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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
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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 JUNE 1, 2000
RELATING TO THE PROSPECTUS OF EACH OF THE FOLLOWING CLASSES OF CASH RESERVE
PORTFOLIO: CASH MANAGEMENT CLASS PROSPECTUS DATED JUNE 1, 2000, INSTITUTIONAL
CLASS PROSPECTUS DATED JUNE 1, 2000, PERSONAL INVESTMENT CLASS PROSPECTUS
DATED JUNE 1, 2000, PRIVATE INVESTMENT CLASS PROSPECTUS DATED JUNE 1, 2000,
RESERVE CLASS PROSPECTUS DATED JUNE 1, 2000 AND RESOURCE CLASS PROSPECTUS
DATED JUNE 1, 2000
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TABLE OF CONTENTS
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PAGE
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Introduction......................................................... 3
General Information about the Company................................ 3
The Company and Its Shares......................................... 3
Performance Information............................................ 4
Portfolio Transactions and Brokerage................................. 5
General Brokerage Policy........................................... 5
Allocation of Portfolio Transactions............................... 6
Section 28(e) Standards............................................ 6
Investment Program and Restrictions.................................. 7
Investment Program................................................. 7
Municipal Securities............................................... 7
Maturities......................................................... 8
Diversification Requirements....................................... 8
Investment Ratings................................................. 9
When-Issued Securities and Delayed Delivery Transactions........... 13
Margin Transactions and Short Sales................................ 13
Illiquid Securities................................................ 13
Lending of Portfolio Securities.................................... 13
Interfund Loans.................................................... 14
Investment in Other Investment Companies........................... 14
Variable or Floating Rate Instruments.............................. 14
Synthetic Municipal Instruments.................................... 14
Other Considerations............................................... 15
Fundamental Investment Restrictions................................ 15
Non-Fundamental Investment Restrictions............................ 16
Management........................................................... 17
Directors and Officers............................................. 17
Remuneration of Directors.......................................... 19
AIM Funds Retirement Plan for Eligible Directors/Trustees.......... 19
Deferred Compensation Agreements................................... 20
The Investment Advisor............................................. 20
Administrator...................................................... 21
Expenses........................................................... 22
Transfer Agent and Custodian....................................... 22
Legal Matters...................................................... 22
Reports............................................................ 23
Sub-Accounting..................................................... 23
Principal Holders of Securities.................................... 23
Share Purchases and Redemptions...................................... 25
Purchases and Redemptions.......................................... 25
Redemptions by the Portfolio....................................... 25
Net Asset Value Determination...................................... 25
The Distribution Agreement......................................... 26
Distribution Plan.................................................. 26
Banking Regulations................................................ 28
Dividends, Distributions and Tax Matters............................. 28
Dividends and Distributions........................................ 28
Tax Matters........................................................ 28
Qualification as a Regulated Investment Company.................... 29
Excise Tax on Regulated Investment Companies....................... 29
Distributions...................................................... 29
Foreign Shareholders............................................... 30
Effect of Future Legislation; Local Tax Considerations............. 31
Financial Statements................................................. FS
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INTRODUCTION
Tax-Free Investments Co. (the "Company") is a mutual fund organized with one
portfolio, the Cash Reserve Portfolio (the "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 June 1, 2000, the Institutional Class Prospectus dated June
1, 2000, the Personal Investment Class Prospectus dated June 1, 2000, the
Private Investment Class Prospectus dated June 1, 2000, the Reserve Class
Prospectus dated June 1, 2000 and the Resource Class Prospectus dated June 1,
2000 (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 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, investors should consult
each Prospectus under the caption "Redeeming Shares."
The Company offers shares of 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 relates 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.
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.
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. Shares are fully assignable and subject to encumbrance by a
shareholder. 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 Articles of Incorporation of the Company authorize the issuance of
30,100,000,000 shares of common stock at $.001 par value each, of which
22,100,000,000, represent interest in the Portfolio (or class thereof). 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).
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The Articles of Incorporation further provide that the directors will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Articles of Incorporation protects a director against any liability to
which a director would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his office. The Articles of Incorporation provide for
indemnification by the Company of the directors and the officers of the
Company except with respect to any matter as to which any such person did not
act in good faith and in the reasonable belief that his action was in or not
opposed to the best interests of the Company. Such person may not be
indemnified against any liability to the Company or the Company's shareholders
to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. The Articles of Incorporation
also authorize the purchase of liability insurance on behalf of the Company's
directors and officers.
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 will provide a list of shareholders to the
requesting shareholders or 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.
The overall management of the business and affairs of the Company is vested
with its Board of Directors. The Board of Directors approves all significant
agreements between the Company and persons or companies furnishing services to
the Company, including agreements with the Company's investment advisor,
distributor, custodian and transfer agent. The day-to-day operations of the
Company are delegated to the Company's officers and to A I M Advisors, Inc.
("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.
PERFORMANCE INFORMATION
As stated under the caption "Performance Information--Performance Table" in
each Prospectus, yield information for the shares of each class of the
Portfolio may be obtained by calling the Company at the number referred to in
the Prospectus for that class. 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
the Portfolio's investments as well as its operating expenses. Performance
information for the shares of the Portfolio 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
maybe used from time to time in advertising or marketing the Portfolio's
shares.
Calculations of yield will take into account the total income received by
the Portfolio, including taxable income, if any; however, the Company intends
to invest its assets so that 100% of its annual interest income will be tax-
exempt. To the extent that different classes of shares bear different
expenses, the yields of such classes will vary. 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).
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From time to time, AIM or its affiliates may waive all or a portion of their
fees and/or assume certain expenses of the Portfolio. Voluntary fee waivers or
reductions or commitments to assume expenses may be rescinded at any time
without further notice to investors. During periods of voluntary fee waivers
or reductions or commitments to assume expenses, AIM will retain its ability
to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions or reimbursement of expenses set forth
in the Fee Table in a Prospectus may not be terminated or amended to the
Portfolio's detriment during the period stated in the agreement between AIM
and the Company. Fee waivers or reductions or commitments to reduce expenses
will have the effect of the increasing the Portfolio's yield and total return.
The performance of the Portfolio will vary from time to time and past
results are not necessarily indicative of future results. The Portfolio's
performance is a function of its portfolio management in selecting the type
and quality of portfolio securities and is affected by operating expenses of
the Portfolio and market conditions. A shareholder's investment in the
Portfolio is not insured or guaranteed. These factors should be carefully
considered by the investor before making an investment in the Portfolio.
For the seven-day period ended September 30, 1999, the current and effective
yields for the Private Investment Class were 3.24% % and 3.29%, respectively.
For the seven-day period ended September 30, 1999, the current and effective
yields for the Institutional Class were 3.49% and 3.55%, respectively. For the
seven-day period ended September 30, 1999, the current and effective yields
for the Cash Management Class were 3.41% and 3.46%, respectively. For the
seven-day period ended September 30, 1999, the current and effective yields
for the Reserve Class were 2.69% and 2.72%, respectively. For the seven-day
period ended September 30, 1999, the current and effective yields for the
Resource Class were 3.33% and 3.38%, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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 or spread (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.
The Portfolio may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of the Portfolio, provided the conditions of an exemptive order
received by the Portfolio from the SEC are met. In addition, the Portfolio may
purchase or sell a security from or to another AIM Fund or account 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.
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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, 1999,
1998 and 1997, 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 numerous 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.
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, in written form or on computer software. 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.
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INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Portfolio's investment objective is set forth in
each Prospectus under the heading "Investment Objective and Strategies." 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.
Set forth in this section is a description of the Portfolio's investment
policies, strategies and practices. The investment objective of the Portfolio
is non-fundamental and may be changed by the Board of Directors without
shareholder approval. The Portfolio's investment policies, strategies and
practices are also non-fundamental. The Board of Directors of the Company
reserves the right to change any of these non-fundamental investment policies,
strategies or practices without shareholder approval. However, shareholders
will be notified before any material change in the investment policies becomes
effective. The Portfolio has adopted certain investment restrictions, some of
which are fundamental and cannot be changed without shareholder approval. See
"Investment Program and Restrictions--Investment Restrictions" in this
Statement of Additional Information. Any percentage limitations with respect
to assets of the Portfolio will be applied at the time of purchase. A later
change in percentage resulting from changes in asset values will not be
considered a violation of the percentage limitations. The percentage
limitations applicable to borrowings will be applied in accordance with
applicable provisions of the 1940 Act and the rules and regulations
promulgated thereunder which specifically limit the Portfolio's borrowing
abilities.
The Portfolio will limit its purchases of municipal 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. This standard
applies 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
affect its share price. 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 advisor has determined is of comparable quality to a
rated security described in (i); (iii) is a security issued by a registered
investment company that is a money market fund; or (iv) is a Government
Security. The term "Requisite NRSROs" means (a) any two nationally recognized
statistical rating organizations that have issued a rating with respect to a
security or class of debt obligations of an issuer, or (b) if only one NRSRO
has issued a rating with respect to such security or issuer at the time the
Portfolio acquires the security, that NRSRO. At present, the NRSROs are:
Standard & Poor's Corp., Moody's Investors Service, Inc., Thomson Bankwatch,
One, Duff and Phelps, Inc., Fitch IBCA, 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. It is the Company's present intention 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
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the opinion of bond counsel, qualifies as exempt from federal income tax.
However, interest on Municipal Securities may give rise to a federal
alternative minimum tax liability and may have other collateral federal income
tax consequences. See "Dividends, Distributions and Tax Matters--Tax Matters"
in this Statement of Additional Information.
The two major classifications of Municipal Securities are bonds and notes.
Bonds may be further categorized as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
bonds are payable from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise
or other specific revenue source, but not from the general taxing power. Tax-
exempt industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes
are short-term instruments. Most notes are general obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. There are, of course,
variations in the risks associated with Municipal Securities, both within a
particular classification and between classifications. The Portfolio's assets
may consist of any combination of general obligation bonds, revenue bonds,
industrial revenue bonds and notes. The percentage of such Municipal
Securities in the Portfolio will vary from time to time.
The yields on Municipal Securities are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions of the Municipal Securities market, size of a particular offering,
maturity of the obligation, and rating of the issue. The yield realized by
holders of a class of a Portfolio will be the yield realized by the Portfolio
on its investments reduced by the general expenses of the Company and those
expenses attributable to such class. The market values of the Municipal
Securities held by the Portfolio will be affected by changes in the yields
available on similar securities. If yields increase following the purchase of
a Municipal Security the market value of such Municipal Security will
generally decrease. Conversely, if yields on such Municipal Security decrease,
the market value of such security will generally increase.
MATURITIES
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.
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.)
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INVESTMENT RATINGS
The following is a description of the factors underlying the tax-exempt debt
ratings of Moody's, S&P and Fitch IBCA, Inc. ("Fitch"):
MOODY'S MUNICIPAL BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
Note: Bonds in the Aa group which Moody's believes possess the strongest
investment attributes are designated by the symbol Aa1.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in the Aa group
when assigning ratings to: industrial development bonds; and bonds secured by
either a letter of credit or bond insurance. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of
the degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade (or MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over
the short run.
A short-term rating may also be assigned on an issue having a demand feature
(i.e., a variable rate demand obligation or VRDO). Short-term ratings on
issues with demand features may be differentiated by the use of the VMIG
symbol to reflect such characteristics as payment upon periodic demand rather
than fixed maturity dates, and payment relying on external liquidity.
Additionally, the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is not
met.
A VMIG rating may be assigned to commercial paper programs. Such programs
are characterized as having variable short-term maturities but having neither
a variable rate nor demand feature.
Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly
the same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection by
established cash flows, superior liquidity support or demonstrated broad based
access to the market for refinancing.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
Moody's employs the following two designations, each judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
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PRIME-1
Issuers (or related supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
Note: A Moody's commercial paper rating may also be assigned as an
evaluation of the demand feature of a short-term or long-term security with a
put option.
S&P MUNICIPAL BOND RATINGS
A S&P municipal bond rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees.
The ratings are based, in varying degrees, on the following considerations:
likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; nature of and provisions of the obligation; and
protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be modified by
the addition of a plus (+) sign or minus (-) sign to show relative standing.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the demand feature (e.g.,
AAA/A-1+). With short-term demand debt, the note rating symbols are used with
the commercial paper rating symbols (e.g., SP-1+/A-l+).
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.
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The highest rating category is as follows:
A-1
This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
FITCH BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same ratings are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
LONG-TERM CREDIT RATINGS
INVESTMENT GRADE
AAA
Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely
to be adversely affected by foreseeable events.
AA
Very high credit quality. 'AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A
High credit quality. 'A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB
Good credit quality. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
SPECULATIVE GRADE
BB
Speculative, 'BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
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B
Highly speculative. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC, C
High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon sustained, favorable business or
economic developments. A 'CC' rating indicates that default of some kind
appears probable. 'C' ratings signal imminent default.
DDD, DD, AND D
Default. The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. 'DDD' obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. 'DD' indicates
potential recoveries in the range of 50%-90%, and 'D' the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy
a higher portion of their outstanding obligations, while entities rated 'D'
have a poor prospect of repaying all obligations.
FITCH SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F-1
Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F-2
Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F-3
Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
B
Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C
High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
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D
Default. Denotes actual or imminent payment default.
NOTES:
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the 'AAA' long-term
rating category, to categories below 'CCC', or to short-term ratings other
than 'F-1'.
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.
MARGIN TRANSACTIONS AND SHORT SALES
The Portfolio does not intend to engage in margin transactions or short
sales of securities. The Portfolio will not sell securities short or purchase
any securities on margin, except that it may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of portfolio
securities.
ILLIQUID SECURITIES
The Portfolio may invest up to 10% of its net assets in securities that are
illiquid. Illiquid securities include securities that cannot be disposed of
promptly (within seven days) in the normal course of business at a price at
which they are valued. Illiquid securities also include repurchase agreements
with remaining maturities in excess of seven days.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Portfolio may lend
its portfolio securities (principally to broker-dealers) to the extent of one-
third of its respective total assets. Such loans would be callable at any time
and will be continuously secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or
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any of its agencies. The Portfolio would continue to receive the income on
loaned securities and would, at the same time, earn interest on the loan
collateral or on the investment of the loan collateral if it were cash. Any
cash collateral pursuant to these loans would be invested in short-term money
market instruments or affiliated money market funds. Where voting or consent
rights with respect to loaned securities pass to the borrower, the Portfolio
will follow the policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such voting or consent rights if the
matters involved are expected to have a material effect on the Portfolio's
investment in the loaned securities. Lending securities entails a risk of loss
to the Portfolio if and to the extent that the market value of the securities
loaned were to increase and the lender did not increase the collateral
accordingly.
INTERFUND LOANS
The Portfolio may lend up to 33 1/3% of its total assets to another AIM
Fund, on such terms and conditions as the SEC may require in an exemptive
order. An application for exemptive relief has been filed with the SEC on
behalf of the Portfolio and others. The Portfolio may also borrow from another
AIM Fund to satisfy redemption requests or to cover unanticipated cash
shortfalls due to a delay in the delivery of cash to the Portfolio's custodian
or improper delivery instructions by a broker effectuating a transaction.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Portfolio may invest in other investment companies to the extent
permitted by the 1940 Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The following restrictions
currently apply to investments in other investment companies: (i) the
Portfolio may not purchase more than 3% of the total outstanding voting stock
of another investment company; (ii) the Portfolio may not invest more than 5%
of its total assets in securities issued by another investment company; and
(iii) the Portfolio may not invest more than 10% of its total assets in
securities issued by other investment companies. With respect to the
Portfolio's purchase of shares of another investment company, the Portfolio
will indirectly bear its proportionate share of the advisory fees and other
operating expenses of such investment company. The Portfolio has obtained an
exemptive order from the SEC allowing it to invest uninvested cash balances
and cash collateral received in connection with securities lending in money
market funds that have AIM or an affiliate of AIM as an investment adviser
(the "Affiliated Money Market Funds"), provided that, with respect to
uninvested cash balances, investments in Affiliated Money Market Funds do not
exceed 25% of the total assets of the Portfolio.
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. 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. 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. 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
municipal 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 certificate 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.
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
party providing certificate holders with a conditional right to sell their
certificates at stated times and prices (a demand feature). Typically, a
certificate
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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.
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 per share of each class of the Portfolio will normally remain
constant at $1.00, although there can be no assurance that such net asset
value will not change.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Portfolio is subject to the following investment restrictions, which may
be changed only by a vote of a majority of the Portfolio's outstanding shares.
Fundamental restrictions may be changed only by a vote of the lesser of (i)
67% or more of the Portfolio's shares present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or represented
by proxy, or (ii) more than 50% of the Portfolio's outstanding shares. Any
investment restriction that involves a maximum or minimum percentage of
securities or assets shall not be considered to be violated unless an excess
over or a deficiency under the percentage occurs immediately after, and is
caused by, an acquisition or disposition of securities or utilization of
assets by the Portfolio.
(1) The Portfolio is a "diversified company" as defined in the 1940 Act.
The Portfolio will not 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, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from time to
time or are interpreted from time to time by the SEC staff (collectively,
the "1940 Act Laws and Interpretations") or except to the extent that the
Portfolio may be permitted to do so by exemptive order or similar relief
(collectively, with the 1940 Act Laws and Interpretations, the "1940 Act
Laws, Interpretations and Exemptions"). In complying with this restriction,
however, the Portfolio may purchase securities of other investment companies
to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(2) The Portfolio may not borrow money or issue senior securities, except
as permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Portfolio may not underwrite the securities of other issuers. This
restriction does not prevent the Portfolio from engaging in transactions
involving the acquisition, disposition or resale of its portfolio
securities, regardless of whether the Portfolio may be considered to be an
underwriter under the Securities Act of 1933.
(4) The Portfolio will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act
Laws, Interpretations and Exemptions) of its investments in the securities
of issuers primarily engaged in the same industry. This restriction does not
limit the Portfolio's investments in (i) obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, (ii) tax-exempt
obligations issued by governments or political subdivisions of governments,
or (iii) bank instruments. In complying with this restriction, the Portfolio
will not consider a bank-issued guaranty or financial guaranty insurance as
a separate security.
(5) The Portfolio may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Portfolio from investing in issuers that
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein.
(6) The Portfolio may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Portfolio from engaging
in transactions involving futures contracts and options thereon or investing
in securities that are secured by physical commodities.
(7) The Portfolio may not make personal loans or loans of its assets to
persons who control or are under common control with the Portfolio, except
to the extent permitted by 1940 Act Laws, Interpretations and Exemptions.
This restriction does not prevent the Portfolio from, among other
15
<PAGE>
things, purchasing debt obligations, entering into repurchase agreements,
loaning its assets to broker-dealers or institutional investors, or
investing in loans, including assignments and participation interests.
(8) The Portfolio may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objectives, policies and restrictions as the
Portfolio.
(9) The Portfolio will limit its purchases of municipal securities to
"First Tier" securities, as such term is defined from time to time in Rule
2a-7 under the 1940 Act.
(10) The Portfolio's assets will be invested so that at least 80% of the
Portfolio's income will be exempt from federal income taxes.
The investment restrictions set forth above provide the Portfolio with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though the Portfolio has this flexibility, the Board of
Directors of the Company has adopted non-fundamental restrictions for the
Portfolio relating to certain of these restrictions which the advisor must
follow in managing the Portfolio. Any changes to these non-fundamental
restrictions, which are set forth below, require the approval of the Board of
Directors.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The following non-fundamental investment restrictions apply to the Portfolio.
