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PROSPECTUS
MSTC CASH RESERVES CLASS
OF THE
LIQUID ASSETS PORTFOLIO
OF
SHORT-TERM INVESTMENTS CO.
11 GREENWAY PLAZA, SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 246-3426
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The Liquid Assets Portfolio (the "Portfolio") is a money market fund whose
investment objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity. The Portfolio seeks
to achieve its objective by investing in high quality money market instruments
such as U.S. Government obligations, bank obligations, commercial instruments
and repurchase agreements.
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 MSTC Cash Reserves Class of the Portfolio, a
class of shares designed to be a convenient and economical vehicle in which
institutions can invest short-term cash reserves.
The Fund also offers shares of other classes of the Portfolio pursuant to
separate prospectuses: the Institutional Class, the Cash Management Class and
the Private Investment Class, as well as shares of classes of another
portfolio, the Prime Portfolio.
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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.
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THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW BEFORE INVESTING IN SHARES OF THE MSTC CASH RESERVES CLASS OF THE
PORTFOLIO AND SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A STATEMENT OF
ADDITIONAL INFORMATION DATED SEPTEMBER 4, 1996, HAS BEEN FILED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION AND IS HEREBY INCORPORATED BY
REFERENCE. A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO FUND MANAGEMENT COMPANY AT 11 GREENWAY
PLAZA, SUITE 1919, HOUSTON, TEXAS 77046.
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
LOSS OF PRINCIPAL.
PROSPECTUS DATED: SEPTEMBER 4, 1996
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TABLE OF CONTENTS
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SUMMARY..................... 2
TABLE OF FEES AND EXPENSES.. 4
SUITABILITY FOR INVESTORS... 5
INVESTMENT PROGRAM.......... 5
PURCHASE OF SHARES.......... 10
REDEMPTION OF SHARES........ 11
DIVIDENDS................... 11
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TAXES.................... 12
NET ASSET VALUE.......... 13
YIELD INFORMATION........ 13
REPORTS TO SHAREHOLDERS.. 14
MANAGEMENT OF THE FUND... 14
GENERAL INFORMATION...... 17
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SUMMARY
THE PORTFOLIO AND ITS INVESTMENT OBJECTIVE
The Fund is an open-end diversified series management investment company.
Pursuant to this Prospectus, the Fund offers shares of the MSTC Cash Reserves
Class (the "Class") of the Portfolio at net asset value. The Portfolio is a
money market fund which invests in money market instruments, such as U.S.
Government Agencies obligations, bank obligations, commercial instruments and
repurchase agreements. The investment objective of the Portfolio is to provide
as high a level of current income as is consistent with the preservation of
capital and 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 designed for
institutional and other categories of investors. The Fund also offers shares
of classes of another portfolio, the Prime 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 "Portfolios."
INVESTORS IN THE CLASS
The Class is designed to be a convenient and economical vehicle in which
Morgan Stanley Trust Company ("MSTC"), acting for itself or in a custodial or
other similar capacity, can invest short-term cash reserves. Although shares
of the Class may not be purchased by individuals directly, institutions may
purchase shares for accounts maintained for individuals. See "Suitability for
Investors."
PURCHASE OF SHARES
Shares of the Class are sold at net asset value without a sales charge. 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 federal funds or other 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 have been received
prior to 4:00 p.m. Eastern Time will normally be made on the same day. See
"Redemption of Shares." MSTC may impose an earlier cutoff time for redemption
requests. Please contact your MSTC Coverage Officer for further information.
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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 its portfolio
securities and rounds its per share net asset value to the nearest whole cent.
Accordingly, the Fund intends to maintain the net asset value per share of the
Portfolio 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 OF $1.00 PER
SHARE. 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 an 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."
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
.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
foreign 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 and La Familia AIM de Fondos and La Familia AIM de
Fondos and Design are service marks of A I M Management Group Inc.
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor understand the various
costs and expenses that an investor in the Portfolio will bear directly or
indirectly.
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SHAREHOLDER TRANSACTION EXPENSES--MSTC CASH RESERVES CLASS*
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................ None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price)....................................................... None
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, as applicable)................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable).... None
Exchange Fee........................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET AS-
SETS) (AFTER FEE WAIVERS)--MSTC CASH RESERVES CLASS**
Management Fees (after waivers)........................................ 0.06%
12b-1 Fees***.......................................................... 0.20%
Other Expenses (estimated)............................................. 0.03%
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Total Portfolio Operating Expenses--MSTC Cash Reserves Class****....... 0.29%
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* Beneficial owners of shares of the Class should consider the effect of
any charges imposed by MSTC for custodial services.
** The expenses set forth in the table are based on estimated average net
assets of $500,000,000 during the Class' current fiscal period. If no
fees were waived, Management Fees would be 0.15%.
*** 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.
**** If no fees were waived, total portfolio operating expenses would be
0.38%.
The Fee Table 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 Total Portfolio Operating Expenses--
MSTC Cash Reserves Class--figure is based upon costs and the estimated size of
the Class and fees to be charged for the current fiscal period. Thus, actual
expenses may be greater or less than such estimates. Future waivers of fees
(if any) may vary from the figures reflected in the Table of Fees and
Expenses. To the extent any service providers assume expenses of the Class,
such assumption of expenses will have the effect of lowering the Class'
overall expense ratio and increasing its yield to investors.
EXAMPLE
An investor in the Class would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period.
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1 year................................................................ $ 3
3 years............................................................... $ 9
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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--MSTC Cash Reserves Class" remain the same in the
years shown.
THE EXAMPLE SHOULD NOT BE CONSIDERED TO BE AN ACCURATE REPRESENTATION OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
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SUITABILITY FOR INVESTORS
The Class is intended for use by MSTC, acting for itself or in a custodial
or other similar capacity. It is designed to be a convenient and economical
vehicle in which institutions can invest short-term cash reserves. Shares of
the Class may not be purchased directly by individuals, although MSTC may
purchase shares for accounts maintained by individuals. Prospective investors
should determine if an investment in the Class is consistent with the
objectives of an account and with applicable state and federal laws and
regulations.
An investment in the Class may relieve the institution of many of the
investment and administrative burdens encountered when investing in money
market instruments directly. These include: selection of portfolio
investments; surveying the market for the best price at which to buy and sell
securities; valuation of portfolio securities; selection and scheduling of
maturities of portfolio securities; receipt, delivery and safekeeping of
securities; and portfolio recordkeeping. It is anticipated that most investors
will perform their own sub-accounting. To assist these institutions,
information concerning the dividends declared by the Portfolio on any
particular day will normally be available by 5:00 p.m. Eastern Time on that
day. Sub-accounting services may be arranged through the Fund for shareholders
who prefer not to perform such services.
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 to provide as high a level of
current income as is consistent with the preservation of capital and
liquidity. The Portfolio seeks to achieve its objective by investing in a
diversified portfolio of high quality U.S. dollar-denominated money market
instruments and other similar instruments with maturities of 397 days or less
from the date of purchase. The Portfolio will maintain a weighted average
maturity of 90 days or less.
INVESTMENT POLICIES
The Portfolio may invest in a broad range of U.S. Government and foreign
government obligations, and bank and commercial instruments that may be
available in the money markets. Such obligations include U.S. Treasury
obligations, repurchase agreements and commercial paper. The Portfolio may
invest in bankers' acceptances, certificates of deposit, time deposits, U.S.
Government direct obligations and U.S. Government agencies securities. Certain
U.S. Government obligations with floating or variable interest rates may have
longer maturities. Commercial obligations may include both domestic and
foreign issuers that are U.S. dollar-denominated. Bankers' acceptances,
certificates of deposit and time deposits may be purchased from U.S. or
foreign banks. These instruments, which are collectively referred to as "Money
Market Obligations," are briefly described below.
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The Portfolio will limit investments in Money Market Obligations to those
which 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 (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 Fund's
Board of Directors) to be of comparable quality to a rated security that meets
the foregoing quality standards.
The Portfolio will not invest more than 10% of its net assets in illiquid
securities.
In managing the Portfolio's investments, AIM may indicate to dealers or
issuers its interest in acquiring certain securities for the Portfolio for
settlement beyond a customary settlement date thereafter. In some cases, the
Portfolio may agree to purchase such securities at stated prices and yields.
(In such cases, these securities are considered "delayed delivery" securities
when traded in the secondary market or "when-issued" securities if they are an
initial issuance of securities.) Since this is done to facilitate the
acquisition of portfolio securities and is not for the purpose of investment
leverage, the amount of delayed delivery or when-issued securities involved
may not exceed the estimated amount of funds available for investment on the
settlement date. Until the settlement date, assets of the Portfolio with a
dollar value sufficient at all times to make payment for the delayed delivery
or when-issued securities will be segregated at the custodian. (The total
amount of assets in the segregated account may not exceed 25% of the
Portfolio's total assets.) The delayed delivery securities, which will not
begin to accrue interest until the settlement date, and the when-issued
securities will be recorded as an asset of the Portfolio and will be subject
to the risks of market value fluctuations. The purchase price of the delayed
delivery or when-issued securities will be recorded as a liability of the
Portfolio until settlement. AIM may also transact sales of securities on a
"forward commitment" basis. In such a transaction, AIM agrees to sell
portfolio securities at a future date at specified prices and yields.
Securities subject to sale on a forward commitment basis will continue to
accrue interest until sold and will be subject to the risks of market value
fluctuations. Absent extraordinary circumstances, the Portfolio's right to
acquire delayed delivery and when-issued securities or its obligation to sell
securities on a forward-commitment basis will not be divested prior to the
settlement date.
The Portfolio may invest up to 100% of its total assets in obligations
issued by banks. While the Portfolio will limit its investments in bank
instruments to U.S.dollar-denominated obligations, it may invest in Eurodollar
obligations (i.e., U.S. dollar-denominated obligations issued by a foreign
branch of a domestic bank), Yankee dollar obligations (i.e., U.S. dollar-
denominated obligations issued by a domestic branch of a foreign bank) and
obligations of foreign branches of foreign banks, including time deposits. The
Portfolio will limit its aggregate investments in foreign bank obligations,
including Eurodollar obligations and Yankee dollar obligations, to 25% of its
total assets at the time of purchase, provided that there is no limitation
upon the Portfolio's investments in (a) Eurodollar obligations, if the
domestic parent of the foreign branch issuing the obligation is
unconditionally liable in the event that the foreign branch for any reason
fails to pay on the Eurodollar obligation; and (b) Yankee dollar obligations,
if the U.S. branch of the foreign bank is subject to the same regulation as
U.S. banks.
The Portfolio may invest in certificates of deposit ("Eurodollar CDs") and
time deposits ("Eurodollar time deposits") of foreign branches of domestic
banks having total assets of $5 billion as of the date of their most recently
published financial statements. Accordingly, an investment in the Portfolio
may involve risks that are different in some respects from those incurred by
an investment company which invests only in debt obligations of U.S. domestic
issuers. Such risks include future political and economic developments, the
possible seizure or
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nationalization of foreign deposits, the possible imposition of foreign
country 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.
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.
DESCRIPTION OF MONEY MARKET OBLIGATIONS
The following 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:
U.S. GOVERNMENT DIRECT OBLIGATIONS--These are bills, notes, and bonds issued
by the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES--Certain federal agencies (such as the
Federal National Mortgage Association, the Small Business Administration and
the Resolution Trust Corporation) have been established as instrumentalities
of the U.S. Government to supervise and finance certain types of activities.
Issues of these agencies, while not direct obligations of the U.S. Government,
are (a) backed by the full faith and credit of the United States, (b)
guaranteed by the U.S. Treasury or (c) supported by the issuing agencies' right
to borrow from the U.S. Treasury.
