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TAX-FREE
INVESTMENTS CO.
<TABLE> PROSPECTUS
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<S> <C>
CASH RESERVE The Cash Management Class of the Cash
PORTFOLIO Reserve Portfolio of Tax-Free Investments
Co. (the "Company") is designed to be
CASH MANAGEMENT a convenient vehicle in which customers
CLASS of banks, certain broker-dealers and other
institutions can invest in a diversified,
DECEMBER 18, 1998 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 five additional classes of the
Cash Reserve Portfolio are offered pursuant
to separate prospectuses. 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
Cash Management 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 DECEMBER 18, 1998 HAS BEEN FILED WITH
THE 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 11 GREENWAY PLAZA,
SUITE 100, HOUSTON, TEXAS 77046-1173 OR CALL
(800) 877-7745. 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
[LOGO APPEARS HERE] INVESTMENT RISKS, INCLUDING THE POSSIBLE
Fund Management Company LOSS OF PRINCIPAL.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 877-7745
</TABLE>
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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"). The Portfolio
currently offers six classes of shares. They are the Cash Management Class, the
Institutional Class, the Personal Investment Class, the Private Investment
Class, the Reserve Class and the Resource Class. This prospectus relates only
to the Cash Management Class (the "Class"). Shares of the other classes are
offered pursuant to separate prospectuses.
Shares of each 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.
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. All six classes of the
Portfolio share a common investment objective and portfolio of investments.
However, different 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 shares of the Class is $1,000,000. 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."
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. 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 0.23% of the
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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." Under a Transfer Agency and Service Agreement,
A I M Fund Services, Inc. ("Transfer Agent"), AIM's wholly owned subsidiary and
a registered transfer agent, receives a fee for its provision of transfer
agency, dividend distribution and disbursement and shareholder services to the
Company. See "General Information--Transfer Agent and Custodian."
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
0.10% 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. 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, La Familia AIM de Fondos and Design and Invest With
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
3
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TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
CASH MANAGEMENT
CLASS OF THE CASH
RESERVE PORTFOLIO
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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*................................................. 0.08%
Other expenses.............................................. 0.04%
----
Total fund operating expenses*.............................. 0.28%
====
</TABLE>
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* After fee waivers. Had there been no fee waivers, Management fees, 12b-1 fees
and Total fund operating expenses would be 0.23%, 0.10% and 0.37%,
respectively. A beneficial holder of shares of the Class should also consider
the effect of any account fees charged by the financial institution managing
his or her account.
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
CASH MANAGEMENT
CLASS OF THE CASH
RESERVE PORTFOLIO
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<S> <C>
1 year..................................................... $ 3
3 years.................................................... $ 9
</TABLE>
The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management of the Company" below.) The "Total fund
operating expenses" figure is based upon costs and the estimated size of the
Class and fees to be charged for the current fiscal period. The "Other
expenses" and "12b-1 fees" figures are based upon estimated costs and the
estimated size of the Class and the Portfolio and estimated fees to be charged
for the current fiscal period. Thus, actual expenses may be greater or less
than such estimates. The Table of Fees and Expenses reflects a voluntary waiver
of management fees and 12b-1 fees for the Class. Future waivers of fees (if
any) may vary from the figures reflected in the Table of Fees and Expenses. To
the extent any service providers assume expenses of the Class, such assumption
of expenses will have the effect of lowering the Class's overall expense ratio
and increasing its yield to investors.
The example in the Table of Fees and Expenses assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown.
The example shown in the above table is based on the amounts listed under
"Annual Fund Operating Expenses." THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE AN
ACCURATE REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
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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 in shares of the Class is $1,000,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and maintenance
of liquidity by investing in high quality, short-term municipal obligations.
This objective will not be changed without the approval of a majority of the
Portfolio's outstanding shares (within the meaning of the 1940 Act).
There can be no assurance that the Portfolio will achieve its investment
objective.
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 "Taxes" herein
and "Tax Matters" 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"), 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.
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The maturity of a security held by the Portfolio is determined in compliance
with applicable rules and regulations. Certain securities bearing interest at
rates that are adjusted prior to the stated maturity of the instrument or are
subject to demand features or that are subject to repurchase agreements are
deemed to have maturities shorter than their stated maturities.
VARIABLE OR FLOATING RATE INSTRUMENTS
The Portfolio may invest in Municipal Securities which have variable or
floating interest rates which are readjusted 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, 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,
6
<PAGE>
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 "Investment Program and Restrictions"
section of 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 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. Because 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 affect its share
price. 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).
7
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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 Federal Reserve Bank of New York and the Bank of New York
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 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 4497, Houston, Texas 77210-4497. 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
$1,000,000. 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.
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 Transfer Agent. 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.
8
<PAGE>
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.
REDEMPTION OF SHARES
Shareholders may redeem any or all of their 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."
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 generally 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
9
<PAGE>
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 4497, Houston, Texas 77210-4497. 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's 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's 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.
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.
10
<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
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.
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
determination of the Portfolio's net asset value is made in accordance with
generally accepted accounting principles. Among other items, the Portfolio's
liabilities include accrued expenses and dividends payable, and its total
assets include portfolio securities valued at their market value as well as
income accrued but not yet received.
Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the 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) 877-7745. 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 the Portfolio's investments, the Portfolio's maturity and the operating
expense ratio of the Class and the 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.
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.
11
<PAGE>
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 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 (the "Agreement"). AIM was organized in 1976 and,
together with its subsidiaries, advises, manages or administers over 90
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. Certain 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. 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.
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.
ADMINISTRATIVE SERVICES
The Company has entered into a Master Administrative Services Agreement with
AIM (the "Administrative Services Agreement"), pursuant to which AIM has agreed
to provide or arrange for the provision of certain accounting and other
administrative services to the Portfolio, including the services of a principal
financial officer of the Company and related staff. As compensation of AIM for
its services under the Administrative Services Agreement, the Portfolio may
reimburse AIM for expenses incurred by AIM in connection with such services.
DISTRIBUTOR
The Company has entered into a distribution agreement (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 4497, Houston, Texas 77210-4497.
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.
12
<PAGE>
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 0.10% 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 0.10% of the average net assets of
the Class attributable to the Institutions. Payments retained by 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.
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 has been 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"). 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, unless sooner terminated in accordance with its terms, shall
continue in effect from year to year as long as such continuance is
specifically approved at least annually by the Board of Directors, including a
majority of the Qualified Directors.
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.
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<PAGE>
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.
FEE WAIVERS
In order to increase the yield to investors, AIM or its subsidiaries may from
time to time waive or reduce its advisory 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.
For the year ended March 31, 1998, AIM reduced its fees from the Portfolio by
$683,910.
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 six 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 among
the six 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 October 30, 1998, The Bank of New York was the owner of record of
36.45% of the outstanding shares of the Portfolio and Cullen/Frost Discount
Brokers was the owner of record of 27.84% of the outstanding shares of the
Portfolio. Therefore, each 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., P.O. Box 4497, Houston, Texas 77210-4497, acts as
transfer agent for the shares of 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 Portfolio's securities and cash.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania, serves as counsel to the Company, and passes upon certain legal
matters for the Company.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to an investor's Institution, or to the Company at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173, or may be made by calling (800) 877-7745.
14
<PAGE>
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Company, 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 the year 2000 from 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 Company 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 second quarter
of 1999. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm year 2000
compliance upon installation. No assurance can be given that the Project will
be successful or that AIM Management and its subsidiaries will not otherwise be
adversely affected by the year 2000 issue.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Company and the Portfolio 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
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.
15
<PAGE>
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
TAX-FREE INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 December 18, 1998
(800) 877-7745
TAX-FREE
INVESTMENT ADVISOR INVESTMENTS CO.
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100 ---------------
Houston, Texas 77046-1173
(713) 626-1919 CASH RESERVE PORTFOLIO
DISTRIBUTOR ---------------
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100 CASH MANAGEMENT CLASS
Houston, Texas 77046-1173
(800) 877-7745
TABLE OF CONTENTS
AUDITORS
KPMG PEAT MARWICK LLP <TABLE>
700 Louisiana <CAPTION>
Houston, Texas 77002 PAGE
----
CUSTODIAN <S> <C>
THE BANK OF NEW YORK Summary............................ 2
90 Washington Street Table of Fees and Expenses......... 4
11th Floor Suitability For Investors.......... 5
New York, New York 10286 Investment Program................. 5
Purchase of Shares................. 8
TRANSFER AGENT Redemption of Shares............... 9
A I M FUND SERVICES, INC. Dividends.......................... 9
P.O. Box 4497 Taxes.............................. 10
Houston, Texas 77210-4497 Determination of Net Asset Value... 11
Yield Information.................. 11
Reports to Shareholders............ 11
NO PERSON HAS BEEN AUTHORIZED TO Management of the Company.......... 12
GIVE ANY INFORMATION OR TO MAKE ANY General Information................ 14
REPRESENTATIONS NOT CONTAINED IN </TABLE>
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
COMPANY OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
<PAGE>
TAX-FREE
INVESTMENTS CO.
PROSPECTUS
- ------------------------------------------------------
CASH RESERVE Tax-Free Investments Co. (the "Company") is a
PORTFOLIO mutual fund designed for institutions and
individuals seeking current income which is
INSTITUTIONAL CLASS exempt from federal income taxes. Pursuant to
this Prospectus, the Company offers shares
DECEMBER 18, 1998 representing interests in the Institutional Class
of its Cash Reserve Portfolio.
The Cash Reserve Portfolio is a "money market
fund," the investment objective of which is the
generation of as high a level of tax-exempt
income as is consistent with preservation of
capital and maintenance of liquidity by
investing in high quality, short-term municipal
obligations. The Cash Reserve Portfolio attempts
to maintain a constant net asset value of $1.00
per share. No assurance can be given that such a
net asset value can be maintained.
This Prospectus relates solely to the
Institutional Class. The Institutional Class is
offered primarily to banks and other
institutions acting for themselves or in a
fiduciary, advisory, agency, custodial or
similar capacity, and is designed as a
convenient and economical vehicle in which such
institutions can invest short-term cash
reserves.
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 DECEMBER 18, 1998 HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
AND IS HEREBY INCORPORATED BY REFERENCE. A COPY
OF THE STATEMENT OF ADDITIONAL INFORMATION IS
INCLUDED AS AN APPENDIX TO THIS PROSPECTUS. THE
SEC MAINTAINS A WEB SITE AT HTTP://WWW.SEC.GOV
THAT CONTAINS MATERIAL INCORPORATED BY REFERENCE
AND OTHER INFORMATION REGARDING THE COMPANY.
SHARES OF THE CASH RESERVE PORTFOLIO ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE CASH RESERVE
PORTFOLIO'S SHARES ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN BE
NO ASSURANCE THAT THE CASH RESERVE PORTFOLIO
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE. SHARES OF THE CASH
[LOGO APPEARS HERE] RESERVE PORTFOLIO INVOLVE INVESTMENT RISKS,
Fund Management Company INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 659-1005
<PAGE>
ORGANIZATION OF THE COMPANY
The Company is a Maryland corporation organized as an open-end, diversified,
series management investment company, which currently has one portfolio, the
Cash Reserve Portfolio (the "Portfolio").
The Portfolio currently offers six classes of shares. They are the Cash
Management Class, the Institutional Class, the Personal Investment Class, the
Private Investment Class, the Reserve Class and the Resource Class. This
Prospectus relates only to the Institutional Class. The Institutional Class is
offered primarily to banks and other institutions investing for themselves or
in a fiduciary, advisory, agency, custodial or other similar capacity. Shares
of the other classes are offered pursuant to separate prospectuses.
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 fund operating expenses*........................................... 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
financial institution managing his or her account.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 year.................................................................. $2
3 years................................................................. $6
5 years................................................................. $11
10 years................................................................. $26
</TABLE>
THE EXAMPLES SHOWN IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED TO BE AN
ACCURATE REPRESENTATION OF PAST OR FUTURE PERFORMANCE AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN.
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest With Dis-
cipline are registered service marks and AIM Bank Connection is a service mark
of A I M Management Group Inc.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Shown below are the per share income and capital changes for a share
outstanding during the six months ended September 30, 1998, and the fiscal
years ended March 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and
the eleven months ended March 31, 1989. Except for the information for the six
months ended September 30, 1998, which is unaudited, 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 Information.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------------------------------------
SEPTEMBER 30,
1998 1998 1997 1996 1995 1994 1993 1992 1991
------------- -------- -------- ---------- ---------- ---------- -------- ---------- ----------
<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 0.02 0.03 0.03 0.04 0.03 0.02 0.03 0.04 0.06
- ---------------- -------- -------- -------- ---------- ---------- ---------- -------- ---------- ----------
Less distributions:
Dividends from
net investment
income (0.02) (0.03) (0.03) (0.04) (0.03) (0.02) (0.03) (0.04) (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 3.47%(a) 3.55% 3.33% 3.67% 3.06% 2.33% 2.66% 4.09% 5.68%
- ---------------- -------- -------- -------- ---------- ---------- ---------- -------- ---------- ----------
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $892,758 $896,904 $966,567 $1,009,039 $1,009,891 $1,040,595 $994,828 $1,191,209 $1,156,557
- ---------------- -------- -------- -------- ---------- ---------- ---------- -------- ---------- ----------
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) 3.41%(c) 3.49% 3.27% 3.59% 3.01% 2.30% 2.66% 4.00% 5.52%
- ---------------- -------- -------- -------- ---------- ---------- ---------- -------- ---------- ----------
<CAPTION>
1990 1989
----------- --------------
<S> <C> <C>
Net asset value,
beginning of
period $1.00 $1.00
- ----------------- ----------- --------------
Income from
investment
operations:
Net investment
income 0.06 0.05
- ----------------- ----------- --------------
Less distributions:
Dividends from
net investment
income (0.06) (0.05)
- ----------------- ----------- --------------
Net asset value,
end of period $1.00 $1.00
- ----------------- ----------- --------------
Total return 6.22% 5.67%(a)
- ----------------- ----------- --------------
Ratios/supplemental
data:
Net assets, end
of period
(000s omitted) $1,114,813 $1,062,479
- ----------------- ----------- --------------
Ratio of
expenses to
average net
assets(b) 0.20% 0.20%(a)
- ----------------- ----------- --------------
Ratio of net
investment
income to average
net assets(d) 6.03% 5.52%(a)
- ----------------- ----------- --------------
</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% (annualized) for the period ended
September 30, 1998 and 0.27%, 0.26%, 0.26%, 0.26%, 0.28%, 0.26%, 0.26%,
0.27%, 0.28% and 0.28% (annualized), for the periods 1998-1989,
respectively.
(c) Ratios are annualized and based on average net assets of $967,590,577.
(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 3.34% (annualized) for the period ended
September 30, 1998 and 3.42%, 3.21%, 3.53%, 2.95%, 2.22%, 2.60%, 3.94%,
5.46%, 5.95% and 5.44% (annualized), for the periods 1998-1989,
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
maintaining liquidity. The municipal obligations purchased for investment by
the Portfolio are hereinafter referred to as "Municipal Securities."
Shares of the Institutional Class may not be purchased directly by
individuals, although institutions may purchase the Institutional Class for
accounts maintained for individuals. Prospective investors should determine if
an investment in the Institutional Class is consistent with the investment
objectives of their clients and with applicable state and federal laws and
regulations. Certain financial institutions may impose changes in connection
with opening or maintaining their customers' accounts or for providing
recordkeeping or sub-accounting services with respect to the Institutional
Class. Beneficial owners of the Institutional Class held of record by an
institutional investor should read this Prospectus in light of the terms
governing their institutional accounts, and should obtain from such institution
information concerning any recordkeeping, account maintenance or other fees
charged to their accounts. The minimum amount required for an initial
investment in the Institutional Class is $1 million.
An investment in the Institutional Class may relieve the institution of many
of the investment and administrative burdens encountered when investing in
Municipal Securities directly, including: selection of portfolio investments;
surveying the market for the best price at which to buy and sell; valuation of
portfolio securities; selection and scheduling of maturities; receipt, delivery
and safekeeping of securities; and portfolio recordkeeping. At the same time,
the expenses of the Company attributable to the Institutional Class are
expected to be relatively small due primarily to the fact that there will be
only a small number of shareholders in the Institutional Class. These
shareholders of the Institutional Class do not need many of the services
provided by other tax-exempt investment companies, thereby resulting in lower
transfer agent fees and costs for printing reports and any necessary proxy
statements. In addition, sales of the Institutional Class to institutions
acting for themselves or in a fiduciary capacity are exempt from the
registration requirements of most state securities laws, thereby resulting in
reduced state registration fees.
