 1998, including interest earned
thereon, was $9,056.
(2) During the fiscal year ended March 31, 1998, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$6,544. Data reflect compensation for the calendar year ended December 31,
1997.
(3) Each Director serves as a director or trustee of a total of 12 registered
investment companies advised by AIM (comprised of over 50 portfolios).
Data reflects total compensation for the calendar year ended December 31,
1997.
(4) Mr. Dunn did not serve as a Director during the calendar year ended
December 31, 1997.
(5) The Fund paid the law firm of Kramer, Levin, Naftalis & Frankel $4,852 in
legal fees for services provided to the Fund during the fiscal year ended
March 31, 1998. Mr. Frischling, a director of the Company, is a partner in
such 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
7
<PAGE>
investment companies managed, administered or distributed by AIM or its
affiliates (the "Applicable AIM Funds"). Each eligible director is entitled to
receive an annual benefit from the AIM Funds commencing on the first day of the
calendar quarter coincident with or following his date of retirement equal to
75% of the retainer paid or accrued by the Applicable AIM Funds for such
director during the twelve-month period immediately preceding the director's
retirement (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, 1998, for Messrs. Crockett, Daly, Dunn, Fields, Frischling,
Kroeger, Pennock, Robinson and Sklar are 10, 11, 0, 1, 20, 20, 16, 10 and 8
years, respectively.
ESTIMATED BENEFITS
UPON RETIREMENT
Annual Retainer Paid By
All AIM Funds
$80,000
---------
Number of
Years of 10 $60,000
Service with
the 9 $54,000
AIM Funds
8 $48,000
7 $42,000
6 $36,000
5 $30,000
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
8
<PAGE>
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.
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 over 50 investment company portfolios encompassing a broad range of
investment objectives.
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company that has been engaged in the financial services
business since 1976. AIM 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. AMVESCAP
PLC and its subsidiaries are an independent investment management group engaged
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
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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.
Pursuant to the terms of the Advisory Agreement, AIM: (a) supervises and
manages all aspects of the Company's operations; (b) provides the Company with
certain executive, administrative and clerical services as deemed advisable by
the Board of Directors; (c) provides the Company with, or obtains for the
Company, adequate office space and all necessary equipment and services,
including telephone services, utilities, stationery supplies and similar items
for the Company's principal office; (d) arranges, but does not pay for, the
periodic updating of prospectuses and statements of additional information (and
supplements thereto), proxy materials, tax returns, reports to the Company's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities; (e) provides the Company's Board of Directors on a regular basis
with financial reports and analyses of the Company's operations and the
operation of comparable funds; (f) obtains and evaluates pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Company and whether concerning the individual issuers whose securities are
included in the Company's Portfolio; (g) determines which issuers and securities
shall be represented in the Portfolio and regularly reports thereon to the Board
of Directors; (h) formulates and implements continuing programs for purchases
and sales of securities for the Portfolio; and (i) takes, on behalf of the
Company, all actions which appear to the Company to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
AIM will at all times be subject to the policies and control of the Board of
Directors. AIM shall not be liable to the Company or its shareholders for any
act or omission by AIM or for any loss sustained by the Company or its
shareholders, except in the case of AIM's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty; provided, however, that AIM may be
liable for certain breaches of duty under the 1940 Act.
As compensation for its advisory services under the Advisory Agreement, AIM
receives a fee from the Company with respect to the Portfolio, calculated daily
and paid monthly, at the annual rate of 0.25% of the first $500 million of the
Portfolio's aggregate average daily net assets, plus 0.20% of the Portfolio's
aggregate average daily net assets in excess of $500 million. For the fiscal
years ended March 31, 1998, 1997 and 1996, the fees paid by the Company to AIM
with respect to the Portfolio were $1,670,427, $1,720,635 and $1,819,232,
respectively (after giving effect to fee waivers for the fiscal years ended
March 31, 1998, 1997 and 1996 of $683,910, $625,513 and $690,397,
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
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sale of portfolio securities for the Company. FMC bears the expenses of printing
and distributing prospectuses and statements of additional information (other
than those prospectuses and statements of additional information distributed to
existing shareholders) and any other promotional or sales literature used by FMC
or furnished by FMC to purchasers or dealers in connection with the public
offering of the shares of the Class.
The Company pays, or causes to be paid, all other expenses of the Company,
including, without limitation, the fees paid to AIM; the charges and expenses of
any registrar, any custodian or depository appointed by the Company for the
safekeeping of cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents; brokers' commissions in connection with
portfolio securities transactions of the Company; all taxes, including
securities issuance and transfer taxes, and fees payable to federal, state or
other governmental agencies; the costs and expenses of engraving or printing
share certificates; all costs and expenses in connection with registration and
maintenance of registration with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
proxy statements, reports to shareholders, prospectuses and statements of
additional information of the Company and supplements thereto (except reports to
shareholders and prospectuses distributed to potential shareholders of the
Company which are paid for by FMC); expenses of shareholders' and directors'
meetings; fees and travel expenses of directors or director members of any
advisory board or committee; expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside pricing service; fees and expenses of legal counsel
and of independent accountants; membership dues of industry associations;
interest payable on borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Company; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Company's operations unless otherwise explicitly assumed by AIM
or FMC.
The Company may also reimburse AIM for the costs of a principal financial
officer and related personnel who may perform internal accounting functions for
the Company. Such accounting functions consist primarily of regulatory, tax,
shareholder and internal management reporting and calculation of the Portfolio's
net asset value and the daily dividend for its two classes. The method of
calculating such reimbursements must be approved annually, and the amounts paid
will be reviewed periodically by the Board of Directors. For the fiscal years
ended March 31, 1998, 1997 and 1996, AIM was reimbursed $66,515, $70,077 and
$75,960, respectively, by the Portfolio with respect to the Institutional Cash
Reserve Shares.
Expenses of the Company except those stated below are pro-rated among the
classes of the Company based upon the relative net assets of each class.
Distribution expenses of a class are charged against the income available for
distribution as dividends to such class.
TRANSFER AGENT AND CUSTODIAN
A I M Fund Services, Inc. ("AFS") 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 0.009% of average
daily net assets of the Company, payable monthly. Such compensation may be
changed from time to time as is agreed to by AFS. The address of AFS is A I M
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
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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,
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 AFS 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.
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 May 1, 1998, and the amount of outstanding shares held of
record by such holders are set forth below:
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
---------------- -------------
NationsBank of Texas, N.A. 31.61%*
1401 Elm Street, 11th Floor
P.O. Box 831000
Dallas, TX 75283-1000
- -------------------
* The Company has no knowledge as to whether all or any portfolio of the
shares owned of record are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of the
Portfolio may be presumed to be in "control" of the Portfolio as defined in
the 1940 Act.
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NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
---------------- -------------
Frost National Bank 11.40%
P.O. Box 2358
San Antonio, TX 78299
SunTrust Bank 10.95%
P.O. Box 105504
Atlanta, GA 30308
Chase Bank of Texas 10.05%
Attn: STIF UNIT
18 HCB 340
P.O. Box 2558
Houston, TX 77252-8098
U.S. Banks 7.18%
First Trust/Var & Co.
Funds Control Suite 0404
180 East Fifth Street
St. Paul, MN 55101
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 May 1, 1998 , and the amount of outstanding shares held of record by such
holders are set forth below:
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD*
---------------- -------------
The Bank of New York 36.74%
4 Fisher Lane
White Plains, NY 10603
Cullen/Frost Discount Brokers 36.03%
P.O. Box 2358
San Antonio, TX 78299
Oppenheimer & Co., Inc. 5.13%
Oppenheimer Tower
World Financial Center
New York, NY 10281
- -------------------
* The Company has no knowledge as to whether all or any Portfolio of the
shares owned of record are owned beneficially.
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As of May 1, 1998 , the directors and officers of the Company beneficially
owned less than 1% of each class of shares of the Company.
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which the shares may be purchased,
redeemed or exchanged appears in the Prospectus under the heading "Purchase of
Shares."
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of the Company not reasonably practicable.
A "Business Day" of the Company is any day on which member banks of the New
York Federal Reserve 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 twice daily
as of the times 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
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<PAGE>
conditions. The Portfolio will invest only in "Eligible Securities," as defined
in Rule 2a-7 of the 1940 Act, which the Board of Directors has determined
present minimal credit risks. Rule 2a-7 also requires, among other things, that
the Portfolio maintain a dollar-weighted portfolio maturity of 90 days or less
and purchase only U.S. dollar-denominated instruments having remaining
maturities of 397 calendar days or less.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share at
$1.00 as computed for the purpose of sales and redemptions. Such procedures
include review of the portfolio holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for
the Portfolio deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to purchasers or existing
holders of any class of shares of the Portfolio. In the event the Board of
Directors determines that such a deviation exists for any class of shares of the
Portfolio, it will take such corrective action as the Board of Directors deems
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average portfolio
maturity; the withholding of dividends; the redemption of shares in kind; or the
establishment of a net asset value per share by using available market
quotations.
THE DISTRIBUTION AGREEMENT
The Company has entered into a distribution agreement dated as of 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, 1999 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
15
<PAGE>
have sold or may sell significant amounts of shares. The total amount of such
additional bonus or payments or other consideration shall not exceed 0.05% of
the net asset value of the shares of the class sold. Any such bonus or incentive
programs will not change the price paid by investors for the purpose of shares
or the amount received as proceeds from such sales. Dealers or institutions may
not use sales of the shares to qualify for any incentives to the extent that
such incentives may be prohibited by the laws of any jurisdiction.
DISTRIBUTION PLAN
The Company has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act with respect to the Class. The Plan applicable to the
Portfolio provides that the Class may pay up to 0.50% per annum of the average
daily net assets of the Portfolio as follows: (1) to FMC, as an asset-based
sales charge, (2) as a service fee to certain banks ("Service Providers") who
offer continuing personal shareholder services to their customers who invest in
the shares of the class, and who have entered into Shareholder Service
Agreements, and (3) as a service fee to certain broker-dealers and other
financial institutions ("Institutions") who offer continuing personal
shareholder services to their customers who invest in the shares of the class,
and who have entered into Shareholder Service Agreements.
Pursuant to the Plan, the Company may enter into Shareholder Service
Agreements ("Service Agreements") with selected broker-dealers, banks, other
financial institutions or their affiliates. Such firms may receive from the
Portfolio compensation for servicing investors as beneficial owners of shares of
the Class. These services may include among other things: (i) answering
customer inquiries regarding the shares and the Portfolio; (ii) assisting
customers in changing dividend options, account designations and addresses;
(iii) performing sub-accounting; (iv) establishing and maintaining shareholder
accounts and records; (v) processing purchase and redemption transactions; (vi)
automatic investment in shares of the class of customer cash account balances;
(vii) providing periodic statements showing a customer's account balance and
integrating such statements with those of other transactions and balances in the
customer's other accounts serviced by such firm; (viii) arranging for bank
wires; and (ix) such other services as the Company may request on behalf of the
shares of the class, to the extent such firms are permitted to engage in such
services by applicable statute, rule or regulation.
The Plan may only be used for the purposes specified above and as stated in
the Plan. Expenses may not be carried over from year to year.
The Plan requires the officers of the Company to provide the Board of
Directors at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
The Board of Directors shall review these reports in connection with their
decisions with respect to the Plan.
For the fiscal year ended March 31, 1998, $135,349 (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, 1998, 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
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<PAGE>
of the Plan or in any agreements related to the Plan ("Qualified Directors") on
May 13, 1998. 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, 1999. 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.
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.
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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 and income other than investment income) 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, 1998, the current and effective
yield for the Class were 3.27% and 3.32%, respectively. Assuming a tax rate of
39.6% these yields for the Class on a tax-equivalent basis were 5.41% and 5.50%,
respectively.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Portfolio's investment objective and fundamental
and operating policies is set forth in the Prospectus. The principal features
of the Portfolio's investment program and the primary risks associated with that
investment program are also discussed in the Prospectus. There can be no
assurance that the Portfolio will achieve its objective. The values of the
securities in which the Portfolio invests fluctuate based upon interest rates,
the financial stability of the issuer and market factors. The following is a
more detailed description of the portfolio instruments eligible for purchase
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<PAGE>
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
securities to U.S. dollar-denominated securities which are "First Tier"
securities, as such term is defined from time to time in Rule 2a-7 under the
1940 Act. A First Tier Security is generally a security that: (i) has received
a short-term rating, or is subject to a guarantee that has received a short-term
rating, or, in either case, is issued by an issuer with a short-term rating from
the Requisite NRSROs in the highest short-term rating category for debt
obligations; (ii) is an unrated security that the Portfolio's investment adviser
has determined is of comparable quality to a rated security described in (i);
(iii) is a security issued by a registered investment company that is a money
market fund; or (iv) is a Government Security. The term "Requisite NRSROs"
means (a) any two nationally recognized statistical rating organizations that
have issued a rating with respect to a security or class of debt obligations of
an issuer, or (b) if only one NRSRO has issued a rating with respect to such
security or issuer at the time the Portfolio acquires the security, that NRSRO.
At present, the NRSROs are: Standard & Poor's Corp., Moody's Investors Services,
Inc., Thomson Bankwatch, One, Duff and Phelps, Inc., Fitch Investors Services,
Inc. and, with regard to certain types of securities, IBCA Ltd and its
subsidiary, IBCA, Inc. Subcategories or gradations in ratings (such as "+" or
"-") do not count as rating categories.
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.
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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 such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the size and purpose of such issues. Such obligations are
considered to be Municipal Securities provided that the interest paid thereon,
in the opinion of bond counsel, qualifies as exempt from federal income tax.
However, interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. See "Dividends, Distributions and Tax Matters - Tax Matters" in
this Statement of Additional Information.
The two major classifications of Municipal Securities are bonds and notes.
Bonds may be further categorized as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments. Most notes are general obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. There are, of course,
variations in the risks associated with Municipal Securities, both within a
particular classification and between classifications. The Portfolio's assets
may consist of any combination of general obligation bonds, revenue bonds,
industrial revenue bonds and notes. The percentage of such Municipal Securities
in the Portfolio will vary from time to time.
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.
DIVERSIFICATION REQUIREMENTS
As a money market fund, the Portfolio is subject to the diversification
requirements of Rule 2a-7 under the 1940 Act. This Rule sets forth two
different diversification requirements: one applicable to the issuer of
Municipal Securities (provided that such securities are not subject to a demand
feature or a guarantee), and one applicable to Municipal Securities with demand
features or guarantees.
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The issuer diversification requirement provides that the Portfolio may not
invest in the securities of any issuer if, as a result, more than 5% of its
total assets would be invested in securities issued by such issuer. If the
securities are subject to a demand feature or guarantee, however, they are not
subject to this requirement. Moreover, for purposes of this requirement, the
issuer of a security is not always the nominal issuer. Instead, in certain
circumstances, the underlying obligor of a security is deemed to be the issuer
of the security. Such circumstances arise for example when another political
subdivision agrees to be ultimately responsible for payments of principal of an
interest on a security or when the assets and revenues of a non-governmental
user of the facility financed with the Municipal Securities secures repayment of
such securities.