They may be changed without approval of the Portfolio's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Portfolio will not, with respect to 100% of its total
assets, purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities), if, as a result, (i) more than 5% of the Portfolio's
total assets would be invested in the securities of that issuer except as
permitted by Rule 2a-7 under the 1940 Act or (ii) the Portfolio would hold
more than 10% of the outstanding voting securities of that issuer. The
Portfolio may (i) purchase securities of other investment companies as
permitted by Section 12(d)(1) of the 1940 Act and (ii) invest its assets in
securities of other money market funds and lend money to other investment
companies or their series portfolios that have AIM or an affiliate of AIM as
an investment advisor (an "AIM Advised Fund"), subject to the terms and
conditions of any exemptive orders issued by the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Portfolio may borrow money in an
amount not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). The Portfolio may borrow
from banks, broker-dealers or an AIM Advised Fund. The Portfolio may not
borrow for leveraging, but may borrow for temporary or emergency purposes,
in anticipation of or in response to adverse market conditions, or for cash
management purposes. The Portfolio may not purchase additional securities
when any borrowings from banks exceed 5% of the Portfolio's total assets.
(3) In complying with the fundamental restriction regarding industry
concentration, the Portfolio may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Portfolio may lend up to 33 1/3% of its total assets and may lend
money to another AIM Advised Fund, on such terms and conditions as the SEC
may require in an exemptive order.
(5) Notwithstanding the fundamental restriction with regard to investing
all assets in an open-end fund, the Portfolio may not invest all of its
assets in the securities of a single open-end management investment company
with the same fundamental investment objectives, policies and restrictions
as the Portfolio.
The Portfolio will not invest 25% or more of its assets in: (i) securities
whose issuers are located in the same state; (ii) securities the interest upon
which is paid from revenues of similar type projects; and (iii) industrial
development bonds. The policy described in (ii) does not apply, however, if
the securities are subject to a guarantee. For securities subject to a
guarantee, the Portfolio does not intend to purchase any such security if,
after giving effect to the purchase, 25% or more of the Portfolio's 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 the limitations set forth in
the preceding sentence.
16
<PAGE>
MANAGEMENT
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 (81) Director and Chairman Chairman of the Board of Directors, A I
M Management Group Inc., A I M
Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors,
Inc., A I M Fund Services, Inc. and Fund
Management Company; and Executive Vice
Chairman and Director, AMVESCAP PLC.
--------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (56) 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 (75) Director Formerly, Director, Cortland Trust Inc.
Six Blythewood Road (investment company), CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company
and Monumental General Insurance
Company; and Chairman of the Board of
Equitable Bancorporation.
--------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (64) Director Chairman of the Board of Directors,
2 Hopkins Plaza, 8th Floor, Suite 805 Mercantile Mortgage Corp. Formerly, Vice
Baltimore, MD 21201 Chairman of the Board of Directors,
President and Chief Operating Officer,
Mercantile--Safe Deposit & Trust Co.;
and President, Mercantile Bankshares.
--------------------------------------------------------------------------------------------------------
JACK FIELDS (48) Director Chief Executive Officer, Texana Global,
Jetero Plaza, Suite E Inc. (foreign trading company) and
8810 Will Clayton Pkwy. Twenty First Century Group, Inc. (a
Humble, TX 77338 governmental affairs company); and
Director, Telscape International and
Administaff. Formerly, Member of the
U.S. House of Representatives.
--------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (63) Director Partner, Kramer Levin Naftalis & Frankel
919 Third Avenue LLP (law firm).
New York, NY 10022
--------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (53) Director and President Director, President and Chief Executive
Officer, A I M Management Group Inc.;
Director and President, A I M Advisors,
Inc.; Director and Senior Vice
President, A I M Capital Management,
Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management
Company; and Director and Chief
Executive Officer, Managed Products,
AMVESCAP PLC.
--------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (49) Director Chief Executive Officer, YWCA of the
350 Fifth Avenue, Suite 301 U.S.A.
New York, NY 10118
--------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (57) Director Partner, Pennock & Cooper, (law firm).
6363 Woodway, Suite 825
Houston, TX 77057
--------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (60) Director Executive Vice President, Development
The Williams 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 AIM as defined
in the 1940 Act.
** A director who is an "interested person" of the Company as defined in the
1940 Act.
17
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
========================================================================================
<C> <C> <S>
GARY T. CRUM (52) Senior Vice President Director and President, A I M Capital
Management, Inc.; Director and Executive
Vice President, A I M Management Group
Inc.; Director and Senior Vice
President, A I M Advisors, Inc.; and
Director, A I M Distributors, Inc. and
AMVESCAP PLC.
----------------------------------------------------------------------------------------
CAROL F. RELIHAN (45) Senior Vice President Director, Senior Vice President, General
and Secretary Counsel and Secretary, A I M Advisors,
Inc.; Senior 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 (41) Vice President Vice President and Fund Controller,
and Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
----------------------------------------------------------------------------------------
STUART W. COCO (44) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
----------------------------------------------------------------------------------------
MELVILLE B. COX (56) 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 (40) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
----------------------------------------------------------------------------------------
J. ABBOTT SPRAGUE (45) 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>
The Board of Directors has an Audit Committee, a Capitalization Committee,
an Investments Committee and a Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock and Sklar and Dr. Mathai-Davis. The
Audit Committee is responsible for: (i) considering management's
recommendations of independent accountants for the Company and evaluating such
accountants' performance, costs and financial stability, (ii) with AIM,
reviewing and coordinating audit plans prepared by the Company's independent
accountants and management's internal audit staff; and (iii) reviewing
financial statements contained in periodic reports to shareholders with the
Company's independent accountants and management.
The members of the Capitalization Committee are Messrs. Bauer, Graham
(Chairman) and Pennock. The Capitalization Committee is responsible for: (i)
increasing or decreasing the aggregate number of shares of any class of the
Company's common stock by classifying and reclassifying the Company's
authorized but unissued shares of common stock, up to the Company's authorized
capital; (ii) fixing the terms of such classified or reclassified shares of
common stock; and (iii) issuing such classified or reclassified shares of
common stock upon the terms set forth in the Portfolio's prospectus, up to the
Company's authorized capital.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly,
Dunn, Fields, Frischling, Pennock and Sklar (Chairman) and Dr. Mathai-Davis.
The Investments Committee is responsible for: (i) overseeing AIM's investment-
related compliance systems and procedures to ensure their continued adequacy;
and (ii) considering and acting, on an interim basis between meetings of the
full Board of Directors, on investment-related matters requiring Board
consideration, including dividends and distributions, brokerage policies and
pricing matters.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock and Sklar and Dr. Mathai-
Davis. The Nominating and Compensation Committee is responsible for: (i)
considering and nominating individuals to stand for election as
18
<PAGE>
independent directors as long as the Company maintains a distribution plan
pursuant to Rule 12b-1 under the 1940 Act; (ii) reviewing from time to time
the compensation payable to the independent directors; and (iii) making
recommendations to the Board of Directors regarding matters related to
compensation, including deferred compensation plans and retirement plans for
the independent directors.
The Nominating and Compensation Committee will consider nominees recommended
by a shareholder to serve as directors, provided (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which directors will be elected, and
(ii) that the Nominating and Compensation Committee or the Board of Directors,
as applicable, shall make the final determination of persons to be nominated.
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 AIM. 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. The directors of
the Company who do not serve as officers of the Company are compensated for
their services according to a fee schedule which recognizes the fact that they
also serve as directors or trustees of certain other 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.
Set forth below is information regarding compensation paid or accrued for
each director of the Company:
<TABLE>
<CAPTION>
================================================================================
AGGREGATE RETIREMENT TOTAL
COMPENSATION BENEFITS ACCRUED COMPENSATION
FROM BY FROM ALL AIM
DIRECTOR COMPANY(1) ALL AIM FUNDS(2) FUNDS(3)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer................... -0- -0- -0-
--------------------------------------------------------------------------------
Bruce L. Crockett.................. $1,521 $ 37,485 $103,500
--------------------------------------------------------------------------------
Owen Daly II....................... $1,521 $122,898 $103,500
--------------------------------------------------------------------------------
Edward K. Dunn, Jr................. $1,496 $ 55,565 $103,500
--------------------------------------------------------------------------------
Jack M. Fields..................... $1,513 $ 15,826 $101,500
--------------------------------------------------------------------------------
Carl Frischling(4)................. $1,513 $ 97,791 $103,500
--------------------------------------------------------------------------------
Robert H. Graham................... -0- -0- -0-
--------------------------------------------------------------------------------
John F. Kroeger(5)................. $ 715 $ 40,461 -0-
--------------------------------------------------------------------------------
Prema Mathai-Davis................. $ 877 $ 11,870 $101,500
--------------------------------------------------------------------------------
Lewis F. Pennock................... $1,513 $ 45,766 $103,500
--------------------------------------------------------------------------------
Ian W. Robinson(6)................. $1,496 $ 94,442 $ 25,000
--------------------------------------------------------------------------------
Louis S. Sklar..................... $1,506 $ 90,232 $101,500
--------------------------------------------------------------------------------
</TABLE>
-------
(1) The total amount of compensation deferred by all directors of the Company
during the fiscal year ended March 31, 1999, including earnings thereon,
was $8,899.
(2) During the fiscal year ended March 31, 1999, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$6,883. Data reflects compensation for the calendar year ended December
31, 1999. Accruals for 1999 are based on actuarial projections from 1999.
(3) Each director serves as a director or trustee of at least 12 registered
investment companies advised by AIM. Data reflects total compensation for
the calendar year ended December 31, 1999.
(4) During the fiscal year ended March 31, 1999, the Company paid $5,333 in
legal fees to Mr. Frischling's law firm, Kramer Levin Naftalis & Frankel
LLP for services rendered to the independent directors of the company. Mr.
Frischling, a director of the Company, is a partner in such firm.
(5) Mr. Kroeger was a director until June 11, 1998. Of the amount listed
above, $256 was for compensation for services as a director and the
remainder as a consultant. Mr. Kroeger passed away on November 26, 1998.
Mr. Kroeger's widow will receive his pension as described below under "AIM
Funds Retirement Plan for Eligible Directors/Trustees."
(6) Mr. Robinson was a director until March 12, 1999, when he retired.
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, AIM Management or any of their affiliates) may be entitled
to certain benefits upon retirement from the Board of Directors. Pursuant to
the Plan, a director becomes eligible to retire and to receive full benefits
under the Plan when he or she 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
19
<PAGE>
"Applicable AIM Funds"). Each eligible director is entitled to receive an
annual benefit from the Applicable AIM Funds commencing on the first day of
the calendar quarter coincident with or following his or her date of
retirement equal to a maximum of 75% of the annual 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)
and based on the number of such director's years of service (not in excess of
10 years of service) completed with respect to any of the Applicable AIM
Funds. Such benefit is payable to each eligible director in quarterly
installments. If an eligible director dies after attaining the normal
retirement date but before receipt of all benefits under the Plan, 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 Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits payable
to an eligible director upon retirement assuming the retainer amount reflected
below and various years of service. The estimated credited years of service
for Messrs. Crockett, Daly, Dunn, Fields, Frischling, Kroeger, Pennock,
Robinson and Sklar and Dr. Mathai-Davis are 13, 13, 2, 3, 23, 20, 18, 11, 10
and 1 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
NUMBER OF YEARS ANNUAL RETIREMENT
OF SERVICE WITH COMPENSATION PAID BY ALL
APPLICABLE AIM FUNDS APPLICABLE AIM FUNDS
-------------------- ------------------------
<S> <C>
10...................................... $67,500
9...................................... $60,750
8...................................... $54,000
7...................................... $47,250
6...................................... $40,500
5...................................... $33,750
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for
purposes of this paragraph only, the "Deferring Directors") have each executed
a Deferred Compensation Agreement (collectively, the "Compensation
Agreements"). Pursuant to the Compensation Agreements, the Deferring Directors
may elect to defer receipt of up to 100% of their compensation payable by the
Company, and such amounts are placed into a deferral account. Currently, the
Deferring Directors may select various AIM Funds in which all or part of their
deferral accounts shall be deemed to be invested. Distributions from the
Deferring Directors' deferral accounts will be paid in cash, in generally
equal quarterly installments over a period of five (5) or ten (10) years
(depending on the Compensation Agreement) beginning on the date the Deferring
Director's retirement benefits commence under the Plan. The 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 or her deferral account, the balance of the
deferral account will be distributed to his or her designated beneficiary in a
single lump sum payment as soon as practicable after such Deferring Director's
death. The Compensation 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, 1999, $15,376 in directors' fees and
expenses were allocated to the Portfolio.
THE INVESTMENT ADVISOR
AIM is a wholly owned subsidiary of AIM Management, a holding company that
has been engaged in the financial services business since 1976. The address of
AIM is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. AIM was
organized in 1976, and, together with its subsidiaries, advises, manages or
administers over 120 investment portfolios encompassing a broad range of
investment objectives. 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 to (a) pre-clear all personal securities
transactions subject to the Code of Ethics; (b) file reports regarding such
transactions; (c) 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 (subject to a de
20
<PAGE>
minimis exception), and (iii) transactions involving securities being
considered for investment by an AIM Fund (subject to the de minimis
exception); and (d) abide by certain other provisions of the Code of Ethics.
The de minimis exception under the Code of Ethics covers situations where
there is no material conflict of interest because of the large market
capitalization of a security and the relatively small number of shares
involved in a personal transaction. The Code of Ethics also generally
prohibits AIM employees who are registered with the NASD from purchasing
securities in initial public offerings. Personal trading reports are
periodically reviewed by AIM, and the Board of Directors reviews quarterly and
annual reports (which summarize any significant violations of the Code of
Ethics). Sanctions for violating the Code of Ethics may include censure,
monetary penalties, suspension or termination of employment.
The Company has entered into a Master Investment Advisory Agreement dated
June 1, 2000 (the "Advisory Agreement") with AIM. A prior investment advisory
agreement with similar terms to the Advisory Agreement was in effect prior to
June 1, 2000. The Advisory Agreement will remain in effect until June 30,
2001, and continue from year to year only if such continuance is specifically
approved at least annually by the Company's Board of Directors and by the
affirmative vote of a majority of the directors who are not parties to the
agreement or "interested persons" of any such party by votes cast in person at
a meeting called for such purpose. The Company or AIM may terminate the
Advisory Agreement on 60 days' written notice without penalty. The Advisory
Agreement terminates automatically in the event of its "assignment," as
defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM supervises all aspects
of the Company's operations and provides investment advisory services to 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 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 investment advisory agreements in effect prior to June 1, 2000
which provided for the same level of compensation to AIM as is provided for
under the Advisory Agreement, for the fiscal years ended March 31, 1999, 1998
and 1997, the fees paid by the Company to AIM with respect to the Portfolio
were $1,646,048, $1,670,427 and $1,720,635, respectively (after giving effect
to fee waivers for the fiscal years ended March 31, 1999, 1998 and 1997 of
$809,773, $683,910 and $625,513, respectively).
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Portfolio's detriment
during the period stated in the agreement between AIM and the Company.
AIM has voluntarily undertaken to limit Institutional Class expenses,
excluding interest, taxes, director's fees, federal registration fees,
extraordinary items and indirect expenses resulting from expense offset
arrangements (if any), to 0.20% of the average daily net assets. AIM has
voluntarily undertaken to limit Cash Management Class, Personal Investment
Class, Private Investment Class, Reserve Class and Resource Class expenses
excluding the Rule 12b-1 distribution plan fee, interest, taxes, director's
fees, federal registration fees, extraordinary items and indirect expenses
resulting from expense offset arrangements (if any), to 0.20% of the average
daily net assets.
In addition, if the Portfolio engages in securities lending, AIM will
provide the Portfolio investment advisory services and related administrative
services. The Advisory Agreement describes the administrative services to be
rendered by AIM if the Portfolio engages in securities lending activities, as
well as the compensation AIM may receive for such administrative services.
Services to be provided include: (a) overseeing participation in the
securities lending program to ensure compliance with all applicable regulatory
and investment guidelines; (b) assisting the securities lending agent or
principal (the agent) in determining which specific securities are available
for loan; (c) monitoring the agent to ensure that securities loans are
effected in accordance with AIM's instructions and with procedures adopted by
the Board of Directors; (d) preparing appropriate periodic reports for, and
seeking appropriate approvals from, the Board of Directors with respect to
securities lending activities; (e) responding to agent inquires; and (f)
performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation
for the related administrative services AIM will provide, the Portfolio will
pay AIM a fee equal to 25% of the net monthly interest or fee income retained
or paid to the Portfolio from such activities. AIM currently intends to waive
such fee, and has agreed to seek the Board of Directors' approval prior to its
receipt of all or a portion of such fee.
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. 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
financial officer of the Company and of persons working under her supervision
21
<PAGE>
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 agreements in effect prior to June
1, 2000, AIM received reimbursements for the fiscal years ended March 31,
1999, 1998 and 1997 in the amounts of $86,020, $66,515 and $70,077,
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 0.015% 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 0843, Houston, Texas
77001-0843. As transfer agent, AFS processes orders for purchases, redemptions
and exchanges of shares; prepares and transmits payments for dividends and
distributions declared by the Portfolio; maintains shareholder accounts; and
provides shareholders with information regarding the Portfolio and its
accounts.
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. BONY maintains the portfolio securities owned by the
Portfolio, administers the purchases and sales of portfolio securities,
collects interest and other distributions made on securities held by the
Portfolio and performs other ministerial duties.
LEGAL MATTERS
The law firm of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania serves as counsel to the Company, and passes upon legal matters
for the Company.
22
<PAGE>
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 LLP, Bank of America Building, 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--Registered Trademark-- 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 May 19, 2000, and the percentage of the Portfolio's amount of
outstanding shares owned by such shareholders as of such date are as follows:
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
NAME AND ADDRESS OWNED OF RECORD AND
OF RECORD OWNER RECORD ONLY(A) BENEFICIALLY
---------------- -------------- ------------
CASH MANAGEMENT CLASS
---------------------
<S> <C> <C>
HERITAGE ASSET MANAGEMENT INC. ................ 68.03% -0-
P.O. Box 33022
St. Petersburg, FL 33733-8022
McDONALD & COMPANY............................. 25.06% -0-
800 Superior Avenue, Suite 2100
Cleveland, OH 44114-2603
<CAPTION>
INSTITUTIONAL CLASS
-------------------
<S> <C> <C>
BANK OF AMERICA, N.A. ......................... 16.41% -0-
1401 Elm Street, 11th Floor
P.O. Box 831000
Dallas, TX 75202-2911
FROST NATIONAL BANK TX ........................ 15.84% -0-
Muir & Co.
c/o Frost
P.O. Box 2479
San Antonio, TX 78298-2479
CHASE BANK OF TEXAS FBO OBIE & CO. ............ 11.45% -0-
18 HCB 340
P.O. Box 2558
Houston, TX 77252-2558
TRUST COMPANY BANK ............................ 7.27% -0-
Center 3139
P.O. Box 105504
Atlanta, GA 30348
FIRST TRUST/VAR & CO. ......................... 5.69% -0-
180 East Fifth Street
St. Paul, MN 55101
</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.