It is anticipated that most shareholders of the Institutional Class will
perform their own sub-accounting.
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
objective.
MUNICIPAL SECURITIES
Municipal Securities include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the obtaining of funds
for general operating expenses and the lending of such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated facilities. As used in this Prospectus and the Statement of
Additional Information, interest which is "tax-exempt" or "exempt from federal
income taxes" means interest on Municipal Securities which is excluded from
gross income for federal income tax purposes, and which does not give rise to a
federal alternative minimum tax liability. See "Tax Matters" herein and in the
Statement of Additional Information.
INVESTMENT POLICIES
Except where noted, the investment policies stated below are not fundamental
and may be changed by the Board of Directors of the Company without shareholder
approval. Shareholders will be notified before any material change in the
following investment policies becomes effective. Policies which are noted as
fundamental may be changed only with the approval of a majority of the
Portfolio's outstanding shares (within the meaning of the 1940 Act).
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
4
<PAGE>
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 Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and certain other nationally recognized statistical rating
organizations ("NRSROs") appears in the Statement of Additional Information.
The Fund will limit its purchases of Municipal Securities to those which are
"First Tier" securities as defined in Rule 2a-7 under the 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.
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. A I M Advisors, Inc. ("AIM") 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 caption "Investment Program and Restrictions--Synthetic
Municipal Instruments" in 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 Bond, the Sponsor and the
5
<PAGE>
party providing 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
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 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 "Investment Program and Restrictions" section
of 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 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 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. Because 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 affect its share price.
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 per share
of the Institutional Class will normally remain constant at $1.00, although
there can be no assurance that such net asset value will not change.
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 Federal Reserve Bank of New York and the Bank of
New York 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
Account Application to AFS at P.O. Box 4497, Houston, Texas 77210-4497.
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
maintenance or other fees to their customers. Beneficial owners of the
Institutional 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
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.
REDEMPTION OF SHARES
Shareholders may redeem any or all of their shares of the Institutional Class
at the net asset value next determined after receipt of a redemption request in
proper form by the Company. There is no charge for redemption. The value of
shares of the Institutional Class on redemption may be more or less than the
shareholder's initial cost, depending upon the value of the Portfolio's
investments at the time of redemption. It is expected that the net asset value
of the Portfolio will remain constant at $1.00 per share. See "Share Purchases
and Redemptions--Net Asset Value Determination" in the Statement of Additional
Information.
Redemption requests with respect to the Institutional Class are normally made
by calling AFS at (800) 659-1005. Redemption requests with respect to the
Institutional 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 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
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
Institutional Class will normally be paid on the next dividend payment date.
However, if all of the shares of the Institutional Class in a shareholder's
account are redeemed, dividends payable up to the date of redemption will
normally be paid within five days of the date of redemption.
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."
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
determination of the Portfolio's net asset value per share is made in
accordance with generally accepted accounting principles. Among other items,
the Portfolio's liabilities include accrued expenses and dividends payable, and
its total assets include portfolio securities valued at their market value as
well as income accrued but not yet received. Portfolio securities in the
Portfolio are valued on the basis of amortized cost.
DIVIDENDS
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 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 generally 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.
The dividend accrued and paid for each class of shares of the Company will
consist of: (a) interest accrued and original issue discount earned less
amortization of premiums, if any, for the portfolio to which such class
relates, allocated based upon such class's pro rata share of the total shares
outstanding which relate to such portfolio, less (b) Company expenses accrued
for the applicable dividend period attributable to such portfolio, such as
custodian fees and accounting expenses, allocated based upon each such class's
pro rata share of the net assets of such portfolio, less (c) expenses directly
attributable to each class which are accrued for the applicable dividend
period, such as distribution expenses, if any.
PERFORMANCE INFORMATION
Performance information for the Institutional Class can be obtained by calling
the Company at (800) 659-1005. Performance will vary from time to time and past
results are not necessarily indicative of future results. Investors should
understand that performance is a function of the type and quality of
8
<PAGE>
the Portfolio's investments as well as its operating expenses. Performance
information for the shares of the Institutional Class may not provide a basis
for comparison with investments which pay fixed rates of interest for a stated
period of time, with other investments or with investment companies which use a
different method of calculating performance.
Comparative performance information using data from industry publications may
be used from time to time in advertising or marketing the Institutional Class.
The yield of the Institutional Class, calculated as described below, will
fluctuate from day to day. Calculations of yield will take into account the
total income received by the 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 yields of such classes
can be expected to vary. To the extent that institutions charge fees in
connection with services provided in conjunction with the Fund, the yield will
be lower for those beneficial owners paying such fees.
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 and effective yield (which assumes the reinvestment of
dividends for a 365 day year and a return for the entire year equal to the
average annualized current yield for the period) for the Institutional Class
are calculated according to a formula prescribed by the SEC. See "Performance
Information" in the Statement of Additional Information. For the seven-day
period ended March 31, 1998, the current yield and effective yield for the
Institutional Class were 3.52% and 3.58%, respectively.
TAX MATTERS
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 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
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 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
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains (capital gain dividends), if any,
will be taxable as long-term capital gains, whether received in cash or
additional shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
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
federal 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
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.
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 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."
DISTRIBUTOR
The Company has entered into a distribution agreement (the "Distribution
Agreement") with FMC, a wholly owned subsidiary of AIM, with respect to the
Institutional 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
4497, Houston, Texas 77210-4497. FMC does not receive any fees from the Company
under the Distribution Agreement. Certain directors and officers of the Company
are affiliated with FMC.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to banks or dealers who sell a minimum dollar amount of the shares
of the Portfolio during a specific period of time. In some instances, these
incentives may be offered only to certain banks or dealers who have sold or may
sell significant amounts of shares. The total amount of such additional bonus
payments or other consideration shall not exceed 0.05% of the net asset value
of the shares sold. Any such bonus or incentive programs will not change the
price paid by investors for the purchase of the 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
incentives to the extent that such incentives may be prohibited by the laws of
any jurisdiction.
ADMINISTRATIVE SERVICES
The Company has entered into a Master Administrative Services Agreement with
AIM (the "Administrative Services Agreement"), pursuant to which AIM has agreed
to provide or arrange for the provision of certain accounting and other
administrative services to the Portfolio, including the services of a principal
financial officer of the Company and related staff. As compensation of AIM for
its services under the Administrative Services Agreement, the Portfolio may
reimburse AIM for expenses incurred by AIM in connection with such services.
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 (the "Advisory Agreement"). AIM, which was
organized in 1976, together with its subsidiaries, advises, manages or
administers over 90 investment company portfolios encompassing a broad range of
investment objectives.
Pursuant to the terms of the Advisory Agreement, AIM manages the investments
of the Portfolio. 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 willful misfeasance, bad faith, gross negligence or reckless disregard
of duty. Certain directors and officers of AIM are also directors or executive
officers of the Company.
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.
10
<PAGE>
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
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 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
Information 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 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 notice to investors,
provided, however, that the fee waiver described below will be continued in
effect until sixty days following notice to the Board of Directors that such
fee waiver will be terminated.
AIM has agreed to reduce its fee from the 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,
brokerage commissions, directors' fees, and registration fees payable to the
SEC).
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was originally incorporated in Maryland on January 24, 1977, but
had no operations prior to March 21, 1983. On August 30, 1985, the Company was
reorganized as a Massachusetts business trust. On May 1, 1992, the Company was
reorganized as a Maryland corporation. The Company currently has one portfolio,
the Cash Reserve Portfolio. The Portfolio currently offers six classes of
shares, the Cash Management Class, the Institutional Cash Reserve Shares, the
Personal Investment Class, the Private Investment Class, the Reserve Class and
the Resource Class. Each class is offered pursuant to a separate prospectus.
All shares of the Company have equal rights with respect to voting, except
that the holders of shares of a particular class will have the exclusive right
to vote on matters pertaining to distribution plans or shareholder service
plans, if any such plans are adopted, relating solely to such class. The
holders of each class have distinctive rights with respect to dividends which
are more fully described in the Statement of Additional Information. There will
not normally be annual shareholders' meetings. 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 October 30, 1998, The Bank of New York, was the owner of record of
36.45% of the outstanding shares of the Portfolio, and, Cullen/Frost Discount
Brokers was the owner of record of 27.84% of the outstanding shares of the
Portfolio. Therefore, each 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., P.O. Box 4497, Houston, Texas 77210-4497, 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 Portfolio's securities and cash.
11
<PAGE>
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania serves as counsel to the Company, and passes upon certain legal
matters for the Company.
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.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Company, 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
the year 2000 from 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 Company 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 second quarter
of 1999. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm year 2000
compliance upon installation. No assurance can be given that the Project will
be successful or that AIM Management and its subsidiaries will not otherwise be
adversely affected by the year 2000 issue.
12
<PAGE>
APPENDIX
STATEMENT OF
ADDITIONAL INFORMATION
TAX-FREE INVESTMENTS CO.
CASH RESERVE PORTFOLIO
(CASH MANAGEMENT CLASS)
(INSTITUTIONAL CLASS)
(PERSONAL INVESTMENT CLASS)
(PRIVATE INVESTMENT CLASS)
(RESERVE CLASS)
(RESOURCE CLASS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 659-1005
------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF EACH
OF THE ABOVE-NAMED CLASSES OF CASH RESERVE PORTFOLIO, COPIES
OF WHICH MAY BE OBTAINED BY WRITING
FUND MANAGEMENT COMPANY, 11 GREENWAY PLAZA,
SUITE 100, HOUSTON, TEXAS 77046-1173
OR CALLING (800) 659-1005
------------
STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 18, 1998
RELATING TO THE PROSPECTUS OF EACH OF THE FOLLOWING CLASSES OF THE CASH RESERVE
PORTFOLIO: CASH MANAGEMENT CLASS PROSPECTUS DATED DECEMBER 18, 1998,
INSTITUTIONAL CLASS PROSPECTUS DATED DECEMBER 18, 1998, PERSONAL INVESTMENT
CLASS PROSPECTUS DATED DECEMBER 18, 1998, PRIVATE INVESTMENT CLASS PROSPECTUS
DATED JULY 24, 1998, RESERVE CLASS PROSPECTUS DATED DECEMBER 18, 1998 AND
RESOURCE CLASS PROSPECTUS DATED DECEMBER 18, 1998
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.................................................... A-3
General Information about the Company........................... A-3
The Company and Its Shares.................................... A-3
Directors and Officers........................................ A-5
Remuneration of Directors..................................... A-8
AIM Funds Retirement Plan for Eligible Directors/Trustees..... A-10
Deferred Compensation Agreements.............................. A-10
The Investment Advisor........................................ A-11
Administrator................................................. A-12
Expenses...................................................... A-13
Transfer Agent and Custodian.................................. A-13
Reports....................................................... A-14
Sub-Accounting................................................ A-14
Principal Holders of Securities............................... A-14
Share Purchases and Redemptions................................. A-16
Purchases and Redemptions..................................... A-16
Net Asset Value Determination................................. A-16
The Distribution Agreement.................................... A-17
Distribution Plan............................................. A-18
Banking Regulations........................................... A-19
Performance Information......................................... A-19
Investment Program and Restrictions............................. A-20
Investment Program............................................ A-20
Municipal Securities.......................................... A-21
Diversification Requirements.................................. A-22
Investment Ratings............................................ A-22
When-Issued Securities and Delayed Delivery Transactions...... A-27
Variable or Floating Rate Instruments......................... A-27
Synthetic Municipal Instruments............................... A-28
Investment Restrictions....................................... A-28
Portfolio Transactions.......................................... A-29
General Brokerage Policy...................................... A-29
Allocation of Portfolio Transactions.......................... A-30
Section 28(e) Standards....................................... A-31
Dividends, Distributions and Tax Matters........................ A-31
Dividends and Distributions................................... A-31
Tax Matters................................................... A-32
Qualification as a Regulated Investment Company............... A-32
Excise Tax on Regulated Investment Companies.................. A-33
Distributions................................................. A-33
Foreign Shareholders.......................................... A-34
Effect of Future Legislation; Local Tax Considerations........ A-35
Financial Statements............................................ FS
</TABLE>
A-2
<PAGE>
INTRODUCTION
Tax-Free Investments Co. (the "Company") is a mutual fund organized with one
portfolio, the Cash Reserve Portfolio, which has six classes of shares. The
rules and regulations of the Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors with certain
information concerning the activities of the fund being considered for
investment. This information is included in the Cash Management Class
Prospectus dated December 18, 1998, the Institutional Class Prospectus dated
December 18, 1998, the Personal Investment Class Prospectus dated December 18,
1998, the Private Investment Class Prospectus dated July 24, 1998, the Reserve
Class Prospectus dated December 18, 1998 and the Resource Class Prospectus
dated December 18, 1998 (each a "Prospectus"). Copies of each Prospectus and
additional copies of this 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) 659-1005. 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 each class of
the Cash Reserve Portfolio. Some of the information required to be in this
Statement of Additional Information is also included in each Prospectus and, in
order to avoid repetition, reference will be made to sections of the applicable
Prospectus. Additionally, each 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 each 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 each Prospectus under the captions "General
Information" and "Redemption of Shares."
The Company offers shares of one portfolio, the Cash Reserve Portfolio (the
"Portfolio"). The Portfolio consists of six classes of shares, each having
different shareholder qualifications and bearing expenses differently. The
Portfolio consists of the following six classes of shares: Cash Management
Class, Institutional Class, Personal Investment Class, Private Investment
Class, Reserve Class and Resource Class. This Statement of Additional
Information and the associated Prospectuses referred to above relate to each
class of the Portfolio.
As used in each 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.
A-3
<PAGE>
Shareholders of the Company do not have cumulative voting rights, and
therefore the holders of a majority of a quorum of the outstanding shares of
the Company 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 classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Charter of the Company authorizes the issuance of 10,000,000,000 shares
of common stock at $.001 par value. A share of the Portfolio (or class)
represents an equal proportionate interest in the Portfolio (or class) with
each other share of the Portfolio (or class) and is entitled to a proportionate
interest in the dividends and distributions from the Portfolio (or class).
Additional information concerning the rights of share ownership is set forth in
each Prospectus.
The assets received by the Company for the issue or sale of shares of each
class relating to the Portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, constitute the
underlying assets of the Portfolio. The underlying assets of the Portfolio are
segregated and are charged with the expenses with respect to the Portfolio. See
"Expenses."
The Charter further provides that the directors will not be liable for errors
of judgment or mistakes of fact or law. However, nothing in the Charter
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
Charter provides 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 Charter also authorizes the purchase
of liability insurance on behalf of the Company's directors and officers.
As described in each 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 each Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
A-4
<PAGE>
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.
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
==============================================================================================
<C> <C> <S>
*CHARLES T. BAUER (79) Director and Chairman of the Board of Directors, A I M
Chairman 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 (insurance
906 Frome Lane company). Formerly, Director, President
McLean, VA 22102 and Chief Executive Officer, COMSAT
Corporation and
Chairman, Board of Governors of INTELSAT
(international communications company).
- ----------------------------------------------------------------------------------------------
OWEN DALY II (74) Director Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I
Baltimore, MD 21210 Steel Corp., Monumental Life Insurance
Company and Monumental General Insurance
Company; and Chairman of the Board of
Equitable Bancorporation.
- ----------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (63) Director Chairman of the Board of Directors,
2 Hopkins Plaza, 20th Floor Mercantile Mortgage Corp. Formerly, Vice
Baltimore, MD 21201 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,
8810 Will Clayton Pkwy. Inc. (foreign trading company) and Twenty
Jetero Plaza, Suite E First Century Group, Inc. (a governmental
Humble, TX 77338 affairs company). Formerly, Member of the
U.S. House of Representatives.
==============================================================================================
</TABLE>
- ----------------
* A director who is an "interested person" of the Company and A I M Advisors,
Inc. as defined in the 1940 Act.
