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SHORT-TERM
INVESTMENTS CO.
Prospectus
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LIQUID ASSETS
PORTFOLIO 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
CASH consistent with the preservation of capital and liquidity. The Portfolio seeks
MANAGEMENT to achieve its objective by investing in high quality money market instruments
CLASS such as U.S. Government obligations, bank obligations, commercial instruments
and repurchase agreements.
DECEMBER 17, 1997
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 Cash Management 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH BASIC INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW BEFORE INVESTING IN SHARES OF THE CASH MANAGEMENT CLASS OF THE
PORTFOLIO AND SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A STATEMENT OF
ADDITIONAL INFORMATION DATED DECEMBER 17, 1997, HAS BEEN FILED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (THE"SEC") AND IS HEREBY INCORPORATED
BY REFERENCE. FOR A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION WITHOUT
CHARGE, WRITE TO THE ADDRESS BELOW OR CALL (800) 877-7745. THE SEC MAINTAINS A
WEB SITE AT HTTP://WWW.SEC.GOV THAT CONTAINS THE STATEMENT OF ADDITIONAL
INFORMATION, MATERIAL INCORPORATED BY REFERENCE, AND OTHER INFORMATION
REGARDING THE FUND.
THE PORTFOLIO'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE PORTFOLIO'S SHARES ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THERE CAN BE NO ASSURANCE THAT
THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE. SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS INCLUDING THE POSSIBLE
[LOGO APPEARS HERE] LOSS OF PRINCIPAL.
Fund Management Company
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 877-7745
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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 Cash Management
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:
the Institutional Class, the Private Investment Class and the MSTC Cash
Reserves Class. 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
institutions, particularly banks, acting for themselves or in a fiduciary,
advisory, agency, 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 $1,000,000. 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."
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 a
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Master 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." Under a Transfer Agency and Service Agreement, A I M
Institutional Fund Services, Inc. ("Transfer Agent"), AIM's wholly owned
subsidiary and a registered transfer agent, receives a fee for its provision of
transfer agency, dividend distribution and disbursement, and shareholder
services to the Fund. It is currently anticipated that, effective on or about
December 29, 1997, A I M Fund Services, Inc. ("Transfer Agent"), a wholly owned
subsidiary of AIM and a registered transfer agent, will become the transfer
agent to the Fund. See "General Information--Transfer Agent and Custodian."
DISTRIBUTOR AND DISTRIBUTION PLAN
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Class. Pursuant to the Master Distribution Plan, the Fund may pay
up to .10% 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, AIM Institutional Funds, La Familia AIM
de Fondos and La Familia AIM de Fondos and Design are registered service marks
and aimfunds.com and Invest With Discipline are service marks of A I M
Management Group Inc.
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TABLE OF FEES AND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES--CASH MANAGEMENT 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)--CASH MANAGEMENT CLASS
Management Fees (after waivers)**....................................... 0.04%
12b-1 Fees (after waivers)**............................................ 0.08%
Other Expenses.......................................................... 0.03%
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Total Operating Expenses--Cash Management Class**....................... 0.15%
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* Beneficial owners of shares of the Class should consider the effect of any
charges imposed by their bank or other financial institution for various
services.
** Had there been no waivers, Management Fees, 12b-1 Fees and Total Operating
Expenses would be 0.15%, 0.10% and 0.28%, respectively.
EXAMPLE
An investor 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........................................................... $ 2
3 years.......................................................... $ 5
5 years.......................................................... $ 8
10 years......................................................... $19
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The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management of the Fund" below.) 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. Beneficial owners of shares of the Class
should also consider the effect of any charges imposed by the institution
maintaining their accounts.
The example in the Table of Fees and Expenses assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual
Portfolio Operating Expenses--Cash Management 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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FINANCIAL HIGHLIGHTS
Shown below are the per share data, ratios and supplemental data
(collectively, "data") during the year ended August 31, 1997 and for the period
January 17, 1996 (date operations commenced) through August 31, 1996. The data
has been audited by KPMG Peat Marwick LLP, independent auditors, whose report
on the financial statements and the related notes appears in the Statement of
Additional Information.
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JANUARY 17,
1996
(COMMENCEMENT
OF
OPERATIONS)
TO AUGUST 31,
1997 1996
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Net asset value, beginning of period................ $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................. 0.05 0.03
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Less distributions:
Dividends from net investment income.............. (0.05) (0.03)
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Net asset value, end of period...................... $ 1.00 $ 1.00
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Total return........................................ 5.50% 5.36%(a)
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Ratios/supplemental data:
Net assets, end of period (000s omitted)............ $83,487 $53,209
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Ratio of expenses to average net assets(b).......... 0.15%(c) 0.10%(a)
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Ratio of net investment income to average net
assets(d).......................................... 5.38%(c) 5.27%(a)
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(a) Annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.28% and 0.34% (annualized), for the periods 1997-1996, respectively.
(c) Ratios are based on average net assets of $87,629,028.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.25% and 5.03% (annualized), for the periods 1997-
1996, respectively.
SUITABILITY FOR INVESTORS
The Class is intended for use primarily by customers of banks, certain
broker-dealers and other financial institutions who seek a convenient vehicle
in which to invest in an open-end diversified money market fund. The minimum
initial investment is $1,000,000. 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. It is expected that the
shares of the Class may be particularly suitable investments for corporate cash
managers, municipalities or other public entities. The minimum initial
investment is $1,000,000.
Investors in the shares of the Class have the opportunity to receive a
somewhat higher yield than might be obtainable through direct investment in
money market instruments, and enjoy the benefits of diversification, economies
of scale and same-day liquidity. Generally, higher interest rates can be
obtained on the purchase of very large blocks of money market instruments. Of
course, any such relative increase in interest rates may be offset to some
extent by the operating expenses of the shares of the Class. It is anticipated
that most investors will perform their own sub-accounting; however, 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.
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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, taxable municipal securities, and bank and commercial
instruments that may be available in the money markets. Such obligations
include U.S. Treasury obligations and repurchase agreements. The Portfolio may
invest in bankers' acceptances, certificates of deposit, time deposits and
commercial paper, and 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.
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 ("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.
The Portfolio may invest in other investment companies to the extent
permitted by the 1940 Act, and rules and regulations thereunder, and, if
applicable, exemptive orders granted by the SEC.
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, liquid 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 set aside in a segregated account. (The total
amount of liquid 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.
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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 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.
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.