23
<PAGE>
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED OF
NAME AND ADDRESS OWNED OF RECORD AND
OF RECORD OWNER RECORD ONLY(A) BENEFICIALLY
---------------- -------------- ------------
PERSONAL INVESTMENT CLASS
-------------------------
<S> <C> <C>
NONE
<CAPTION>
PRIVATE INVESTMENT CLASS
------------------------
<S> <C> <C>
CULLEN/FROST DISCOUNT BROKERS................... 30.32% -0-
P.O. Box 2358
San Antonio, TX 78299
ANDERSON TAX FREE ACCOUNTS...................... 17.95% -0-
330 Spring Creek Road
Rockford, IL 61107-1035
THE BANK OF NEW YORK............................ 17.16% -0-
440 Mamoroneck, 5th Fl.
Harrison, NY 10286
NEW HAVEN SAVINGS BANK TRUST DEPARTMENT......... 8.21% -0-
Trust Department
P.O. Box 302
New Haven, CT 06502
BANK ONE TRUST COMPANY.......................... 7.16% -0-
1111 Polaris Parkway
Columbus, OH 43240
HAMBRECHT & QUIST LLC........................... 5.78% -0-
1100 Newport Center Drive, Second Floor
Newport Beach, CA 92660
<CAPTION>
RESERVE CLASS
-------------
<S> <C> <C>
THE BANK OF NEW YORK............................ 100% -0-
440 Mamoroneck, 5th Fl.
Harrison, NY 10286
<CAPTION>
RESOURCE CLASS
--------------
<S> <C> <C>
EVEREN CLEARING CORP. .......................... 62.78% -0-
111 East Kilbourn Ave.
Milwaukee, WI 53202
MCDONALD & COMPANY.............................. 30.94% -0-
800 Superior Avenue, Suite 2100
Cleveland, OH 44114-2603
HAMBRECHT & QUIST LLC........................... 6.28% -0-
1100 Newport Center Drive, Second Floor
Newport Beach, CA 92660
</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.
To the best of the knowledge of the Company, as of May 19, 2000, the
directors and officers of the Company as a group beneficially owned less than
1% of the outstanding shares of each class of the Portfolio.
24
<PAGE>
SHARE PURCHASES AND REDEMPTIONS
PURCHASES AND REDEMPTIONS
A complete description of the manner by which the shares of a particular
class may be purchased or redeemed appears in each Prospectus under the
headings "Purchasing Shares" and "Redeeming Shares."
Prior to the initial purchase of Portfolio shares, an investor must complete
and send an Account Application to AFS at P.O. Box 0843, Houston, Texas
77001-0843. An Account Application may be obtained from the distributor. An
investor may make changes to the information provided in the Account
Application by submitting such changes in writing to the transfer agent or by
completing and submitting to the transfer agent a new Account Application.
The Company reserves the right to reject any purchase order and to withdraw
all or any part of the offering made by a Prospectus. Any funds received with
respect to an order which is not accepted by the Company and any funds
received for which an order has not been received will be promptly returned to
an investor. Any request for correction to a transaction of Portfolio shares
must be submitted in writing to AFS. AFS 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.
An investor may terminate his or her relationship with an institution at any
time, in which case an account in the investor's name will be established
directly with the Portfolio 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 Cash Management Class, Personal Investment Class,
Private Investment Class, Reserve Class or the Resource Class directly, except
through reinvestment of dividends and distributions.
Payment for redeemed shares of the Portfolio 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. 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 trust company (which may include the shareholder). Additional documentation
may be required when deemed appropriate by the Portfolio or AFS.
The Company may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the New York Stock Exchange restricts or suspends trading.
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. 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 Portfolio, however, reserves the right to change the time
for which purchase and redemption orders must be submitted to and received by
the transfer agent for execution on the same day on any day when the primary
government securities dealers are either closed for business or close early,
or trading in money market securities is limited due to national holidays.
Any request for correction to a redemption transaction of Portfolio shares
must be submitted in writing to AFS.
REDEMPTIONS BY THE PORTFOLIO
If the Portfolio determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
Portfolio may, at its discretion, redeem the account and distribute the
proceeds to you.
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
25
<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. 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.
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 has established 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 the shares of each class of the portfolio 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 of
the Portfolio.
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 cast
in person at a meeting called for such purpose. The Company or FMC may
terminate the Distribution Agreement on 60 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 institutions 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 purchase 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 Portfolio's Cash Management
Class, Personal Investment Class, Private Investment Class, Reserve Class and
Resource Class. The Plan provides that the Company may compensate FMC in
connection with the distribution of shares of the Portfolio. Such compensation
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 and costs of administering the Plan.
26
<PAGE>
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 of customer cash account balances in shares of these
classes; (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 does not obligate the Company to reimburse FMC for the actual
expenses FMC may incur in fulfilling its obligations under the Plan. Thus,
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 may from time to time waive or reduce any portion of its 12b-1 fee for
Cash Management Class, Personal Investment Class, Private Investment Class,
Reserve Class and Resource Class shares. Voluntary fee waivers or reductions
may be rescinded at any time without further notice to investors. During
periods of voluntary fee waivers or reductions, FMC will retain its ability to
be reimbursed for such fee prior to the end of each fiscal year. Contractual
fee waivers or reductions set forth in the Fee Table in a Prospectus may not
be terminated or amended to the Portfolio's detriment during the period stated
in the agreement between FMC and the Company.
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 Cash Management Class and Private Investment Class, the
amount paid to dealers and financial institutions pursuant to the Plan for the
fiscal year ended March 31, 1999 was $1,888 and $214,727, respectively, (or an
amount equal to 0.08% and 0.25% of the average daily net assets of Cash
Management Class and Private Investment Class, respectively). With respect to
the Cash Management Class and Private Investment Class, FMC received no
compensation pursuant to the Plan for the fiscal year ended March 31, 1999.
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. Anticipated benefits that may
result from the Plan are: (i) FMC, brokerage firms and financial institutions
will provide a shareholder with rapid access to his or her account for the
purpose of effecting executions of purchase and redemption orders; (ii) FMC
and shareholder service agents will provide prompt, efficient and reliable
responses to shareholder inquiries concerning account status; (iii) a well-
developed, dependable network of shareholder service agents may help to curb
sharp fluctuations in rates of redemptions and sales, thereby reducing the
chance that an unanticipated increase in net redemptions could adversely
affect the performance of the Portfolio; and (iv) a successful distribution
effort will assist FMC in maintaining and increasing the organizational
strength needed to service the Portfolio.
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.
27
<PAGE>
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.
BANKING REGULATIONS
On November 12, 1999, the Gramm-Leach-Bliley Act of 1999 was signed into
law. This Act removed the regulatory barriers previously established between
banks and bank holding companies, and insurance companies and broker-dealers.
Various provisions of this Act became effective immediately, and others will
become effective through November 2000. While the ultimate effect of such
legislation is unclear, financial holding companies and their affiliated bank
and financial subsidiaries will be able to participate in the distribution of
mutual fund shares.
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.
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 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. Central time 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.
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
shareholder to the AFS at P.O. Box 0843, Houston, Texas 77001-0843. Such
election or revocation will be effective with dividends paid after it is
received by the transfer agent.
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.
Information concerning the amount of the dividends declared on any particular
day will normally be available by 5:00 p.m. Eastern time on that day.
The dividend accrued and paid for each class of shares of the Portfolio will
consist of: (a) interest accrued and original issue discount earned less
amortization of premiums, if any, for the Portfolio, allocated based upon such
class's pro rata share of the total shares outstanding which relate to the
Portfolio, less (b) Company expenses accrued for the applicable dividend
period attributable to the Portfolio, such as custodian fees and accounting
expenses, allocated based upon each such class' pro rata share of the net
assets of the Portfolio, less (c) expenses directly attributable to each class
which are accrued for the applicable dividend period, such as distribution
expenses, if any.
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.
28
<PAGE>
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least (a) 90% of its investment company taxable income (i.e., net investment
income and the excess of net short-term capital gain over net long-term
capital loss) and (b) 90% of its tax-exempt income (net of allocable expenses
and amortized bond premium) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by the Portfolio made during the taxable year
or, under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies.
In addition to satisfying the requirements described above, the Portfolio
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two
or more issuers which the Portfolio controls and which are engaged in the same
or similar trades or businesses.
If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Portfolio's current and accumulated
earnings and profits. 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
29
<PAGE>
Securities, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMT net operating loss deduction)) includable in AMTI. Pursuant to the
Taxpayer Relief Act of 1997, certain small corporations are wholly exempt from
the AMT.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must
be included in an individual shareholder's gross income subject to federal
income tax. Further, a shareholder of the Portfolio is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Portfolio. Moreover, a shareholder who is (or is related to) a
"substantial user" of a facility financed by industrial development bonds held
by the Portfolio will likely be subject to tax on dividends paid by the
Portfolio which are derived from interest on such bonds. Receipt of exempt-
interest dividends may result in 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 (net long-term capital gain over net short-term capital loss), 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 AIM Fund). 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 the Portfolio that it is not subject to
backup withholding or that it is a corporation or other "exempt recipient."
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 Company, and concerning the application of state, local and foreign taxes
to investments in the Company, which may differ significantly from the federal
income tax consequences described above.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the
Portfolio is "effectively connected" with a U.S. trade or business carried on
by such shareholder.
If the income from the Portfolio is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends (including short-term capital gains) and return of capital
distributions will be subject to U.S. withholding tax at the rate of 30% (or
lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Portfolio, capital gain dividends (if
any) and exempt-interest dividends.
30
<PAGE>
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.
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 transfer agent.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on May
22, 2000. 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.
31
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
CASH RESERVE PORTFOLIO
SEMIANNUAL REPORT SEPTEMBER 30, 1999
SCHEDULE OF INVESTMENTS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL OBLIGATIONS - 100.93%
ALABAMA - 1.00%
Birmingham (City of)(YMCA-Birmingham);
Public Park and Recreation Board
Variable Rate Demand Series 1996 RB
(LOC-Amsouth Bank of Alabama)
3.85%, 06/01/16(b) -- VMIG-1 $ 3,065 $ 3,065,000
-----------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding Series 1994 Wts.
(LOC-First Alabama Bank)
3.85%, 02/01/12(b) A-1 -- 2,695 2,695,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, Jefferson
(County of) Sewer Imp.; Floating Rate
Trust Certificates Series 124 1999
Wts. RB
3.85%, 02/01/36(b)(c)(d) A-1c -- 5,100 5,100,000
-----------------------------------------------------------------------------
10,860,000
-----------------------------------------------------------------------------
ALASKA - 0.48%
Valdez Marine (BP Pipelines Inc.
Project); Floating Rate Treasury Series
1999 A28 Reg D Term RB
3.95%, 12/01/25(b)(d) -- VMIG-1 5,275 5,275,000
-----------------------------------------------------------------------------
ARIZONA - 1.90%
Maricopa (County of) Pollution Control
Corp. (Arizona Public Service Co.);
Refunding Variable Rate Demand Series
1994 A PCR
3.75%, 05/01/29(b) A-1+ P-1 5,300 5,300,000
-----------------------------------------------------------------------------
Mesa Industrial Development Authority
(Discovery Health Systems); Variable
Rate Demand Series 1999 B RB
3.80%, 01/01/29(b)(c) A-1+ VMIG-1 2,700 2,700,000
-----------------------------------------------------------------------------
Pinal (County of) Industrial Development
Authority (Magma Copper Company
Project); Series 1984 PCR
(LOC-National Westminster)
2.95%, 12/01/09(b) A-1+ P-1 4,700 4,700,000
-----------------------------------------------------------------------------
Salt River Project Agricultural
Improvement and Power District;
Promissory Notes
3.40%, 11/10/99 A-1+ P-1 7,970 7,970,000
-----------------------------------------------------------------------------
20,670,000
-----------------------------------------------------------------------------
ARKANSAS - 0.59%
Arkansas Hospital Equipment Financing
Authority (Baptist Health Project);
Hospital Equipment Series 1995 RB
3.85%, 11/01/10(b)(c) A-1+ VMIG-1 6,400 6,400,000
-----------------------------------------------------------------------------
</TABLE>
FS-1
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CALIFORNIA - 0.50%
Huntington Beach (City of) (Seabridge
Villas Project); Floating Rate
Multifamily Housing Series 1985 A RB
4.00%, 02/01/10(b) -- VMIG-1 $ 3,000 $ 3,000,000
-------------------------------------------------------------------------------
Student Loan Marketing Corporation;
Student Loan Revenue Refunding Series
1993 A RB (LOC-Dresdner Bank AG)
3.20%, 11/01/02(b)(e) -- VMIG-1 2,500 2,500,000
-------------------------------------------------------------------------------
5,500,000
-------------------------------------------------------------------------------
COLORADO - 1.20%
Eagle Ranch Metro District Golf Course;
Variable Rate Series 1999 B RB (LOC-
Societe Generale)
3.80%, 10/15/18(b) A-1+ -- 3,900 3,900,000
-------------------------------------------------------------------------------
Pitkin (County of) Industrial Development
(Aspen Skiing Company Project); Refunding
Series 1994 A IDR (LOC-First National Bank)
2.95%, 04/01/16(b) A-1+ -- 3,000 3,000,000
-------------------------------------------------------------------------------
Platte River Power Authority; Adjustable
Tender (Subordinate Lien) Electric Series
S-1 RB
3.50%, 12/01/99(b) A-1+ VMIG-1 6,200 6,200,000
-------------------------------------------------------------------------------
13,100,000
-------------------------------------------------------------------------------
CONNECTICUT - 1.63%
Connecticut (State of) (Transportation
Infrastructure Purpose S-1); Special Tax
Obligation RB
3.75%, 12/01/10(b) A-1+ VMIG-1 2,178 2,178,000
-------------------------------------------------------------------------------
Connecticut (State of) Development
Authority (Corporation for Independent
Living Project); Health Care Variable
Rate Demand Series 1990 RB (LOC-Chase
Manhattan Bank)
3.65%, 07/01/15(b) -- VMIG-1 1,669 1,669,000
-------------------------------------------------------------------------------
Connecticut (State of) Health &
Educational Facilities Authority (Yale
University); Variable Rate Demand Series
1997 T-2 RB
3.70%, 07/01/29(b) A-1+ VMIG-1 1,914 1,914,000
-------------------------------------------------------------------------------
JP Morgan Putter TE Receipt; Connecticut
(State of) Special Tax Obligation Series
114 1999 A RB
3.88%, 10/01/09(b)(d) -- VMIG-1 11,980 11,980,000
-------------------------------------------------------------------------------
17,741,000
-------------------------------------------------------------------------------
DELAWARE - 0.47%
University of Delaware; Variable Rate
Demand Series 1998 RB
3.75%, 11/01/23(b) A-1+ -- 3,173 3,173,000
-------------------------------------------------------------------------------
Wilmington (City of); Unlimited Tax Series
1990 GO
6.75%, 05/15/00(c) AAA Aaa 1,815 1,889,372
-------------------------------------------------------------------------------
5,062,372
-------------------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
FLORIDA - 9.18%
Broward (County of) Housing Finance
Authority (Landings Inverrary
Apartments); Multifamily Variable Rate
Demand Housing Series 1985 RB
4.00%, 06/01/13(b) -- VMIG-1 $10,000 $ 10,000,000
-----------------------------------------------------------------------------
Collier (County of) Health Facilities
Authority (Cleveland Clinic Health
System); Hospital Series 1999 RB
3.80%, 01/01/33(b) A-1+ VMIG-1 18,200 18,200,000
-----------------------------------------------------------------------------
Florida (State of) (Gas Project No. 1);
Series 1998 RB
4.25%, 12/01/99(c) AAA Aaa 4,515 4,520,791
-----------------------------------------------------------------------------
Gulf Breeze (City of) (Florida Municipal
Bond Fund); Variable Rate Demand Series
1996 A RB (LOC-Bank of America N.A.)
3.85%, 03/31/21(b) A-1+ -- 3,585 3,585,000
-----------------------------------------------------------------------------
Gulf Breeze (City of) Healthcare
Facilities (Heritage Health Care
Project); Variable Rate Demand Series
1999 RB
3.92%, 01/01/24(b)(c) -- VMIG-1 7,000 7,000,000
-----------------------------------------------------------------------------
Gulf Breeze (City of) (Local Government
Loan Program); Floating Rate Series
1985 B RB
3.75%, 12/01/15(b)(c) A-1+ VMIG-1 2,060 2,060,000
-----------------------------------------------------------------------------
Jacksonville (City of) (The River City
Renaissance Program); Commercial Paper
Notes Series 1993
3.25%, 10/15/99 A-1 P-1 6,000 6,000,000
-----------------------------------------------------------------------------
Lee (County of) Housing Finance
Authority (Forestwood Apartments
Project); Refunding Housing Series 1995
A RB
3.75%, 06/15/25(b) A-1+ -- 624 624,000
-----------------------------------------------------------------------------
Lee (County of) Industrial Development
Authority (Shell Point Village
Project); Variable Rate Demand Series
1999 B IDR (LOC-Bank of America N.A.)
3.80%, 11/01/29(b) A-1+ -- 10,000 10,000,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, (Board of
Education Lottery); Floating Rate Trust
Certificate Series 57 1998 RB
3.85%, 07/01/15(b)(c)(d) A-1c -- 15,000 15,000,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, Orange
(County of) School Board; Floating Rate
Trust Certificates Series 85 1999 COP
3.85%, 08/01/22(b)(c)(d) -- VMIG-1 8,135 8,135,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, Tampa Bay
(City of) Water Utility System;
Floating Rate Trust Certificates Series
112 1999 RB
3.08%, 10/01/27(b)(c)(d) A-1c A1 4,995 4,995,000
-----------------------------------------------------------------------------
Nassau (County of) (Solid Waste System);
Refunding Series 1999 RB (LOC-First
Union National Bank)
3.80%, 07/01/13(b) A-1 -- 4,000 4,000,000
-----------------------------------------------------------------------------
Putnam (County of) Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Guaranteed Semiannual Variable Pooled
Series 1984 H-4 PCR
3.00%, 03/15/00(b)(e) A-1+ P-1 3,600 3,600,000
-----------------------------------------------------------------------------
Tampa (City of); Refunding Gtd.