The diversification requirement applicable to Municipal Securities subject
to a demand feature or guarantee provides that, with respect to 75% of its total
assets, the Portfolio may not invest more than 10% of its total assets in
securities issued by or subject to demand features or guarantees from the same
entity. A demand feature permits the Portfolio to sell a Municipal Security at
approximately its amortized cost value plus accrued interest at specified
intervals upon no more than 30 days' notice. A guarantee includes a letter of
credit, bond insurance and an unconditional demand feature (provided the demand
feature is not provided by the issuer of the security.)
INVESTMENT RATINGS
The following is a description of the factors underlying the tax-exempt
debt ratings of Moody's, S&P and Fitch Investors Service, Inc. ("Fitch"):
MOODY'S MUNICIPAL BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
Note: Bonds in the Aa group which Moody's believes possess the strongest
investment attributes are designated by the symbol Aa1.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in the Aa
group when assigning ratings to: industrial development bonds; and bonds secured
by either a letter of credit or bond insurance. The modifier 1 indicates that
the security ranks in the higher end of its generic rating
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category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade (or MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk, long-
term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature (i.e., a variable rate demand obligation or VRDO). Short-term ratings
on issues with demand features may be differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic demand rather
than fixed maturity dates, and payment relying on external liquidity.
Additionally, the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is not
met.
A VMIG rating may be assigned to commercial paper programs. Such programs
are characterized as having variable short-term maturities but having neither a
variable rate nor demand feature.
Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly the
same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
Moody's employs the following two designations, each judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
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PRIME-1
Issuers (or related supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Note: A Moody's commercial paper rating may also be assigned as an
evaluation of the demand feature of a short-term or long-term security with a
put option.
S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations:
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be modified
by the addition of a plus (+) sign or minus (-) sign to show relative standing.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have 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+).
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S&P MUNICIPAL NOTE RATINGS
A S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note); and source of payment
(the more dependent the issue is on the market for its refinancing, the more
likely it will be treated as a note).
The highest note rating symbol is as follows:
SP-1
Category denotes very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
S&P COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
The highest rating category is as follows:
A-1
This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
FITCH BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same ratings are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
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Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA
Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA
Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1."
Plus (+) Minus (-) - Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR - Indicates that Fitch does not rate the specific issue.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
The highest Fitch short-term rating is as follows:
F-1
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
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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 collateralize the when-issued or
delayed delivery commitment by segregating liquid assets of a dollar value
sufficient at all times to make payment for the when-issued or delayed delivery
securities. Such segregated liquid assets will be marked-to-market, and the
amount segregated will be increased if necessary to maintain adequate coverage
of the Portfolio's when-issued or delayed delivery commitments.
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 liquid assets, 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 on set dates (such as the last day
of the month or calendar quarter) in the case of variable rates or whenever a
specified interest rate change occurs in the case of a floating rate instrument.
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
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interest rates generally reduce changes in the market price of Municipal
Securities from their original purchase price because, upon readjustment, such
rates approximate market rates. 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.
Rule 2a-7 under the 1940 Act provides special rules for calculating the maturity
date of variable and floating rate securities for purposes of determining
whether such securities qualify as "Eligible Securities."
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
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
demand feature). 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 demand feature the right to tender 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) 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;
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(2) lend money or securities except to the extent that the Portfolio's
investments may be considered loans;
(3) purchase or sell puts, calls, straddles, spreads or combinations
thereof;
(4) 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;
(5) 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;
(6) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests therein;
(7) sell, securities short or purchase any securities on margin, except for
such short-term credits as are necessary for the clearance of transactions; or
(8) purchase or sell commodities or commodity futures contracts.
PORTFOLIO TRANSACTIONS
GENERAL BROKERAGE POLICY
AIM makes decisions to buy and sell securities for the Portfolio, selects
broker-dealers, effects the Portfolio's investment transactions, allocates
brokerage fees in such transactions, and where applicable, negotiates
commissions and spreads on transactions. Since purchases and sales of portfolio
securities by the Portfolio are usually principal transactions, the Portfolio
incurs little or no brokerage commission. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate (as applicable). While AIM seeks reasonably competitive commission rates,
the Portfolio may not pay the lowest commission or spread available. See
"Section 28(e) Standards" below.
In the event the Portfolio purchases securities traded over-the-counter,
the Portfolio deals directly with dealers who make markets in the securities
involved, except when better prices are available elsewhere. Portfolio
transactions placed through dealers who are primary market makers are effected
at net prices without commissions, but which include compensation in the form of
a mark up or mark down.
AIM may determine target levels of commission business with various brokers
on behalf of its clients (including the Portfolio) over a certain time period.
The target levels will be based upon the following factors, among others: (1)
the execution services provided by the broker; (2) the research services
provided by the broker; and (3) the broker's interest in mutual funds in general
and in the Portfolio and other mutual funds advised by AIM or A I M Capital
Management, Inc. (collectively, the "AIM Funds") in particular, including sales
of the Portfolio and of the other AIM Funds. In connection with (3) above, the
Portfolio's trades may be executed directly by dealers which sell shares of the
AIM
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Funds or by other broker-dealers with which such dealers have clearing
arrangements. AIM will not use a specific formula in connection with any of
these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of the
Portfolio any commissions, fees, brokerage or similar payments paid by the
Portfolio on portfolio transactions. Normally, the only fees which AIM can
recapture are the soliciting dealer fees on the tender of the Portfolio's
securities in a tender or exchange offer.
The Portfolio may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of the Portfolio, provided the conditions of an exemptive order
received by the Portfolio from the SEC are met. In addition, the Portfolio may
purchase or sell a security from or to another AIM Fund provided the Portfolio
follows procedures adopted by the Board of Directors/Trustees of the various AIM
Funds, including the Company. These inter-fund transactions do not generate
brokerage commissions but may result in custodial fees or taxes or other related
expenses.
Under the 1940 Act, certain persons affiliated with the Company are
prohibited from dealing with the Company as principal in any purchase or sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. The 1940 Act also prohibits the Company from purchasing a security
being publicly underwritten by a syndicate of which certain persons affiliated
with the Company are members except in accordance with certain conditions.
These conditions may restrict the ability of the Portfolio to purchase municipal
securities being publicly underwritten by such syndicate, and the Portfolio may
be required to wait until the syndicate has been terminated before buying such
securities. At such time, the market price of the securities may be higher or
lower than the original offering price. A person affiliated with the Company
may, from time to time, serve as placement agent or financial advisor to an
issuer of Municipal Securities and be paid a fee by such issuer. The Portfolio
may purchase such Municipal Securities directly from the issuer, provided that
the purchase is reviewed by the Company's Board of Directors and a determination
is made that the placement fee or other remuneration paid by the issuer to a
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, 1998, 1997 and 1996, 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.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some of
these accounts may have investment objectives similar to the Portfolio.
Occasionally, identical securities will be appropriate for investment by the
Portfolio and one or more of these investment accounts. However, the position
of each account in the same securities and the length of time that each account
may hold its investment in the same securities may 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 is consistent with the investment policies of
the Portfolios and one or more of these accounts, and is considered at or about
the same time, AIM will fairly allocate transactions in such securities among
the Portfolio and these accounts. AIM may combine such transactions, in
accordance with applicable laws and regulations, to obtain the most favorable
execution. Simultaneous transactions could, however, adversely affect the
Portfolio's ability to obtain or dispose of the full amount of a security which
it seeks to purchase or sell.
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Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM could have an adverse effect on the
price or amount of securities available to the Portfolio. In making such
allocations, AIM considers the investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment.
SECTION 28(e) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a good
faith determination that the commissions paid are "reasonable in relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which it exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, the Portfolio
may pay a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Company's directors with respect to
the performance, investment activities, and fees and expenses of other mutual
funds. Broker-dealers may communicate such information electronically, orally
or in written form. Research services may also include the providing of custody
services, as well as the providing of equipment used to communicate research
information, the providing of specialized consultations with AIM personnel with
respect to computerized systems and data furnished to AIM as a component of
other research services, the arranging of meetings with management of companies,
and the providing of access to consultants who supply research information.
The outside research assistance is useful to AIM since the broker-dealers
used by AIM tend to follow a broader universe of securities and other matters
than AIM's staff can follow. In addition, the research provides AIM with a
diverse perspective on financial markets. Research services provided to AIM by
broker-dealers are available for the benefit of all accounts managed or advised
by AIM or by its affiliates. Some broker-dealers may indicate that the
provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Portfolio. However, the Portfolio is not under any obligation to
deal with any broker-dealer in the execution of transactions in portfolio
securities.
In some cases, the research services are available only from the broker-
dealer providing them. In other cases, the research services may be obtainable
from alternative sources in return for cash payments. AIM believes that the
research services are beneficial in supplementing AIM's research and analysis
and that they improve the quality of AIM's investment advice. The advisory fee
paid by the Portfolio is not reduced because AIM receives such services.
However, to the extent that AIM would
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have purchased research services had they not been provided by broker-dealers,
the expenses to AIM could be considered to have been reduced accordingly.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to the 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 Class is effective, provided that the purchase order has been accepted
prior to 3:00 p.m. Eastern time and payment in the form of federal funds wired
has been received by AFS. Dividends do not accrue on the day that a redemption
order is effective, unless the redemption is effective after 12:30 p.m. on that
day and redemption proceeds have not been wired to the shareholder on the same
day. Thus, if a purchase order is accepted prior to 3:00 p.m. 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.
31
<PAGE>
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolio or its shareholders, and the discussion here and in
the Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least (a)
90% of its investment company taxable income (i.e., net investment income and
the excess of net short-term capital gain over net long-term capital loss) and
(b) 90% of its tax-exempt income (net of allocable expenses and amortized bond
premium) for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Distributions
by the Portfolio made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must 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.
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.
32
<PAGE>
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. Undistributed
tax-exempt interest on Municipal Securities is not subject to the excise tax.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Portfolio may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
DISTRIBUTIONS
The Portfolio intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Portfolio's
taxable year at least 50% of the Portfolio's total assets consists of Municipal
Securities, 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. Pursuant to the Taxpayer Relief Act of 1997, certain small
corporations are wholly exempt from the AMT.
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
33
<PAGE>
other collateral federal income tax consequences to certain taxpayers, including
financial institutions, property and casualty insurance companies and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisers as to such consequences.
The Portfolio anticipates distributing substantially all of its investment
company taxable income, if any, for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the dividends-
received deduction for corporations.
The Portfolio may either retain or distribute to shareholders its net
capital gain, if any, for each taxable year. The Portfolio currently intends to
distribute any such amounts. If net capital gain is distributed and designated
as a capital gain dividend, it will be taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder has held his
shares or whether such gain was recognized by the Portfolio prior to the date on
which the shareholder acquired his shares. Realized market discount on
Municipal Securities purchased after April 30, 1993, will be treated as ordinary
income and not as capital gain.
Distributions by the Portfolio that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of his
shares.
Distributions by the Portfolio will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another portfolio). Shareholders
electing to reinvest a distribution in additional shares will be treated as
receiving a distribution in an amount equal to the net asset value of the shares
acquired, determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by the
Portfolio into account in the year in which the distributions are made.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a specified date in such a 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."
34
<PAGE>
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 May 1,
1998. Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-
interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Shareholders are urged to consult their tax advisers as to the
consequences of these and other state and local tax rules affecting investment
in the Portfolio.
35
<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, 1998, 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 and the financial highlights. Our procedures included confirmation
of securities owned as of March 31, 1998, 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, 1998, 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 1, 1998
FS-1
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
SHORT-TERM MUNICIPAL OBLIGATIONS -
102.40%
ALABAMA - 1.73%
Birmingham (City of)(YMCA-Birmingham);
Public Park and Recreation Board RB
3.75%, 06/01/16(b)(c) -- VMIG-1 $ 3,255 $ 3,255,000
- -------------------------------------------------------------------------------
BMC Special Care Facilities Financing
Authority (VHA of Alabama Inc. Capital
Asset Financing Program); Variable Rate
Hospital RB
3.65%, Series 1985 E 12/01/30(b)(d) A-1 Aaa 4,600 4,600,000
- -------------------------------------------------------------------------------
3.65%, Series 1985 G 12/01/30(b)(d) A-1 Aaa 6,390 6,390,000
- -------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Warrants
3.80%, 02/01/12(b)(c) A-1+ -- 2,695 2,695,000
- -------------------------------------------------------------------------------
16,940,000
- -------------------------------------------------------------------------------
ALASKA - 1.58%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
3.70%, 06/01/26(b) A-1+ VMIG-1 5,200 5,200,000
- -------------------------------------------------------------------------------
Alaska Housing Finance Corp. (University
L.C. of Alaska); Governmental Purpose
Series 1997 A RB
3.75%, 12/01/27(b)(d) A-1 VMIG-1 5,200 5,200,000
- -------------------------------------------------------------------------------
Valdez (City of) (ARCO Transportation
Alaska, Inc. Project); Marine Terminal
Refunding Series 1994 B RB
3.70%, 05/01/31(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
15,400,000
- -------------------------------------------------------------------------------
ARIZONA - 1.69%
Apache (County of) Industrial Development
Authority (Tucson
Electric); Series 1983 C IDR
3.85%, 12/15/18(b)(c) A-1 VMIG-1 12,400 12,400,000
- -------------------------------------------------------------------------------
Chandler (City of) Industrial Development
Authority (Southpark
Apartments Project); Multifamily Housing
Series 1989 RB
3.75%, 12/01/02(b)(c) A-1+ -- 4,125 4,125,000
- -------------------------------------------------------------------------------
16,525,000
- -------------------------------------------------------------------------------
ARKANSAS - 0.51%
University of Arkansas Board of Trustees
(UAMS Campus) (Central Arkansas Radia-
tion Therapy); Refunding Series 1998 RB
3.75%, 12/01/19(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
COLORADO - 2.92%
Colorado (State of) General Fund; Series
1997 A TRAN
4.50%, 06/26/98 SP-1+ -- 5,000 5,007,372
- -------------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
COLORADO - (CONTINUED)
Colorado Housing Finance Authority (Coven-
try Village Project);
Multifamily Housing Refunding Series 1996
B RB
3.75%, 10/15/16(b)(c) A-1+ -- $ 5,370 $ 5,370,000
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Winridge Project); Adjustable
Refunding Multifamily Housing Series 1998
RB
3.70%, 02/15/28(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Denver (City of) (Seasons Apartment Proj-
ect); Refunding Multifamily Housing Se-
ries 1990 RB
3.65%, 10/01/06(b)(c) A-1+ VMIG-1 8,700 8,700,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase Proj-
ect); Variable Rate Demand Multifamily
Housing Series 1985 RB
3.75%, 07/01/06(b)(c) -- VMIG-1 4,450 4,450,000
- -------------------------------------------------------------------------------
28,527,372
- -------------------------------------------------------------------------------
CONNECTICUT - 0.59%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special Tax
Obligation RB
3.65%, 12/01/10(b)(c) A-1+ VMIG-1 2,165 2,165,000
- -------------------------------------------------------------------------------
Connecticut (State of) Power and Light
Development Authority; Series 1993 A RB
3.65%, 09/01/28(b)(c) A-1+ VMIG-1 3,640 3,640,000
- -------------------------------------------------------------------------------
5,805,000
- -------------------------------------------------------------------------------
DELAWARE - 0.32%
Delaware (State of) Economic Development
Authority; Adjustable Rate Hospital Se-
ries C RB
3.70%, 12/01/15(b)(c) A-1+ VMIG-1 3,100 3,100,000
- -------------------------------------------------------------------------------
FLORIDA - 4.10%
Florida State Board of Education; Public
Education Series B GO
5.00%, 06/01/98 AA+ Aa2 1,700 1,703,053
- -------------------------------------------------------------------------------
Gulf Breeze (City of) (Florida Municipal
Bond Fund); Variable Rate Demand Series
1995 A RB
3.80%, 03/31/21(b)(c) A-1 -- 12,900 12,900,000
- -------------------------------------------------------------------------------
Lee (County of) Housing Finance Authority
(Forestwood Apartments Project); Housing
Series 1995 A RB
3.70%, 06/15/25(b)(c) A-1+ -- 8,000 8,000,000
- -------------------------------------------------------------------------------
Putnam County Development Authority (Semi-
nole Electric Cooperative, Inc. Project);
National Rural Utilities Cooperative Fi-
nance Corp. Guaranteed Floating/Fixed
Rate Pooled Series 1984 H-1 PCR
3.80%, 03/15/14(b)(c) A-1+ P-1 3,865 3,865,000
- -------------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
FLORIDA - (CONTINUED)
University Athletic Association Inc.