FOREIGN GOVERNMENT OBLIGATIONS--These are U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are
determined by AIM to be of comparable quality to the other obligations in
which the Portfolio may invest. These obligations are often, but not always,
supported by the full faith and credit of the foreign governments, or their
subdivisions, agencies or instrumentalities, that issue them. Such securities
also include debt obligations of supranational entities. Such debt obligations
are ordinarily backed by the full faith and credit of the entities that issue
them. Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples of supranational entities include the International Bank
for Reconstruction and Development (the World Bank), the European Coal and
Steel Community, the Asian Development Bank and the InterAmerican Development
Bank. The percentage of the Portfolio's assets invested in securities issued
by foreign governments will vary depending on the relative yields of such
securities, the economic and financial markets of the countries in which the
investments are made and the interest rate climate of such countries.
BANKERS' ACCEPTANCES--A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. Bankers' acceptances are
used by corporations to finance the shipment and storage of goods and to
furnish dollar exchange. These instruments generally mature in six months or
less.
CERTIFICATES OF DEPOSIT--A certificate of deposit is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are
issued by banks and savings and loan institutions in exchange for the deposit
of funds, and normally can be traded in the secondary market prior to
maturity.
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TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns
a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market.
EURODOLLAR OBLIGATIONS--A Eurodollar obligation is a U.S. dollar-denominated
obligation issued by a foreign branch of a domestic bank.
YANKEE DOLLAR OBLIGATIONS--A Yankee dollar obligation is a U.S. dollar-
denominated obligation issued by a domestic branch of a foreign bank.
SHORT AND MEDIUM TERM NOTES--Short and medium term notes are obligations
that have fixed coupons and maturities that can be targeted to meet investor
requirements. They are issued in the capital markets either publicly under a
shelf registration pursuant to Rule 415 under the Securities Act of 1933
promulgated by the United States Securities and Exchange Commission (the
"SEC"), or privately without such a registration.
COMMERCIAL PAPER--Commercial paper is a term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few days to nine months.
MASTER NOTES--Master notes are unsecured demand notes that permit 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 (a) fluctuate based upon changes in
specified interest rates, (b) be reset periodically according to a prescribed
formula or (c) be a set rate. Although there is no secondary market in master
notes, if such notes have a demand feature, the payee may demand payment of
the principal amount of the note on relatively short notice.
REPURCHASE AGREEMENTS--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 securities eligible under
Rule 2a-7 of the 1940 Act. For additional information on the use of repurchase
agreements, see the Statement of Additional Information.
BORROWING MONEY/REVERSE REPURCHASE AGREEMENTS--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
to facilitate the orderly sale of portfolio securities 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
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be liquidated to meet redemption requests is greater than the interest expense
of the reverse repurchase transaction. The Portfolio may enter into reverse
repurchase agreements in amounts not exceeding 10% of the value of its total
assets. Reverse repurchase agreements involve the risk that the market value
of securities retained 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 under the 1940 Act.
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 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 from banks in an amount in excess of 5% of its total assets are
outstanding.
The Portfolio's investment objective and the three investment restrictions
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. A description of further investment restrictions applicable
to the Portfolio is contained in the Statement of Additional Information.
In addition to the restrictions described herein, the Portfolio must also
comply with the requirements of Rule 2a-7 under the 1940 Act, which govern the
operations of money market funds, and which may be more restrictive than the
policies described herein.
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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, MSTC may charge a recordkeeping, account maintenance or other fee to
their customers. Beneficial holders of shares of the Class should consult with
MSTC 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. MSTC may impose an earlier cutoff time for purchase
orders. Please contact your MSTC Coverage Officer for further information.
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.
Subject to the conditions stated above and 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 Bank of New York, the Portfolio's
custodian bank, in the form described below and notice of such order is
provided to the Portfolio's transfer agent or (b) at the time the order is
placed, if the Portfolio is assured of payment.
Payment for shares of the Portfolio purchased must be in the form of federal
funds or other funds immediately available to the Portfolio. 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 to
purchase shares of the Class must specify that the "MSTC Cash Reserves Class
of the Liquid Assets Portfolio" is being purchased; otherwise, any funds
received will be returned to the sending institution.
The minimum initial investment in the Class is $10,000. Institutions may be
requested to maintain separate master accounts in the shares of the Class held
by the institution (a) for its own account, for the account of other
institutions and for accounts for which the institution acts as a fiduciary,
and (b) for accounts for which the institution acts in some other capacity. An
institution's master account(s) and sub-accounts with the Class may be
aggregated for the purpose of the minimum investment requirement. No minimum
amount is required for subsequent investments in the Portfolio nor are minimum
balances required. Prior to the initial purchase of shares of the Class, an
Account Application must be completed and sent to A I M Institutional Fund
Services, Inc. ("Transfer Agent" or "AIFS") at 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. Account Applications may be obtained from AIFS. 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.
In the interest of economy and convenience, certificates representing shares
of the Class will not be issued except upon written request to the Fund.
Certificates (in full shares only) will be issued without charge and may be
redeposited at any time.
The Fund reserves the right in its sole discretion to withdraw all or any
part of the offering made by this Prospectus or to reject any purchase order.
10
<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 Fund intends to maintain the net asset value per share of the
Portfolio at $1.00 per share. See "Net Asset Value." Redemption requests with
respect to shares of the Class for which certificates have not been issued are
normally made by calling the Fund.
Payment for redeemed shares of the Class is normally made by Federal Reserve
wire pursuant to instructions designated in the shareholder's Account
Application. 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 Portfolio to be redeemed will not receive the dividend declared on the
effective date of the redemption. MSTC may impose an earlier cutoff time for
redemption requests. Please contact your MSTC Coverage Officer for further
information. 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 Portfolio. 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 transactions.
Payment for shares of the Class redeemed by mail and payment for telephone
redemptions in amounts under $1,000 will be made by check mailed within seven
days after receipt of the redemption request in proper form. The Portfolio may
make payment for telephone redemptions in excess of $1,000 by check when it is
considered to be in the Portfolio's best interest to do so.
The shares of the Class are not redeemable at the option of the Fund unless
the Board of Directors of the Fund determines in its sole discretion that
failure to so redeem may have materially adverse consequences to the
shareholders of the Fund. The Fund may redeem shares of the Class in cases
where the value of shares of stock in a stockholder's account is less than
$500 and the existence of several such accounts results in higher expenses for
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. Net income of the Portfolio consists of
interest accrued and discount earned (including both original issue,
acquisition and market discount) on securities held by the Portfolio, less
amortization of market premium and the accrued expenses of the Portfolio.
Although realized gains and losses on the assets of the Portfolio are
reflected in the net asset value of the Portfolio, they are not expected to be
of an amount which would affect the Portfolio's net asset value of $1.00 per
share for purposes
11
<PAGE>
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 Portfolio at the
net asset value of such shares 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 shareholder 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 in its account at
any time during the month, all dividends declared through the date of
redemption are paid to the shareholder along with the proceeds of the
redemption.
The Portfolio uses its best efforts to maintain the net asset value per
share of the Portfolio at $1.00 for purposes of sales and redemptions. See
"Net Asset Value." Should the Fund incur or anticipate any unusual expense,
loss or depreciation which could adversely affect the income or net asset
value of the Portfolio, the Fund's Board of Directors would at that time
consider whether to adhere to the present dividend policy described above or
to revise it in light of the then prevailing circumstances. For example, under
such unusual circumstances the Board of Directors might reduce or suspend the
daily dividend in order to prevent to the extent possible the net asset value
per share of the Portfolio from being reduced below $1.00. Thus, such
expenses, losses or depreciation may result in a shareholder receiving no
dividends for the period during which it held its shares of the Class and
cause such a shareholder to receive upon redemption a price per share lower
than the shareholder's original cost.
TAXES
The Portfolio's policy 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 Portfolio. 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 before February 1 of the next
year, a shareholder will be treated for tax purposes as having received the
dividend in 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.
For purposes of determining taxable income, distribution requirements and
other requirements of Subchapter M, the Portfolio will be treated as a
separate corporation. Therefore, one portfolio of the Fund may not offset its
gains against the other portfolio's losses and each portfolio must
specifically comply with all the provisions of the Code.
12
<PAGE>
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 only a
summary based on tax laws and regulations in effect on July 6, 1996 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 Portfolio. 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
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.
This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if the security
were sold. During such periods, the daily yield on shares of the Portfolio,
computed as described in "Purchases and Redemptions--Performance Information"
in the Statement of Additional Information, may differ somewhat from an
identical computation made by an investment company with identical investments
utilizing available indications as to market value to value its portfolio
securities.
YIELD INFORMATION
Yield information for the Class can be obtained by calling your MSTC
Coverage Officer at (800) 688-3705 or FMC at (800) 246-3426. 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
Portfolio. A SHAREHOLDER'S INVESTMENT IN THE PORTFOLIO IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT OR BY ANY INSTITUTION. These factors should
be carefully considered by the investor before making an investment in the
Portfolio.
To assist banks and other institutions performing their own sub-accounting,
same day information as to the daily dividend per share for the Class 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 or its affiliates 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.
13
<PAGE>
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 in the Portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors. A copy of
a current list of the investments held in the Portfolio will be sent to
shareholders upon request.
Each shareholder will be provided with a written confirmation for each
transaction. Institutions establishing sub-accounts will receive a written
confirmation for each transaction in a sub-account. Duplicate confirmations
may be transmitted to the beneficial owner of the sub-account if requested by
the institution. The institution will receive a monthly statement setting
forth, for each sub-account, the share balance, income earned for the month,
income earned for the year to date and the total current value of the account.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall management of the business and affairs of the Fund is vested
with the 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 Portfolio'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 Portfolio 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 Portfolio's investment advisor pursuant to a Master
Investment Advisory Agreement dated as of October 18, 1993 (the "Advisory
Agreement"). AIM, organized in 1976, together with its affiliates, advises or
manages 43 investment company portfolios. As of June 20, 1996, the total
assets of such investment company portfolios were approximately $52.8 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 with respect to
the Portfolio which represented 0.08% of the Portfolio's average daily net
assets.
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<PAGE>
ADMINISTRATOR
The Fund has entered into a Master Administrative Services Agreement dated
as of October 18, 1993 with AIM (the "Administrative Services Agreement"),
pursuant to which AIM is entitled to receive from the Fund reimbursement of
its costs or such reasonable compensation as may be approved by the Fund's
Board of Directors for providing specified administrative services. Currently,
AIM is reimbursed for the services of the Fund's principal financial officer
and his staff, and any expenses related to such services, as well as the
services of staff responding to various shareholder inquiries.
In addition, AIM and AIFS have 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 $38,870 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 the Fund with respect to the
Portfolio in the amount of $9,045.
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 all or any portion of its 12b-1 fee but will retain its ability to
be reimbursed prior to the end of the fiscal year.
DISTRIBUTOR
The Fund has entered into a Master Distribution Agreement dated as of
October 18, 1993 (the "Distribution Agreement") with FMC, a registered broker-
dealer and a wholly-owned subsidiary of AIM, to act as the exclusive
distributor of the shares of the Class. The address of FMC is 11 Greenway
Plaza, Suite 1919, Houston, Texas 77046-1173. Certain directors and officers
of the Fund are affiliated with FMC and AIM Management. The Distribution
Agreement provides that FMC has the exclusive right to distribute shares of
the Portfolio either directly or through other broker-dealers, and receives no
fees for its services with respect to the Portfolio pursuant to the
Distribution Agreement. FMC is the distributor of several other mutual funds
managed or advised by AIM.
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. The Plan provides that the Fund may compensate
FMC in connection with the distribution of the shares of the Class in an
amount equal to 0.20% 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 of the Fund 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
15
<PAGE>
shares of the Class. The Plan 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 June 11, 1996. 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 holders of the outstanding voting
securities of the Class. Any change in the Plan that would increase materially
the distribution expenses paid by the Class requires shareholder approval;
otherwise the Plan may be amended by the Board of Directors, including a
majority of the Qualified Directors, by votes cast in person at a meeting
called for the purpose of voting upon such amendment. As long as the Plan is
in effect, the selection or nomination of the Qualified Directors is committed
to the discretion of the Qualified Directors.