Entitlement Series 1991 RB
6.50%, 10/01/99(c) AAA Aaa 2,205 2,205,000
-----------------------------------------------------------------------------
99,924,791
-----------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA - 4.07%
Clarke (County of) Georgia School
District (School Sales Tax); Unlimited
Tax Series 1997 GO
4.55%, 03/01/00(c) AAA Aaa $ 2,150 $ 2,163,584
-------------------------------------------------------------------------------
Cobb (County of) Development Authority
(Institute of Nuclear Power Operations);
Variable Rate Demand Series 1998 IDR
(LOC-Suntrust Bank)
3.80%, 02/01/13(b) -- Aa3 5,265 5,265,000
-------------------------------------------------------------------------------
Cobb (County of) Kennestone Hospital
Authority (Equipment Pool Project);
Variable Rate Anticipation Certificates
Series 1999 RB
3.90%, 04/01/26(b) A-1+ VMIG-1 15,000 15,000,000
-------------------------------------------------------------------------------
Decatur County Bainbridge Industrial
Development Authority (Kaiser
Agriculture Chemical Inc. Project);
Series 1985 IDR (LOC-Harris Trust &
Savings Bank)
3.80%, 12/01/02(b) -- -- 2,100 2,100,000
-------------------------------------------------------------------------------
Dekalb (County of) Private Hospital
Authority (Egleston Childrens Hospital
at Emory University); Variable Rate
Demand Series 1994 A RAN (LOC-Suntrust
Bank)
3.65%, 03/01/24(b) A-1+ VMIG-1 1,665 1,665,000
-------------------------------------------------------------------------------
Fayette (County of) Development Authority
Educational Facilities (Catholic School
Properties Inc. Project); Variable Rate
Demand Series 1999 RB (LOC-Wachovia
Bank)
3.80%, 04/01/24(b) -- Aa2 5,000 5,000,000
-------------------------------------------------------------------------------
Floyd (County of) Development Authority
(Shorter College Project); Variable Rate
Demand Series 1998 RB (LOC-Suntrust
Bank)
3.85%, 06/01/17(b) A-1+ -- 4,000 4,000,000
-------------------------------------------------------------------------------
Georgia (State of); Refunding Unlimited
Tax Series 1998 E GO
4.00%, 02/01/00 AAA Aaa 5,600 5,615,687
-------------------------------------------------------------------------------
Gwinnett (County of) Housing Authority
(Post Chase Project); Variable Rate
Demand Multifamily Housing Series 1997 RB
3.80%, 06/01/25(b) A-1+ -- 3,500 3,500,000
-------------------------------------------------------------------------------
44,309,271
-------------------------------------------------------------------------------
IDAHO - 0.28%
Idaho (State of); Unlimited Tax Series
1999 TAN
4.25%, 06/30/00 SP-1+ MIG-1 3,000 3,018,377
-------------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS - 8.62%
Bear Stearns Municipal Securities Trust
Certificates (Illinois Sales Tax); Series
1998-25 Class A RB (LOC-Bear Stearns
Capital Markets)
3.82%, 03/15/07(b)(d) A-1 Aa3 $10,000 $ 10,000,000
-------------------------------------------------------------------------------
Chicago (City of); Limited Tax Series 1998
GO (LOC-Morgan Guaranty Trust)
2.85%, 01/31/00(b) A-1+ VMIG-1 4,000 4,000,000
-------------------------------------------------------------------------------
Chicago (City of) Metro Water District
(Greater Chicago Reclamation); Refunding
Unlimited Tax Series 1992 GO
5.15%, 12/01/99 AA Aa2 5,000 5,013,766
-------------------------------------------------------------------------------
Chicago (City of) O'Hare International
Airport (American Airlines); Variable
Rate Demand Series 1983 B RB (LOC-Royal
Bank of Canada)
3.00%, 12/01/17(b) -- P-1 5,600 5,600,000
-------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily Housing
Series 1983 RB (LOC-Bank of Nova Scotia)
4.00%, 06/01/08(b) -- Aa3 5,085 5,085,000
-------------------------------------------------------------------------------
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB (LOC-Northern
Trust Company)
3.90%, 08/01/26(b) A-1+ -- 4,821 4,821,000
-------------------------------------------------------------------------------
Illinois Development Finance Authority
(Chicago Commons Project); Variable Rate
Demand Series 1999 RB (LOC-Bank of America)
3.80%, 01/01/29(b) A-1+ -- 5,500 5,500,000
-------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Program) Variable Rate
Demand Series 1999 A RAN (LOC-Harris
Trust & Savings Bank)
3.85%, 06/30/00(b) A-1+ -- 5,390 5,390,000
-------------------------------------------------------------------------------
Illinois Development Finance Authority
(Local Government Financing Project);
Variable Rate Demand Series 1999 A RB
3.80%, 09/01/29(b)(c) -- VMIG-1 10,000 10,000,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Demand Series 1995 RB
2.95%, 08/15/25(b) A-1+ VMIG-1 9,000 9,000,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Resurrection Health Care); Variable Rate
Demand Series 1999 A RB
3.00%, 05/15/29(b) AAA VMIG-1 3,600 3,600,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled Series 1985 D RB
(LOC-First National Bank)
3.80%, 08/01/15(b) A-1+ VMIG-1 4,829 4,829,000
-------------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS - (CONTINUED)
Illinois Health Facilities Authority
(The Methodist Medical Center);
Refunding Series 1998 RB
4.50%, 11/15/99(c) AAA Aaa $ 2,090 $ 2,093,520
-----------------------------------------------------------------------------
Illinois Health Facilities Authority
(Swedish Covenant Hospital); Refunding
Variable Rate Demand Series 1998 A RB
3.85%, 08/15/27(b) A-1+ VMIG-1 2,100 2,100,000
-----------------------------------------------------------------------------
Illinois (State of) Regional
Transportation Authority (Cook Dupage
Lake Co.); Refunding Unlimited Tax
Series 1999 GO
5.00%, 06/01/00(c) AAA Aaa 4,990 5,033,564
-----------------------------------------------------------------------------
Illinois (State of) Toll Highway
Authority;
Series 1998 A Municipal Securities
Trust Certificates
3.82%, 02/15/12(b)(c)(d) A-1 Aaa 11,700 11,700,000
-----------------------------------------------------------------------------
93,765,850
-----------------------------------------------------------------------------
INDIANA - 1.16%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate Demand
Economic Development Series 1985 RB
(LOC-NBD Bank)
3.50%, 07/01/10(b) -- VMIG-1 1,200 1,200,000
-----------------------------------------------------------------------------
Indianapolis (City of); Local Public
Improvement Bond Bank RB Series 1995 B
5.00%, 02/01/00 AAA Aaa 1,500 1,509,097
-----------------------------------------------------------------------------
Indianapolis (City of); Local Public
Improvement Bond Bank RB Notes Series
1999 B
4.00%, 01/10/00 SP-1+ -- 7,900 7,916,074
-----------------------------------------------------------------------------
Indianapolis (City of) Economic
Development Authority (Jewish
Community Campus Project); Variable
Rate Series 1995 RB
3.75%, 04/01/05(b) -- VMIG-1 1,995 1,995,000
-----------------------------------------------------------------------------
12,620,171
-----------------------------------------------------------------------------
IOWA - 1.29%
Iowa Higher Education Loan Authority;
Private College Facility RB
3.85%, 12/01/15(b)(c) A-1+ VMIG-1 12,000 12,000,000
-----------------------------------------------------------------------------
Iowa School Corporations (Iowa School
Cash Anticipation Program); Warrant
Certificates Series 1999 A
4.00%, 06/23/00(c) SP-1+ MIG-1 2,000 2,010,829
-----------------------------------------------------------------------------
14,010,829
-----------------------------------------------------------------------------
KANSAS - 0.15%
Olathe (City of); Unlimited Tax Series
194 1999 GO
3.75%, 04/01/00(c) AAA Aaa 1,660 1,664,440
-----------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
KENTUCKY - 2.60%
Kentucky Asset/Liability Commission;
Project Notes General Fund Series 1998 A
RB (LOC-Landesbank Hessen-Thuringen
Girozentrale)
3.40%, 06/30/01(b) -- VMIG-1 $10,000 $ 10,000,000
-------------------------------------------------------------------------------
Kentucky Interlocal School Transport
Association; Series 1999 TRAN
4.00%, 06/30/00 SP-1+ MIG-1 14,000 14,046,963
-------------------------------------------------------------------------------
Trimble (County of) (Louisville Gas and
Electric Company Project);
Series 1992 A PCR
3.45%, 09/01/17(b) A-1 VMIG-1 4,300 4,300,000
-------------------------------------------------------------------------------
28,346,963
-------------------------------------------------------------------------------
LOUISIANA - 2.54%
Louisiana Public Facilities Authority
(Christus Health); Series 1999 B RB
3.40%, 07/01/29(b)(c) A-1+ VMIG-1 10,000 10,000,000
-------------------------------------------------------------------------------
Louisana Public Facilities Authority
(Tiger Athletic Foundation Project);
Variable Rate Demand Series 1999 RB
(LOC-Hibernia National Bank)
3.80%, 09/01/28(b) A-1+ -- 13,000 13,000,000
-------------------------------------------------------------------------------
New Orleans (City of); Aviation Board
Variable Refunding Series B RB
3.75%, 08/01/16(b)(c) A-1+ VMIG-1 4,635 4,635,000
-------------------------------------------------------------------------------
27,635,000
-------------------------------------------------------------------------------
MASSACHUSETTS - 0.27%
Massachusetts (State of); Limited Tax
Series 1993 B GO
4.60%, 11/01/99 AA- Aa3 2,890 2,893,957
-------------------------------------------------------------------------------
MICHIGAN - 2.25%
Detroit (City of) Sewer District; Bear
Stearns Municipal Trust Certificates
Variable Rate Demand Series 1999-81
Class A RB
(LOC-Bear Stearns Capital Markets)
3.83%, 10/01/02(d) A-1+c Aaa 15,000 15,000,000
-------------------------------------------------------------------------------
Grand Rapids (City of); Water Supply
Series 1990 RB
7.25%, 01/01/00(e)(f) AAA AAA 3,000 3,089,714
-------------------------------------------------------------------------------
Jackson County Economic Development Corp.
(Sealed Power Corp.); Economic
Development Refunding Variable Rate
Demand Series 1984 RB (LOC-NBD Bank)
3.50%, 10/01/19(b) -- VMIG-1 1,000 1,000,000
-------------------------------------------------------------------------------
Michigan (State of); Municipal Bond
Authority RB Series 1999 B-1
4.25%, 08/25/00 SP-1+ -- 2,000 2,011,267
-------------------------------------------------------------------------------
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited Obligation
Series 1985 RB (LOC-Comerica Bank)
3.30%, 10/01/15(b) -- VMIG-1 3,400 3,400,000
-------------------------------------------------------------------------------
24,500,981
-------------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MINNESOTA - 0.04%
Mankato (City of) (Northern States
Power Co. Project); Floating
Collateralized Series 1985 PCR
3.85%, 03/01/11(b) AA Aa3 $ 500 $ 500,000
-----------------------------------------------------------------------------
MISSISSIPPI - 0.92%
Morgan Stanley Float Program,
Mississippi (State of) Development
Bank Special Obligation; Floating Rate
Trust Certificates Series 160 1999 RB
3.85%, 07/01/24(b)(c)(d) A-1c -- 10,000 10,000,000
-----------------------------------------------------------------------------
MISSOURI - 3.86%
Missouri (State of) (Health Care
System); Bear Stearns Municipal Trust
Certificates; Variable Rate Demand
Series 1998 Class A RB
3.87%, 08/01/05(b)(c)(d) A-1+c -- 13,835 13,835,000
-----------------------------------------------------------------------------
Missouri Health & Educational
Facilities Authority (Deaconess Long
Term Care-A); Variable Rate Demand
Health Facilities Series 1996 RB
3.80%, 12/01/16(b) A-1+ VMIG-1 10,785 10,785,000
-----------------------------------------------------------------------------
Missouri Health & Educational
Facilities Authority (Missouri Pooled
Hospital Loan Program); Variable Rate
Demand Series 1999 A RB
3.80%, 08/01/29(b) A-1+ -- 14,000 14,000,000
-----------------------------------------------------------------------------
Missouri Rural Water Financing Corp.
(Public Project); Construction Series
1998 Notes
4.50%, 11/15/99 -- MIG-1 3,370 3,375,052
-----------------------------------------------------------------------------
41,995,052
-----------------------------------------------------------------------------
NEW MEXICO - 0.92%
New Mexico (State of); Series 1999 TRAN
4.00%, 06/30/00 SP-1+ MIG-1 10,000 10,055,572
-----------------------------------------------------------------------------
NEW YORK - 18.38%
Eagle Tax Exempt Trust; Class A COP(d)
3.84%, Series 1993 E 08/01/06(b) A-1+c -- 15,000 15,000,000
-----------------------------------------------------------------------------
3.84%, Series 1993 F 08/01/06(b) A-1+c -- 20,850 20,850,000
-----------------------------------------------------------------------------
3.84%, Series 943802 05/01/07(b)(c) A-1+c -- 17,800 17,800,000
-----------------------------------------------------------------------------
3.84%, Series 943901 06/15/07(b)(c) A-1+c -- 15,175 15,175,000
-----------------------------------------------------------------------------
3.84%, Series 950901 06/01/21(b)(f) A-1+c -- 13,315 13,315,000
-----------------------------------------------------------------------------
3.84%, Series 97C4702 01/01/20(b) A-1+c -- 9,900 9,900,000
-----------------------------------------------------------------------------
3.87%, Series 964703 07/01/11(b)(c) A-1+c -- 5,870 5,870,000
-----------------------------------------------------------------------------
3.87%, Series 97C4703 01/01/01(b)(f) A-1+c -- 11,295 11,295,000
-----------------------------------------------------------------------------
</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 (Colorado
Housing and Finance Authority); Series
94C0601 Class A COP
3.84%, 10/01/23(b)(d) A-1+c AAA $10,000 $ 10,000,000
-----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Houston Water
and Sewer); Series 974305 Class A COP
3.84%, 12/01/27(b)(c)(d) A-1+c AAA 14,005 14,005,000
-----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington
State); Series 984701 Class A COP
3.84%, 05/01/18(b)(d) A-1+c -- 14,400 14,400,000
-----------------------------------------------------------------------------
Long Island Power Authority;
Subordinated RB (LOC-Bayerische
Landesbank Girozentrale)
2.85%, Series 1999 4 11/17/99(b) A-1+ VMIG-1 11,000 11,000,000
-----------------------------------------------------------------------------
3.20%, Series 1998 2 04/01/25(b) A-1+ VMIG-1 11,750 11,750,000
-----------------------------------------------------------------------------
New York (State of) Medical Facilities
Finance Agency (St.Lukes-Roosevelt
Hospital Center); Merrill Lynch Group
Float Program Floating Option Tax-
Exempt Receipts Series PA-113 1996 A
Mortgage RB
3.05%, 02/15/29(b)(d) A-1+c -- 9,700 9,700,000
-----------------------------------------------------------------------------
New York (State of); Variable Rate
Demand Series 1998 A GO (LOC-Morgan
Guaranty Trust Co. of New York)
3.45%, 12/02/99(b) A-1+ P-1 20,000 20,000,000
-----------------------------------------------------------------------------
200,060,000
-----------------------------------------------------------------------------
NORTH CAROLINA - 1.29%
North Carolina Medical Care Commission
Retirement Community (Adult
Communities Total Services Inc.);
Variable Rate Demand Series 1996 RB
(LOC-Lasalle National Bank)
3.75%, 11/15/09(b) A-1+ -- 5,655 5,655,000
-----------------------------------------------------------------------------
North Carolina Medical Care Commission
(The Givens Estates Inc. Project);
Health Care Facilities Variable Rate
Demand Series 1997 RB (LOC-First Union
National Bank)
3.00%, 12/01/26(b) -- VMIG-1 3,000 3,000,000
-----------------------------------------------------------------------------
North Carolina Medical Care Commission
(The Moses H. Cone Memorial Hospital
Project); Hospital Series 1995 RB
3.85%, 09/01/02(b) A-1+ -- 5,400 5,400,000
-----------------------------------------------------------------------------
14,055,000
-----------------------------------------------------------------------------
</TABLE>
FS-9
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OHIO - 3.34%
Clermont County Hospital (Catholic Health
Care-Mercy Health System); Variable Rate
Demand Series 1994 B RB
3.90%, 09/01/21(b) A-1+ VMIG-1 $ 9,100 $ 9,100,000
-------------------------------------------------------------------------------
Clinton (County of) Hospital (Ohio
Hospital Capital Inc.); Variable Rate
Demand Series 1999 RB (LOC-Fifth Third
Bank)
3.80%, 07/01/29(b) A-1+ -- 10,000 10,000,000
-------------------------------------------------------------------------------
Franklin (County of) (Bricker & Eckler
Building Co. Project); Floating Rate
Series 1984 IDR (LOC-Bank One Cleveland
N.A.)
3.85%, 11/01/14(b) -- P-1 8,100 8,100,000
-------------------------------------------------------------------------------
Loraine (County of) (Catholic Healthcare
Partners); Variable Rate Demand Series
1998 A RB
3.15%, 12/01/27(e) A-1+ P-1 7,000 7,000,000
-------------------------------------------------------------------------------
Marion (County of) (Pooled Lease
Program); Variable Rate Demand Hospital
Improvement Series 1992 RB (LOC-Bank One
Akron N.A.)
3.83%, 10/01/22(b) A-1+ -- 1,165 1,165,000
-------------------------------------------------------------------------------
Ohio Housing Financing Agency (Kenwood
Congregate Retirement Community
Project); Variable Rate Demand
Multifamily Housing Series 1985 RB (LOC-
Morgan Guaranty Trust)
3.65%, 12/01/15(b) -- VMIG-1 956 956,000
-------------------------------------------------------------------------------
36,321,000
-------------------------------------------------------------------------------
OKLAHOMA - 2.76%
Oklahoma Development Financing Authority
(Oklahoma Hospital Association);
Variable Rate Demand Series 1999 A RB
3.80%, 06/01/29(b) A-1+ -- 20,000 20,000,000
-------------------------------------------------------------------------------
Oklahoma Water Resources Board (State
Loan Program); Series 1999 RB
3.60%, 03/01/00(b)(e) A-1+c -- 3,000 3,000,000
-------------------------------------------------------------------------------
Oklahoma Water Resources Board (State
Loan Program); Variable Rate Demand
Series 1995 RB
3.60%, 03/01/00(b)(e) A-1+ -- 7,000 7,000,000
-------------------------------------------------------------------------------
30,000,000
-------------------------------------------------------------------------------
OREGON - 0.46%
Oregon State Housing & Community Services
Department; Single Family Mortgage
Series 1999 C RB
3.15%, 04/13/00 -- MIG-1 5,000 5,000,000
-------------------------------------------------------------------------------
</TABLE>
FS-10
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
PENNSYLVANIA - 1.51%
Delaware County Industrial Development
Authority (Henderson-Radnor Joint Venture
Project); Limited Obligation Series 1985
IDR (LOC-Corestates Bank)
4.00%, 04/01/15(b) -- Aa3 $ 765 $ 765,000
-------------------------------------------------------------------------------
Luzerne County Convention Center
Authority; Hotel Room Rent Series 1998 A
RB (LOC-First Union National Bank)
3.80%, 09/01/28(b) A-1 -- 7,790 7,790,000
-------------------------------------------------------------------------------
Philadelphia (City of) Parking Authority;
Parking Series 1999 RB
4.00%, 02/01/00(c) AAA Aaa 1,290 1,294,065
-------------------------------------------------------------------------------
York (City of) General Authority; Variable
Rate Pooled Financing Series 1996 RB
(LOC-First Union National Bank)
3.85%, 09/01/26(b) A-1 -- 6,609 6,609,000
-------------------------------------------------------------------------------
16,458,065
-------------------------------------------------------------------------------
TENNESSEE - 6.28%
Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County (Amberwood, Ltd.
Project); Multifamily Housing Refunding
IDR (LOC-Commerzbank A.G.)
4.07%, Series 1993 A, 07/01/13(b) A-1+ VMIG-1 2,095 2,095,000
-------------------------------------------------------------------------------
4.00%, Series 1993 B, 07/01/13(b) A-1 VMIG-1 1,790 1,790,000
-------------------------------------------------------------------------------
Industrial Development Board of the
Metropolitan Government of Nashville &
Davidson County (Chimney Top II);
Multifamily Variable Rate Demand Series
1984 RB (LOC-Bank of America N.A.)
3.85%, 09/01/06(b) -- VMIG-1 2,100 2,100,000
-------------------------------------------------------------------------------
Knox (County of) Health Education and
Housing Facilities Board (Solutions
Group, Inc. Project); Variable Rate
Demand Series 1999 RB
3.80%, 05/01/29(b) A-1+ -- 40,000 40,000,000
-------------------------------------------------------------------------------
Montgomery (County of) Public Building
Authority (Tennessee County Loan Pool);
Pooled Financing Variable Rate Demand
(LOC-Bank of America N.A.)