(University of Florida Stadium Project);
Capital Improvement Adjustable Series
1990 RB
3.80%, 02/01/20(b)(c) -- VMIG-1 $13,600 $ 13,600,000
- -------------------------------------------------------------------------------
40,068,053
- -------------------------------------------------------------------------------
GEORGIA - 4.14%
Cobb (County of) Housing Authority
(Greenhouse Frey Apartment Project);
Multifamily Housing RB
3.70%, 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
3.70%, 12/01/02(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Dekalb (County of) Housing Authority
(Clairmont Crest Project); Multifamily
Housing Refunding Series 1995 RB
3.70%, 06/15/25(b)(c) A-1+ -- 6,400 6,400,000
- -------------------------------------------------------------------------------
Development Authority of Cobb County
(Institute of Nuclear Power Operations
Project); Series 1998 RB
3.70%, 02/01/13(b)(c) A-1+ VMIG-1 9,170 9,170,000
- -------------------------------------------------------------------------------
Development Authority of Floyd County
(Shorter College Project); Series 1998
RB
3.75%, 06/01/17(b)(c) A-1+ -- 4,000 4,000,000
- -------------------------------------------------------------------------------
Gwinnett (County of) Housing Authority
(Greens Apartment Project); Variable
Rate Demand Multifamily Housing Series
1995 RB
3.70%, 06/15/25(b)(c) A-1+ -- 10,300 10,300,000
- -------------------------------------------------------------------------------
Savannah (City of) Housing Authority
(Somerset Place Project); Variable Rate
Demand Multifamily Housing Series 1996 A
RB
3.70%, 06/15/26(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
40,470,000
- -------------------------------------------------------------------------------
IDAHO - 1.08%
Idaho (State of); Series 1997 TAN
4.625%, 06/30/98 SP-1+ MIG-1 5,000 5,008,840
- -------------------------------------------------------------------------------
Power (County of) (FMC Corporation
Project); PCR
3.80%, 12/01/10(b)(c) -- VMIG-1 5,500 5,500,000
- -------------------------------------------------------------------------------
10,508,840
- -------------------------------------------------------------------------------
ILLINOIS - 8.29%
Burbank (City of) (Service Merchandise
Co. Inc. Project); Floating Rate Monthly
Demand Industrial Building Series 1984
RB
3.35%, 09/15/24(b)(c) A-1+ -- 3,600 3,600,000
- -------------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
ILLINOIS - (CONTINUED)
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily Housing
Series 1983 RB
3.90%, 06/01/08(b)(c) -- Aa3 $ 5,770 $ 5,770,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Adventist Health System/Sunbelt
Obligated Group); Variable Rate Demand
Series 1997 A RB
3.75%, 11/15/27(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB
3.70%, 08/01/26(b)(c) A-1+ -- 7,700 7,700,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Revenue Anticipation
Note Progam); Variable Rate Demand Series
1997-1998 A RAN
3.75%, 06/30/98(b)(c) A-1+ -- 9,720 9,720,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Museum of Science & Industry);
Adjustable Rate Series 1992 RB
3.70%, 10/01/26(b)(c) -- VMIG-1 1,500 1,500,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Northwestern University); Adjustable
Rate Series 1988 RB
3.75%, 03/01/28(b)(d) A-1+ VMIG-1 6,450 6,450,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Pooled Financing Program); Adjustable
Rate Series 1985 RB
3.70%, 12/01/05(b)(c) A-1+ VMIG-1 3,715 3,715,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled Series D RB
3.70%, 08/01/15(b)(c) A-1+ VMIG-1 3,970 3,970,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Advocate Health Care Network); Variable
Rate Demand Series 1997 B RB
3.75%, 08/15/22(b)(d) A-1+ VMIG-1 9,940 9,940,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Demand Series 1995 RB
3.80%, 08/15/25(b)(d) A-1+ VMIG-1 7,000 7,000,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Streetville Corp.); Variable Rate Series
1994 RB
3.70%, 08/15/24(b)(c) A-1+ P-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Oak Forest (City of) (Homewood Pool);
Series 1989 RB
3.70%, 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 RB
3.70%, 09/15/26(b)(c) A-1+ -- 10,700 10,700,000
- -------------------------------------------------------------------------------
81,065,000
- -------------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
INDIANA - 4.32%
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
- -------------------------------------------------------------------------------
Indiana (State of) (Advance Funding
Program); Series 1998 A-2 RB
4.00%, 01/20/99 SP-1+ MIG-1 5,000 5,015,577
- -------------------------------------------------------------------------------
Indiana Development Finance Authority
(Southern Indiana Gas and Electric
Project); Series 1998 A PCR
3.65%, 03/01/99(b) AA- VMIG-1 16,000 16,000,000
- -------------------------------------------------------------------------------
Indiana Health Facility Financing
Authority (St. Anthony Medical Center,
Inc.); Variable Rate Demand Series 1997
RB
3.65%, 12/01/17(b)(c) -- VMIG-1 2,000 2,000,000
- -------------------------------------------------------------------------------
Indianapolis (City of); Local Improvement
Series 1997 E RB
4.25%, 07/09/98 SP-1+ -- 7,500 7,508,961
- -------------------------------------------------------------------------------
Indianapolis (City of) (Jewish Community
Campus Project); Variable Rate Economic
Development RB
3.70%, 04/01/05(b)(c) -- VMIG-1 2,295 2,295,000
- -------------------------------------------------------------------------------
Petersburg (City of) (Indianapolis Power
and Light Co. Project); Adjustable Rate
Tender Securities Series 1995 B PCR
3.70%, 01/01/23(b)(d) A-1+ VMIG-1 6,000 6,000,000
- -------------------------------------------------------------------------------
Rockport (City of) Indiana Development
Authority (AEP Generating Company
Project B); Series 1995 B PCR
3.80%, 07/01/25(b)(d) A-1+c Aaa 2,235 2,235,000
- -------------------------------------------------------------------------------
42,254,538
- -------------------------------------------------------------------------------
IOWA - 1.74%
Iowa Higher Education Loan Authority;
Private College Facility RB
3.80%, 12/01/15(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Iowa School Corporations (Iowa School
Cash Anticipation Program); Warrant
Certificates Series 1997-1998 A TRAN
4.50%, 06/26/98(c) SP-1+ MIG-1 12,000 12,019,056
- -------------------------------------------------------------------------------
17,019,056
- -------------------------------------------------------------------------------
KANSAS - 1.02%
Mission (City of) (Silverwood Apartment
Project); Multifamily RB
3.70%, 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Wichita (City of); General Obligation
Renewal and Improvement Series 194
Temporary Notes
4.25%, 08/27/98 SP-1+ VMIG-1 5,000 5,012,035
- -------------------------------------------------------------------------------
10,012,035
- -------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
KENTUCKY - 1.70%
Kentucky Asset/Liability Commission;
General Fund Series 1998 A RB
3.55%, 06/04/98(b) -- VMIG-1 $ 5,000 $ 5,000,000
- -------------------------------------------------------------------------------
Kentucky Asset/Liability Commission;
General Fund Series 1997 A TRAN
4.50%, 06/25/98 SP-1+ MIG-1 7,500 7,510,929
- -------------------------------------------------------------------------------
Mayfield (City of) (Kentucky League of
Cities Funding Trust Pooled Lease
Financing Program); Variable Rate Multi-
City Lease Series 1996 RB
3.80%, 07/01/26(b)(c) A-1 VMIG-1 4,100 4,100,000
- -------------------------------------------------------------------------------
16,610,929
- -------------------------------------------------------------------------------
LOUISIANA - 3.32%
Louisana Public Facilities Authority
(Sisters of Charity of the Incarnate
Word); Unit Priced Demand Adjustable
Series 1997 E RB
3.70%, 07/01/23(b)(d) A-1+c VMIG-1 9,900 9,900,000
- -------------------------------------------------------------------------------
Louisana Public Facilities Authority
(Willis-Knighton Medical Center
Project); Hospital Series 1995 RB
3.75%, 09/01/25(b)(d) A-1 VMIG-1 17,500 17,500,000
- -------------------------------------------------------------------------------
New Orleans (City of); Aviation Board
Series B RB
3.75%, 08/01/16(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
32,400,000
- -------------------------------------------------------------------------------
MASSACHUSETTS - 0.37%
Massachusetts Health and Educational
Facilities Authority; Variable Rate
Series E RB
3.70%, 01/01/35(b)(c) -- VMIG-1 3,600 3,600,000
- -------------------------------------------------------------------------------
MICHIGAN - 1.98%
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 Hospital Finance Authority
(Hospital Equipment Loan Program);
Adjustable Series 1996 A RB
3.75%, 12/01/23(b)(c) -- VMIG-1 6,600 6,600,000
- -------------------------------------------------------------------------------
Michigan State Strategic Fund (Peachwood
Center Association Project); Limited
Obligation Series 1995 RB
3.65%, 06/01/16(b)(c) A-1+ -- 2,275 2,275,000
- -------------------------------------------------------------------------------
Michigan Strategic Fund (Consumer's Power
Corp.); Variable Rate Demand Series 1988
A PCR
3.80%, 04/15/18(b)(c) -- P-1 1,570 1,570,000
- -------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
MICHIGAN - (CONTINUED)
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible Variable
Rate Demand Limited Obligation Series
1985 RB
3.60%, 10/01/15(b)(c) -- VMIG-1 $ 3,550 $ 3,550,000
- -------------------------------------------------------------------------------
Michigan Strategic Fund (The Norcor Corp.
Project); IDR
3.70%, 12/01/00(b)(c) -- P-1 4,400 4,400,000
- -------------------------------------------------------------------------------
19,395,000
- -------------------------------------------------------------------------------
MINNESOTA - 1.23%
Bloomington (City of) Port Authority (Mall
of America Project); Special Tax Revenue
Series 1996 B RB
3.70%, 02/01/13(b)(c) A-1+ VMIG-1 1,900 1,900,000
- -------------------------------------------------------------------------------
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
3.80%, 03/01/11(b) AA- Aa3 2,900 2,900,000
- -------------------------------------------------------------------------------
Minneapolis (City of) Community
Development Agency (Walker Methodist
Health Systems); Adjustable Refunding
Series 1995 RB
3.80%, 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
3.80%, 03/01/11(b)(d) AA- A1 1,200 1,200,000
- -------------------------------------------------------------------------------
12,000,000
- -------------------------------------------------------------------------------
MISSOURI - 1.06%
Kansas City (Sleepy Hollow Apartment
Project); Multifamily Housing Series 1996
RB
3.70%, 09/15/26(b)(c) A-1+ -- 7,500 7,500,000
- -------------------------------------------------------------------------------
Missouri State Development Finance Board
(Science City Union Station);
Infrastructure Facilities Series A RB
3.80%, 12/01/98(b)(c) AA- Aa3 2,850 2,851,739
- -------------------------------------------------------------------------------
10,351,739
- -------------------------------------------------------------------------------
MISSISSIPPI - 1.75%
Mississippi Hospital Equipment and
Facilities Authority (Northern
Mississippi Health Services); Series 1 RB
3.55%, 06/12/98(b)(d) A-1+ VMIG-1 10,000 10,000,000
- -------------------------------------------------------------------------------
Perry (County of) (Leaf River Forest
Project); Series 1989 PCR
3.70%, 10/01/12(b)(c) -- P-1 7,100 7,100,000
- -------------------------------------------------------------------------------
17,100,000
- -------------------------------------------------------------------------------
NEW HAMPSHIRE - 0.96%
New Hampshire Business Finance Authority
(Wheelabrator Concord Company, L.P.