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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 promulgated by 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 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 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:
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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, and except that the Portfolio may
purchase securities of other investment companies to the extent permitted by
applicable law or exemptive order; or
3) borrow money or issue senior securities except (a) for temporary or
emergency purposes (e.g., in order to facilitate the orderly sale of
portfolio securities or to accommodate abnormally heavy redemption
requests), the Portfolio may borrow money from banks or obtain funds by
entering into reverse repurchase agreements, and (b) to the extent that
entering into commitments to purchase securities in accordance with the
Portfolio's investment program may be considered the issuance of senior
securities. The Portfolio will not purchase portfolio securities while
borrowings in 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.
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. A description of further investment restrictions
applicable to the Portfolio is contained in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Class are sold on a continuing basis at their net asset value
next determined after an order has been received by the Portfolio. As discussed
below, the Fund reserves the right to reject any purchase order. Although there
is no sales charge imposed on the purchase of shares of the Class, banks and
other institutions may charge a recordkeeping, account maintenance or other fee
to their customers. Beneficial holders of shares of the Class should consult
with the institutions maintaining their accounts to obtain a schedule of
applicable fees. To facilitate the investment of proceeds of purchase orders,
investors are urged to place their orders as early in the day as possible.
Purchase orders will be accepted for execution on the day the order is placed,
provided that the order is properly submitted and received by the Transfer
Agent prior to 4:00 p.m. Eastern Time on a business day of the Portfolio.
Purchase orders received after such time will be processed at the next day's
net asset value. Following the initial investment, subsequent purchases of
shares of the Class may also be made via AIM LINK--Registered Trademark--
Remote, a personal computer application software product. 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 Fund's custodian bank,
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. Further,
the Portfolio reserves the right to change the time for which purchase orders
for shares of the Cash Management Class must be submitted to and received by
the Transfer Agent for execution on the same day on any day when the U.S.
primary broker-dealer community is closed for business or trading is restricted
due to national holidays.
Subject to the conditions stated above and the Portfolio's right to reject
any purchase order, orders will be accepted (a) when payment for shares of the
Class purchased is received by The Bank of New York, the Fund's custodian bank,
in the form described below and notice of such order is provided to the
Transfer Agent or (b) at the time the order is placed, if the Portfolio is
assured of payment.
9
<PAGE>
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 "Cash Management 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 $1,000,000. 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 the Transfer Agent at P.O.
Box 4333, Houston, Texas 77210-4333. Account Applications may be obtained from
the Transfer Agent. 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 the Transfer Agent.
In the interest of economy and convenience, certificates representing shares
of the Class will not be issued except upon written request to the Fund.
Certificates (in full shares only) will be issued without charge and may be
redeposited at any time.
The Fund reserves the right in its sole discretion to withdraw all or any
part of the offering made by this Prospectus or to reject any purchase order.
REDEMPTION OF SHARES
A shareholder may redeem any or all of its shares of the Class at the net
asset value next determined after receipt of the redemption request in proper
form by the Portfolio. Redemption requests with respect to the Class may also
be made via AIM LINK--Registered Trademark-- Remote. 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 to the commercial bank account designated in the shareholder's Account
Application, but may be remitted by check upon request by a shareholder. If a
redemption request is received by the Transfer Agent 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. If a redemption request is received by the Transfer Agent 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. The Portfolio reserves the right to change the time for which
redemption requests must be submitted to and received by the Transfer Agent for
execution on the same day on any day when the U.S. primary broker-dealer
community is closed for business or trading is restricted due to national
holidays.
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. Neither the Transfer
Agent nor FMC will 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
10
<PAGE>
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 if they do not follow reasonable procedures for verification of
telephone transactions. Such reasonable procedures for verification of
telephone transactions may include recordings of telephone transactions
(maintained for six months), and mailings of confirmation promptly after the
transaction.
Payment for shares of the Class redeemed by mail and payment for telephone
redemptions in amounts under $1,000 may 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.
DIVIDENDS
Dividends from the net income of the Portfolio are declared daily to
shareholders of record of the Class immediately after 4:00 p.m. Eastern Time on
the day of declaration. Net income for dividend purposes is determined daily as
of 4:00 p.m. Eastern Time. The dividend accrued and paid for the Class will
consist of (a) income of the Portfolio, the allocation of which is based upon
the Class' pro rata share of the total outstanding shares representing an
interest in the Portfolio, less (b) Fund expenses, such as custodian fees,
directors' fees, accounting and legal expenses, based upon the Class' pro rata
share of the net assets of the Portfolio, less (c) expenses directly
attributable to the Class, such as distribution expenses, if any, and transfer
agency fees. 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 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 the Transfer Agent at 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173 and will become effective with dividends paid after its
receipt by the Transfer Agent. 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.
11
<PAGE>
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.
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 advisors concerning the application of
state, local or foreign taxes.
Foreign persons who file a United States tax return after December 31, 1996
for a U.S. tax refund and who are not eligible to obtain a social security
number must apply to the Internal Revenue Service ("IRS") for an individual
taxpayer identification number, using IRS Form W-7. For a copy of the IRS Form
W-7 and accompanying instructions, please contact your tax advisor or the
Transfer Agent.
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.
12
<PAGE>
YIELD INFORMATION
Yield information for the Class can be obtained by calling FMC at (800) 877-
7745. Yields will fluctuate from time to time and are not necessarily
indicative of future results. Accordingly, the yield information may not
provide a basis for comparison with investments which pay a fixed rate of
interest for a stated period of time. Yield is a function of the type and
quality of the Portfolio's investments, the Portfolio's maturity and the
operating expense ratio of the Class. A SHAREHOLDER'S INVESTMENT IN THE
PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR BY ANY
INSTITUTION. These factors should be carefully considered by the investor
before making an investment in the Portfolio.
For the seven-day period ended August 31, 1997, the current yield and the
effective yield of the Class (which assumes the reinvestment of dividends for a
365-day year and a return for the entire year equal to the annualized current
yield for the period) were 5.59% and 5.74%, respectively. These yields are
quoted for illustration purposes only. The yields for any other seven-day
period may be substantially different from the yields quoted above.
To assist banks and other institutions performing their own sub-accounting,
same day information as to the daily dividend per share for the 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.
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. Information concerning the Board of Directors may be
found in the Statement of Additional Information. Certain directors and
officers of the Fund are affiliated with AIM and A I M Management Group Inc.
("AIM Management"), the parent corporation of AIM.
