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SHORT-TERM
INVESTMENTS CO.
Prospectus
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PRIME
PORTFOLIO The Prime Portfolio (the "Portfolio") is a money market fund whose investment objective is the
maximization of current income to the extent consistent with the preservation of capital and the
PRIVATE maintenance of liquidity. The Portfolio seeks to achieve its objective by investing in high grade money
INVESTMENT market instruments, such as U.S. Government obligations, bank obligations, commercial instruments and
CLASS repurchase agreements. The instruments purchased by the Portfolio will have maturities of sixty days or
less.
DECEMBER 12, 1995
The Portfolio is a series portfolio of Short-Term Investments Co. (the "Fund"), an open-end,
diversified, series, management investment company. This Prospectus relates solely to the Private
Investment Class of the Portfolio, a class of shares designed to be a convenient vehicle in which
customers of banks, certain broker-dealers and other financial institutions can invest in a diversified,
money market fund.
The Fund also offers shares of other classes of the Portfolio pursuant to separate prospectuses: the
Institutional Class, the Cash Management Class, the Personal Investment Class and the Resource Class, as
well as shares of classes of another portfolio of the Fund, the Liquid Assets Portfolio.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING
IN SHARES OF THE PRIVATE INVESTMENT CLASS OF THE PORTFOLIO AND SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION, DATED DECEMBER 12, 1995, HAS BEEN FILED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY REFERENCE. FOR A COPY OF THE
STATEMENT OF ADDITIONAL INFORMATION, WRITE TO THE ADDRESS ABOVE OR CALL (800) 877-7748.
THE PORTFOLIO'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND
THE PORTFOLIO'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN BE NO ASSURANCE
THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SHARES OF THE
[LOGO APPEARS HERE] PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
Fund Management Company
11 Greenway Plaza
Suite 1919
Houston, TX 77046-1173
(800) 877-7748
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SUMMARY
THE PORTFOLIO AND ITS INVESTMENT OBJECTIVE
The Fund is an open-end diversified series management investment company.
This Prospectus relates to the Private Investment Class (the "Class") of the
Portfolio. The Portfolio is a money market fund which invests in money market
instruments, such as U.S. Government obligations, bank obligations, commercial
instruments and repurchase agreements. The instruments purchased by the
Portfolio will have maturities of sixty days or less. The investment objective
of the Portfolio is the maximization of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
Pursuant to separate prospectuses, the Fund also offers shares of other
classes of the Fund representing interests in the Portfolio. Such classes have
different distribution arrangements and are designed for institutional and
other categories of investors. The Fund also offers shares of classes of
another portfolio, the Liquid Assets Portfolio, each pursuant to a separate
prospectus. Such classes have different distribution arrangements and are
designed for institutional and other categories of investors. The portfolios of
the Fund are referred to collectively as the "Portfolios."
All classes of the Portfolio share a common investment objective and
portfolio of investments. Shares of each class of the Portfolio have the same
net asset value (proportionate interest in the net assets of the Portfolio) and
bear equally those expenses, such as the advisory fee, that are allocated to
the Portfolio as a whole. However, different classes of the Portfolio have
different shareholder qualifications and are separately allocated certain class
expenses, such as those associated with the distribution of their shares.
Therefore, each class will have a different dividend payment and a different
yield.
INVESTORS IN THE CLASS
The Class is designed to be a convenient vehicle in which customers of banks,
certain broker-dealers and other financial institutions can invest in a
diversified, open-end money market fund.
PURCHASE OF SHARES
Shares of the Class that are offered hereby are sold at net asset value. The
minimum initial investment in the Class is $10,000. There is no minimum amount
for subsequent investments. Payment for shares of the Class purchased must be
in funds immediately available to the Portfolio. See "Purchase of Shares."
REDEMPTION OF SHARES
Redemptions may be made without charge at net asset value. Payment for
redeemed shares of the Class for which redemption orders are received prior to
4:00 p.m. Eastern Time will normally be made on the same day. See "Redemption
of Shares."
DIVIDENDS
The net income of the Portfolio is declared as a dividend daily to
shareholders of record immediately after 4:00 p.m. Eastern Time. Dividends are
paid monthly by check or wire transfer unless the shareholder has previously
elected to have such dividends automatically reinvested in additional shares of
the Class. Information concerning the amount of the dividends declared on any
particular day will normally be available by 5:00 p.m. Eastern Time on that
day. See "Dividends."
CONSTANT NET ASSET VALUE
The Portfolio uses the amortized cost method of valuing the securities held
by the Portfolio and rounds the per share net asset value to the nearest whole
cent. Accordingly, the net asset value per share of the Portfolio will normally
remain constant at $1.00. AN INVESTMENT IN THE PORTFOLIO IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE PORTFOLIO
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE. See "Net Asset Value."
INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM") serves as the Portfolio's investment advisor and
receives a fee based on the Portfolio's average daily net assets. AIM is
primarily engaged in the business of acting as manager or advisor to investment
companies. Under a separate Administrative Services Agreement, AIM may be
reimbursed by the Fund for its costs of performing certain accounting and other
administrative services for the Fund. See "Management of the Fund--Investment
Advisor" and "Administrator."
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DISTRIBUTOR AND DISTRIBUTION PLAN
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Class. Pursuant to the Distribution Plan, the Fund may pay up to
0.50% of the average daily net assets of the Portfolio attributable to the
shares of the Class to FMC as well as certain broker-dealers or other financial
institutions. Of this amount, up to 0.25% may be for continuing personal
services to shareholders provided by broker-dealers or institutions and the
balance would be deemed an asset-based sales charge. See "Purchase of Shares"
and "Management of the Fund--Distribution Plan."
SPECIAL CONSIDERATIONS
The Portfolio may borrow money and enter into reverse repurchase agreements.
The Portfolio may invest in certificates of deposit and time deposits of London
branches of major domestic banks and in repurchase agreements. The Portfolio
may purchase delayed delivery or when-issued securities. Accordingly, an
investment in the Portfolio may entail somewhat different risks from an
investment in an investment company that does not engage in such practices.
There can be no assurance that the Portfolio will be able to maintain a stable
net asset value of $1.00 per share. See "Investment Program."
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK and AIM Institutional Funds are registered
service marks of A I M Management Group Inc.
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TABLE OF FEES AND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES -- PRIVATE INVESTMENT CLASS
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price)...................................................... None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, as applicable).................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)... None
Exchange Fee.......................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES -- PRIVATE INVESTMENT CLASS (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees....................................................... 0.06%
12b-1 Fees (after fee waivers)*....................................... 0.30%**
Other Expenses (after expense reimbursements)*........................ 0.03%
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Total Portfolio Operating Expenses --Private Investment Class......... 0.39%
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* Had there been no fee waivers and no expense reimbursement, 12b-1 Fees and
Other Expenses would have been 0.50% and 0.04%, respectively.
** It is possible that as a result of Rule 12b-1 fees, long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted under rules of the National Association of Securities
Dealers, Inc. Given the Rule 12b-1 fee of the Class, however, it is
estimated that it would take a substantial number of years for a shareholder
to exceed such maximum front-end sales charges.
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period.
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1 year............................................................ $ 4
3 years........................................................... $13
5 years........................................................... $22
10 years.......................................................... $49
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The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management of the Fund" below.) The expense figures
are based upon actual costs and fees charged to the Class for the fiscal year
ended August 31, 1995. There can be no assurance that future waivers of fees
(if any) will not vary from the figures reflected in the Table of Fees and
Expenses. To the extent any service providers assume additional expenses of the
Class, such assumption of additional expenses will have the effect of lowering
the Class' overall expense ratio and increasing its yield to investors.
Beneficial owners of shares of the Class should also consider the effect of any
charges imposed by the institution maintaining their accounts.
The example in the Table of Fees and Expenses assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual
Portfolio Operating Expenses -- Private Investment Class" remain the same in
the years shown.
THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE AN ACCURATE REPRESENTATION OF PAST
OR FUTURE PERFORMANCE AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
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FINANCIAL HIGHLIGHTS
Shown below are the per share data, ratios and supplemental data
(collectively "data") for each of the years in the two year period ended August
31, 1995 and the period July 8, 1993 (date operations commenced) through August
31, 1993. The data has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report on the financial statements and the related notes
appears in the Statement of Additional Information.
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JULY 8, 1993
(COMMENCEMENT
OF OPERATIONS)
TO AUGUST 31,
1995 1994 1993
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Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................. 0.05 0.03 0.03
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Total from investment operations...... 0.05 0.03 0.03
Less distributions:
Dividends from net investment income.. (0.05) (0.03) (0.03)
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Net asset value, end of period......... $ 1.00 $ 1.00 $ 1.00
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Total return........................... 5.48% 3.33% 3.24%(a)
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Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $154,278 $30,834 $17,857
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Ratio of expenses to average net
assets............................... 0.39%(b) 0.38%(c) 0.37%(a)
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Ratio of net investment income to
average net assets................... 5.50%(b) 3.32%(c) 2.85%(a)
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(a) Annualized.
(b) After expense reimbursements. The ratios of expenses and net investment
income prior to expense reimbursements are 0.40% and 5.49%, respectively.
Ratios are based on average net assets of $122,507,351.
(c) After expense reimbursements. The ratios of expenses and net investment
income to average net assets prior to expense reimbursements would have
been 1.18% and 2.52%, respectively.
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SUITABILITY FOR INVESTORS
The Class is intended for use primarily by customers of banks, certain
broker-dealers and other financial institutions who seek a convenient vehicle
in which to invest in an open-end diversified money market fund. The minimum
initial investment is $10,000.
Investors in the Class have the opportunity to receive a somewhat higher
yield than might be obtainable through direct investment in money market
instruments, and enjoy the benefits of diversification, economies of scale and
same-day liquidity. Generally, higher interest rates can be obtained on the
purchase of very large blocks of money market instruments. Of course, any such
relative increase in interest rates may be offset to some extent by the
operating expenses of the Class.
INVESTMENT PROGRAM
The investment objective of the Portfolio is deemed to be a matter of
fundamental policy that may not be changed without the approval of a majority
of the Portfolio's shares. The Board of Directors of the Fund reserves the
right to change any of the investment policies, strategies or practices of the
Portfolio, as described in this Prospectus and the Statement of Additional
Information, without shareholder approval, except in those instances where
shareholder approval is expressly required.
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is the maximization of current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity. The Portfolio seeks to achieve its objective by
investing in high grade money market instruments. The money market instruments
in which the Portfolio invests are considered to carry very little risk and
accordingly may not have as high a yield as that available on money market
instruments of lesser quality. The Portfolio consists exclusively of money
market instruments which have maturities of 60 days or less from the date of
purchase (except for securities subject to repurchase agreements which may have
longer maturities), and normally does not maintain a dollar-weighted average
maturity of its portfolio securities in excess of 40 days.
INVESTMENT POLICIES
The Portfolio may invest in a broad range of government, bank and commercial
obligations that may be available in the money markets. Such obligations
include U.S. Treasury obligations, which include Treasury bills, notes and
bonds, and repurchase agreements relating to such securities. These
instruments, which are collectively referred to as "Money Market Obligations,"
are briefly described below. The Portfolio may also engage in certain
investment practices described below. The market values of the money market
instruments held by the Portfolio will be affected by changes in the yields
available on similar securities. If yields have increased since a security was
purchased, the market value of such security will generally have decreased.
Conversely, if yields have decreased, the market value of such security will
generally have increased.
Money Market Obligations
The following list of descriptions illustrates the types of Money Market
Obligations in which the Portfolio intends to invest. The list does not purport
to be an exhaustive list of all Money Market Obligations, and the Portfolio
reserves the right to invest in Money Market Obligations other than those
listed below.
GOVERNMENT OBLIGATIONS. The Portfolio intends to invest in securities issued
or guaranteed as to principal and interest by the U.S. Government or by its
agencies or instrumentalities. Such obligations may be supported (a) by the
full faith and credit of the U.S. Treasury (as in the case of Government
National Mortgage Association Certificates), (b) by the right of the issuer to
borrow from the U.S. Treasury (as in the case of obligations of the Federal
Home Loan Bank), (c) by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality (as in the case
of the Federal National Mortgage Association), or (d) only by the credit of the
agency or instrumentality itself (as in the case of obligations of the Student
Loan Marketing Association). No assurance can be given that the U.S. Government
will provide financial support to such U.S. Government sponsored agencies or
instrumentalities in the future and it is not obligated to do so by law.
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BANK INSTRUMENTS. The Portfolio intends to invest in certificates of deposit
("CDs"), time deposits and bankers' acceptances of domestic commercial banks
having total assets in excess of $1.5 billion as of the date of their most
recently published financial statements and CDs of other domestic banks that
are fully insured as to principal by the Federal Deposit Insurance Corporation.
CDs represent short-term interest-bearing deposits of commercial banks against
which negotiable certificates bearing stated rates of interest are issued.
Bankers' acceptances are short-term negotiable drafts endorsed by commercial
banks which arise primarily from international commercial transactions.
The Portfolio intends to invest in certificates of deposit ("Eurodollar CDs")
and time deposits ("Eurodollar time deposits") of London branches of domestic
banks having total assets in excess of $1.5 billion as of the date of their
most recently published financial statements. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time at
a stated interest rate. The Portfolio will not make any time or savings deposit
if, immediately after making such deposits, over 5% of the Portfolio's total
assets would be invested in illiquid time and savings deposits.
COMMERCIAL INSTRUMENTS. The Portfolio intends to invest in commercial
instruments, including commercial paper, master notes and other short-term
corporate instruments, that are denominated in U.S. dollars and which at the
date of purchase are "First Tier" securities as defined in Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"), as such Rule may
be amended from time to time. Generally, "First Tier" securities are securities
that are rated in the highest rating category by two nationally recognized
statistical rating organizations ("NRSROs") or, if only rated by one NRSRO, are
rated in the highest rating category by that NRSRO or, if unrated, are
determined by A I M Advisors, Inc. ("AIM") (under the supervision of and
pursuant to guidelines established by the Board of Directors) to be of
comparable quality to a rated security that meets the foregoing quality
standards. Commercial paper consists of short-term promissory notes issued by
corporations. Commercial paper may be traded in the secondary market after its
issuance. Master notes are unsecured demand notes that permit the investment of
fluctuating amounts of money at varying rates of interest pursuant to
arrangements with issuers who meet the quality criteria of the Portfolio. The
interest rate on a master note may fluctuate based upon changes in specified
interest rates or be reset periodically according to a prescribed formula or
may be a set rate. Although there is no secondary market in master notes, if
such notes have a demand feature, the payee may demand payment of the principal
amount of the note upon relatively short notice.
REPURCHASE AGREEMENTS. The Portfolio intends to invest in repurchase
agreements with banks and broker-dealers pertaining to the securities described
above. A repurchase agreement is an instrument under which the Portfolio
acquires ownership of a debt security and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed-upon time and price,
thereby determining the yield during the Portfolio's holding period. Repurchase
transactions are limited to a term not to exceed 365 days. The Portfolio may
enter into repurchase agreements only with institutions believed by the Fund's
Board of Directors to present minimal credit risk. With regard to repurchase
transactions, in the event of a bankruptcy or other default of a seller of a
repurchase agreement (such as the seller's failure to repurchase the obligation
in accordance with the terms of the agreement), the Portfolio could experience
both delays in liquidating the underlying securities and losses, including: (a)
a possible decline in the value of the underlying security during the period
while the Portfolio seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period and (c) the
expense of enforcing its rights. Repurchase agreements are considered to be
loans by the Portfolio under the 1940 Act. Repurchase agreements will be
secured by U.S. Treasury securities. For additional information, see the
Statement of Additional Information.