A-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
==============================================================================================
<C> <C> <S>
**CARL FRISCHLING (61) Director Partner, Kramer, Levin, Naftalis &
919 Third Avenue Frankel (law firm). Formerly, Partner,
New York, NY 10022 Reid & Priest (law firm).
- ----------------------------------------------------------------------------------------------
*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, AMVESCAP PLC.
- ----------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (48) Director Chief Executive Officer, YWCA of the
350 Fifth Avenue, Suite 301 U.S.A.; Commissioner, New York City
New York, NY 10118 Department for the Aging; and Member of
the Board of Directors, Metropolitan
Transportation Authority of New York State
- ----------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (56) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
- ----------------------------------------------------------------------------------------------
IAN W. ROBINSON (75) Director Formerly, Executive Vice President and
183 River Drive Chief Financial Officer, Bell Atlantic
Tequesta, FL 33469 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 (59) Director Executive Vice President, Development
Transco Tower, 50th Floor and Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real 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.
** A director who is an "interested person" of the Company as defined in the
1940 Act.
A-6
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
==============================================================================================
<C> <C> <S>
*** JOHN J. ARTHUR (54) Senior Vice President Director, Senior Vice President and
and Treasurer Treasurer 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 (51) 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 (44) Senior Vice President Director, Senior Vice President, General
and Secretary Counsel and Secretary, A I M Advisors,
Inc.; Vice President, General Counsel
and Secretary, A I M Management Group
Inc.; Director, Vice President and
General Counsel, 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
and Assistant Treasurer 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 (55) 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 and President, Fund Management
Company; Director, A I M Fund Services,
Inc.; and Senior Vice President, A I M
Advisors, Inc. and A I M Management
Group Inc.
==============================================================================================
</TABLE>
- ------------
*** Mr. Arthur and Ms. Relihan are married to each other.
A-7
<PAGE>
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, Pennock, Robinson (Chairman) and Sklar. The Audit Committee is
responsible for meeting with the Company's auditors to review audit procedures
and results and to consider any matters arising from an audit to be brought to
the attention of the directors as a whole with respect to the Company's fund
accounting or its internal accounting controls, and for considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such Committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly,
Dunn, Fields, Frischling, Pennock, Robinson and Sklar (Chairman). 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
(Chairman), Daly, Dunn, Fields, Pennock, 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 or she serves as a director or trustee, which consists of an annual
retainer component and a meeting fee component.
A-8
<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 M. Fields $1,628 -0- $71,000
- ------------------------------------------------------------------------------------------------------------------
Carl Frischling(5) $1,639 $ 96,520 $84,000
- ------------------------------------------------------------------------------------------------------------------
Robert H. Graham -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------
John F. Kroeger(6) $1,586 $ 94,132 $82,500
- ------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis(4) -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------
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 and Ms. Mathai-Davis did not serve as Directors during the
calendar year ended December 31, 1997.
(5) The Company paid the law firm of Kramer, Levin, Naftalis & Frankel $4,852
in legal fees for services provided to the Company during the fiscal year
ended March 31, 1998. Mr. Frischling, a Director of the Company, is a
partner in such firm.
(6) Mr. Kroeger resigned as a Director of the Company on June 11, 1998 and on
that date became a consultant to the Company.
A-9
<PAGE>
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the AIM Funds commencing on the first day of the calendar quarter
coincident with or following his date of retirement equal to 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(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 for a period of no more than five years. 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 a specified level of
compensation and years of service classifications. The estimated credited years
of service as of March 31, 1998, for Messrs. Crockett, Daly, Dunn, Fields,
Frischling, Kroeger, Pennock, Robinson, Sklar and Ms. Mathai-Davis are 10, 11,
0, 1, 20, 20, 16, 10, 8 and 0 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
NUMBER OF
YEARS OF ANNUAL RETAINER
SERVICE WITH PAID BY ALL
THE AIM FUNDS 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>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will
A-10
<PAGE>
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.
During the fiscal year ended March 31, 1998, $11,636 in directors' fees and
expenses were allocated to the Portfolio.
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 (the "Advisory Agreement"). AIM, which was
organized in 1976, together with its subsidiaries, advises, manages or
administers over 90 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 institutional investment management and retail fund businesses in the United
States, Europe and the Pacific Region. Certain of the directors and officers of
AIM are also executive officers of the Company and their affiliations are shown
under "Directors and Officers."
FMC is a registered broker-dealer and wholly owned subsidiary of AIM. FMC
acts as distributor of the shares of the Portfolio.
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 will continue from year to year, provided that it is
specifically approved at least annually by the Company's Board of Directors and
by the affirmative vote of a majority of the directors who are not parties to
the agreement or "interested persons" of any such party (the "Qualified
Directors") by votes cast in person at a meeting called for such purpose. The
Company or AIM may terminate the Advisory Agreement on 60 days' written notice
without penalty. The Advisory Agreement terminates automatically in the event
of its "assignment," as defined in the 1940 Act.
A-11
<PAGE>
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 Company's 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.
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. Pursuant to the
Advisory Agreement between the Company and AIM currently in effect and under an
investment advisory agreement in effect prior to February 28, 1997 which
provided for the same level of compensation to AIM, 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 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 each Prospectus.
The Advisory Agreement provides that, upon the request of the Board of
Directors, AIM may perform (or arrange for the performance of) certain
additional services on behalf of the Portfolio which are not required by the
Advisory Agreement. AIM may receive reimbursement or reasonable compensation
for such additional services, as may be agreed upon by AIM and the Board of
Directors, based upon a finding by the Board of Directors that the provision of
such services would be in the best interest of the Portfolio and its
shareholders. The Board of Directors has made such a finding and, accordingly,
the Company has entered into the Master Administrative Services Agreement under
which AIM will provide the additional services described below under the
caption "Administrator."
ADMINISTRATOR
AIM also acts as the Portfolio's administrator pursuant to a Master
Administrative Services Agreement between AIM and the Company (the
"Administrative Services Agreement").
Under the Administrative Services Agreement, AIM performs, or arranges for
the performance of, accounting and other administrative services for the
Portfolio, which are not required to be performed by AIM under the Advisory
Agreement. As full compensation for the performance of such services, AIM is
reimbursed for any personnel and other costs (including applicable office
space, facilities and equipment) of furnishing the services of a principal
A-12
<PAGE>
financial officer of the Company and of persons working under his supervision
for maintaining the financial accounts and books and records of the Company,
including calculation of the Portfolio's daily net asset value, and preparing
tax returns and financial statements for the Portfolio. The method of
calculating such reimbursements must be annually approved, and the amounts paid
will be periodically reviewed, by the Company's Board of Directors.
Pursuant to the Administrative Services Agreement and under a similar
arrangement in effect prior to February 28, 1997, AIM received reimbursements
for the fiscal years ended March 31, 1998, 1997 and 1996 in the amounts of
$66,515, $70,077 and $75,960, respectively, by the Portfolio.
EXPENSES
AIM and FMC furnish, without cost to the Company, the services of the
President, Secretary and one or more Vice Presidents of the Company and such
other personnel as are required for the proper conduct of the Company's affairs
and to carry out their obligations under the Advisory Agreement and the
Distribution Agreement. AIM maintains, at its expense and without cost to the
Company, a trading function in order to carry out its obligations to place
orders for the purchase and sale of portfolio securities for the Company. FMC
bears the expenses of printing and distributing prospectuses and statements of
additional information (other than those prospectuses and statements of
additional information distributed to existing shareholders) and any other
promotional or sales literature used by FMC or furnished by FMC to purchasers
or dealers in connection with the public offering of the shares of the Class.
The Company pays, or causes to be paid, all other expenses of the Company,
including, without limitation, the fees paid to AIM; the charges and expenses
of any registrar, any custodian or depository appointed by the Company for the
safekeeping of cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents; brokers' commissions in connection with
portfolio securities transactions of the Company; all taxes, including
securities issuance and transfer taxes, and fees payable to federal, state or
other governmental agencies; the costs and expenses of engraving or printing
share certificates; all costs and expenses in connection with registration and
maintenance of registration with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
proxy statements, reports to shareholders, prospectuses and statements of
additional information of the Company and supplements thereto (except reports
to shareholders and prospectuses distributed to potential shareholders of the
Company which are paid for by FMC); expenses of shareholders' and directors'
meetings; fees and travel expenses of directors or director members of any
advisory board or committee; expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside pricing service; fees and expenses of legal counsel
and of independent accountants; membership dues of industry associations;
interest payable on borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Company; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other
charges and costs of the Company's operations unless otherwise explicitly
assumed by AIM or FMC.
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"), a wholly owned subsidiary of AIM, serves
as transfer agent and dividend disbursing agent for the shares of all classes
of the Portfolio pursuant to a Transfer Agency and Service Agreement. AFS
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 and the Company. The address of AFS is P.O. Box 4497,
Houston, Texas 77210-4497.
A-13
<PAGE>
The Bank of New York ("BONY") acts as custodian for the Company's portfolio
securities and cash. BONY receives such compensation from the Company for its
services in such capacity as is agreed to from time to time by BONY and the
Company. The address of BONY is 90 Washington Street, 11th Floor, New York, New
York 10286.
REPORTS
The Company furnishes shareholders with semi-annual reports containing
information about the Company and its operations, including a schedule of
investments held in the Portfolio 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 Portfolio and to maintain
information with respect to the underlying beneficial ownership of the shares
of each class of the Portfolio. Investors who purchase shares of the Portfolio
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(R) Remote, a personal computer application software
product, may receive sub-accounting services via such software.
PRINCIPAL HOLDERS OF SECURITIES
To the best of the knowledge of the Company, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of the Portfolio
as of October 30, 1998, and the percentage of the Portfolio's amount of
outstanding shares owned by such shareholders as of such date are as follows:
A-14
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
OF RECORD OWNER OF RECORD ONLY(A)
---------------- -----------------
INSTITUTIONAL CLASS
-------------------
<S> <C>
NationsBank of Texas, N.A................................... 23.64%
1401 Elm Street, 11th Floor
P.O. Box 831000
Dallas, TX 75283-1000
Frost National Bank......................................... 10.26%
P.O. Box 2358
San Antonio, TX 78299
Chase Bank of Texas fbo OBIE & Co........................... 9.56%
Attn: STIF UNIT
18 HCB 340
P.O. Box 2558
Houston, TX 77252-8098
Trust Company Bank.......................................... 9.51%
Center 3139
P.O. Box 105504
Atlanta, GA 30348
First Trust/Var & Co........................................ 7.09%
Funds Control Suite 0404
180 East Fifth Street
St. Paul, MN 55101
Nationsfund................................................. 5.23%
C/O the Bank of New York
90 Washington St.
New York, NY 10286
<CAPTION>
PRIVATE INVESTMENT CLASS
------------------------
<S> <C>
The Bank of New York........................................ 36.45%(b)
4 Fisher Lane
White Plains, NY 10603
Cullen/Frost Discount Brokers............................... 27.84%(b)
P.O. Box 2358
San Antonio, TX 78299
</TABLE>
- ------
(a) The Company has no knowledge as to whether all or any portion of the
shares of the class owned of record are also owned beneficially.
(b) A shareholder who holds more than 25% of the outstanding shares of a
portfolio may be presumed to be in "control" of such portfolio, as
defined in the 1940 Act.
A-15
<PAGE>
<TABLE>
<S> <C>
First National Bank of Chicago......................................... 7.73%
Mail Suite 0126
Attention Sweep Coordinator
Chicago, IL 60670-0126
Oppenheimer & Co., Inc................................................. 6.99%
Oppenheimer Tower
World Financial Center
New York, NY 10281
New Haven Savings Bank................................................. 6.37%
Trust Department
P.O. Box 302
New Haven, CT 06502
</TABLE>
AIM provided the initial capitalization for the Cash Management Class, the
Personal Investment Class, the Reserve Class and the Resource Class of the
Portfolio and, accordingly, as of the date of this Statement of Additional
Information, owned all the outstanding shares of each such class. The Company
expects that the sale of the shares of such classes to the public pursuant to
its Prospectuses will promptly reduce the percentage of such shares owned by
AIM to less than 1% of the total shares outstanding of each class.
To the best of the knowledge of the Company, as of October 30, 1998, the
directors and officers of the Company as a group beneficially owned less than
1% of each class of the outstanding shares of the Portfolio.
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which the shares of a particular
class may be purchased, redeemed or exchanged appears in each 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
Federal Reserve Bank of New York and the Bank of New York 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 the shares of each class of the Portfolio is
determined twice daily as of the times shown in each Prospectus on each
Business Day of the Company, as defined in each 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
A-16
<PAGE>
Portfolio, if any; (c) deducting the liabilities of the Portfolio; (d) dividing
the resulting amount by the number of shares outstanding of the Portfolio; and
(e) rounding such per share net asset value to the nearest whole cent.
The debt instruments held in the Portfolio are valued on the basis of
amortized cost. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Company would receive if it sold the entire
portfolio.
The valuation of the portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Portfolio is permitted in accordance with applicable rules and regulations
of the SEC, which require the Company to adhere to certain conditions. The
Portfolio 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 (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 each class of the
Portfolio. 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 4497, Houston,
Texas 77210-4497. See "Directors and Officers" and "The Investment Advisor" for
information as to the affiliation of certain directors and officers of the
Company with FMC, AIM 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 from year to year, 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
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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 a particular class during a specific period of time. In some
instances, these incentives may be offered only to certain dealers or
institutions who have sold or may sell significant amounts of shares. The total
amount of such additional bonus or payments or other consideration shall not
exceed 0.05% of the net asset value of the shares of the class sold. Any such
bonus or incentive programs will not change the price paid by investors for the
purpose of shares or the amount received as proceeds from such sales. Dealers
or institutions may not use sales of the shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any
jurisdiction.
DISTRIBUTION PLAN
The Company has adopted a Master Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to the Cash Management Class,
Personal Investment Class, Private Investment Class, Reserve Class and Resource
Class.
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 compensation
from the Portfolio for servicing investors as beneficial owners of shares of
the Cash Management Class, Personal Investment Class, Private Investment Class,
Reserve Class and Resource Class of the Portfolio. These services may include
among other things: (i) answering customer inquiries regarding shares of these
classes 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 these classes 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 shares of these
classes, 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.
With respect to the Private Investment Class, the amount paid to dealers and
financial institutions pursuant to the Plan for the fiscal year ended March 31,
1998 was $135,349 (or an amount equal to 0.25% of the average daily net assets
of such class). With respect to the Private Investment Class, FMC received no
compensation pursuant to the Plan for the fiscal year ended March 31, 1998.
As required by Rule 12b-1 under the 1940 Act, the Plan has been 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"). 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 shares of the applicable
classes of the Portfolio.
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The Plan, unless sooner terminated in accordance with its terms, shall
continue in effect as to each applicable class from year to year 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, and
Robert H. Graham, a Director and President of the Company, own shares of
AMVESCAP PLC.
The Plan may be terminated as to a particular class of the Portfolio by vote
of a majority of the Qualified Directors, or by vote of a majority of the
holders of the outstanding voting securities of such class. Any change in the
Plan that would increase materially the distribution expenses paid by an
applicable 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.
BANKING REGULATIONS
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 each applicable
class of the Portfolio, 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 each applicable class.
PERFORMANCE INFORMATION
As stated under the caption "Yield Information" in each Prospectus, yield
information for the shares of each class of the Portfolio may be obtained by
calling the Company at (800) 659-1005.
Calculations of yield will take into account the total income received by the
Portfolio, including taxable income, if any; however, the Company
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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 will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yields 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 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 September 30, 1998, the current and effective
yields for the Private Investment Class were 3.44% and 3.50%, respectively.
Assuming a tax rate of 39.6% these yields for the Private Investment Class on a
tax-equivalent basis were 5.70% and 5.79%, respectively. For the seven-day
period ended September 30, 1998, the current and effective yields for the
Institutional Class were 3.69% and 3.76%, respectively. These yields are quoted
for illustration purposes only. The yields for any other seven-day period may
be substantially different from the yields quoted above.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Portfolio's investment objective and fundamental
and operating policies is set forth in each Prospectus. The principal features
of the Portfolio's investment program and the primary risks associated with
that investment program are also discussed in each Prospectus. There can be no
assurance that the Portfolio will achieve its objective. The values of the
securities in which the Portfolio invests fluctuate based upon interest rates,
the financial stability of the issuer and market factors. The following is a
more detailed description of the portfolio instruments eligible for purchase by
the Portfolio, which augments the summary of the Portfolio's investment program
which appears under the heading "Investment Program" in each Prospectus.