Project); Adjustabe Rate Resource
Recovery Refunding Series 1997 A RB
3.70%, 01/01/18(b)(c) A-1+ -- 4,000 4,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
NEW HAMPSHIRE - (CONTINUED)
New Hampshire Housing Finance Authority
(EQR-Bond
Partnership-Manchester Project);
Multifamily Housing Refunding Series
1996 RB
3.70%, 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
3.50%, 01/01/09(b)(c) A-1+ -- 400 400,000
- -------------------------------------------------------------------------------
9,400,000
- -------------------------------------------------------------------------------
NEW YORK - 18.02%
Eagle Tax Exempt Trust; Class A COP(e)
3.77%, Series 97C4703 01/01/01(b)(c)(f) A-1+c Aaa 10,800 10,800,000
- -------------------------------------------------------------------------------
3.82%, Series 1993 F 08/01/06(b)(d) A-1+c -- 20,500 20,500,000
- -------------------------------------------------------------------------------
3.82%, Series 1993 E 08/01/06(b)(d) A-1+c -- 15,000 15,000,000
- -------------------------------------------------------------------------------
3.77%, Series 943802 05/01/07(b)(d) A-1+c -- 17,800 17,800,000
- -------------------------------------------------------------------------------
3.82%, Series 943901 06/15/07(b)(c) A-1+c -- 14,500 14,500,000
- -------------------------------------------------------------------------------
3.82%, Series 94C2102 06/01/14(b)(c) A-1+c -- 10,000 10,000,000
- -------------------------------------------------------------------------------
3.77%, Series 97C4702 01/01/20(b) A-1+c -- 9,500 9,500,000
- -------------------------------------------------------------------------------
3.82%, Series 950901 06/01/21(b)(f) A-1+c -- 12,700 12,700,000
- -------------------------------------------------------------------------------
3.77%, Series 943207 07/01/29(b)(c) 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
3.77%, 07/01/11(b)(c)(e) A-1+c -- 5,600 5,600,000
- -------------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington State
GO); Series 984701 Class A COP
3.75%, 05/01/18(b)(d)(e) A-1+c -- 14,400 14,400,000
- -------------------------------------------------------------------------------
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
3.77%, 02/15/29(b)(c)(e) A-1+c -- 9,700 9,700,000
- -------------------------------------------------------------------------------
Merrill Lynch Group Float Program, New
York State Mortgage Agency; Floating
Option Tax-Exempt Receipts Series PT 158
RB
3.77%, 04/01/12(b)(c)(e) AA VMIG-1 8,210 8,210,000
- -------------------------------------------------------------------------------
New York (City of); Series 1995 Subseries
B-5 GO
3.70%, 08/15/22(b)(c) A-1+ VMIG-1 7,200 7,200,000
- -------------------------------------------------------------------------------
New York (City of); Series A RAN
4.50%, 06/30/98(c) SP-1+ MIG-1 6,000 6,010,381
- -------------------------------------------------------------------------------
176,120,381
- -------------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
NORTH CAROLINA - 0.58%
North Carolina Medical Care Commission
Retirement Community (Adult Communities
Total Services Inc.); Variable Rate
Demand Series 1996 RB
3.75%, 11/15/09(b)(c) A-1+ -- $ 5,655 $ 5,655,000
- -------------------------------------------------------------------------------
OHIO - 5.31%
Akron-Summit (County of); Library
Improvement Bonds Series
1998 A GO
4.00%, 12/01/98(c) -- Aaa 2,000 2,005,774
- -------------------------------------------------------------------------------
Cuyahoga (County of) (Cleveland Clinic);
Hospital Series A RB
3.70%, 01/01/24(b)(d) A-1 VMIG-1 33,262 33,262,000
- -------------------------------------------------------------------------------
Cuyahoga (County of) (S&R Playhouse
Realty Co.); Adjustable Rate Demand
Series 1984 IDR
3.60%, 12/01/09(b)(c) -- MIG-1 615 615,000
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.90%, 11/01/14(b)(c) -- P-1 8,500 8,500,000
- -------------------------------------------------------------------------------
Marion (County of) (Pooled Lease Pro-
gram); Hospital RB
3.75%, 10/01/22(b)(c) A-1+ -- 1,540 1,540,000
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.45%, 12/01/15(b)(c) -- VMIG-1 956 956,000
- -------------------------------------------------------------------------------
Summit (County of) Various Purpose Notes;
Series 1997 A General Obligation BAN
4.50%, 06/04/98 SP-1+ MIG-1 5,000 5,005,314
- -------------------------------------------------------------------------------
51,884,088
- -------------------------------------------------------------------------------
OKLAHOMA - 1.02%
Oklahoma Water Resource Board (State Loan
Program);
Series 1994 A RB
3.55%, 09/01/98(g) A-1+ -- 10,000 10,000,000
- -------------------------------------------------------------------------------
OREGON - 2.28%
Klamath Falls (City of) (Salt Caves
Hydroelectric); Adjustable/Fixed RB
4.50%, Series 1986 C 05/01/98(f)(g) SP-1+ -- 10,000 10,005,090
- -------------------------------------------------------------------------------
4.50%, Series E 05/01/98(f) SP-1+ -- 12,250 12,256,857
- -------------------------------------------------------------------------------
22,261,947
- -------------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
PENNSYLVANIA - 6.30%
Delaware County Industrial Development
Authority (Henderson-Radnor Joint
Venture Project); Limited Obligation
Series 1985 IDR
3.70%, 04/01/15(b)(c) -- Aa3 $ 855 $ 855,000
- -----------------------------------------------------------------------------
Emmaus (City of) General Authority;
Series 1996 RB
3.75%, 12/01/28(b)(c) A-1+ Aaa 3,000 3,000,000
- -----------------------------------------------------------------------------
Philadelphia (City of); Water and
Wastewater Series 1997 B RB
3.82%, 08/05/98(b)(d)(g) A-1+ VMIG-1 3,300 3,300,000
- -----------------------------------------------------------------------------
Philadelphia (City of) Hospital and
Higher Facilities Authority
(Children's Hospital of Philadelphia);
Hospital RB
3.75%, 03/01/27(b)(d) A-1+ VMIG-1 13,160 13,160,000
- -----------------------------------------------------------------------------
Philadelphia School District; Series
1997-1998 TRAN
4.50%, 06/30/98(c) SP-1+ MIG-1 5,000 5,006,521
- -----------------------------------------------------------------------------
Quakertown Hospital Authority (HPF
Group); Series 1985 A RB
3.75%, 07/01/05(b)(c) -- VMIG-1 29,100 29,100,000
- -----------------------------------------------------------------------------
Schuykill County Industrial Development
Authority (Gilberton Power Project);
Variable Rate Resource Recovery Series
1985 RB
3.70%, 12/01/02(b)(c) A-1 -- 2,300 2,300,000
- -----------------------------------------------------------------------------
Wilkes-Barre (City of) Industrial De-
velopment Authority (Toys "R" Us/Penn
Inc. Project); Economic Development
Series 1984 RB
3.575%, 07/01/14(b)(c) -- A1 2,300 2,300,000
- -----------------------------------------------------------------------------
York (City of) General Authority;
Adjustable Rate Pooled Financing
Series 1996 RB
3.80%, 09/01/26(b)(c) A-1 -- 2,575 2,575,000
- -----------------------------------------------------------------------------
61,596,521
- -----------------------------------------------------------------------------
RHODE ISLAND - 0.30%
Rhode Island Port Authority and Eco-
nomic Development Corp.
(Newport Electric Corp. Project); En-
ergy Facilities Series RB
3.70%, 09/01/11(b)(c) A-1+ VMIG-1 2,925 2,925,000
- -----------------------------------------------------------------------------
SOUTH CAROLINA - 4.14%
Rock Hill (City of); Utilities System
RB
3.80%, 01/01/22(b)(c) A-1+ VMIG-1 7,440 7,440,000
- -----------------------------------------------------------------------------
South Carolina Public Service Authority
(Santee Cooper Hydroelectric Project);
Revenue Promissory Notes
3.60%, 06/19/98 A-1+ P-1 15,000 15,000,000
- -----------------------------------------------------------------------------
York (County of) (North Carolina
Electric Membership Corp.); Pooled PCR
3.50%, Series 1984 N-3 09/15/98(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -----------------------------------------------------------------------------
3.50%, Series 1984 N-4 09/15/98(b)(c) A-1+ VMIG-1 13,000 13,000,000
- -----------------------------------------------------------------------------
40,440,000
- -----------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
TENNESSEE - 1.84%
Health and Educational Facilities Board of
the Metropolitan Government of Nashville
and Davidson County (Vanderbilt
University); Adjustable Rate Series 1985
A RB
3.75%, 01/15/99(b)(d) A-1+ VMIG-1 $ 4,000 $ 4,000,000
- -------------------------------------------------------------------------------
Health, Educational and Housing Facility
Board of Shelby County (Rhodes College);
Variable Rate Demand Educational
Facilities Series 1985 RB
3.55%, 08/01/10(b)(c) A-1+ -- 1,945 1,945,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Hendersonville (Windsor Park Project);
Multifamily Housing Refunding Series 1998
IDR
3.70%, 02/15/28(b)(c) A-1+ -- 2,000 2,000,000
- -------------------------------------------------------------------------------
Industrial Development Board of the City
of Knoxville (Toys "R" Us Inc. Project);
Series 1984 IDR
3.90%, 05/01/14(b)(c) -- A1 1,150 1,150,000
- -------------------------------------------------------------------------------
Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County (Amberwood Ltd. Project);
Multifamily Housing RB
3.97%, Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,250 2,250,000
- -------------------------------------------------------------------------------
3.97%, Series 1993 B 07/01/13(b)(c) A-1 VMIG-1 1,910 1,910,000
- -------------------------------------------------------------------------------
Knox (County of) Industrial Development
Board (Weisgarber Partners); Floating
Rate Series 1984 IDR
3.35%, 12/01/14(b)(c) A-1+ -- 700 700,000
- -------------------------------------------------------------------------------
Shelby (County of); Series 1997 A BAN
3.65%, 05/20/98 A-1+ P-1 4,000 4,000,000
- -------------------------------------------------------------------------------
17,955,000
- -------------------------------------------------------------------------------
TEXAS - 9.81%
Bexar (County of) Texas Housing Finance
Authority (Altamonte Apt. Project);
Series 1996 RB
3.70%, 09/15/26(b)(c) A-1+ -- 5,800 5,800,000
- -------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apartments);
Multifamily RB
3.70%, 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
3.575%, 04/01/02(b)(c) -- A1 2,750 2,750,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Buckner Retirement
Services, Inc. Project); Series 1996 RB
3.75%, 08/15/26(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Greater Houston Pooled
Health); Series 1985 A RB
3.75%, 11/01/25(b)(c) A-1 -- 2,800 2,800,000
- -------------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
TEXAS - (CONTINUED)
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 Blood
Center RB
3.70%, 04/01/17(b)(c) A-1 -- $ 3,450 $ 3,450,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (TIRR Project); Series
1987 Hospital RB
3.80%, 10/01/17(b)(c) -- VMIG-1 1,900 1,900,000
- -------------------------------------------------------------------------------
Harris County Industrial Development
Corp. (Baytank Inc. Project); Refunding
Series 1998 RB
3.70%, 02/01/20(b)(c) A-1+ -- 25,000 25,000,000
- -------------------------------------------------------------------------------
Houston (City of); Series 1997 TRAN
4.50%, 06/30/98 SP-1+ MIG-1 14,000 14,021,600
- -------------------------------------------------------------------------------
Sabine River Pollution Control Authority
(Texas Utilities Project); Series A RB
3.85%, 03/01/26(b)(d) A-1+c VMIG-1 2,500 2,500,000
- -------------------------------------------------------------------------------
Tarrant (County of) Texas Housing Finance
Corp.
(Windcastle Project); Multifamily
Housing RB
3.75%, 08/01/26(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Texas (State of); Series 1997 TRAN
4.75%, 08/31/98 SP-1+ MIG-1 16,000 16,057,864
- -------------------------------------------------------------------------------
Texas Department of Housing and Community
Affairs; SFM Tax Exempt Refunding Series
B Commercial Paper Notes
3.60%, 07/08/98 A-1+ -- 7,320 7,320,000
- -------------------------------------------------------------------------------
Trinity River Industrial Development Au-
thority (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
- -------------------------------------------------------------------------------
95,849,464
- -------------------------------------------------------------------------------
UTAH - 0.44%
Intermountain Power Agency;
Variable Rate Refunding Series 1985 F RB
3.80%, 06/15/98 A-1+ VMIG-1 3,000 3,001,099
- -------------------------------------------------------------------------------
Salt Lake (City of); Series 1997 TRAN
4.50%, 06/30/98 -- MIG-1 1,300 1,301,878
- -------------------------------------------------------------------------------
4,302,977
- -------------------------------------------------------------------------------
VERMONT - 0.84%
Vermont Educational and Health Buildings
Financing Agency
(VHA New England); Variable Rate Hospi-
tal RB
3.70%, Series B 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
3.70%, Series E 12/01/25(b)(d) A-1 Aaa 2,500 2,500,000
- -------------------------------------------------------------------------------
3.70%, Series F 12/01/25(b)(d) A-1+ Aaa 2,100 2,100,000
- -------------------------------------------------------------------------------
3.70%, Series G 12/01/25(b)(d) A-1+ Aaa 2,560 2,560,000
- -------------------------------------------------------------------------------
8,160,000
- -------------------------------------------------------------------------------
</TABLE>
FS-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
VIRGINIA - 0.52%
Fairfax (County of); Public Improvement
Series 1997 A GO
5.50%, 06/01/98 AAA -- $ 3,700 $ 3,710,197
- ---------------------------------------------------------------------------------
Henrico (County of) Virginia Industrial
Development Authority (Hermitage
Project); Variable Rate Health
Facilities Series 1994 RB
4.00%, 05/01/24(b)(c) -- VMIG-1 400 400,000
- ---------------------------------------------------------------------------------
Industrial Development Authority of the
City of Lynchburg (VHA
Mid-Atlantic States, Inc.) Capital
Asset Financing Program; Variable Rate
Hospital Series 1985 F RB
3.70%, 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- ---------------------------------------------------------------------------------
5,110,197
- ---------------------------------------------------------------------------------
WASHINGTON - 0.32%
Industrial Development Corp. of Port
Townsend (Port Townsend Paper Corp.
Project); Variable Rate Refunding
Series 1988 A RB
3.65%, 03/01/09(b)(c) -- VMIG-1 3,100 3,100,000
- ---------------------------------------------------------------------------------
WEST VIRGINIA - 1.48%
West Virginia Hospital Finance Authority
(VHA Mid-Atlantic States, Inc. Capital
Asset Financing Program); RB
3.70%, Series 1985 B 12/01/25(b)(c)(d) A-1+ Aaa 3,000 3,000,000
- ---------------------------------------------------------------------------------
3.70%, Series 1985 C 12/01/25(b)(c)(d) A-1+ Aaa 3,500 3,500,000
- ---------------------------------------------------------------------------------
3.70%, Series 1985 H 12/01/25(b)(c)(d) A-1 Aaa 8,000 8,000,000
- ---------------------------------------------------------------------------------
14,500,000
- ---------------------------------------------------------------------------------
WISCONSIN - 2.37%
Milwaukee (City of); Series G GO
5.00%, 06/15/98 AA+ Aa1 2,165 2,170,182
- ---------------------------------------------------------------------------------
Wisconsin (State of); TAN
4.50%, 06/15/98 SP-1+ MIG-1 $21,000 .$ 21,028,515
- ---------------------------------------------------------------------------------
23,198,697
- ---------------------------------------------------------------------------------
WYOMING - 0.43%
Kemmerer (City of) (Exxon Project);
Series 1984 PCR
3.75%, 11/01/14(b)(d) A-1+ P-1 2,400 2,400,000
- ---------------------------------------------------------------------------------
Uinta (County of) (Chevron USA Project);
Series 1992 PCR
3.85%, 12/01/22(b)(d) -- VMIG-1 1,800 1,800,000
- ---------------------------------------------------------------------------------
4,200,000
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS - 102.40% 1,000,811,834(h)
- ---------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES - (2.40%) (23,445,572)
- ---------------------------------------------------------------------------------
NET ASSETS - 100.00% $ 977,366,262
=================================================================================
</TABLE>
FS-14
<PAGE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<C> <S> <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 Auditors' Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rates shown are the rates in effect on 03/31/98.