Investment Practices
BORROWING MONEY/REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow money
and enter into reverse repurchase agreements with respect to its portfolio
securities in amounts up to 10% of the value of its total assets at the time of
borrowing or entering into a reverse repurchase agreement. Reverse repurchase
agreements involve the sale by the Portfolio of a portfolio security at an
agreed-upon price, date and interest payment. The Portfolio will borrow money
or enter into reverse repurchase agreements solely for temporary or defensive
purposes, such as to facilitate the orderly sale of portfolio securities or to
accommodate abnormally heavy redemption requests should they occur. Reverse
repurchase transactions are limited to a term not to exceed 92 days. The
Portfolio will use reverse repurchase agreements when the interest income to be
earned from the securities that would otherwise have to be liquidated to meet
redemption requests is greater than the interest expense of the reverse
repurchase transaction. Reverse repurchase agreements involve the risk that the
market value of securities retained
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by the Portfolio in lieu of liquidation may decline below the repurchase price
of the securities sold by the Portfolio which it is obligated to repurchase.
The risk, if encountered, could cause a reduction in the net asset value of the
Portfolio's shares. Reverse repurchase agreements are considered to be
borrowings by the Portfolio under the 1940 Act.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may also lend its portfolio
securities in amounts up to 33 1/3% of its total assets to financial
institutions in accordance with the investment restrictions of the Portfolio.
Such loans would involve risks of delay in receiving additional collateral in
the event the value of the collateral decreased below the value of the
securities loaned or of delay in recovering the securities loaned or even loss
of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by AIM to be
of good standing and only when, in AIM's judgment, the income to be earned from
the loans justifies the attendant risks.
PURCHASING DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. The Portfolio may
enter into delayed delivery agreements and may purchase securities on a "when-
issued" basis.
Delayed delivery agreements are commitments by the Portfolio to dealers or
issuers to acquire securities beyond the customary settlement date for such
securities. These commitments fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, the Portfolio's
investment advisor can anticipate that cash for investment purposes will result
from scheduled maturities of existing portfolio instruments or from net sales
of shares of the Portfolio and may enter into delayed delivery agreements to
assure that the Portfolio will be as fully invested as possible in instruments
meeting its investment objective.
Debt securities are sometimes offered 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 payment obligation and the
interest rate that will be received on the securities are fixed at the time the
buyer enters into the commitment. The Portfolio will only make commitments to
purchase such debt securities with the intention of actually acquiring the
securities, but the Portfolio may sell these securities before the settlement
date if it is deemed advisable.
If the Portfolio enters into a delayed delivery agreement or purchases a
when-issued security, the Fund will direct its custodian bank to segregate cash
or other high grade securities (including Money Market Obligations) in an
amount equal to its delayed delivery agreement obligations or when-issued
commitments. If the market value of such securities declines, additional cash
or securities will be segregated on a daily basis so that the market value of
the account will equal the amount of the Portfolio's delayed delivery agreement
obligations and when-issued commitments. To the extent that funds are
segregated, they will not be available for new investment or to meet
redemptions. Investment in securities on a when-issued basis and use of delayed
delivery agreements may increase the Portfolio's exposure to market
fluctuation, or may increase the possibility that the Portfolio will incur a
short-term loss, if the Portfolio must engage in portfolio transactions in
order to honor a when-issued commitment or accept delivery of a security under
a delayed delivery agreement. The Portfolio will employ techniques designed to
minimize these risks. No additional delayed delivery agreements or when-issued
commitments will be made by the Portfolio if, as a result, more than 25% of the
Portfolio's net assets would become so committed.
ILLIQUID SECURITIES. The Portfolio will invest no more than 10% of its net
assets in illiquid securities.
PORTFOLIO TRANSACTIONS. The Portfolio does not seek profits through short-
term trading and will generally 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. Securities held by the Portfolio will be disposed of prior to
maturity if an earlier disposition is deemed desirable by AIM to meet
redemption requests. In addition, AIM will continually monitor the
creditworthiness of issuers whose securities are held by the Portfolio, and
securities held by the Portfolio may be disposed of prior to maturity as a
result of a revised credit evaluation of the issuer or other circumstances or
considerations. The Portfolio's policy of investing in securities with
maturities of sixty 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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INVESTMENT RESTRICTIONS
The Portfolio's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in specified types of securities or engaging in
certain transactions and to limit the amount of the Portfolio's assets which
may be concentrated in any specific industry or issuer. The most significant of
these restrictions provide that the Portfolio will not:
(1) concentrate 25% or more of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and bank instruments such as
CDs, bankers' acceptances, time deposits and bank repurchase agreements;
(2) purchase securities of any one issuer (other than obligations of the
U.S. Government, its agencies or instrumentalities) if, immediately after
such purchase, more than 5% of the value of the Portfolio's total assets
would be invested in such issuer, except as permitted by Rule 2a-7 under the
1940 Act, as such rule may be amended from time to time; or
(3) borrow money or issue senior securities except (a) for temporary or
emergency purposes (e.g., in order to facilitate the orderly sale of
portfolio securities or to accommodate abnormally heavy redemption
requests), the Portfolio may borrow money from banks or obtain funds by
entering into reverse repurchase agreements, and (b) to the extent that
entering into commitments to purchase securities in accordance with the
Portfolio's investment program may be considered the issuance of senior
securities. The Portfolio will not purchase portfolio securities while
borrowings in excess of 5% of its total assets are outstanding.
The Portfolio's investment objective and the three investment restrictions of
the Portfolio set forth above (as well as certain others set forth in the
Statement of Additional Information) are matters of fundamental policy which
may not be changed without the affirmative vote of a majority of the
outstanding shares of the Portfolio.
In addition to the restrictions described above, the Portfolio must also
comply with the requirements of Rule 2a-7 under the 1940 Act, as such Rule may
be amended from time to time, which govern the operations of money market
funds, and may be more restrictive than the policies described herein. The
United States Securities and Exchange Commission (the "SEC") has proposed
certain changes to Rule 2a-7. While such proposed changes may have a
prospective impact on the investments of the Portfolio, the Portfolio
anticipates no difficulty in complying with any proposed change if adopted by
the SEC. A description of further investment restrictions applicable to the
Portfolio is contained in the Statement of Additional Information.
PURCHASE OF SHARES
Shares of the Class are sold on a continuing basis at their net asset value
next determined after an order has been received by the Portfolio. As discussed
below, the Fund reserves the right to reject any purchase order. Although there
is no sales charge imposed on the purchase of shares of the Class, banks and
other institutions may charge a recordkeeping, account maintenance or other fee
to their customers. Beneficial holders of shares of the Class should consult
with the institutions maintaining their accounts to obtain a schedule of
applicable fees. To facilitate the investment of proceeds of purchase orders,
investors are urged to place their orders as early in the day as possible.
Purchase orders will be accepted for execution on the day the order is placed,
provided that the order is properly submitted and received by the Portfolio
prior to 4:00 p.m. Eastern Time on a business day of the Portfolio. Purchase
orders received after such time will be processed at the next day's net asset
value. Shares of the Class will earn the dividend declared on the effective
date of purchase.
A "business day of the Portfolio" is any day on which both the Federal
Reserve Bank of New York and The Bank of New York, the Portfolio's custodian,
are open for business. It is expected that the Federal Reserve Bank of New York
and
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The Bank of New York will be closed during the next twelve months on Saturdays
and Sundays and on observed holidays of New Year's Day, Martin Luther King,
Jr.'s Birthday, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
Shares of the Class are sold to customers of banks, certain broker-dealers
and other financial institutions (each, an "Institution" and, collectively,
"Institutions"). Individuals, corporations, partnerships and other businesses
that maintain qualified accounts at an Institution may invest in the shares of
the Class. Each Institution will render administrative support services to its
customers who are the beneficial owners of the shares of the Class. Such
services may include, among other things, establishment and maintenance of
shareholder accounts and records; assistance in processing purchase and
redemption transactions in shares of the Class; providing periodic statements
showing a customer's account balance in shares of the Class; distribution of
Fund proxy statements, annual reports and other communications to shareholders
whose accounts are serviced by the Institution; and such other services as the
Fund may reasonably request. Institutions will be required to certify to the
Fund that they comply with applicable state law regarding registration as
broker-dealers, or that they are exempt from such registration.
Prior to the initial purchase of shares of the Class, an Account Application,
which can be obtained from A I M Institutional Fund Services, Inc. ("Transfer
Agent" or "AIFS"), must be completed and sent to AIFS at 11 Greenway Plaza,
Suite 1919, Houston, Texas 77046-1173. Any changes made to the information
provided in the Account Application must be made in writing or by completing a
new form and providing it to AIFS. An investor must open an account in the
shares of the Class through an Institution in accordance with the procedures
established by such Institution. Each Institution separately determines the
rules applicable to accounts in the shares of the Class opened with it,
including minimum initial and subsequent investment requirements and the
procedures to be followed by investors to effect purchases of shares of the
Class. The minimum initial investment is $10,000, and there is no minimum
amount for subsequent purchases of shares of the Class by an Institution on
behalf of its customers. An investor who proposes to open a Portfolio account
with an Institution should consult with a representative of such Institution to
obtain a description of the rules governing such an account. The Institution
holds shares of the Class registered in its name, as agent for the customer, on
the books of the Institution. A statement with regard to the customer's shares
of the Class is supplied to the customer periodically, and confirmations of all
transactions for the account of the customer are provided by the Institution to
the customer promptly upon request. In addition, each Institution sends its
customers proxies, periodic reports and other information from the Institution
with regard to the customer's shares of the Class. The customer's shares of the
Class are fully assignable and subject to encumbrance by the customer.
All agreements which relate to a customer's account with an Institution are
with the Institution. An investor may terminate his relationship with an
Institution at any time, in which case an account in the investor's name will
be established directly with the Portfolio and the investor will become a
shareholder of record. In such case, however, the investor will not be able to
directly purchase additional shares of the Class, except through reinvestment
of dividends and distributions.
Orders for the purchase of shares of the Class are placed by the investor
with the Institution. The Institution is responsible for the prompt
transmission of the order to the Fund. The Portfolio will normally be required
to make immediate settlement in federal funds (member bank deposits with a
Federal Reserve Bank) for portfolio securities purchased. Accordingly, payment
for shares of the Class purchased by Institutions on behalf of their customers
must be in federal funds. If an investor's order to purchase shares of the
Class is paid for other than in federal funds, the Institution, acting on
behalf of the investor, completes the conversion into federal funds (which may
take two business days), or itself advances federal funds prior to conversion,
and promptly transmits the order and payment in the form of federal funds to
AIFS.
Subject to the conditions stated above and to the Portfolio's right to reject
any purchase order, orders will be accepted (a) when payment for the shares of
the Class purchased is received by the Portfolio in the form described above
and notice of such order is provided to AIFS or (b) at the time the order is
placed, if the Portfolio is assured of payment.
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Federal Reserve wires should be sent as early as possible in order to
facilitate crediting to the shareholder's account. Any funds received with
respect to an order which is not accepted by the Portfolio and any funds
received for which an order has not been received will be returned to the
sending Institution. An order must specify that it is for the purchase of
shares of the "Private Investment Class of the Prime Portfolio," otherwise any
funds received will be returned to the sending Institution.
In the interest of economy and convenience, certificates representing shares
of the Class will not be issued except upon written request to the Fund.
Certificates (in full shares only) will be issued without charge and may be
redeposited at any time.
The Fund reserves the right in its sole discretion to withdraw all or any
part of the offering made by this Prospectus or to reject any purchase order.
REDEMPTION OF SHARES
A shareholder may redeem any or all of its shares of the Class at the net
asset value next determined after receipt of the redemption request in proper
form by the Portfolio. Redemption requests with respect to the Class may also
be made via AIM LINK(R), a personal computer application software product.
Normally, the net asset value per share of the Portfolio will remain constant
at $1.00. See "Net Asset Value." Redemption requests with respect to shares of
the Class for which certificates have not been issued are normally made through
a customer's Institution.
Payment for redeemed shares of the Class is normally made by Federal Reserve
wire to the commercial bank account designated in the Institution's Account
Application, but may be remitted by check upon request by a shareholder. If a
redemption request is received by AIFS prior to 4:00 p.m. Eastern Time on a
business day of the Portfolio, the redemption will be effected at the net asset
value next determined on such day and the shares of the Class to be redeemed
will not receive the dividend declared on the effective date of the redemption.
If a redemption request is received by AIFS after 4:00 p.m. Eastern Time or on
other than a business day of the Portfolio, the redemption will be effected at
the net asset value of the Portfolio determined as of 4:00 p.m. Eastern Time on
the next business day of the Portfolio, and the proceeds of such redemption
will normally be wired on the effective day of the redemption.
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Fund. The authorized signature on the notice
must be guaranteed by a commercial bank or a trust company. Additional
documentation may be required when deemed appropriate by the Fund or the
Transfer Agent.
Shareholders may request a redemption by telephone. The Transfer Agent and
FMC will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth in the account application if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
and mailings of confirmations promptly after the transaction.
Payment for shares of the Class redeemed by mail and payment for telephone
redemptions in amounts of less than $1,000 will be made by check mailed within
seven days after receipt of the redemption request in proper form. The Fund may
make payment for telephone redemptions in excess of $1,000 by check when it is
considered to be in the Portfolio's best interest to do so.
The shares of the Class are not redeemable at the option of the Fund unless
the Board of Directors of the Fund determines in its sole discretion that
failure to so redeem may have materially adverse consequences to the
shareholders of the Fund.
DIVIDENDS
Dividends from the net income of the Portfolio are declared daily to
shareholders of record of the Class immediately after 4:00 p.m. Eastern Time on
the day of declaration. Net income for dividend purposes is determined daily as
of 4:00 p.m. Eastern Time. The dividend accrued and paid for the Class will
consist of (a) income of the Portfolio, the allocation of which is based upon
the Class' pro rata share of the total outstanding shares representing an
interest in the Portfolio, less (b) Fund expenses, such as custodian fees,
directors' fees, accounting and legal expenses, based upon the Class' pro rata
share of the net assets of the Portfolio, less (c) expenses directly
attributable to the Class, such as distribution expenses, if any, transfer
agent fees or registration fees that may be unique to the Class. Although
realized gains and losses on the assets of the Portfolio are
11
<PAGE>
reflected in its net asset value, they are not expected to be of an amount
which would affect its $1.00 per share net asset value for purposes of
purchases and redemptions. See "Net Asset Value." Distributions from net
realized short-term gains may be declared and paid yearly or more frequently.
See "Taxes." The Portfolio does not expect to realize any long-term capital
gains or losses.
All dividends declared during a month will normally be paid by wire transfer.
Payment will normally be made on the first business day of the following month.
A shareholder may elect to have all dividends automatically reinvested in
additional full and fractional shares of the Class at the net asset value as of
4:00 p.m. Eastern Time on the last business day of the month. Such election, or
any revocation thereof, must be made in writing by the Institution to AIFS at
11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173 and will become
effective with dividends paid after its receipt by AIFS. If a shareholder
redeems all the shares of the Class in its account at any time during the
month, all dividends declared through the date of redemption are paid to the
shareholder along with the proceeds of the redemption.
The Portfolio uses its best efforts to maintain the net asset value per share
of the Portfolio at $1.00 for purposes of sales and redemptions. See "Net Asset
Value." Should the Fund incur or anticipate any unusual expense, loss or
depreciation which could adversely affect the income or net asset value of the
Portfolio, the Fund's Board of Directors would at that time consider whether to
adhere to the present dividend policy described above or to revise it in light
of the then prevailing circumstances. For example, under such unusual
circumstances, the Board of Directors might reduce or suspend the daily
dividend in order to prevent, to the extent possible, the net asset value per
share of the Portfolio from being reduced below $1.00. Thus, such expenses,
losses or depreciation may result in a shareholder receiving no dividends for
the period during which it held its shares of the Class and cause such a
shareholder to receive upon redemption a price per share lower than the
shareholder's original cost.
