<PAGE>
[AIM LOGO APPEARS HERE] Dear Shareholder:
[PHOTO of The low-inflation, falling-interest-rate
Charles T. Bauer, environment that prevailed for much of the
Chairman of the fiscal year ended March 31, 1998, provided
LETTER Board of the Fund, nearly an ideal climate for financial markets.
TO OUR APPEARS HERE] For the 12-month period ended on that date,
SHAREHOLDERS consumer prices rose just 1.4% and the Federal
Reserve Board (the Fed) left interest rates unchanged. Borrowing
costs actually declined as the year progressed as it became
increasingly evident that inflation was not a serious threat.
Fixed-income securities also were given a boost by last
summer's agreement to balance the federal budget and the turmoil
that hit world stock markets in the fall. Investors began
shifting more assets into fixed-income securities, after global
stock markets plunged in October following the Asian currency
devaluations. Early in 1998, however, the rally began to lose
some of its momentum as the economy continued to grow at a
healthy pace, dampening prospects that the Fed would lower
interest rates in the immediate future. Yields, which plunged to
their lowest levels in decades in January, climbed in February
and March, but were still relatively low at the end of the
reporting period.
YOUR INVESTMENT PORTFOLIO
For the year ended March 31, 1998, Cash Reserve Portfolio
maintained its competitive position, as shown in the table. The
Portfolio also maintained the quality of its holdings,
consistent with its AAAm credit quality rating, the highest
given by Standard & Poor's Corporation, a widely known credit
rating agency. The AAAm rating is historical and is based on an
analysis of the Portfolio's credit quality, composition,
management, and weekly portfolio reviews. Net assets of Private
Investment Class of the Portfolio stood at $80.5 million at the
close of the fiscal year, more than double the $37.5 million at
the outset of the fiscal year.
Cash Reserve Portfolio seeks to generate as high a level of
federally tax-exempt income as is consistent with preservation
of capital and maintenance of liquidity by investing in high-
quality, short-term municipal obligations. It invests solely in
securities rated "First Tier" as defined in Rule 2a-7 under the
Investment Company Act of 1940.
As with any money market fund, your investment in the Cash
Reserve Portfolio is neither insured nor guaranteed by the U.S.
government, the FDIC, the Federal Reserve Board, or any other
agency, and there can be no assurance the Portfolio will be able
to maintain a stable net asset value of $1.00 per share.
Yields as of 3/31/98
Average Seven-Day
Monthly Yield Yield
Cash Reserve Portfolio
Private Investment Class 2.91% 3.27%
IBC All Tax-Free Money Funds Averages(TM) 2.80% 3.05%
IBC All Tax-Free Money Funds-
Stockbroker and General Purpose(TM) 2.78% 3.03%
- ----------------------------------------------------------------------------
OUTLOOK FOR THE FUTURE
If the economy continues to grow at a steady pace and inflation
remains low, such conditions should bode well for fixed-income
securities. With inflation at bay and the full impact of the
Asian currency crisis still uncertain, the Fed could opt to
leave monetary policy unchanged in the months ahead. In his
late-February testimony to Congress, Fed
(continued)
<PAGE>
Chairman Alan Greenspan noted that the deflationary effects of
turmoil in Asia could offset the inflationary pressures from
strong domestic spending and a tight U.S. labor market.
If the Fed decides to leave interest rates unchanged in the
near future, we expect yields to remain within a relatively
narrow range around their current levels. If yields rise,
however, we believe the Fund is in a favorable position to take
advantage of such a trend.
We are pleased to send you this report concerning your
investment. AIM is committed to customer service and to the
primary goals of safety, liquidity and yield in institutional
fund management. We are ready to respond to your comments about
this report and to any questions you may have. Please contact
one of our representatives at 800-659-1005 if we may be of
service.