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-
1173, acts as the Portfolio's investment advisor pursuant to a Master
Investment Advisory Agreement dated as of February 28, 1997 (the "Advisory
Agreement"). AIM was organized in 1976 and, together with its subsidiaries,
manages, advises or administers 55 investment company portfolios. AIM is a
wholly owned subsidiary of AIM Management, a holding company engaged in the
financial services business. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP PLC, a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis.
13
<PAGE>
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, 1997, AIM received fees with respect to
the Portfolio which represented 0.04% of the Portfolio's average daily net
assets. During such fiscal year, the expenses of the Class, including AIM's
fees, amounted to 0.15% of the Class' average daily net assets.
ADMINISTRATOR
The Fund has entered into a Master Administrative Services Agreement dated as
of February 28, 1997 with AIM, 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.
FEE WAIVERS
AIM or its affiliates 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 for such
fee or expenses prior to the end of each fiscal year. FMC may in its discretion
from time to time agree to waive voluntarily its 12b-1 fee but will retain its
ability to be reimbursed prior to the end of the fiscal year.
DISTRIBUTOR
The Fund has entered into a Master Distribution Agreement dated as of
February 28, 1997 (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 100, 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.
FMC may, from time to time, at its expense, pay a bonus or other
consideration or incentive to dealers or banks who sell a minimum dollar amount
of shares of the Class during a specific period of time. In some instances,
these incentives may be offered only to certain dealers or Institutions who
have sold or may sell significant amounts of shares. The total amount of such
additional bonus payments or other consideration shall not exceed .05% of the
net asset value of the shares of the Class sold. Any such bonus or incentive
programs will not change the price paid by investors for the purchase of shares
of the Class or the amount received as proceeds from such sales. Sales of
shares of the Class may not be used to qualify for any incentives to the extent
that such incentives may be prohibited by the laws of any jurisdiction.
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. The Plan provides that the Fund may compensate FMC in
connection with the distribution of the shares of the Class in an amount equal
to 0.10% 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.
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<PAGE>
Of the compensation paid to FMC under the Plan, a service fee may be paid to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the
Class. Payments retained by FMC would be characterized as an asset-based sales
charge pursuant to the Plan. The Plan also imposes a cap on the total amount of
sales charges, including asset-based sales charges, that may be paid by the
Portfolio with respect to the Class. The Plan does not obligate the Fund to
reimburse FMC for the actual expenses FMC may incur in fulfilling its
obligations under the Plan on behalf of the Class. Thus, under the Plan, even
if FMC's actual expenses exceed the fee payable to FMC thereunder at any given
time, the Fund will not be obligated to pay more than that fee. If FMC's
expenses are less than the fee it receives, FMC will retain the full amount of
the fee.
As required by Rule 12b-1 under the 1940 Act, the Plan was initially 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 July 19, 1993. 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.
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.
15
<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. As of
December 1, 1997, Oppenheimer & Co. was the owner of record of 42.04%, and
Mellon Bank was the owner of record of 25.65%, of the outstanding shares of the
Class. As long as each of Oppenheimer & Co. and Mellon Bank owns over 25% of
such shares, it may be presumed to be in "control" of the Cash Management Class
of the Liquid Assets Portfolio, as defined in the 1940 Act.
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, 90 Washington Street, 11th Floor, New York, New York
10286, acts as custodian for the portfolio securities and cash of the
Portfolio. A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173, acts as transfer agent for shares of the Class.
It is currently anticipated that, effective on or about December 29, 1997,
A I M Fund Services, Inc., a wholly owned subsidiary of AIM and a registered
transfer agent, will become the transfer agent to the Fund.
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia,
Pennsylvania, serves as counsel to the Fund and passes upon legal matters.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to the Fund at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or may
be made by calling (800) 877-7745.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Fund and the Portfolio prior to investing. A Statement of Additional
Information has been filed with the SEC. Copies of the Statement of Additional
Information are available upon request and without charge by writing or calling
the Fund or FMC. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration
statement, including items omitted herein, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
16
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- -------------------------------------- -------------------------------------
- -------------------------------------- -------------------------------------
SHORT-TERM INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 December 17, 1997
(800) 877-7745
SHORT-TERM
INVESTMENT ADVISOR INVESTMENTS CO.
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100 ------------
Houston, Texas 77046-1173
(713) 626-1919 LIQUID ASSETS PORTFOLIO
DISTRIBUTOR ------------
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100 CASH MANAGEMENT CLASS
Houston, Texas 77046-1173
(800) 877-7745 TABLE OF CONTENTS
AUDITORS <TABLE>
KPMG PEAT MARWICK LLP <CAPTION>
700 Louisiana PAGE
Houston, Texas 77002 ----
<S> <C>
CUSTODIAN Summary.......................... 2
THE BANK OF NEW YORK
90 Washington Street Table of Fees and Expenses....... 4
11th Floor
New York, New York 10286 Financial Highlights............. 5
TRANSFER AGENT Suitability For Investors........ 5
A I M INSTITUTIONAL FUND SERVICES, INC.
11 Greenway Plaza, Suite 100 Investment Program............... 5
Houston, Texas 77046-1173
Purchase of Shares............... 9
Redemption of Shares............. 10
NO PERSON HAS BEEN AUTHORIZED TO GIVE Dividends........................ 11
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS Taxes............................ 12
PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS, AND Net Asset Value.................. 12
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED Yield Information................ 13
UPON AS HAVING BEEN AUTHORIZED BY THE
FUND OR THE DISTRIBUTOR. THIS Reports to Shareholders.......... 13
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION TO ANY Management of the Fund........... 13
PERSON TO WHOM SUCH OFFERING MAY NOT
LAWFULLY BE MADE. General Information.............. 16
</TABLE>
- -------------------------------------- -------------------------------------
- -------------------------------------- -------------------------------------
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
SHORT-TERM INVESTMENTS CO.