3.80%, Series 1997 RB 11/01/27(b) -- VMIG-1 5,200 5,200,000
-------------------------------------------------------------------------------
3.80%, Series 1999 RB 09/01/29(b) -- VMIG-1 15,000 15,000,000
-------------------------------------------------------------------------------
Shelby (County of); Refunding Unlimited
Tax Series 1993 A GO
4.65%, 03/01/00 AA+ Aa3 2,160 2,172,684
-------------------------------------------------------------------------------
68,357,684
-------------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS - 13.56%
Austin (City of) (Travis & Williamson
Counties); Combined Utility Systems
Series 1998 A Commercial Paper Notes
3.45%, 11/02/99 A-1+ P-1 $ 7,551 $ 7,551,000
-------------------------------------------------------------------------------
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apartments);
Refunding Variable Rate Demand
Multifamily Series 1996 RB
3.75%, 09/15/26(b) A-1+ -- 8,361 8,361,000
-------------------------------------------------------------------------------
Dallas Area Rapid Transit (DART); Sales
Tax Revenue Commercial Paper Notes Series
C (LOC-Westdeutsche Landesbank
Girozentrale)
3.30%, 10/20/99 A-1+ P-1 5,200 5,200,000
-------------------------------------------------------------------------------
Dallas (City of) (Equipment Acquisition
Contractual Obligation); Limited Tax
Series 1998 GO
4.00%, 02/15/00 AAA Aaa 2,765 2,773,216
-------------------------------------------------------------------------------
Fort Worth (City of); Series B General
Purpose Commercial Paper Notes
3.35%, 11/17/99 A-1+ P-1 6,000 6,000,000
-------------------------------------------------------------------------------
Grand Prairie (City of) Texas Housing
Finance Corporation (Windridge Grand
Prairie Associates); Multifamily Housing
Refunding Series 1993 RB
3.85%, 06/01/10(b) A-1+ -- 4,500 4,500,000
-------------------------------------------------------------------------------
Gulf Coast Waste Disposal Authority (Amoco
Oil Company Project); Texas Environmental
Improvement Series 1986 RB
3.10%, 03/01/09(b) A-1+ P-1 7,000 7,000,000
-------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp.; ACES Greater Houston
Pooled Health Series 1985 A RB (LOC-Chase
Bank of Texas N.A.)
3.85%, 11/01/25(b) A-1 -- 2,300 2,300,000
-------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Blood Center
Series 1992 RB (LOC-Texas Commerce Bank
N.A.)
3.90%, 04/01/17(b) A-1 -- 3,250 3,250,000
-------------------------------------------------------------------------------
Harris (County of) Toll Road; Refunding
Sub Lien Unlimited Tax Series 1995 A GO
6.00%, 08/15/00 AA VMIG-1 2,470 2,518,788
-------------------------------------------------------------------------------
Hockley (County of) Industrial Development
Corporation (Amoco Project); Variable
Rate Demand Series 1983 PCR
3.60%, 03/01/14(b) A-1+ Aa1 3,500 3,500,000
-------------------------------------------------------------------------------
Houston (City of) Water and Sewer Systems;
Series A
Commercial Paper Notes
3.35%, 09/01/13(b) A-1 P-1 20,000 20,000,000
-------------------------------------------------------------------------------
Houston (City of) Water and Sewer Systems;
Floating Rate Treasury Series A29 1999
Reg D RB
3.90%, 12/01/15(b)(d) -- VMIG-1 4,300 4,300,000
-------------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS - (CONTINUED)
Katy (City of) Independent School
District; Refunding Limited Tax Series
1998 A GO
4.25%, 02/15/00 AAA Aaa $ 1,935 $ 1,942,373
-------------------------------------------------------------------------------
North Central Texas Health Facilities
Development Corp. (Methodist Hospitals
of Dallas); Flexible Rate Hospital
Series 1998 RB
3.30%, 10/12/99(b)(c) A-1+ VMIG-1 5,000 5,000,000
-------------------------------------------------------------------------------
3.35%, 10/19/99(b)(c) A-1+ VMIG-1 10,000 10,000,000
-------------------------------------------------------------------------------
Plano Texas Health Facilities Development
Corporation (Childrens-Presbyterian
Health Center); Hospital Series 1989 RB
3.55%, 01/01/19(c) A-1+ VMIG-1 10,000 10,000,000
-------------------------------------------------------------------------------
San Antonio (City of); Limited Tax Series
1998 A COP
4.00%, 02/01/00 AA+ Aa2 1,450 1,453,915
-------------------------------------------------------------------------------
San Antonio (City of); Refunding Series
1992 RB
5.90%, 05/15/00(c) AAA Aaa 2,050 2,079,160
-------------------------------------------------------------------------------
Tarrant (County of) Texas Health
Facilities Authority (Adventist Health
System); Variable Rate Demand Series
1997 A RB (LOC-Suntrust Bank Central
Florida)
3.80%, 11/15/27(b) A-1+ -- 8,775 8,775,000
-------------------------------------------------------------------------------
Texas (State of); Series 1999 TRAN
4.50%, 08/31/00 SP-1+ MIG-1 24,000 24,169,463
-------------------------------------------------------------------------------
Texas (State of) (Texas Water Financing
Assistance); JP Morgan Putter 118 Series
1999 GO
3.90%, 08/01/23(b)(d) Aar -- 4,755 4,755,000
-------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
(LOC-Comerica Bank)
3.60%, Series 1985 A 11/01/05(b) A-1 -- 500 500,000
-------------------------------------------------------------------------------
3.60%, Series 1985 B 11/01/05(b) A-1 -- 1,650 1,650,000
-------------------------------------------------------------------------------
147,578,915
-------------------------------------------------------------------------------
UTAH - 0.46%
Central Utah Water Conservation District;
Refunding Variable Rate Demand Limited
Tax Series 1998 E GO
3.75%, 04/01/27(b)(c) A-1+ VMIG-1 4,000 4,000,000
-------------------------------------------------------------------------------
Utah Associated Municipal Power System
(The Hunter Project); Refunding Series
1994 RB
4.35%, 07/01/00(c) AAA Aaa 1,000 1,005,440
-------------------------------------------------------------------------------
5,005,440
-------------------------------------------------------------------------------
VERMONT - 0.88%
Vermont Educational and Health Building
Finance Authority (Middlebury College
Project); Variable Rate Demand Series
1988 A RB
3.10%, 11/01/27(b)(c) A-1+ Aa 1,500 1,500,000
-------------------------------------------------------------------------------
</TABLE>
FS-13
<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
3.85%, Series 1985 B 12/01/25(b)(c) A-1+ -- $ 1,000 $ 1,000,000
-------------------------------------------------------------------------------
3.85%, Series 1985 E 12/01/25(b)(c) A-1+ -- 2,500 2,500,000
-------------------------------------------------------------------------------
3.85%, Series 1985 F 12/01/25(b)(c) A-1+ -- 2,100 2,100,000
-------------------------------------------------------------------------------
3.85%, Series 1985 G 12/01/25(b)(c) A-1+ -- 2,500 2,500,000
-------------------------------------------------------------------------------
9,600,000
-------------------------------------------------------------------------------
VIRGINIA - 1.43%
Manassa Park Virginia; Variable Rate
Demand Series 1999 BAN (LOC-Wachovia
Bank N.A.)
3.80%, 01/01/03(b) -- Aa2 10,000 10,000,000
-------------------------------------------------------------------------------
Norfolk (City of) (Pooled Financing
Program-Sentara Health System Group);
Commercial Paper Revenue Notes
3.40%, 11/01/99 A-1+ P-1 5,600 5,600,000
-------------------------------------------------------------------------------
15,600,000
-------------------------------------------------------------------------------
WASHINGTON - 1.82%
Port of Seattle; Subordination Lien
Series 1999 A RB (LOC-Commerzbank AG)
3.35%, 10/05/99 A-1+ VMIG-1 10,000 10,000,000
-------------------------------------------------------------------------------
Washington State Public Power Supply
(Nuclear Project No. 3); Series B Pre
Refunded RB
7.40%, 01/01/00(e) AAA AAA 9,500 9,775,473
-------------------------------------------------------------------------------
19,775,473
-------------------------------------------------------------------------------
WEST VIRGINIA - 0.60%
West Virginia Hospital Finance Authority
(VHA Mid-Atlantic States, Inc. Capital
Asset Financing Program); RB
3.85%, Series 1985 B 12/01/25(b)(c) A-1+ -- 3,000 3,000,000
-------------------------------------------------------------------------------
3.85%, Series 1985 C 12/01/25(b)(c) A-1+ -- 3,500 3,500,000
-------------------------------------------------------------------------------
6,500,000
-------------------------------------------------------------------------------
WISCONSIN - 1.70%
Milwaukee (County of); Unlimited Tax
Series 1995 A GO
5.125%, 12/01/99 AA- Aa3 2,275 2,283,194
-------------------------------------------------------------------------------
Racine (City of); Promissory Notes
Unlimited Tax Series 1998 B GO
3.70%, 12/01/99 SP-1+ MIG-1 2,290 2,291,854
-------------------------------------------------------------------------------
Wasau (City of) School District; Series
1999 BAN
3.45%, 06/01/00 -- MIG-1 5,000 5,003,704
-------------------------------------------------------------------------------
Wisconsin (State of) Transportation;
Commercial Paper Notes Series 1997 (LOC-
Bayerische Landesbank Girozentrale)
3.25%, 10/12/99 A-1+ P1 8,893 8,893,000
-------------------------------------------------------------------------------
18,471,752
-------------------------------------------------------------------------------
</TABLE>
FS-14
<PAGE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WYOMING - 0.54%
Uinta (County of) (Amoco Project);
Refunding Variable Rate Demand Series
1998 PCR
2.85%, 07/01/26(b) A-1+ Aa1 $ 5,900 $ 5,900,000
-------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.93% 1,098,532,955(g)
-------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS -
(0.93%) (10,146,711)
-------------------------------------------------------------------------------
NET ASSETS - 100.00% $1,088,386,244
--------------------------------------------------------------------------------
</TABLE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<S> <C>
BAN Bond Anticipation Note PCR Pollution Control Revenue Bonds
COP Certificates of Participation RAN Revenue Anticipation Notes
GO General Obligation Bonds RB Revenue Bonds
Gtd Guaranteed TAN Tax Anticipation Notes
IDR Industrial Development Revenue Bonds TRAN Tax and Revenue Anticipation Notes
LOC Letter of Credit WTS Warrants
Ltd. Limited
</TABLE>
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 09/30/99.
(c) Secured by bond insurance provided by one of the following companies:
AMBAC, FGIC, FSA or MBIA.
(d) 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.
(e) Subject to an irrevocable call or mandatory put by the issuer. Par value
and maturity date reflect such call or put.
(f) Secured by an escrow fund of U.S. Treasury obligations.
(g) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-15
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,098,532,955
------------------------------------------------------------------------
Cash 7,406,769
------------------------------------------------------------------------
Receivables for:
Investments sold 3,030,000
------------------------------------------------------------------------
Interest 6,481,011
------------------------------------------------------------------------
Investment for deferred compensation plan 43,928
------------------------------------------------------------------------
Other assets 162,194
------------------------------------------------------------------------
Total assets 1,115,656,857
------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 24,022,762
------------------------------------------------------------------------
Dividends 2,969,695
------------------------------------------------------------------------
Deferred compensation 43,928
------------------------------------------------------------------------
Accrued administrative services fees 14,000
------------------------------------------------------------------------
Accrued advisory fees 120,275
------------------------------------------------------------------------
Accrued directors' fees 2,525
------------------------------------------------------------------------
Accrued transfer agent fees 29,115
------------------------------------------------------------------------
Accrued distribution fees 33,376
------------------------------------------------------------------------
Accrued operating expenses 34,937
------------------------------------------------------------------------
Total liabilities 27,270,613
------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,088,386,244
========================================================================
NET ASSETS:
Institutional Class $ 968,609,455
========================================================================
Private Investment Class $ 88,678,984
========================================================================
Cash Management Class $ 5,524,759
========================================================================
Reserve Class $ 25,358,267
========================================================================
Resource Class $ 214,779
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Class:
Authorized 3,000,000,000
------------------------------------------------------------------------
Outstanding 968,605,347
========================================================================
Private Investment Class:
Authorized 1,000,000,000
------------------------------------------------------------------------
Outstanding 88,677,372
========================================================================
Cash Management Class:
Authorized 1,000,000,000
------------------------------------------------------------------------
Outstanding 5,524,625
========================================================================
Reserve Class:
Authorized 1,000,000,000
------------------------------------------------------------------------
Outstanding 25,357,583
========================================================================
Resource Class:
Authorized 1,000,000,000
------------------------------------------------------------------------
Outstanding 215,053
========================================================================
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $18,462,258
------------------------------------------------------------------
EXPENSES:
Advisory fees 1,254,939
------------------------------------------------------------------
Administrative services fees 64,785
------------------------------------------------------------------
Transfer agent fees 93,476
------------------------------------------------------------------
Custody fees 28,262
------------------------------------------------------------------
Directors' fees 7,499
------------------------------------------------------------------
Distribution fees (Note 2) 300,870
------------------------------------------------------------------
Other expenses 97,206
------------------------------------------------------------------
Total expenses 1,847,037
------------------------------------------------------------------
Less: Fees waived and expenses assumed (513,563)
------------------------------------------------------------------
Net expenses 1,333,474
------------------------------------------------------------------
Net investment income 17,128,784
------------------------------------------------------------------
Net increase in net assets resulting from operations $17,128,784
===================================================================
</TABLE>
See Notes to Financial Statements.
FS-17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 1999 and the year ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 17,128,784 $ 34,628,129
-----------------------------------------------------------------------------
Net realized gain on sales of investments -- 8,745
-----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 17,128,784 34,636,874
-----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Class (15,657,100) (32,079,516)
-----------------------------------------------------------------------------
Private Investment Class (1,188,991) (2,486,438)
-----------------------------------------------------------------------------
Cash Management Class (77,611) (62,175)
-----------------------------------------------------------------------------
Reserve Class (198,244) --
-----------------------------------------------------------------------------
Resource Class (6,838) --
-----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Class (103,986,706) 175,685,921
-----------------------------------------------------------------------------
Private Investment Class (1,927,463) 10,142,224
-----------------------------------------------------------------------------
Cash Management Class (1,614,107) 7,138,732
-----------------------------------------------------------------------------
Reserve Class 25,357,583 --
-----------------------------------------------------------------------------
Resource Class 215,053 --
-----------------------------------------------------------------------------
Net increase (decrease) in net assets (81,955,640) 192,975,622
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,170,341,884 977,366,262
-----------------------------------------------------------------------------
End of period $1,088,386,244 $1,170,341,884
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Class $ 968,681,636 $1,072,668,342
-----------------------------------------------------------------------------
Private Investment Class 88,683,814 90,611,277
-----------------------------------------------------------------------------
Cash Management Class 5,525,387 7,139,494
-----------------------------------------------------------------------------
Reserve Class 25,357,583 --
-----------------------------------------------------------------------------
Resource Class 215,053 --
-----------------------------------------------------------------------------
Undistributed realized gain (loss) on sales
of investments (77,229) (77,229)
-----------------------------------------------------------------------------
$1,088,386,244 $1,170,341,884
=============================================================================
</TABLE>
See Notes to Financial Statements.
FS-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(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 currently offers six different classes of shares, the
Institutional Class ("Institutional Class"), the Private Investment Class, the
Personal Investment Class, the Cash Management Class, the Reserve Class and the
Resource 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. Security Valuations - The Fund's securities are valued on the basis of
amortized cost which approximates market value. 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 premiums.
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 $77,230 (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 contractually agreed to limit the Fund's expenses (exclusive of 12b-1
fees, interest, taxes, brokerage commissions, extraordinary expenses and
federal registration fees) to the maximum annual rate of 0.20% of the average
daily net assets of the Fund's Private Investment Class, Personal Investment
Class, Cash Management Class, Reserve Class and Resource Class. During the six
months ended September 30, 1999, AIM waived its advisory fees of $390,329.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the six months ended September 30,
1999, AIM was paid $64,785 for such services.
Under the terms of a master distribution agreement between Fund Management
Company ("FMC") and the Fund, FMC acts as the exclusive distributor of the
Fund's shares. The Fund 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 Personal Investment Class, the Cash Management Class, the
Reserve Class, and the Resource Class of the Portfolio. The Plan provides that
the Private Investment
FS-19
<PAGE>
Class, the Personal Investment Class, the Cash Management Class, the Reserve
Class, and the Resource Class pay up to a 0.50%, 0.75%, 0.10%, 1.00%, and
0.20%, respectively, maximum annual rate of the average daily net assets
attributable to such class. Of this amount, the Fund may pay an asset-based
sales charge to FMC and the Fund may pay a service fee of (a) 0.25% of the
average daily net assets of each of the Private Investment Class, Personal
Investment Class, and the Reserve Class, (b) 0.10% of the average daily net
assets of the Cash Management Class and (c) 0.20% of the average daily net
assets of the Resource Class, to selected banks, 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,
the Personal Investment Class, the Cash Management Class, the Reserve Class, or
the Resource 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 each class. During the six months ended
September 30, 1999, the Private Investment Class, the Cash Management Class,
the Reserve Class and the Resource Class paid $105,100, $2,083, $70,084 and
$369, respectively, as compensation to FMC under the Plan. FMC waived fees of
$123,234 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,
1999, the Fund paid AFS $68,240 for such services.
During the six months ended September 30, 1999, the Fund paid legal fees of
$3,129 for services rendered by Kramer, Levin, Naftalis & Frankel LLP 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 directors who are 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,
1999 and the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Class 3,455,035,959 $3,455,035,959 7,257,933,597 $ 7,257,933,597
-------------------------------------------------------------------------------------------
Private Investment
Class 182,810,242 182,810,242 580,913,749 580,913,749
-------------------------------------------------------------------------------------------
Cash Management Class* 8,463,343 8,463,343 13,152,591 13,152,591
-------------------------------------------------------------------------------------------
Reserve Class** 94,830,488 94,830,488 -- --
-------------------------------------------------------------------------------------------
Resource Class*** 14,857,101 14,857,101 -- --
-------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Class 973,207 973,207 1,929,870 1,929,870
-------------------------------------------------------------------------------------------
Private Investment
Class 1,002,097 1,002,097 2,254,362 2,254,362
-------------------------------------------------------------------------------------------
Cash Management Class* 78,890 78,890 41,812 41,812
-------------------------------------------------------------------------------------------
Reserve Class** 148,035 148,035 -- --
-------------------------------------------------------------------------------------------
Resource Class*** 5,187 5,187 -- --
-------------------------------------------------------------------------------------------
Redeemed:
Institutional Class (3,559,995,872) (3,559,995,872) (7,084,177,546) (7,084,177,546)
-------------------------------------------------------------------------------------------
Private Investment
Class (185,739,802) (185,739,802) (573,025,887) (573,025,887)
-------------------------------------------------------------------------------------------
Cash Management Class* (10,156,340) (10,156,340) (6,055,671) (6,055,671)
-------------------------------------------------------------------------------------------
Reserve Class** (69,620,940) (69,620,940) -- --
-------------------------------------------------------------------------------------------
Resource Class*** (14,647,235) (14,647,235) -- --
-------------------------------------------------------------------------------------------
Net increase (decrease) (81,955,640) $ (81,955,640) 192,966,877 $ 192,966,877
-------------------------------------------------------------------------------------------
</TABLE>
* The Cash Management Class commenced sales on January 4, 1999.