TAXES
The policy of the Portfolio is to distribute to its shareholders at least 90%
of its investment company taxable income for each year and consistent therewith
to meet the distribution requirements of Part I of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Portfolio also intends to
meet the distribution requirements imposed by the Code in order to avoid the
imposition of a 4% excise tax. The Portfolio intends to distribute at least 98%
of its net investment income for the calendar year and at least 98% of its net
realized capital gains, if any, for the period ending on October 31. The
Portfolio also intends to meet the other requirements of Subchapter M,
including the requirements with respect to diversification of assets and
sources of income, so that the Portfolio will pay no taxes on net investment
income and net realized capital gains paid to shareholders.
Dividends paid by the Portfolio are subject to taxation as of the date of
payment, whether received by shareholders in cash or in additional shares of
the Class. The Code provides an exception to this general rule: if the
Portfolio declares a dividend in October, November or December to shareholders
of record in such months and pays the dividend during January of the next year,
a shareholder will be treated for tax purposes as having received the dividend
on December 31 of the year in which it is declared rather than in January when
it is paid. It is anticipated that no portion of distributions will be eligible
for the dividends received deduction for corporations. Dividends paid by the
Portfolio from its net investment income and short-term capital gains are
taxable to shareholders at ordinary income tax rates.
The Portfolio will be treated as a separate corporation for purposes of
determining taxable income, distribution requirements and other requirements of
Subchapter M. Therefore, the Portfolio may not offset its gains against the
losses of the other portfolio of the Fund and each Portfolio of the Fund must
specifically comply with all the provisions of the Code.
Distributions and transactions referred to in the preceding paragraphs may be
subject to state, local or foreign taxes, and the treatment thereof may differ
from the federal income tax consequences discussed herein. Shareholders are
advised to consult with their own tax advisers concerning the application of
state, local or foreign taxes.
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<PAGE>
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on November 1, 1995 which are subject to change
by legislation or administrative action.
NET ASSET VALUE
The net asset value per share of the Portfolio is determined daily as of 4:00
p.m. Eastern Time on each business day of the Fund. Net asset value per share
is determined by dividing the value of the Portfolio's securities, cash and
other assets (including interest accrued but not collected) less all of its
liabilities (including accrued expenses and dividends payable), by the number
of shares outstanding of the Portfolio and rounding the resulting per share net
asset value to the nearest one cent.
The securities of the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the SEC applicable to money market funds. This
method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if the security were sold.
During such periods, the daily yield on shares of the Portfolio, computed as
described in "Purchases and Redemptions -- Performance Information" in the
Statement of Additional Information, may differ somewhat from an identical
computation made by an investment company with identical investments utilizing
available indications as to market value to value its portfolio securities.
YIELD INFORMATION
Yield information for the Class can be obtained by calling the Fund at (800)
877-7748. Yields will fluctuate from time to time and are not necessarily
indicative of future results. Accordingly, the yield information may not
provide a basis for comparison with investments which pay a fixed rate of
interest for a stated period of time. Yield is a function of the type and
quality of the Portfolio's investments, the Portfolio's maturity and the
operating expense ratio of the Class. A SHAREHOLDER'S INVESTMENT IN THE
PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR BY ANY
INSTITUTION. These factors should be carefully considered by the investor
before making an investment in the Portfolio.
For the seven-day period ended August 31, 1995, the current yield and the
effective yield of the Class (which assumes the reinvestment of dividends for a
365-day year and a return for the entire year equal to the annualized current
yield for the period) were 5.46% and 5.61%, 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.
To assist banks and other institutions performing their own sub-accounting,
same day information as to the daily dividend per share for the Portfolio to
eight decimal places and current yield normally will be available by 5:00 p.m.
Eastern Time.
From time to time and in its discretion, AIM may waive all or a portion of
its advisory fees and/or assume certain expenses of the Portfolio. Such a
practice will have the effect of increasing the Portfolio's yield and total
return.
REPORTS TO SHAREHOLDERS
The Fund furnishes shareholders with semi-annual reports containing
information about the Portfolio and its operations, including a list of the
investments held by the Portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors.
Each shareholder will be provided with a written confirmation by its
Institution for each transaction unless otherwise specified by the shareholder.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested with
its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including agreements with the Fund's investment advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's officers and to AIM, subject always to the objective
and policies of the Fund and to the general supervision of the Fund's Board of
Directors. Certain directors and officers of the Fund are affiliated with AIM
and A I M Management Group Inc. ("AIM Management"), a holding company engaged
in the financial services business. Information concerning the Board of
Directors may be found in the Statement of Additional Information.
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<PAGE>
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-
1173, acts as the investment advisor for the Portfolio pursuant to a Master
Investment Advisory Agreement dated as of October 18, 1993 (the "Advisory
Agreement"). AIM was organized in 1976 and, together with its affiliates,
manages or advises 37 investment company portfolios. As of October 31, 1995,
the total assets of the investment company portfolios managed or advised by AIM
and its affiliates were approximately $39.3 billion. AIM is a wholly-owned
subsidiary of AIM Management.
Pursuant to the terms of the Advisory Agreement, AIM manages the investment
of the Portfolio's assets and obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for the
Portfolio. The Advisory Agreement also provides that, upon the request of the
Fund's Board of Directors, AIM may perform (or arrange for the performance of)
certain accounting, shareholder servicing and other administrative services for
the Fund which are not required to be performed by AIM under the Advisory
Agreement. The Advisory Agreement requires AIM to reduce its fee to the extent
required to satisfy any expense limitations imposed by the securities laws or
regulations thereunder of any state in which the Portfolio's shares are
qualified for sale.
For the fiscal year ended August 31, 1995, AIM received fees pursuant to the
Advisory Agreement with respect to the Portfolio which represented 0.06% of the
Portfolio's average daily net assets. During such fiscal year, the expenses of
the Class, including AIM's fees, amounted to 0.39% of the Class' average daily
net assets.
ADMINISTRATOR
The Fund has also entered into a Master Administrative Services Agreement
dated as of October 18, 1993 with AIM (the "Administrative Services
Agreement"), as permitted by the Advisory Agreement pursuant to which AIM has
agreed to provide or arrange for the provision of certain accounting and other
administrative services to the Portfolio, including the services of a principal
financial officer of the Fund and related staff. Under the Administrative
Services Agreement, the Portfolio reimburses AIM for expenses incurred by AIM
in connection with such services.
In addition, AIM and AIFS entered into an Administrative Services Agreement
pursuant to which AIFS was reimbursed by AIM for its costs in providing
shareholder services for the Fund. AIFS or its affiliates received
reimbursement of shareholder services costs of $95,254 with respect to the
Portfolio for the period August 31, 1994 through June 30, 1995 which
represented 0.002% of the Portfolio's average daily net assets. The
Administrative Services Agreement between AIM and AIFS was terminated July 1,
1995. Beginning July 1, 1995, AIFS received fees with respect to the Portfolio
for its provision of shareholder services pursuant to a Transfer Agency and
Service Agreement with the Fund. For the period July 1, 1995 through August 31,
1995 AIFS received transfer agency fees from AIM with respect to the Portfolio
in the amount of $48,210.
FEE WAIVERS
AIM may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee and/or assume certain expenses of the Portfolio
but will retain its ability to be reimbursed prior to the end of the fiscal
year. FMC may in its discretion from time to time voluntarily agree to waive
its 12b-1 fee, but will retain its ability to be reimbursed prior to the end of
the fiscal year.
DISTRIBUTOR
The Fund has entered into a Master Distribution Agreement dated as of October
18, 1993 (the "Distribution Agreement") with FMC, a registered broker-dealer
and a wholly-owned subsidiary of AIM, to act as the exclusive distributor of
the shares of the Class. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. Certain directors and officers of the Fund are
affiliated with FMC and AIM. The Distribution Agreement provides that FMC has
the exclusive right to distribute shares of the Class either directly or
through other broker-dealers. FMC is the distributor of several of the mutual
funds managed or advised by AIM.
FMC may, from time to time, at its expense, pay a bonus or other
consideration or incentive to dealers or banks who sell a minimum dollar amount
of the shares of the Class during a specific period of time. In some instances,
these incentives may be offered only to certain dealers or institutions who
have sold or may sell significant amounts of shares. The total amount of such
14
<PAGE>
additional bonus 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
of the Class or the amount received as proceeds from such sales. Sales of the
shares of the Class may not be used to qualify for any incentives to the extent
that such incentives may be prohibited by the laws of any jurisdiction.
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. The Plan provides that the Fund may compensate FMC in
connection with the distribution of the shares of the Class in an amount equal
to 0.50% on an annualized basis of the average daily net assets of the
Portfolio attributable to the Class. Such amounts may be expended when and if
authorized by the Board of Directors and may be used to finance such
distribution-related services as expenses of organizing and conducting sales
seminars, printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders,
preparation and distribution of advertising material and sales literature and
costs of administering the Plan.
Of the compensation paid to FMC under the Plan, a service fee may be paid to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the
Class. Payments to dealers and other financial institutions in excess of 0.25%
of the average daily net assets of the Portfolio attributable to the Class
which are attributable to the customers of such dealers or financial
institutions and payments to FMC would be characterized as an asset-based sales
charge pursuant to the Plan. The Plan also imposes a cap on the total amount of
sales charges, including asset-based sales charges, that may be paid by the
Portfolio with respect to the Class. The Plan does not obligate the Fund to
reimburse FMC for the actual expenses FMC may incur in fulfilling its
obligations under the Plan on behalf of the Class. Thus, under the Plan, even
if FMC's actual expenses exceed the fee payable to FMC thereunder at any given
time, the Fund 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.
As required by Rule 12b-1 under the 1940 Act, the Plan was 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 Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on May 9, 1995. In
approving the continuance of the Plan, the directors considered various factors
and determined that there is a reasonable likelihood that the Plan will benefit
the Fund and the shareholders of the Class.
The Plan requires the officers of the Fund 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.
The Plan may be terminated by a vote of a majority of the Qualified
Directors, or by a vote of a majority of the holders of the outstanding voting
securities of the Class. Any change in the Plan that would increase materially
the distribution expenses paid by the Class requires shareholder approval;
otherwise the Plan may be amended by the Board of Directors, including a
majority of the Qualified Directors, by votes 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.
EXPENSES
Expenses of the Fund which are not directly attributable to the operations of
either of the Portfolios are prorated among all classes of the Fund. Expenses
of the Fund which are not directly attributable to a specific class of shares
but are directly attributable to one or both of the Portfolios are prorated
among all classes of such Portfolios. Expenses of the Fund which are directly
attributable to a specific class of shares are charged against the income
available for distribution as dividends to the holders of such shares.
15
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
AIM is responsible for decisions to buy and sell securities for the
Portfolio, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Portfolio are usually
principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Portfolio may also purchase securities from underwriters at prices
which include a concession paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the extent
that the executions and prices offered by more than one dealer are comparable,
AIM may, in its discretion, effect transactions with dealers that furnish
statistical, research or other information or services which are deemed by AIM
to be beneficial to the Portfolio's investment program. Certain research
services furnished by dealers may be useful to AIM with respect to clients
other than the Portfolio. Similarly, any research services received by AIM
through placement of portfolio transactions of other clients may be of value to
AIM in fulfilling its obligations to the Portfolio.
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund was incorporated in Maryland on May 3, 1993. On October 15, 1993,
the Portfolio succeeded to the assets and assumed the liabilities of the Prime
Portfolio (the "Predecessor Portfolio") of Short-Term Investments Co., a
Massachusetts business trust ("STIC"), pursuant to an Agreement and Plan of
Reorganization between the Fund and STIC. All historical financial and other
information contained in this Prospectus for periods prior to October 15, 1993
relating to the Portfolio (or a class thereof) is that of the Predecessor
Portfolio (or the corresponding class thereof). Shares of common stock of the
Fund are divided into eight classes. Five classes, including the Class,
represent interests in the Portfolio, and three classes represent interests in
the Liquid Assets Portfolio. Each class of shares has a par value of $.001 per
share. The other classes of the Fund may have different sales charges and other
expenses which may affect performance. An investor may obtain information
concerning the Fund's other classes by contacting FMC.
All shares of the Fund have equal rights with respect to voting, except that
the holders of shares of a particular portfolio or class will have the
exclusive right to vote on matters pertaining solely to that portfolio or
class. For example, holders of shares of a particular portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such portfolio. In addition, holders of shares
of a particular class will have the exclusive right to vote on any matter, such
as distribution arrangements, which relates solely to such class. The holders
of shares of each portfolio have distinctive rights with respect to dividends
and redemption which are more fully described in this Prospectus. In the event
of liquidation or termination of the Fund, holders of shares of each portfolio
will receive pro rata, subject to the rights of creditors, (a) the proceeds of
the sale of the assets held in the respective portfolio to which such shares
relate, less (b) the liabilities of the Fund attributable or allocated to the
respective portfolio based on the respective liquidation value of each
portfolio. Fractional shares of each portfolio have the same rights as full
shares to the extent of their proportionate interest.
The Fund will not normally hold annual shareholders' meetings. Shareholders
may remove directors from office by votes cast at a meeting of shareholders or
by written consent, and a meeting of shareholders may be called at the request
of the holders of 10% or more of the Fund's outstanding shares.
There are no preemptive or conversion rights applicable to any of the Fund's
shares. The Fund's shares, when issued, will be fully paid and non-assessable.
The Board of Directors may create additional portfolios and classes of the Fund
without shareholder approval.
TRANSFER AGENT AND CUSTODIAN
The Bank of New York, 110 Washington Street, 8th Floor, New York, New York
10286, acts as custodian for the portfolio securities and cash of the
Portfolio. A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173, acts as transfer agent for the shares of the
Class.
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<PAGE>
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania, serves as counsel to the Fund and has passed upon the legality of
the shares of the Fund.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to the Fund at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, or may
be made by calling (800) 877-7748.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Fund and the Portfolio prior to investing. A Statement of Additional
Information has been filed with the SEC. Copies of the Statement of Additional
Information are available upon request and without charge by writing or calling
the Fund or FMC. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration
statement, including items omitted herein, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
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===================================== ========================================
SHORT-TERM INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173 December 12, 1995
(800) 877-7748
SHORT-TERM
INVESTMENT ADVISOR INVESTMENTS CO.
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 1919 ----------
Houston, Texas 77046-1173
(713) 626-1919 PRIME PORTFOLIO
DISTRIBUTOR ----------
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 1919 PRIVATE INVESTMENT CLASS
Houston, Texas 77046-1173
(800) 877-7748 TABLE OF CONTENTS
AUDITORS <TABLE>
KPMG PEAT MARWICK LLP <CAPTION>
NationsBank Building PAGE
700 Louisiana ----
Houston, Texas 77002 <S> <C>
SUMMARY......................... 2
CUSTODIAN
THE BANK OF NEW YORK TABLE OF FEES AND EXPENSES...... 4
110 Washington Street, 8th Floor
New York, New York 10286 FINANCIAL HIGHLIGHTS............ 5
TRANSFER AGENT SUITABILITY FOR INVESTORS....... 6
INVESTMENT PROGRAM.............. 6
A I M INSTITUTIONAL FUND SERVICES, INC. PURCHASE OF SHARES.............. 9
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173 REDEMPTION OF SHARES............ 11
DIVIDENDS....................... 11
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY TAXES........................... 12
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE NET ASSET VALUE................. 13
OFFERING MADE BY THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR YIELD INFORMATION............... 13
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE REPORTS TO SHAREHOLDERS......... 13
FUND OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN MANAGEMENT OF THE FUND.......... 13
OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM SUCH OFFERING MAY NOT GENERAL INFORMATION............. 16
LAWFULLY BE MADE. </TABLE>
===================================== ========================================
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
PRIVATE INVESTMENT CLASS
OF THE
PRIME PORTFOLIO
OF
SHORT-TERM INVESTMENTS CO.