EXPENSES
Expenses of the Fund which are not directly attributable to the operations
of either of the Portfolios are prorated among all classes of both Portfolios
of the Fund. Expenses of the Fund which are not directly attributable to a
specific class of shares but are directly attributable to one or both of the
Portfolios are prorated among all classes of such Portfolios. Expenses of the
Fund which are directly attributable to a specific class of shares are charged
against the income available for distribution as dividends to the holders of
such shares.
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.
16
<PAGE>
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund was incorporated in Maryland on May 3, 1993. Shares of common stock
of the Fund are divided into nine classes, of which four represent interests
in the Portfolio and the remaining five represent interests in the Prime
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 to
or allocated to the respective portfolio based on the respective liquidation
value of each portfolio. Fractional shares of each portfolio have the same
rights as full shares to the extent of their proportionate interest.
The Fund will not normally hold annual shareholders' meetings. Shareholders
may remove directors from office by votes cast at a meeting of shareholders or
by written consent, and a meeting of shareholders may be called at the request
of the holders of 10% or more of the Fund's outstanding shares.
There are no preemptive or conversion rights applicable to any of the Fund's
shares. The Fund's shares, when issued, will be fully paid and non-assessable.
The Board of Directors may create additional portfolios and classes of the
Fund without shareholder approval.
TRANSFER AGENT AND CUSTODIAN
The Bank of New York 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 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 your MSTC Coverage Officer at (800) 688-3705 or A I M Institutional Fund
Services, Inc. at (800) 246-3426 or 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046-1173.
17
<PAGE>
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.
18
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[This page intentionally left blank]
<PAGE>
SHORT-TERM INVESTMENTS CO.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(800) 246-3426
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 1919 SHORT-TERM
Houston, Texas 77046-1173 INVESTMENTS CO.
(713) 626-1919
MSTC CASH
DISTRIBUTOR RESERVES CLASS
FUND MANAGEMENT COMPANY OF THE
11 Greenway Plaza, Suite 1919 -------------------------------------
Houston, Texas 77046-1173 PROSPECTUS
(800) 246-3426 LIQUID ASSETS
PORTFOLIO SEPTEMBER 4, 1996
AUDITORS
KPMG PEAT MARWICK LLP
NationsBank Building
700 Louisiana
Houston, Texas 77002
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street
11th Floor
New York, New York 10286
TRANSFER AGENT
A I M INSTITUTIONAL FUND SERVICES, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR THE DIS-
TRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO
ANY PERSON TO WHOM SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
MSTC CASH RESERVES CLASS
OF THE
LIQUID ASSETS PORTFOLIO
OF
SHORT-TERM INVESTMENTS CO.
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 659-1005
--------------------
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) 246-3426
--------------------
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 4, 1996
RELATING TO THE PROSPECTUS DATED SEPTEMBER 4, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<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
Fee Waivers........................................................... 11
Principal Holders of Securities....................................... 12
PURCHASES AND REDEMPTIONS............................................. 16
Net Asset Value Determination......................................... 16
The Distribution Agreement............................................ 16
Distribution Plan..................................................... 17
Banking Regulations................................................... 17
Performance Information............................................... 18
Redemptions in Kind................................................... 18
Suspension of Redemption Rights....................................... 19
INVESTMENT PROGRAM AND RESTRICTIONS................................... 19
Eligible Securities................................................... 19
Commercial Paper Ratings.............................................. 19
Bond Ratings.......................................................... 20
Repurchase Agreements................................................. 22
Investment Restrictions............................................... 22
PORTFOLIO TRANSACTIONS................................................ 23
TAX MATTERS........................................................... 24
Qualification as a Regulated Investment Company....................... 25
Excise Tax On Regulated Investment Companies.......................... 26
Portfolio Distributions............................................... 26
Effect of Future Legislation; Local Tax Considerations................ 26
FINANCIAL STATEMENTS.................................................. FS
</TABLE>
i
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INTRODUCTION
The Liquid Assets 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 September 4, 1996
(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) 246-
3426. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the MSTC Cash
Reserves 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, and had no operations prior to November 4, 1993.
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 Prime Portfolio (together, the
"Portfolios"). The Prime Portfolio consists of five classes of shares, each
having different shareholder qualifications and bearing expenses differently.
The Portfolio consists of the following four classes of shares: Institutional
Class, Private Investment Class, Cash Management Class and MSTC Cash Reserves
Class. Each such class has different shareholder qualifications and bears
expenses differently. This Statement of Additional Information and the
associated Prospectus relate solely to shares of the MSTC Cash Reserves Class
(the "Class") of the Portfolio. Shares of the other classes of the Portfolio
and the classes of the Prime 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.
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.
1
<PAGE>
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 (the "1940 Act").
The Charter of the Fund authorizes the issuance of 50 billion shares
with a par value of $.001 each, of which 19 billion shares represent an interest
in the portfolio (or class thereof) and 22 billion shares represent an interest
in the Prime 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 the Portfolios are segregated and each portfolio is charged
with the expenses with respect to that portfolio and with a share of the general
expenses of the Fund. While the expenses of the Fund are allocated to the
separate books of account of each of the Portfolios, certain expenses may be
legally chargeable against the assets of the entire Fund.
The Charter provides that no director or officer of the Fund shall be
liable to the Fund or its shareholders for money damages, except (i) to the
extent that it is proved that such director or officer actually received an
improper benefit or profit in money, property or services, for the amount of the
benefit or profit in money, property or services actually received, or (ii) to
the extent that a judgment or other final adjudication adverse to such director
or officer is entered in a proceeding based on a finding in the proceeding that
such director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The foregoing shall not be construed to protect or purport to
protect any director or officer of the Fund against any liability to the Fund or
its shareholders to which such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such office. The Fund shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law. The Fund shall indemnify and advance expenses to its
officers to the same extent as its directors and to such further extent as is
consistent with law. The Board of Directors may by By-Law, resolution or
agreement make further provision for indemnification of directors, officers,
employees and agents of the Fund to the fullest extent permitted by the Maryland
General Corporation Law.
As described in the Prospectus, the Fund will not normally hold annual
shareholders' meetings. At such time as less than a majority of the directors
have been elected by the shareholders, the directors then in office will call a
shareholders' meeting for the election of directors. Upon written request by
ten or more shareholders, who have been such for at least six months and who
hold shares constituting 1% of the outstanding shares, stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
director, the Fund has undertaken to provide a list of shareholders or to
disseminate appropriate materials (at the expense of the requesting
shareholders).
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.
2
<PAGE>
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.
*CHARLES T. BAUER, Director and Chairman (77)
Director, Chairman and Chief Executive Officer, AIM Management Group
Inc.; and Chairman of the Board of Directors, AIM Advisors, Inc., AIM
Capital Management, Inc., AIM Distributors, Inc., AIM Fund Services, Inc., AIM
Institutional Fund Services, Inc. and Fund Management Company.
BRUCE L. CROCKETT, Director (52)
906 Frome Lane
McLean, VA 22102
Formerly, 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 (59)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis & Frankel (law firm). Formerly,
Partner, Reid & Priest (law firm); and, prior thereto, Partner, Spengler Carlson
Gubar Brodsky & Frischling (law firm).
*ROBERT H. GRAHAM, Director and President (49)
Director, President and Chief Operating Officer, AIM Management Group
Inc.; Director and President, AIM Advisors, Inc.; and Director and Senior Vice
President, AIM Capital Management, Inc., AIM Distributors, Inc.; AIM Fund
Services, Inc., AIM Institutional Fund Services, Inc. and Fund Management
Company.
- -----------------------
* A director who is an "interested person" of the Fund and AIM 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>
JOHN F. KROEGER, Director (72)
37 Pippins Way
Morristown, NJ 07960
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)
6363 Woodway, Suite 825
Houston, TX 77057
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (73)
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 (57)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasurer (51)
Senior Vice President and Treasurer, AIM Advisors, Inc.; and Vice
President and Treasurer, AIM Management Group Inc., AIM Capital
Management, Inc., AIM Distributors, Inc., AIM Fund Services, Inc., AIM
Institutional Fund Services, Inc. and Fund Management Company.
GARY T. CRUM, Senior Vice President (49)
Director and President, AIM Capital Management, Inc.; Director and
Senior Vice President, AIM Management Group Inc., and AIM Advisors, Inc.;
and Director, AIM Distributors, Inc.
- --------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
4
<PAGE>
***CAROL F. RELIHAN, Senior Vice President and Secretary (41)
Senior Vice President, General Counsel and Secretary, AIM Advisors,
Inc.; Vice President, General Counsel and Secretary, AIM Management Group
Inc.; Vice President and General Counsel, Fund Management Company; and Vice
President, AIM Capital Management, Inc., AIM Distributors, Inc., AIM Fund
Services, Inc. and AIM Institutional Fund Services, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (37)
Vice President and Fund Controller, AIM Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
MELVILLE B. COX, Vice President (52)
Vice President and Chief Compliance Officer, AIM Advisors, Inc., AIM
Capital Management, Inc., AIM Distributors, Inc., AIM Fund Services, Inc., AIM
Institutional Fund Services, 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 (36)
Senior Vice President, AIM Capital Management, Inc.; and Vice
President, AIM Advisors, Inc.
J. ABBOTT SPRAGUE, Vice President (41)
Director and President, AIM Institutional Fund Services, Inc. and Fund
Management Company; Director and Senior Vice President, AIM Advisors, Inc.; and
Senior Vice President, AIM Management Group Inc.
The Board of Directors has an Audit Committee, an Investments
Committee, and a Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Daly, Kroeger
(Chairman), Pennock and Robinson. The Audit Committee is responsible for meeting
with the Portfolio's auditors to review audit procedures and results and to
consider any matters arising from an audit to be brought to the attention of the
directors as a whole with respect to the Portfolio's fund accounting or its
internal accounting controls, or for considering such matters as may from time
to time be set forth in a charter adopted by the Board of Directors and such
Committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Kroeger and Pennock. The Investments Committee is responsible
for reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, or considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such Committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating individuals
to stand for election as directors who are not interested persons as long as the
Fund maintains a distribution plan pursuant to rule 12b-1 under the 1940 Act,
reviewing from time to time the
- ------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
5
<PAGE>
compensation payable to the Dis-Interested Directors (as defined hereinafter),
or considering such matters as may from time to time be set forth in a charter
adopted by the board 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 AIM
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 thereof. Each Director
who is not also an officer of the Fund is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director or trustee of other AIM Funds. Each such director receives
a fee, allocated among the AIM Funds for which he serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended August 31, 1995 for each director of the Fund:
6
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR AGGREGATE RETIREMENT TOTAL
COMPENSATION BENEFITS COMPENSATION
FROM FUND(1) ACCRUED FROM ALL AIM FUNDS(3)
BY ALL AIM FUNDS(2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ -0- $ -0- $ -0-
- -----------------------------------------------------------------------------------
Bruce L. Crockett 2,091 3,655 57,750
- -----------------------------------------------------------------------------------
Owen Daly II 2,096 18,662 58,125
- -----------------------------------------------------------------------------------
Carl Frischling 2,091 11,323 57,250
- -----------------------------------------------------------------------------------
Robert H. Graham -0- -0- -0-
- -----------------------------------------------------------------------------------
John F. Kroeger 2,096 22,313 58,125
- -----------------------------------------------------------------------------------
Lewis F. Pennock 2,096 5,067 58,125
- -----------------------------------------------------------------------------------
Ian W. Robinson 2,071 15,381 56,750
- -----------------------------------------------------------------------------------
Louis S. Sklar 2,071 6,632 57,250
- -----------------------------------------------------------------------------------
- ----------------------
</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 $8,448.