LIQUID ASSETS PORTFOLIO
(CASH MANAGEMENT CLASS)
(INSTITUTIONAL CLASS)
(PRIVATE INVESTMENT CLASS)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 659-1005
--------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS
OF THE ABOVE NAMED FUNDS, COPIES OF WHICH MAY BE OBTAINED BY WRITING
FUND MANAGEMENT COMPANY, 11 GREENWAY PLAZA,
SUITE 100, HOUSTON, TEXAS 77046-1173
OR CALLING (800) 659-1005
--------------------
STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 17, 1997 RELATING TO THE
PROSPECTUS OF EACH OF THE FOLLOWING CLASSES OF THE LIQUID ASSETS PORTFOLIO:
CASH MANAGEMENT CLASS PROSPECTUS DATED DECEMBER 17, 1997, INSTITUTIONAL CLASS
PROSPECTUS DATED DECEMBER 17, 1997 AND PRIVATE INVESTMENT CLASS PROSPECTUS DATED
DECEMBER 17, 1997
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION................................................................. 1
GENERAL INFORMATION ABOUT THE FUND........................................... 1
The Fund and Its Shares.................................................... 1
Directors and Officers..................................................... 3
Remuneration of Directors.................................................. 7
AIM Funds Retirement Plan for Eligible Directors/Trustees.................. 8
Deferred Compensation Agreements........................................... 9
Investment Advisor......................................................... 10
Administrator.............................................................. 11
Expenses................................................................... 11
Transfer Agent and Custodian............................................... 12
Reports.................................................................... 12
Fee Waivers................................................................ 12
Principal Holders of Securities............................................ 12
PURCHASES AND REDEMPTIONS.................................................... 17
Net Asset Value Determination.............................................. 17
The Distribution Agreement................................................. 17
Distribution Plan.......................................................... 18
Banking Regulations........................................................ 18
Performance Information.................................................... 19
Redemptions in Kind........................................................ 20
INVESTMENT PROGRAM AND RESTRICTIONS.......................................... 20
Eligible Securities........................................................ 20
Commercial Paper Ratings................................................... 20
Bond Ratings............................................................... 21
Repurchase Agreements...................................................... 23
Investment Restrictions.................................................... 23
PORTFOLIO TRANSACTIONS....................................................... 24
TAX MATTERS.................................................................. 26
Qualification as a Regulated Investment Company............................ 26
Excise Tax On Regulated Investment Companies............................... 27
Portfolio Distributions.................................................... 27
Sale or Redemption of Shares............................................... 27
Foreign Shareholders....................................................... 28
Effect of Future Legislation; Local Tax Considerations..................... 28
FINANCIAL STATEMENTS......................................................... FS
ii
<PAGE>
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 the Cash Management Class Prospectus dated December
17, 1997, the Institutional Class Prospectus dated December 17, 1997, and the
Private Investment Class Prospectus dated December 17, 1997 (each a
"Prospectus") . Copies of each 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 100, Houston, Texas 77046-1173 or by calling (800) 659-
1005. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish prospective
investors with additional information concerning each class of the Portfolio.
Some of the information required to be in this Statement of Additional
Information is also included in each Prospectus; thus, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
each Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from each Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE 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 each 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: Cash Management
Class, MSTC Cash Reserves Class, Institutional Class and Private Investment
Class. Each such class has different shareholder qualifications and bears
expenses differently. This Statement of Additional Information and the
associated Prospectuses relate to all shares of the Portfolio except the MSTC
Cash Reserve Class. Shares of the MSTC Cash Reserves Class 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, as amended (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 at least the last five years are set forth below.
<TABLE>
<CAPTION>
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
- ------------------------------- ---------------- ------------------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of Directors,
11 Greenway Plaza, Suite 100 Chairman A I M Management Group Inc.,
Houston, TX 77046 A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management
Company; and Vice Chairman and Director,
AMVESCAP PLC.
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief
McLean, VA 22102 Executive Officer, COMSAT Corporation;
and Chairman, Board of Governors of
INTELSAT (international communications
company).
OWEN DALY II (73) Director Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company
and Monumental General Insurance
Company; and Chairman of the Board of
Equitable Bancorporation.
JACK M. FIELDS (45) Director Formerly, Member of the U.S. House of
Texana Global, Inc. Representatives.
8810 Will Clayton Parkway
Jetero Plaza, Suite E
Humble, TX 77338
- ---------------------------------
* A director who is an "interested person" of the Fund and AIM as defined in the 1940 Act.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
- ------------------------------- ---------------- ------------------------------------------------
<S> <C> <C>
**CARL FRISCHLING (60) Director Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm); and Director, ERD Waste, Inc.
New York, NY 10022 (waste management company), Aegis
Consumer Finance (auto leasing company)
and Lazard Funds, Inc. (investment
companies). Formerly, Partner, Reid &
Priest (law firm); and, prior thereto, Partner,
Spengler Carlson Gubar Brodsky &
Frischling (law firm).
*ROBERT H. GRAHAM (51) Director and Director, President and Chief Executive
11 Greenway Plaza, Suite 100 President Officer, A I M Management Group Inc.;
Houston, TX 77046 Director and President, A I M Advisors, Inc.;
Director and Senior Vice President,
A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services,
Inc., A I M Institutional Fund Services, Inc.
and Fund Management Company; Director,
AMVESCAP PLC; and Chairman of the
Board of Directors of AIM Funds Group
Canada Inc.
JOHN F. KROEGER (73) Director Director, Flag Investors International Fund,
37 Pippins Way Inc., Flag Investors Emerging Growth Fund,
Morristown, NJ 07960 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).
- ---------------------------------
** A director who is an "interested person" of the Fund as defined in the 1940 Act.
* A director who is an "interested person" of the Fund and AIM as defined in the 1940 Act.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
- ------------------------------- ---------------- ------------------------------------------------
<S> <C> <C>
LEWIS F. PENNOCK (55) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
IAN W. ROBINSON (74) Director Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management
Tequesta, FL 33469 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 (58) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
*JOHN J. ARTHUR (53) Senior Vice Director, Senior Vice President and
11 Greenway Plaza, Suite 100 President and Treasurer, A I M Advisors, Inc.; and Vice
Houston, TX 77046 Treasurer President and Treasurer, A I M Management
Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services,
Inc., A I M Institutional Fund Services, Inc.
and Fund Management Company.
GARY T. CRUM (50) Senior Vice Director and President, A I M Capital
11 Greenway Plaza, Suite 100 President Management, Inc.; Director and Senior Vice
Houston, TX 77046 President, A I M Management Group Inc. and
A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP
PLC.
- ---------------------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Positions Held PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE with Registrant PAST 5 YEARS
- ------------------------------- ---------------- ------------------------------------------------
<S> <C> <C>
***CAROL F. RELIHAN (43) Senior Vice Director, Senior Vice President, General
11 Greenway Plaza, Suite 100 President and Counsel and Secretary, A I M Advisors, Inc.;
Houston, TX 77046 Secretary Vice President, General Counsel and
Secretary, A I M Management Group Inc.;
Director, Vice President and General
Counsel, Fund Management Company;
General Counsel and Vice President,
A I M Fund Services, Inc. and A I M
Institutional Fund Services, Inc.; and Vice
President, A I M Capital Management, Inc.
and A I M Distributors, Inc.