Respectfully submitted,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
2
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
SHORT-TERM MUNICIPAL OBLIGATIONS -
102.40%
ALABAMA - 1.73%
Birmingham (City of)(YMCA-Birmingham);
Public Park and Recreation Board RB
3.75%, 06/01/16(b)(c) -- VMIG-1 $ 3,255 $ 3,255,000
- -------------------------------------------------------------------------------
BMC Special Care Facilities Financing
Authority (VHA of Alabama Inc. Capital
Asset Financing Program); Variable Rate
Hospital RB
3.65%, Series 1985 E 12/01/30(b)(d) A-1 Aaa 4,600 4,600,000
- -------------------------------------------------------------------------------
3.65%, Series 1985 G 12/01/30(b)(d) A-1 Aaa 6,390 6,390,000
- -------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Warrants
3.80%, 02/01/12(b)(c) A-1+ -- 2,695 2,695,000
- -------------------------------------------------------------------------------
16,940,000
- -------------------------------------------------------------------------------
ALASKA - 1.58%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
3.70%, 06/01/26(b) A-1+ VMIG-1 5,200 5,200,000
- -------------------------------------------------------------------------------
Alaska Housing Finance Corp. (University
L.C. of Alaska); Governmental Purpose
Series 1997 A RB
3.75%, 12/01/27(b)(d) A-1 VMIG-1 5,200 5,200,000
- -------------------------------------------------------------------------------
Valdez (City of) (ARCO Transportation
Alaska, Inc. Project); Marine Terminal
Refunding Series 1994 B RB
3.70%, 05/01/31(b)(d) A-1 VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
15,400,000
- -------------------------------------------------------------------------------
ARIZONA - 1.69%
Apache (County of) Industrial Development
Authority (Tucson
Electric); Series 1983 C IDR
3.85%, 12/15/18(b)(c) A-1 VMIG-1 12,400 12,400,000
- -------------------------------------------------------------------------------
Chandler (City of) Industrial Development
Authority (Southpark
Apartments Project); Multifamily Housing
Series 1989 RB
3.75%, 12/01/02(b)(c) A-1+ -- 4,125 4,125,000
- -------------------------------------------------------------------------------
16,525,000
- -------------------------------------------------------------------------------
ARKANSAS - 0.51%
University of Arkansas Board of Trustees
(UAMS Campus) (Central Arkansas Radia-
tion Therapy); Refunding Series 1998 RB
3.75%, 12/01/19(b)(c) -- VMIG-1 5,000 5,000,000
- -------------------------------------------------------------------------------
COLORADO - 2.92%
Colorado (State of) General Fund; Series
1997 A TRAN
4.50%, 06/26/98 SP-1+ -- 5,000 5,007,372
- -------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
COLORADO - (CONTINUED)
Colorado Housing Finance Authority (Coven-
try Village Project);
Multifamily Housing Refunding Series 1996
B RB
3.75%, 10/15/16(b)(c) A-1+ -- $ 5,370 $ 5,370,000
- -------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Winridge Project); Adjustable
Refunding Multifamily Housing Series 1998
RB
3.70%, 02/15/28(b)(c) A-1+ -- 5,000 5,000,000
- -------------------------------------------------------------------------------
Denver (City of) (Seasons Apartment Proj-
ect); Refunding Multifamily Housing Se-
ries 1990 RB
3.65%, 10/01/06(b)(c) A-1+ VMIG-1 8,700 8,700,000
- -------------------------------------------------------------------------------
Douglas (County of) (Autumn Chase Proj-
ect); Variable Rate Demand Multifamily
Housing Series 1985 RB
3.75%, 07/01/06(b)(c) -- VMIG-1 4,450 4,450,000
- -------------------------------------------------------------------------------
28,527,372
- -------------------------------------------------------------------------------
CONNECTICUT - 0.59%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special Tax
Obligation RB
3.65%, 12/01/10(b)(c) A-1+ VMIG-1 2,165 2,165,000
- -------------------------------------------------------------------------------
Connecticut (State of) Power and Light
Development Authority; Series 1993 A RB
3.65%, 09/01/28(b)(c) A-1+ VMIG-1 3,640 3,640,000
- -------------------------------------------------------------------------------
5,805,000