As set forth in each 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
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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.
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.
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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.
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 and
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"):
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MOODY'S MUNICIPAL BOND RATINGS
AAA
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
Note: Bonds in the Aa group which Moody's believes possess the strongest
investment attributes are designated by the symbol Aa1.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in the Aa group
when assigning ratings to: industrial development bonds; and bonds secured by
either a letter of credit or bond insurance. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of
the degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade (or MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in bond
risk, long-term secular trends for example, may be less important over the
short run.
A short-term rating may also be assigned on an issue having a demand feature
(i.e., a variable rate demand obligation or VRDO). Short-term ratings on issues
with demand features may be differentiated by the use of the VMIG symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates, and payment relying on external liquidity. Additionally, the
source of payment may be limited to the external liquidity with no or limited
legal recourse to the issuer in the event the demand is not met.
A VMIG rating may be assigned to commercial paper programs. Such programs are
characterized as having variable short-term maturities but having neither a
variable rate nor demand feature.
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Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly
the same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection by
established cash flows, superior liquidity support or demonstrated broad based
access to the market for refinancing.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
Moody's employs the following two designations, each judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
PRIME-1
Issuers (or related supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources of
alternate liquidity.
Note: A Moody's commercial paper rating may also be assigned as an evaluation
of the demand feature of a short-term or long-term security with a put option.
S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations:
likelihood of default--capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
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AA
Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be modified by
the addition of a plus (+) sign or minus (-) sign to show relative standing.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the demand feature (e.g.,
AAA/A-1+). With short-term demand debt, the note rating symbols are used with
the commercial paper rating symbols (e.g., SP-1+/A-l+).
S&P MUNICIPAL NOTE RATINGS
A S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note); and source of payment
(the more dependent the issue is on the market for its refinancing, the more
likely it will be treated as a note).
The highest note rating symbol is as follows:
SP-1
Category denotes very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
S&P COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
The highest rating category is as follows:
A-1
This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
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FITCH BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same ratings are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA
Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA
Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1."
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.
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The highest Fitch short-term rating is as follows:
F-1
Exceptionally Strong Credit Quality. Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
The Portfolio may purchase Municipal Securities on a "when-issued" basis,
that is, the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued (normally
within forty-five days after the date of the transaction). The Portfolio may
purchase or sell Municipal Securities on a delayed delivery basis. The payment
obligation and the interest rate that will be received on the when-issued
securities are fixed at the time the buyer enters into the commitment. The
Portfolio will only make commitments to purchase when-issued or delayed
delivery Municipal Securities with the intention of actually acquiring such
securities, but the Portfolio may sell these securities before the settlement
date if it is deemed advisable. No additional when-issued or delayed delivery
commitments will be made if more than 25% of the Portfolio's net assets would
thereby become so committed.
If the Portfolio purchases a when-issued or delayed delivery security, the
Company will direct its custodian bank to 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
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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. 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 each 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 each 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;
(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;
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(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 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
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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.
The Portfolio does not seek to profit from short-term trading, and will
generally (but not always) hold portfolio securities to maturity, but AIM may
seek to enhance the yield of the Portfolio by taking advantage of yield
disparities or other factors that occur in the money markets. For example,
market conditions frequently result in similar securities trading at different
prices. AIM may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with AIM's judgment as to desirable portfolio maturity structure or
if such disposition is believed to be advisable due to other circumstances or
conditions. The amortized cost method of valuing portfolio securities requires
that the Portfolio maintain an average weighted portfolio maturity of ninety
days or less. Thus, there is likely to be relatively high portfolio turnover,
but since brokerage commissions are not normally paid on money market
instruments, the high rate of portfolio turnover is not expected to have a
material effect on the net income or expenses of the Portfolio. The Portfolio's
policy of investing in securities with maturities of 397 days or less will
result in high portfolio turnover. Since brokerage commissions are not normally
paid on investments of the type made by the Portfolio, the high turnover rate
should not adversely affect the Portfolio's net income.
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. Furthermore, the 1940 Act 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 Portfolio 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.
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.
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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 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 each class of the Portfolio 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 a particular class is effective, provided that the purchase
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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.
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 each 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 each 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
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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. Such distributions generally will be eligible for the
dividends received deduction in the case of corporate shareholders.
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
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interest on indebtedness incurred or continued to purchase or carry shares of
the Portfolio. Moreover, a shareholder who is (or is related to) a "substantial
user" of a facility financed by industrial development bonds held by the
Portfolio will likely be subject to tax on dividends paid by the Portfolio
which are derived from interest on such bonds. Receipt of exempt-interest
dividends may result in other collateral federal income tax consequences to
certain taxpayers, including financial institutions, property and casualty
insurance companies and foreign corporations engaged in a trade or business in
the United States. Prospective investors should consult their own tax advisers
as to such consequences.
The Portfolio anticipates distributing substantially all of its investment
company taxable income, if any, for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the dividends-
received deduction for corporations.
The Portfolio may either retain or distribute to shareholders its net capital
gain, if any, for each taxable year. 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."
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
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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
December 18, 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.
A-35
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
SCHEDULE OF INVESTMENTS
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS - 106.72%
ALABAMA - 1.76%
Birmingham (City of); Series 1998 GO
4.00%, 06/01/11(b)(c) A-1 VMIG-1 $ 4,000 $ 4,000,000
- -------------------------------------------------------------------------------
Birmingham (City of)
(YMCA-Birmingham); Public Park and
Recreation Board RB
4.00%, 06/01/16(b)(c) -- VMIG-1 3,210 3,210,000
- -------------------------------------------------------------------------------
Huntsville (City of); Series A Warrants
5.25%, 02/01/99 AA Aa 7,060 7,096,716
- -------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Warrants
4.05%, 02/01/12(b)(c) A-1+ -- 2,695 2,695,000
- -------------------------------------------------------------------------------
17,001,716
- -------------------------------------------------------------------------------
ALASKA - 1.30%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
3.60%, 06/01/26(b) A-1+ VMIG-1 12,572 12,572,000
- -------------------------------------------------------------------------------
ARIZONA - 1.86%
Apache (County of) Industrial Development
Authority (Tucson Electric); Series 1983
C IDR
3.60%, 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
3.70%, 12/01/02(b)(c) A-1+ -- 5,500 5,500,000
- -------------------------------------------------------------------------------
17,900,000
- -------------------------------------------------------------------------------
ARKANSAS - 0.72%
Arkansas Hospital Equipment Finance
Authority (Baptist Health Project);
Hospital Equipment RB
4.10%, 11/01/10(b)(d) A-1+ -- 7,000 7,000,000
- -------------------------------------------------------------------------------
CALIFORNIA - 0.31%
Huntington Beach (City of) (Seabridge
Villas Project); Floating Rate
Multifamily Housing Series 1985 A RB
4.00%, 02/01/10(b)(c) -- VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
COLORADO - 1.06%
Colorado (State of) General Fund; Series
1998 A TRAN
4.00%, 06/25/99 SP-1+ -- 5,000 5,014,800
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Coventry Village Project); Multifamily
Housing Refunding Series 1996 B RB
3.70%, 10/15/16(b)(c) A-1+ -- 5,270 5,270,000
- -------------------------------------------------------------------------------
10,284,800
- -------------------------------------------------------------------------------
</TABLE>
FS-1
<PAGE>
<TABLE>
<CAPTION>
RATING (a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CONNECTICUT - 1.73%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special Tax
Obligation RB
3.55%, 12/01/10(b)(c) A-1+ VMIG-1 $ 5,060 $ 5,060,000
- -------------------------------------------------------------------------------
Connecticut (State of) Power and Light
Development Authority; Series 1993 A RB
3.60%, 09/01/28(b)(c) A-1+ VMIG-1 11,633 11,633,000
- -------------------------------------------------------------------------------
16,693,000
- -------------------------------------------------------------------------------
FLORIDA - 5.72%
Gulf Breeze (City of) (Florida Muncipal
Bond Fund); Variable Rate Demand Series
1995 A RB
4.10%, 03/31/21(b)(c) A-1+ -- 12,310 12,310,000
- -------------------------------------------------------------------------------
Hillsborough (County of) Industrial
Development Authority (Tampa Electric Co.
Project); Refunding Series 1990 PCR
3.90%, 09/01/25(b) -- VMIG-1 4,800 4,800,000
- -------------------------------------------------------------------------------
Hillsborough (County of) Industrial
Development Authority (Tampa Electric Co.
Gannon Coal Conversion Project);
Refunding Series 1992 PCR
4.20%, 05/15/18(b) A-1+ VMIG-1 5,150 5,150,000
- -------------------------------------------------------------------------------
Jacksonville (City of) Florida Educational
Facilities Authority (Jacksonville
University Project); Education Facilities
Series
1998 RB
3.95%, 10/01/22(b)(c) A-1 -- 7,000 7,000,000
- -------------------------------------------------------------------------------
Lee (County of) Housing Finance Authority
(Forestwood Apartments
Project); Housing Series 1995 A RB
3.65%, 06/15/25(b)(c) A-1+ -- 4,426 4,426,000
- -------------------------------------------------------------------------------
Miami (City of) Florida Health Facilities
Authority (Mercy Hospital Project);
Refunding Health Facilities Series 1998
RB
3.55%, 08/01/20(b)(c) A-1+ VMIG-1 8,690 8,690,000
- -------------------------------------------------------------------------------
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Finance Corp. Guaranteed Floating/Fixed
Rate Pooled Series 1984 H-1 PCR
3.65%, 03/15/14(b)(c) A-1+ P-1 3,865 3,865,000
- -------------------------------------------------------------------------------
Putnam County (Seminole Electric
Cooperative, Inc. Project); National
Rural Utilities Guaranteed Semiannual
Adjustable Pooled Series 1984 H-4 PCR
3.30%, 03/15/99(c) A-1+ P-1 9,000 9,000,000
- -------------------------------------------------------------------------------
55,241,000
- -------------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA - 6.23%
Cobb (County of) Georgia School District;
Series 1998 GO
4.00%, 12/31/98 -- MIG-1 $ 3,500 $ 3,503,367
- -------------------------------------------------------------------------------
Cobb (County of) Housing Authority
(Greenhouse Frey Apartment
Project); Multifamily Housing RB
3.65%, 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Decatur County Bainbridge Industrial De-
velopment Authority (Kaiser
Agriculture Chemical Inc. Project); Se-
ries 1985 IDR
3.80%, 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
3.65%, 06/15/25(b)(c) A-1+ -- 6,400 6,400,000
- -------------------------------------------------------------------------------
Dekalb Private Hospital Authority (Egles-
ton Childrens Hospital at Emory Univer-
sity); Variable Rate Demand Series 1994
A RAN
3.55%, 03/01/24(b)(c) A-1+ VMIG-1 100 100,000
- -------------------------------------------------------------------------------
Development Authority of Cobb County (In-
stitute of Nuclear Power
Operations Project); Series 1998 RB
4.05%, 02/01/13(b)(c) -- Aa3 9,170 9,170,000
- -------------------------------------------------------------------------------
Development Authority of Floyd County
(Shorter College
Project); Series 1998 RB
4.00%, 06/01/17(b)(c) A-1+ -- 4,000 4,000,000
- -------------------------------------------------------------------------------
Fulton (County of) Housing Authority
(Spring Creek Crossing Project); Multi-
family Housing Refunding Series RB
3.65%, 10/01/24(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Gwinnett (County of) Housing Authority
(Greens Apartment
Project); Variable Rate Demand
Multifamily Housing Series 1995 RB
3.65%, 06/15/25(b)(c) A-1+ -- 10,300 10,300,000
- -------------------------------------------------------------------------------
Municipal Electric Authority of Georgia
(Project 1); Subordinated Money Market
Municipal Bonds Series 1985 A
3.60%, 11/10/98(c) A-1+ VMIG-1 7,385 7,385,000
- -------------------------------------------------------------------------------
Roswell (City of) Housing Development Au-
thority (Azalea
Project); Multifamily Housing Refunding
Series 1996 RB
3.65%, 06/15/25(b)(c) A-1+ -- 3,700 3,700,000
- -------------------------------------------------------------------------------
Savannah (City of) Housing Authority
(Somerset Place Project);
Variable Rate Demand Multifamily Housing
Series 1996 A RB
3.50%, 06/15/26(b)(c) A-1+ -- 3,500 3,500,000
- -------------------------------------------------------------------------------
60,158,367
- -------------------------------------------------------------------------------
IDAHO - 0.58%
Idaho (State of); Series 1998 TAN
4.50%, 06/30/99 SP-1+ MIG-1 2,000 2,012,943
- -------------------------------------------------------------------------------
Power (County of) (FMC Corporation Proj-
ect); PCR
4.00%, 12/01/10(b)(c) -- VMIG-1 3,600 3,600,000
- -------------------------------------------------------------------------------
5,612,943
- -------------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS - 6.75%
Burbank (City of) (Service Merchandise
Co. Inc. Project); Floating Rate Monthly
Demand Industrial Building Series 1984
RB
3.65%, 09/15/24(b)(c) A-1+ -- $ 2,800 $ 2,800,000
- -------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project);
Multifamily Housing Series 1983 RB
4.25%, 06/01/08(b)(c) -- Aa3 5,445 5,445,000
- -------------------------------------------------------------------------------
Illinois (State of); Series 1998 GO
4.25%, 06/01/99(d) AAA Aaa 7,000 7,030,279
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Adventist Health System/Sunbelt Obli-
gated Group); Variable Rate Demand Se-
ries 1997 A RB
4.05%, 11/15/27(b)(d) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB
4.05%, 08/01/26(b)(c) A-1+ -- 5,621 5,621,000
- -------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Revenue
Anticipation Note Progam); Variable Rate
Demand
Series 1998-1999 A RAN
4.05%, 06/30/99(b)(c) A-1+ -- 5,600 5,600,000
- -------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Northwestern University);
Adjustable Rate Series 1988 RB
3.70%, 03/01/28(b) A-1+ VMIG-1 6,450 6,450,000
- -------------------------------------------------------------------------------
Illinois Health Facilities Authority; Re-
volving Fund Pooled Series D RB
3.65%, 08/01/15(b)(c) A-1+ VMIG-1 1,069 1,069,000
- -------------------------------------------------------------------------------
Oak Forest (City of) (Homewood Pool); Se-
ries 1989 RB
3.65%, 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
3.65%, 09/15/26(b)(c) A-1+ -- 23,180 23,180,000
- -------------------------------------------------------------------------------
65,195,279
- -------------------------------------------------------------------------------
INDIANA - 4.34%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate Demand Economic
Development Series 1985 RB
3.45%, 07/01/10(b)(c) -- VMIG-1 1,200 1,200,000
- -------------------------------------------------------------------------------
Indiana (State of) (Advance Funding Pro-
gram); Series 1998 A-2 RB
4.00%, 01/20/99 SP-1+ MIG-1 10,000 10,008,835
- -------------------------------------------------------------------------------
Indiana Development Finance Authority
(Southern Indiana Gas and
Electric Project); Series 1998 A PCR
3.65%, 03/01/99 -- VMIG-1 16,000 16,000,000
- -------------------------------------------------------------------------------
Indianapolis (City of) (Jewish Community
Campus Project); Variable Rate Economic
Development RB
3.65%, 04/01/05(b)(c) -- VMIG-1 2,195 2,195,000
- -------------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
RATING (a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
INDIANA - (CONTINUED)
Indianapolis (City of); Local Improvement
Series 1998 RB
4.25%, 01/11/99 SP-1+ -- $ 2,400 $ 2,403,938
- -------------------------------------------------------------------------------
Petersburg (City of) (Indianapolis Power
and Light Co. Project); Adjustable Rate
Tender Securities Series 1995 B PCR
3.65%, 01/01/23(b)(d) A-1+ VMIG-1 6,000 6,000,000
- -------------------------------------------------------------------------------
Sullivan (City of) National Rural
Utilities Cooperative Finance Corp.