DANA R. SUTTON (38) Vice President Vice President and Fund Controller,
11 Greenway Plaza, Suite 100 and Assistant A I M Advisors, Inc.; and Assistant Vice
Houston, TX 77046 Treasurer President and Assistant Treasurer, Fund
Management Company.
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer,
11 Greenway Plaza, Suite 100 A I M Advisors, Inc., A I M Capital
Houston, TX 77046 Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management
Company.
J. ABBOTT SPRAGUE (42) Vice President Director and President, Fund Management
11 Greenway Plaza, Suite 100 Company; Director and Senior Vice
Houston, TX 77046 President, A I M Institutional Fund Services,
Inc.; Director , A I M Fund Services, Inc.; and
Senior Vice President, A I M Advisors, Inc.
and A I M Management Group Inc.
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M Capital
11 Greenway Plaza, Suite 100 Management, Inc. and Vice President,
Houston, TX 77046 A I M Advisors, Inc.
===================================================================================================
</TABLE>
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. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. 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.
- ---------------------------
*** Mr. Arthur and Ms. Relihan are married to each other.
6
<PAGE>
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. 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, Fields, Kroeger, Pennock (Chairman), Robinson and Sklar. The
Nominating and Compensation Committee is responsible for considering and
nominating individuals to stand for election as directors who are not interested
persons as long as the Fund maintains a distribution plan pursuant to rule 12b-1
under the 1940 Act, reviewing from time to time the compensation payable to the
disinterested directors, or considering such matters as may from time to time be
set forth in a charter adopted by the board and such Committee.
All of the Fund's directors also serve as directors or trustees of some or
all of the other investment companies managed or advised by A I M Advisors, Inc.
("AIM") or distributed and administered by FMC. Most of the Fund's executive
officers hold similar offices with some or all of such investment companies.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any committee 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
director or trustee of certain other regulated investment companies managed,
administered or distributed by AIM or its affiliates (the "AIM Funds"). Each
such director receives a fee, allocated among the AIM Funds for which he serves
as a director or trustee, which consists of an annual retainer component and a
meeting fee component.
7
<PAGE>
Set forth below is information regarding compensation paid or accrued for
each director of the Fund:
<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 7,926 38,621 68,000
Owen Daly II 7,925 82,607 68,000
Jack M. Fields(4) 4,068 -0- -0-
Carl Frischling(5) 7,928 56,683 68,000
Robert H. Graham -0- -0- -0-
John F. Kroeger 7,925 83,654 66,000
Lewis F. Pennock 7,925 33,702 67,000
Ian W. Robinson 7,926 64,973 68,000
Louis S. Sklar 7,822 47,593 66,500
======================================================================================
</TABLE>
- ---------------------
(1) The total amount of compensation deferred by all Directors of the Fund
during the fiscal year ended August 31, 1997, including interest earned
thereon, was $35,772.
(2) During the fiscal year ended August 31, 1997, the total amount of expenses
allocated to the Company in respect of such retirement benefits was
$62,215. Data reflects compensation earned for the calendar year ended
December 31, 1996.
(3) Each Director serves as a director or trustee of a total of 11 registered
investment companies advised by AIM (comprised of 47 portfolios). Data
reflects compensation earned for the calendar year ended December 31,
1996.
(4) Mr. Fields was not serving as a Director during the calendar year ended
December 31, 1996.
(5) See also page 10 regarding fees earned by Mr. Frischling's law firm.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the AIM Funds. Each eligible director is
entitled to receive an annual benefit from the AIM Funds commencing on the first
day of the calendar quarter coincident with or following his date of retirement
equal to 75% of the retainer paid or accrued by the 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 AIM Funds and
the director, for the
8
<PAGE>
number of such Director's years of service (not in excess of 10 years of
service) completed with respect to any of the AIM Funds. Such benefit is payable
to each eligible director in quarterly installments for a period of no more than
five years. If an eligible director dies after attaining the normal retirement
date but before receipt of any benefits under the Plan commences, the director's
surviving spouse (if any) shall receive a quarterly survivor's benefit equal to
50% of the amount payable to the deceased director, for no more than 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 a specified level of
compensation and years of service classifications. The estimated credited years
of service for Messrs. Crockett, Daly, Fields, Frischling, Kroeger, Pennock,
Robinson and Sklar are 10, 10, 0, 20, 19, 15, 10 and 7 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
========================================================================
Number of Annual Retainer Paid By All AIM Funds
Years of
Service With $80,000
the AIM Funds
========================================================================
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
========================================================================
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Fund, and such amounts are placed into a deferral
account. Currently, the deferring directors may select various AIM Funds in
which all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring directors' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of five (5) or ten
(10) years (depending on the Agreement) beginning on the date the deferring
director's retirement benefits commence under the Plan. The Fund's Board of
Directors, in its sole discretion, may accelerate or extend the distribution of
such deferral accounts after the deferring director's termination of service as
a director of the Fund. If a deferring director dies prior to the distribution
of amounts in his deferral account, the balance of the deferral account will be
distributed to his designated beneficiary in a single lump sum payment as soon
as practicable after such deferring director's death. The Agreements are not
funded and, with respect to the payments of amounts held in the deferral
accounts, the deferring directors have the status of unsecured creditors of the
Fund and of each other AIM Fund from which they are deferring compensation.
During the fiscal year ended August 31, 1997, $16,789 in directors' fees
and expenses were allocated to the Portfolio.
9
<PAGE>
The Portfolio paid legal fees of $8,944 for the year ended August 31, 1997
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Directors. Carl Frischling, a director of the Fund, is a member of
that firm.
INVESTMENT ADVISOR
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, acts as the
Portfolio's investment advisor pursuant to a Master Investment Advisory
Agreement dated February 28, 1997 (the "Advisory Agreement").
AIM was organized in 1976 and, together with its subsidiaries, advises,
manages or administers 55 investment company portfolios. AIM is a wholly owned
subsidiary of A I M Management Group Inc. ("AIM Management"), a holding company
that has been engaged in the financial services business since 1976, 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect
wholly owned subsidiary of AMVESCAP PLC, 11 Devonshire Square, London EC2M 4YR,
United Kingdom. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in the business of investment management on an
international basis. Certain of the directors and officers of AIM are also
executive officers of the Fund and their affiliations are shown under "Directors
and Officers."