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 877-7748
--------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS, COPIES OF WHICH MAY BE
OBTAINED BY WRITING FUND MANAGEMENT COMPANY, 11 GREENWAY PLAZA, SUITE
1919, HOUSTON, TEXAS 77046-1173 OR CALLING (800) 877-7748
--------------------
STATEMENT OF ADDITIONAL INFORMATION DATED: DECEMBER 12, 1995
RELATING TO THE PROSPECTUS DATED: DECEMBER 12, 1995
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION............................................................ 1
GENERAL INFORMATION ABOUT THE FUND...................................... 1
The Fund and Its Shares............................................ 1
Directors and Officers............................................. 3
Remuneration of Directors.......................................... 6
AIM Funds Retirement Plan for Eligible Directors/Trustees.......... 7
Deferred Compensation Agreements................................... 8
Investment Advisor................................................. 9
Administrator...................................................... 10
Expenses........................................................... 10
Transfer Agent and Custodian....................................... 11
Reports............................................................ 11
Principal Holders of Securities.................................... 12
PURCHASES AND REDEMPTIONS............................................... 16
Net Asset Value Determination...................................... 16
Distribution Agreement............................................. 16
Distribution Plan.................................................. 17
Banking Regulations................................................ 17
Performance Information............................................ 18
Suspension of Redemption Rights.................................... 19
INVESTMENT PROGRAM AND RESTRICTIONS..................................... 19
Investment Program................................................. 19
Eligible Securities................................................ 20
Commercial Paper Ratings........................................... 21
Bond Ratings....................................................... 21
Investment Restrictions............................................ 23
PORTFOLIO TRANSACTIONS.................................................. 24
TAX MATTERS............................................................. 26
Qualification as a Regulated Investment Company.................... 26
Excise Tax On Regulated Investment Companies....................... 27
Portfolio Distributions............................................ 27
Effect of Future Legislation; Local Tax Considerations............. 28
FINANCIAL STATEMENTS.................................................... FS
i
<PAGE>
INTRODUCTION
The Prime Portfolio (the "Portfolio") is an investment portfolio of Short-
Term Investments Co. (the "Fund"), a mutual fund. The rules and regulations of
the United States Securities and Exchange Commission (the "SEC") require all
mutual funds to furnish prospective investors certain information concerning the
activities of the fund being considered for investment. This information is
included in a Prospectus dated December 12, 1995 (the "Prospectus"). Copies of
the Prospectus and additional copies of this Statement of Additional Information
may be obtained without charge by writing the distributor of the Portfolio's
shares, Fund Management Company ("FMC"), 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046-1173 or by calling (800) 877-7748. Investors must receive a
Prospectus before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning the Private Investment Class of
the Portfolio. Some of the information required to be in this Statement of
Additional Information is also included in the Prospectus; thus, in order to
avoid repetition, reference will be made to sections of the Prospectus.
Additionally, the Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the SEC.
Copies of the registration statement, including items omitted from the
Prospectus and this Statement of Additional Information, may be obtained from
the SEC by paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUND
THE FUND AND ITS SHARES
The Fund is an open-end, diversified, series management investment company
which was organized as a corporation under the laws of the State of Maryland on
May 3, 1993. On October 15, 1993, the Portfolio succeeded to the assets and
assumed the liabilities of the Prime Portfolio (the "Predecessor Portfolio") of
Short-Term Investments Co., a Massachusetts business trust ("STIC"), pursuant to
an Agreement and Plan of Reorganization between the Fund and STIC. All
historical financial and other information contained in this Statement of
Additional Information for periods prior to October 15, 1993 relating to the
Portfolio (or a class thereof) is that of the Predecessor Portfolio (or the
corresponding class thereof). Shares of common stock of the Fund are redeemable
at their net asset value at the option of the shareholder or at the option of
the Fund in certain circumstances. For information concerning the methods of
redemption and the rights of share ownership, investors should consult the
Prospectus under the captions "General Information" and "Redemption of Shares."
The Fund offers on a continuous basis shares representing an interest in
one of two portfolios: the Portfolio and the Liquid Assets Portfolio (together,
the "Portfolios"). The Portfolio consists of the following five classes of
shares: Resource Class, Cash Management Class, Private Investment Class,
Personal Investment Class and the Institutional Class. The Liquid Assets
Portfolio consists of three classes of shares. Each class of shares has
different shareholder qualifications and bears expenses differently. This
Statement of Additional Information and the associated Prospectus relate solely
to shares of the Private Investment Class (the "Class") of the Portfolio.
Shares of the other classes of the Portfolio and the classes of the Liquid
Assets Portfolio are offered pursuant to separate prospectuses and statements of
additional information.
As used in the Prospectus, the term "majority of the outstanding shares" of
the Fund, a particular portfolio or a particular class means, respectively, the
vote of the lesser of (i) 67% or more of the shares of the Fund, such portfolio
or such class present at a meeting of the Fund's shareholders, if the holders of
more than 50% of the outstanding shares of the Fund, such portfolio or such
class are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund, such portfolio or such class.
1
<PAGE>
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of the Fund
voting together for election of directors can elect all of the members of the
Board of Directors of the Fund. In such event, the remaining holders cannot
elect any members of the Board of Directors of the Fund.
The Board of Directors may classify or reclassify any unissued shares
of any class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Charter of the Fund authorizes the issuance of 40 billion shares
with a par value of $.001 each, of which 16 billion shares represent an interest
in the Liquid Assets Portfolio and 22 billion shares represent an interest in
the Portfolio (or class thereof). A share of a Portfolio (or class) represents
an equal proportionate interest in such Portfolio (or class) with each other
share of that Portfolio (or class) and is entitled to a proportionate interest
in the dividends and distributions from that Portfolio (or class). Additional
information concerning the rights of share ownership is set forth in the
Prospectus.
The assets received by the Fund for the issue or sale of shares of
each of the Portfolios and all income, earnings, profits, losses and proceeds
therefrom, subject only to the rights of creditors, are allocated to that
Portfolio, and constitute the underlying assets of that Portfolio. The
underlying assets of each of the Portfolios are segregated and are charged with
the expenses with respect to that Portfolio and with a share of the general
expenses of the Fund. While the expenses of the Fund are allocated to the
separate books of account of each of the Portfolios, certain expenses may be
legally chargeable against the assets of the entire Fund.
The Charter provides that no director or officer of the Fund shall be
liable to the Fund or its shareholders for money damages, except (i) to the
extent that it is proved that such director or officer actually received an
improper benefit or profit in money, property or services, for the amount of the
benefit or profit in money, property or services actually received, or (ii) to
the extent that a judgment or other final adjudication adverse to such director
or officer is entered in a proceeding based on a finding in the proceeding that
such director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The foregoing shall not be construed to protect or purport to
protect any director or officer of the Fund against any liability to the Fund or
its shareholders to which such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such office. The Fund shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law. The Fund shall indemnify and advance expenses to its
officers to the same extent as its directors and to such further extent as is
consistent with law. The Board of Directors may by By-Law, resolution or
agreement make further provision for indemnification of directors, officers,
employees and agents of the Fund to the fullest extent permitted by the Maryland
General Corporation Law.
As described in the Prospectus, the Fund will not normally hold annual
shareholders' meetings. 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. 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 Fund has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
2
<PAGE>
Except as otherwise disclosed in the Prospectus and in this Statement
of Additional Information, the directors shall continue to hold office and may
appoint their successors.
DIRECTORS AND OFFICERS
The directors and officers of the Fund and their principal occupations
during the last five years are set forth below. Unless otherwise indicated, the
address of each director and officer is 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046-1173.
*CHARLES T. BAUER, Director and Chairman (76)
Director, Chairman and Chief Executive Officer, AIM Management Group
Inc.; Chairman of the Board of Directors, AIM Advisors, Inc., AIM Capital
Management, Inc., AIM Distributors, Inc., AIM Fund Services, Inc., AIM
Global Associates, Inc., AIM Global Holdings, Inc., AIM Institutional Fund
Services, Inc. and Fund Management Company; and Director, AIM Global Advisors
Limited, AIM Global Management Company Limited and AIM Global Venture Co.
BRUCE L. CROCKETT, Director (51)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Director, President and Chief Executive Officer, COMSAT Corporation
(Includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video
Enterprises, COMSAT RSI and COMSAT International Ventures). Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services company).
OWEN DALY II, Director (71)
Six Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly,
Director, CF & I Steel Corp., Monumental Life Insurance Company and Monumental
General Insurance Company; and Chairman of the Board of Equitable
Bancorporation.
**CARL FRISCHLlNG, Director (58)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (law firm).
Formerly, Partner, Reid & Priest (law firm); and, prior thereto, Partner,
Spengler Carlson Gubar Brodsky & Frischling (law firm).
- -----------------------
* A director who is an "interested person" of the Fund and A I M
Advisors, Inc. as defined in the 1940 Act.
** A director who is an "interested person" of the Fund as defined
in the 1940 Act.
3
<PAGE>
***ROBERT H. GRAHAM, Director and President (49)
Director, President and Chief Operating Officer, AIM Management
Group Inc.; Director and President, AIM Advisors, Inc.; Director and Executive
Vice President, AIM Distributors, Inc.; Director and Senior Vice President,
AIM Capital Management, Inc., AIM Fund Services, Inc., AIM Global
Associates, Inc., AIM Global Holdings, Inc., AIM Global Ventures Co., AIM
Institutional Fund Services, Inc. and Fund Management Company; and Senior Vice
President, AIM Global Advisors Limited.
JOHN F. KROEGER, Director (71)
24875 Swan Road - Martingham
Box 464
St. Michaels, MD 21663
Trustee, Flag Investors International Fund, Inc.; and Director, Flag
Investors Emerging Growth Fund, Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors Equity Partners Fund, Inc., Total Return U.S. Treasury
Fund, Inc., Flag Investors Intermediate Term Income Fund, Inc., Managed
Municipal Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors
Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc., Alex. Brown Cash Reserve Fund, Inc. and North American
Government Bond Fund, Inc. (investment companies). Formerly, Consultant,
Wendell & Stockel Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (53)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (72)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic Corporation
(parent of seven telephone companies); and Vice President and Chief Financial
Officer, Bell Telephone Company of Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR, Director (56)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
- -----------------------
*** A director who is an "interested person" of the Fund and A I M
Advisors, Inc. as defined in the 1940 Act.
4
<PAGE>
****JOHN J. ARTHUR, Senior Vice President and Treasurer (51)
Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice
President and Treasurer, A I M Management Group Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M
Institutional Fund Services, Inc. and Fund Management Company; and Vice
President, AIM Global Advisors Limited, A I M Global Associates, Inc., A I M
Global Holdings, Inc. and AIM Global Ventures Co.
GARY T. CRUM, Senior Vice President (48)
Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc., A I M Advisors, Inc., A I M
Global Associates, Inc., A I M Global Holdings, Inc. and AIM Global Ventures
Co.; Director, A I M Distributors, Inc.; and Senior Vice President, AIM Global
Advisors Limited.
****CAROL F. RELIHAN, Vice President and Secretary (41)
Vice President, General Counsel and Secretary, A I M Management Group
Inc., A I M Advisors, Inc., A I M Fund Services, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company; Vice President and Secretary, A I M
Distributors, Inc., A I M Global Associates, Inc. and A I M Global Holdings,
Inc.; Vice President and Assistant Secretary, AIM Global Advisors Limited and
AIM Global Ventures Co.; and Secretary, A I M Capital Management, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (36)
Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
MELVILLE B. COX, Vice President (52)
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc.,
A I M Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and
Assistant Vice President, A I M Distributors, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance Officer,
Charles Schwab Investment Management, Inc.; and Vice President, Integrated
Resources Life Insurance Co. and Capitol Life Insurance Co.
KAREN DUNN KELLEY, Vice President (35)
Director, A I M Global Management Company Limited; Senior Vice
President, A I M Capital Management, Inc. and AIM Global Advisors Limited; and
Vice President, A I M Advisors, Inc. and AIM Global Ventures Co.
J. ABBOTT SPRAGUE, Vice President (40)
Director and President, A I M Institutional Fund Services, Inc. and
Fund Management Company; Director and Senior Vice President, A I M Advisors,
Inc.; and Senior Vice President, A I M Management Group Inc.
- -----------------------
**** Mr. Arthur and Ms. Relihan are married to each other.
5
<PAGE>
The Board of Directors has an Audit Committee, an Investment
Committee and a Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Daly, Kroeger
(Chairman), Pennock and Robinson. The Audit Committee is responsible for meeting
with the Portfolio's auditors to review audit procedures and results and to
consider any matters arising from an audit to be brought to the attention of the
directors as a whole with respect to the Portfolio's fund accounting or its
internal accounting controls, or for considering such matters as may from time
to time be set forth in a charter adopted by the Board of Directors and such
Committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Kroeger and Pennock. The Investments Committee is responsible
for reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, or considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such Committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating individuals
to stand for election as directors who are not interested persons as long as the
Fund maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act,
reviewing from time to time the compensation payable to the disinterested
directors, or considering such matters as may from time to time be set forth in
a charter adopted by the Board of Directors and such Committee.
All of the Fund's directors also serve as directors or trustees of
some or all of the other investment companies managed or advised by A I M
Advisors, Inc. ("AIM") or distributed and administered by FMC. Most of the
Fund'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 attended. The directors
of the Fund who do not serve as officers of the Fund 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 regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "AIM Funds").
Each such director receives a fee, allocated among the AIM Funds for which he
serves as a director or trustee, which consists of an annual retainer component
and a meeting fee component.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended August 31, 1995 for each director of the Fund:
6
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
Director Aggregate Retirement Total
Compensation Benefits Compensation
from Fund(1) Accrued from all AIM
by all AIM Funds(3)
Funds(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ -0- $ -0- $ -0-
- --------------------------------------------------------------------------------
Bruce L. Crockett 4,393 2,814 45,094
- --------------------------------------------------------------------------------
Owen Daly II 4,423 14,375 45,844
- --------------------------------------------------------------------------------
Carl Frischling 4,393 7,542 45,094
- --------------------------------------------------------------------------------
Robert H. Graham -0- -0- -0-
- --------------------------------------------------------------------------------
John F. Kroeger 4,423 20,517 45,844
- --------------------------------------------------------------------------------
Lewis F. Pennock 4,423 5,093 45,844
- --------------------------------------------------------------------------------
Ian W. Robinson 4,353 10,396 45,094
- --------------------------------------------------------------------------------
Louis S. Sklar 4,353 4,682 45,094
================================================================================
</TABLE>
- ----------------------
(1) The total amount of compensation deferred by all Directors of the Fund
during the fiscal year ended August 31, 1995, including interest earned
thereon, was $18,174.
(2) During the fiscal year ended August 31, 1995, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$11,985. Data reflects compensation earned for the calendar year ended
December 31, 1994.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a Director
or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling,
Robinson and Sklar each serves as a Director or Trustee of a total of 10
AIM Funds. Data reflects compensation earned for the calendar year ended
December 31, 1994.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the AIM Funds. Each eligible director is
entitled to receive an annual benefit from the AIM Funds commencing on the first
day of the calendar quarter coincident with or following his date of retirement
equal to 5% of such Director's compensation paid by the AIM Funds multiplied by
the number of such Director's years of service (not in excess of 10 years of
service) completed with respect to any of the AIM Funds. Such benefit is
payable to each eligible director in quarterly installments for a period of no
more than five years. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan commences, the
director's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased director, for no more
than five years beginning the first day of the calendar quarter following the
date of the director's death. Payments under the Plan are not secured or funded
by any AIM Fund.
7
<PAGE>
Set forth below is a table that shows the estimated annual benefits payable
to an eligible director upon retirement assuming various compensation and years
of service classifications. The estimated credited years of service as of
December 31, 1994 for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock,
Robinson and Sklar are 7, 8, 17, 17, 13, 7 and 5 years, respectively.