(Hoosier Energy Rural Electric
Cooperative, Inc.); Series
1985 L-6 RB
3.40%, 12/08/98(c) AA- A-1 4,100 4,100,000
- -------------------------------------------------------------------------------
41,907,773
- -------------------------------------------------------------------------------
IOWA - 2.37%
Iowa Finance Authority (Iowa Health
Systems Corp.); Adjustable Rate Hospital
Facilities Series 1998 B RB
3.50%, 07/01/20(b)(d) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
3.50%, 01/01/28(b)(d) A-1+ VMIG-1 4,300 4,300,000
- -------------------------------------------------------------------------------
Iowa Higher Education Loan Authority;
Private College Facility RB
3.75%, 12/01/15(b)(d) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
Iowa School Corporations (Iowa School
Cash Anticipation Program); Warrant
Certificates Series 1998-1999 A TRAN
4.50%, 06/25/99(c) SP-1+ MIG-1 8,500 8,550,986
- -------------------------------------------------------------------------------
22,850,986
- -------------------------------------------------------------------------------
KANSAS - 1.10%
Burlington (City of) National Rural
Utilities-Cooperative Power Corp.
(Kansas Electric Power Cooperative
Inc.); Series 1985 C-1 RB
3.40%, 12/08/98(c) AA- Aa3 5,610 5,610,000
- -------------------------------------------------------------------------------
Mission (City of) (Silverwood Apartment
Project); Multifamily RB
3.65%, 09/15/26(b)(c) A-1+ -- 5,000 5,000,0000
- -------------------------------------------------------------------------------
10,610,000
- -------------------------------------------------------------------------------
KENTUCKY - 2.89%
Kentucky Asset/Liability Commission;
General Fund TRAN
4.00%, Series 1998 B 06/25/99 SP-1+ MIG-1 2,000 2,009,578
- -------------------------------------------------------------------------------
4.50%, Series 1998 A 06/25/99 SP-1+ MIG-1 5,000 5,032,836
- -------------------------------------------------------------------------------
Kentucky Economic Development Finance
Authority (Catholic Healthcare Project);
Hospital Facilities Series 1998 A RB
3.50%, 12/01/27(b)(c) AA- Aa2 10,000 10,000,000
- -------------------------------------------------------------------------------
Mayfield (City of) (Kentucky League of
Cities Funding Trust Pooled Lease
Financing Program); Variable Rate Multi-
City Lease Series 1996 RB
3.70%, 07/01/26(b)(c) A-1 VMIG-1 4,100 4,100,000
- -------------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<CAPTION>
RATING (a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
KENTUCKY - (CONTINUED)
Mason (County of) (East Kentucky Power
Cooperative Inc. Project); National
Rural Utilities Cooperative Finance
Corp. Guaranteed Floating/Fixed Rate
Series 1984 B-1 PCR
3.65%, 10/15/14(b)(c) A-1+ -- $ 6,745 $ 6,745,000
- -------------------------------------------------------------------------------
27,887,414
- -------------------------------------------------------------------------------
LOUISIANA - 4.94%
Jefferson (Parish of) Sales Tax District;
Special Sales Tax and Refunding Series
1998 RB
4.00%, 12/01/98(c) AAA Aaa 2,500 2,500,976
- -------------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Sisters of Charity of the Incarnate
Word); Unit Priced Demand Adjustable
Series 1997 E RB
3.55%, 07/01/23(b) A-1+c VMIG-1 9,700 9,700,000
- -------------------------------------------------------------------------------
Louisiana Public Facilities Authority
(Willis-Knighton Medical Center
Project); RB
3.60%, Hospital Series 1995
09/01/25(b)(d) A-1+ VMIG-1 17,500 17,500,000
- -------------------------------------------------------------------------------
3.60%, Hospital Series 1997
09/01/27(b)(d) A-1+ VMIG-1 3,600 3,600,000
- -------------------------------------------------------------------------------
New Orleans (City of); Aviation Board
Series B RB
3.65%, 08/01/16(b)(d) A-1+ VMIG-1 4,935 4,935,000
- -------------------------------------------------------------------------------
New Orleans International Airport
Aviation Board; Refunding Series 1995 A
RB
3.65%, 08/01/15(b)(d) A-1+ VMIG-1 9,500 9,500,000
- -------------------------------------------------------------------------------
47,735,976
- -------------------------------------------------------------------------------
MAINE - 0.12%
Maine Health and Higher Educational
Facilities Authority; Series 1998 B RB
3.70%, 07/01/99(c) AAA -- 1,120 1,120,000
- -------------------------------------------------------------------------------
MARYLAND - 0.54%
Morgan Stanley Float Program, Maryland
State Health & Higher Educational
Facilities Authority (Maryland Health
Upper Chesapeake Hospital Project);
Floating Rate Trust Certificates Series
1998 A 39 RB
4.17%, 01/01/28(b)(c) -- VMIG-1 5,215 5,215,000
- -------------------------------------------------------------------------------
MASSACHUSETTS - 2.59%
Commonwealth of Massachusetts; Variable
Rate Demand Refunding GO
3.55%, 09/01/16(b) A-1+ VMIG-1 20,000 20,000,000
- -------------------------------------------------------------------------------
3.90%, 09/01/16(b) A-1+ VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
25,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MICHIGAN - 2.34%
Jackson County Economic Development
Corp. (Sealed Power Corp.); Economic
Development Variable Refunding RB
3.45%, 10/01/19(b)(c) -- VMIG-1 $ 1,000 $ 1,000,000
- ------------------------------------------------------------------------------
Michigan (State of); Municipal Bond Au-
thority RB
4.25%, Series 1998 D-1, 08/27/99 SP-1+ -- 3,500 3,520,442
- ------------------------------------------------------------------------------
4.25%, Series 1998 D-2, 08/27/99(c) SP-1+ -- 3,000 3,017,521
- ------------------------------------------------------------------------------
Michigan State Hospital Finance
Authority (Hospital Equipment Loan
Program); Adjustable Series 1996 A RB
3.55%, 12/01/23(b)(c) -- VMIG-1 6,100 6,100,000
- ------------------------------------------------------------------------------
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited Obligation
Series 1985 RB
3.50%, 10/01/15(b)(c) -- VMIG-1 3,500 3,500,000
- ------------------------------------------------------------------------------
Michigan Strategic Fund (The Detroit
Edison Company PCB Project); Adjustable
Rate Demand Limited Obligation Series
1995 CC RB
4.20%, 09/01/30(b)(c) A-1+ P-1 5,400 5,400,000
- ------------------------------------------------------------------------------
22,537,963
- ------------------------------------------------------------------------------
MINNESOTA - 2.42%
Becker (City of) (Northern States Power
Co. Project); Adjustable Series 1992-A
PCR
3.75%, 10/27/98 A+ A1 10,400 10,400,000
- ------------------------------------------------------------------------------
Bloomington (City of) Port Authority
(Mall of America Project); Special Tax
Revenue Series 1996 B RB
4.05%, 02/01/13(b)(c) A-1+ VMIG-1 1,200 1,200,000
- ------------------------------------------------------------------------------
Mankato (City of) (Northern States Power
Co. Project); Floating Collateralized
Series 1985 PCR
3.75%, 03/01/11(b)(d) 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 -- 5,700 5,700,000
- ------------------------------------------------------------------------------
Minnesota (State of); Housing Finance
Agency Single Family Mortgage Series G
RB
4.15%, 12/01/98(e) A-1+ VMIG-1 2,000 2,001,131
- ------------------------------------------------------------------------------
Red Wing (City of) Industrial
Development Authority (Northern States
Power Co.); Floating Rate
Collateralized Series 1985 PCR
3.75%, 03/01/11(b)(d) AA- A1 1,200 1,200,000
- ------------------------------------------------------------------------------
23,401,131
- ------------------------------------------------------------------------------
MISSOURI - 4.88%
Kansas City (Sleepy Hollow Apartment
Project); Multifamily Housing Series
1996 RB
3.65%, 09/15/26(b)(c) A-1+ -- 7,500 7,500,000
- ------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MISSOURI - (CONTINUED)
Missouri Health & Educational
Facilities Authority (Cox Health
Systems); Insured Variable Rate Demand
Health Facilities Refunding Series
1997 RB
4.00%, 06/01/15(b)(d) A-1+ VMIG-1 $ 6,400 $ 6,400,000
- -----------------------------------------------------------------------------
Missouri Health & Educational
Facilities Authority (Stowers
Institute for Medical Research);
Series 1998 RB
4.00%, 04/01/38(b)(c) A-1+ -- 22,000 22,000,000
- -----------------------------------------------------------------------------
Missouri Health & Educational
Facilities Authority (The Washington
University); Educational Facilities
Series D RB
4.00%, 09/01/30(b) A-1+ VMIG-1 3,400 3,400,000
- -----------------------------------------------------------------------------
Missouri State Development Finance
Board (Science City Union Station);
Infrastructure Facilities Series A RB
3.80%, 12/01/98(c) AA- Aa3 2,850 2,850,435
- -----------------------------------------------------------------------------
Morgan Stanley Float Program,
(University of Missouri Health
System); Floating Rate Trust
Certificates Series 40 1998 RB
4.17%, 11/01/28(b)(d)(f) -- VMIG-1 4,995 4,995,000
- -----------------------------------------------------------------------------
47,145,435
- -----------------------------------------------------------------------------
NEW HAMPSHIRE - 1.46%
New Hampshire Business Finance
Authority (Wheelabrator Concord
Company, L.P. Project); Adjustable
Rate Resource Recovery Refunding
Series 1997 A RB
3.50%, 01/01/18(b)(c) A-1+ -- 8,700 8,700,000
- -----------------------------------------------------------------------------
New Hampshire Housing Finance Authority
(EQR-Bond Partnership-Manchester
Project); Multifamily Housing
Refunding Series 1996 RB
3.65%, 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
3.55%, 01/01/09(b)(c) A-1+ -- 400 400,000
- -----------------------------------------------------------------------------
14,100,000
- -----------------------------------------------------------------------------
NEW MEXICO - 0.52%
New Mexico (State of); Series 1998-1999
TRAN
4.25%, 06/30/99 SP-1+ MIG-1 5,000 5,023,379
- -----------------------------------------------------------------------------
NEW YORK - 17.85%
Eagle Tax Exempt Trust; Class A COP(f)
4.07%, Series 97C4703 01/01/01(b)(g) A-1+c -- 10,800 10,800,000
- -----------------------------------------------------------------------------
4.12%, Series 1993 F 08/01/06(b) A-1+c -- 20,850 20,850,000
- -----------------------------------------------------------------------------
4.12%, Series 1993 E 08/01/06(b) A-1+c -- 15,000 15,000,000
- -----------------------------------------------------------------------------
4.12%, Series 943802 05/01/07(b) A-1+c -- 17,800 17,800,000
- -----------------------------------------------------------------------------
4.12%, Series 943901 06/15/07(b)(d) A-1+c -- 15,175 15,175,000
- -----------------------------------------------------------------------------
4.07%, Series 97C4703 07/01/10(b)(g) A-1+c -- 495 495,000
- -----------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW YORK - (CONTINUED)
Eagle Tax Exempt Trust; Class A
COP(f) - (continued)
4.07%, Series 97C4702 01/01/20(b) A-1+c -- $ 9,900 $ 9,900,000
- -----------------------------------------------------------------------------
4.12%, Series 950901 06/01/21(b)(g) A-1+c -- 13,315 13,315,000
- -----------------------------------------------------------------------------
4.12%, Series 943207 07/01/29(b)(d) A-1+c -- 14,850 14,850,000
- -----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington
Public Power Supply System Project No.
2); Series 964703 Class A COP
4.12%, 07/01/11(b)(d)(f) A-1+c -- 5,870 5,870,000
- -----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington
State); Series 984701 Class A GO
4.12%, 05/01/18(b)(f) A-1+c -- 14,400 14,400,000
- -----------------------------------------------------------------------------
Long Island Power Authority Electrical
System; Subordinated Series 2 RB
3.50%, 05/01/33(b)(c) A-1+ VMIG-1 5,400 5,400,000
- -----------------------------------------------------------------------------
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
4.10%, 02/15/29(b)(c)(f) 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
4.14%, 04/01/12(b)(c)(f) -- VMIG-1 2,845 2,845,000
- -----------------------------------------------------------------------------
New York (City of); Series 1994
Adjustable Rate Subseries A-4 GO
4.00%, 08/01/21(b)(c) A-1+ VMIG-1 8,500 8,500,000
- -----------------------------------------------------------------------------
New York (City of); Series 1994
Subseries H-3 GO
3.75%, 10/29/98(c) A-1+ VMIG-1 7,500 7,500,000
- -----------------------------------------------------------------------------
172,400,000
- -----------------------------------------------------------------------------
NORTH CAROLINA - 2.91%
North Carolina (State of) Medical Care
Commission (Lexington Memorial
Hospital Project); Variable Rate
Hospital Series 1997 RB
4.10%, 04/01/10(b)(c) -- VMIG-1 4,600 4,600,000
- -----------------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (Pooled Financing Project);
Variable Rate Hospital Series 1996 A
RB
4.10%, 10/01/16(b)(c) -- VMIG-1 10,500 10,500,000
- -----------------------------------------------------------------------------
North Carolina Medical Care Commission
Retirement Community (Adult
Communities Total Services Inc.);
Variable Rate Demand Series 1996 RB
4.00%, 11/15/09(b)(c) A-1+ -- 5,655 5,655,000
- -----------------------------------------------------------------------------
North Carolina Municipal Power Agency
(Catawba Project); Tax Exempt
Commercial Notes Series 1A
3.60%, 12/09/98(c) A-1+ P-1 7,298 7,298,000
- -----------------------------------------------------------------------------
28,053,000
- -----------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OHIO - 1.63%
Akron-Summit (County of); Library
Improvement Bonds Series 1998 A GO
4.00%, 12/01/98(c) -- Aaa $ 2,000 $ 2,001,443
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
4.25%, 11/01/14(b)(c) -- P-1 8,400 8,400,000
- -------------------------------------------------------------------------------
Lorain (County of) (Catholic Healthcare
Partners); Adjustable Rate Hospital
Facilities Series 1998 A RB
3.50%, 12/01/27(b)(d) A-1+ VMIG-1 3,000 3,000,000
- -------------------------------------------------------------------------------
Marion (County of) (Pooled Lease Program);
Hospital RB
4.05%, 10/01/22(b)(c) A-1+ -- 1,355 1,355,000
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community Project);
Variable Rate Demand Multifamily Housing
Series 1985 RB
3.50%, 12/01/15(b)(c) -- VMIG-1 956 956,000
- -------------------------------------------------------------------------------
15,712,443
- -------------------------------------------------------------------------------
OREGON - 0.86%
Klamath Falls (City of) (Salt Caves
Hydroelectric); Adjustable/Fixed RB
3.80%, Series 1986 D, 05/03/99(e)(g) SP-1+ -- 5,670 5,672,216
- -------------------------------------------------------------------------------
Multnoma (County of) (Portland Public
School District); Series 1998 TRAN
4.25%, 06/30/99 SP-1+ MIG-1 2,600 2,611,211
- -------------------------------------------------------------------------------
8,283,427
- -------------------------------------------------------------------------------
PENNSYLVANIA - 2.36%
Delaware County Industrial Development
Authority (Henderson-Radnor Joint Venture
Project); Limited Obligation Series 1985
IDR
4.15%, 04/01/15(b)(c) -- Aa3 810 810,000
- -------------------------------------------------------------------------------
Montour (County of) Geisinger Authority
Health System (Obligation Group); Series
A RB
5.30%, 07/01/99 AA Aa2 1,000 1,011,921
- -------------------------------------------------------------------------------
Montour (County of) Geisinger Authority
Health System (Penn State Geisinger
Health System); Series 1998 B RB
4.15%, 08/15/28(b) A-1+ VMIG-1 7,100 7,100,000
- -------------------------------------------------------------------------------
Pennsylvania Higher Educational Facilities
Authority (Carnegie Mellon University);
Variable Rate Refunding Series 1995 C RB
4.15%, 11/01/29(b) A-1+ -- 3,000 3,000,000
- -------------------------------------------------------------------------------
Philadelphia (City of) School District;
Series 1998-1999 A TRAN
4.25%, 06/30/99(c) SP-1+ MIG-1 1,500 1,506,687
- -------------------------------------------------------------------------------
Quakertown Hospital Authority (HPF Group);
Series 1985 A RB
3.75%, 07/01/05(b)(c) -- VMIG-1 9,300 9,300,000
- -------------------------------------------------------------------------------
22,728,608
- -------------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TENNESSEE - 2.36%
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 A-1+ VMIG-1 $ 4,000 $ 4,000,000
- -------------------------------------------------------------------------------
Knox (County of) Industrial Development
Board (Weisgarber Partners); Floating
Rate Series 1984 IDR
3.65%, 12/01/14(b)(c) A-1+ -- 700 700,000
- -------------------------------------------------------------------------------
Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County (Amberwood, Ltd.