(2) During the fiscal year ended August 31, 1995, the total amount of expenses
allocated to the Fund in respect of such retirement benefits was $4,583.
Data reflect compensation earned for the calendar year ended December 31,
1995.
(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 reflect compensation earned for the calendar year ended
December 31, 1995.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, AIM Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such Director's years of service
(not in excess of 10 years of service) completed with respect to any of the AIM
Funds. Such benefit is payable to each eligible director in quarterly
installments. 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%
7
<PAGE>
of the amount payable to the deceased director, for no more than ten years
beginning the first day of the calendar quarter following the date of the
director's death. Payments under the Plan are not secured or funded by any AIM
Fund.
Set forth below is a table that shows the estimated annual benefits payable
to an eligible director upon retirement assuming various compensation and years
of service classifications. The estimated credited years of service for Messrs.
Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar are 8, 9, 18,
18, 14, 8 and 6 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of
Years of Annual Compensation
Service With Paid By All AIM Funds
the AIM Fund
$55,000 $60,000 $65,000
===============================================================
10 $41,250 $45,000 $48,750
- ---------------------------------------------------------------
9 $37,125 $40,500 $43,875
- ---------------------------------------------------------------
8 $33,000 $36,000 $39,000
- ---------------------------------------------------------------
7 $28,875 $31,500 $34,125
- ---------------------------------------------------------------
6 $24,750 $27,000 $29,250
- ---------------------------------------------------------------
5 $20,625 $22,500 $24,375
===============================================================
</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 "Compensation Agreements"). Pursuant
to the Compensation Agreements, the deferring directors may elect 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 accounts shall be
deemed to be invested. Distributions from the deferring directors' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of ten 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 Compensation Agreements are not funded and,
with respect to the payments of amounts held in the deferral accounts, the
deferring directors have the status of unsecured creditors of the Fund and of
each other AIM Fund from which they are deferring compensation.
During the fiscal year ended August 31, 1995, directors' fees and expenses in
the amount of $14,116 were allocated to the Portfolio.
8
<PAGE>
During the year ended August 31, 1995, the Portfolio paid legal fees of $1,317
for services rendered by Reid & Priest as counsel to the Board of Directors. In
September 1994, Kramer, Levin, Naftalis & Frankel was appointed as counsel to
the Board of Directors. During the year ended August 31, 1995, the Portfolio
paid legal fees of $4,721 for services rendered by that firm as counsel. A
director of the Fund is a partner of Kramer, Levin, Naftalis & Frankel and was a
partner of the firm of Reid & Priest prior to September 1994.
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 October 18, 1993 (the "Advisory Agreement").
AIM was organized in 1976 and, together with its affiliates, advises, manages
or administers 43 investment company portfolios. As of June 20, 1996, the total
assets of the investment company portfolios managed or advised by AIM and its
affiliates were approximately $52.8 billion. AIM is a wholly-owned subsidiary
of AIM 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 and certain other employees (a) to pre-clear personal securities
transactions subject to the Code of Ethics, (b) to file reports or duplicate
confirmations regarding such transactions, (c) to refrain from personally
engaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same
security, and (iii) transactions involving securities being considered for
investment by an AIM Fund and (d) to abide by certain other provisions under the
Code of Ethics. The Code of Ethics also prohibits investment personnel and all
other AIM employees from purchasing securities in an initial public offering.
Personal trading reports are reviewed periodically by AIM, and the Board of
Directors reviews quarterly and annual reports (including information on any
substantial violations of the Code of Ethics). Sanctions for violations of the
Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
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 with respect to the Portfolio, AIM receives a
fee at the annual rate of 0.15% of the average daily net assets of the
Portfolio. 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.
During the period November 4, 1993 (date operations commenced) through August
31, 1994, AIM voluntarily waived fees of $1,500,977, which it was entitled to
receive pursuant to the Advisory Agreement with respect to the Portfolio.
During the fiscal year ended August 31, 1995, AIM received fees pursuant to the
Advisory Agreement in the amount of $1,323,637 with respect to the Portfolio and
AIM voluntarily waived fees of $1,127,509, which it was entitled to receive
pursuant to the Advisory Agreement with respect to the Portfolio.
The Advisory Agreement provides that, upon the request of the Board of
Directors, AIM may perform (or arrange for the performance of) certain
additional services on behalf of the Portfolio which are not required by the
Advisory Agreement. AIM may receive reimbursement or reasonable compensation
for such additional
9
<PAGE>
services, as may be agreed upon by AIM and the Board of Directors, based upon a
finding by the Board of Directors that the provision of such services would be
in the best interest of the Portfolio and its shareholders. The Board of
Directors has made such a finding and, accordingly, the Fund has entered into
the Master Administrative Services Agreement under which AIM will provide the
additional services described below under the caption "Administrator."
The Advisory Agreement will continue in effect until June 30, 1997 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 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 AIM
Institutional Fund Services, Inc. ("AIFS") entered into an administrative
services agreement, dated as of September 16, 1994 (the "AIFS Administrative
Services Agreement").
Under the Administrative Services Agreement, AIM has agreed to perform or
arrange for the performance of certain accounting, shareholder servicing and
other administrative services for the Portfolio which are not required to be
performed by AIM under the Advisory Agreement. For such services, AIM would be
entitled to receive from the Fund reimbursement of AIM's costs or such
reasonable compensation as may be approved by the Fund's Board of Directors.
The Administrative Services Agreement provides that such agreement will continue
in effect until June 30, 1997, and shall continue in effect from year to year
thereafter only if such continuance is specifically approved at least annually
by the Fund's Board of Directors, including the directors of the Fund who are
not "interested persons" (as defined in the 1940 Act) of the Fund or AIM (the
"Dis-Interested Directors"), the director of the Fund who are not "interested
persons" (as defined in the 1940 Act) of the Fund or AIM, by votes cast in
person at a meeting called for such purpose. The Administrative Services
Agreement was last approved by the Fund's Board of Directors (including the Dis-
Interested Directors) on May 15, 1996.
Pursuant to the Administrative Services Agreement, AIM was reimbursed for the
fiscal years ended August 31, 1995 and 1994 in the amounts of $97,044 and
$39,492, respectively.
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
Portfolio. The AIFS Administrative Services Agreement was terminated July 1,
1995. Beginning July 1, 1995, AIFS received fees with respect to the Portfolio
for its provision of shareholder services pursuant to a Transfer Agency and
Service Agreement with the Fund. For the period 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 $38,870 and $5,110, respectively. 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 $9,045.
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 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,
10
<PAGE>
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 Dis-Interested Directors, 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 90 Washington
Street, 11th Floor, New York, New York 10286.
AIM 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 in the Portfolio and its financial statements. The annual
financial statements are audited by the Fund's independent auditors. The Board
of Directors has selected KPMG Peat Marwick LLP, NationsBank Building, 700
Louisiana, Houston, Texas 77002, as the independent auditors to audit the
financial statements and review the tax returns of the Portfolio.
FEE WAIVERS
AIM or its affiliates may, from time to time, agree to waive voluntarily all
or any portion of its fees or reimburse the Portfolio for certain of its
expenses. Such waivers or reimbursements may be discontinued at any time.
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 August 23, 1996, and the percentage of the Portfolio's outstanding shares
owned by such shareholders as of such date are as follows:
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -------------
INSTITUTIONAL CLASS
- -------------------
U.S. Bank of Oregon 10.47%
321 Southwest 6th Street
Portland, OR 97208
BZW Barclays Global Investors, N.A. 9.07%
980 9th St., Suite 600
Sacramento, CA 95814
NationsBank of Texas 8.83%
P.O. Box 831000
Dallas, TX 75283-1000
Boatmen's Trust Company 6.26%
100 North Broadway
St. Louis, MO 63101
Trust Company Bank 5.41%
P.O. Box 105504
Atlanta, GA 30348
Frost National Bank 5.12%
P.O. Box 1600
San Antonio, TX 78296
Texas Commerce Bank 5.11%
P.O. Box 2558
Houston, TX 77252-8098
- ----------------------
* 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>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -------------
PRIVATE INVESTMENT CLASS
- ------------------------
Huntington Capital Corporation 64.61%**
41 South High Street
Columbus, OH 43287
Var & Co. 12.69%
180 East 5th Street
St. Paul, MN 55101
Frost National Bank 8.87%
P.O. Box 1600
San Antonio, TX 78296
PERSONAL INVESTMENT CLASS
- -------------------------
Bank of New York 70.71%**
440 Mamaroneck Ave.
Harrison, NY 10528
Cullen/Frost Discount Brokers 27.49%**
P.O. Box 2358
San Antonio, TX 78299
CASH MANAGEMENT CLASS
- ---------------------
Southwest Bank of Texas, N.A. 20.73%
4295 San Felipe
Houston, Texas 77027
Union Planters National Bank 19.92%
P.O. Box 387
Memphis, TN 38147
Sutter Health 11.21%
P.O. Box 160727
Sacramento, CA 95816-0727
CSCDA Sutter Health c/o 1st Trust 8.51%
101 California Street, Suite 1150
San Francisco, CA 94111
- ------------------------
* 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>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -------------
Mellon Bank 15.11%
Three Mellon Center, Rm. 3840
Pittsburgh, PA 15259-0001
Fund Services Associates 5.05%
11835 West Olympic Blvd., Suite 205
Los Angeles, CA 90064
RESOURCE CLASS
- --------------
Mellon Bank 81.59%**
Three Mellon Center, Rm 3840
Pittsburgh, PA 15259-0001
Tulsa & Co. 10.58%
P.O. Box 3688
Tulsa, OK 74101-3688
Huntington Capital Corp. 7.50%
41 S. High St.
9th Floor
Columbus, OH 43287
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 August 23, 1996, the percentage of the Liquid Assets
Portfolio's outstanding shares owned by such shareholders as of such date are as
follows:
- --------------------
* 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>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
INSTITUTIONAL CLASS
- -------------------
Trust Company Bank 12.51%
P.O. Box 105504
Atlanta, GA 30348
Wachovia Bank & Trust 8.95%
P.O. Box 3075
Winston-Salem, NC 27150
Comerica Bank 8.14%
P.O. Box 75000
Detroit, MI 48275-3455
NationsBank 7.06%
1401 Elm St. 11th Floor
P.O. Box 831000
Dallas, TX 75283-1000
BZW Barclays Global Investors 6.32%
980 9th St. Suite 600
Sacramento, CA 95814
Mellon Bank 6.04%
152 0600 Two Mellon Bank Center
Pittsburgh, PA 15259-0001
PRIVATE INVESTMENT CLASS
- ------------------------
Mellon Bank 100%**
P.O. Box 710
Pittsburgh, PA 15230-0710
CASH MANAGEMENT CLASS
- ---------------------
Fund Services Associates 81.26%**
11835 West Olympic Blvd.
Suite 205
Los Angeles, CA 90064
Intellon Corporation 14.64%
5100 West Silver Springs Blvd.
Ocala, FL 34482
- ------------------
* 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>
MSTC CASH RESERVES CLASS
- ------------------------
AIM provided the initial capitalization of the MSTC Cash Reserves 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 MSTC Cash Reserves Class of the Liquid Assets Portfolio. Although
the MSTC Cash Reserves 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 MSTC Cash
Reserves Class of the Liquid Assets Portfolio that are outstanding, it may be
presumed to be in "control" of the MSTC Cash Reserves Class of the Liquid Assets
Portfolio, as defined in the 1940 Act.
To the knowledge of the Fund, as of August 23, 1996, 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 Class are sold at the net asset value of such shares.
Shareholders may at any time redeem all or a portion of their shares at net
asset value. The investor's price for purchases and redemptions will be the net
asset value next determined following the receipt of an order to purchase or a
request to redeem shares.