<TABLE>
<CAPTION>
Annual Compensation Paid
By All AIM Funds
<S> <C> <C> <C>
$60,000 $65,000
=================================
Number of Years of 10 $30,000 $32,500
Service with the ---------------------------------
AIM Funds 9 $27,000 $29,250
---------------------------------
8 $24,000 $26,000
---------------------------------
7 $21,000 $22,750
---------------------------------
6 $18,000 $19,500
---------------------------------
5 $15,000 $16,250
=================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Fund, 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 account 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 years
beginning on the date the deferring director's retirement benefits commence
under the Plan. The Fund's Board of Directors, in its sole discretion, may
accelerate or extend the distribution of such deferral accounts after the
deferring director's termination of service as a director of the Fund. If a
deferring director dies prior to the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a single lump sum payment as soon as practicable after
such deferring director's death. The Agreements are not funded and, with
respect to the payments of amounts held in the deferral accounts, the deferring
directors have the status of unsecured creditors of the Fund and of each other
AIM Fund from which they are deferring compensation.
During the fiscal year ended August 31, 1995, $42,334 in directors' fees
and expenses were allocated to the Portfolio.
During the year ended August 31, 1995, the Portfolio paid legal fees of
$3,247 for services rendered by Reid & Priest as counsel to the Board of
Directors. In September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
was appointed as counsel to the Board of Directors. During the year ended
August 31, 1995, the Portfolio paid legal fees of $10,128 for services rendered
by that firm as counsel. A director of the Fund is a partner of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel and was a partner of the firm of Reid &
Priest prior to September 1994.
8
<PAGE>
INVESTMENT ADVISOR
AIM, 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, acts as the
Portfolio's investment advisor pursuant to a Master Investment Advisory
Agreement dated as of October 18, 1993 (the "Advisory Agreement"). A prior
investment advisory agreement (the "Prior Advisory Agreement") with
substantially identical terms (including the fee schedules) to the Advisory
Agreement was previously in effect with respect to the Predecessor Portfolio.
AIM was organized in 1976 and, together with its affiliates advises or
manages 37 investment company portfolios. As of October 31, 1995, the total
assets of investment company portfolios managed or advised by AIM and its
affiliates were approximately $39.3 billion. AIM is a wholly-owned subsidiary
of A I M Management Group Inc. ("AIM Management"), 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173. Certain of the directors and officers of AIM
are also executive officers of the Fund and their affiliations are shown under
"Directors and Officers."
AIM and the Fund have adopted a Code of Ethics which requires investment
personnel (a) to pre-clear all personal securities transactions, (b) to file
reports regarding such transactions, and (c) to refrain from personally engaging
in (i) short-term trading of a security, (ii) transactions involving a security
within seven days of an AIM Fund transaction involving the same security, and
(iii) transactions involving securities being considered for investment by an
AIM Fund. The Code also prohibits investment personnel from purchasing
securities in an initial public offering. Personal trading reports are reviewed
periodically by AIM, and the Board of Directors reviews annually such reports
(including information on any substantial violations of the Code). Violations
of the Code may result in censure, monetary penalties, suspension or termination
of employment.
Pursuant to the terms of the Advisory Agreement, AIM manages the investment
of the Portfolio's assets. AIM obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for the
Portfolio. Any investment program undertaken by AIM will at all times be subject
to the policies and control of the Fund's Board of Directors. AIM shall not be
liable to the Fund or its shareholders for any act or omission by AIM or for any
loss sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
As compensation for its services, AIM receives a monthly fee which is
calculated by applying the following annual rates to the average daily net
assets of the Portfolio:
<TABLE>
<CAPTION>
Net Assets Rate
---------- ----
<S> <C>
First $100 million .20%
Over $100 million to $200 million .15%
Over $200 million to $300 million .10%
Over $300 million to $1.5 billion .06%
Over $1.5 billion .05%
</TABLE>
The Advisory Agreement requires AIM to reduce its fee to the extent
required to satisfy any expense limitations imposed by the securities laws or
regulations thereunder of any state in which the Portfolio's shares are
qualified for sale.
The Advisory Agreement provides that, upon the request of the Board of
Directors, AIM may perform (or arrange for the performance of) certain
additional services on behalf of the Portfolio which are not required by the
Advisory Agreement. AIM may receive reimbursement or reasonable compensation
for such additional services, as may be agreed upon by AIM and the Board of
Directors, based upon a finding by the Board of Directors that the provision of
such services would be in the best interest of the Portfolio and its
shareholders. The Board of Directors has made such a finding and, accordingly,
the Fund has entered into
9
<PAGE>
the Master Administrative Services Agreement under which AIM will provide the
additional services described below under the caption "Administrator."
For the fiscal years ended August 31, 1995, 1994 and 1993, AIM received
fees pursuant to the Advisory Agreement with respect to the Portfolio (and the
Predecessor Portfolio) in the amounts of $2,567,762, $2,599,662 and $2,647,096,
respectively.
The Advisory Agreement will continue in effect until June 30, 1996, and
from year to year thereafter, provided that it is specifically approved at least
annually by the Fund's Board of Directors and the affirmative vote of a majority
of the directors who are not parties to the Advisory Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The Fund or AIM may terminate the Advisory Agreement on 60 days'
notice without penalty. The Advisory Agreement terminates automatically in the
event of its "assignment," as defined in the 1940 Act.
ADMINISTRATOR
AIM also acts as the Portfolio's administrator pursuant to a Master
Administrative Services Agreement dated as of October 18, 1993 between AIM and
the Fund (the "Administrative Services Agreement"). In addition, AIM and A I M
Institutional Fund Services, Inc. ("AIFS") entered into an administrative
services agreement, dated as of September 16, 1994 (the "AIFS Administrative
Services Agreement").
Under the Administrative Services Agreement, AIM has agreed to perform or
arrange for the performance of certain accounting and other administrative
services for the Portfolio which are not required to be performed by A I M under
the Advisory Agreement. As full compensation for the performance of such
services, AIM is reimbursed for any personnel and other costs (including
applicable office space, facilities and equipment) of furnishing the services of
a principal financial officer of the Fund and of persons working under his
supervision for maintaining the financial accounts and books and records of the
Fund, 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 Fund's Board of Directors.
The AIFS Administrative Services Agreement between AIM and AIFS, a
registered transfer agent and wholly-owned subsidiary of AIM, provided that AIFS
could perform certain shareholder services for the Portfolio. For such
services, AIFS was entitled to receive from AIM reimbursement of its costs
associated with the Class. The AIFS Administrative Services Agreement was
terminated July 1, 1995. Beginning July 1, 1995, AIFS received fees with
respect to the Portfolio for its provision of shareholder services pursuant to a
Transfer Agency and Service Agreement with the Fund. For the period July 1,1995
through August 31, 1995 AIFS received transfer agency fees from AIM with respect
to the Portfolio in the amount of $48,210.
Under the terms of the Prior Advisory Agreement, AIM was reimbursed for the
fiscal year ended August 31, 1993 in the amount of $94,922 for fund accounting
services for the Portfolio. Pursuant to the Administrative Services Agreement,
AIM was reimbursed for the fiscal years ended August 31, 1995 and 1994 in the
amounts of $154,963 and $106,109, respectively, for fund accounting services for
the Portfolio. For the period from August 31, 1994 through June 30, 1995 and for
the period from June 1, 1994 through August 31, 1994, AIFS or its affiliates
received shareholder services fees from AIM with respect to the Portfolio in the
amounts of $95,254 and $14,651, respectively.
EXPENSES
Expenses of the Fund include, but are not limited to, fees paid to AIM
under the Advisory Agreement, the charges and expenses of any registrar, any
custodian or depositary appointed by the Fund for the
10
<PAGE>
safekeeping of cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
shares with the SEC and various states and other jurisdictions (including filing
and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of prospectuses, proxy statements and reports to
shareholders; fees and travel expenses of directors and director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
directors of the Fund who are not "interested persons" (as defined in the 1940
Act) of the Fund or AIM, and of independent accountants in connection with any
matter relating to the Fund, membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and directors) of the Fund which inure to its benefit; and
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto).
Except as disclosed under the caption "Distribution Plan," 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 of the Fund) 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 Fund's shares.
Expenses of the Fund which are not directly attributable to the operations
of either of the Portfolios are prorated among all classes of the Fund based
upon the relative net assets of each class. Expenses of the Fund which are not
directly attributable to a specific class of shares but are directly
attributable to one or both of the Portfolios are prorated among all classes of
such Portfolios based upon the relative net assets of each such class. The
expenses of the Portfolio are deducted from its total income before dividends
are paid. Expenses of the Fund which are directly attributable to a specific
class of shares are charged against the income available for distribution as
dividends to the holders of such shares.
TRANSFER AGENT AND CUSTODIAN
The Bank of New York acts as custodian for the portfolio securities and
cash of the Portfolio. The Bank of New York receives such compensation from the
Fund for its services in such capacity as is agreed to from time to time by The
Bank of New York and the Fund. The address of The Bank of New York is 110
Washington Street, 8th Floor, New York, New York 10286.
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173 serves as a transfer agent and dividend disbursing
agent for the shares of the Class and receives an annual fee from the Fund for
its services in such capacity in the amount of .007% of average daily net assets
of the Fund, payable montly. Such compensation may be changed from time to time
as is agreed to by AIFS and the Fund.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a schedule of
investments held in the Portfolio and its financial statements. The annual
financial statements are audited by the Fund's independent auditors. The Board
of Directors has selected KPMG Peat Marwick LLP, NationsBank Building, 700
Louisiana, Houston, Texas 77002, as the independent auditors to audit the
financial statements and review the tax returns of the Portfolio.
11
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
PRIME PORTFOLIO
To the best of the knowledge of the Fund, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of the Portfolio
as of October 25, 1995, and the percentage of the Portfolio's outstanding shares
owned by such shareholders as of such date are as follows:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
INSTITUTIONAL CLASS
- -------------------
<S> <C>
NationsBank of Texas 13.81%
P.O. Box 831000
Dallas, TX 75283-1000
U.S. Bank of Oregon 13.23%
321 Southwest 6th Street
Portland, OR 97208
Trust Company Bank 8.19%
P.O. Box 105504
Atlanta, GA 30348
Texas Commerce Bank 7.62%
P.O. Box 2558
Houston, TX 77252-8098
Boatmen's Trust Company 7.27%
100 North Broadway
St. Louis, MO 63101
Frost National Bank 7.26%
P.O. Box 1600
San Antonio, TX 78296
</TABLE>
- -----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
12
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
PRIVATE INVESTMENT CLASS
- ------------------------
<S> <C>
Huntington Capital Corporation 71.90%**
41 South High Street
Columbus, OH 43287
Var & Co. 17.39%
180 East 5th Street
St. Paul, MN 55101
Frost National Bank 6.94%
P.O. Box 1600
San Antonio, TX 78296
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
PERSONAL INVESTMENT CLASS
- -------------------------
<S> <C>
Bank of New York 67.37%**
440 Manaroneck Ave.
Harrison, NY 10528
Cullen/Frost Discount Brokers 30.94%**
P.O. Box 2358
San Antonio, TX 78299
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
CASH MANAGEMENT CLASS
- ---------------------
<S> <C>
Piper Jaffray As Agent For Customer 35.24%**
101 California Street
Suite 1150
San Francisco, CA 94111
</TABLE>
- -----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in
the 1940 Act.
13
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
<S> <C>
Piper Jaffray As Agent For Customer 29.49%**
P.O. Box 160727
Sacramento, CA 95816-0727
Bank Of New York 10.75%
One Wall Street
New York, NY 10286
Citibank As Agent For Customer 8.38%
120 Wall Street 13th Floor
New York, NY 10043
</TABLE>
RESOURCE CLASS
- --------------
AIM provided the initial capitalization of the Resource Class of the
Prime Portfolio and, accordingly, as of the date of this Statement of Additional
Information, owned all the outstanding shares of common stock of the Resource
Class of the Prime Portfolio. Although the Resource Class of the Prime
Portfolio expects that the sale of its shares to the public pursuant to the
Prospectus will reduce the percentage of such shares owned by AIM to less than
1% of the total shares outstanding, as long as AIM owns over 25% of the shares
of the Resource Class of the Prime Portfolio that are outstanding, it may be
presumed to be in "control" of the Resource Class of the Prime Portfolio, as
defined in the 1940 Act.
LIQUID ASSETS PORTFOLIO
To the best of the knowledge of the Fund, the names and addresses of
the holders of 5% or more of the outstanding shares of each class of the Liquid
Assets Portfolio as of October 25, 1995, the percentage of the Liquid Assets
Portfolio's outstanding shares owned by such shareholders as of such date are as
follows:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
INSTITUTIONAL CLASS
- -------------------
<S> <C>
Trust Company Bank 20.96%
P.O. Box 105504
Atlanta, GA 30348
</TABLE>
- -----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in the
1940 Act.
14
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
<S> <C>
Wachovia Bank & Trust 14.33%
P.O. Box 3075
Winston-Salem, NC 27150
NationsBank Dallas 11.09%
P.O. Box 831000
Dallas, TX 75283-1000
Society National Bank 7.57%
127 Public Square
Cleveland, OH 44114-1306
Boatmen's Trust Company 6.56%
100 North Broadway
St. Louis, MO 63102
Firstar Bank of Madison 5.41%
P.O. Box 7900
Madison, WI 53707
</TABLE>
PRIVATE INVESTMENT CLASS
- ------------------------
AIM provided the initial capitalization of the Private Investment
Class of the Liquid Assets Portfolio and, accordingly, as of the date of this
Statement of Additional Information, owned all the outstanding shares of common
stock of the Private Investment Class of the Liquid Assets Portfolio. Although
the Private Investment Class of the Liquid Assets Portfolio expects that the
sale of its shares to the public pursuant to the Prospectus will reduce the
percentage of such shares owned by AIM to less than 1% of the total shares
outstanding, as long as AIM owns over 25% of the shares of the Private
Investment Class of the Liquid Assets Portfolio that are outstanding, it may be
presumed to be in "control" of the Private Investment Class of the Liquid Assets
Portfolio, as defined in the 1940 Act.
CASH MANAGEMENT CLASS
- ---------------------
AIM provided the initial capitalization of the Cash Management Class
of the Liquid Assets Portfolio and, accordingly, as of the date of this
Statement of Additional Information, owned all the outstanding shares of common
stock of the Cash Management Class of the Liquid Assets Portfolio. Although the
Cash Management Class of the Liquid Assets Portfolio expects that the sale of
its shares to the public pursuant to the Prospectus will reduce the percentage
of such shares owned by AIM to less than 1% of the total shares outstanding, as
long as AIM owns over 25% of the shares of the Cash Management Class of the
- -----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in the
1940 Act.
15
<PAGE>
Liquid Assets Portfolio that are outstanding, it may be presumed to be in
"control" of the Cash Management Class of the Liquid Assets Portfolio, as
defined in the 1940 Act.
To the best of the knowledge of the Fund, as of October 25, 1995, the
directors and officers of the Fund beneficially owned less than 1% of any
portfolio's outstanding shares.
PURCHASES AND REDEMPTIONS
NET ASSET VALUE DETERMINATION
Shares of the Portfolio are sold at the net asset value of such
shares. Shareholders may at any time redeem all or a portion of their shares at
net asset value. The investor's price for purchases and redemptions will be the
net asset value next determined following the receipt of an order to purchase or
a request to redeem shares.
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, including Rule 2a-7 under the 1940 Act, which require
the Portfolio to adhere to certain conditions. These rules require that the
Portfolio maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining maturities of 397 calendar days
or less and invest only in securities determined by the Board of Directors to be
"Eligible Securities" and to present minimal credit risk to the Portfolio.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, 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's 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 existing holders of
the Portfolio's shares. In the event the Board of Directors determines that such
a deviation exists, it will take such corrective action as the Board of
Directors deems necessary and appropriate, including the sales of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
the average portfolio maturity; the withholding of dividends; redemption of
shares in kind; or the establishment of a net asset value per share by using
available market quotations.
DISTRIBUTION AGREEMENT
The Fund has entered into a Master Distribution Agreement dated as of
October 18, 1993 (the "Distribution Agreement") with FMC, a registered broker-
dealer and a wholly-owned subsidiary of AIM, to act as the exclusive distributor
of the shares of the Class. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. See "General Information about the Fund -- Directors
and Officers" and "General Information about the Fund -- Investment Advisor" for
information as to the affiliation of certain directors and officers of the Fund
with FMC, AIM and AIM Management.