Project); Multifamily Housing RB
4.27%, Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,135 2,135,000
- -------------------------------------------------------------------------------
4.27%, Series 1993 B 07/01/13(b)(c) A-1 VMIG-1 1,825 1,825,000
- -------------------------------------------------------------------------------
Shelby (County of) Health Educational and
Housing Facility Board (Wyndridge
Housing); Variable Rate Demand
Multifamily Housing Refunding RB
3.65%, 10/01/24(b)(c) A-1+ -- 14,135 14,135,000
- -------------------------------------------------------------------------------
22,795,000
- -------------------------------------------------------------------------------
TEXAS - 13.86%
Angelina & Neches River Authority
Industrial Development Corp.
(Temple Inland Marine); Solid Waste
Adjustable Rate Series 1984 B RB
4.10%, 05/01/14(b)(c) -- P-1 3,400 3,400,000
- -------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Altamonte Apt. Project);
Series 1996 RB
3.65%, 09/15/26(b)(c) A-1+ -- 5,800 5,800,000
- -------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apartments);
Multifamily RB
3.65%, 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Fort Worth (City of) Water & Sewer System;
Series A Commercial Paper Notes
3.40%, 01/19/99 A-1+ P-1 4,000 4,000,000
- -------------------------------------------------------------------------------
Harris (County of); Series 1998 TAN
4.25%, 02/26/99 SP-1+ MIG-1 5,000 5,013,893
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp.; ACES Greater Houston
Pooled Health Series 1985 A RB
3.60%, 11/01/25(b)(c) A-1 -- 2,600 2,600,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Baylor College of
Medicine Project); Medical Facilities
Series 1997 RB
3.65%, 06/01/27(b) A-1+ -- 9,000 9,000,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Buckner Retirement
Services, Inc. Project); Series 1996 RB
4.10%, 08/15/26(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS - (CONTINUED)
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 Blood
Center RB
4.05%, 04/01/17(b)(c) A-1 -- $ 3,350 $ 3,350,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Texas Children's
Hospital); Series 1989 B-2 RB
3.65%, 10/01/19(b) -- VMIG-1 17,500 17,500,000
- -------------------------------------------------------------------------------
Houston (City of); Series 1998 TRAN
4.25%, 06/30/99 SP-1+ MIG-1 5,000 5,025,183
- -------------------------------------------------------------------------------
Houston (City of); Tax and Revenue
Certificates Obligation Series F RB
3.90%, 03/01/99 AA- Aa3 2,140 2,141,236
- -------------------------------------------------------------------------------
Houston (City of) Water and Sewer; Series
A Commercial Paper Notes
3.40%, 02/10/99 A-1 P-1 9,000 9,000,000
- -------------------------------------------------------------------------------
Lower Colorado River Authority; Revenue
Refunding Junior Lien Bonds Third
Supplemental Series 1996 RB
3.50%, 01/01/13(b)(d) A-1+ VMIG-1 8,200 8,200,000
- -------------------------------------------------------------------------------
San Antonio (City of) Electric & Gas
System; Series A Commercial Paper Notes
3.55%, 02/11/99 A-1+ P-1 10,000 10,000,000
- -------------------------------------------------------------------------------
Texas (State of); Series 1998 TRAN
4.50%, 08/31/99 SP-1+ MIG-1 9,000 9,085,968
- -------------------------------------------------------------------------------
Texas Department of Housing and Community
Affairs; SFM Tax Exempt Refunding Series
B Commercial Paper Notes
3.50%, 10/09/98(c) A-1+ -- 9,205 9,205,000
- -------------------------------------------------------------------------------
3.60%, 10/09/98(c) A-1+ -- 12,635 12,635,000
- -------------------------------------------------------------------------------
Texas Municipal Gas Corp.; Senior Lien
Gas Reserve Series 1998 RB
3.55%, 01/15/23(b)(c) A-1+ VMIG-1 3,935 3,935,000
- -------------------------------------------------------------------------------
Texas Water Development Board; State
Revolving Fund Senior Lien Series RB
5.00%, 07/15/99 AAA Aa1 1,800 1,818,607
- -------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
3.60%, Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
- -------------------------------------------------------------------------------
3.60%, Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
- -------------------------------------------------------------------------------
133,859,887
- -------------------------------------------------------------------------------
VERMONT - 1.05%
Vermont (State of); Series 1990 B GO
6.50%, 02/01/99 AA- Aa2 2,000 2,018,375
- -------------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
VERMONT - (CONTINUED)
Vermont Educational and Health
Building Finance Authority (VHA
New England); Variable Rate
Hospital RB
3.65%, Series B 12/01/25(b)(d) A-1 -- $ 1,000 $ 1,000,000
- --------------------------------------------------------------------------
3.65%, Series E 12/01/25(b)(d) A-1 -- 2,500 2,500,000
- --------------------------------------------------------------------------
3.65%, Series F 12/01/25(b)(d) A-1+ -- 2,100 2,100,000
- --------------------------------------------------------------------------
3.65%, Series G 12/01/25(b)(d) A-1+ -- 2,560 2,560,000
- --------------------------------------------------------------------------
10,178,375
- --------------------------------------------------------------------------
VIRGINIA - 2.14%
Industrial Development Authority
of the City of Lynchburg (VHA
Mid-Atlantic States, Inc.)
Capital Asset Financing Program;
Variable Rate Hospital Series
1985 F RB
3.65%, 12/01/25(b)(d) A-1 -- 6,700 6,700,000
- --------------------------------------------------------------------------
Norfolk (City of) Industrial
Development Authority (Pooled
Financing Program - Sentara
Health Systems); Commercial Paper
Notes Series 1997 RB
3.60%, 11/13/98 A-1+ VMIG-1 6,000 6,000,000
- --------------------------------------------------------------------------
Waynesboro (City of) Industrial
Development Authority
(Residential Care Facilities); RB
4.10%, 12/01/28(b)(c) A-1 -- 8,000 8,000,000
- --------------------------------------------------------------------------
20,700,000
- --------------------------------------------------------------------------
WASHINGTON - 0.32%
Industrial Development Corp. of
Port Townsend (Port Townsend
Paper Corp. Project); Series 1988
A Variable Rate Refunding RB
4.00%, 03/01/09(b)(c) -- VMIG-1 3,100 3,100,000
- --------------------------------------------------------------------------
WEST VIRGINIA - 1.50%
West Virginia Hospital Finance
Authority (VHA Mid-Atlantic
States, Inc. Capital Asset
Financing Program); RB
3.65%, Series 1985 B
12/01/25(b)(d) A-1+ -- 3,000 3,000,000
- --------------------------------------------------------------------------
3.65%, Series 1985 C
12/01/25(b)(d) A-1+ -- 3,500 3,500,000
- --------------------------------------------------------------------------
3.65%, Series 1985 H
12/01/25(b)(d) A-1 -- 8,000 8,000,000
- --------------------------------------------------------------------------
14,500,000
- --------------------------------------------------------------------------
WISCONSIN - 1.35%
Wisconsin (State of); TAN
4.50%, 06/15/99 SP-1+ MIG-1 13,000 13,084,324
- --------------------------------------------------------------------------
TOTAL INVESTMENTS - 106.72% 1,030,589,226(h)
- --------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -
(6.72%) (64,868,631)
- --------------------------------------------------------------------------
NET ASSETS - 100.00% $ 965,720,595
- --------------------------------------------------------------------------
</TABLE>
FS-13
<PAGE>
ABBREVIATIONS:
COP--Certificates of Participation
GO--General Obligation Bonds
IDR--Industrial Development Revenue Bonds
PCR--Pollution Control Revenue Bonds
RAN--Revenue Anticipation Notes
RB-- Revenue Bonds
TAN--Tax Anticipation Notes
TRAN--Tax and Revenue Anticipation Notes
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").
(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 09/30/98.
(c) Secured by a letter of credit.
(d) Secured by bond insurance.
(e) Subject to an irrevocable call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(f) 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.
(g) Secured by an escrow fund of U.S. Treasury obligations.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-14
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,030,589,226
- ------------------------------------------------------------------------
Cash 54,177
- ------------------------------------------------------------------------
Receivables for:
Investments sold 5,870,062
- ------------------------------------------------------------------------
Interest 5,348,262
- ------------------------------------------------------------------------
Investment for deferred compensation plan 36,668
- ------------------------------------------------------------------------
Other assets 64,253
- ------------------------------------------------------------------------
Total assets 1,041,962,648
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 73,196,625
- ------------------------------------------------------------------------
Dividends 2,766,736
- ------------------------------------------------------------------------
Deferred compensation 36,668
- ------------------------------------------------------------------------
Accrued administrative services fees 5,452
- ------------------------------------------------------------------------
Accrued advisory fees 139,161
- ------------------------------------------------------------------------
Accrued directors' fees 3,005
- ------------------------------------------------------------------------
Accrued transfer agent fees 16,271
- ------------------------------------------------------------------------
Accrued distribution fees 16,065
- ------------------------------------------------------------------------
Accrued operating expenses 62,070
- ------------------------------------------------------------------------
Total liabilities 76,242,053
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 965,720,595
========================================================================
NET ASSETS:
Institutional Shares $ 892,758,095
========================================================================
Private Investment Class $ 72,962,500
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Shares:
Authorized 3,000,000,000
- ------------------------------------------------------------------------
Outstanding 892,756,573
========================================================================
Private Investment Class:
Authorized 1,000,000,000
- ------------------------------------------------------------------------
Outstanding 72,962,374
========================================================================
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest income $18,890,217
- ------------------------------------------------------------------
EXPENSES:
Advisory fees 1,171,722
- ------------------------------------------------------------------
Administrative services fees 32,109
- ------------------------------------------------------------------
Transfer agent fees 83,230
- ------------------------------------------------------------------
Custody fees 14,325
- ------------------------------------------------------------------
Directors' fees 6,999
- ------------------------------------------------------------------
Distribution fees (Note 2) 190,346
- ------------------------------------------------------------------
Other expenses 81,934
- ------------------------------------------------------------------
Total expenses 1,580,665
- ------------------------------------------------------------------
Less: Fees waived and expenses assumed (414,233)
- ------------------------------------------------------------------
Net expenses 1,166,432
- ------------------------------------------------------------------
Net investment income 17,723,785
- ------------------------------------------------------------------
Net realized gain on sales of investments 4,129
- ------------------------------------------------------------------
Net increase in net assets resulting from operations $17,727,914
==================================================================
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 1998 and the year ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 17,723,785 $ 36,533,922
- -----------------------------------------------------------------------------
Net realized gain on sales of investments 4,129 9,664
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 17,727,914 36,543,586
- -----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Shares (16,521,562) (34,792,247)
- -----------------------------------------------------------------------------
Private Investment Class (1,202,223) (1,741,675)
- -----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Shares (4,149,559) (69,673,016)
- -----------------------------------------------------------------------------
Private Investment Class (7,500,237) 42,918,457
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets (11,645,667) (26,744,895)
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 977,366,262 1,004,111,157
- -----------------------------------------------------------------------------
End of period $ 965,720,595 $ 977,366,262
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Shares $ 892,756,573 $ 896,906,132
- -----------------------------------------------------------------------------
Private Investment Class 72,962,374 80,462,611
- -----------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of
investments 1,648 (2,481)
- -----------------------------------------------------------------------------
$ 965,720,595 $ 977,366,262
=============================================================================
</TABLE>
See Notes to Financial Statements.
FS-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
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
six months ended September 30, 1998, AIM reduced its advisory fee from the Fund
by $319,060.
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 six months ended September 30,
1998, the Fund reimbursed AIM $32,109 for such services.
FS-18
<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 six months ended September 30, 1998, the Private Investment
Class paid $95,173 as compensation to FMC under the Plan. FMC waived fees of
$95,173 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. During the six months ended September 30,
1998, the Fund paid AFS $83,230 for such services.
During the six months ended September 30, 1998, the Fund paid legal fees of
$2,872 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 six months ended September 30,
1998 and the year ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 MARCH 31, 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold:
Institutional Shares 3,290,499,360 $3,290,499,360 5,302,472,459 $5,302,472,459
- ---------------------------------------------------------------------------------------
Private Investment
Class 261,616,207 261,616,207 484,657,926 484,657,926
- ---------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Shares 1,179,051 1,179,051 2,107,154 2,107,154
- ---------------------------------------------------------------------------------------
Private Investment
Class 1,088,184 1,088,184 1,514,378 1,514,378
- ---------------------------------------------------------------------------------------
Redeemed:
Institutional Shares (3,295,827,970) (3,295,827,970) (5,374,252,629) (5,374,252,629)
- ---------------------------------------------------------------------------------------
Private Investment
Class (270,204,628) (270,204,628) (443,253,847) (443,253,847)
- ---------------------------------------------------------------------------------------
Net increase
(decrease) (11,649,796) $ (11,649,796) (26,754,559) $ (26,754,559)
=======================================================================================
</TABLE>
FS-19
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Institutional Shares
capital stock outstanding during the six months ended September 30, 1998 and
each of the years in the five-year period ended March 31, 1998.
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, ------------------------------------------------------
1998 1998 1997 1996 1995 1994
------------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------- -------- -------- -------- ---------- ---------- ----------
Income from investment
operations:
Net investment income 0.02 0.03 0.03 0.04 0.03 0.02
- ----------------------- -------- -------- -------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income (0.02) (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 $1.00
======================= ======== ======== ======== ========== ========== ==========
Total return 3.47%(a) 3.55% 3.33% 3.67% 3.06% 2.33%
======================= ======== ======== ======== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $892,758 $896,904 $966,567 $1,009,039 $1,009,891 $1,040,595
======================= ======== ======== ======== ========== ========== ==========
Ratio of expenses to
average net assets(b) 0.20%(c) 0.20% 0.20% 0.20% 0.20% 0.20%
======================= ======== ======== ======== ========== ========== ==========
Ratio of net investment
income to average net
assets(d) 3.41%(c) 3.49% 3.27% 3.59% 3.01% 2.30%
======================= ======== ======== ======== ========== ========== ==========
</TABLE>
(a) Annualized.
(b) 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% (annualized), 0.27%, 0.26%, 0.26%, 0.26% and 0.28% for the periods
1998-1994, respectively.
(c) Ratios are annualized and based on average net assets of $967,590,577.
(d) 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 3.34% (annualized), 3.42%, 3.21%, 3.53%, 2.95% and
2.22% for the periods 1998-1994, respectively.
FS-20
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Private Investment
Class capital stock outstanding during the six months ended September 30, 1998
and each of the years in the five-year period ended March 31, 1998.
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, ------------------------------------------------
1998 1998 1997 1996 1995 1994
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.02 0.03 0.03 0.03 0.03 0.02
- ----------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.02) (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 $1.00
======================= ======= ======= ======= ======= ======= =======
Total return 3.21%(a) 3.29% 3.07% 3.41% 2.80% 2.07%
======================= ======= ======= ======= ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $72,963 $80,462 $37,544 $35,139 $29,286 $16,601
======================= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets(b) 0.45%(c) 0.45% 0.45% 0.45% 0.45% 0.45%
======================= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets(d) 3.16%(c) 3.24% 3.02% 3.35% 2.89% 2.05%
======================= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.76% (annualized), 0.77%, 0.83%, 0.76%, 1.17% and 1.15% for the periods
1998-1994, respectively.
(c) Ratios are annualized and based on average net assets of $75,930,655.
(d) 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 2.85% (annualized), 2.92%, 2.65%, 3.04%, 2.17% and
1.35% for the periods 1998-1994, respectively.
FS-21
<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.