AIM and the Fund have adopted a Code of Ethics which requires investment
personnel (a) to pre-clear all personal securities transactions, (b) to file
reports regarding such transactions, and (c) to refrain from personally engaging
in (i) short-term trading of a security, (ii) transactions involving a security
within seven days of an AIM Fund transaction involving the same security, and
(iii) transactions involving securities being considered for investment by an
AIM Fund. The Code also prohibits investment personnel from purchasing
securities in an initial public offering. Personal trading reports are reviewed
periodically by AIM, and the Board of Directors reviews annually such reports
(including information on any substantial violations of the Code). Violations
of the Code may result in censure, monetary penalties, suspension or termination
of employment.
Pursuant to the terms of the Advisory Agreement, AIM manages the investment
of the Portfolio's assets. AIM obtains and evaluates economic, statistical and
financial information to formulate and implement investment policies for the
Portfolio. Any investment program undertaken by AIM will at all times be subject
to the policies and control of the Fund's Board of Directors. AIM shall not be
liable to the Fund or its shareholders for any act or omission by AIM or for any
loss sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
As compensation for its services 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 fiscal years ended August 31, 1997, 1996 and 1995 AIM received
advisory fees with respect to the Portfolio in the amounts of $1,024,843,
$125,264 and $1,323,637, respectively. During the fiscal years ended August 31,
1997, 1996 and 1995 AIM voluntarily waived fees with respect to the Portfolio in
the amounts of $3,344,852, $2,562,094 and $1,127,509, respectively.
The Advisory Agreement provides that, upon the request of the Board of
Directors, AIM may perform (or arrange for the performance of) certain
additional services on behalf of the Portfolio which are not required by the
Advisory Agreement. AIM may receive reimbursement or reasonable compensation
for such additional services, as may be agreed upon by AIM and the Board of
Directors, based upon a finding by the Board of Directors that the provision of
such services would be in the best interest of the Portfolio and its
shareholders. The Board of Directors has made such a finding and, accordingly,
the Fund has entered into the Master Administrative Services Agreement under
which AIM will provide the additional services described below under the caption
"Administrator."
10
<PAGE>
The Advisory Agreement will continue in effect until February 28, 1999, 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 February 28, 1997 between AIM and
the Fund (the "Administrative Services Agreement").
Under the Administrative Services Agreement, AIM performs, or arranges for
the performance of, accounting and other administrative services for the
Portfolio, which are not required to be performed by AIM under the Advisory
Agreement. As full compensation for the performance of such services, AIM is
reimbursed for any personnel and other costs (including applicable office space,
facilities and equipment) of furnishing the services of a principal financial
officer of the Fund and of persons working under his supervision for maintaining
the financial accounts and books and records of the Fund, including calculation
of the Portfolio's daily net asset value, and preparing tax returns and
financial statements for the Portfolio. The method of calculating such
reimbursements must be annually approved, and the amounts paid will be
periodically reviewed, by the Fund's Board of Directors.
Pursuant to the Administrative Services Agreement, AIM was reimbursed for
the fiscal years ended August 31, 1997, 1996 and 1995 in the amounts of $68,372,
$52,710, and $97,044, respectively.
A I M Institutional Fund Services, Inc. ("AIFS") receives fees with respect
to the Portfolio for its provision of transfer agency and shareholder services
pursuant to a Transfer Agency and Service Agreement with the Fund. For the
period from August 31, 1994 through June 30, 1995 AIFS or its affiliates
received shareholder services fees from AIM with respect to the Portfolio in the
amount of $38,870. For the fiscal years ended August 31, 1997 and 1996, AIFS
received transfer agency and shareholder services fees with respect to the
Portfolio in the amounts of $260,721 and $133,085, respectively.
EXPENSES
Expenses of the Fund include, but are not limited to, fees paid to AIM
under the Advisory Agreement, the charges and expenses of any registrar, any
custodian or depositary appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies; the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and shares with the SEC
and various states and other jurisdictions (including filing and legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting, and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and directors' meetings and of preparing, printing and
mailing of prospectuses, proxy statements and reports to shareholders; fees and
travel expenses of directors and director members of any advisory board or
committee; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses of
any outside service used for pricing of the Fund's shares; charges and expenses
of legal counsel, including counsel to the directors of the Fund who are not
"interested persons" (as defined in the 1940 Act) of the Fund or AIM, and of
independent accountants in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
directors)
11
<PAGE>
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). 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.
Expenses of the Fund except those listed below are prorated among all classes of
such Portfolios. Distribution and service fees, transfer agency fees and
shareholder recordkeeping fees 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 ("BONY"), 90 Washington Street, 11th Floor, New York,
New York 10286, acts as custodian for the portfolio securities and cash of the
Portfolio. BONY receives such compensation from the Fund for its services in
such capacity as is agreed to from time to time by BONY and the Fund.
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 100,
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 .009% 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. It is currently anticipated that,
effective on or about December 29, 1997, A I M Fund Services, Inc., a wholly
owned subsidiary of AIM and a registered transfer agent, will become the
transfer agent to 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, 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.