The Distribution Agreement provides that FMC has the exclusive right
to distribute the shares of the Class either directly or through other broker-
dealers. The Distribution Agreement also provides that 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
16
<PAGE>
shareholders of the Portfolio 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 Class.
The Distribution Agreement will continue in effect until June 30, 1996
and from year to year thereafter, provided that it is specifically approved at
least annually by the Fund'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 Fund 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.
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. Pursuant to the Plan, the Fund 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 the shares of the Class. These services may include among
other things: (i) answering customer inquiries regarding the shares of the Class
and the Portfolio; (ii) assisting customers in changing dividend options,
account designations and addresses; (iii) performing sub-accounting; (iv)
establishing and maintaining shareholder accounts and records; (v) processing
purchase and redemption transactions; (vi) automatic investment in shares of the
Class of customer cash accounting balances; (vii) providing periodic statements
showing a customer's account balance and integrating such statements with those
of other transactions and balances in the customer's other accounts serviced by
such firm; (viii) arranging for bank wires; and (ix) such other services as the
Fund may request on behalf of the shares of the Class, to the extent such firms
are permitted to engage in such services by applicable statute, rule or
regulation. The Plan may only be used for the purposes specified above and as
stated in the Plan. Expenses may not be carried over from year to year.
For the fiscal year ended August 31, 1995, FMC received compensation
pursuant to the Plan in the amount of $367,522 or an amount equal to 0.30%, of
the average daily net assets of the Class. Of such amount $305,799 (or an
amount equal to 0.25% of the average daily net assets of the Class) was paid to
dealers and financial institutions and $61,723 (or an amount equal to 0.05% of
the average daily net assets of the Class) was retained by FMC.
FMC is a wholly-owned subsidiary of AIM, which is a wholly-owned
subsidiary of AIM Management. Charles T. Bauer, a Director and Chairman of the
Fund and Robert H. Graham, a Director and President of the Fund own shares of
AIM Management.
BANKING REGULATIONS
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the Fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the Fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or other
services then being provided by such bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
17
<PAGE>
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.
In order to permit the sale of the Fund's shares in certain states,
the Fund may from time to time make commitments more restrictive than the
restrictions described herein.
PERFORMANCE INFORMATION
As stated under the caption "Yield Information" in the Prospectus,
yield information for the shares of the Class may be obtained by calling the
Fund at (800) 877-7748. The current yield quoted will be the net average
annualized yield for an identified period. Current yield 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
realized gains and losses or unrealized appreciation or depreciation) will be
multiplied by 365 and then divided by the number of days in the period, with the
resulting figure carried to the nearest hundredth of one percent. The Fund may
also furnish a quotation of effective yield for the Class that assumes the
reinvestment of dividends for a 365-day year and a return for the entire year
equal to the average annualized yield for the period, which will be computed by
compounding the unannualized current yield for the period by adding 1 to the
unannualized current yield, raising the sum to a power equal to 365 divided by
the number of days in the period, and then subtracting 1 from the result.
For the seven-day period ended August 31, 1995, the current yield and
the effective yield (which assumes the reinvestment of dividends for a 365-day
year and a return for the entire year equal to the annualized current yield for
the period) for the Class were 5.46% and 5.61%, 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.
The Fund may compare the performance of the Class or the
performance of securities in which the Portfolio may invest to:
. IBC/Donoghue's Money Fund Averages, which are average yields of
various types of money market funds that include the effect of compounding
distributions;
. other mutual funds, especially those with similar investment
objectives. These comparisons may be based on data published by IBC/Donoghue's
Money Fund Report(R) of Holliston, Massachusetts or by Lipper Analytical
Services, Inc., a widely recognized independent service located in Summit, New
Jersey, which monitors the performance of mutual funds;
. yields on other money market securities or averages of other money
market securities as reported by the Federal Reserve Bulletin, by TeleRate, a
financial information network, or by Bloomberg, a financial information firm;
and
. other fixed-income investments such as Certificates of Deposit
("CDs").
The principal value and interest rate of CDs and money market
securities are fixed at the time of purchase whereas the Class's yield will
fluctuate. Unlike some CDs and certain other money market securities, money
market mutual funds are not insured by the FDIC. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
18
<PAGE>
The Fund may reference the growth and variety of money market mutual
funds and AIM's innovation and participation in the industry.
SUSPENSION OF REDEMPTION RIGHTS
The right of redemption may be suspended or the date of payment upon
redemption may be postponed when (a) trading on the New York Stock Exchange is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the New York Stock Exchange is closed for other than customary weekend or
holiday closings, (c) the SEC has by order permitted such suspension, or (d) an
emergency as determined by the SEC exists making disposition of portfolio
securities or the valuation of the net assets of the Portfolio not reasonably
practicable.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
The Portfolio may invest in certificates of deposit ("Eurodollar CDs")
and time deposits ("Eurodollar time deposits") of London branches of domestic
banks having total assets of $1.5 billion as of the date of their most recently
published financial statements. Accordingly, an investment in the Portfolio may
involve risks that are different in some respects from those incurred by an
investment company which invests only in debt obligations of U.S. domestic
issuers. Such risks include future political and economic developments, the
possible seizure or nationalization of foreign deposits, the possible imposition
of United Kingdom withholding taxes on interest income payable on Eurodollar CDs
or Eurodollar time deposits, and the possible establishment of exchange controls
or the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on Eurodollar CDs and Eurodollar
time deposits.
Rule 2a-7 under the 1940 Act provides that a money market fund shall
not invest more than 5% of its total assets in securities issued by the issuer
of the security, provided that such a fund may invest more than 5% of its total
assets in the First Tier securities of a single issuer for a period of up to
three business days after the purchase thereof if the money market fund is a
diversified investment company, provided further, that the fund may not make
more than one investment in accordance with the foregoing proviso at any time.
Under Rule 2a-7, for purposes of determining the percentage of a fund's total
assets that are invested in securities of an issuer, a repurchase agreement
shall be deemed to be an acquisition of the underlying securities, provided that
the obligation of the seller to repurchase the securities from the money market
fund is fully collateralized. To be fully collateralized, the collateral must,
among other things, consist entirely of U.S. Government securities or securities
that, at the time the repurchase agreement is entered into, are rated in the
highest rating category by Requisite NRSROs.(1)
The Portfolio may also lend its portfolio securities in amounts up to
33-1/3% of its total assets to financial institutions in accordance with the
investment restrictions of the Portfolio. Such loans would involve risks of
delay in receiving additional collateral in the event the value of the
collateral decreased below the value of the securities loaned or of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans will be made
only to borrowers
- -----------------------
(1) "Requisite NRSRO" 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 of
such security, that NRSRO. At present the NRSROs are: Standard &
Poor's Corp. ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
Duff and Phelps, Inc., Fitch Investors Services, Inc. ("Fitch") and,
with respect to certain types of securities, IBCA Limited and its
affiliate, IBCA Inc. Subcategories or gradations in ratings (such as a
"+" or "-") do not count as rating categories.
19
<PAGE>
deemed by AIM to be of good standing and only when, in AIM's judgment, the
income to be earned from the loans justifies the attendant risks.
ELIGIBLE SECURITIES
Rule 2a-7 under the 1940 Act, which governs the operations of money
market funds, defines an "Eligible Security" as follows:
(i) a security with a remaining maturity of 397 days or less that is
rated (or that has been issued by an issuer that is rated with respect to a
class of short-term debt obligations, or any security within that class,
that is comparable in priority and security with the security) by the
Requisite NRSROs in one of the two highest rating categories for short-term
debt obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(ii) a security:
(A) that at the time of issuance was a long-term security but
that has a remaining maturity of 397 calendar days or less, and
(B) whose issuer has received from the Requisite NRSROs a
rating, with respect to a class of short-term debt obligations (or any
security within that class) that is now comparable in priority and
security with the security, in one of the two highest rating
categories for short-term debt obligations (within which there may be
sub-categories or gradations indicating relative standing); or
(iii) an unrated security(2) that is of comparable quality to a
security meeting the requirements of paragraphs (a)(5)(i) or (ii) of this
section, as determined by the money market fund's board of directors;
provided, however, that:
(A) the board of directors may base its determination that a
standby commitment is an Eligible Security upon a finding that the
issuer of the commitment presents a minimal risk of default; and
(B) a security that at the time of issuance was a long-term
security but that has a remaining maturity of 397 calendar days or
less and that is an unrated security is not an Eligible Security if
the security has a long-term rating from any NRSRO that is not within
the NRSRO's two highest categories (within which there may be sub-
categories or gradations indicating relative standing).
- -----------------------
(2) An "unrated security" is a security (i) issued by an issuer that does not
have a current short-term rating from any NRSRO, either as to the
particular security or as to any other short-term obligations of comparable
priority and security; (ii) that was a long-term security at the time of
issuance and whose issuer has not received from any NRSRO a rating with
respect to a class of short-term debt obligations now comparable in
priority and security; or (iii) a security that is rated but which is the
subject of an external credit support agreement not in effect when the
security was assigned its rating, provided that a security is not an
unrated security if any short-term debt obligation issued by the issuer and
comparable in priority and security is rated by any NRSRO.
20
<PAGE>
COMMERCIAL PAPER RATINGS
The following is a description of the factors underlying the commercial
paper ratings of Moody's, S&P and Fitch.
MOODY'S -- The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationship which exists with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated P-1, P-2 or P-3.
S&P -- Commercial paper rated A-1 by S&P has the following characteristics.
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management is unquestioned. The relative strength or weakness of the above
factors determine whether the issuer's commercial paper is rated A-1, A-2 or
A-3.
FITCH -- Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater emphasis
than a long-term rating on the existence of liquidity necessary to meet the
issuer's obligations in a timely manner. Fitch short-term ratings are as
follows:
F-1
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-2
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1."
PLUS(+) AND MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category.
LOC
The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
BOND RATINGS
The following is a description of the factors underlying the bond ratings
of Moody's, S&P and Fitch.
MOODY'S -- The following are the two highest bond ratings of Moody's.
21
<PAGE>
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
edge." Interest payments are protected by a large or by 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 Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present which make the
long term risks appear somewhat larger than in Aaa securities.
S&P -- The following are the two highest bond ratings of S&P.
AAA
Bonds rated AAA are the highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Market values of
bonds rated AAA move with interest rates, and hence provide the maximum safety
on all counts.
AA
Bonds rated AA also qualify as high grade obligations, and in the majority
of instances differ from AAA issues only in small degree. Here, too, prices move
with the long-term money market.
FITCH - 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 guaranties unless otherwise indicated.
Bonds that have the same rating 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
22
<PAGE>
of such information. Ratings may be changed, suspended, or withdrawn as a
result of changes in, or the unavailability of, information or for other
reasons.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1."
INVESTMENT RESTRICTIONS
As a matter of fundamental policy which may not be changed without the
approval of a majority of the outstanding shares of the Portfolio (as that term
is defined under "General Information about the Fund -- The Fund and its
Shares"), the Portfolio may not:
(1) concentrate 25% or more of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and bank instruments, such as
CDs, bankers' acceptances, time deposits and bank repurchase agreements;
(2) purchase securities of any one issuer (other than obligations of
the U.S. Government, its agencies or instrumentalities) if, immediately
after such purchase, more than 5% of the value of the Portfolio's total
assets would be invested in such issuer, except as permitted by Rule 2a-7
under the 1940 Act, as amended from time to time;
(3) borrow money or issue senior securities except (a) for
temporary or emergency purposes (e.g., in order to facilitate the orderly
sale of portfolio securities or to accommodate abnormally heavy redemption
requests), the Portfolio may borrow money from banks or obtain funds by
entering into reverse repurchase agreements, and (b) to the extent that
entering into commitments to purchase securities in accordance with the
Portfolio's investment program may be considered the issuance of senior
securities, provided that the Portfolio will not purchase portfolio
securities while borrowings in excess of 5% of its total assets are
outstanding;
(4) mortgage, pledge or hypothecate any assets except to secure
permitted borrowings and except for reverse repurchase agreements and then
only in an amount up to 33-1/3% of the value of its total assets at the
time of borrowing or entering into a reverse repurchase agreement;
(5) make loans of money or securities other than (a) through the
purchase of debt securities in accordance with the Portfolio's investment
program, (b) by entering into repurchase agreements and (c) by lending
portfolio securities to the extent permitted by law or regulation;
23
<PAGE>
(6) underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition of such
securities in accordance with the Portfolio's investment program may be
deemed an underwriting;
(7) invest in real estate, except that the Portfolio may purchase
and sell securities secured by real estate or interests therein or issued
by issuers which invest in real estate or interests therein;
(8) purchase or sell commodities or commodity futures contracts,
purchase securities on margin, make short sales or invest in puts or calls;
(9) invest in any obligation not payable as to principal and
interest in United States currency; or
(10) acquire for value the securities of any other investment
company, except in connection with a merger, consolidation, reorganization
or acquisition of assets.
The following investment policies and restrictions are not fundamental
policies and may be changed by the Board of Directors of the Fund without
Shareholder approval. The Portfolio does not intend to invest in companies for
the purpose of exercising control or management.
State Law Restrictions The Fund may, from time to time in order to qualify
shares of the Portfolio for sale in a particular state, agree to certain
investment restrictions in addition to or more stringent than those set forth
above. Such restrictions are not fundamental and may be changed without the
approval of shareholders. Pursuant to an undertaking made to the Ohio Division
of Securities, the Portfolio will not purchase the securities of an issuer if
the officers or directors of the Fund who own more than 0.5% of the securities
of the issuer together own beneficially more than 5% of the securities of such
issuer.
PORTFOLIO TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the
Portfolio, for selection of broker-dealers and for negotiation of commission
rates. Since purchases and sales of portfolio securities by the Portfolio are
usually principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Portfolio may also purchase securities from underwriters at prices
which include a commission paid by the issuer to the underwriter.
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 market. 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.
AIM's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order. To the
extent that the execution and prices offered by more than one
24
<PAGE>
dealer are comparable, AIM may, in its discretion, effect transactions with
dealers that furnish statistical, research or other information or services
which are deemed by AIM to be beneficial to the Portfolio's investment program.
Certain research services furnished by dealers may be useful to AIM with clients
other than the Portfolio. Similarly, any research services received by AIM
through placement of portfolio transactions of other clients may be of value to
AIM in fulfilling its obligations to the Portfolio. AIM is of the opinion that
the material received is beneficial in supplementing AIM's research and
analysis; and therefore, it may benefit the Portfolio by improving the quality
of AIM's investment advice. The advisory fees paid by the Portfolio are not
reduced because AIM receives such services.
From time to time, the Fund may sell a security to, or purchase a security
from, an AIM Fund or another investment account advised by AIM or A I M Capital
Management, Inc. ("AIM Capital"), when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment objective(s)
and policies of the investment accounts advised by AIM or AIM Capital.
Procedures pursuant to Rule 17a-7 under the 1940 Act regarding transactions
between investment accounts advised by AIM or AIM Capital have been adopted by
the Boards of Directors/Trustees of the various AIM Funds, including the Fund.
Although such transactions may result in custodian, tax or other related
expenses, no brokerage commissions or other direct transaction costs are
generated by transactions among the investment accounts advised by AIM or AIM
Capital.
Provisions of the 1940 Act and rules and regulations thereunder have been
construed to prohibit the Fund from purchasing securities or instruments from,
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed or advised by AIM. The Fund has
obtained an order of exemption from the SEC which permits the Fund to engage in
certain transactions with such 5% holder, if the Fund complies with conditions
and procedures designed to ensure that such transactions are executed at fair
market value and present no conflicts of interest.