The valuation of the portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Portfolio is permitted in accordance with applicable rules and regulations
of the SEC, including Rule 2a-7 under the 1940 Act, which require the Portfolio
to adhere to certain conditions. These rules require that the Portfolio maintain
a dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 397 calendar days or less and invest
only in securities determined by the Board of Directors to be "Eligible
Securities" and to present minimal credit risk to the Portfolio.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Portfolio's price per share
at $1.00 as computed for the purpose of sales and redemptions. Such procedures
include review of the Portfolio's holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for
the Portfolio deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing holders of
the 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.
THE 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.
16
<PAGE>
The Distribution Agreement provides that FMC has the exclusive right to
distribute shares either directly or through other broker-dealers. The
Distribution Agreement also provides that 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, 1997 and
from year to year thereafter, provided that it is specifically approved at least
annually by the Fund's Board of Directors and the affirmative vote of the
directors who are not parties to the Distribution Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The Fund or FMC may terminate the Distribution Agreement on 60 days'
written notice, without penalty. The Distribution Agreement will terminate
automatically in the event of its "assignment," as defined in the 1940 Act.
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Pursuant to the Plan, the Fund may enter into
Shareholder Service Agreements ("Service Agreements") with selected broker-
dealers, banks, other financial institutions or their affiliates. Since the
Class is intended for exclusive use by Morgan Stanley Trust Company, it is
anticipated that the Fund will enter into only one Service Agreement. 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 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 of customer cash accounting
balances in shares of the Class; (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 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.
17
<PAGE>
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. These restrictions are not matters of fundamental
policy, and should the Fund determine that any such commitment is no longer in
the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the states involved.
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 your Morgan
Stanley Trust Company Coverage Officer at (800) 688-3705 or the Fund at (800)
246-3426. The current yield quoted will be the net average annualized yield for
an identified period. Current yield will be computed by assuming that an account
was established with a single share (the "Single Share Account") on the first
day of the period. To arrive at the quoted yield, the net change in the value of
that Single Share Account for the period (which would include dividends accrued
with respect to the share, and dividends declared on shares purchased with
dividends accrued and paid, if any, but would not include realized gains and
losses or unrealized appreciation or depreciation) will be multiplied by 365 and
then divided by the number of days in the period, with the resulting figure
carried to the nearest hundredth of one percent. The Portfolio may also furnish
a quotation of effective yield 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 Portfolio may compare the performance of the Class or the performance
of securities in which it 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--Registered Trademark--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' 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 Portfolio may reference the growth and variety of money market mutual
funds and AIM's innovation and participation in the industry.
REDEMPTIONS IN KIND
The Fund will not redeem shares representing an interest in the Portfolio
in kind (i.e., by distributing its portfolio securities).
18
<PAGE>
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
The Portfolio may 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
The Fund will invest in "Eligible Securities" as defined in Rule 2a-7 under
the 1940 Act, which the Fund's Board of Directors has determined to present
minimal credit risk.
COMMERCIAL PAPER RATINGS
The following is a description of the factors underlying the commercial
paper ratings of Moody's, S&P and Fitch Investors Service, Inc. ("Fitch").
MOODY'S -- The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationship which exists with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated P-1, P-2 or P-3.
S&P -- Commercial paper rated A-1 by S&P has the following characteristics.
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management is unquestioned. The relative strength or weakness of the above
factors determine whether the issuer's commercial paper is rated A-1, A-2 or A-
3.
FITCH -- Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater emphasis
than a long-term rating on the existence of liquidity necessary to meet the
issuer's obligations in a timely manner. Fitch short-term ratings are as
follows:
19
<PAGE>
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 four highest bond ratings of S&P; the lower
two of which are referred to in the foregoing description of its commercial
paper ratings.
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.
20
<PAGE>
A
Bonds rated A are regarded as upper medium grade. They have considerable
investment strength but are not entirely free from adverse effects of changes in
economic and trade conditions. Interest and principal are regarded as safe. They
predominantly reflect money rates in their market behavior, but to some extent,
also economic conditions.
BBB
The BBB, or medium grade category, is borderline between definitely sound
obligations and those where the speculative element begins to predominate. These
bonds have adequate asset coverage and normally are protected by satisfactory
earnings. Their susceptibility to changing conditions, particularly to
depressions, necessitates constant watching. Market values of these bonds are
more responsive to business and trade conditions than to interest rates. This
group is the lowest which qualifies for commercial bank investment.
FITCH - Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1."
21
<PAGE>
REPURCHASE AGREEMENTS
Rule 2a-7 under the 1940 Act provides that a money market fund shall not
invest more than five percent of its total assets in securities issued by the
issuer of the security, provided that such a fund may invest up to 25% percent
of its total assets in the First Tier securities of a single issuer for a period
of up to three business days after the purchase thereof. 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", as such term is defined under Rule 2a-7.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy which may not be changed without the
approval of a majority of the outstanding shares of the Portfolio (as that term
is defined under "General Information about the Fund -- The Fund and its
Shares"), the Portfolio may not:
(1) concentrate 25% or more of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and bank instruments, such as
CDs, bankers' acceptances, time deposits and bank repurchase agreements;
(2) purchase securities of any one issuer (other than obligations of the
U.S. Government, its agencies or instrumentalities) if, immediately after
such purchase, more than 5% of the value of the Portfolio's total assets
would be invested in such issuer, except as permitted by Rule 2a-7 under
the 1940 Act, as amended from time to time;
(3) borrow money or issue senior securities except (a) for temporary or
emergency purposes (e.g., in order to facilitate the orderly sale of
portfolio securities or to accommodate abnormally heavy redemption
requests), the Portfolio may borrow money from banks or obtain funds by
entering into reverse repurchase agreements, and (b) to the extent that
entering into commitments to purchase securities in accordance with the
Portfolio's investment program may be considered the issuance of senior
securities, provided that the Portfolio will not purchase portfolio
securities while borrowings from banks 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;
22
<PAGE>
(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 and except for the investment in such securities of
funds representing compensation otherwise payable to its directors pursuant
to any deferred compensation plan existing at any time between the Fund and
its directors.
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 State
Securities Board of Texas, the Portfolio (i) will not invest in limited
partnership interests in real property, and (ii) will not issue any class of
senior security or borrow money unless immediately after such issuance or
borrowing there is asset coverage of at least 300%.
PORTFOLIO TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the
Portfolio, for selection of broker-dealers and for negotiation of commission
rates. Since purchases and sales of portfolio securities by the Portfolio are
usually principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Portfolio may also purchase securities from underwriters at prices
which include a commission paid by the issuer to the underwriter.
The Portfolio does not seek to profit from short-term trading, and will
generally (but not always) hold portfolio securities to maturity, but AIM may
seek to enhance the yield of the Portfolio by taking advantage of yield
disparities or other factors that occur in the money market. For example, market
conditions frequently result in similar securities trading at different prices.
AIM may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with AIM's judgment as to desirable portfolio maturity structure or
if such disposition is believed to be advisable due to other circumstances or
conditions. The amortized cost method of valuing portfolio securities requires
that the Portfolio maintain an average weighted portfolio maturity of ninety
days or less. Thus, there is likely to be relatively high portfolio turnover,
but since brokerage commissions are not normally paid on money market
instruments, the high rate of portfolio turnover is not expected to have a
material effect on the net income or expenses of the Portfolio.
AIM's primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order. To the
extent that the execution and prices offered by more than one 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.
23
<PAGE>
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 AIM 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 is
considered at or about the same time, transactions in such securities will be
allocated in good faith among such accounts, in accordance with applicable laws
and regulations, in order to obtain the best net price and most favorable
execution. The allocation and combination of simultaneous securities purchases
on behalf of the Portfolio will be made in the same way that such purchases are
allocated among or combined with those of other AIM accounts. Simultaneous
transactions could adversely affect the ability of the Portfolio to obtain or
dispose of the full amount of a security which it seeks to purchase or sell.
Under the 1940 Act, persons affiliated with the Fund are prohibited from
dealing with the Portfolio as a principal in any purchase or sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC.
Furthermore, the 1940 Act prohibits the Fund from purchasing a security being
publicly underwritten by a syndicate of which persons affiliated with the Fund
are members except in accordance with certain conditions. These conditions may
restrict the ability of the Portfolio to purchase money market obligations
being publicly underwritten by such a syndicate, and the Portfolio may be
required to wait until the syndicate has been terminated before buying such
securities. At such time, the market price of the securities may be higher or
lower than the original offering price. A person affiliated with the Fund may,
from time to time, serve as placement agent or financial advisor to an issuer of
money market obligations and be paid a fee by such issuer. The Portfolio may
purchase such money market obligations directly from the issuer, provided that
the purchase is made in accordance with procedures adopted by the Fund's Board
of Directors and such purchase is reviewed at least quarterly by the Fund's
Board of Directors and a determination is made that all such purchases were
effected in compliance with such procedures, 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
24
<PAGE>
explanation of the tax treatment of the Portfolio or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) for the
taxable year (the "Distribution Requirement"), and satisfies certain other
requirements of the Code that are described below. Distributions by the
Portfolio made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains for the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or of options, futures or forward contracts thereon) held for less
than three months (the "Short-Short Gain Test"). However, foreign currency
gains, including those derived from options, futures and forward contracts, will
not be characterized as Short-Short Gains if they are directly related to the
regulated investment company's principal business of investing in stock or
securities (or in options or futures thereon). Because of the Short-Short Gain
Test, a fund may have to limit the sale of appreciated securities that it has
held for less than three months. However, the Short-Short Gain Test will not
prevent a fund from disposing of investments at a loss, since the recognition of
a loss before the expiration of the three-month holding period is disregarded.
Interest (including original issue discount) received by a fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of a security
within the meaning of the Short-Short Gain Test. However, income that is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In addition to satisfying the requirements described above, a regulated
investment company must satisfy an asset diversification test in order to
qualify for tax purposes as a regulated investment company. Under this test, at
the close of each quarter of a fund's taxable year, at least 50% of the value of
a fund's assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated 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.
25
<PAGE>
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year). The balance of such income must be
distributed during the next calendar year. For the foregoing purposes, a
regulated investment company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.
The Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Portfolio may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
PORTFOLIO DISTRIBUTIONS
The Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for federal
income tax purposes, but they will not qualify for the 70% dividends received
deduction for corporations.
Distributions by the Portfolio will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio. Shareholders receiving a distribution in
the form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date.
Ordinarily, shareholders are required to take distributions by the
Portfolio into account in the year in which the distributions are made.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a specified date in such a month will be
deemed to have been received by the shareholders (and made by the Portfolio) on
December 31 of such calendar year if such dividends are actually paid in January
of the following year.
The Portfolio will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of the ordinary income dividends and capital gain
dividends paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
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 July 6,
1996. 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 an investment in the Portfolio.
26
<PAGE>
FINANCIAL STATEMENTS
THE FOOTNOTES TO THE FINANCIAL STATEMENTS APPLY TO THE INSTITUTIONAL CLASS OF
LIQUID ASSETS PORTFOLIO WHICH HAS BEEN IN OPERATION SINCE NOVEMBER 4, 1993.
THE EXPENSES OF THE MSTC CASH RESERVES CLASS WILL DIFFER FROM THOSE OF THE
INSTITUTIONAL CLASS OF LIQUID ASSETS PORTFOLIO.
FS
<PAGE>
SCHEDULE OF INVESTMENTS
February 29, 1996
(Unaudited)
<TABLE>
<CAPTION>
MATURITY PAR(000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER - 53.96%(a)
CONSUMER DURABLES - 13.38%
AUTOMOBILE - 8.29%
Ford Motor Credit Co.
5.28% 05/03/96 $ 50,000 $ 49,538,000
- ------------------------------------------------------------------------
4.98% 06/07/96 30,000 29,593,300
- ------------------------------------------------------------------------
5.01% 06/10/96 25,000 24,648,604
- ------------------------------------------------------------------------
Toyota Motor Credit Corp.