- -------------------------------------------------------------------------------
DELAWARE - 0.32%
Delaware (State of) Economic Development
Authority; Adjustable Rate Hospital Se-
ries C RB
3.70%, 12/01/15(b)(c) A-1+ VMIG-1 3,100 3,100,000
- -------------------------------------------------------------------------------
FLORIDA - 4.10%
Florida State Board of Education; Public
Education Series B GO
5.00%, 06/01/98 AA+ Aa2 1,700 1,703,053
- -------------------------------------------------------------------------------
Gulf Breeze (City of) (Florida Municipal
Bond Fund); Variable Rate Demand Series
1995 A RB
3.80%, 03/31/21(b)(c) A-1 -- 12,900 12,900,000
- -------------------------------------------------------------------------------
Lee (County of) Housing Finance Authority
(Forestwood Apartments Project); Housing
Series 1995 A RB
3.70%, 06/15/25(b)(c) A-1+ -- 8,000 8,000,000
- -------------------------------------------------------------------------------
Putnam County Development Authority (Semi-
nole Electric Cooperative, Inc. Project);
National Rural Utilities Cooperative Fi-
nance Corp. Guaranteed Floating/Fixed
Rate Pooled Series 1984 H-1 PCR
3.80%, 03/15/14(b)(c) A-1+ P-1 3,865 3,865,000
- -------------------------------------------------------------------------------
</TABLE>
4
<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>
5
<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>
6
<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>
7
<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>
8
<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>
9
<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>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
NORTH CAROLINA - 0.58%
North Carolina Medical Care Commission
Retirement Community (Adult Communities
Total Services Inc.); Variable Rate
Demand Series 1996 RB
3.75%, 11/15/09(b)(c) A-1+ -- $ 5,655 $ 5,655,000
- -------------------------------------------------------------------------------
OHIO - 5.31%
Akron-Summit (County of); Library
Improvement Bonds Series
1998 A GO
4.00%, 12/01/98(c) -- Aaa 2,000 2,005,774
- -------------------------------------------------------------------------------
Cuyahoga (County of) (Cleveland Clinic);
Hospital Series A RB
3.70%, 01/01/24(b)(d) A-1 VMIG-1 33,262 33,262,000
- -------------------------------------------------------------------------------
Cuyahoga (County of) (S&R Playhouse
Realty Co.); Adjustable Rate Demand
Series 1984 IDR
3.60%, 12/01/09(b)(c) -- MIG-1 615 615,000
- -------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.90%, 11/01/14(b)(c) -- P-1 8,500 8,500,000
- -------------------------------------------------------------------------------
Marion (County of) (Pooled Lease Pro-
gram); Hospital RB
3.75%, 10/01/22(b)(c) A-1+ -- 1,540 1,540,000
- -------------------------------------------------------------------------------
Ohio Housing Finance Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB
3.45%, 12/01/15(b)(c) -- VMIG-1 956 956,000
- -------------------------------------------------------------------------------
Summit (County of) Various Purpose Notes;
Series 1997 A General Obligation BAN
4.50%, 06/04/98 SP-1+ MIG-1 5,000 5,005,314
- -------------------------------------------------------------------------------
51,884,088
- -------------------------------------------------------------------------------
OKLAHOMA - 1.02%
Oklahoma Water Resource Board (State Loan
Program);
Series 1994 A RB
3.55%, 09/01/98(g) A-1+ -- 10,000 10,000,000
- -------------------------------------------------------------------------------
OREGON - 2.28%
Klamath Falls (City of) (Salt Caves
Hydroelectric); Adjustable/Fixed RB
4.50%, Series 1986 C 05/01/98(f)(g) SP-1+ -- 10,000 10,005,090
- -------------------------------------------------------------------------------
4.50%, Series E 05/01/98(f) SP-1+ -- 12,250 12,256,857
- -------------------------------------------------------------------------------
22,261,947
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
PENNSYLVANIA - 6.30%
Delaware County Industrial Development
Authority (Henderson-Radnor Joint
Venture Project); Limited Obligation
Series 1985 IDR