AIM and its affiliates manage several other investment accounts, some of
which may have objectives similar to the Portfolio's. It is possible that at
times identical securities will be acceptable for one or more of such investment
accounts. However, the position of each account in the securities of the same
issue may vary and the length of time that each account may choose to hold its
investment in the securities of the same issue may likewise vary. The timing
and amount of purchase by each account will also be determined by its cash
position. If the purchase or sale of securities 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, transactions in such securities will be
allocated in good faith among such accounts, in accordance with applicable laws
and regulations, in order to obtain the best net price and most favorable
execution. The allocation and combination of simultaneous securities purchases
on behalf of the Portfolio will be made in the same way that such purchases are
allocated among or combined with those of other AIM accounts. Simultaneous
transactions could adversely affect the ability of the Portfolio to obtain or
dispose of the full amount of a security which it seeks to purchase or sell.
Under the 1940 Act, persons affiliated with the Fund are prohibited from
dealing with the Portfolio as a 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 Fund from purchasing a security being
publicly underwritten by a syndicate of which persons affiliated with the Fund
are members except in accordance with certain conditions. These conditions may
restrict the ability of the Portfolio to purchase money market obligations being
publicly underwritten by such a syndicate, and the Portfolio may be required to
wait until the syndicate has been terminated before buying such securities. At
such time, the market price of the securities may be higher or lower than the
original offering price. A person affiliated with the Fund may, from time to
time, serve as placement agent or financial advisor to an issuer of money market
obligations and be paid a fee by such issuer. The Portfolio may purchase such
money market obligations directly from the issuer, provided that the purchase is
made in accordance with procedures adopted by the Fund's Board of Directors and
such purchase is reviewed at least quarterly by the Fund's Board of Directors
and a determination is made that all such purchases were effected in compliance
with such procedures,
25
<PAGE>
including a determination that the placement fee or other remuneration paid by
the issuer to the person affiliated with the Fund was fair and reasonable in
relation to the fees charged by others performing similar services. During the
fiscal year ended August 31, 1995, no securities or instruments were purchased
by the Portfolio from issuers who paid placement fees or other compensation to a
broker affiliated with the Portfolio.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolio or its shareholders, and the discussion here and in
the Prospectus is not intended as a substitute for careful planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 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) 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 for the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or of options, futures or forward contracts thereon) held for less
than three months (the "Short-Short Gain Test"). However, foreign currency
gains, including those derived from options, futures and forward contracts, will
not be characterized as Short-Short Gains if they are directly related to the
regulated investment company's principal business of investing in stock or
securities (or in options or futures thereon). Because of the Short-Short Gain
Test, a fund may have to limit the sale of appreciated securities that it has
held for less than three months. However, the Short-Short Gain Test will not
prevent a fund from disposing of investments at a loss, since the recognition of
a loss before the expiration of the three-month holding period is disregarded.
Interest (including original issue discount) received by a fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of a security
within the meaning of the Short-Short Gain Test. However, income that is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In addition to satisfying the requirements described above, a regulated
investment company must satisfy an asset diversification test in order to
qualify for tax purposes as a regulated investment company. Under this test, at
the close of each quarter of a fund's taxable year, at least 50% of the value of
a fund's assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated
26
<PAGE>
investment companies, and securities of other issuers (as to which a fund has
not invested more than 5% of the value of a fund's total assets in securities of
such issuer and as to which a fund 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 other issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which a fund 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 (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year). The balance of such income must be
distributed during the next calendar year. 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.
PORTFOLIO DISTRIBUTIONS
The Portfolio anticipates distributing substantially all of its investment
company taxable income 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 70% dividends received
deduction for corporations.
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. Shareholders receiving a distribution in
the form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, 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.
The Portfolio will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of the ordinary income dividends and capital gain
dividends and, in certain cases, 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 Fund that it
is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
27
<PAGE>
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 November
1, 1995. 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 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 advisors as to the consequences of these and other state and
local tax rules affecting investment in the Portfolio.
28
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of the
Prime Portfolio (a series portfolio of Short-Term Investments Co.), including
the schedule of investments, as of August 31, 1995, 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 ten-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
August 31, 1995 by correspondence with the custodian. 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
Prime Portfolio as of August 31, 1995, 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 ten-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
October 6, 1995
FS-1
<PAGE>
SCHEDULE OF INVESTMENTS
August 31, 1995
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER - 71.82%(a)
BASIC INDUSTRIES - 0.30%
MULTIPLE INDUSTRY - 0.30%
Philip Morris Companies, Inc.
5.75% 10/04/95 $ 12,500 $ 12,434,115
- ----------------------------------------------------------------------
Total Basic Industries 12,434,115
- ----------------------------------------------------------------------
BUSINESS SERVICES - 5.90%
POLLUTION CONTROL SERVICES - 2.15%
Browning-Ferris Industries, Inc.
5.69% 09/08/95 20,000 19,977,872
- ----------------------------------------------------------------------
5.75% 09/15/95 18,000 17,959,750
- ----------------------------------------------------------------------
5.73% 09/18/95 20,000 19,945,883
- ----------------------------------------------------------------------
5.75% 09/19/95 12,700 12,663,487
- ----------------------------------------------------------------------
5.73% 09/22/95 20,000 19,933,150
- ----------------------------------------------------------------------
90,480,142
- ----------------------------------------------------------------------
MISCELLANEOUS - 3.75%
Donnelley (R.R.) & Sons Co.
5.73% 09/22/95 53,000 52,822,848
- ----------------------------------------------------------------------
PHH Corp.
5.75% 09/13/95 47,100 47,009,725
- ----------------------------------------------------------------------
5.75% 10/11/95 58,000 57,629,445
- ----------------------------------------------------------------------
157,462,018
- ----------------------------------------------------------------------
Total Business Services 247,942,160
- ----------------------------------------------------------------------
CAPITAL GOODS - 2.35%
COMPUTERS & OFFICE EQUIPMENT - 1.40%
Xerox Corp.
5.75% 10/04/95 31,025 30,861,472
- ----------------------------------------------------------------------
Xerox Credit Corp.
5.73% 09/19/95 11,000 10,968,485
- ----------------------------------------------------------------------
5.74% 10/05/95 16,981 16,888,944
- ----------------------------------------------------------------------
58,718,901
- ----------------------------------------------------------------------
MACHINERY - 0.95%
Dover Corp.
5.75% 09/11/95 14,000 13,977,639
- ----------------------------------------------------------------------
5.75% 09/25/95 15,000 14,942,500
- ----------------------------------------------------------------------
5.77% 10/02/95 11,191 11,135,396
- ----------------------------------------------------------------------
40,055,535
- ----------------------------------------------------------------------
Total Capital Goods 98,774,436
- ----------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
CONSUMER DURABLES - 2.52%
AUTOMOBILE - 2.52%
Daimler-Benz North America Corp.
5.68% 09/08/95 $ 66,000 $ 65,927,107
- -------------------------------------------------------------------
Toyota Motor Credit Corp.
5.75% 10/06/95 40,000 39,776,389
- -------------------------------------------------------------------
Total Consumer Durables 105,703,496
- -------------------------------------------------------------------
CONSUMER NONDURABLES - 3.32%
HOUSEHOLD PRODUCTS - 3.32%
Colgate-Palmolive Co.
5.70% 09/15/95 61,550 61,413,564
- -------------------------------------------------------------------
5.71% 09/18/95 20,000 19,946,072
- -------------------------------------------------------------------
5.72% 09/20/95 19,500 19,441,132
- -------------------------------------------------------------------
5.72% 09/21/95 38,800 38,676,702
- -------------------------------------------------------------------
Total Consumer Nondurables 139,477,470
- -------------------------------------------------------------------
CONSUMER SERVICES - 2.91%
MISCELLANEOUS - 2.91%
USL Capital Corp.
5.73% 09/07/95 21,000 20,979,945
- -------------------------------------------------------------------
5.74% 09/07/95 21,000 20,979,910
- -------------------------------------------------------------------
5.73% 09/19/95 9,000 8,974,215
- -------------------------------------------------------------------
5.77% 09/21/95 15,500 15,450,314
- -------------------------------------------------------------------
5.73% 10/05/95 31,016 30,848,152
- -------------------------------------------------------------------
5.74% 10/13/95 25,000 24,832,583
- -------------------------------------------------------------------
Total Consumer Services 122,065,119
- -------------------------------------------------------------------
ENERGY - 3.31%
NATURAL GAS - 1.45%
Colonial Pipeline Co.
5.72% 09/12/95 15,000 14,973,783
- -------------------------------------------------------------------
5.72% 09/19/95 13,800 13,760,532
- -------------------------------------------------------------------
5.76% 09/28/95 12,000 11,948,160
- -------------------------------------------------------------------
5.78% 09/29/95 20,100 20,009,639
- -------------------------------------------------------------------
60,692,114
- -------------------------------------------------------------------
OIL & GAS - 1.86%
ARCO Coal Australia Inc.
5.69% 09/12/95 9,501 9,484,482
- -------------------------------------------------------------------
5.70% 09/14/95 12,489 12,463,293
- -------------------------------------------------------------------
5.75% 09/15/95 14,788 14,754,932
- -------------------------------------------------------------------
5.72% 10/10/95 12,507 12,429,498
- -------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
ENERGY--(continued)
OIL & GAS - (CONTINUED)
Mobil Australia Finance Company, Inc.
5.68% 09/01/95 $ 29,088 $ 29,088,000
- ------------------------------------------------------------------------
78,220,205
- ------------------------------------------------------------------------
Total Energy 138,912,319
- ------------------------------------------------------------------------
FINANCIAL - 47.89%
ASSET-BACKED SECURITIES - 22.81%
Asset Securitization Cooperative Corp.
5.70% 09/08/95 55,000 54,939,041
- ------------------------------------------------------------------------
5.72% 09/22/95 10,000 9,966,633
- ------------------------------------------------------------------------
5.72% 10/26/95 55,000 54,519,361
- ------------------------------------------------------------------------
5.71% 10/27/95 30,000 29,733,533
- ------------------------------------------------------------------------
Ciesco, L.P.
5.73% 09/06/95 15,000 14,988,063
- ------------------------------------------------------------------------
5.72% 10/18/95 40,000 39,701,289
- ------------------------------------------------------------------------
Clipper Receivables Corp.
5.77% 09/12/95 50,000 49,911,848
- ------------------------------------------------------------------------
5.77% 09/13/95 28,911 28,855,394
- ------------------------------------------------------------------------
5.77% 09/14/95 17,227 17,191,106
- ------------------------------------------------------------------------
5.77% 09/19/95 57,000 56,835,555
- ------------------------------------------------------------------------
5.77% 09/25/95 19,000 18,926,913
- ------------------------------------------------------------------------
Corporate Asset Funding Co. Inc.
5.73% 09/06/95 32,900 32,873,817
- ------------------------------------------------------------------------
5.74% 09/07/95 25,000 24,976,083
- ------------------------------------------------------------------------
Delaware Funding Corp.
5.72% 09/18/95 16,228 16,184,166
- ------------------------------------------------------------------------
5.76% 09/25/95 12,134 12,087,405
- ------------------------------------------------------------------------
Eiger Capital Corp.
5.75% 09/14/95 27,540 27,482,816
- ------------------------------------------------------------------------
Falcon Asset Securitization Corp.
5.76% 09/11/95 15,325 15,300,480
- ------------------------------------------------------------------------
5.77% 09/20/95 25,000 24,923,868
- ------------------------------------------------------------------------
5.74% 10/04/95 31,425 31,259,653
- ------------------------------------------------------------------------
5.75% 10/04/95 15,050 14,970,674
- ------------------------------------------------------------------------
5.74% 10/12/95 15,825 15,721,548
- ------------------------------------------------------------------------
Matterhorn Capital Corp.
5.75% 09/27/95 31,016 30,887,197
- ------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
FINANCIAL--(continued)
ASSET-BACKED SECURITIES - (CONTINUED)
Preferred Receivables Funding Corp.
5.70% 09/08/95 $ 11,375 $ 11,362,393
- ------------------------------------------------------------------------
5.73% 09/14/95 20,875 20,831,806
- ------------------------------------------------------------------------
5.73% 09/18/95 30,125 30,043,487
- ------------------------------------------------------------------------
5.75% 10/05/95 81,275 80,833,633
- ------------------------------------------------------------------------
5.73% 10/20/95 30,125 29,890,050
- ------------------------------------------------------------------------
Sheffield Receivables Corp.
5.72% 09/06/95 25,800 25,779,503
- ------------------------------------------------------------------------
5.71% 09/12/95 24,700 24,656,905
- ------------------------------------------------------------------------
5.77% 09/13/95 46,000 45,911,528
- ------------------------------------------------------------------------
5.77% 09/14/95 40,000 39,916,656
- ------------------------------------------------------------------------
5.73% 09/19/95 26,900 26,822,931
- ------------------------------------------------------------------------
958,285,335
- ------------------------------------------------------------------------
BUSINESS CREDIT - 4.08%
CIT Group Holdings, Inc.
5.68% 09/06/95 30,000 29,976,333
- ------------------------------------------------------------------------
5.68% 09/07/95 30,000 29,971,600
- ------------------------------------------------------------------------
5.72% 09/21/95 75,000 74,761,667
- ------------------------------------------------------------------------
5.72% 10/20/95 37,000 36,711,934
- ------------------------------------------------------------------------
171,421,534
- ------------------------------------------------------------------------
INSURANCE - 2.33%
MetLife Funding, Inc.
5.72% 09/22/95 50,000 49,833,166
- ------------------------------------------------------------------------
5.74% 10/12/95 48,211 47,895,834
- ------------------------------------------------------------------------
97,729,000
- ------------------------------------------------------------------------
PERSONAL CREDIT - 7.68%
Associates Corp. of North America
5.73% 10/18/95 50,000 49,625,958
- ------------------------------------------------------------------------
5.73% 10/19/95 100,000 99,236,000
- ------------------------------------------------------------------------
AVCO Financial Services, Inc.
5.70% 09/15/95 50,000 49,889,167
- ------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
FINANCIAL - (continued)
PERSONAL CREDIT - (CONTINUED)
Household Finance Corp.
5.75% 10/12/95 $ 50,000 $ 49,672,569
- --------------------------------------------------------------------
5.73% 10/20/95 50,000 49,610,042
- --------------------------------------------------------------------
Student Loan Corp.
5.73% 10/20/95 25,000 24,805,021
- --------------------------------------------------------------------
322,838,757
- --------------------------------------------------------------------
MISCELLANEOUS - 7.10%
Hertz Corp. (The)
5.69% 09/07/95 25,000 24,976,292
- --------------------------------------------------------------------
5.68% 09/08/95 20,000 19,977,911
- --------------------------------------------------------------------
5.70% 09/18/95 81,000 80,781,975
- --------------------------------------------------------------------
5.72% 10/06/95 35,000 34,805,361
- --------------------------------------------------------------------
5.75% 10/13/95 11,500 11,422,854
- --------------------------------------------------------------------
International Lease Finance Corp.
5.70% 09/15/95 19,000 18,957,883
- --------------------------------------------------------------------
5.71% 09/25/95 18,500 18,429,577
- --------------------------------------------------------------------
5.72% 10/05/95 6,570 6,534,507
- --------------------------------------------------------------------
5.72% 10/06/95 38,900 38,683,673
- --------------------------------------------------------------------
5.73% 10/13/95 44,000 43,705,860
- --------------------------------------------------------------------
298,275,893
- --------------------------------------------------------------------
MULTIPLE INDUSTRY - 3.89%
General Electric Capital Corp.
5.74% 09/07/95 23,500 23,477,518
- --------------------------------------------------------------------
5.72% 09/20/95 100,000 99,698,110
- --------------------------------------------------------------------
5.71% 10/06/95 40,500 40,275,169
- --------------------------------------------------------------------
163,450,797
- --------------------------------------------------------------------
Total Financial 2,012,001,316
- --------------------------------------------------------------------
OTHER - 3.32%
DIVERSIFIED - 3.32%
BTR Dunlop Finance Inc.