5.18% 04/04/96 24,000 23,882,587
- ------------------------------------------------------------------------
127,662,491
- ------------------------------------------------------------------------
COMPUTER & OFFICE EQUIPMENT - 5.09%
Hewlett-Packard Co.
4.88% 07/19/96 25,000 24,525,556
- ------------------------------------------------------------------------
4.93% 07/26/96 20,000 19,597,383
- ------------------------------------------------------------------------
4.93% 07/26/96 35,000 34,295,421
- ------------------------------------------------------------------------
78,418,360
- ------------------------------------------------------------------------
Total Consumer Durables 206,080,851
- ------------------------------------------------------------------------
CONSUMER NONDURABLES - 0.19%
MULTIPLE INDUSTRY - 0.19%
PepsiCo Inc.
5.05% 09/03/96 3,000 2,921,725
- ------------------------------------------------------------------------
Total Consumer Nondurables 2,921,725
- ------------------------------------------------------------------------
ENERGY - 2.17%
OIL & GAS - 2.17%
ARCO Coal Australia Inc.
5.62% 03/07/96 12,916 12,903,902
- ------------------------------------------------------------------------
5.07% 05/13/96 5,131 5,078,249
- ------------------------------------------------------------------------
5.05% 05/17/96 15,637 15,468,099
- ------------------------------------------------------------------------
Total Energy 33,450,250
- ------------------------------------------------------------------------
FINANCIAL - 31.69%
ASSET-BACKED SECURITIES - 11.53%
Asset Securitization Cooperative Corp.
5.17% 04/23/96 15,000 14,885,829
- ------------------------------------------------------------------------
5.17% 04/25/96 20,000 19,842,028
- ------------------------------------------------------------------------
5.23% 05/09/96 50,000 49,498,792
- ------------------------------------------------------------------------
Ciesco, L.P.
5.13% 05/03/96 18,000 17,838,405
- ------------------------------------------------------------------------
Clipper Receivables Corp.
5.25% 03/07/96 30,494 30,467,318
- ------------------------------------------------------------------------
5.45% 03/08/96 25,000 24,973,507
- ------------------------------------------------------------------------
Preferred Receivables Funding Corp.
5.45% 04/12/96 20,300 20,170,926
- ------------------------------------------------------------------------
177,676,805
- ------------------------------------------------------------------------
</TABLE>
FS-1
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR(000) VALUE
<S> <C> <C> <C>
FINANCIAL - (continued)
BROKERAGE/INVESTMENT - 7.34%
Merrill Lynch & Co., Inc.
5.38% 04/12/96 $ 50,000 $ 49,686,167
- -------------------------------------------------------------------
5.00% 06/04/96 25,000 24,670,139
- -------------------------------------------------------------------
4.90% 08/05/96 23,500 22,997,818
- -------------------------------------------------------------------
4.95% 08/30/96 16,000 15,599,600
- -------------------------------------------------------------------
112,953,724
- -------------------------------------------------------------------
INSURANCE - 3.12%
Marsh & McLennan Companies Inc.
5.51% 04/12/96 14,000 13,910,004
- -------------------------------------------------------------------
5.62% 04/25/96 15,000 14,871,209
- -------------------------------------------------------------------
4.81% 11/01/96 20,000 19,345,306
- -------------------------------------------------------------------
48,126,519
- -------------------------------------------------------------------
PERSONAL CREDIT - 3.03%
Associates Corp. of North America
5.62% 04/10/96 13,000 12,918,822
- -------------------------------------------------------------------
Transamerica Finance Corp.
5.10% 05/08/96 19,500 19,312,150
- -------------------------------------------------------------------
4.92% 08/09/96 14,700 14,376,551
- -------------------------------------------------------------------
46,607,523
- -------------------------------------------------------------------
MISCELLANEOUS - 3.49%
Hertz Corp. (The)
5.45% 04/05/96 25,000 24,867,535
- -------------------------------------------------------------------
International Lease Finance Corp.
5.38% 04/11/96 29,000 28,822,311
- -------------------------------------------------------------------
53,689,846
- -------------------------------------------------------------------
MULTIPLE INDUSTRY - 3.18%
General Electric Capital Corp.
4.92% 07/18/96 50,000 49,050,167
- -------------------------------------------------------------------
Total Financial 488,104,584
- -------------------------------------------------------------------
UTILITIES - 3.87%
TELEPHONE - 3.87%
AT&T Corp.
5.55% 04/11/96 60,000 59,620,750
- -------------------------------------------------------------------
Total Utilities 59,620,750
- -------------------------------------------------------------------
OTHER - 2.66%
MISCELLANEOUS - 2.66%
Cargill Financial Services Corp.
4.89% 07/31/96 20,000 19,587,067
- -------------------------------------------------------------------
5.00% 08/15/96 10,000 9,768,056
- -------------------------------------------------------------------
4.95% 10/29/96 12,000 11,600,700
- -------------------------------------------------------------------
Total Other 40,955,823
- -------------------------------------------------------------------
Total Commercial Paper 831,133,983
- -------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR(000) VALUE
<S> <C> <C> <C>
BANK NOTES - 0.65%
PNC Bank Corp.
6.04%(b) 05/24/96 $ 10,000 $ 10,015,296
- -------------------------------------------------------------------------------
Total Bank Notes 10,015,296
- -------------------------------------------------------------------------------
CORPORATE NOTES - 0.35%
International Lease Finance Corp.
6.625% 06/01/96 5,440 5,447,938
- -------------------------------------------------------------------------------
Total Corporate Notes 5,447,938
- -------------------------------------------------------------------------------
MEDIUM TERM NOTES - 1.30%
General Electric Capital Corp.
5.084% 01/29/97 10,000 10,008,396
- -------------------------------------------------------------------------------
5.138% 01/30/97 10,000 10,013,250
- -------------------------------------------------------------------------------
Total Medium Term Notes 20,021,646
- -------------------------------------------------------------------------------
PROMISSORY AND MASTER NOTE AGREEMENTS -
25.64%
Goldman Sachs Group (The), L.P.
5.5475%(c) 10/25/96 173,000 173,000,000
- -------------------------------------------------------------------------------
Morgan (J.P.) Securities, Inc.
5.4766%(d) 04/12/96 100,000 100,000,000
- -------------------------------------------------------------------------------
Morgan Stanley Group, Inc.
5.5075%(e) 07/31/96 122,000 122,000,000
- -------------------------------------------------------------------------------
Total Promissory and Master Note
Agreements 395,000,000
- -------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 6.40%
U.S. Treasury Bills - 4.76%(f)
4.805% 06/27/96 25,000 24,606,256
- -------------------------------------------------------------------------------
4.79% 08/29/96 50,000 48,795,846
- -------------------------------------------------------------------------------
73,402,102
- -------------------------------------------------------------------------------
U.S. Treasury Notes - 1.64%
6.50% 09/30/96 25,000 25,213,185
- -------------------------------------------------------------------------------
Total U.S. Treasury Securities 98,615,287
- -------------------------------------------------------------------------------
Total Investments, excluding Repurchase
Agreements 1,360,234,150
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 12.24%(g)
Goldman, Sachs & Co.
6.25%(h) 03/01/96 150,000 150,000,000
- -------------------------------------------------------------------------------
6.00%(i) 03/01/96 38,506 38,506,304
- -------------------------------------------------------------------------------
Total Repurchase Agreements 188,506,304
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.54% 1,548,740,454(j)
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.54%) (8,335,583)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $1,540,404,871
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Portfolio.
(b) Interest rates are redetermined weekly. Rate shown is the rate in effect on
February 29, 1996.
FS-3
<PAGE>
(c) The Portfolio may demand prepayment of note upon seven calendar days'
notice. Interest rates on promissory notes are redetermined periodically.
Rate shown is the rate in effect on February 29, 1996.
(d) The Portfolio may demand prepayment of notes purchased under the Master
Note Agreement upon seven calendar days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
February 29, 1996.
(e) Master Note Purchase Agreement may be terminated by either party upon three
business days' notice, at which time all amounts outstanding under the
notes purchased under the Master Note Agreement will become payable.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on February 29, 1996.
(f) U.S. Treasury bills are traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Portfolio.
(g) Collateral on repurchase agreements, including the Portfolio's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Portfolio upon entering into the repurchase agreement. The collateral is
marked to market daily to ensure its market value as being 102% of the
sales price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds managed by the investment advisor.
(h) Joint repurchase agreement entered into on 02/29/96 with a maturing value
of $150,026,042. Collateralized by $144,624,000 U.S. Treasury obligations,
0% to 7.25% due 03/01/96 to 09/29/08.
(i) Joint repurchase agreement entered into on 02/29/96 with a maturing value
of $195,032,500. Collateralized by $190,359,000 U.S. Treasury obligations,
5.25% to 8.75% due 08/31/97 to 11/15/08.
(j) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value
(amortized cost) $1,360,234,150
- ------------------------------------------------------------------------
Repurchase agreements 188,506,304
- ------------------------------------------------------------------------
Interest receivable 3,117,370
- ------------------------------------------------------------------------
Investment for deferred compensation plan 18,517
- ------------------------------------------------------------------------
Other assets 53,745
- ------------------------------------------------------------------------
Total assets 1,551,930,086
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends 11,333,574
- ------------------------------------------------------------------------
Deferred compensation 18,517
- ------------------------------------------------------------------------
Accrued advisory fees 49,045
- ------------------------------------------------------------------------
Accrued distribution fees 1,759
- ------------------------------------------------------------------------
Accrued directors' fees 2,414
- ------------------------------------------------------------------------
Accrued administrative services fees 4,590
- ------------------------------------------------------------------------
Accrued transfer agent fees 36,363
- ------------------------------------------------------------------------
Accrued operating expenses 78,953
- ------------------------------------------------------------------------
Total liabilities 11,525,215
- ------------------------------------------------------------------------
NET ASSETS $1,540,404,871
========================================================================
NET ASSETS:
Institutional Class $1,510,235,332
========================================================================
Cash Management Class $ 22,954,192
========================================================================
Private Investment Class $ 7,215,347
========================================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Institutional Class 1,512,072,509
========================================================================
Cash Management Class 22,982,202
========================================================================
Private Investment Class 7,225,773
========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE>
STATEMENT OF OPERATIONS
For the six months ended February 29, 1996
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $52,532,273
- ----------------------------------------------------------------------------
EXPENSES:
Advisory
fees 1,369,372
- ----------------------------------------------------------------------------
Custodian fees 84,403
- ----------------------------------------------------------------------------
Administrative services fees 20,935
- ----------------------------------------------------------------------------
Distribution fees (Note 2) 1,892
- ----------------------------------------------------------------------------
Directors' fees and expenses 8,330
- ----------------------------------------------------------------------------
Filing fees 46,118
- ----------------------------------------------------------------------------
Transfer agent fees 72,412
- ----------------------------------------------------------------------------
Other 71,073
- ----------------------------------------------------------------------------
Total expenses 1,674,535
- ----------------------------------------------------------------------------
Less expenses assumed by advisor (1,316,370)
- ----------------------------------------------------------------------------
Net expenses 358,165
- ----------------------------------------------------------------------------
Net investment income 52,174,108
- ----------------------------------------------------------------------------
Net realized gain (loss) on sales of investments (1,738,483)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $50,435,625
============================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended February 29, 1996 and year ended August 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 29, AUGUST 31,
1996 1995
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 52,174,108 $ 92,913,637
- ----------------------------------------------------------------------------
Net realized gain (loss) on sales of
investments (1,738,483) (74,934)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 50,435,625 92,838,703
- ----------------------------------------------------------------------------
Distributions to shareholders from net
investment income (52,174,108) (92,913,637)
- ----------------------------------------------------------------------------
Share transactions -- net 254,680,696 259,187,785
- ----------------------------------------------------------------------------
Net increase in net assets 252,942,213 259,112,851
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,287,462,658 1,028,349,807
- ----------------------------------------------------------------------------
End of period $1,540,404,871 $1,287,462,658
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,542,280,484 $1,287,599,788
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investment securities (1,875,613) (137,130)
- ----------------------------------------------------------------------------
$1,540,404,871 $1,287,462,658
============================================================================
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 29, 1996
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Short-Term Investments Co. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end series, diversified management
investment company. The Fund is organized as a Maryland corporation consisting
of two different portfolios, each of which offers separate series of shares:
the Liquid Assets Portfolio and the Prime Portfolio. The assets, liabilities
and operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Liquid Assets
Portfolio (the "Portfolio"). The Portfolio consists of three different classes
of shares: the Institutional Class, the Private Investment Class and the Cash
Management Class. Matters affecting each class are voted on exclusively by the
shareholders of each class. The Portfolio's objective is to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity.