(c) Secured by a letter of credit.
(d) Secured by bond insurance.
(e) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments involve the deposit into a
trust of one or more long-term tax-exempt bonds or notes ("Underlying
Bonds"), and the sale of certificates evidencing interests in the trust to
investors such as the Fund. The trustee receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders
short-term floating or variable interest rates which are reset
periodically. A "variable rate trust certificate" evidences an interest in
a trust entitling the certificate holder to receive variable rate interest
based on prevailing short-term interest rates and also typically providing
the certificate holder with the conditional right to put its certificate at
par value plus accrued interest. Because synthetic municipal instruments
involve a trust and a third party conditional put feature, they involve
complexities and potential risks that may not be present where a municipal
security is owned directly.
(f) Secured by an escrow fund of U.S. Treasury obligations.
(g) Subject to an irrevocable call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-15
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,000,811,834
- ------------------------------------------------------------------------
Cash 28,607,473
- ------------------------------------------------------------------------
Interest receivable 7,092,995
- ------------------------------------------------------------------------
Investment for deferred compensation plan 33,476
- ------------------------------------------------------------------------
Other assets 67,106
- ------------------------------------------------------------------------
Total assets 1,036,612,884
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 56,149,839
- ------------------------------------------------------------------------
Dividends 2,801,759
- ------------------------------------------------------------------------
Deferred compensation 33,476
- ------------------------------------------------------------------------
Accrued administrative services fees 5,653
- ------------------------------------------------------------------------
Accrued advisory fees 142,291
- ------------------------------------------------------------------------
Accrued directors' fees 3,167
- ------------------------------------------------------------------------
Accrued transfer agent fees 7,900
- ------------------------------------------------------------------------
Accrued distribution fees 15,595
- ------------------------------------------------------------------------
Accrued operating expenses 86,942
- ------------------------------------------------------------------------
Total liabilities 59,246,622
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 977,366,262
========================================================================
NET ASSETS:
Institutional Shares $ 896,903,856
========================================================================
Private Investment Class $ 80,462,406
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
========================================================================
Outstanding 896,906,132
========================================================================
Private Investment Class:
Authorized 1,000,000,000
========================================================================
Outstanding 80,462,611
========================================================================
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest income $38,794,672
- ------------------------------------------------------------------
EXPENSES:
Advisory fees 2,354,337
- ------------------------------------------------------------------
Administrative services fees 66,515
- ------------------------------------------------------------------
Transfer agent fees 99,968
- ------------------------------------------------------------------
Custody fees 92,785
- ------------------------------------------------------------------
Directors' fees 11,636
- ------------------------------------------------------------------
Distribution fees (Note 2) 270,698
- ------------------------------------------------------------------
Other expenses 184,070
- ------------------------------------------------------------------
Total expenses 3,080,009
- ------------------------------------------------------------------
Less: Fees waived and expenses assumed (819,259)
- ------------------------------------------------------------------
Net expenses 2,260,750
- ------------------------------------------------------------------
Net investment income 36,533,922
- ------------------------------------------------------------------
Net realized gain on sales of investments 9,664
- ------------------------------------------------------------------
Net increase in net assets resulting from operations $36,543,586
==================================================================
</TABLE>
See Notes to Financial Statements.
FS-17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 36,533,922 $ 34,164,404
- -----------------------------------------------------------------------------
Net realized gain on sales of investments 9,664 79,682
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments -- (5,777)
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 36,543,586 34,238,309
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (34,792,247) (33,140,042)
- -----------------------------------------------------------------------------
Private Investment Class (1,741,675) (1,024,362)
- -----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Shares (69,673,016) (42,543,201)
- -----------------------------------------------------------------------------
Private Investment Class 42,918,457 2,402,025
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (26,744,895) (40,067,271)
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,004,111,157 1,044,178,428
- -----------------------------------------------------------------------------
End of period $ 977,366,262 $1,004,111,157
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Shares $ 896,906,132 $ 966,579,148
- -----------------------------------------------------------------------------
Private Investment Class 80,462,611 37,544,154
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (2,481) (12,145)
- -----------------------------------------------------------------------------
$ 977,366,262 $1,004,111,157
=============================================================================
</TABLE>
See Notes to Financial Statements.
FS-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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. Net realized capital gains (including net short-term capital
gains and market discounts), if any, are distributed annually.
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 $85,975 (w hich 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 expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable 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, 1998, AIM reduced its advisory fee from the Fund by
$683,910.
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, 1998, the Fund
reimbursed AIM $66,515 for such services.
FS-19
<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, 1998, the Private Investment Class paid
$135,349 as compensation to FMC under the Plan. FMC waived fees of $135,349
during the same period.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agent and
shareholder services to the Fund. On September 20, 1997, the Board of Directors
of the Fund approved appointment of AFS as transfer agent of the Fund effective
December 29, 1997. During the year ended March 31, 1998, the Fund paid AFS
$25,471 for such services. Prior to effective date of the agreement with AFS,
the Fund paid A I M Institutional Fund Services, Inc. $74,497 pursuant to a
transfer agency and shareholder services agreement for the period April 1, 1997
through December 28, 1997.
During the year ended March 31, 1998, the Fund paid legal fees of $4,852 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, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 5,302,472,459 $5,302,472,459 4,746,443,085 $ 4,746,443,085
- ----------------------------------------------------------------------------------------
Private Investment
Class 484,657,926 484,657,926 204,111,511 204,111,511
- ----------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 2,107,154 2,107,154 192,345 192,345
- ----------------------------------------------------------------------------------------
Private Investment
Class 1,514,378 1,514,378 860,021 860,021
- ----------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (5,374,252,629) (5,374,252,629) (4,789,178,631) (4,789,178,631)
- ----------------------------------------------------------------------------------------
Private Investment
Class (443,253,847) (443,253,847) (202,569,507) (202,569,507)
- ----------------------------------------------------------------------------------------
Net increase
(decrease) (26,754,559) $ (26,754,559) (40,141,176) $ (40,141,176)
========================================================================================
</TABLE>
FS-20
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Private Investment
Class capital stock outstanding during each of the years in the five-year
period ended March 31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<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 0.03 0.02
- ------------------------------ ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income (0.03) (0.03) (0.03) (0.03) (0.02)
- ------------------------------ ------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
============================== ======= ======= ======= ======= =======
Total return 3.29% 3.07% 3.41% 2.80% 2.07%
============================== ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $80,462 $37,544 $35,139 $29,286 $16,601
============================== ======= ======= ======= ======= =======
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) 3.24%(b) 3.02% 3.35% 2.89% 2.05%
============================== ======= ======= ======= ======= =======
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.77%, 0.83%, 0.76%, 1.17% and 1.15% for the periods 1998-1994,
respectively.
(b) Ratios are based on average net assets of $54,089,253.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 2.92%, 2.65%, 3.04%, 2.17% and 1.35% for the periods
1998-1994, respectively.
FS-21
<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, 1998 (audited)
In Part B: (i) Independent Auditors' Report
(ii) Financial Statements as of March 31, 1998 (audited)
In Part C: None
2. Private Investment Class of the Cash Reserve Portfolio
In Part A: Financial Highlights as of March 31, 1998 (audited)
In Part B: (i) Independent Auditors' Report
(ii) Financial Statements as of March 31, 1998 (audited)
In Part C: None
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ---------------------------
<C> <C> <S>
(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 Amendment
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 Amendment
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
- ------- ---------------------------
<C> <C> <S>
(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
were filed electronically as an Exhibit to Post-Effective Amendment
No. 24 on July 29, 1997, and are hereby incorporated by reference.
(3) Certain Voting Trust Agreements - None.
(4) (a) Form of specimen share certificate for Institutional Cash Reserve
Shares of the Cash Reserve Portfolio was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 16 on March 23, 1992.
(b) Form of specimen share certificate for Private Investment Class
of the Cash Reserve Portfolio was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 16 on March 23, 1992.
(5) (a) Investment Advisory Agreement, dated October 18, 1993, between A I M
Advisors, Inc. and Registrant, on behalf of the Cash Reserve
Portfolio was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 21 on July 29, 1994, and 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
was filed electronically as an Exhibit to Post-Effective Amendment No.
24 on July 29, 1997, and is hereby incorporated by reference.
(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 was filed electronically as an
Exhibit to Post-Effective Amendment No. 24 on July 29, 1997, and is
hereby incorporated by reference.
(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
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ---------------------------
<C> <C> <S>
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.
(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.
(e) Form of Deferred Compensation Agreement for Registrant's Non-
Affiliated Directors as approved March 12, 1997, is filed herewith
electronically.
(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.
(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.
(c) Transfer Agency and Service Agreement, dated December 29, 1997,
between AIM Fund Services, Inc. and Registrant, is filed herewith
electronically.
(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.
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ---------------------------
<C> <C> <S>
(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.
(c) Amended and Restated Master Distribution Plan on behalf of the Private
Investment Class of the Cash Reserve Portfolio was filed
electronically as an Exhibit to Post-Effective Amendment No. 24 on
July 29, 1997, and is hereby incorporated by reference.
(d) Form of Shareholder Service Agreement to be used in connection with
Registrant's Amended and Restated Master Distribution Plan 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 Second Amended and Restated 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.
C-4
<PAGE>
<TABLE>
<CAPTION>
Number of Record Holders
Title Class as of May 15, 1998
----------- ------------------------
<S> <C>
Institutional Cash Reserve Shares 97
Private Investment Class 148
</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 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
$25,000,000 limit of liability.
C-5
<PAGE>
Item 28. Business and Other Connections of Investment Advisor
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner, or trustee.
See Statement of Additional Information, Part B under headings "General
Information about the Company - Directors and Officers", "General
Information about the Company - The Investment Advisor" for information
concerning A I M Advisors, Inc.
Item 29. Principal Underwriters
(a) Fund Management Company, the registrant's principal underwriter, also acts
as principal underwriter, depositor or investment advisor to the following
investment companies:
AIM Equity Funds, Inc. (Institutional Classes)
AIM Investment Securities Funds (AIM Limited Maturity Treasury Fund
- Institutional Class)
Short-Term Investments Trust
Short-Term Investments Co.
(b)
<TABLE>
<CAPTION>
Name and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- ---------------- -------------------------- ---------------
<S> <C> <C>
Charles T. Bauer Chairman of the Board of Directors Chairman & Director
J. Abbott Sprague President & Director Vice President
Robert H. Graham Senior Vice President & Director President & Director
Mark D. Santero Senior Vice President None
William J. Wendel Senior Vice President None
James R. Anderson Vice President None
John J. Arthur Vice President & Treasurer Senior Vice President & Treasurer
Nancy A. Beck Vice President None
Jesse H. Cole Vice President None
</TABLE>
- ----------------------
* 11 Greenway Plaza, Suite 100, Houston, Texas 77046
C-6
<PAGE>
<TABLE>
<S> <C> <C>
Melville B. Cox Vice President & Chief Compliance Officer Vice President
Carol F. Relihan Vice President, General Counsel & Director Secretary & Senior Vice President
Stephen I. Winer Vice President, Assistant Assistant Secretary
General Counsel & Assistant Secretary
Kathleen J. Pflueger Secretary Assistant Secretary
David E. Hessel Assistant Vice President, None
Assistant Treasurer & Controller
Jeffrey L. Horne Assistant Vice President None
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
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 Fund Services,
Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
C-7
<PAGE>
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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 22nd day of May,
1998.
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:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ CHARLES T. BAUER Chairman & Director 5/22/98
- --------------------------
(Charles T. Bauer)
/s/ ROBERT H. GRAHAM Director & President 5/22/98
- -------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ BRUCE L. CROCKETT Director 5/22/98
- --------------------------
(Bruce L. Crockett)
/s/ OWEN DALY II Director 5/22/98
- --------------------------
(Owen Daly II)
/s/ EDWARD K. DUNN, JR. Director 5/22/98
- --------------------------
(Edward K. Dunn, Jr.)
/s/ JACK FIELDS Director 5/22/98
- --------------------------
(Jack Fields)
/s/ CARL FRISCHLING Director 5/22/98
- --------------------------
(Carl Frischling)
/s/ LEWIS F. PENNOCK Director 5/22/98
- --------------------------
(Lewis F. Pennock)
/s/ IAN W. ROBINSON Director 5/22/98
- --------------------------
(Ian W. Robinson)
/s/ LOUIS S. SKLAR Director 5/22/98
- --------------------------
(Louis S. Sklar)
/s/ JOHN J. ARTHUR Senior Vice President & 5/22/98
- -------------------------- Treasurer (Principal Financial
(John J. Arthur) and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
7(e) Form of Deferred Compensation Agreement for Registrant's Non-
Affiliated Directors
9(c) Transfer Agency and Service Agreement, dated December 29, 1997,
between AIM Fund Services, Inc. and Registrant
11(a) Consent of Ballard Spahr Andrews & Ingersoll, LLP
11(b) Consent of KPMG Peat Marwick LLP
15(d) Form of Shareholder Service Agreement
18 Second Amended and Restated Rule 18f-3 Plan
27 Financial Data Schedule
<PAGE>
EXHIBIT 7(e)
DEFERRED COMPENSATION AGREEMENT
SUMMARY
Your Deferred Compensation Agreement (the "Agreement") allows you to defer
some or all of your annual trustee's fees otherwise payable by the Funds.
Deferred fees are deemed invested in certain mutual funds selected by you. The
deferral is pre-tax, and the deferred amount and the credited gains, losses and
income are not subject to tax until paid out to you.
Your deferrals (and investment experience) are posted to a bookkeeping
account maintained by the Funds in your name. In order for you to enjoy the tax
deferral, the payments due under the Agreement will be paid from the Funds'
general assets, and you are considered a general unsecured creditor of the
Funds; you may not transfer your right to receive payments under the Agreement
to any other person, nor may you pledge that right to secure any debt or other
obligation; finally, an election to defer must be made in writing before the
first day of the calendar year for which the fees are earned (the "Election
Date") and elections can be changed only prospectively, effective for the next
calendar year.
An important change has been made to your Agreement to give you greater
flexibility to select the time and method of payment of amounts that you defer:
for amounts previously deferred and for future elections you now designate a
specific Payment Date and payment method which generally may be changed with at
least one year's advance notice.
PAYMENT DATE ELECTION
Deferred fees (and the income, gains and losses credited during the
deferral period) generally will be paid out as elected by you in installments or
a single sum in cash within 30 days of the Payment Date elected. (For payments
in connection with your termination of service as a trustee, see below.)
Deferrals must be for a minimum two year period (unless your retirement
date under the Retirement Plan is earlier). Thus, the Payment Date may be the
first day of any calendar quarter that follows the second anniversary of the
applicable Election Date or your retirement date. Thus, fees previously
deferred and fees payable for the calendar year beginning January 1, 1997 may be
deferred to the first day of any calendar quarter in any year from 1999.