5.69% 09/12/95 20,424 20,388,491
- --------------------------------------------------------------------
5.73% 09/22/95 23,224 23,146,374
- --------------------------------------------------------------------
5.72% 10/10/95 26,556 26,391,441
- --------------------------------------------------------------------
5.74% 10/13/95 26,759 26,579,804
- --------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
OTHER--(continued)
DIVERSIFIED - (CONTINUED)
Cargill Inc.
5.69% 09/08/95 $ 12,000 $ 11,986,724
- ----------------------------------------------------------------------------
5.70% 09/11/95 16,300 16,274,192
- ----------------------------------------------------------------------------
5.73% 09/22/95 15,000 14,949,863
- ----------------------------------------------------------------------------
Total Other 139,716,889
- ----------------------------------------------------------------------------
Total Commercial Paper 3,017,027,320
- ----------------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 4.06%
Citicorp Securities, Inc.(b)
6.063% 09/13/95 6,000 6,000,000
- ----------------------------------------------------------------------------
Morgan (J.P.) Securities, Inc.(c)
5.988% 10/16/95 87,500 87,500,000
- ----------------------------------------------------------------------------
Morgan Stanley Group, Inc.(d)
5.893% 01/29/96 77,000 77,000,000
- ----------------------------------------------------------------------------
Total Master Note Agreements 170,500,000
- ----------------------------------------------------------------------------
PROMISSORY NOTE AGREEMENTS - 1.78%
Goldman, Sachs & Co.(e)
5.913% 01/29/96 75,000 75,000,000
- ----------------------------------------------------------------------------
Total Investments (excluding Repurchase
Agreements) 3,262,527,320
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 22.77%(f)
BT Securities Corp.(g)
5.83% -- 50,000 50,000,000
- ----------------------------------------------------------------------------
Daiwa Securities America, Inc.(h)
5.84% 09/01/95 91,528 91,528,472
- ----------------------------------------------------------------------------
Fuji Securities Inc.(i)
5.87% -- 115,000 115,000,000
- ----------------------------------------------------------------------------
Nesbitt Burns Securities, Inc.(j)
5.86% -- 100,000 100,000,000
- ----------------------------------------------------------------------------
Nikko Securities Co., Ltd.(k)
5.87% 09/01/95 200,000 200,000,000
- ----------------------------------------------------------------------------
Nomura Securities Co., Ltd.(l)
5.85% 09/01/95 100,000 100,000,000
- ----------------------------------------------------------------------------
SBC Government Securities, Inc.(m)
5.87% -- 200,000 200,000,000
- ----------------------------------------------------------------------------
UBS Securities Inc.(n)
5.85% -- 100,000 100,000,000
- ----------------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<CAPTION>
VALUE
<S> <C>
Total Repurchase Agreements $ 956,528,472
- ---------------------------------------------------------------------
TOTAL INVESTMENTS - 100.43% 4,219,055,792(o)
- ---------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.43)% (17,975,680)
- ---------------------------------------------------------------------
NET ASSETS - 100% $4,201,080,112
=====================================================================
</TABLE>
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Portfolio.
(b) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon notice to the issuer. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
August 31, 1995.
(c) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon seven calendar days' notice. Interest rates on
master notes are redetermined periodically. Rate shown is the rate in
effect on August 31, 1995.
(d) Master Note Purchase Agreement may be terminated by either party upon three
business days' notice, at which time all amounts outstanding under the
notes purchased under the Master Note Purchase Agreement will become
payable. Interest rates on master notes are redetermined periodically. Rate
shown is the rate in effect on August 31, 1995.
(e) The Portfolio may demand prepayment of Note upon seven calendar days'
notice. Interest rates on promissory notes are redetermined periodically.
Rate shown is the rate in effect on August 31, 1995.
(f) Collateral on repurchase agreements, including the Portfolio's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales price
of the repurchase agreement. The investments in some repurchase agreements
are through participation in joint accounts with other mutual funds managed
by the investment advisor.
(g) Open repurchase agreement entered into 02/27/95; however, either party may
terminate the agreement upon demand. Interest rates are redetermined daily.
Collateralized by $95,150,000 U.S. Treasury STRIPS, due 08/15/04 to
08/15/05.
(h) Joint repurchase agreement entered into 08/31/95 with a maturing value of
$209,464,857. Collateralized by $204,224,000 U.S. Treasury obligations, 0%
to 10.75% due 11/30/95 to 05/15/16.
(i) Open joint repurchase agreement entered into 12/12/94; however, either
party may terminate the agreement upon demand. Interest rates are
redetermined daily. Collateralized by $332,491,000 U.S. Treasury
obligations, 0% to 9.25% due 05/15/97 to 02/15/16.
(j) Open joint repurchase agreement entered into 08/16/95; however, either
party may terminate the agreement upon demand. Interest rates are
redetermined daily. Collateralized by $270,681,000 U.S. Treasury STRIPS,
due 11/15/95 to 11/15/21.
(k) Entered into 08/31/95 with a maturing value of $200,032,611. Collateralized
by $271,592,502 U.S. Government agency obligations, 6.583% to 9.50% due
09/01/98 to 08/01/25.
(l) Entered into 08/31/95 with a maturing value of $100,016,250. Collateralized
by $102,805,000 U.S. Government agency obligations, 0% to 8.25% due
10/02/95 to 05/12/05.
(m) Open repurchase agreement entered into 08/16/95; however, either party may
terminate the agreement upon demand. Interest rates are redetermined daily.
Collateralized by $232,765,728 U.S. Government agency obligations, 5.997%
to 9.00% due 11/01/21 to 02/01/31 and $8,000,000 U.S. Treasury Bills due
03/07/96.
(n) Open joint repurchase agreement entered into 08/18/95; however, either
party may terminate the agreement upon demand. Collateralized by
$249,645,000 U.S. Treasury Bills, due 12/14/95 to 01/18/96.
(o) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value
(amortized cost) $3,262,527,320
- ------------------------------------------------------------------------
Repurchase agreements 956,528,472
- ------------------------------------------------------------------------
Interest receivable 1,395,798
- ------------------------------------------------------------------------
Investment for deferred compensation plan 31,965
- ------------------------------------------------------------------------
Other assets 1,351,229
- ------------------------------------------------------------------------
Total assets 4,221,834,784
- ------------------------------------------------------------------------
LIABILITIES:
Dividends payable 20,375,980
- ------------------------------------------------------------------------
Deferred compensation payable 31,965
- ------------------------------------------------------------------------
Accrued advisory fees 213,136
- ------------------------------------------------------------------------
Accrued distribution fees 88,951
- ------------------------------------------------------------------------
Accrued transfer agent fees 5,493
- ------------------------------------------------------------------------
Accrued operating expenses 39,147
- ------------------------------------------------------------------------
Total liabilities 20,754,672
- ------------------------------------------------------------------------
NET ASSETS $4,201,080,112
========================================================================
NET ASSETS:
Institutional Class $3,752,693,248
========================================================================
Private Investment Class $ 154,277,704
========================================================================
Personal Investment Class $ 99,630,235
========================================================================
Cash Management Class $ 194,478,925
========================================================================
NET ASSET VALUE PER SHARE:
Shares outstanding, $0.001 par value per share:
Institutional Class 3,752,704,848
========================================================================
Private Investment Class 154,278,185
========================================================================
Personal Investment Class 99,629,606
========================================================================
Cash Management Class 194,479,527
========================================================================
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-9
<PAGE>
STATEMENT OF OPERATIONS
For the year ended August 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $246,526,258
- -------------------------------------------------------------------
EXPENSES:
Advisory fees 2,567,762
- -------------------------------------------------------------------
Custodian fees 329,212
- -------------------------------------------------------------------
Administrative services fees 250,216
- -------------------------------------------------------------------
Directors' fees and expenses 42,334
- -------------------------------------------------------------------
Registration fees 262,523
- -------------------------------------------------------------------
Transfer agent fees 89,684
- -------------------------------------------------------------------
Distribution fees (Note 2) 795,232
- -------------------------------------------------------------------
Other 348,810
- -------------------------------------------------------------------
Total expenses 4,685,773
- -------------------------------------------------------------------
Less expenses assumed by advisor (50,900)
- -------------------------------------------------------------------
Net expenses 4,634,873
- -------------------------------------------------------------------
Net investment income 241,891,385
- -------------------------------------------------------------------
Net increase in net assets resulting from operations $241,891,385
===================================================================
</TABLE>
See Notes to Financial Statements.
FS-10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended August 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 241,891,385 $ 155,832,059
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 241,891,385 155,832,059
- ----------------------------------------------------------------------------
Distributions to shareholders from net
investment income (241,891,385) (155,832,059)
- ----------------------------------------------------------------------------
Share transactions-net 86,066,761 (253,692,887)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets 86,066,761 (253,692,887)
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 4,115,013,351 4,368,706,238
- ----------------------------------------------------------------------------
End of period $4,201,080,112 $4,115,013,351
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,201,092,165 $4,115,025,404
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (12,053) (12,053)
- ----------------------------------------------------------------------------
$4,201,080,112 $4,115,013,351
============================================================================
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
Short-Term Investments Co. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end series diversified management
investment company. The Fund is organized as a Maryland corporation consisting
of two different portfolios, the Prime Portfolio, which offers separate classes
of shares, and the Liquid Assets Portfolio. Information presented in these
financial statements pertains only to the Prime Portfolio (the "Portfolio").
The assets, liabilities and operations of each portfolio are accounted for
separately. The Portfolio consists of four different classes of shares: the
Institutional Class, the Private Investment Class, the Personal Investment
Class, and the Cash Management Class.
The following is a summary of the significant accounting policies followed by
the Portfolio in the preparation of its financial statements.
A. Security Valuations - The Portfolio invests only in securities which have
maturities of sixty days or less. The 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 premium.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is accrued daily. Dividends to shareholders are
declared daily and are paid on the first business day of the following
month.
C. Federal Income Taxes - The Portfolio 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.
D. Expenses - Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to more
than one class, e.g., advisory fees, are allocated among them.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master advisory agreement, AIM
receives a monthly fee with respect to the Portfolio calculated by applying a
monthly rate, based upon the following annual rates, to the average daily net
assets of the Portfolio:
<TABLE>
<CAPTION>
Net Assets RATE
- -----------------------------------------------------------------------
<S> <C>
First $100 million 0.20%
- -----------------------------------------------------------------------
Over $100 million to $200 million 0.15%
- -----------------------------------------------------------------------
Over $200 million to $300 million 0.10%
- -----------------------------------------------------------------------
Over $300 million to $1.5 billion 0.06%
- -----------------------------------------------------------------------
Over $1.5 billion 0.05%
- -----------------------------------------------------------------------
</TABLE>
AIM will, if necessary, reduce its fee for any fiscal year to the extent
required so that the amount of ordinary expenses of the Portfolio (excluding
interest, taxes, brokerage commissions and extraordinary expenses) paid or
incurred by the Portfolio for such fiscal year does not exceed the applicable
expense limitations imposed by the state securities regulations in any state in
which the Portfolio's shares are qualified for sale. AIM voluntarily reimbursed
expenses of $14,000 on the Prime Portfolio-Private Investment Class, $13,300 on
the Prime Portfolio-Personal Investment Class and $23,600 on the Prime
Portfolio-Cash Management Class during the year ended August 31, 1995.
The Portfolio, pursuant to a master administrative services agreement with
AIM, has agreed to reimburse AIM for certain costs incurred in providing
accounting services to the Portfolio. During the year ended August 31, 1995,
the Portfolio reimbursed AIM $154,963 for such services. During the year ended
August 31, 1995, the Fund paid A I M Institutional Fund
FS-12
<PAGE>
Services, Inc. ("AIFS") $143,464 for shareholder and transfer agency services.
Effective July 1, 1995, AIFS became the exclusive transfer agent of the
Portfolio.
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 and the Cash Management Class
of the Portfolio. The Plan provides that the Portfolio's Private Investment
Class, the Personal Investment Class and the Cash Management Class may pay up
to a 0.50%, 0.75% and 0.10%, 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
and the Personal Investment Class and (b) 0.10% of the average daily net assets
of the Cash Management 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 or the Cash Management Class. Any amounts not
paid as a service fee under such Plan would constitute an asset-based sales
charge. During the year ended August 31, 1995, the Prime Portfolio-Private
Investment Class, the Prime Portfolio-Personal Investment Class and Prime
Portfolio-Cash Management Class accrued $367,522, $413,064 and $14,646,
respectively, for compensation to FMC under the Plan. Certain officers and
directors of the Fund are officers of AIM, FMC and AIFS.
During the year ended August 31, 1995, the Portfolio paid legal fees of $3,247
for services rendered by Reid & Priest as counsel to the Board of Directors. In
September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was appointed
as counsel to the Board of Directors. During the year ended August 31, 1995,
the Portfolio paid legal fees of $10,128 for services rendered by that firm as
counsel. A director of the Fund is a member of Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel and was a member of the firm of Reid & Priest prior to
September 1994.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Fund invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-SHARE INFORMATION
Changes in shares outstanding during the years ended August 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Class 30,516,627,315 $30,516,627,315 33,826,759,958 $33,826,759,958
- -------------------------------------------------------------------------------------------
Private Investment
Class 1,403,913,359 1,403,913,359 120,927,192 120,927,192
- -------------------------------------------------------------------------------------------
Personal Investment
Class 881,857,651 881,857,651 15,823,134 15,823,134
- -------------------------------------------------------------------------------------------
Cash Management Class* 307,521,987 307,521,987 25,113,434 25,113,434
- -------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Class 3,106,371 3,106,371 527,557 527,557
- -------------------------------------------------------------------------------------------
Private Investment
Class 4,691,704 4,691,704 3,982 3,982
- -------------------------------------------------------------------------------------------
Personal Investment
Class 4,299,720 4,299,720 39,701 39,701
- -------------------------------------------------------------------------------------------
Cash Management Class* 896,094 896,094 5,586 5,586
- -------------------------------------------------------------------------------------------
Reacquired:
Institutional Class (30,847,783,300) (30,847,783,300) (34,096,489,905) (34,096,489,905)
- -------------------------------------------------------------------------------------------
Private Investment
Class (1,285,160,664) (1,285,160,664) (107,954,443) (107,954,443)
- -------------------------------------------------------------------------------------------
Personal Investment
Class (789,592,898) (789,592,898) (13,702,087) (13,702,087)
- -------------------------------------------------------------------------------------------
Cash Management Class* (114,310,578) (114,310,578) (24,746,996) (24,746,996)
- -------------------------------------------------------------------------------------------
Net increase (decrease) 86,066,761 $ 86,066,761 (253,692,887) $ (253,692,887)
===========================================================================================
</TABLE>
* The Prime Portfolio-Cash Management Class commenced operations on June 30,
1994.
FS-13
<PAGE>
NOTE 5-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of the Prime
Portfolio-Private Investment Class outstanding during each of the years in the
two-year period ended August 31, 1995 and the period July 8, 1993 (date
operations commenced) through August 31, 1993.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- -------- ------- -------
Income from investment operations:
Net investment income 0.05 0.03 0.03
- ----------------------------------------- -------- ------- -------
Total from investment operations 0.05 0.03 0.03
- ----------------------------------------- -------- ------- -------
Less distributions:
Dividends from net investment income (0.05) (0.03) (0.03)
- ----------------------------------------- -------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
========================================= ======== ======= =======
Total return 5.48% 3.33% 3.24%(a)
========================================= ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $154,278 $30,834 $17,857
========================================= ======== ======= =======
Ratio of expenses to average net assets 0.39%(b) 0.38%(c) 0.37%(a)
========================================= ======== ======= =======
Ratio of net investment income to average
net assets 5.50%(b) 3.32%(c) 2.85%(a)
========================================= ======== ======= =======
</TABLE>
(a) Annualized.
(b) After expense reimbursements. The ratios of expenses and net investment
income prior to expense reimbursements are 0.40% and 5.49%, respectively.
Ratios are based on average net assets of $122,507,351.
(c) After expense reimbursements. The ratios of expenses and net investment
income prior to expense reimbursements are 1.18% and 2.52%, respectively.
FS-14