** The Reserve Class commenced sales on June 1, 1999.
*** The Resource Class commenced sales on April 6, 1999.
FS-20
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Cash Management Class
capital stock outstanding during the six months ended September 30, 1999, and
the period January 4, 1999 (date sales commenced) through March 31, 1999.
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- ---------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
--------------------------------------------- ------ ------
Income from investment operations:
Net investment income 0.02 0.01
--------------------------------------------- ------ ------
Less distributions:
Dividends from net investment income (0.02) (0.01)
--------------------------------------------- ------ ------
Net asset value, end of period $ 1.00 $ 1.00
--------------------------------------------- ------ ------
Total return 1.51% 0.64%
--------------------------------------------- ------ ------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,525 $7,139
--------------------------------------------- ------ ------
Ratio of expenses to average net assets(a) 0.28%(b) 0.28%(c)
--------------------------------------------- ------ ------
Ratio of net investment income to average net
assets(d) 2.99%(b) 3.08%(c)
--------------------------------------------- ------ ------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements are
0.37% (annualized) and 0.38% (annualized).
(b) Ratios are annualized and based on average net assets of $5,208,488.
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements are 2.90% (annualized) and 2.98% (annualized).
FS-21
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Institutional Class
capital stock outstanding during the six months ended September 30, 1999 and
for each of the years in the five-year period ended March 31, 1999.
<TABLE>
<CAPTION>
March 31,
September 30, ------------------------------------------------------
1999 1999 1998 1997 1996 1995
------------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Income from investment
operations:
Net investment income 0.02 0.03 0.03 0.03 0.04 0.03
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Less distributions:
Dividends from net
investment income (0.02) (0.03) (0.03) (0.03) (0.04) (0.03)
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Net asset value, end of
period $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Total return 1.55% 3.23% 3.55% 3.33% 3.67% 3.06%
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $968,609 $1,072,597 $896,904 $966,567 $1,009,039 $1,009,891
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Ratio of expenses to
average net assets(a) 0.20%(b) 0.20% 0.20% 0.20% 0.20% 0.20%
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
Ratio of net investment
income to average net
assets(c) 3.07%(b) 3.16% 3.49% 3.27% 3.59% 3.01%
----------------------- -------- ---------- -------- -------- ---------- ---------- ---
</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% (annualized), 0.28%, 0.27%, 0.26%, 0.26% and 0.26% for the periods
1999-1995, respectively.
(b) Ratios are annualized and based on average net assets of $1,020,357,949.
(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 3.00% (annualized), 3.08%, 3.42%, 3.21%, 3.53% and
2.95% for the periods 1999-1995, respectively.
FS-22
<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, 1999
and for each of the years in the five-year period ended March 31, 1999.
<TABLE>
<CAPTION>
March 31,
September 30, -------------------------------------------
1999 1999 1998 1997 1996 1995
------------- ------- ------- ------- ------- -------
<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 0.01 0.03 0.03 0.03 0.03 0.03
------------------------------------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.01) (0.03) (0.03) (0.03) (0.03) (0.03)
------------------------------------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------- ------- ------- ------- ------- ------- -------
Total return 1.42% 2.98% 3.29% 3.07% 3.41% 2.80%
------------------------------------------------- ------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $88,679 $90,606 $80,462 $37,544 $35,139 $29,286
------------------------------------------------- ------- ------- ------- ------- ------- -------
Ratio of expenses to average net assets(a) 0.45%(b) 0.45% 0.45% 0.45% 0.45% 0.45%
------------------------------------------------- ------- ------- ------- ------- ------- -------
Ratio of net investment income to average net
assets(c) 2.82%(b) 2.91% 3.24% 3.02% 3.35% 2.89%
------------------------------------------------- ------- ------- ------- ------- ------- -------
</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% (annualized), 0.78%, 0.77%, 0.83%, 0.76% and 1.17% for the periods
1999-1995, respectively.
(b) Ratios are annualized and based on average net assets of $84,079,903.
(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 2.50% (annualized), 2.58%, 2.92%, 2.65%, 3.04% and
2.17% for the periods 1999-1995, respectively.
FS-23
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Reserve Class capital
stock outstanding during the period June 1, 1999 (date sales commenced) through
September 30, 1999.
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Net asset value, beginning of period $ 1.00
------------------------------------------------------- -------
Income from investment operations:
Net investment income 0.01
------------------------------------------------------- -------
Less distributions:
Dividends from net investment income (0.01)
------------------------------------------------------- -------
Net asset value, end of period $ 1.00
------------------------------------------------------- -------
Total return 1.14%
------------------------------------------------------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $25,358
------------------------------------------------------- -------
Ratio of expenses to average net assets(a) 1.00%(b)
------------------------------------------------------- -------
Ratio of net investment income to average net assets(c) 2.27%(b)
------------------------------------------------------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements are
1.27% (annualized).
(b) Ratios are annualized and based on average net assets of $17,520,938.
(c) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements are 2.00% (annualized).
FS-24
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Resource Class capital
stock outstanding during the period April 6, 1999 (date sales commenced)
through September 30, 1999.
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Net asset value, beginning of period $ 1.00
------------------------------------------------------- ------
Income from investment operations:
Net investment income 0.01
------------------------------------------------------- ------
Less distributions:
Dividends from net investment income (0.01)
------------------------------------------------------- ------
Net asset value, end of period $ 1.00
------------------------------------------------------- ------
Total return 1.47%
------------------------------------------------------- ------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 215
------------------------------------------------------- ------
Ratio of expenses to average net assets(a) 0.36%(b)
------------------------------------------------------- ------
Ratio of net investment income to average net assets(c) 2.91%(b)
------------------------------------------------------- ------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements are
0.47% (annualized).
(b) Ratios are annualized and based on average net assets of $461,337.
(c) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements are 2.80% (annualized).
FS-25
<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, 1999, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999, 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, 1999, 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 LLP
Houston, Texas
May 7, 1999
FS-26
<PAGE>
SCHEDULE OF INVESTMENTS
March 31, 1999
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
SHORT-TERM MUNICIPAL OBLIGATIONS - 103.47%
ALABAMA - 0.50%
Birmingham (City of) (YMCA-Birmingham);
Public Park
and Recreation Board RB
3.15%, 06/01/16(b)(c) -- VMIG-1 $ 3,165 $ 3,165,000
-------------------------------------------------------------------------------
Marshall (County of); Special Obligation
School Refunding
Series 1994 Warrants
3.05%, 02/01/12(b)(c) A-1+ -- 2,695 2,695,000
-------------------------------------------------------------------------------
5,860,000
-------------------------------------------------------------------------------
ALASKA - 0.40%
Alaska Housing Finance Corp.; General
Mortgage Series 1991 A RB
2.95%, 06/01/26(b) A-1+ VMIG-1 4,636 4,636,000
-------------------------------------------------------------------------------
ARIZONA - 3.67%
Maricopa (County of) Arizona Pollution
Control Corp.
(El Paso Electric Co. Project A); Series
1994 PCR
3.00%, 07/01/14(b)(c) -- P-1 20,000 20,000,000
-------------------------------------------------------------------------------
Phoenix (City of); Series 95A-2 GO
3.25%, 06/01/20(b) A-1+ VMIG-1 7,800 7,800,000
-------------------------------------------------------------------------------
Phoenix (City of) Industrial Development
Authority (Southwest
Villages Project); Multifamily Housing
Variable Rate Demand
Series 1985 A RB
3.00%, 12/01/06(b)(c) A-1+ -- 4,000 4,000,000
-------------------------------------------------------------------------------
Salt River Project Agricultural
Improvement and Power District;
Series B Promissory Notes
2.85%, 06/17/99 A-1+ P-1 11,100 11,100,000
-------------------------------------------------------------------------------
42,900,000
-------------------------------------------------------------------------------
CALIFORNIA - 1.75%
California Health Facilities Authority
(St. Francis Medical Center);
Series 1995 F RB
2.70%, 07/10/10(b)(d) A-1+ VMIG-1 15,000 15,000,000
-------------------------------------------------------------------------------
Huntington Beach (City of) (Seabridge Vil-
las Project); Floating Rate Multifamily
Housing Series 1985 A RB
4.00%, 02/01/10(b)(c) -- VMIG-1 3,000 3,000,000
-------------------------------------------------------------------------------
Student Loan Marketing Corporation; Stu-
dent Loan Revenue Refunding Series 1993 A
RB
3.00%, 11/01/99(c)(e) -- VMIG-1 2,500 2,500,000
-------------------------------------------------------------------------------
20,500,000
-------------------------------------------------------------------------------
</TABLE>
FS-27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
COLORADO - 0.89%
Colorado (State of) General Fund; Series
1998 A TRAN
4.00%, 06/25/99 SP-1+ -- $ 5,000 $ 5,004,712
-------------------------------------------------------------------------------
Colorado Housing Finance Authority
(Coventry Village Project); Multifamily
Housing Refunding Series 1996 B RB
3.00%, 10/15/16(b)(c) A-1+ -- 5,370 5,370,000
-------------------------------------------------------------------------------
10,374,712
-------------------------------------------------------------------------------
CONNECTICUT - 0.60%
Connecticut (State of)
(Transportation Infrastructure
Purpose S-1); Special Tax
Obligation RB
2.90%, 12/01/10(b)(c) A-1+ VMIG-1 4,262 4,262,000
-------------------------------------------------------------------------------
Connecticut (State of) Development
Authority (Corporation for Independent
Living Project); Health Care Series 1990
RB
2.80%, 07/01/15(b)(c) -- VMIG-1 2,750 2,750,000
-------------------------------------------------------------------------------
7,012,000
-------------------------------------------------------------------------------
DELAWARE - 0.96%
Delaware (State of) Economic Development
Authority (Hospital Billing); Adjustable
Rate Series C RB
3.10%, 12/01/15(b)(d) A-1+ VMIG-1 5,500 5,500,000
-------------------------------------------------------------------------------
University of Delaware; Variable Rate
Demand Series 1998 RB
3.00%, 11/01/23(b) A-1+ -- 5,711 5,711,000
-------------------------------------------------------------------------------
11,211,000
-------------------------------------------------------------------------------
DISTRICT OF COLUMBIA - 0.40%
District of Columbia Housing Finance
Agency (Livingston Manor Apts Project);
Multifamily Variable Rate Housing
Mortgage RB
3.05%, 07/01/21(b)(c) A-1 -- 4,630 4,630,000
-------------------------------------------------------------------------------
FLORIDA - 6.17%
Broward (County of) Housing Finance
Authority
(Welleby Apartments Project);
Multifamily Variable Rate Demand Housing
Series 1984 RB
2.95%, 12/01/06(b)(c) -- MIG-1 5,350 5,350,000
-------------------------------------------------------------------------------
Eustis (City of) Health Facility
Authority (Florida Hospital/Waterman
Inc. Project); Series 1992 RB
2.95%, 12/01/15(b)(c) -- VMIG-1 3,525 3,525,000
-------------------------------------------------------------------------------
Gulf Breeze (City of) (Florida Muncipal
Bond Fund);
Variable Rate Demand Series 1996 A RB
3.10%, 03/31/21(b)(c) A-1+ -- 3,595 3,595,000
-------------------------------------------------------------------------------
Gulf Breeze (City of) (Local Government
Loan Program);
Floating Rate Series 1985 B RB
3.05%, 12/01/15(b)(d) A-1+ VMIG-1 3,700 3,700,000
-------------------------------------------------------------------------------
</TABLE>
FS-28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
FLORIDA - (CONTINUED)
Lee (County of) Housing Finance
Authority (Forestwood Apartments
Project); Housing Series 1995 A RB
3.00%, 06/15/25(b)(c) A-1+ -- $ 3,800 $ 3,800,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program,
(Board of Education Lottery);
Floating Rate Trust Certificate
Series 57 1998 RB
3.08%, 01/01/07(b)(d)(f) A-1c -- 15,000 15,000,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program,
Jacksonville (City of) Health
Facilities Authority; Floating Rate
Trust Certificates Series 49 1998 RB
3.08%,02/15/07(b)(d)(f) A-1c -- 12,980 12,980,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, Orange
(County of) School Board; Floating Rate
Trust Certificates Series 1997 A RB
3.08%, 08/01/06(b)(d)(f) -- VMIG-1 8,135 8,135,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, Tampa Bay
(City of) Water Utility System;
Floating Rate Trust Certificates Series
1998 B RB
3.08%, 10/01/18(b)(d)(f) A-1c -- 4,995 4,995,000
-----------------------------------------------------------------------------
Putnam County Development Authority
(Seminole Electric Cooperative, Inc.
Project); National Rural Utilities
Guaranteed Semiannual Adjustable
Pooled PCR
3.00%, Series 1984 H-3, 09/15/99(c)(e) A-1+ MIG-1 4,400 4,400,000
-----------------------------------------------------------------------------
3.00%, Series 1984 H-4, 09/15/99(c) A-1+ P-1 3,600 3,600,000
-----------------------------------------------------------------------------
St. John's (County of) Housing Finance
Authority (Anastasia Project);
Mutifamily Housing Series 1996 RB
3.00%, 11/01/14(b)(c) A-1+ -- 3,100 3,100,000
-----------------------------------------------------------------------------
72,180,000
-----------------------------------------------------------------------------
GEORGIA - 4.96%
Clark (County of) Georgia School
District (School Sales Tax);
Series 1997 GO
4.55%, 03/01/00(d) AAA Aaa 2,150 2,179,938
-----------------------------------------------------------------------------
Cobb (County of) Housing Authority
(Greenhouse Frey Apartment Project);
Multifamily Housing RB
3.00%, 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
3.00%, 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
3.05%, 06/15/25(b)(c) A-1+ -- 6,400 6,400,000
-----------------------------------------------------------------------------
Dekalb Private Hospital Authority
(Egleston Childrens Hospital at
Emory University); Variable Rate
Demand Series 1994 A RAN
2.90%, 03/01/24(b)(c) A-1+ VMIG-1 1,558 1,558,000
-----------------------------------------------------------------------------
</TABLE>
FS-29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
GEORGIA - (CONTINUED)
Development Authority of Cobb County
(Institute of Nuclear
Power Operations Project); Series 1998
RB
3.10%, 02/01/13(b)(c) -- Aa3 $ 8,855 $ 8,855,000
-------------------------------------------------------------------------------
Development Authority of Floyd County
(Shorter College Project); Series 1998
RB
3.15%, 06/01/17(b)(c) A-1+ -- 4,000 4,000,000
-------------------------------------------------------------------------------
Fulton (County of) Housing Authority
(Spring Creek Crossing Project);
Multifamily Housing Refunding Series RB
3.00%, 10/01/24(b)(c) A-1+ -- 5,000 5,000,000
-------------------------------------------------------------------------------
Georgia (State of) Municipal Gas
Authority (Agency Project);
Gas Series 1996 A RB
3.05%, 11/01/06(b)(c) A-1+ -- 3,900 3,900,000
-------------------------------------------------------------------------------
Gwinnett (County of) Housing Authority
(Greens Apartment Project); Variable
Rate Demand Multifamily Housing Series
1995 RB
3.05%, 06/15/25(b)(c) A-1+ -- 10,300 10,300,000
-------------------------------------------------------------------------------
Gwinnett (County of) Housing Authority
(Post Chase Project); Variable Rate
Demand Multifamily Housing Series 1997
RB
3.00%, 06/01/25(b)(c) A-1+ -- 3,500 3,500,000
-------------------------------------------------------------------------------
Roswell (City of) Housing Development
Authority (Azalea Project);
Multifamily Housing Refunding
Series 1996 RB
3.00%, 06/15/25(b)(c) A-1+ -- 5,200 5,200,000
-------------------------------------------------------------------------------
57,992,938
-------------------------------------------------------------------------------
IDAHO - 0.17%
Idaho (State of); Series 1998 TAN
4.50%, 06/30/99 SP-1+ MIG-1 2,000 2,004,283
-------------------------------------------------------------------------------
ILLINOIS - 11.24%
Burbank (City of) (Service Merchandise
Co. Inc. Project);
Floating Rate Monthly Demand Industrial
Building
Series 1984 RB
3.25%, 09/15/24(b)(c) A-1+ -- 2,800 2,800,000
-------------------------------------------------------------------------------
Chicago (City of); Series 1998 GO
2.85%, 10/28/99(c)(e) A-1+ VMIG-1 4,000 4,000,000
-------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multifamily Hous-
ing Series 1983 RB
3.25%, 06/01/08(b)(c) -- Aa3 5,445 5,445,000
-------------------------------------------------------------------------------
Illinois (State of); Refunding Series GO
4.70%, 06/01/99 AA Aa2 3,000 3,007,609
-------------------------------------------------------------------------------
Illinois (State of); Series 1998 GO
4.25%, 06/01/99(d) AAA Aaa 7,000 7,007,601
-------------------------------------------------------------------------------
</TABLE>
FS-30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
ILLINOIS - (CONTINUED)
Illinois Development Finance Authority
(American College of Surgeons Project);
Tax Exempt Series 1996 RB
3.10%, 08/01/26(b)(c) A-1+ -- $ 6,551 $ 6,551,000
-------------------------------------------------------------------------------
Illinois Development Finance Authority
(Jewish Charities Revenue Anticipation
Note Progam); Variable Rate Demand RAN
3.15%, Series 1998-1999 A 06/30/99(b)(c) A-1+ -- 5,600 5,600,000
-------------------------------------------------------------------------------
3.15%, Series 1998-1999 B 06/30/99(b)(c) A-1+ -- 3,000 3,000,000
-------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Northwestern University); Adjustable
Rate Series 1988 RB
3.00%, 03/01/28(b) A-1+ VMIG-1 6,450 6,450,000
-------------------------------------------------------------------------------
Illinois Educational Facilities Authority
(Pooled Financing Program); Commercial
Paper
3.00%, 04/06/99 A-1+ -- 10,000 10,000,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled
Series D RB
2.95%, 08/01/15(b)(c) A-1+ VMIG-1 3,654 3,654,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Chicago Hospitals); Variable Rate Demand
Series 1998 RB
3.10%, 08/01/26(b)(d) A-1+ VMIG-1 15,000 15,000,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority
(Northwestern Memorial Hospital);
Variable Rate Demand Series 1995 RB
3.10%, 08/15/25(b) A-1+ VMIG-1 8,000 8,000,000
-------------------------------------------------------------------------------
Illinois Health Facilities Authority
(The Methodist Medical Center); Revenue
Refunding Series 1998 RB
4.50%, 11/15/99(d) AAA Aaa 2,090 2,107,835
-------------------------------------------------------------------------------
Illinois (State of) Toll Highway
Authority; Refunding Series 1993 B RB
3.30%, 01/01/10(b)(d) A-1+ VMIG-1 3,360 3,360,000
-------------------------------------------------------------------------------
Illinois (State of) Toll Highway
Authority; Refunding Series 1998 B RB
3.05%, 01/01/16(b)(c) -- VMIG-1 8,800 8,800,000
-------------------------------------------------------------------------------
Morgan Stanley Float Program, Chicago
School Reform Board of Trustees of Board
of Education (Dedicated Tax Revenues);
Floating Rate Trust Certificates Series
1997 A RB
3.13%, 06/01/07(b)(d)(f) A-1c -- 24,280 24,280,000
-------------------------------------------------------------------------------
Village of Lisle (Four Lakes Project Phase
Five); Multifamily
Housing Revenue Refunding Series 1996 RB
3.00%, 09/15/26(b)(c) A-1+ -- 8,300 8,300,000
-------------------------------------------------------------------------------
Village of Sauget; Variable Rate Demand
Series 1997 GO
2.95%, 02/01/16(b)(c) A-1+ -- 4,200 4,200,000
-------------------------------------------------------------------------------
131,563,045
-------------------------------------------------------------------------------
INDIANA - 2.20%
Auburn (City of) (Sealed Power Corp.