EXTENDING A PAYMENT DATE
At least one year prior to any Payment Date, you may extend that Date,
provided that the additional period of deferral is at least two years. You may
make this change in Payment Date only once.
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Payment Method
The value of your deferrals (based on your election as to how your deferral
account is to be considered invested) will be paid in cash, in one lump sum or
in annual installments (over a period not to exceed 10 years) as you select at
the time you select your Payment Data. You may change this election, but the
change will not be given effect unless it is made at least one year before your
Payment Date or your ceasing to be a trustee (whichever occurs first). This one
year requirement is waived in the case of your death (see Termination of
Service, below).
Termination of Service
Upon your death, your account under the Agreement will be paid out as
elected by you in installments or in a single sum in cash as soon as
practicable. Payment will be made to your designated Beneficiary or
Beneficiaries or to your estate if there is no surviving Beneficiary.
Upon termination of your service as trustee for any reason other than death
or your retirement (as defined in the Retirement Plan), your account will be
paid to you as a single sum (or in installments if you had timely elected that
method) in cash within three months following the end of the fiscal year in
which you terminate, regardless of the Payment Dates you elected.
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DEFERRED COMPENSATION AGREEMENT
-------------------------------
AGREEMENT, made on this __ day of _______, 19__, by and
between the registered open-end investment companies listed on Appendix A
hereto (the "Funds"), and
"Director") residing at ___________________________________________________.
WHEREAS, the Funds and the Director have entered into
agreements pursuant to which the Director will serve as a director/trustee of
the Funds; and
WHEREAS, if the Funds and the Director have previously entered
into an additional agreement whereby the Funds will provide to the Director a
vehicle under which the Director can defer receipt of directors' fees payable
by the Funds and now desire to amend and restate such agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Director hereby
agree as follows:
1. DEFINITION OF TERMS AND CONSTRUCTION
------------------------------------
1.1 Definitions. Unless a different meaning is plainly implied by
the context, the following terms as used in this Agreement shall have the
following meanings:
(a) "Beneficiary" shall mean such person or persons
designated pursuant to Section 4.3 hereof to receive benefits after the death
of the Director.
(b) "Boards of Directors" shall mean the respective
Boards of Directors of the Funds.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of directors'
fees paid by each of the Funds to the Director during a Deferral Year prior to
reduction for Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or
amounts of the Director's Compensation deferred under the provisions of Section
3 of this Agreement.
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(f) "Deferral Accounts" shall mean the accounts
maintained to reflect the Director's Compensation Deferrals made pursuant to
Section 3 hereof (or pursuant to any prior agreement) and any other credits or
debits thereto.
(g) "Deferral Year" shall mean each calendar year during
which the Director makes, or is entitled to make, Compensation Deferrals under
Section 3 hereof.
(h) "Retirement" shall have the same meaning as set forth
under the Retirement Plan.
(i) "Retirement Plan" shall mean the "AIM Funds
Retirement Plan for Eligible Directors/Trustees."
(j) "Valuation Date" shall mean the last business day of
each calendar year and any other day upon which the Funds makes valuations of
the Deferral Accounts.
1.2 Plurals and Gender. Where appearing in this Agreement the
singular shall include the plural and the masculine shall include the feminine,
and vice versa, unless the context clearly indicates a different meaning.
1.3 Directors and Trustees. Where appearing in this Agreement,
"Director" shall also refer to "Trustee" and "Board of Directors" shall also
refer to "Board of Trustees."
1.4 Headings. The headings and sub-headings in this Agreement are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is drafted,
and shall be construed, as a separate agreement between the Director and each
of the Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
--------------------------------------------------------
2.1 Commencement of Compensation Deferrals. The Director may
elect, on a form provided by, and submitted to, the Presidents of the
respective Funds, to commence Compensation Deferrals under Section 3 hereof for
the period beginning on the later of (i) the date this Agreement is executed or
(ii) the date such form is submitted to the Presidents of the Funds.
2.2 Termination of Deferrals. The Director shall not be eligible
to make Compensation Deferrals after the earliest of the following dates:
(a) The date on which he ceases to serve as a Director of
all of the Funds; or
(b) The effective date of the termination of this
Agreement.
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3. COMPENSATION DEFERRALS
----------------------
3.1 Compensation Deferral Elections.
(a) On or prior to the first day of any Deferral Year,
the Director may elect, on the form described in Section 2.1 hereof, to defer
the receipt of all or a portion of his Compensation for such Deferral Year.
Such writing shall set forth the amount of such Compensation Deferral (in whole
percentage amounts). Such election shall continue in effect for all subsequent
Deferral Years unless it is canceled or modified as provided below.
(b) Compensation Deferrals shall be withheld from each
payment of Compensation by the Funds to the Director based upon the percentage
amount elected by the Director under Section 3.1(a) hereof.
(c) The Director may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Presidents
of the Funds a revised Compensation Deferral election form. Such change will
be effective as of the first day of the Deferral Year following the date such
revision is submitted to the Presidents of the Funds.
3.2 Valuation of Deferral Account.
(a) Each Fund shall establish a bookkeeping Deferral
Account to which will be credited an amount equal to the Director's
Compensation Deferrals under this Agreement made with respect to Compensation
earned from each such Fund. Compensation Deferrals shall be allocated to the
Deferral Accounts on the first business day following the date such
Compensation Deferrals are withheld from the Director's Compensation. As of
the date of this Agreement, the Deferral Accounts also shall be credited with
the amounts credited to the Director under each other outstanding elective
deferred compensation agreement entered into by and between the Funds and the
Director which is superseded by this Agreement pursuant to Section 6.11 hereof.
The Deferral Accounts shall be debited to reflect any distributions from such
Accounts. Such debits shall be allocated to the Deferral Accounts as of the
date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Accounts are invested in the manner
set forth under Section 3.3, below) attributable to the period following the
next preceding Valuation Date shall be credited to and/or deducted from the
Director's Deferral Accounts.
3.3 Investment of Deferral Account Balances.
(a) (1) The Director may select, from various options
made available by the Funds, the investment media in which all or part of his
Deferral Accounts shall be deemed to be invested.
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(2) The Director shall make an investment
designation on a form provided by the Presidents of the Funds which shall
remain effective until another valid direction has been made by the Director as
herein provided. The Director may amend his investment designation by giving
written direction to the Presidents of the Funds in such manner and at such
time as the Funds may pemit, but no less frequently than quarterly on thirty
(30) days' notice prior to the end of a calendar quarter. A timely change to a
Director's investment designation shall become effective as soon as practicable
following receipt by the Presidents of the Funds.
(3) The investment media deemed to be made
available to the Director, and any limitation on the maximum or minimum
percentages of the Director's Deferral Accounts that may be invested any
particular medium, shall be the same as from time-to-time communicated to the
Director by the Presidents of the Funds.
(b) Except as provided below, the Director's Deferral
Accounts shall be deemed to be invested in accordance with his investment
designations, provided such designations conform to the provisions of this
Section. If -
(1) the Director does not furnish the Presidents
of the Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Director are unclear,
then the Director's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force or effect until such time as the Director
shall provide the Presidents of the Funds with complete investment
instructions. Notwithstanding the above, the Boards of Directors, in their
sole discretion, may disregard the Director's election and determine that all
Compensation Deferrals shall be deemed to be invested in a fund determined by
the Boards of Directors. In the event that any fund under which any portion of
the Director's Deferral Accounts is deemed to be invested ceases to exist, such
portion of the Deferral Accounts thereafter shall be held in the successor to
such fund, subject to subsequent deemed investment elections.
The Fund shall provide an annual statement to the Director
showing such information as is appropriate, including the aggregate amount in
the Deferral Accounts, as of a reasonably current date.
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4. DISTRIBUTIONS FROM DEFERRAL ACCOUNTS
------------------------------------
4.1 Payment Date and Methods.
(a) Designation of Date. Each deferral direction given
pursuant to Section 3.1 shall include designation of the Payment Date for the
value of the amount deferred. Such Payment Date shall be the first day of any
calendar quarter, subject to the limitation set forth in paragraph 4.1(c).
(b) Extension Date. At least one year before the Payment
Date initially designated pursuant to paragraph 4.1(a) above, the Participant
may irrevocably elect to extend such Payment Date to the first day of any
calendar quarter, subject to the limitation set forth in paragraph 4.1(c).
(c) Limitation. The Director shall select a Payment Date
(or extended Payment Date) that is no sooner than the earlier of (i) the
January 1 that follows the second anniversary of the Participant's deferral
election made pursuant to paragraph 4.1(a) or (b) or (ii) the January 1 of the
year after the Participant's Retirement.
(d) Methods of Payment. Distributions from the
Director's Deferral Accounts shall be paid in cash in a single sum unless the
Participant elects, at the time a Payment Date is selected pursuant to
paragraph 4.1(a) or 4.1(b), to receive the amount payable in generally equal
quarterly installments over a period not to exceed ten (10) years. In
addition, as least one year before the Payment Date, a Director may change the
method of payment previously selected.
(e) Irrevocability. Except as provided in paragraph
4.1(b) and 4.1(d), a designation of a Payment Date and an election of
installment payments shall be irrevocable; provided, however, that payment
shall be made or begin on a different date as follows:
(1) Upon the Director's death, payment shall be
made in accordance with Section 4.2,
(2) Upon the Director's ceasing to serve as a
director of all of the Funds for reasons other than death or Retirement,
payment shall be made or begin within three months after the end of the
calendar year in which such termination occurs in accordance with the method
elected by the Director pursuant to paragraph 4.1(d) provided the designation
of such method had been made at least one year before such termination occurred,
except that the Boards of Directors, in their sole discretion, may accelerate
the distribution of such Deferral Accounts,
(3) Upon termination of this Agreement, payment
shall be made in accordance with Section 5.2, and
(4) In the event of the liquidation, dissolution
or winding up of a Fund or the distribution of all or substantially all of a
Fund's assets and property relating to one or
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more series of its shares to the shareholders of such series (for this purpose
a sale, conveyance or transfer of a Fund's assets to a trust, partnership,
association or corporation in exchange for cash, shares or other securities
with the transfer being made subject to, or with the assumption by the
transferee of, the liabilities of the Fund shall not be deemed a termination of
the Fund or such a distribution), all unpaid balances of the Deferral Accounts
related to such Fund as of the effective date thereof shall be paid in a lump
sum on such effective date.
4.2 Death Prior to Complete Distribution of Deferral Accounts.
Upon the death of the Director prior to the commencement of the distribution of
the amounts credited to his Deferral Accounts, the balance of such Accounts
shall be distributed to his Beneficiary in accordance with the method of
payment selected pursuant to paragraph 4.1(d), commencing as soon as practicable
after the Director's death. In the event of the death of the Director after
the commencement of such distribution, but prior to the complete distribution
of his Deferral Accounts, the balance of the amounts credited to his Deferral
Accounts shall be distributed to his Beneficiary over the remaining period
during which such amounts were distributable to the Director under Section 4.1
hereof. Notwithstanding the above, the Boards of Directors, in their sole
discretion, may accelerate the distribution of the Deferral Accounts.
4.3 Designation of Beneficiary. For purposes of Section 4.2
hereof, the Director's Beneficiary shall be the person or persons so designated
by the Director in a written instrument submitted to the Presidents of the
Funds. In the event the Director fails to properly designate a Beneficiary,
his Beneficiary shall be the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Director: the Director's (1) surviving spouse or (2) estate.
4.4 Payments Due Missing Persons. The Funds shall make a
reasonable effort to locate all persons entitled to benefits under this
Agreement. However, notwithstanding any provisions of this Agreement to the
contrary, if, after a period of five (5) years from the date such benefit shall
be due, any such persons entitled to benefits have not been located, their
rights under this Agreement shall stand suspended. Before this provision
becomes operative, the Funds shall send a certified letter to all such persons
to their last known address advising them that their benefits under this
Agreement shall be suspended. Any such suspended amounts shall be held by the
Funds for a period of three (3) additional years (or a total of eight (8) years
from the time the benefits first become payable) and thereafter, if unclaimed,
such amounts shall be forfeited.
5. AMENDMENTS AND TERMINATION
--------------------------
5.1 Amendments.
(a) The Funds and the Director may, by a written
instrument signed by, or on behalf of, such parties, amend this Agreement at
any time and in any manner.
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(b) The Funds reserve the right to amend, in whole or in
part, and in any manner, any or all of the provisions of this Agreement by
action of their Boards of Directors for the purposes of complying with any
provision of the Code or any other technical or legal requirements, provided
that:
(1) No such amendment shall make it possible for
any part of the Director's Deferral Accounts to be used for, or diverted to,
purposes other than for the exclusive benefit of the Director or his
Beneficiaries, except to the extent otherwise provided in this Agreement;
and
(2) No such amendment may reduce the amount of
the Director's Deferral Accounts as of the effective date of such amendment.
5.2 Termination. The Director and the Funds may, by written
instrument signed by, or on behalf of, such parties, terminate this Agreement
at any time. In the event of the termination of this Agreement, the Boards of
Directors, in their sole discretion, may choose to pay out the Director's
Deferral Accounts prior to the designated Payment Dates. Otherwise, following
a termination of this Agreement, such Accounts shall continue to be maintained
in accordance with the provisions of this Agreement until the time they are
paid out.
6. MISCELLANEOUS.
--------------
6.1 Rights of Creditors.
(a) This Agreement is unfunded. Neither the Director nor
any other persons shall have any interest in any specific asset or assets of
the Funds by reason of any Deferral Accounts hereunder, nor any rights to
receive distribution of his Deferral Accounts except and as to the extent
expressly provided hereunder. The Funds shall not be required to purchase,
hold or dispose of any investments pursuant to this Agreement; however, if in
order to cover their obligations hereunder the Funds elect to purchase any
investments the same shall continue for all purposes to be a part of the
general assets and property of the Funds, subject to the claims of their
general creditors and no person other than the Funds shall by virtue of the
provisions of this Agreement have any interest in such assets other than an
interest as a general creditor.
(b) The rights of the Director and the Beneficiaries to
the amounts held in the Deferral Accounts are unsecured and shall be subject to
the creditors of the Funds. With respect to the payment of amounts held under
the Deferral Accounts, the Director and his Beneficiaries have the status of
unsecured creditors of the Funds. This Agreement is executed on behalf of the
Funds by an officer, or other representative, of the Funds as such and not
individually. Any obligation of the Funds hereunder shall be an unsecured
obligation of the Funds and not of any other person.
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<PAGE>
6.2 Agents. The Funds may employ agents and provide for such
clerical, legal, actuarial, accounting, advisory or other services as it deems
necessary to perform their duties under this Agreement. The Funds shall bear
the cost of such services and all other expenses they incur in connection with
the administration of this Agreement.
6.3 Liability and Indemnification. Except for their own gross
negligence, willful misconduct or willful breach of the terms of this
Agreement, the Funds shall be indemnified and held harmless by the Director
against liability or losses occurring by reason of any act or omission of the
Funds or any other person.