PRINCIPAL HOLDERS OF SECURITIES
PRIME PORTFOLIO
To the best knowledge of the Fund, the name and addresses of the holders of
5% or more of the outstanding shares of each class of the Prime Portfolio as of
December 1, 1997, and the percentage of the Prime Portfolio's outstanding shares
owned by such shareholders as of such date are as follows:
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<PAGE>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
CASH MANAGEMENT CLASS
- ---------------------
The Bank of New York 40.75%**
One Wall Street 2nd Floor
New York, NY 10286
Oppenheimer & Co. 14.79%
Oppenheimer Tower
World Financial Center
New York, NY 10281
Fund Services Associates 9.27%
11835 West Olympic Blvd
Suite 205
Los Angeles, CA 90064
INSTITUTIONAL CLASS
- -------------------
Comerica Bank 15.53%
P.O. Box 75000
Detroit, MI 48275-3455
U.S. Bank of Oregon 14.66%
555 Southwest Oak
Portland, OR 97208-3168
Frost National Bank 7.45%
P.O. Box 1600
San Antonio, TX 78296
Trust Company Bank 5.51%
Center 3131
P.O. Box 105504
Atlanta, GA 30348
- ----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record 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*
--------------- -----------
PERSONAL INVESTMENT CLASS
- -------------------------
The Bank of New York 70.46%**
4 Fisher Lane
White Plains, NY 10603
Cullen / Frost Discount Brokers 26.15%**
P.O. Box 2358
San Antonio, TX 78299
PRIVATE INVESTMENT CLASS
- ------------------------
Huntington Capital Corp. 38.17%**
41 High Street 9th Floor
Columbus, OH 43287
Frost National Bank 13.83%
P.O. Box 2950
San Antonio, TX 78299-2950
Liberty Registration Company 12.30%
of Oklahoma City
P.O. Box 25848
Oklahoma City, OK 73125-0000
First Trust 12.09%
Funds Control Suite 0404
180 East Fifth Street
St. Paul, MN 55101
LAU & CO. c/o Frost 7.16%
P.O. Box 2479
San Antonio, TX 78298-2479
- ----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record 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*
--------------- -----------
RESOURCE CLASS
- --------------
Corestates Capital Markets 58.10%**
1345 Chestnut Street
Philadelphia, PA 19101
Mellon Bank 19.92%
P.O. Box 710
Pittsburgh, PA 15230-0710
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 December 1, 1997, and the percentage of the Liquid Assets
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*
--------------- -----------
CASH MANAGEMENT CLASS
- ---------------------
Oppenheimer & Co. 42.04%**
Oppenheimer Tower
World Financial Center
New York, NY 10281
Mellon Bank 25.65%**
P.O. Box 710
Pittsburgh, PA 15230
The Bank of New York 22.04%
One Wall Street, 2nd Floor
New York, NY 10286
- ----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record 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>
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD ONLY*
--------------- -----------
INSTITUTIONAL CLASS
- -------------------
State Street Bank and Trust 15.90%
108 Myrtle Street
North Quincy, MA 02171
Trust Company Bank 13.76%
P.O. Box 105504
Atlanta, GA 30348
Comerica Bank 6.99%
P.O. Box 75000
Detroit, MI 48275
Paine Webber Incorporated 6.17 %
1000 Harbor Blvd. 6th Floor
Weehawken, NJ 07087
Wachovia Bank and Trust Co. 5.08%
P.O. Box 3075
Winston-Salem, NC 27150
U.S. Bank of Oregon 5.07%
321 Southwest Sixth
Portland, OR 97208
PRIVATE INVESTMENT CLASS
- ------------------------
Mellon Bank 81.93%**
P.O. Box 710
Pittsburgh, PA 15230-0710
MSTC CASH RESERVES CLASS
- ------------------------
Morgan Stanley Trust Company 100.00%**
1 Pierrepont Plaza
Brooklyn, NY 11201
- ----------------------
* The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record 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.
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<PAGE>
To the best of the knowledge of the Fund, as of December 1, 1997, the
directors and officers of the Fund as a group beneficially owned less than 1% of
each class of any portfolio's outstanding shares.
PURCHASES AND REDEMPTIONS
A complete description of the manner by which shares of a particular class
may be purchased, redeemed or exchanged appears in the Prospectus under the
heading "Purchase of Shares."
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and 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 Fund not reasonably practicable.
A "business day" of the Portfolio is any day on which commercial banks in
the New York Federal Reserve district are open for business. The Portfolio,
however, reserves the right to change the time for which purchase and redemption
requests must be submitted to the Portfolio for execution on the same day on any
day when the U.S. primary broker-dealer community is closed for business or
trading is restricted due to national holidays.
NET ASSET VALUE DETERMINATION
Shares of each 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
February 28, 1997 (the "Distribution Agreement") with FMC, a registered broker-
dealer and a wholly owned subsidiary of AIM, to act as the exclusive distributor
of the shares of each class of the Portfolio. The address of FMC is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173. See "General Information about the
Fund -- Directors and
17
<PAGE>
Officers" and "General Information about the Fund --Investment Advisor" for
information as to the affiliation of certain directors and officers of the Fund
with FMC, AIM and AIM Management.
The Distribution Agreement provides that FMC has the exclusive right to
distribute 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 each class of the
Portfolio. FMC does not receive any fees with respect to the shares of the
class of the Portfolio pursuant to the Distribution Agreement.
The Distribution Agreement will continue in effect until February 28, 1999
and from year to year thereafter, provided that it is specifically approved at
least annually by the Fund's Board of Directors and the affirmative vote of the
directors who are not parties to the Distribution Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. The Fund or FMC may terminate the Distribution Agreement on 60 days'
written notice, without penalty. The Distribution Agreement will terminate
automatically in the event of its "assignment," as defined in the 1940 Act.
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Pursuant to the Plan, the Fund may enter into
Shareholder Service Agreements ("Service Agreements") with selected broker-
dealers, banks, other financial institutions or their affiliates. Such firms
may receive compensation from the Portfolio for servicing investors as
beneficial owners of the shares of the Cash Management Class, Personal
Investment Class, Private Investment Class and Resource Class of the Portfolio.
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.
For the fiscal year ended August 31, 1997, FMC received compensation
pursuant to the Plan in the amount of $70,103, or an amount equal to 0.08% of
the average net daily assets of the Cash Management Class and $170,528, or an
amount equal to 0.30% of the average net daily assets of the Private Investment
Class. With respect to the Cash Management Class, $0 of such amount (or an
amount equal to 0 % of the average daily net assets of the class) was paid to
dealer and financial institutions and $70,103 (or an amount equal to 0.08% of
the average daily net asset of the class) was retained by FMC. With respect to
the Private Investment Class, $169,052 of such amount (or an amount equal to
0.30% of the average daily net assets of the class) was paid to dealers and
financial institutions and $1,476 (or an amount equal to 0.00% of the average
daily net assets of the class) was retained by FMC.
FMC is a wholly owned subsidiary of AIM, an indirect, wholly owned
subsidiary of AMVESCAP PLC. Charles T. Bauer, a Director and Chairman of the
Fund and Robert H. Graham, a Director and President of the Fund, own shares of
AMVESCAP PLC.
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
18
<PAGE>
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.
PERFORMANCE INFORMATION
As stated under the caption "Yield Information" in the Prospectus, yield
information for the shares of the Class may be obtained by calling the Fund at
(800) 659-1005. The current yield quoted will be the net average annualized
yield for an identified period, such as seven days or a month. 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.
For the seven-day period ended August 31, 1997, the current yield and the
effective yield (which assumes the reinvestment of dividends for a 365-day year
and a return for the entire year equal to the annualized current yield for the
period) were 5.59% and 5.74% for the Cash Management Class, 5.67% and 5.83% for
the Institutional Class and 5.37% and 5.51% for the Private Investment Class,
respectively. These yields are quoted for illustration purposes only. The
yields for any other seven-day period may be substantially different from the
yields quoted above.
The Portfolio may compare the performance of a 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
19
<PAGE>
. 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 a 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).