Project); Variable Rate
Demand Economic Development Series 1985
RB
3.00%, 07/01/10(b)(c) -- VMIG-1 1,200 1,200,000
-------------------------------------------------------------------------------
</TABLE>
FS-31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
INDIANA - (CONTINUED)
Indiana Development Finance Authority
(USX Corporation Project); Variable
Rate Environmental Improvement Re-
funding
Series 1998 RB
3.00%, 08/05/99(b)(c)(e) A-1+ -- $ 7,500 $ 7,500,000
-----------------------------------------------------------------------------
Indianapolis (City of); Local Improve-
ment Bond Bank
Series 1995 B RB
5.00%, 02/01/00 AAA Aaa 1,500 1,522,632
-----------------------------------------------------------------------------
Indianapolis (City of) (Jewish Commu-
nity Campus Project);
Variable Rate Economic Development RB
2.95%, 04/01/05(b)(c) -- VMIG-1 1,995 1,995,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program, Indiana
Health Facility Financing
Authority (Sisters of St. Francis
Health Services Inc.);
Floating Rate Trust Certificates
Series 89 1999 A RB
3.13%, 05/01/07(b)(d)(f) A-1c -- 7,495 7,495,000
-----------------------------------------------------------------------------
Petersburg (City of) (Indianapolis
Power and Light Co. Project);
Adjustable Rate Tender Securities
Series 1995 B PCR
3.05%, 01/01/23(b)(d) A-1+ VMIG-1 6,000 6,000,000
-----------------------------------------------------------------------------
25,712,632
-----------------------------------------------------------------------------
IOWA - 1.64%
Iowa Higher Education Loan Authority;
Private College Facility RB
3.15%, 12/01/15(b)(d) A-1+ VMIG-1 10,700 10,700,000
-----------------------------------------------------------------------------
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 8,516,232
-----------------------------------------------------------------------------
19,216,232
-----------------------------------------------------------------------------
KANSAS - 0.43%
Mission (City of) (Silverwood Apartment
Project); Multifamily RB
3.00%, 09/15/26(b)(c) A-1+ -- 5,000 5,000,000
-----------------------------------------------------------------------------
KENTUCKY - 6.89%
Clark (County of) (East Kentucky
Power); Series 1984-J2 PCR
3.10%, 04/15/99(c) A-1+ P-1 3,100 3,100,000
-----------------------------------------------------------------------------
Kentucky Asset/Liability Commission;
General Fund TRAN
4.00%, Series 1998 B 06/25/99 SP-1+ MIG-1 2,000 2,003,049
-----------------------------------------------------------------------------
4.50%, Series 1998 A 06/25/99 SP-1+ MIG-1 5,000 5,010,453
-----------------------------------------------------------------------------
Kentucky Asset/Liability Commission;
Project Notes General Fund
Series 1998 A RB
2.85%, 08/12/99(b)(c) -- VMIG-1 8,000 8,000,000
-----------------------------------------------------------------------------
2.90%, 08/12/99(b)(c) -- VMIG-1 15,000 15,000,000
-----------------------------------------------------------------------------
Kentucky Economic Development Finance
Authority (Catholic Healthcare
Project); Hospital Facilities
Series 1998 A RB
3.00%, 12/01/27(b)(c) A-1+ VMIG-1 21,200 21,200,000
-----------------------------------------------------------------------------
</TABLE>
FS-32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
KENTUCKY - (CONTINUED)
Kentucky Interlocal School Transport As-
sociation;
Series 1998 TRAN
3.90%, 06/30/99 SP-1+ -- $22,000 $ 22,043,538
-------------------------------------------------------------------------------
Trimble (County of) (Louisville Gas and
Electric Company Project);
Series 1992 A PCR
2.85%, 06/17/99 A-1 VMIG-1 4,300 4,300,000
-------------------------------------------------------------------------------
80,657,040
-------------------------------------------------------------------------------
LOUISIANA - 2.18%
Louisana Public Facilities Authority
(Tiger Athletic Foundation Project);
Series 1999 RB
3.20%, 09/01/28(b)(c) A-1+ -- 5,000 5,000,000
-------------------------------------------------------------------------------
New Orleans (City of); Aviation Board
Series B RB
3.00%, 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
3.00%, 08/01/15(b)(d) A-1+ VMIG-1 15,635 15,635,000
-------------------------------------------------------------------------------
25,570,000
-------------------------------------------------------------------------------
MAINE - 0.10%
Maine Health and Higher Educational
Facilities Authority;
Series 1998 B RB
3.70%, 07/01/99(c) AAA -- 1,120 1,120,000
-------------------------------------------------------------------------------
MASSACHUSETTS - 1.46%
Massachusetts (State of);
Series 1993 B GO
4.60%, 11/01/99 AA- Aa3 2,890 2,917,315
-------------------------------------------------------------------------------
Massachusetts Health & Educational
Facilities Authority (Harvard University
Issue); Variable Rate Option Series I RB
2.85%, 08/01/17(b) A-1+ VMIG-1 5,245 5,245,000
-------------------------------------------------------------------------------
Massachusetts Muni Wholesale Copower
Supply System;
Series 1999 A RB
4.30%, 07/01/99(d) AAA Aaa 1,450 1,454,635
-------------------------------------------------------------------------------
Massachusetts State Health & Educational
Facilities Authority
(Partners Health Care Systems P-2); RB
2.95%, 07/01/27(b)(c) A-1+ VMIG-1 7,500 7,500,000
-------------------------------------------------------------------------------
17,116,950
-------------------------------------------------------------------------------
MICHIGAN - 1.55%
Grand Rapids (City of); Water Supply
Series 1990 RB
7.25%, 01/01/00(g) AAA Aaa 3,000 3,147,517
-------------------------------------------------------------------------------
Jackson County Economic Development Corp.
(Sealed Power Corp.); Economic
Development Variable Refunding RB
3.00%, 10/01/19(b)(c) -- VMIG-1 1,000 1,000,000
-------------------------------------------------------------------------------
</TABLE>
FS-33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
MICHIGAN - (CONTINUED)
Michigan (State of); Municipal Bond
Authority RB
4.25%, Series 1998 D-1, 08/27/99 SP-1+ -- $ 3,500 $ 3,509,168
-----------------------------------------------------------------------------
4.25%, Series 1998 D-2, 08/27/99(c) SP-1+ -- 7,000 7,027,576
-----------------------------------------------------------------------------
Michigan Strategic Fund (260 Brown St.
Associates Project); Convertible
Variable Rate Demand Limited
Obligation
Series 1985 RB
3.20%, 10/01/15(b)(c) -- VMIG-1 3,500 3,500,000
-----------------------------------------------------------------------------
18,184,261
-----------------------------------------------------------------------------
MINNESOTA - 0.72%
Bloomington (City of) Port Authority
(Mall of America Project); Special Tax
Revenue Series 1996 B RB
3.10% 02/01/13(b)(c) A-1+ VMIG-1 300 300,000
-----------------------------------------------------------------------------
Mankato (City of) (Northern States
Power Co. Project); Floating
Collateralized Series 1985 PCR
3.15%, 03/01/11(b)(d) AA- Aa3 3,400 3,400,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program (Northern
Municipal Power Agency); Electric
System Floating Rate Trust Receipts
Refunding Series 1998 RB
3.08%, 01/01/16(b)(c)(f) A-1c -- 3,515 3,515,000
-----------------------------------------------------------------------------
Red Wing (City of) Industrial
Development Authority (Northern States
Power Co.); Floating Rate
Collateralized Series 1985 PCR
3.15%, 03/01/11(b)(d) AA- A1 1,200 1,200,000
-----------------------------------------------------------------------------
8,415,000
-----------------------------------------------------------------------------
MISSISSIPPI - 0.43%
Mississippi (State of) (Four
Lane Highway Program);
Series 1998 GO
3.50%, 07/01/99 SP-1+ MIG-1 5,000 5,007,360
-----------------------------------------------------------------------------
MISSOURI - 6.56%
Independence (City of) Industrial
Development Authority (The Groves and
Graceland College Nursing Arts Center
Project); Variable Rate Demand Series
1997 A IDR
3.15%, 11/01/27(b)(c) A-1+ -- 5,000 5,000,000
-----------------------------------------------------------------------------
Kansas City Industrial Development
Authority (Sleepy Hollow Apartment
Project); Multifamily Housing
Series 1996 RB
3.00%, 09/15/26(b)(c) A-1+ -- 7,500 7,500,000
-----------------------------------------------------------------------------
Missouri Health & Educational
Facilities Authority (Deaconess Long
Term Care - A); Variable Rate Demand
Health Facilities Series 1996 RB
3.05%, 12/01/16(b)(c) A-1+ VMIG-1 10,955 10,955,000
-----------------------------------------------------------------------------
Missouri Health & Educational
Facilities Authority (Sister of
Mercy); Variable Rate Health Facility
Series 1995 RB
3.00%, 12/01/16(b) A-1+ VMIG-1 7,300 7,300,000
-----------------------------------------------------------------------------
</TABLE>
FS-34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
MISSOURI - (CONTINUED)
Missouri Health & Educational
Facilities Authority (Stowers
Institute
for Medical Research); Series 1998 RB
2.95%, 04/01/38(b)(c) A-1+ -- $ 41,000 $ 41,000,000
-----------------------------------------------------------------------------
Morgan Stanley Float Program,
(University of Missouri Health
System); Floating Rate Trust
Certificates Series 1998 40 RB
3.13%, 11/01/28(b)(d)(f) -- VMIG-1 4,995 4,995,000
-----------------------------------------------------------------------------
76,750,000
-----------------------------------------------------------------------------
NEVADA - 1.28%
Las Vegas (City of) Valley Water
District; Series A
Commercial Paper
2.85%, 07/21/99(c) A-1+ P-1 15,000 15,000,000
-----------------------------------------------------------------------------
NEW HAMPSHIRE - 0.46%
New Hampshire Housing Finance
Authority (EQR-Bond Partnership-
Manchester Project); Multifamily
Housing Refunding
Series 1996 RB
3.00%, 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
3.05%, 01/01/09(b)(c) A-1+ -- 400 400,000
-----------------------------------------------------------------------------
5,400,000
-----------------------------------------------------------------------------
NEW MEXICO - 0.85%
New Mexico (State of); TRAN
3.75%, Series 1998-1999 A, 06/30/99 SP-1+ MIG-1 5,000 5,009,356
-----------------------------------------------------------------------------
4.25%, Series 1998-1999, 06/30/99 SP-1+ MIG-1 5,000 5,007,736
-----------------------------------------------------------------------------
10,017,092
-----------------------------------------------------------------------------
NEW YORK - 16.66%
Eagle Tax Exempt Trust; Class A COP(f)
3.06%, Series 943207 07/01/29(b)(c) A-1+c -- 14,850 14,850,000
-----------------------------------------------------------------------------
3.09%, Series 97C4702 01/01/20(b) A-1+c -- 9,900 9,900,000
-----------------------------------------------------------------------------
3.11%, Series 97C4703 01/01/01(b)(g) A-1+c -- 11,295 11,295,000
-----------------------------------------------------------------------------
3.11%, Series 1993 E 08/01/06(b)(d) A-1+c -- 15,000 15,000,000
-----------------------------------------------------------------------------
3.11%, Series 1993 F 08/01/06(b)(d) A-1+c -- 20,850 20,850,000
-----------------------------------------------------------------------------
3.11%, Series 943802 05/01/07(b)(d) A-1+c -- 17,800 17,800,000
-----------------------------------------------------------------------------
3.11%, Series 943901 06/15/07(b)(c) A-1+c -- 15,175 15,175,000
-----------------------------------------------------------------------------
3.11%, Series 950901 06/01/21(b)(g) A-1+c -- 13,315 13,315,000
-----------------------------------------------------------------------------
</TABLE>
FS-35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
NEW YORK - (CONTINUED)
Eagle Tax Exempt Trust (Colorado
Housing and Finance Authority);
Series 94C0601 Class A COP
3.11%, 10/01/23(b)(f) A-1+c -- $10,000 $ 10,000,000
-----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Houston
Water and Sewer);
Series 974305 RB Class A COP
3.11%, 12/01/27(b)(c)(f) A-1+c -- 14,005 14,005,000
-----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington
Public Power Supply System Project No.
2); Series 964703 Class A COP
3.11%, 07/01/11(b)(c)(f) A-1+c -- 5,870 5,870,000
-----------------------------------------------------------------------------
Eagle Tax Exempt Trust (Washington
State); Series 984701
Class A COP
3.09%, 05/01/18(b)(f) A-1+c -- 14,400 14,400,000
-----------------------------------------------------------------------------
Long Island Power Authority;
Subordinated Series 1998 4 RB
3.00%, 04/08/99(c) A-1+ VMIG-1 13,000 13,000,000
-----------------------------------------------------------------------------
2.85%, 08/19/99(c) A-1+ VMIG-1 3,000 3,000,000
-----------------------------------------------------------------------------
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
3.05%, 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
3.05%, 04/01/12(b)(c)(f) -- VMIG-1 1,100 1,100,000
-----------------------------------------------------------------------------
New York (City of); Variable Rate
Demand Series 1993,
Subseries E-5 GO
3.25%, 08/01/19(b)(c) A-1+c VMIG-1 5,800 5,800,000
-----------------------------------------------------------------------------
195,060,000
-----------------------------------------------------------------------------
NORTH CAROLINA - 1.94%
North Carolina Medical Care Commission
Retirement Community (Adult
Communities Total Services Inc.);
Variable Rate Demand Series 1996 RB
3.05%, 11/15/09(b)(c) A-1+ -- 5,655 5,655,000
-----------------------------------------------------------------------------
North Carolina Medical Care Commission
(The Moses H. Cone Memorial Hospital
Project); Hospital RB
3.10%, Series 1995, 09/01/02(b)(c) A-1+ -- 5,400 5,400,000
-----------------------------------------------------------------------------
3.10%, Series 1993, 10/01/23(b)(c) A-1+ -- 5,700 5,700,000
-----------------------------------------------------------------------------
Raleigh Durham Airport Authority
(American Airlines Project);
Special Facilities Series 1995 B-1 RB
3.20%, 11/01/15(b)(c) A-1+ -- 5,950 5,950,000
-----------------------------------------------------------------------------
22,705,000
-----------------------------------------------------------------------------
</TABLE>
FS-36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
OHIO - 0.90%
Franklin (County of) (Bricker & Eckler
Building Co. Project); Variable Rate
Demand Series 1984 IDR
3.25%, 11/01/14(b)(c) -- P-1 $ 8,200 $ 8,200,000
-----------------------------------------------------------------------------
Marion (County of) (Pooled Lease
Program); Hospital RB
3.10%, 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
3.00%, 12/01/15(b)(c) -- VMIG-1 956 956,000
-----------------------------------------------------------------------------
10,511,000
-----------------------------------------------------------------------------
OKLAHOMA - 0.43%
Oklahoma Water Resources Board (State
Loan Program);
Series 1995 RB
2.95%, 09/01/99(b)(c) A-1+c -- 5,000 5,000,000
-----------------------------------------------------------------------------
OREGON - 1.38%
Klamath Falls (City of) (Salt Caves
Hydroelectric Project);
Adjustable/Fixed Refunding Series 1986
D RB
3.80%, 05/03/99(e)(g) SP-1+ -- 5,670 5,670,331
-----------------------------------------------------------------------------
Multnoma (County of) (Portland Public
School District);
Series 1998 TRAN
4.25%, 06/30/99 SP-1+ MIG-1 2,600 2,603,710
-----------------------------------------------------------------------------
Portland (City of) (South Park Block
Project); Multifamily
Housing Variable Rate Refunding Series
1988 A RB
3.00%, 12/01/11(b)(c) A-1+ -- 7,950 7,950,000
-----------------------------------------------------------------------------
16,224,041
-----------------------------------------------------------------------------
PENNSYLVANIA - 2.42%
Beaver County Industrial Development
Authority (Duquesne Light Company
Project); Refunding Series 1994 PCR
3.20%, 05/27/99(b) A-1+ VMIG-1 6,000 6,000,000
-----------------------------------------------------------------------------
Delaware County Industrial Development
Authority
(Henderson-Radnor Joint Venture
Project); Limited Obligation Series
1985 IDR
3.35%, 04/01/15(b)(c) -- Aa3 765 765,000
-----------------------------------------------------------------------------
Montour (County of) Geisinger Authority
Health System
(Obligation Group); Series A RB
5.30%, 07/01/99 AA Aa2 1,000 1,003,974
-----------------------------------------------------------------------------
Philadelphia (City of) Parking
Authority; Parking Series 1999 RB
4.00%, 02/01/00(d) AAA Aaa 1,290 1,300,114
-----------------------------------------------------------------------------
Philadelphia School District; TRAN
4.25%, Series 1998-1999 A, 06/30/99(c) SP-1 MIG-1 1,500 1,502,213
-----------------------------------------------------------------------------
4.25%, Series 1998 B, 06/30/99(c) SP-1 MIG-1 10,000 10,027,622
-----------------------------------------------------------------------------
</TABLE>
FS-37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
PENNSYLVANIA - (CONTINUED)
York (City of) General Authority;
Adjustable Rate Pooled Financing Series
1996 RB
3.10%, 09/01/26(b)(c) A-1 -- $ 7,785 $ 7,785,000
-------------------------------------------------------------------------------
28,383,923
-------------------------------------------------------------------------------
TENNESSEE - 1.17%
Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County (Amberwood, Ltd.