6.4 Incapacity. If the Funds shall receive evidence satisfactory
to them that the Director or any Beneficiary entitled to receive any benefit
under the Agreement is, at the time when such benefit becomes payable, a minor,
or is physically or mentally incompetent to receive such benefit and to give a
valid release therefor, and that another person or an institution is then
maintaining or has custody of the Director or Beneficiary and that no guardian,
committee or other representative of the estate of the Director or Beneficiary
shall have been duly appointed, the Funds may make payment of such benefit
otherwise payable to the Director or Beneficiary to such other person or
institution, including a custodian under a Uniform Gifts to Minors Act, or
corresponding legislation (who shall be an adult, a guardian of the minor or a
trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
6.5 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.
6.6 Governing Law. This Agreement is made and entered into in the
State of Texas and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of Texas.
6.7 Nonguarantee of Directorship. Nothing contained in this
Agreement shall be construed as a contract or guarantee of the right of the
Director to be, or remain as, a director of any of the Funds or to receive any,
or any particular rate of, Compensation from any of the Funds.
6.8 Counsel. The Funds may consult with legal counsel with
respect to the meaning or construction of this Agreement, their obligations or
duties hereunder or with respect to any action or proceeding or any question of
law, and they shall be fully protected with respect to any action taken or
omitted by them in good faith pursuant to the advice of legal counsel.
6.9 Spendthrift Provision. The Director's and Beneficiaries'
interests in the Deferral Accounts may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred,
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alienated, assigned nor become subject to execution, garnishment or
attachment and any attempt to do so by any person shall render the Deferral
Accounts immediately forfeitable.
6.10 Notices. For purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight delivery service providing for a
signed return receipt, addressed to the Director at the home address set forth
in the Funds' records and to the Funds at the address set forth on the first
page of this Agreement, provided that all notices to the Funds shall be
directed to the attention of the Presidents of the Funds or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
6.11 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Director with respect to the payment of
non-qualified elective deferred compensation by the Fund to the Director.
Effective as of the date hereof, this Agreement replaces, and supersedes, all
other non-qualified elective deferred compensation agreements by and between
the Director and the Funds.
6.12 Interpretation of Agreement. Interpretations of, and
determinations (including factual determinations) related to, this Agreement
made by the Funds in good faith, including any determinations of the amounts of
the Deferral Accounts, shall be conclusive and binding upon all parties; and
the Funds shall not incur any liability to the Director for any such
interpretation or determination so made or for any other action taken by it in
connection with this Agreement in good faith.
6.13 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the Funds and their successors and assigns
and to the Director and his heirs, executors, administrators and personal
representatives.
6.14 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.15 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
The Funds
________________________ By:_________________________
Witness Name:
Title:
________________________ ____________________________
Witness Director
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APPENDIX A
----------
AIM ADVISOR FUNDS, INC.
AIM EQUITY FUNDS, INC.
AIM FUNDS GROUP
AIM INTERNATIONAL FUNDS, INC.
AIM INVESTMENT SECURITIES FUNDS
AIM SUMMIT FUND, INC.
AIM TAX-EXEMPT FUNDS, INC.
AIM VARIABLE INSURANCE FUNDS, INC.
SHORT-TERM INVESTMENTS CO.
SHORT-TERM INVESTMENTS TRUST
TAX-FREE INVESTMENTS CO.
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DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation agreement (the
"Agreement") dated as of ________________ by and between the undersigned and
the AIM Funds, I hereby make the following elections:
Deferral of Compensation
------------------------
Starting with Compensation to be paid to me with respect to
services provided by me to the AIM Funds after the date this election Form is
received by the AIM Funds, I hereby elect that 50 percent (50%) of my
Compensation (as defined under the Agreement) be reduced and that the Fund
establish a bookkeeping account credited with amounts equal to the amount so
reduced (the "Deferral Account"). The Deferral Account shall be further
credited with income equivalents as provided under the Agreement. I understand
that this election will remain in effect with respect to Compensation I earn in
subsequent years unless I modify or revoke it. I further understand that such
modification or revocation will be effective only prospectively and will apply
commencing with the Compensation I earn in the calendar year that begins after
the change is received by you.
Payment Date
------------
I hereby designate ________ 1 (select the first month in any
calendar quarter) in the year ______ (select a year that is at least two years
after the year this election is made) as the Payment Date for the amounts
credited to my Deferral Account pursuant to the election made above. If my
Retirement (as defined in the Agreement) occurs sooner, I o do o do not (check
the appropriate box) want payment of such amounts to commence effective the
January 1 following my Retirement. I understand that amounts credited to my
Deferral Account may be paid to me prior to the Payment Date as provided in the
Agreement.
Payment Method
--------------
I hereby elect to receive the amounts credited to my Deferral
Account in (check one)
o a single payment in cash
o quarterly installments for a period of ____ years (select no more
than 10 years)
o annual installments for a period of ____ (select no more than 10
years)
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beginning within 30 days following the payment date selected above.
I understand that the amounts credited to my Deferral Account
shall remain the general assets of the AIM Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of the AIM Funds. I
may not sell, encumber, pledge, assign or otherwise alienate the amounts
credited to my Deferral Account.
I hereby agree that the terms of the Agreement are
incorporated herein and are made a part hereof. Dated as of the day and year
first above written.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
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DEFERRED COMPENSATION AGREEMENT
BENEFICIARY DESIGNATION FORM
-------------------------------
TO: Presidents of the AIM Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of _____________ by and between the undersigned and the
AIM Funds, I hereby make the following beneficiary designations:
I. Primary Beneficiary
-------------------
I hereby appoint the following as my Primary Beneficiary(ies)
to receive at my death the amounts credited to my Deferral Account under the
Agreement. In the event I am survived by more than one Primary Beneficiary,
such Primary Beneficiaries shall share equally in such amounts unless I
indicate otherwise on an attachment to this form:
_________________________________________________________________
Name Relationship
_________________________________________________________________
Address
_________________________________________________________________
City State Zip
<PAGE>
II. Secondary Beneficiary
---------------------
In the event I am not survived by any Primary Beneficiary, I
hereby appoint the following as Secondary Beneficiary(ies) to receive death
benefits under the Agreement. In the event I am survived by more than one
Secondary Beneficiary, such Secondary Beneficiaries shall share equally unless
I indicate otherwise on an attachment to this form:
_________________________________________________________________
Name Relationship
_________________________________________________________________
Address
_________________________________________________________________
City State Zip
I understand that I may revoke or amend the above designations
at any time. I further understand that if I am not survived by a Primary or
Secondary Beneficiary, my Beneficiary shall be as set forth under the
Agreement.
WITNESS: DIRECTOR:
_________________________ ______________________________
WITNESS: RECEIVED:
_________________________ AIM Funds
By:___________________________
Date:_________________________
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EXHIBIT 9(c)
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
TAX-FREE INVESTMENTS CO.
AND
A I M FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 5 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 6 COVENANTS OF THE FUND AND THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 7 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 8 ADDITIONAL FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 9 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 10 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 11 TEXAS LAW TO APPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 12 MERGER OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 13 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 29th day of December, 1997, by and between
TAX-FREE INVESTMENTS CO., a Maryland corporation, having its principal office
and place of business at 11 Greenway Plaza, Suite 100, Houston, Texas 77046
(the "Fund"), and A I M Fund Services, Inc., a Delaware corporation having its
principal office and place of business at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046 (the "Transfer Agent").
WHEREAS, the Transfer Agent is registered as such with the Securities
and Exchange Commission (the "SEC"); and
WHEREAS, the Fund is authorized to issue shares in separate series and
classes, with each such series representing interests in a separate portfolio
of securities and other assets and each such class having different
distribution arrangements; and
WHEREAS, the Fund on behalf of each class of the Cash Reserve
Portfolio thereof (the "Portfolio") desires to appoint the Transfer Agent as
its transfer agent, and agent in connection with certain other activities, with
respect to the Portfolio, and the Transfer Agent desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1
TERMS OF APPOINTMENT; DUTIES OF THE TRANSFER AGENT
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Transfer Agent to act as,
and the Transfer Agent agrees to act as, its transfer agent for the authorized
and issued shares of common stock of the Fund representing interests in each
class of the Portfolio ("Shares"), dividend disbursing agent, and agent in
connection with any accumulation or similar plans provided to shareholders of
the Portfolio (the "Shareholders"), including without limitation any periodic
investment plan or periodic withdrawal program, as provided in the currently
effective prospectus and statement of additional information (the "Prospectus")
of the Fund on behalf of the Portfolio.
1.02 The Transfer Agent agrees that it will perform the following
services:
(a) The Transfer Agent shall, in accordance with procedures
established from time to time by agreement between the Fund on behalf of the
Portfolio, as applicable, and the Transfer Agent:
(i) receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Charter of the Fund (the
"Custodian");
(ii) pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
1
<PAGE>
(iii) receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) at the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the Fund;
(v) effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) prepare and transmit payments for dividends and
distributions declared by the Fund on behalf of the
Shares;
(vii) maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(viii) record the issuance of Shares of the Fund and
maintain pursuant to SEC Rule 17Ad-1O(e) a record of
the total number of Shares which are authorized,
based upon data provided to it by the Fund, and
issued and outstanding.
The Transfer Agent shall also provide the Fund on a regular basis with
the total number of Shares which are authorized and issued and outstanding and
shall have no obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws relating to the issue
or sale of such Shares, which function shall be the sole responsibility of the
Fund.
(b) In addition to the services set forth in the above paragraph
(a), the Transfer Agent shall: (i) perform the customary services of a transfer
agent, including but not limited to: maintaining all Shareholder accounts,
mailing Shareholder reports and prospectuses to current Shareholders, preparing
and mailing confirmation forms and statements of accounts to Shareholders for
all purchases and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information.
(c) Procedures as to who shall provide certain of these services
in Article 1 may be established from time to time by agreement between the Fund
on behalf of the Portfolio and the Transfer Agent. The Transfer Agent may at
times perform only a portion of these services and the Fund or its agent may
perform these services on the Fund's behalf.
ARTICLE 2
FEES AND EXPENSES
2.01 For performance by the Transfer Agent pursuant to this
Agreement, the Fund agrees on behalf of the Portfolio to pay the Transfer Agent
an annual fee in the amount of .009% of average daily net assets, payable
monthly. Such fee and out-of-pocket expenses and advances identified under
Section 2.03 below may be changed from time to time subject to mutual written
agreement between the Fund and the Transfer Agent.
2
<PAGE>
2.02 The Fund agrees on behalf of the Portfolio to pay all fees
following the mailing of a billing notice.
2.03 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Transfer Agent for out-of-pocket expenses or advances
incurred by the Transfer Agent for the reconcilement of demand deposit accounts
on behalf of the Portfolio. In addition, any other expenses incurred by the
Transfer Agent at the request or with the consent of the Fund, will be
reimbursed by the Fund on behalf of the applicable Shares.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE TRANSFER AGENT
The Transfer Agent represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the state of Delaware.
3.02 It is duly qualified to carry on its business in Delaware and
in Texas.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.06 It is registered as a Transfer Agent as required by the
federal securities laws.
3.07 This Agreement is a legal, valid and binding obligation to it.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Transfer Agent that:
4.01 It is a business corporation duly organized and existing and
in good standing under the laws of Maryland.
4.02 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
4.04 It is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended.
3
<PAGE>
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of the Portfolio is currently effective and will remain
effective, with respect to all Shares of the Fund being offered for sale.
ARTICLE 5
INDEMNIFICATION
5.01 The Transfer Agent shall not be responsible for, and the Fund
shall on behalf of the Portfolio, indemnify and hold the Transfer Agent
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable to:
(a) all actions of the Transfer Agent or its agents or
subcontractors required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith and without negligence or willful
misconduct;
(b) the Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder;
(c) the reliance on or use by the Transfer Agent or its agents or
subcontractors of information, records and documents or services which (i) are
received or relied upon by the Transfer Agent or its agents or subcontractors
and/or furnished to it or performed by on behalf of the Fund, and (ii) have
been prepared, maintained and/or performed by the Fund or any other person or
firm on behalf of the Fund; provided such actions are taken in good faith and
without negligence or willful misconduct;
(d) the reliance on, or the carrying out by the Transfer Agent or
its agents or subcontractors of any instructions or requests of the Fund on
behalf of the Portfolio; provided such actions are taken in good faith and
without negligence or willful misconduct; or
(e) the offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
5.02 The Transfer Agent shall indemnify and hold the Fund harmless
from and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to any action
or failure or omission to act by the Transfer Agent as result of the Transfer
Agent's lack of good faith, negligence or willful misconduct.
5.03 At any time the Transfer Agent may apply to any officer of the
Fund for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Transfer
Agent under this Agreement, and the Transfer Agent and its agents or
subcontractors shall not be liable to and shall be indemnified by the Fund on
behalf of the Portfolio for any action taken or omitted by it in reliance upon
such instructions or upon the opinion of such counsel. The Transfer Agent
shall be protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Fund, reasonably believed to be genuine and to
have been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided to the Transfer Agent or its
agents or subcontractors by machine readable
4
<PAGE>
input, telex, CRT data entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority of any person,
until receipt of written notice thereof from the Fund.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for
any consequential damages arising out of any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent.
ARTICLE 6
COVENANTS OF THE FUND AND THE TRANSFER AGENT
6.01 The Fund shall, upon request, on behalf of the Portfolio
promptly furnish to the Transfer Agent the following:
(a) a certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of the Transfer Agent and the execution
and delivery of this Agreement; and
(b) a copy of the Charter and By-Laws of the Fund and all
amendments thereto.
6.02 The Transfer Agent shall keep records relating to the services
to be performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Transfer Agent agrees that all such
records prepared or maintained by the Transfer Agent relating to the services
to be performed by the Transfer Agent hereunder are the property of the Fund
and will be preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
6.03 The Transfer Agent and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
6.04 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund and to secure instructions from an
5
<PAGE>
authorized officer of the Fund as to such inspection. The Transfer Agent
reserves the right, however, to exhibit the Shareholder records to any person
whenever it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
ARTICLE 7
TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon sixty
(60) days written notice to the other.
7.02 Should the Fund exercise its right to terminate this
Agreement, all out-of-pocket expenses associated with the movement of records
and material will be borne by the Fund on behalf of the Portfolio.
Additionally, the Transfer Agent reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge equivalent
to the average of three (3) months' fees.
ARTICLE 8
ADDITIONAL FUNDS
8.01 In the event that the Fund establishes one or more series of
Shares in addition to the Portfolio with respect to which it desires to have
the Transfer Agent render services as transfer agent under the terms hereof, it
shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
ARTICLE 9
ASSIGNMENT
9.01 Except as provided in Section 9.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
9.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
9.03 The Transfer Agent may, without further consent on the part of
the Fund, subcontract for the performance hereof with any entity which is duly
registered as a transfer agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934 as amended ("Section 17A(c)(1)"); provided, however, that
the Transfer Agent shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
ARTICLE 10
AMENDMENT
10.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution
of the Board of Directors of the Fund.