KPMG Peat Marwick LLP
Houston, Texas
May 1, 1998
FS-22
<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
Radiation 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-23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
COLORADO - (CONTINUED)
Colorado Housing Finance Authority
(Coventry 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
Project); Refunding Multifamily Housing
Series 1990 RB
3.65%, 10/01/06(b)(c) A-1+ VMIG-1 8,700 8,700,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase
Project); 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
Series 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
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Cooperative Finance 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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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
Program); 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-31
<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
Development 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
Economic Development Corp.
(Newport Electric Corp. Project);
Energy 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-32
<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-33
<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
Hospital 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-34
<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-35
<PAGE>
INVESTMENT ABBREVIATIONS:
BAN Bond Anticipation RAN Revenue Anticipation Notes
Notes RB Revenue Bonds
COP Certificates of TAN Tax Anticipation Notes
Participation TRAN Tax and Revenue Anticipation Notes
GO General Obligation
Bonds
IDR Industrial
Development Revenue
Bonds
PCR Pollution Control
Revenue Bonds
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-36
<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-37
<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-38
<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-39
<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.
FS-40
<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-41
<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.
FS-42
<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-43
<PAGE>
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
TAX-FREE INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 December 18, 1998
(800) 659-1005
INVESTMENT ADVISOR TAX-FREE
A I M ADVISORS, INC. INVESTMENTS CO.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 ---------------
(713) 626-1919
CASH
DISTRIBUTOR RESERVE PORTFOLIO
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100 ---------------
Houston, Texas 77046
(800) 659-1005 INSTITUTIONAL CLASS
AUDITORS <TABLE>
KPMG PEAT MARWICK LLP <CAPTION>
700 Louisiana PAGE
Houston, Texas 77002 ----
<S> <C>
CUSTODIAN Organization of the Company....... 2
THE BANK OF NEW YORK Table of Fees and Expenses........ 2
90 Washington Street, 11th Floor Financial Highlights.............. 3
New York, New York 10286 Suitability for Investors......... 4
Investment Program................ 4
TRANSFER AGENT Purchase of Shares................ 7
A I M FUND SERVICES, INC. Redemption of Shares.............. 7
P.O. Box 4497 Determination of Net Asset Value.. 8
Houston, Texas 77210-4497 Dividends......................... 8
Performance Information........... 8
Tax Matters....................... 9
NO PERSON HAS BEEN AUTHORIZED TO Management of the Company......... 10
GIVE ANY INFORMATION OR TO MAKE ANY General Information............... 11
REPRESENTATIONS NOT CONTAINED IN Appendix..........................A-1
THIS PROSPECTUS IN CONNECTION WITH </TABLE>
THE OFFERING MADE BY THIS
PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
<PAGE>
PROSPECTUS
PERSONAL INVESTMENT CLASS
OF THE
CASH RESERVE PORTFOLIO
OF
TAX-FREE INVESTMENTS CO.
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 877-4744
----------------
The Personal 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 five additional
classes of the Cash Reserve Portfolio are offered pursuant to separate
prospectuses. 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 Personal 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 DECEMBER 18, 1998 HAS BEEN FILED WITH THE 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
11 GREENWAY PLAZA, SUITE 100, HOUSTON, TEXAS 77046-1173 OR CALL (800) 877-
4744. 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: DECEMBER 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
Summary.......................... 2 Taxes............................. 12
Table of Fees and Expenses....... 4 Determination of Net Asset Value.. 13
Suitability For Investors........ 5 Yield Information................. 14
Investment Program............... 5 Reports to Shareholders........... 14
Purchase of Shares............... 9 Management of the Company......... 15
Redemption of Shares............. 10 General Information............... 18
Dividends........................ 11
</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"). The
Portfolio currently offers six classes of shares. They are the Cash Management
Class, the Institutional Class, the Personal Investment Class, the Private
Investment Class, the Reserve Class and the Resource Class. This Prospectus
relates only to the Personal Investment Class (the "Class"). Shares of the
other classes are offered pursuant to separate prospectuses.
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.
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. All six
classes of the Portfolio share a common investment objective and portfolio of
investments. However, different 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 shares of the Class is $1,000. 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. 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 0.23% 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." Under a Transfer Agency and Service
Agreement, A I M Fund Services, Inc. ("Transfer Agent"), AIM's wholly owned
subsidiary and a registered transfer agent receives a fee for its provision of
transfer agency, dividend distribution and disbursement and shareholder
services to the Company. See "General Information--Transfer Agent and
Custodian."
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 0.75% 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, La Familia AIM de Fondos and Design and Invest With
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
3
<PAGE>
TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
PERSONAL
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*................................................. 0.50%**
Other expenses.............................................. 0.04%
----
Total fund operating expenses*.............................. 0.70%
====
</TABLE>
- --------
* After fee waivers. Had there been no fee waivers, Management fees, 12b-1
fees and Total fund operating expenses would be 0.23%, 0.75% and 1.02% ,
respectively. 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.
** It is possible that as a result of Rule 12b-1 fees, long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted under rules of the National Association of Securities
Dealers, Inc. Given the Rule 12b-1 fee of the Class, however, it is
estimated that it would take a substantial number of years for a
shareholder to exceed such maximum front-end sales charges.
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>
PERSONAL
INVESTMENT
CLASS OF THE CASH
RESERVE PORTFOLIO
-----------------
<S> <C>
1 year..................................................... $ 7
3 years.................................................... $22
</TABLE>
The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class
will bear directly or indirectly. (For more complete descriptions of the
various costs and expenses, see "Management of the Company" below.) The "Total
fund operating expenses" figure is based upon costs and the estimated size of
the Class and fees to be charged for the current fiscal period. The "Other
expenses" and "12b-1 fees" figures are based upon estimated costs and the
estimated size of the Class and the Portfolio and estimated fees to be charged
for the current fiscal period. Thus, actual expenses may be greater or less
than such estimates. The Table of Fees and Expenses reflects a voluntary
waiver of management fees and 12b-1 fees for the Class. Future waivers of fees
(if any) may vary from the figures reflected
4
<PAGE>
in the Table of Fees and Expenses. To the extent any service providers assume
expenses of the Class, such assumption of expenses will have the effect of
lowering the Class's overall expense ratio and increasing its yield to
investors.
The example in the Table of Fees and Expenses assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown.
The example shown in the above table is based on the amounts listed under
"Annual Fund Operating Expenses." THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE
AN ACCURATE REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN.
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 in shares of the Class is $1,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and
maintenance of liquidity by investing in high quality, short-term municipal
obligations. This objective will not be changed without the approval of a
majority of the Portfolio's outstanding shares (within the meaning of the 1940
Act).
There can be no assurance that the Portfolio will achieve its investment
objective.
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 "Taxes" herein
and "Tax Matters" 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.
5
<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 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"), 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.
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
6
<PAGE>
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, 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
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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 "Investment Program and Restrictions"
section of 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 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. Because 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 affect
its share price. The securities in which the Portfolio invests may not yield
as high a level of current income as longer term or lower grade securities,
which generally have less liquidity and greater fluctuation in value. The net
asset value of the shares of the Class will normally remain constant at $1.00
per share (although there can be no assurance that such net asset value will
not change).
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PURCHASE OF SHARES
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 Federal Reserve Bank of New York and the Bank of New York
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 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 4497, Houston, Texas 77210-4497. 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
$1,000. 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.
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
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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 Transfer Agent. 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.
REDEMPTION OF SHARES
Shareholders may redeem any or all of their 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
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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."
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 generally 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 4497,
Houston, Texas 77210-4497. Such election or revocation will be effective with
dividends paid after it is received by AFS.
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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's 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's 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.
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.
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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.
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 determination of the Portfolio's net asset value is made in
accordance with generally accepted accounting principles. Among other items,
the Portfolio's liabilities include accrued expenses and dividends payable,
and its total assets include portfolio securities valued at their market value
as well as income accrued but not yet received.
Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the 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.
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YIELD INFORMATION
Yield information for the shares of the Class can be obtained by calling the
Company at (800) 877-4744. 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 the Portfolio's investments, the Portfolio's maturity and the
operating expense ratio of the Classes and the 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.
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.
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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 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 (the "Agreement"). AIM was organized in 1976
and, together with its subsidiaries, advises, manages or administers over 90
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. Certain 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. 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.
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.
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ADMINISTRATIVE SERVICES
The Company has entered into a Master Administrative Services Agreement with
AIM (the "Administrative Services Agreement"), pursuant to which AIM has
agreed to provide or arrange for the provision of certain accounting and other
administrative services to the Portfolio, including the services of a
principal financial officer of the Company and related staff. As compensation
to AIM for its services under the Administrative Services Agreement, the
Portfolio may reimburse AIM for expenses incurred by AIM in connection with
such services.
DISTRIBUTOR
The Company has entered into a distribution agreement (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 4497, Houston, Texas 77210-
4497. 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 0.75% 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 dealers and other
financial institutions in excess of such amount and payments retained by 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 has been 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"). 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, unless sooner terminated in accordance with its terms, shall
continue in effect from year to year as long as such continuance is
specifically approved at least annually by the Board of Directors, including a
majority of the Qualified Directors.
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.
17
<PAGE>
FEE WAIVERS
In order to increase the yield to investors, AIM or its subsidiaries may
from time to time waive or reduce its advisory 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.
For the year ended March 31, 1998, AIM reduced its fees from the Portfolio
by $683,910.
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 six 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 among the six 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 October 30, 1998, The Bank of New York, was the owner of record of
36.45% of the outstanding shares of the Portfolio, and Cullen/Frost Discount
Brokers was the owner of record of 27.84% of the outstanding shares of the
Portfolio. Therefore, each 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., P.O. Box 4497, Houston, Texas 77210-4497, acts as
transfer agent for the shares of 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 Portfolio's securities and cash.
18
<PAGE>
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania, serves as counsel to the Company, and passes upon certain legal
matters for the Company.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to an investor's Institution, or to the Company at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173, or may be made by calling (800) 877-4744.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Company, 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 the year 2000 from 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 Company 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 second quarter
of 1999. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm year 2000
compliance upon installation. No assurance can be given that the Project will
be successful or that AIM Management and its subsidiaries will not otherwise
be adversely affected by the year 2000 issue.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know
about the Company and the Portfolio 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 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
DISTRIBUTOR PERSONAL
FUND MANAGEMENT COMPANY INVESTMENT CLASS
11 Greenway Plaza, Suite 100 OF THE
Houston, Texas 77046-1173 -------------------------------------
(800) 877-4744 CASH RESERVE PROSPECTUS
PORTFOLIO
AUDITORS
KPMG PEAT MARWICK LLP DECEMBER 18, 1998
700 Louisiana
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 4497
Houston, Texas 77210-4497
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR
THE DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFERING MAY NOT LAWFULLY BE [LOGO APPEARS HERE]
MADE. FUND MANAGEMENT COMPANY
<PAGE>
TAX-FREE
INVESTMENTS CO.
<TABLE> PROSPECTUS
- ------------------------------------------------------------------
<S> <C>
CASH RESERVE The Reserve Class of the Cash Reserve Portfolio
PORTFOLIO of Tax-Free Investments Co. (the "Company") is
designed to be a convenient vehicle in which
RESERVE CLASS customers of banks, certain broker-dealers and
other institutions can invest in a diversified,
DECEMBER 18, 1998 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 five
additional classes of the Cash Reserve Portfolio
are offered pursuant to separate prospectuses.
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 Reserve
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
DECEMBER 18, 1998 HAS BEEN FILED WITH THE
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 11 GREENWAY
PLAZA, SUITE 100, HOUSTON, TEXAS 77046-1173 OR
CALL (800) 467-8792. 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
[LOGO APPEARS HERE] PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE
Fund Management Company POSSIBLE LOSS OF PRINCIPAL.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 467-8792
</TABLE>
<PAGE>
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"). The Portfolio
currently offers six classes of shares. They are the Cash Management Class, the
Institutional Class, the Personal Investment Class, the Private Investment
Class, the Reserve Class and the Resource Class. This Prospectus relates only
to the Reserve Class (the "Class"). Shares of the other classes are offered
pursuant to separate prospectuses.
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.
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. All six classes of the
Portfolio share a common investment objective and portfolio of investments.
However, different 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 shares of the Class is $1,000. 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."
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. 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 0.23% of the
2
<PAGE>
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." Under a Transfer Agency and Service Agreement,
A I M Fund Services, Inc. ("Transfer Agent"), AIM's wholly owned subsidiary and
a registered transfer agent receives a fee for its provision of transfer
agency, dividend distribution and disbursement and shareholder services to the
Company. See "General Information--Transfer Agent and Custodian."
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
1.00% 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, La Familia AIM de Fondos and Design and Invest With
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
3
<PAGE>
TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
RESERVE
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*................................................. 0.80%**
Other expenses.............................................. 0.04%
----
Total fund operating expenses*.............................. 1.00%
====
</TABLE>
- ------
* After fee waivers. Had there been no fee waivers, Management fees, 12b-1 fees
and Total fund operating expenses would be 0.23%, 1.00% and 1.27%,
respectively. 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.
** It is possible that as a result of Rule 12b-1 fees, long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted under rules of the National Association of Securities
Dealers, Inc. Given the Rule 12b-1 fee of the Class, however, it is
estimated that it would take a substantial number of years for a shareholder
to exceed such maximum front-end sales charges.
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>
RESERVE
CLASS OF THE CASH
RESERVE PORTFOLIO
-----------------
<S> <C>
1 year..................................................... $10
3 years.................................................... $32
</TABLE>
The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management of the Company" below.) The "Total fund
operating expenses" figure is based upon costs and the estimated size of the
Class and fees to be charged for the current fiscal period. The "Other
expenses" and "12b-1" fees figures are based upon estimated costs and the
estimated size of the Class and the Portfolio and estimated fees to be charged
for the current fiscal period. Thus, actual expenses may be greater or less
than such estimates. The Table of Fees and Expenses reflects a voluntary waiver
of management fees and 12b-1 fees for the Class. Future waivers of fees (if
any) may vary from the figures reflected in the Table of Fees and Expenses. To
the extent any service providers assume expenses of the Class, such assumption
of expenses will have the effect of lowering the Class's overall expenses
ration and increasing its yield to investors.
The example in the Table of Fees and Expenses assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown.
The example shown in the above table is based on the amounts listed under
"Annual Fund Operating Expenses." THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE AN
ACCURATE REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
4
<PAGE>
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 in shares of the Class is $1,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and maintenance
of liquidity by investing in high quality, short-term municipal obligations.
This objective will not be changed without the approval of a majority of the
Portfolio's outstanding shares (within the meaning of the 1940 Act).
There can be no assurance that the Portfolio will achieve its investment
objective.
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 "Taxes" herein
and "Tax Matters" 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"), 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.
5
<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, 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,
6
<PAGE>
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 "Investment Program and Restrictions"
section of 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 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. Because 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 affect its share
price. 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 Federal Reserve Bank of New York and the Bank of New York
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 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 4497, Houston, Texas 77210-4497. 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.
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The minimum initial investment for the purchase of shares of the Class is
$1,000. 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.
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 Transfer Agent. 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.
REDEMPTION OF SHARES
Shareholders may redeem any or all of their 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
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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."
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 generally 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 4497,
Houston, Texas 77210-4497. 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's 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's pro rata share of
the net assets of the Portfolio, less (c) expenses directly attributable to
each class that are accrued for the applicable dividend period, such as
distribution expenses, if any.
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The Company uses its best efforts to maintain the net asset value per share
of the Portfolio at $1.00 for purposes of sales and redemptions. See "Net Asset
Value." Should the Company incur or anticipate any unusual expense, loss or
depreciation which could adversely affect the income or net asset value of the
Portfolio, the Company's Board of Directors would at that time consider whether
to adhere to the present dividend policy described above or to revise it in
light of the then prevailing circumstances. For example, under such unusual
circumstances the Board of Directors might reduce or suspend the daily dividend
in order to prevent to the extent possible the net asset value per share of the
Portfolio from being reduced below $1.00. Thus, such expenses, losses or
depreciation may result in a shareholder receiving no dividends for the period
during which shares of the Class were held and cause such a shareholder to
receive upon redemption a price per share lower than the shareholder's original
cost.
TAXES
The Portfolio has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As long as the Portfolio qualifies for this tax
treatment, it will not be subject to federal income taxes on amounts
distributed to shareholders.
