<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SHORT-TERM
INVESTMENTS CO.
Prospectus
- ------------------------------------------------------------------------------------------------------------------------------------
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
RESOURCE the preservation of capital and the maintenance of liquidity. The Portfolio
CLASS seeks to achieve its objective by investing in high grade money market
instruments, such as U.S. Government obligations, bank obligations, commercial
DECEMBER 12, 1995 instruments and repurchase agreements. The instruments purchased by the
Portfolio will have maturities of sixty days or less.
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 Resource Class of the Portfolio, a class of
shares designed to be a convenient vehicle in which institutional 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 Private Investment Class,
the Personal Investment Class and the Cash Management 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 RESOURCE 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 BELOW
OR CALL (800) 825-6858.
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 PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
[LOGO APPEARS HERE] LOSS OF PRINCIPAL.
Fund Management Company
11 Greenway Plaza
Suite 1919
Houston, TX 77046-1173
(800) 825-6858
</TABLE>
<PAGE>
SUMMARY
THE PORTFOLIO AND ITS INVESTMENT OBJECTIVE
The Fund is an open-end diversified series management investment company.
This Prospectus relates to the Resource 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 common stock 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 institutional
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 of 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."
2
<PAGE>
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
0.20% 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 as compensation for distribution-related services. 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.
3
<PAGE>
TABLE OF FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES -- RESOURCE 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 re-
demption proceeds, as applicable)..................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable).... None
Exchange Fee........................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES -- RESOURCE CLASS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)*
Management Fees........................................................ 0.06%
12b-1 Fees (after fee waivers)**....................................... 0.16%
Other Expenses......................................................... 0.03%
----
Total Portfolio Operating Expenses --Resource Class.................... 0.25%
====
</TABLE>
- ------
* The fees and expenses set forth in the table are based on estimated average
net assets of the Class' first period of operations.
** Had there been no fee waivers, 12b-1 fees would have been 0.20%.
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
1 year................................... $ 3
3 years.................................. $ 8
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 other expenses and
12b-1 fees figure is based upon estimated costs and the estimated size of the
Class and estimated fees to be charged for the current fiscal year. Thus,
actual expenses may be greater or less than such estimates. To the extent any
service providers assume expenses of the Class, such assumption 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. As
a result of 12b-1 fees, a long-term shareholder of the Class may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of the National Association of Securities Dealers, Inc.
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--Resource 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.
4
<PAGE>
SUITABILITY FOR INVESTORS
The shares of the Class are intended for use primarily by institutional
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. It is expected that the shares of the Class may be particularly
suitable investments for corporate cash managers, municipalities or other
public entities. The minimum initial investment is $10,000.
Investors in the shares of 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 shares 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 the 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.
5
<PAGE>
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 deposit, over 5% of the Portfolio's total
assets would be invested in 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 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 demand 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)
expenses 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
6
<PAGE>
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 Portfolio 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 agreements 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 agreements 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.
7
<PAGE>
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 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.
8
<PAGE>
Shares of the Class are sold to institutional customers of banks, certain
broker-dealers and other financial institutions (individually 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, the Institution sends to each
customer proxies, periodic reports and other information 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
purchase additional shares of the Class directly, 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.
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 "Resource 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. 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.
9
<PAGE>
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.
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 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.
10
<PAGE>
The Portfolio uses its best efforts to maintain its net asset value per share
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 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.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on November 1, 1995 Prospectus 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
11
<PAGE>
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)
825-6858. 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 an investor before
making an investment in the Portfolio.
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.
12
<PAGE>
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.
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 from the Fund with respect to the Portfolio which
represented 0.06% of the Portfolio's average daily net assets.
ADMINISTRATOR
The Fund has entered into a Master Administrative Services Agreement dated as
of October 18, 1993 with AIM (the "AIM Administrative Services Agreement"),
pursuant to which AIM has agreed to provide or arrange for the provision of
certain accounting and other administrative services to the Portfolio,
including the services of a principal financial officer of the Fund and related
staff. As compensation to AIM for its services under the Administrative
Services Agreement, the Portfolio may reimburse AIM for expenses incurred by
AIM in connection with such services.
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 agree to waive voluntarily
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 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
13
<PAGE>
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 Fund 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 financial institutions who sell a
minimum dollar amount of the shares of the Class during a specific period of
time. In some instances, these incentives may be offered only to certain
dealers or financial institutions who have sold or may sell significant amounts
of shares. The total amount of such additional bonus payments or other
consideration shall not exceed 0.05% of the net asset value of the shares 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 shares of the Class in an amount equal to
0.20% 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 September 19, 1995.
In approving 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 shareholders 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.
14
<PAGE>
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 a specific portfolio are prorated among all
classes of such portfolio. 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.
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 is that of the Predecessor Portfolio. 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.
15
<PAGE>
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.
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) 825-6858.
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.
16
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
====================================== ======================================
SHORT-TERM INVESTMENTS CO.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(800) 825-6858 PROSPECTUS
INVESTMENT ADVISOR
A I M ADVISORS, INC. December 12, 1995
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(713) 626-1919
SHORT-TERM
DISTRIBUTOR INVESTMENTS CO.