6
<PAGE>
ARTICLE 11
TEXAS LAW TO APPLY
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of Texas.
ARTICLE 12
MERGER OF AGREEMENT
12.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
ARTICLE 13
COUNTERPARTS
13.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
TAX-FREE INVESTMENTS CO.
By: /s/ ROBERT H. GRAHAM
----------------------------------
President
ATTEST:
/s/ P. MICHELLE GRACE
- ----------------------------------
Assistant Secretary
A I M FUND SERVICES, INC.
By: /s/ JOHN CALDWELL
----------------------------------
President
ATTEST:
/s/ P. MICHELLE GRACE
- ----------------------------------
8
<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 are
included in Post-Effective Amendment No. 25 to the Registration Statement under
the Securities Act of 1933 (No. 2-58286) and Amendment No. 26 to the
Registration Statement under the Investment Company Act of 1940 (No. 811-2731)
on Form N-1A of Tax-Free Investments Co.
s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
-----------------------------------------
Ballard Spahr Andrews & Ingersoll, LLP
Philadelphia, Pennsylvania
May 20, 1998
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Tax-Free Investments Co.:
We consent to the use of our report on the Cash Reserve Portfolio (a Portfolio
of Tax-Free Investments Co.) dated May 1, 1998 included herein and the
references to our firm under the headings "Financial Highlights" and "Reports
to Shareholders" in the Prospectus and "Reports" in the Statement of Additional
Information.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
May 12, 1998
<PAGE>
EXHIBIT 15(d)
[LOGO APPEARS HERE]
Fund Management Company
FUND MANAGEMENT COMPANY
SHAREHOLDER SERVICE AGREEMENT
(BROKER-DEALERS AND BANKS)
_________________________, 19_____
Fund Management Company
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Gentlemen:
We desire to enter into an Agreement with Fund Management Company
("FMC") as agent on behalf of the funds listed on Schedule A hereto (the
"Funds"), for the provision of continuing personal shareholder services to our
clients who are shareholders of, and/or the administration of accounts in, the
Funds. We understand that this Shareholder Service Agreement (the "Agreement")
has been adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act") by each of the Funds, under a Distribution Plan (the
"Plan") adopted pursuant to said Rule, and is subject to applicable rules of
the National Association of Securities Dealers, Inc. ("NASD"). This Agreement
defines the services to be provided by us for which we are to receive payments
pursuant to the Plan. The Plan and the Agreement have been approved by a
majority of the directors or trustees of the applicable Fund in accordance with
the requirements of Rule 12b-1. The terms and conditions of this Agreement
will be as follows:
1. We will provide continuing personal shareholder services and/or
administrative support services to our customers who may from time to
time beneficially own shares of the Funds, including but not limited to,
answering routine customer inquiries regarding the Funds, assisting
customers in changing dividend options, account designations and
addresses, and in enrolling into any of several special investment plans
offered in connection with the purchase of the Funds, forwarding sales
literature, assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions, investing dividends and capital gains distributions
automatically in shares of the Funds and providing such other services
as FMC or the customer may reasonably request, and you will pay us a fee
periodically. We represent that we will accept payment of fees
hereunder only so long as we continue to provide such services.
2. Shares of the Funds purchased by us on behalf of our clients may be
registered in our name or the name of our nominee. The client will be
the beneficial owner of the shares of the Funds purchased and held by us
in accordance with the client's instructions and the client may exercise
all applicable rights of a holder of such Shares. We agree to transmit
to FMC in a timely manner, all purchase orders and redemption requests
of our clients and to forward to each client all proxy statements,
periodic shareholder reports and other communications received from FMC
by us on behalf of our clients. FMC on behalf of the Funds agrees to
pay all out-of-pocket expenses actually incurred by us in connection
with the transfer by us of such proxy statements and reports to our
clients as required under applicable law or regulation.
<PAGE>
Shareholder Service Agreement Page 2
3. We agree to transfer to the Funds' custodian, in a timely manner as set
forth in the applicable prospectus, federal funds in an amount equal to
the amount of all purchase orders placed by us on behalf of our clients
and accepted by FMC. In the event that FMC fails to receive such
federal funds on such date (other than through the fault of FMC or the
Fund's custodian), we will indemnify the applicable Fund or FMC against
any expense (including overdraft charges) incurred by the applicable
Fund or FMC as a result of the failure to receive such federal funds.
4. We agree to make available, upon FMC's request, such information
relating to our clients who are beneficial owners of Fund shares and
their transactions in such shares as may be required by applicable laws
and regulations or as may be reasonably requested by FMC.
5. We agree to transfer record ownership of a client's Fund shares to the
client promptly upon the request of a client. In addition, record
ownership will be promptly transferred to the client in the event that
the person or entity ceases to be our client.
6. We acknowledge that if we use AIM LINK(TM) we are solely responsible for
the registration of account information for FMC's and A I M Fund
Services, Inc.'s ("AFS") subaccounting customers through AIM LINK(TM),
and that neither FMC, AFS nor any Fund is responsible for the accuracy of
such information; and we will indemnify and hold harmless FMC, AFS and
the Funds for any claims or expenses resulting from the inaccuracy or
inadequacy of such information.
7. We will provide such facilities and personnel (which may be all or any
part of the facilities currently used in our business, or all or any
personnel employed by us) as may be necessary or beneficial in carrying
out the purposes of this Agreement.
8. Neither we nor any of our employees or agents are authorized to make any
representation to our clients concerning the Funds except those
contained in the then current applicable prospectus applicable to the
Funds, copies of which will be supplied to us by FMC; and we will have
no authority to act as agent for any Fund. Neither a Fund nor A I M
Advisors, Inc. ("AIM") will be a party, nor will they be represented as
a party, to any agreement that we may enter into with our clients and
neither a Fund nor AIM will participate, directly or indirectly, in any
compensation that we may receive from our clients in connection with our
acting on their behalf with respect to this Agreement.
9. In consideration of the services and facilities described herein, we
will receive a maximum annual service fee, payable monthly, as set forth
in Schedule A. We understand that this Agreement and the payment of
such fees has been authorized and approved by the Board of Directors or
Trustees of the applicable Fund, and that the payment of fees hereunder
is subject to limitations imposed by the rules of the NASD. Service
fees may be remitted to us net of any amounts due and payable to FMC,
AFS or the Funds from us. A schedule of fees relating to subaccounting
and administration is attached hereto as Schedule B.
10. FMC reserves the right, at its discretion and without notice, to suspend
the sale of any Fund shares or withdraw the sale of shares of a Fund.
<PAGE>
Shareholder Service Agreement Page 3
11. We represent that our activities on behalf of our clients and pursuant
to this Agreement either (i) are not such as to require our registration
as a broker-dealer with the Securities and Exchange Commission (the
"SEC") or in the state(s) in which we engage in such activities, or (ii)
we are registered as a broker-dealer with the SEC and in the state(s) in
which we engage in such activities.
12. If we are a broker-dealer registered with the SEC, we represent that we
are a member in good standing of the NASD, and agree to abide by the
Rules of Fair Practice of the NASD and all other federal and state rules
and regulations that are now or may become applicable to transactions
hereunder. Our expulsion from the NASD will automatically terminate
this agreement without notice. Our suspension from the NASD or a
violation by us of applicable state and federal laws and rules and
regulations of authorized regulatory agencies will terminate this
agreement effective upon notice received by us from FMC.
13. This Agreement or Schedule A hereto may be amended at any time without
our prior consent by FMC, by mailing a copy of an amendment to us at the
address set forth below. Such amendment will become effective on the
date set forth in such amendment unless we terminate this Agreement
within thirty (30) days of our receipt of such amendment.
14. This Agreement may be terminated at any time by FMC on not less than 60
days' written notice to us at our principal place of business. We, on
60 days' written notice addressed to FMC at its principal place of
business, may terminate this Agreement. FMC may also terminate this
Agreement for cause on violation by us of any of the provisions of this
Agreement, said termination to become effective on the date of mailing
notice to us of such termination. FMC's failure to terminate for any
cause will not constitute a waiver of FMC's right to terminate at a
later date for any such cause. This Agreement will terminate
automatically in the event of its assignment, the term "assignment" for
this purpose having the meaning defined in Section 2(a) (4) of the 1940
Act.
15. All communications to FMC will be sent to it at P.O. Box 4333, Houston,
Texas 77210-4333. Any notice to us will be duly given if mailed or
telegraphed to us at the address shown on this Agreement.
16. We agree that under this Agreement we will be acting as an independent
contractor and not as your employee or agent, nor as an employee or
agent of the Funds, and we may not hold ourselves out to any other party
as your agent with the authority to bind you or the Funds in any manner.
17. We agree that this Agreement and the arrangement described herein are
intended to be non-exclusive and that either of us may enter into
similar agreements and arrangements with other parties.
<PAGE>
Shareholder Service Agreement Page 4
18. This Agreement will become effective as of the date when it is executed
and dated below by FMC. This Agreement and all rights and obligations
of the parties hereunder will be governed by and construed under the
laws of the State of Texas.
<TABLE>
<S> <C>
-----------------------------------------------------------
(Firm Name)
-----------------------------------------------------------
(Address)
-----------------------------------------------------------
City/State/Zip/County
BY:
----------------------------------------------------
Name:
----------------------------------------------------
Title:
----------------------------------------------------
Dated:
----------------------------------------------------
For administrative convenience, please supply the following
information, which may be updated in writing at any time.
Wiring instructions for service fees payable by FMC:
------------------------------- -------------------------
(Bank Name) (Bank ABA Number)
-----------------------------------------------------------
(Reference Account Name and Number)
Contact person for operational issues:
------------------------------- -------------------------
(Name) (Phone Number)
ACCEPTED:
FUND MANAGEMENT COMPANY
BY:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Dated:
-------------------------------
</TABLE>
<PAGE>
Shareholder Service Agreement Page 5
SCHEDULE A
<TABLE>
<CAPTION>
FUNDS FEE
- ----- ----
<S> <C>
Short-Term Investments Co.
- --------------------------
Prime Portfolio - Personal Investment Class .40%*
Prime Portfolio - Private Investment Class .25%
Prime Portfolio - Resource Class .16%
Prime Portfolio - Cash Management Class .08%
Liquid Assets Portfolio - Private Investment Class .25%
Liquid Assets Portfolio - MSTC Cash Reserves Class .20%
Liquid Assets Portfolio - Cash Management Class .08%
Short-Term Investments Trust
- ----------------------------
Treasury Portfolio - Personal Investment Class .40%*
Treasury Portfolio - Private Investment Class .25%
Treasury Portfolio - Resource Class .16%
Treasury Portfolio - Cash Management Class .08%
Treasury TaxAdvantage Portfolio - Private Investment Class .25%
Tax-Free Investments Co.
- ------------------------
Cash Reserve Portfolio - Private Investment Class .25%
</TABLE>
*Fees in excess of .25% are for services of an administrative nature,
as described in Paragraph 1 of this Agreement.
<PAGE>
Shareholder Service Agreement Page 6
SCHEDULE B
SUBACCOUNTING AND ADMINISTRATION FEES
We will be assessed a fee, payable monthly, in the amount of ______
basis points of our monthly average net assets managed by your affiliates. As
described in the attached Shareholder Service Agreement, we understand that the
amount of any service fees remitted to us will be net of any amounts due and
payable to FMC, AFS or the Funds, including the ______ basis points of monthly
average net assets related to subaccounting and administration services
provided to us by AFS.
<PAGE>
EXHIBIT 18
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
OF
THE AIM FAMILY OF FUNDS
1. This Second 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; provided, however, that where two or more Classes of a
Portfolio pay such fees and/or expenses at the same rate or in the
same amount, those Classes shall bear proportionately such fees and
expenses based on the relative net assets attributable to each such
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.
2
<PAGE>
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 shares, for larger purchases,
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 FROM THE INSTITUTIONAL CASH
RESERVE SHARES OF THE CASH RESERVE PORTFOLIO OF TAX-FREE INVESTMENTS CO. MARCH
31, 1998 ANNUAL REPORT.
</LEGEND>
<CIK> 0000205010
<NAME> TAX-FREE INVESTMENTS CO.
<SERIES>
<NUMBER> 2
<NAME> CASH RESERVE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 1,000,811,834
<INVESTMENTS-AT-VALUE> 1,000,811,834
<RECEIVABLES> 7,092,995
<ASSETS-OTHER> 28,708,055
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,036,612,884
<PAYABLE-FOR-SECURITIES> 56,149,839
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,096,783
<TOTAL-LIABILITIES> 59,246,622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 977,368,743
<SHARES-COMMON-STOCK> 977,368,743
<SHARES-COMMON-PRIOR> 1,004,123,302
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,481)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 97,366,262
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,794,672
<OTHER-INCOME> 0
<EXPENSES-NET> (2,260,750)
<NET-INVESTMENT-INCOME> 36,533,922
<REALIZED-GAINS-CURRENT> 9,664
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 36,543,586
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36,533,922)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,787,130,385
<NUMBER-OF-SHARES-REDEEMED> (5,817,506,476)
<SHARES-REINVESTED> 3,621,532
<NET-CHANGE-IN-ASSETS> (26,744,895)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12,145)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,354,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,080,009
<AVERAGE-NET-ASSETS> 998,079,371
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<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 FROM THE PRIVATE INVESTMENT
CLASS OF THE CASH RESERVE PORTFOLIO OF TAX-FREE INVESTMENTS CO. MARCH 31,1998
ANNUAL REPORT.
</LEGEND>
<CIK> 0000205010
<NAME> TAX-FREE INVESTMENTS CO.
<SERIES>
<NUMBER> 5
<NAME> PRIVATE INVESTMENT CLASS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 1,000,811,834
<INVESTMENTS-AT-VALUE> 1,000,811,834
<RECEIVABLES> 7,092,995
<ASSETS-OTHER> 28,708,055
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,036,612,884
<PAYABLE-FOR-SECURITIES> 56,149,839
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,096,783
<TOTAL-LIABILITIES> 59,246,622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 977,368,743
<SHARES-COMMON-STOCK> 977,368,743
<SHARES-COMMON-PRIOR> 1,004,123,302
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,481)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 977,366,262
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,794,672
<OTHER-INCOME> 0
<EXPENSES-NET> (2,260,750)
<NET-INVESTMENT-INCOME> 36,533,922
<REALIZED-GAINS-CURRENT> 9,664
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 36,543,586
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36,533,922)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,787,130,385
<NUMBER-OF-SHARES-REDEEMED> (5,817,506,476)
<SHARES-REINVESTED> 3,621,532
<NET-CHANGE-IN-ASSETS> (26,744,895)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (12,145)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,354,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,080,009
<AVERAGE-NET-ASSETS> 54,089,253
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