3.70%, 04/01/15(b)(c) -- Aa3 $ 855 $ 855,000
- -----------------------------------------------------------------------------
Emmaus (City of) General Authority;
Series 1996 RB
3.75%, 12/01/28(b)(c) A-1+ Aaa 3,000 3,000,000
- -----------------------------------------------------------------------------
Philadelphia (City of); Water and
Wastewater Series 1997 B RB
3.82%, 08/05/98(b)(d)(g) A-1+ VMIG-1 3,300 3,300,000
- -----------------------------------------------------------------------------
Philadelphia (City of) Hospital and
Higher Facilities Authority
(Children's Hospital of Philadelphia);
Hospital RB
3.75%, 03/01/27(b)(d) A-1+ VMIG-1 13,160 13,160,000
- -----------------------------------------------------------------------------
Philadelphia School District; Series
1997-1998 TRAN
4.50%, 06/30/98(c) SP-1+ MIG-1 5,000 5,006,521
- -----------------------------------------------------------------------------
Quakertown Hospital Authority (HPF
Group); Series 1985 A RB
3.75%, 07/01/05(b)(c) -- VMIG-1 29,100 29,100,000
- -----------------------------------------------------------------------------
Schuykill County Industrial Development
Authority (Gilberton Power Project);
Variable Rate Resource Recovery Series
1985 RB
3.70%, 12/01/02(b)(c) A-1 -- 2,300 2,300,000
- -----------------------------------------------------------------------------
Wilkes-Barre (City of) Industrial De-
velopment Authority (Toys "R" Us/Penn
Inc. Project); Economic Development
Series 1984 RB
3.575%, 07/01/14(b)(c) -- A1 2,300 2,300,000
- -----------------------------------------------------------------------------
York (City of) General Authority;
Adjustable Rate Pooled Financing
Series 1996 RB
3.80%, 09/01/26(b)(c) A-1 -- 2,575 2,575,000
- -----------------------------------------------------------------------------
61,596,521
- -----------------------------------------------------------------------------
RHODE ISLAND - 0.30%
Rhode Island Port Authority and Eco-
nomic Development Corp.
(Newport Electric Corp. Project); En-
ergy Facilities Series RB
3.70%, 09/01/11(b)(c) A-1+ VMIG-1 2,925 2,925,000
- -----------------------------------------------------------------------------
SOUTH CAROLINA - 4.14%
Rock Hill (City of); Utilities System
RB
3.80%, 01/01/22(b)(c) A-1+ VMIG-1 7,440 7,440,000
- -----------------------------------------------------------------------------
South Carolina Public Service Authority
(Santee Cooper Hydroelectric Project);
Revenue Promissory Notes
3.60%, 06/19/98 A-1+ P-1 15,000 15,000,000
- -----------------------------------------------------------------------------
York (County of) (North Carolina
Electric Membership Corp.); Pooled PCR
3.50%, Series 1984 N-3 09/15/98(b)(c) A-1+ VMIG-1 5,000 5,000,000
- -----------------------------------------------------------------------------
3.50%, Series 1984 N-4 09/15/98(b)(c) A-1+ VMIG-1 13,000 13,000,000
- -----------------------------------------------------------------------------
40,440,000
- -----------------------------------------------------------------------------
</TABLE>
12
<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>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
TEXAS - (CONTINUED)
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Series 1992 Blood
Center RB
3.70%, 04/01/17(b)(c) A-1 -- $ 3,450 $ 3,450,000
- -------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (TIRR Project); Series
1987 Hospital RB
3.80%, 10/01/17(b)(c) -- VMIG-1 1,900 1,900,000
- -------------------------------------------------------------------------------
Harris County Industrial Development
Corp. (Baytank Inc. Project); Refunding
Series 1998 RB
3.70%, 02/01/20(b)(c) A-1+ -- 25,000 25,000,000
- -------------------------------------------------------------------------------
Houston (City of); Series 1997 TRAN
4.50%, 06/30/98 SP-1+ MIG-1 14,000 14,021,600
- -------------------------------------------------------------------------------
Sabine River Pollution Control Authority
(Texas Utilities Project); Series A RB
3.85%, 03/01/26(b)(d) A-1+c VMIG-1 2,500 2,500,000
- -------------------------------------------------------------------------------
Tarrant (County of) Texas Housing Finance
Corp.