Project); Multifamily Housing RB
3.31%, Series 1993 A 07/01/13(b)(c) -- VMIG-1 2,135 2,135,000
-------------------------------------------------------------------------------
3.31%, Series 1993 B 07/01/13(b)(c) A-1 VMIG-1 1,825 1,825,000
-------------------------------------------------------------------------------
Knox (County of) Health Educational and
Housing Facility Authority (Catholic
Healthcare Partners); Healthcare Series
1998 A RB
3.00%, 12/01/27(b) A-1+ VMIG-1 9,700 9,700,000
-------------------------------------------------------------------------------
13,660,000
-------------------------------------------------------------------------------
TEXAS - 12.17%
Bexar (County of) Texas Housing Finance
Authority (Fountainhead Apt.);
Multifamily RB
3.00%, 09/15/26(b)(c) A-1+ -- 17,146 17,146,000
-------------------------------------------------------------------------------
Fort Worth (City of) (General Purpose
Program); Series B Commercial Paper Notes
2.85%, 07/14/99 A-1+ P-1 6,000 6,000,000
-------------------------------------------------------------------------------
Grand Prairie (City of) Texas Housing
Finance Corporation (Windridge Grand
Prairie Associates); Multifamily Housing
Refunding RB
3.05%, 06/01/10(b)(c) A-1+ -- 4,500 4,500,000
-------------------------------------------------------------------------------
Gulf Coast Waste Disposal Authority (Amoco
Oil Company Project); Refunding Series
1992 PCR
3.10%, 10/01/17(b) A-1+ VMIG-1 7,000 7,000,000
-------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp.; ACES Greater Houston
Pooled Health Series 1985 A RB
3.10%, 11/01/25(b)(c) A-1 -- 2,300 2,300,000
-------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Gulf Coast Regional
Blood Center Project); Blood Center
Series 1992 RB
3.15%, 04/01/17(b)(c) A-1 -- 3,250 3,250,000
-------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (St. Lukes Episcopal
Hospital); Series 1997 B RB
3.10%, 02/15/27(b) A-1+ -- 5,700 5,700,000
-------------------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Texas Children's
Hospital); Series 1989 B-2 RB
3.05%, 10/01/19(b) -- VMIG-1 7,900 7,900,000
-------------------------------------------------------------------------------
</TABLE>
FS-38
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
TEXAS - (CONTINUED)
Hockley (County of) Industrial
Development Corporation
(Amoco Project); Adjustable Rate Series
1983 PCR
2.90%, 09/01/99(e) A-1+ -- $ 3,500 $ 3,500,000
-------------------------------------------------------------------------------
Houston (City of); Series 1998 TRAN
4.25%, 06/30/99 SP-1+ MIG-1 10,000 10,023,380
-------------------------------------------------------------------------------
Houston (City of); Series A Commercial
Paper Notes
2.90%, 07/08/99 A-1+ P-1 5,000 5,000,000
-------------------------------------------------------------------------------
Houston (City of); Series B GO
2.90%, 07/08/99 A-1+ P-1 2,000 2,000,000
-------------------------------------------------------------------------------
Houston (City of) Water and Sewer;
Commercial Paper Notes
2.65%, Series A, 05/11/99 A-1 P-1 10,000 10,000,000
-------------------------------------------------------------------------------
3.20%, Series B, 07/29/99 A-1 P-1 10,000 10,000,000
-------------------------------------------------------------------------------
Lubbuck Health Facilities Development
Corporation (St. Joseph Health System);
Series 1998 RB
5.00%, 07/01/99 AA Aa3 4,000 4,018,355
-------------------------------------------------------------------------------
Sabine River Authority (Texas Utilities
Project); Series A PCR
3.15%, 03/01/26(b)(d) A-1+c VMIG-1 4,250 4,250,000
-------------------------------------------------------------------------------
San Antonio (City of) Electric & Gas
System; Series A Commercial Paper Notes
3.00%, 04/07/99 A-1+ P-1 8,000 8,000,000
-------------------------------------------------------------------------------
Tarrant (County of) Texas Health
Facilities Authority (Adventist
Health System); Series 1997 A RB
3.05%, 11/15/27(b)(c) A-1+ -- 8,775 8,775,000
-------------------------------------------------------------------------------
Texas (State of); Series 1998 TRAN
4.50%, 08/31/99 SP-1+ MIG-1 19,000 19,107,020
-------------------------------------------------------------------------------
Texas Water Development Board; State
Revolving Fund Senior Lein Series RB
5.00%, 07/15/99 AAA Aa1 1,800 1,806,807
-------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers, Inc.
Project); Variable Rate Demand IDR
3.00%, Series 1985 A 11/01/05(b)(c) A-1 -- 500 500,000
-------------------------------------------------------------------------------
3.00%, Series 1985 B 11/01/05(b)(c) A-1 -- 1,650 1,650,000
-------------------------------------------------------------------------------
142,426,562
-------------------------------------------------------------------------------
UTAH - 0.34%
Central Utah Water Conservation District;
Refunding Series 1998 E GO
3.05%, 04/01/27(b)(d) A-1+ VMIG-1 4,000 4,000,000
-------------------------------------------------------------------------------
</TABLE>
FS-39
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
VERMONT - 0.82%
Vermont Educational and Health Building
Finance Authority (Middlebury College
Project A); Adjustable Rate Series 1988 RB
3.10%, 11/01/99(e) A-1+ -- $ 1,500 $ 1,500,000
-------------------------------------------------------------------------------
Vermont Educational and Health Building
Finance Authority
(VHA New England); Variable Rate Hospital
RB
3.15%, Series B 12/01/25(b)(d) A-1 -- 1,000 1,000,000
-------------------------------------------------------------------------------
3.15%, Series E 12/01/25(b)(d) A-1 -- 2,500 2,500,000
-------------------------------------------------------------------------------
3.15%, Series F 12/01/25(b)(d) A-1+ -- 2,100 2,100,000
-------------------------------------------------------------------------------
3.15%, Series G 12/01/25(b)(d) A-1+ -- 2,500 2,500,000
-------------------------------------------------------------------------------
9,600,000
-------------------------------------------------------------------------------
VIRGINIA - 3.35%
Alexandria (City of) Virginia Development
and Housing Authority (Goodwin Project);
Residential Care Facilities Series 1996 B
RB
3.20%, 10/01/06(b)(c) A-1 -- 9,300 9,300,000
-------------------------------------------------------------------------------
Industrial Development Authority of the
City of Lynchburg (VHA Mid-Atlantic
States, Inc.) Capital Asset Financing
Program; Variable Rate Hospital Series
1985 F RB
3.15%, 12/01/25(b)(d) A-1+ -- 6,700 6,700,000
-------------------------------------------------------------------------------
Roanoke (City of) (Carillion Health
System); Hospital Series B RB
3.10%, 07/01/19(b)(c) A-1 VMIG-1 2,900 2,900,000
-------------------------------------------------------------------------------
Virginia State Public School Authority;
School Financing Series 1998 RB
3.50%, 08/01/99 AA+ Aa1 5,225 5,235,399
-------------------------------------------------------------------------------
Waynesboro (City of) Industrial
Development Authority
(Residential Care Facilities); RB
3.20%, 12/15/28(b)(c) A-1 -- 15,100 15,100,000
-------------------------------------------------------------------------------
39,235,399
-------------------------------------------------------------------------------
WASHINGTON - 0.88%
Industrial Development Corp. of Port
Townsend (Port Townsend Paper Corp.
Project); Variable Rate Refunding
Series 1988 A RB
3.00%, 03/01/09(b)(c) -- VMIG-1 3,100 3,100,000
-------------------------------------------------------------------------------
Seattle (City of) Solid Waste Utility;
Series 1999 RB
4.75%, 08/01/99(c) AAA Aaa 3,835 3,858,551
-------------------------------------------------------------------------------
Washington State Public Power Supply
(Nuclear Project No. 1);
Series A Pre Refunded RB
7.50%, 07/01/99(g) AAA Aaa 3,240 3,341,490
-------------------------------------------------------------------------------
10,300,041
-------------------------------------------------------------------------------
</TABLE>
FS-40
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RATING(a) PAR
S&P MOODY'S (000) VALUE
WEST VIRGINIA - 1.24%
West Virginia Hospital Finance Author-
ity (VHA Mid-Atlantic States, Inc.
Capital Asset Financing Program); RB
3.15%, Series 1985 B 12/01/25(b)(d) A-1+ -- $3,000 $ 3,000,000
-------------------------------------------------------------------------------
3.15%, Series 1985 C 12/01/25(b)(d) A-1 + -- 3,500 3,500,000
-------------------------------------------------------------------------------
3.15%, Series 1985 H 12/01/25(b)(d) A-1 -- 8,000 8,000,000
-------------------------------------------------------------------------------
14,500,000
-------------------------------------------------------------------------------
WISCONSIN - 1.31%
Milwaukee (County of); Series 1995 GO
5.125%, 12/01/99 AA- Aa3 2,275 2,307,774
-------------------------------------------------------------------------------
Wisconsin (State of); TAN
4.50%, 06/15/99 SP-1+ MIG-1 13,000 13,024,607
-------------------------------------------------------------------------------
15,332,381
-------------------------------------------------------------------------------
TOTAL INVESTMENTS - 103.47% 1,210,968,892 (h)
-------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES - (3.47%) (40,627,008)
-------------------------------------------------------------------------------
NET ASSETS - 100% $1,170,341,884
-------------------------------------------------------------------------------
</TABLE>
INVESTMENT ABBREVIATIONS:
<TABLE>
<S> <C>
COP Certificates of Participation RAN Revenue Anticipation Notes
GO General Obligation Bonds/Notes RB Revenue Bonds
IDR Industrial Development Revenue Bonds TAN Tax Anticipation Notes
PCR Pollution Control Revenue Bonds TRAN Tax and Revenue Anticipation Notes
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are not covered by
Independent Auditors' Report.
(b) Demand security: payable upon demand by the Fund at specified intervals no
greater than thirteen months. Interest rates are redetermined periodically.
Rates shown are the rates in effect on 03/31/99.
(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 of which the value
of and return on 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 they 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-41
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $1,210,968,892
------------------------------------------------------------------------
Cash 1,930,982
------------------------------------------------------------------------
Receivables for:
Investments sold 10,915,099
------------------------------------------------------------------------
Interest 8,817,033
------------------------------------------------------------------------
Investment for deferred compensation plan 41,727
------------------------------------------------------------------------
Other assets 161,487
------------------------------------------------------------------------
Total assets 1,232,835,220
------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 59,383,437
------------------------------------------------------------------------
Dividends 2,866,059
------------------------------------------------------------------------
Deferred compensation 41,727
------------------------------------------------------------------------
Accrued administrative services fees 7,600
------------------------------------------------------------------------
Accrued advisory fees 20,056
------------------------------------------------------------------------
Accrued directors' fees 3,388
------------------------------------------------------------------------
Accrued transfer agent fees 21,176
------------------------------------------------------------------------
Accrued distribution fees 19,336
------------------------------------------------------------------------
Accrued operating expenses 130,557
------------------------------------------------------------------------
Total liabilities 62,493,336
------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,170,341,884
------------------------------------------------------------------------
NET ASSETS:
Institutional Class $1,072,597,169
------------------------------------------------------------------------
Private Investment Class $ 90,605,977
------------------------------------------------------------------------
Cash Management Class $ 7,138,738
------------------------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Class:
Authorized 3,000,000,000
------------------------------------------------------------------------
Outstanding 1,072,592,053
------------------------------------------------------------------------
Private Investment Class:
Authorized 1,000,000,000
------------------------------------------------------------------------
Outstanding 90,604,835
------------------------------------------------------------------------
Cash Management Class:
Authorized 1,000,000,000
------------------------------------------------------------------------
Outstanding 7,138,732
------------------------------------------------------------------------
Net asset value, offering and redemption price per share $1.00
------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-42
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $37,106,069
-----------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,455,821
-----------------------------------------------------------------------------
Administrative services fees 86,020
-----------------------------------------------------------------------------
Transfer agent fees 148,166
-----------------------------------------------------------------------------
Custody fees 46,422
-----------------------------------------------------------------------------
Directors' fees 15,376
-----------------------------------------------------------------------------
Distribution fees (Note 2) 430,870
-----------------------------------------------------------------------------
Other expenses 319,765
-----------------------------------------------------------------------------
Total expenses 3,502,440
-----------------------------------------------------------------------------
Less: Fees waived and expenses assumed (1,024,500)
-----------------------------------------------------------------------------
Net expenses 2,477,940
-----------------------------------------------------------------------------
Net investment income 34,628,129
-----------------------------------------------------------------------------
Net realized gain on sales of investments 8,745
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations $34,636,874
-----------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 34,628,129 $ 36,533,922
-----------------------------------------------------------------------------
Net realized gain on sales of investments 8,745 9,664
-----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 34,636,874 36,543,586
-----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Class (32,079,516) (34,792,247)
-----------------------------------------------------------------------------
Private Investment Class (2,486,438) (1,741,675)
-----------------------------------------------------------------------------
Cash Management Class (62,175) --
-----------------------------------------------------------------------------
Capital stock transactions - net:
Institutional Class 175,685,921 (69,673,016)
-----------------------------------------------------------------------------
Private Investment Class 10,142,224 42,918,457
-----------------------------------------------------------------------------
Cash Management Class 7,138,732 --
-----------------------------------------------------------------------------
Net increase (decrease) in net assets 192,975,622 (26,744,895)
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 977,366,262 1,004,111,157
-----------------------------------------------------------------------------
End of period $1,170,341,884 $ 977,366,262
-----------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in):
Institutional Class $1,072,668,342 $ 896,906,132
-----------------------------------------------------------------------------
Private Investment Class 90,611,277 80,462,611
-----------------------------------------------------------------------------
Cash Management Class 7,139,494 --
-----------------------------------------------------------------------------
Undistributed realized gain (loss) on sales
of investments (77,229) (2,481)
-----------------------------------------------------------------------------
$1,170,341,884 $ 977,366,262
-----------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-43
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 currently offers six different classes of shares, the
Institutional Class ("Institutional Class"), the Private Investment Class, the
Personal Investment Class, the Cash Management Class, the Reserve Class and the
Resource 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. On March 31, 1999, paid in capital was increased by $83,493 and
undistributed net realized gains was decreased by $83,493 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the fund were
unaffected by the reclassifications discussed above.
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 $77,230 (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 Class
(excluding interest, taxes, brokerage commissions, directors' fees,
extraordinary expenses and federal registration fees) paid or incurred by the
Institutional Class does not exceed 0.20% of the Institutional Class' average
daily net assets. As a result, AIM's advisory fee on the Private Investment
Class and the Cash Management Class, are reduced in the same proportion as the
Institutional Class. For the year ended March 31, 1999, AIM reduced its
advisory fee from the Fund by $809,773.
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, 1999, the Fund
reimbursed AIM $86,020 for such services.
FS-44
<PAGE>
Under the terms of a master distribution agreement between Fund Management
Company ("FMC") and the Fund, FMC acts as the exclusive distributor of the
Fund's shares. The Fund 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 Personal Investment Class, the Cash Management Class, the
Reserve Class, and the Resource Class of the Portfolio. The plan provides that
the Private Investment Class, the Personal Investment Class, the Cash
Management Class, the Reserve Class, and the Resource Class pay up to a 0.50%,
0.75%, 0.10%, 1.00%, and 0.20%, respectively, maximum annual rate of the
average daily net assets attributable to such class. Of this amount, the Fund
may pay an asset-based sales charge to FMC and the Fund may pay a service fee
of (a) 0.25% of the average daily net assets of each of the Private Investment
Class, Personal Investment Class, and the Reserve Class, (b) 0.10% of the
average daily net assets of the Cash Management Class and (c) 0.20% of the
average daily net assets of the Resource Class, to selected banks, 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, the Personal Investment Class, the Cash Management
Class, the Reserve Class, or the Resource 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 each class.
During the year ended March 31, 1999, the Private Investment Class and the Cash
Management Class paid $214,255 and $1,888, respectively, as compensation to FMC
under the Plan. FMC waived fee of $214,727 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 year ended March 31, 1999, the
Fund paid AFS $97,188 for such services.
During the year ended March 31, 1999, the Fund paid legal fees of $5,333 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, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Class 7,257,933,597 $ 7,257,933,597 5,302,472,459 $ 5,302,472,459
-------------------------------------------------------------------------------------------
Private Investment
Class 580,913,749 580,913,749 484,657,926 484,657,926
-------------------------------------------------------------------------------------------
Cash Management Class* 13,152,591 13,152,591 -- --
-------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Class 1,929,870 1,929,870 2,107,154 2,107,154
-------------------------------------------------------------------------------------------
Private Investment
Class 2,254,362 2,254,362 1,514,378 1,514,378
-------------------------------------------------------------------------------------------
Cash Management Class* 41,812 41,812 -- --
-------------------------------------------------------------------------------------------
Redeemed:
Institutional Class (7,084,177,546) (7,084,177,546) (5,374,252,629) (5,374,252,629)
-------------------------------------------------------------------------------------------
Private Investment
Class (573,025,887) (573,025,887) (443,253,847) (443,253,847)
-------------------------------------------------------------------------------------------
Cash Management Class* (6,055,671) (6,055,671) -- --
-------------------------------------------------------------------------------------------
Net increase (decrease) 192,966,877 $ 192,966,877 (26,754,559) $ (26,754,559)
-------------------------------------------------------------------------------------------
</TABLE>
* The Cash Management Class commenced sales on January 1, 1999.
FS-45
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Cash Management Class
capital stock outstanding during the period January 1, 1999 (date sales
commenced) through March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Net asset value, beginning of period $ 1.00
------------------------------------------------------- ------
Income from investment operations:
Net investment income 0.01
------------------------------------------------------- ------
Less distributions:
Dividends from net investment income (0.01)
------------------------------------------------------- ------
Net asset value, end of period $ 1.00
------------------------------------------------------- ------
Total return 0.64%
------------------------------------------------------- ------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,139
------------------------------------------------------- ------
Ratio of expenses to average net assets(a) 0.28%(b)
------------------------------------------------------- ------
Ratio of net investment income to average net assets(c) 3.08%(b)
------------------------------------------------------- ------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements are
0.38% (annualized).
(b) Ratios are annualized and based on average net assets of $2,359,815.
(c) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements are 2.98% (annualized).
FS-46
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Institutional Class
capital stock outstanding during each of the years in the five-year period
ended March 31, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- -------- -------- ---------- ----------
<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 0.04 0.03
-------------------------------------------- ---------- -------- -------- ---------- ----------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.03) (0.04) (0.03)
--------------------------------------------- ---------- -------- -------- ---------- ----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------- ----------- -------- -------- ---------- ----------
Total return 3.23% 3.55% 3.33% 3.67% 3.06%
--------------------------------------------- ----------- -------- -------- ---------- ----------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,072,597 $896,904 $966,567 $1,009,039 $1,009,891
--------------------------------------------- ----------- -------- -------- ---------- ----------
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) 3.16%(b) 3.49% 3.27% 3.59% 3.01%
--------------------------------------------- ----------- -------- -------- ---------- ----------
</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
0.28%, 0.27%, 0.26%, 0.26% and 0.26% for the periods 1999-1995,
respectively.
(b) Ratios are based on average net assets of $1,014,848,955.
(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 3.08%, 3.42%, 3.21%, 3.53% and 2.95% for the periods
1999-1995, respectively.
FS-47
<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, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<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 0.03
-------------------------------------------------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.03)
-------------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------- ------- ------- ------- ------- -------
Total return 2.98% 3.29% 3.07% 3.41% 2.80%
-------------------------------------------------- ------- ------- ------- ------- -------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $90,606 $80,462 $37,544 $35,139 $29,286
-------------------------------------------------- ------- ------- ------- ------- -------
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) 2.91%(b) 3.24% 3.02% 3.35% 2.89%
-------------------------------------------------- ------- ------- ------- ------- -------
</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
0.78%, 0.77%, 0.83%, 0.76% and 1.17% for the periods 1999-1995,
respectively.
(b) Ratios are based on average net assets of $85,701,917.
(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 2.58%, 2.92%, 2.65%, 3.04% and 2.17% for the periods
1999-1995, respectively.
FS-48