The following is a summary of significant accounting policies followed by the
Portfolio in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. Security Valuations - The Portfolio invests only in securities which have
maturities of 397 days or less. The securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is accrued daily. Dividends to shareholders are
declared daily and are paid on the first business day of the following
month.
C. Federal Income Taxes - The Portfolio intends to comply with the requirements
of the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Portfolio has a capital
loss carryforward of $90,712 (which may be carried forward to offset future
taxable gains, if any) which expires, if not previously utilized, through
the year 2003. The Portfolio cannot distribute capital gains to shareholders
until the tax loss carryforwards have been utilized.
D. Expenses - Operating expenses directly attributable to a class of shares
are charged to that class' operations. Expenses which are applicable to
more than one class, e.g., advisory fees, are allocated among them.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master advisory agreement, AIM
receives a fee, paid monthly, with respect to the Portfolio at the annual rate
of 0.15% of the average daily net assets of the Portfolio.
AIM will, if necessary, reduce its fee for any fiscal year to the extent
required so that the amount of ordinary expenses of the Portfolio (excluding
interest, taxes, brokerage commissions and extraordinary expenses) paid or
incurred by the Portfolio for such fiscal year does not exceed the applicable
expense limitations imposed by the state securities regulations in any state in
which the Portfolio's shares are qualified for sale. During the six months
ended February 29, 1996, AIM voluntarily waived fees of $1,291,820 on the
Portfolio and voluntarily reimbursed expenses of $22,000 on the Institutional
Class, $750 on the Private Investment Class and $1,800 on the Cash Management
Class.
The Portfolio, pursuant to a master administrative services agreement with
AIM, has agreed to reimburse AIM for certain costs incurred in providing
accounting services to the Portfolio. During the six months ended February 29,
1996, the Portfolio reimbursed AIM $20,935 for such services.
FS-7
<PAGE>
The Portfolio, pursuant to a transfer agency and service agreement, has agreed
to pay A I M Institutional Fund Services, Inc. ("AIFS") a fee for providing
transfer agent and shareholder services to the Portfolio. During the six months
ended February 29, 1996, the Portfolio paid AIFS $72,412 for such services.
Under the terms of a master distribution agreement between Fund Management
Company ("FMC") and the Fund, FMC acts as the exclusive distributor of the
Fund's shares. The Fund has adopted a master distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Private
Investment Class and the Cash Management Class of the Portfolio. The Plan
provides that the Private Investment Class and Cash Management Class pay FMC up
to a maximum annual rate of 0.50% and 0.10%, respectively, of the average daily
net assets attributable to such class. Of this amount, the Fund may pay an
asset-based sales charge to FMC and the Fund may pay a service fee of 0.25% and
0.10% of the average daily net assets, respectively, of each of the Private
Investment Class and the Cash Management Class, to selected banks, broker-
dealers and other financial institutions who offer continuing personal
shareholder services to their customers who purchase and own shares of the
Private Investment Class or the Cash Management Class. Any amounts not paid as
a service fee under such Plan would constitute an asset-based sales charge.
During the six months ended February 29, 1996, the Private Investment Class and
the Cash Management Class accrued for compensation to FMC amounts of $1,260 and
$632, respectively, under the Plan. Certain officers and directors of the Fund
are officers of AIM, FMC, and AIFS.
During the six months ended February 29, 1996, the Portfolio paid legal fees
of $3,530 for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel as counsel to the Fund's directors. A member of that firm is a director
of the Fund.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Fund invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - CAPITAL STOCK
Changes in capital stock during the six months ended February 29, 1996 and the
year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, AUGUST 31,
1996 1995
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Class 23,008,238,967 $23,008,238,967 32,408,905,435 $32,408,905,435
- ---------------------------------------------------------------------------------------------
Cash Management Class* 33,034,108 33,034,108 -- --
- ---------------------------------------------------------------------------------------------
Private Investment
Class** 18,504,008 18,504,008 -- --
- ---------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Class 2,396,283 2,396,283 2,458,920 2,458,920
- ---------------------------------------------------------------------------------------------
Cash Management Class* 43,106 43,106 -- --
- ---------------------------------------------------------------------------------------------
Private Investment
Class** 21,765 21,765 -- --
- ---------------------------------------------------------------------------------------------
Reacquired:
Institutional Class (22,786,162,529) (22,786,162,529) (32,152,176,570) (32,152,176,570)
- ---------------------------------------------------------------------------------------------
Cash Management Class* (10,095,012) (10,095,012) -- --
- ---------------------------------------------------------------------------------------------
Private Investment
Class** (11,300,000) (11,300,000) -- --
- ---------------------------------------------------------------------------------------------
Net increase 254,680,696 $ 254,680,696 259,187,785 $ 259,187,785
=============================================================================================
</TABLE>
* The Cash Management Class commenced operations on January 17, 1996.
** The Private Investment Class commenced operations on February 16, 1996.
FS-8
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of capital stock
outstanding of the Institutional Class during the six months ended February 29,
1996, the year ended August 31, 1995 and the period November 4, 1993 (date
operations commenced) through August 31, 1994.
<TABLE>
<CAPTION>
AUGUST 31,
FEBRUARY 29, -------------------------
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00
- ------------------------------- ---------- ---------- ----------
Income from investment
operations:
Net investment income 0.03 0.06 0.03
- ------------------------------- ---------- ---------- ----------
Less distributions:
Dividends from net investment
income (0.03) (0.06) (0.03)
- ------------------------------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
=============================== ========== ========== ==========
Total return 5.80%(a) 5.83% 3.83%(a)
=============================== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,510,235 $1,287,463 $1,028,350
=============================== ========== ========== ==========
Ratio of expenses to average
net assets 0.04%(b)(c) 0.11%(c) 0.05%(c)
=============================== ========== ========== ==========
Ratio of net investment income
to average net assets 5.68%(b)(d) 5.69%(d) 3.85%(d)
=============================== ========== ========== ==========
</TABLE>
(a) Annualized.
(b) Ratios are annualized and based on average net assets of $1,843,802,600.
(c) Ratios of expenses to average net assets prior to expense reimbursements
were 0.18% for the periods 1996-1994, respectively. Ratios are annualized
for periods less than one year.
(d) Ratios of net investment income to average net assets prior to expense
reimbursements were 5.54% (annualized), 5.62% and 3.72% (annualized) for
the periods 1996-1994, respectively.
FS-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of the
Liquid Assets Portfolio (a series Portfolio of Short-Term Investments Co.),
including the schedule of investments, as of August 31, 1995, and the related
statement of operations for the year then ended, and the statement of changes
in net assets and financial highlights for the year then ended and the period
November 4, 1993 (date operations commenced) through August 31, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Liquid Assets Portfolio as of August 31, 1995, the results of its operations
for the year then ended, and the changes in its net assets and financial
highlights for the year then ended and the period November 4, 1993 (date
operations commenced) through August 31, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
October 6, 1995
Houston, Texas
FS-10
<PAGE>
SCHEDULE OF INVESTMENTS
August 31, 1995
<TABLE>
<CAPTION>
MATURITY PAR(000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER - 35.84%(a)
CONSUMER DURABLES - 9.17%
AUTOMOBILE - 7.94%
Daimler-Benz North America Corp.
5.90% 11/07/95 $ 33,200 $ 32,835,445
- ----------------------------------------------------------------------
5.90% 11/08/95 25,000 24,721,389
- ----------------------------------------------------------------------
Ford Motor Credit Co.
5.90% 09/20/95 25,000 24,922,153
- ----------------------------------------------------------------------
5.95% 11/01/95 20,000 19,798,362
- ----------------------------------------------------------------------
102,277,349
- ----------------------------------------------------------------------
RESIDENTIAL CONSTRUCTION - 1.23%
Weyerhaeuser Real Estate Co.
5.90% 11/13/95 16,000 15,808,578
- ----------------------------------------------------------------------
Total Consumer Durables 118,085,927
- ----------------------------------------------------------------------
CONSUMER NONDURABLES - 3.44%
PUBLISHING - 1.54%
McGraw-Hill Inc.
5.64% 02/28/96 20,500 19,921,900
- ----------------------------------------------------------------------
MULTIPLE INDUSTRY - 1.90%
PepsiCo Inc.
5.53% 01/29/96 25,000 24,423,958
- ----------------------------------------------------------------------
Total Consumer Nondurables 44,345,858
- ----------------------------------------------------------------------
ENERGY - 2.39%
OIL & GAS - 2.39%
ARCO Coal Australia Inc.
6.04% 10/23/95 15,540 15,404,422
- ----------------------------------------------------------------------
6.07% 10/30/95 15,493 15,338,875
- ----------------------------------------------------------------------
Total Energy 30,743,297
- ----------------------------------------------------------------------
FINANCIAL - 15.50%
ASSET-BACKED SECURITIES - 2.94%
Delaware Funding Corp.
5.85% 09/22/95 18,389 18,326,247
- ----------------------------------------------------------------------
Falcon Asset Securitization Corp.
5.64% 01/22/96 20,000 19,551,933
- ----------------------------------------------------------------------
37,878,180
- ----------------------------------------------------------------------
BUSINESS CREDIT - 4.24%
CIT Group Holdings, Inc.
5.90% 09/20/95 25,000 24,922,153
- ----------------------------------------------------------------------
National Rural Utilities Cooperative
Finance Corp.
5.90% 09/08/95 10,000 9,988,528
- ----------------------------------------------------------------------
5.72% 12/04/95 20,000 19,701,289
- ----------------------------------------------------------------------
54,611,970
- ----------------------------------------------------------------------
</TABLE>
FS-11
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR(000) VALUE
<S> <C> <C> <C>
INSURANCE - 4.87%
Marsh & McLennan Companies Inc.
5.42% 02/27/96 $ 10,000 $ 9,730,506
- ----------------------------------------------------------------------------
5.42% 03/14/96 9,380 9,104,619
- ----------------------------------------------------------------------------
5.42% 03/29/96 16,350 15,833,067
- ----------------------------------------------------------------------------
5.51% 04/12/96 14,000 13,520,018
- ----------------------------------------------------------------------------
5.62% 04/25/96 15,000 14,445,025
- ----------------------------------------------------------------------------
62,633,235
- ----------------------------------------------------------------------------
MISCELLANEOUS - 0.62%
International Lease Finance Corp.
5.85% 09/12/95 8,000 7,985,700
- ----------------------------------------------------------------------------
MULTIPLE INDUSTRY - 2.83%
General Electric Capital Corp.
5.84% 09/14/95 11,500 11,475,747
- ----------------------------------------------------------------------------
5.88% 09/22/95 25,000 24,914,250
- ----------------------------------------------------------------------------
36,389,997
- ----------------------------------------------------------------------------
Total Financial 199,499,082
- ----------------------------------------------------------------------------
RETAIL - 2.01%
FOOD STORES - 2.01%
Winn-Dixie Stores Inc.
5.87% 10/05/95 26,000 25,855,859
- ----------------------------------------------------------------------------
UTILITIES - 1.43%
ELECTRIC SERVICES - 1.43%
Citizens Utilities Co.