(Windcastle Project); Multifamily
Housing RB
3.75%, 08/01/26(b)(c) A-1+ -- 2,100 2,100,000
- -------------------------------------------------------------------------------
Texas (State of); Series 1997 TRAN
4.75%, 08/31/98 SP-1+ MIG-1 16,000 16,057,864
- -------------------------------------------------------------------------------
Texas Department of Housing and Community
Affairs; SFM Tax Exempt Refunding Series
B Commercial Paper Notes
3.60%, 07/08/98 A-1+ -- 7,320 7,320,000
- -------------------------------------------------------------------------------
Trinity River Industrial Development Au-
thority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
3.60%, Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
- -------------------------------------------------------------------------------
3.60%, Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
- -------------------------------------------------------------------------------
95,849,464
- -------------------------------------------------------------------------------
UTAH - 0.44%
Intermountain Power Agency;
Variable Rate Refunding Series 1985 F RB
3.80%, 06/15/98 A-1+ VMIG-1 3,000 3,001,099
- -------------------------------------------------------------------------------
Salt Lake (City of); Series 1997 TRAN
4.50%, 06/30/98 -- MIG-1 1,300 1,301,878
- -------------------------------------------------------------------------------
4,302,977
- -------------------------------------------------------------------------------
VERMONT - 0.84%
Vermont Educational and Health Buildings
Financing Agency
(VHA New England); Variable Rate Hospi-
tal RB
3.70%, Series B 12/01/25(b)(d) A-1 Aaa 1,000 1,000,000
- -------------------------------------------------------------------------------
3.70%, Series E 12/01/25(b)(d) A-1 Aaa 2,500 2,500,000
- -------------------------------------------------------------------------------
3.70%, Series F 12/01/25(b)(d) A-1+ Aaa 2,100 2,100,000
- -------------------------------------------------------------------------------
3.70%, Series G 12/01/25(b)(d) A-1+ Aaa 2,560 2,560,000
- -------------------------------------------------------------------------------
8,160,000
- -------------------------------------------------------------------------------
</TABLE>
14
<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>
15
<PAGE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<C> <S> <C> <C>
BAN Bond Anticipation Notes RAN Revenue Anticipation Notes
COP Certificates of Participation RB Revenue Bonds
GO General Obligation Bonds TAN Tax Anticipation Notes
IDR Industrial Development Revenue Bonds TRAN Tax and Revenue Anticipation Notes
PCR Pollution Control Revenue Bonds
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are not covered by
Independent Auditors' Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rates shown are the rates in effect on 03/31/98.
(c) Secured by a letter of credit.
(d) Secured by bond insurance.
(e) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments involve the deposit into a
trust of one or more long-term tax-exempt bonds or notes ("Underlying
Bonds"), and the sale of certificates evidencing interests in the trust to
investors such as the Fund. The trustee receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders
short-term floating or variable interest rates which are reset
periodically. A "variable rate trust certificate" evidences an interest in
a trust entitling the certificate holder to receive variable rate interest
based on prevailing short-term interest rates and also typically providing
the certificate holder with the conditional right to put its certificate at
par value plus accrued interest. Because synthetic municipal instruments
involve a trust and a third party conditional put feature, they involve
complexities and potential risks that may not be present where a municipal
security is owned directly.
(f) Secured by an escrow fund of U.S. Treasury obligations.
(g) Subject to an irrevocable call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(h) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
16
<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.
17
<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.
18
<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.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Tax-Free Investments Co. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Company is organized as a Maryland
corporation consisting of one portfolio, the Cash Reserve Portfolio (the
"Fund"). The Fund consists of two different classes of shares, the
Institutional Cash Reserve Shares ("Institutional Shares") and the Private
Investment Class. Matters affecting each class are voted on exclusively by the
shareholders of each class. The investment objective of the Fund is to generate
as high a level of tax-exempt income as is consistent with preservation of
capital and maintenance of liquidity.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Securities Valuations - The Fund uses the amortized cost method of valuing
investment portfolio securities which has been determined by the Board of
Directors of the Company to represent the fair value of the Fund's
investments.