Shareholders will not be required to include the "exempt-interest" portion of
dividends paid by the Portfolio in their gross income for federal income tax
purposes. However, shareholders will be required to report the receipt of
exempt-interest dividends and other tax-exempt interest on their federal income
tax returns. Moreover, exempt-interest dividends from the Portfolio may be
subject to state income taxes, may give rise to a federal alternative minimum
tax liability, may affect the amount of social security benefits subject to
federal income tax, may affect the deductibility of interest on certain
indebtedness of the shareholder and may have other collateral federal income
tax consequences. The Portfolio intends to avoid investment in those Municipal
Securities where the interest thereon will constitute an item of tax
preference, and therefore which could give rise to a federal alternative
minimum tax liability. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of exempt-
interest dividends, see the Statement of Additional Information.
The Portfolio may pay dividends to shareholders which are taxable, but will
endeavor to avoid investments which would result in taxable dividends. Unless
otherwise required by Treasury regulations, the percentage of dividends which
constitutes exempt-interest dividends, and the percentage thereof (if any)
which constitutes an item of tax preference, will be determined annually and
will be applied uniformly to all dividends declared during that year. These
percentages may differ from the actual percentages for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains (capital gain dividends), whether received in cash or additional
shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Portfolio to pay exempt-interest dividends would be adversely affected.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their tax advisors concerning the impact of the Code on their investments in
the Portfolio, and concerning the application of state, local and foreign taxes
to investments in the Portfolio, which may differ significantly from the
federal income tax consequences described above.
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.
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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
determination of the Portfolio's net asset value is made in accordance with
generally accepted accounting principles. Among other items, the Portfolio's
liabilities include accrued expenses and dividends payable, and its total
assets include portfolio securities valued at their market value as well as
income accrued but not yet received.
Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the 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) 467-8792. 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 the Portfolio's investments, the Portfolio's maturity and the operating
expense ratio of the Class and the 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.
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.
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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 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 (the "Agreement"). AIM was organized in 1976 and,
together with its subsidiaries, advises, manages or administers over 90
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. Certain 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. 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.
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.
ADMINISTRATIVE SERVICES
The Company has entered into a Master Administrative Services Agreement with
AIM (the "Administrative Services Agreement"), pursuant to which AIM has agreed
to provide or arrange for the provision of certain accounting and other
administrative services to the Portfolio, including the services of a principal
financial officer of the Company and related staff. As compensation to AIM for
its services under the Administrative Services Agreement, the Portfolio may
reimburse AIM for expenses incurred by AIM in connection with such services.
DISTRIBUTOR
The Company has entered into a distribution agreement (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 4497, Houston, Texas 77210-4497.
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.
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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 1.00% 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 dealers and other
financial institutions in excess of such amount and payments retained by 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.
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 has been 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"). 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, unless sooner terminated in accordance with its terms, shall
continue in effect from year to year as long as such continuance is
specifically approved at least annually by the Board of Directors, including a
majority of the Qualified Directors.
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.
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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.
FEE WAIVERS
In order to increase the yield to investors, AIM or its subsidiaries may from
time to time waive or reduce its advisory 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.
For the year ended March 31, 1998, AIM reduced its fees from the Portfolio by
$683,910.
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 six 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 among
the six 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 October 30, 1998, The Bank of New York was the owner of record of
36.45% of the outstanding shares of the Portfolio, and Cullen/Frost Discount
Brokers was the owner of record of 27.84% of the outstanding shares of the
Portfolio. Therefore, each 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., P.O. Box 4497, Suite 100, Houston, Texas 77210-
4497, acts as transfer agent for the shares of 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 Portfolio's securities and
cash.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania, serves as counsel to the Company, and passes upon certain legal
matters for the Company.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to an investor's Institution, or to the Company at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173, or may be made by calling (800) 467-8792.
14
<PAGE>
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Company, 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 the year 2000 from 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 Company 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 second quarter
of 1999. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm year 2000
compliance upon installation. No assurance can be given that the Project will
be successful or that AIM Management and its subsidiaries will not otherwise be
adversely affected by the year 2000 issue.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Company and the Portfolio 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
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.
15
<PAGE>
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
TAX-FREE INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 December 18, 1998
(800) 877-7745
TAX-FREE
INVESTMENT ADVISOR
A I M ADVISORS, INC. INVESTMENTS CO.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(713) 626-1919 ------------
DISTRIBUTOR CASH RESERVE PORTFOLIO
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100 ------------
Houston, Texas 77046-1173
(800) 467-8792 RESERVE CLASS
AUDITORS
KPMG PEAT MARWICK LLP
700 Louisiana TABLE OF CONTENTS
Houston, Texas 77002
CUSTODIAN <TABLE>
THE BANK OF NEW YORK <CAPTION>
90 Washington Street PAGE
11th Floor ----
New York, New York 10286 <S> <C>
Summary.......................... 2
Table of Fees and Expenses....... 4
TRANSFER AGENT Suitability For Investors........ 5
A I M FUND SERVICES, INC. Investment Program............... 5
P.O. Box 4497 Purchase of Shares............... 7
Houston, Texas 77210-4497 Redemption of Shares............. 8
Dividends........................ 9
Taxes............................ 10
NO PERSON HAS BEEN AUTHORIZED TO GIVE Determination of Net Asset Value. 11
ANY INFORMATION OR TO MAKE ANY REPRE- Yield Information................ 11
SENTATIONS NOT CONTAINED IN THIS Reports to Shareholders.......... 11
PROSPECTUS IN CONNECTION WITH THE Management of the Company........ 12
OFFERING MADE BY THIS PROSPECTUS, AND General Information.............. 14
IF GIVEN OR MADE, SUCH INFORMATION OR </TABLE>
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
<PAGE>
TAX-FREE
INVESTMENTS CO.
<TABLE> PROSPECTUS
- ---------------------------------------------------------------------------
<S> <C>
CASH RESERVE The Resource Class of the Cash Reserve Portfolio
PORTFOLIO of Tax-Free Investments Co. (the "Company") is
designed to be a convenient vehicle in which
RESOURCE customers of banks, certain broker-dealers and
CLASS other institutions can invest in a diversified,
open-end money market fund which is exempt from
DECEMBER 18, 1998 federal income taxes.
Pursuant to this Prospectus, the Company offers
one class of shares which represents interests in
the Cash Reserve Portfolio. Shares of five
additional classes of the Cash Reserve Portfolio
are offered pursuant to separate prospectuses. 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 Resource 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 DECEMBER 18, 1998 HAS
BEEN FILED WITH THE 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 11 GREENWAY PLAZA,
SUITE 100, HOUSTON, TEXAS 77046-1173 OR CALL
(800) 825-6858. 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
[LOGO APPEARS HERE] INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
Fund Management Company OF PRINCIPAL.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 825-6858
</TABLE>
<PAGE>
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"). The
Portfolio currently offers six classes of shares. They are the Cash Management
Class, the Institutional Class, the Personal Investment Class, the Private
Investment Class, the Reserve Class and the Resource Class. This Prospectus
relates only to the Resource Class (the "Class"). Shares of the other classes
are offered pursuant to separate prospectuses.
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.
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. All six
classes of the Portfolio share a common investment objective and portfolio of
investments. However, different 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 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."
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. 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 0.23% 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." Under a Transfer Agency and Service
Agreement, A I M Fund Services, Inc. ("Transfer Agent"), AIM's wholly owned
subsidiary and a registered transfer agent receives a fee for its provision of
transfer agency, dividend distribution and disbursement and shareholder
services to the Company. See "General Information--Transfer Agent and
Custodian."
2
<PAGE>
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
0.20% 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. 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, La Familia AIM de Fondos and Design and Invest With
Discipline are registered service marks and AIM Bank Connection is a service
mark of A I M Management Group Inc.
3
<PAGE>
TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
RESOURCE
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*................................................. 0.16%
Other expenses.............................................. 0.04%
----
Total fund operating expenses*.............................. 0.36%
====
</TABLE>
* After fee waivers. Had there been no fee waivers, Management fees, 12b-1 fees
and Total fund operating expenses would be 0.23%, 0.20% and 0.47%,
respectively. A beneficial holder of shares of the Class should also consider
the effect of any account fees charged by the financial institution managing
his or her account.
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
RESOURCE
CLASS OF THE CASH
RESERVE PORTFOLIO
-----------------
<S> <C>
1 year..................................................... $ 4
3 years.................................................... $12
</TABLE>
The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management of the Company" below.) The "Total fund
operating expenses" figure is based upon costs and the estimated size of the
Class and fees to be charged for the currrent fiscal period. The "Other
expenses" and "12b-1 fees" figures are based upon estimated costs and the
estimated size of the Class and the Portfolio and estimated fees to be charged
for the current fiscal period. Thus, actual expenses may be greater or less
than such estimates. The Table of Fees and Expenses reflects a voluntary waiver
of management fees and 12b-1 fees for the Class. Future waivers of fees (if
any) may vary from the figures reflected in the Table of Fees and Expenses. To
the extent any service providers assume expenses of the Class, such assumption
of expenses will have the effect of lowering the Class's overall expense ratio
and increasing its yield to investors.
The example in the Table of Fees and Expenses assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses" remain the same in the years shown.
The example shown in the above table is based on the amounts listed under
"Annual Fund Operating Expenses." THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE AN
ACCURATE REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
4
<PAGE>
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 in shares of the Class is $10,000.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to generate as high a level of
tax-exempt income as is consistent with preservation of capital and maintenance
of liquidity by investing in high quality, short-term municipal obligations.
This objective will not be changed without the approval of a majority of the
Portfolio's outstanding shares (within the meaning of the 1940 Act).
There can be no assurance that the Portfolio will achieve its investment
objective.
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 "Taxes" herein
and "Tax Matters" 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"), 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.
5
<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, 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,
6
<PAGE>
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 "Investment Program and Restrictions"
section of 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 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. Because 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 affect its share
price. The securities in which the Portfolio invests may not yield as high a
level of current income as longer term or lower grade securities, which
generally have less liquidity and greater fluctuation in value. The net asset
value of the shares of the Class will normally remain constant at $1.00 per
share (although there can be no assurance that such net asset value will not
change).
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PURCHASE OF SHARES
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 Federal Reserve Bank of New York and the Bank of New York
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 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 4497, Houston, Texas 77210-4497. 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.
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 Transfer Agent. 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.
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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.
REDEMPTION OF SHARES
Shareholders may redeem any or all of their 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."
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 generally 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
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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 4497, Houston, Texas 77210-4497. 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's 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's 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.
Shareholders will not be required to include the "exempt-interest" portion of
dividends paid by the Portfolio in their gross income for federal income tax
purposes. However, shareholders will be required to report the receipt of
exempt-interest dividends and other tax-exempt interest on their federal income
tax returns. Moreover, exempt-interest dividends from the Portfolio may be
subject to state income taxes, may give rise to a federal alternative minimum
tax liability, may affect the amount of social security benefits subject to
federal income tax, may affect the deductibility of interest on certain
indebtedness of the shareholder and may have other collateral federal income
tax consequences. The Portfolio intends to avoid investment in those Municipal
Securities where the interest thereon will constitute an item of tax
preference, and therefore which could give rise to a federal alternative
minimum tax liability. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of exempt-
interest dividends, see the Statement of Additional Information.
The Portfolio may pay dividends to shareholders which are taxable, but will
endeavor to avoid investments which would result in taxable dividends. Unless
otherwise required by Treasury regulations, the percentage of dividends which
constitutes exempt-interest dividends, and the percentage thereof (if any)
which constitutes an item of tax preference, will be determined annually and
will be applied uniformly to all dividends declared during that year. These
percentages may differ from the actual percentages for any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains (capital gain dividends), whether received in cash or additional
shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Portfolio to pay exempt-interest dividends would be adversely affected.
Shareholders will be advised annually as to the federal income tax status of
distributions made during the year. Shareholders are advised to consult with
their tax advisors concerning the impact of the Code on their investments in
the Portfolio, and concerning the application of state, local and foreign taxes
to investments in the Portfolio, which may differ significantly from the
federal income tax consequences described above.
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Foreign persons who file a United States tax return 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.
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
determination of the Portfolio's net asset value is made in accordance with
generally accepted accounting principles. Among other items, the Portfolio's
liabilities include accrued expenses and dividends payable, and its total
assets include portfolio securities valued at their market value as well as
income accrued but not yet received.
Securities held by the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the 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) 825-6858. 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 the Portfolio's investments, the Portfolio's maturity and the operating
expense ratio of the Class and the 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.
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.
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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 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 (the "Agreement"). AIM was organized in 1976 and,
together with its subsidiaries, advises, manages or administers over 90
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. Certain 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. 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.
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.
ADMINISTRATIVE SERVICES
The Company has entered into a Master Administrative Services Agreement with
AIM (the "Administrative Service Agreement"), pursuant to which AIM has agreed
to provide or arrange for the provision of certain accounting and other
administrative services to the Portfolio, including the services of a principal
financial officer of the Company and related staff. As compensation to AIM for
its services under the Administrative Services Agreement, the Portfolio may
reimburse AIM for expenses incurred by AIM in connection with such services.
DISTRIBUTOR
The Company has entered into a distribution agreement (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 4497, Houston, Texas 77210-4497.
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
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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 0.20% 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 0.20% of the average net assets of
the Class attributable to the Institutions. Payments retained by 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.
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 has been 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"). 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, unless sooner terminated in accordance with its terms, shall
continue in effect from year to year as long as such continuance is
specifically approved at least annually by the Board of Directors, including a
majority of the Qualified Directors.
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.
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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.
FEE WAIVERS
In order to increase the yield to investors, AIM or its subsidiaries may from
time to time waive or reduce its advisory 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.
For the year ended March 31, 1998, AIM reduced its fees from the Portfolio by
$683,910.
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 six 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 among
the six 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 October 30 1998, The Bank of New York, was the owner of record of
36.45% of the outstanding shares of the Portfolio, and Cullen/Frost Discount
Brokers was the owner of record of 27.84% of the outstanding shares of the
Portfolio. Therefore, each 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., P.O. Box 4497, Houston, Texas 77210-4497, acts as
transfer agent for the shares of 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 Portfolio's securities and cash.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania, serves as counsel to the Company, and passes upon certain legal
matters for the Company.
14
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SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to an investor's Institution, or to the Company at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173, or may be made by calling (800) 825-6858.
YEAR 2000 COMPLIANCE PROJECT
In providing services to the Company, 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 the year 2000 from 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 Company 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 second quarter
of 1999. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm year 2000
compliance upon installation. No assurance can be given that the Project will
be successful or that AIM Management and its subsidiaries will not otherwise be
adversely affected by the year 2000 issue.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Company and the Portfolio 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
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.
15
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TAX-FREE INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
(800) 877-7745
December 18, 1998
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 TAX-FREE
(713) 626-1919 INVESTMENTS CO.
DISTRIBUTOR ------------
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 CASH RESERVE PORTFOLIO
(800) 825-6858
------------
AUDITORS
KPMG PEAT MARWICK LLP
700 Louisiana RESOURCE CLASS
Houston, Texas 77002
CUSTODIAN
THE BANK OF NEW YORK TABLE OF CONTENTS
90 Washington Street, 11th Floor <TABLE>
New York, New York 10286 <CAPTION>
PAGE
----
<S> <C>
TRANSFER AGENT Summary......................... 2
A I M FUND SERVICES, INC. Table of Fees and Expenses...... 4
P.O. Box 4497 Suitability For Investors....... 5
Houston, Texas 77210-4497 Investment Program.............. 5
Purchase of Shares.............. 8
Redemption of Shares............ 9
NO PERSON HAS BEEN AUTHORIZED TO Dividends....................... 9
GIVE ANY INFORMATION OR TO MAKE Taxes........................... 10
ANY REPRESENTATIONS NOT CONTAINED Determination of Net Asset Value 11
IN THIS PROSPECTUS IN CONNECTION Yield Information............... 11
WITH THE OFFERING MADE BY THIS Reports to Shareholders......... 11
PROSPECTUS, AND IF GIVEN OR MADE, Management of the Company....... 12
SUCH INFORMATION OR REPRESENTATIONS General Information............. 14
MUST NOT BE RELIED UPON AS HAVING </TABLE>
BEEN AUTHORIZED BY THE COMPANY 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.
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