5.85% 09/07/95 18,500 18,481,963
- ----------------------------------------------------------------------------
OTHER - 1.90%
MISCELLANEOUS - 1.90%
Cargill Financial Services Corp.
5.60% 12/18/95 10,000 9,832,000
- ----------------------------------------------------------------------------
5.68% 02/12/96 15,000 14,611,867
- ----------------------------------------------------------------------------
Total Other 24,443,867
- ----------------------------------------------------------------------------
Total Commercial Paper 461,455,853
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES - 15.54%
Federal National Mortgage Association -
10.18%
5.58%(b) 06/02/99 131,000 131,000,000
- ----------------------------------------------------------------------------
Student Loan Marketing Association - 5.36%
5.71%(b) 01/13/99 54,000 54,000,000
- ----------------------------------------------------------------------------
5.71%(b) 02/08/99 15,000 15,000,000
- ----------------------------------------------------------------------------
69,000,000
- ----------------------------------------------------------------------------
Total U.S. Government Agencies 200,000,000
- ----------------------------------------------------------------------------
</TABLE>
FS-12
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR(000) VALUE
<S> <C> <C> <C>
PROMISSORY AND MASTER NOTE AGREEMENTS -
25.52%
Citicorp Securities, Inc.
6.0625%(c) 09/13/95 $ 94,000 $ 94,000,000
- --------------------------------------------------------------------------------
Goldman Sachs Group L.P. (The)
5.9125%(d) 01/29/96 75,000 75,000,000
- --------------------------------------------------------------------------------
Morgan (J.P.) Securities Inc.
5.9875%(e) 10/16/95 86,510 86,510,000
- --------------------------------------------------------------------------------
Morgan Stanley Group, Inc.
5.8925%(f) 01/29/96 73,000 73,000,000
- --------------------------------------------------------------------------------
Total Promissory and Master Note
Agreements 328,510,000
- --------------------------------------------------------------------------------
Total Investments, excluding Repurchase
Agreements 989,965,853
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 23.33%(g)
Fuji Securities Inc.
5.87%(h) -- 75,000 75,000,000
- --------------------------------------------------------------------------------
Goldman, Sachs & Co., Inc.
6.00%(i) 09/01/95 75,410 75,409,615
- --------------------------------------------------------------------------------
6.14%(j) 10/10/95 50,000 50,000,000
- --------------------------------------------------------------------------------
Harris-Nesbitt Thomson Securities Inc.
6.05%(k) 09/01/95 100,000 100,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreements 300,409,615
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.23% 1,290,375,468(1)
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.23%) (2,912,810)
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $1,287,462,658
================================================================================
</TABLE>
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Portfolio.
(b) Interest rates are redetermined weekly. Rates shown are the rates in effect
on August 31, 1995.
(c) The Portfolio may demand prepayment of notes purchased under the Master
Note Agreement upon notice to the issuer. Interest rates on master notes
are redetermined periodically. Rates shown are the rates in effect on
August 31, 1995.
(d) The Portfolio may demand prepayment of notes upon seven calendar days'
notice. Interest rates on promissory notes are redetermined periodically.
Rate shown is the rate in effect on August 31, 1995.
(e) The Portfolio may demand prepayment of notes purchased under the Master
Note Agreement upon seven calendar days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
August 31, 1995.
(f) Master Note Purchase Agreement may be terminated by either party upon three
business days' notice, at which time all amounts outstanding under the
notes purchased under the Master Note Agreement will become payable.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on August 31, 1995.
(g) Collateral on repurchase agreements, including the Portfolio's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102 percent of the
sales price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds managed by the investment advisor.
(h) Open joint repurchase agreement entered into on 08/30/95; however, either
party may terminate the agreement upon demand. Collateralized by
$332,491,000 U.S. Treasury obligations, 0.00% to 9.25% due 05/15/97 to
02/15/16.
(i) Entered into on 08/31/95 with a maturing value of $75,422,183.
Collateralized by $80,567,000 U.S. Treasury obligations, 5.875% to 6.87%
due 07/31/96 to 08/28/00.
(j) Term repurchase agreement entered into 04/11/95 with a maturity date of
10/10/95; however, either party may terminate the agreement as of any
business day not less than seven days' after receipt of written notice from
the terminating party. Collateralized by $43,260,000 U.S. Treasury
obligations, 7.25% to 8.75% due 05/01/16 to 08/15/20.
(k) Entered into on 08/31/95 with a maturing value of $100,016,806.
Collateralized by $90,778,000 U.S. Treasury obligations, 0.00% to 9.25% due
11/15/95 to 05/15/21.
(l) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value
(amortized cost) $ 989,965,853
- ------------------------------------------------------------------------
Repurchase agreements 300,409,615
- ------------------------------------------------------------------------
Interest receivable 5,290,124
- ------------------------------------------------------------------------
Investment for deferred compensation plan 11,407
- ------------------------------------------------------------------------
Other assets 20,348
- ------------------------------------------------------------------------
Total assets 1,295,697,347
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends 8,081,656
- ------------------------------------------------------------------------
Deferred compensation 11,407
- ------------------------------------------------------------------------
Accrued advisory fees 91,097
- ------------------------------------------------------------------------
Accrued directors' fees 2,034
- ------------------------------------------------------------------------
Accrued administrative services fees 5,219
- ------------------------------------------------------------------------
Accrued transfer agent fees 10,645
- ------------------------------------------------------------------------
Accrued operating expenses 32,631
- ------------------------------------------------------------------------
Total liabilities 8,234,689
- ------------------------------------------------------------------------
NET ASSETS $1,287,462,658
========================================================================
NET ASSET VALUE PER SHARE:
Capital stock, $.001 par value per share 1,287,599,788
========================================================================
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-14
<PAGE>
STATEMENT OF OPERATIONS
For the year ended August 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $94,760,422
- ------------------------------------------------------------------
EXPENSES:
Advisory fees 2,451,146
- ------------------------------------------------------------------
Custodian fees 59,910
- ------------------------------------------------------------------
Administrative services fees 97,044
- ------------------------------------------------------------------
Directors' fees and expenses 14,116
- ------------------------------------------------------------------
Filing fees 255,172
- ------------------------------------------------------------------
Transfer agent fees 34,915
- ------------------------------------------------------------------
Other 61,991
- ------------------------------------------------------------------
Total expenses 2,974,294
- ------------------------------------------------------------------
Less advisory fees waived (1,127,509)
- ------------------------------------------------------------------
Net expenses 1,846,785
- ------------------------------------------------------------------
Net investment income 92,913,637
- ------------------------------------------------------------------
Net realized gain (loss) on sales of investments (74,934)
- ------------------------------------------------------------------
Net increase in net assets resulting from operations $92,838,703
==================================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended August 31, 1995 and the period November 4, 1993 (date
operations commenced) through August 31, 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 92,913,637 $ 44,215,233
- ----------------------------------------------------------------------------
Net realized gain (loss) on sales of
investments (74,934) (62,196)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 92,838,703 44,153,037
- ----------------------------------------------------------------------------
Distributions to shareholders from net
investment income (92,913,637) (44,215,233)
- ----------------------------------------------------------------------------
Share transactions -- net 259,187,785 1,028,412,003
- ----------------------------------------------------------------------------
Net increase in net assets 259,112,851 1,028,349,807
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,028,349,807 --
- ----------------------------------------------------------------------------
End of period $1,287,462,658 $1,028,349,807
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $1,287,599,788 $1,028,412,003
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investment securities (137,130) (62,196)
- ----------------------------------------------------------------------------
$1,287,462,658 $1,028,349,807
============================================================================
</TABLE>
See Notes to Financial Statements.
FS-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Short-Term Investments Co. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end series, diversified management
investment company. The Fund is organized as a Maryland corporation consisting
of two different portfolios, each of which offers separate series of shares:
the Liquid Assets Portfolio and the Prime Portfolio. The assets, liabilities
and operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Liquid Assets
Portfolio (the "Portfolio").
The following is a summary of the significant accounting policies followed by
the Portfolio in the preparation of its financial statements.
A. Security Valuations - The Portfolio invests only in securities which have
maturities of 397 days or less. The securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is accrued daily. Dividends to shareholders are
declared daily and are paid on the first business day of the following
month.
C. Federal Income Taxes - The Portfolio intends to comply with the requirements
of the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $90,712 (which may be carried forward to offset future
taxable gains, if any) which expires, if not previously utilized, through
the year 2003. The Fund cannot distribute capital gains to shareholders
until the tax loss carryforwards have been utilized.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master advisory agreement, AIM
receives a fee, paid monthly, with respect to the Portfolio at the annual rate
of 0.15% of the average daily net assets of the Portfolio.
AIM will, if necessary, reduce its fee for any fiscal year to the extent
required so that the amount of ordinary expenses of the Portfolio (excluding
interest, taxes, brokerage commissions and extraordinary expenses) paid or
incurred by the Portfolio for such fiscal year does not exceed the applicable
expense limitations imposed by the state securities regulations in any state in
which the Portfolio's shares are qualified for sale. During the year ended
August 31, 1995, AIM voluntarily waived fees of $1,127,509.
The Portfolio, pursuant to a master administrative services agreement with
AIM, has agreed to reimburse AIM for certain costs incurred in providing
accounting services to the Portfolio. During the year ended August 31, 1995,
the Portfolio reimbursed AIM $58,174 for such services.
During the year ended August 31, 1995, the Fund paid A I M Institutional Fund
Services, Inc. ("AIFS") $47,915 for shareholder and transfer agency services.
Effective July 1, 1995, AIFS became the exclusive transfer agent of the
Portfolio. Certain officers and directors of the Fund are officers and
directors of AIM, AIFS and Fund Management Company, the Portfolio's
distributor.
During the year ended August 31, 1995, the Portfolio paid legal fees of $4,721
for services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as
counsel to the Fund's directors. A member of that firm is a director of the
Fund.
FS-17
<PAGE>
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Fund invests directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - CAPITAL STOCK
Changes in capital stock during the year ended August 31, 1995 and the period
November 4, 1993 (date operations commenced) through August 31, 1994 were as
follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
SHARES AMOUNT SHARES VALUE
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sold 32,408,905,435 $ 32,408,905,435 20,765,848,248 $20,765,848,248
- --------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends 2,458,920 2,458,920 587,397 587,397
- --------------------------------------------------------------------------------------------
Reacquired (32,152,176,570) (32,152,176,570) (19,738,023,642) (19,738,023,642)
============================================================================================
Net increase 259,187,785 $ 259,187,785 1,028,412,003 $ 1,028,412,003
============================================================================================
</TABLE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of capital stock
of the Portfolio outstanding during the year ended August 31, 1995 and the
period November 4, 1993 (date operations commenced) through August 31, 1994.
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
- --------------------------------------------- ---------- ----------
Income from investment operations:
Net investment income 0.06 0.03
- --------------------------------------------- ---------- ----------
Less distributions:
Dividends from net investment income (0.06) (0.03)
- --------------------------------------------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00
============================================= ========== ==========
Total return 5.83% 3.83%(a)
============================================= ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,287,463 $1,028,350
============================================= ========== ==========
Ratio of expenses to average net assets 0.11%(b) 0.05%(c)
============================================= ========== ==========
Ratio of net investment income to average net
assets 5.69%(b) 3.85%(c)
============================================= ========== ==========
</TABLE>
(a) Annualized.
(b) After waiver of advisory fees. Ratios are based on average net assets of
$1,634,097,113. Ratios of expenses and net investment income to average net
assets prior to waiver of advisory fees are 0.18% and 5.62%, respectively.
(c) After waiver of advisory fees. Annualized ratios of expenses and net
investment income to average net assets prior to waiver of advisory fees
are 0.18% and 3.72%, respectively.
FS-18