B. Securities Transactions and Investment Income - Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and,
when appropriate, discounts on investments, is earned from settlement date
and is recorded on the accrual basis. Interest income is allocated to each
class daily, based upon each class' pro rata share of the total shares of
the Fund outstanding. Discounts, other than original issue, on short-term
obligations are amortized to unrealized appreciation for financial reporting
purposes.
C. Dividends and Distributions to Shareholders - It is the policy of the Fund
to declare daily dividends from net investment income. Such dividends are
paid monthly. Net realized capital gains (including net short-term capital
gains and market discounts), if any, are distributed annually.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $85,975 (w hich may be carried forward to offset future
taxable gains, if any) which expires, if not previously utilized, through
the year 2004. The Fund cannot distribute capital gains to shareholders
until the tax loss carryforwards have been utilized. In addition, the Fund
intends to invest in sufficient municipal securities to allow it to qualify
to pay "exempt interest dividends," as defined in the Internal Revenue Code,
to shareholders.
E. Expenses - Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated between the classes.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.25% of
the first $500 million of the Fund's average daily net assets plus 0.20% of the
Fund's average daily net assets in excess of $500 million.
AIM has voluntarily agreed to reduce its fee from the Fund to the extent
necessary so that the amount of ordinary expenses of the Institutional Shares
(excluding interest, taxes, brokerage commissions, directors' fees,
extraordinary expenses and federal registration fees) paid or incurred by the
Institutional Shares does not exceed 0.20% of the Institutional Shares' average
daily net assets. As a result, AIM's advisory fee on the Private Investment
Class is reduced in the same proportion as the Institutional Shares. For the
year ended March 31, 1998, AIM reduced its advisory fee from the Fund by
$683,910.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended March 31, 1998, the Fund
reimbursed AIM $66,515 for such services.
20
<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>
21
<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.
22
<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
23
<PAGE>
<TABLE>
<S> <C>
DIRECTORS
Charles T. Bauer Robert H. Graham Tax-Free
Bruce L. Crockett John F. Kroeger Investments Co.
Owen Daly II Lewis F. Pennock (TFIC)
Edward K. Dunn, Jr. Ian W. Robinson
Jack Fields Louis S. Sklar
Carl Frischling
OFFICERS
Charles T. Bauer Chairman
Robert H. Graham President
John J. Arthur Sr. Vice President & Treasurer Cash Reserve
Gary T. Crum Sr. Vice President Portfolio
Carol F. Relihan Sr. Vice President & Secretary ----------------------------------------
Dana R. Sutton Vice President & Assistant Treasurer Private Investment ANNUAL
Stuart W. Coco Vice President Class REPORT
Melville B. Cox Vice President
Karen Dunn Kelley Vice President
J. Abbott Sprague Vice President
Renee A. Bamford Assistant Secretary
P. Michelle Grace Assistant Secretary
Jeffrey H. Kupor Assistant Secretary
Nancy L. Martin Assistant Secretary MARCH 31, 1998
Ofelia M. Mayo Assistant Secretary
Lisa A. Moss Assistant Secretary
Kathleen J. Pflueger Assistant Secretary
Samuel D. Sirko Assistant Secretary
Stephen I. Winer Assistant Secretary
INVESTMENT ADVISOR
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046
(800) 347-1919
DISTRIBUTOR
Fund Management Company
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
(800) 659-1005
CUSTODIAN
The Bank of New York
90 Washington Street, 11th Floor
New York, NY 10286
LEGAL COUNSEL TO FUND
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
LEGAL COUNSEL TO DIRECTORS
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
TRANSFER AGENT
A I M Fund Services, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
AUDITORS
KPMG Peat Marwick LLP
700 Louisiana
NationsBank Bldg.
Houston, TX 77002
This report may be distributed only to current shareholders or [LOGO APPEARS HERE]
to persons who have received a current prospectus. FUND MANAGEMENT COMPANY
</TABLE>