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(800) 825-6858 ------------
AUDITORS PRIME PORTFOLIO
KPMG PEAT MARWICK LLP
NationsBank Building ------------
700 Louisiana
Houston, Texas 77002
CUSTODIAN RESOURCE CLASS
THE BANK OF NEW YORK
110 Washington Street
8th Floor TABLE OF CONTENTS
New York, New York 10286
<TABLE>
TRANSFER AGENT <CAPTION>
A I M INSTITUTIONAL FUND SERVICES, INC. PAGE
11 Greenway Plaza, Suite 1919 ----
Houston, Texas 77046-1173 <S> <C>
Summary........................ 2
NO PERSON HAS BEEN AUTHORIZED TO GIVE Table of Fees and Expenses..... 4
ANY INFORMATION OR TO MAKE ANY Suitability For Investors...... 5
REPRESENTATIONS NOT CONTAINED IN THIS Investment Program............. 5
PROSPECTUS IN CONNECTION WITH THE Purchase of Shares............. 8
OFFERING MADE BY THIS PROSPECTUS, AND Redemption of Shares........... 10
IF GIVEN OR MADE, SUCH INFORMATION OR Dividends...................... 10
REPRESENTATIONS MUST NOT BE RELIED Taxes.......................... 11
UPON AS HAVING BEEN AUTHORIZED BY THE Net Asset Value................ 11
FUND OR THE DISTRIBUTOR. THIS Yield Information.............. 12
PROSPECTUS DOES NOT CONSTITUTE AN Reports to Shareholders........ 12
OFFER IN ANY JURISDICTION TO ANY Management of the Fund......... 13
PERSON TO WHOM SUCH OFFERING MAY General Information............ 15
NOT LAWFULLY BE MADE. </TABLE>
====================================== ======================================
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
RESOURCE CLASS
OF THE
PRIME PORTFOLIO
OF
SHORT-TERM INVESTMENTS CO.
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 877-7745
--------------------
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) 825-6858
--------------------
STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 12, 1995
RELATING TO THE PROSPECTUS DATED DECEMBER 12, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
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..................................... 17
Suspension of Redemption Rights............................. 18
INVESTMENT PROGRAM AND RESTRICTIONS.............................. 18
Investment Program.......................................... 18
Eligible Securities......................................... 19
Commercial Paper Ratings.................................... 20
Bond Ratings................................................ 21
Investment Restrictions..................................... 22
PORTFOLIO TRANSACTIONS........................................... 23
TAX MATTERS...................................................... 25
Qualification as a Regulated Investment Company............. 25
Excise Tax on Regulated Investment Companies................ 26
Portfolio Distributions..................................... 26
Effect of Future Legislation; Local Tax Considerations...... 27
FINANCIAL STATEMENTS.......................................... NONE
</TABLE>
<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) 825-6858. Investors must receive a
Prospectus before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning the Resource 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 Prospectus relate solely to shares
of the Resource 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 (or class thereof) 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 of the Fund, 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, A I M Management Group
Inc.; Chairman of the Board of Directors, A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M
Global Associates, Inc., A I M Global Holdings, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company; and Director, AIM Global Advisors
Limited, A I M 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, A I M Management Group
Inc.; Director and President, A I M Advisors, Inc.; Director and Executive Vice
President, A I M Distributors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Fund Services, Inc., A I M Global Associates,
Inc., A I M Global Holdings, Inc., AIM Global Ventures Co., A I M 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 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
Company maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act,
reviewing from time to time the compensation payable to the disinterested
directors, 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>
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
DIRECTOR FROM FUND(1) BY ALL AIM FUNDS(2) FROM ALL AIM FUNDS(3)
- ---------------------------------------------------------------------------------------
<S> <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 the 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:
NET ASSETS RATE
---------- ----
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%
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 Fund's 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
9
<PAGE>
into a 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 performs accounting and
other administrative services for the Portfolio which are not required to be
performed by AIM under the advisory agreement. As full compensation for the
performance of such services, AIM is reimbursed for any personnel and other
costs (including the cost of 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 Services 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 safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting
10
<PAGE>
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 monthly. 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 by 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*
--------------- ------------
<S> <C>
INSTITUTIONAL CLASS
- -------------------
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*
--------------- ------------
<S> <C>
PRIVATE INVESTMENT CLASS
- ------------------------
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
</TABLE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- ------------
<S> <C>
PERSONAL INVESTMENT CLASS
- -------------------------
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
</TABLE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- ------------
<S> <C>
CASH MANAGEMENT CLASS
- ---------------------
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*
--------------- ------------
<S> <C>
INSTITUTIONAL CLASS
- -------------------
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>
PERCENT
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
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.
- -----------------
* 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>
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 Fund's 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 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
16
<PAGE>
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.
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 or regulations, 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.
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) 825-6858. 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
17
<PAGE>
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.
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.
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
18
<PAGE>
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 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 3
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 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
- ----------------
(1) "Requisite NRSRO" shall mean (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>
(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).
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.
- ---------------
(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>
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's 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.
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 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.
21
<PAGE>
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.
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 more than 25% 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%
22
<PAGE>
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;
(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 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;
(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.
23
<PAGE>
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 markets. For example,
market conditions frequently result in similar securities trading at different
prices. AIM may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with AIM's judgment as to desirable portfolio maturity structure or
if such disposition is believed to be advisable due to other circumstances or
conditions. The investment policy of the Portfolio requires that investments
mature in 60 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 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
24
<PAGE>
combination of simultaneous securities purchased 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, 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
25
<PAGE>
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 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.
26
<PAGE>
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 Portfolio that
it is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
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.
27