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 Investors Service ("Moody's"), Standard & Poor's Rating
Services ("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
20
<PAGE>
quality of management is unquestioned. The relative strength or weakness of the
above factors determine whether the issuer's commercial paper is rated A-1, A-2
or A-3.
FITCH -- Fitch's short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater emphasis
than a long-term rating on the existence of liquidity necessary to meet the
issuer's obligations in a timely manner. Fitch short-term ratings are as
follows:
F-1
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-2
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated "F-
1."
PLUS(+) AND MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category.
LOC
The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
BOND RATINGS
The following is a description of the factors underlying the bond ratings
of Moody's, S&P and Fitch.
MOODY'S -- The following are the two highest bond ratings of Moody's.
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
21
<PAGE>
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.
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.
22
<PAGE>
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."
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 more than five
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 if the money
market fund is a diversified investment company, provided further, that the fund
may not make more than one investment in accordance with the foregoing proviso
at any time. Under Rule 2a-7, for purposes of determining the percentage of a
fund's total assets that are invested in securities of an issuer, a repurchase
agreement shall be deemed to be an acquisition of the underlying securities,
provided that the obligation of the seller to repurchase the securities from the
money market fund is fully collateralized. To be fully collateralized, the
collateral must, among other things, consist entirely of U.S. Government
securities or securities that, at the time the repurchase agreement is entered
into, are rated in the highest rating category by Requisite NRSROs.
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, and except that the
Portfolio may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order;
(3) borrow money or issue senior securities except (a) for temporary
or emergency purposes (e.g., in order to facilitate the orderly sale of
portfolio securities or to accommodate abnormally heavy redemption
requests), the Portfolio may borrow money from banks or obtain funds by
entering into reverse repurchase agreements, and (b) to the extent that
entering into commitments to purchase securities in accordance with the
Portfolio's investment program may be considered the issuance of senior
securities, provided that the Portfolio will not purchase portfolio
securities while borrowings in excess of 5% of its total assets are
outstanding;
(4) mortgage, pledge or hypothecate any assets except to secure
permitted borrowings and except for reverse repurchase agreements and then
only in an amount up to 33-1/3% of the value of its total assets at the
time of borrowing or entering into a reverse repurchase agreement;
23
<PAGE>
(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;
or
(9) invest in any obligation not payable as to principal and interest
in United States currency.
The following investment policy is not fundamental 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, except that the Portfolio may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order.
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.
Research services received from broker-dealers supplement AIM's own
research (and the research of sub-advisors to other clients of AIM), and may
include the following types of information: statistical and background
information on the U.S. and foreign economies, industry groups and individual
companies, forecasts and interpretations with respect to U.S. and foreign
economies, securities, markets, specific industry groups and individual
companies; information on federal, state, local and foreign political
developments; portfolio management strategies, performance information on
securities, indexes and investment accounts; information concerning prices of
securities; and information supplied by specialized services to AIM and to the
Company's directors with respect to the performance, investment activities and
fees and expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
providing of specialized consultations with AIM personnel with respect to
computerized systems and data furnished to AIM as a component of other research
services, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information. 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
24
<PAGE>
material received is beneficial in supplementing AIM's research and analysis;
and therefore, it may benefit the Portfolio by improving the quality of AIM's
investment advice. The advisory fees paid by the Portfolio are not reduced
because AIM receives such services.
From time to time, the Fund may sell a security to, or purchase a security
from, an AIM Fund or another investment account advised by AIM or A I M Capital
Management, Inc. ("AIM Capital"), when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment objective(s)
and policies of the investment accounts advised by AIM or AIM Capital.
Procedures pursuant to Rule 17a-7 under the 1940 Act regarding transactions
between investment accounts advised by AIM or AIM Capital have been adopted by
the Boards of Directors/Trustees of the various AIM Funds, including the Fund.
Although such transactions may result in custodian, tax or other related
expenses, no brokerage commissions or other direct transaction costs are
generated by transactions among the investment accounts advised by AIM or AIM
Capital.
Provisions of the 1940 Act and rules and regulations thereunder have been
construed to prohibit the Fund from purchasing securities or instruments from,
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed or advised by AIM. The Fund has
obtained an order of exemption from the SEC which permits the Fund to engage in
certain transactions with certain 5% holders, 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, certain 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 certain 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 other persons performing
similar services. During the fiscal year ended August 31, 1997, no securities
or instruments were purchased by the Portfolio from issuers who paid placement
fees or other compensation to a broker affiliated with the Portfolio.
25
<PAGE>
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolio or its shareholders, and the discussion here and in
the Prospectus is not intended as a substitute for careful planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Portfolio is not subject to
federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) for the
taxable year (the "Distribution Requirement"), and satisfies certain other
requirements of the Code that are described below. Distributions by the
Portfolio made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains for the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company (1) must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) must satisfy
an asset diversification test in order to qualify for tax purposes as a
regulated investment company (the "Asset Diversification Test"). Under the
Asset Diversification Test, at the close of each quarter of a fund's taxable
year, at least 50% of the value of a fund's assets must consist of cash and cash
items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which a fund has not invested
more than 5% of the value of a fund's total assets in securities of such issuer
and as to which a fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any other issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which a fund controls and which are engaged in the
same or similar trades or businesses.
If, for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the Portfolio's current and accumulated
earnings and profits. Such distributions generally will be eligible for the
dividends received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year). The balance of such income must be
distributed during the next calendar year. For the foregoing purposes, a
regulated investment company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.
26
<PAGE>
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 Class. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date.
Ordinarily, shareholders are required to take distributions by the
Portfolio into account in the year in which the distributions are made.
However, dividends declared in October, November or December of any year and
payable to shareholders of record on a specified date in such a month will be
deemed to have been received by the shareholders (and made by the Portfolio) on
December 31 of such calendar year if such dividends are actually paid in January
of the following year.
The Portfolio will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of the ordinary income dividends and capital gain
dividends and, in certain cases, the proceeds of redemption of shares, paid to
any shareholder (1) who has provided either an incorrect tax identification
number or no number at all, (2) who is subject to backup withholding by the
Internal Revenue Service for failure to report the receipt of interest or
dividend income properly, or (3) who has failed to certify to the Fund that it
is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a class in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the class within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a class will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital dividends received on such
shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Portfolio is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, dividends and
distributions (other than capital gains dividends) will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the dividend or distribution. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the
27
<PAGE>
sale of shares of a class, capital gain dividends and amounts retained by the
Portfolio that are designated as undistributed capital gains.
If the income from the Portfolio is effectively connected with a U.S. or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Portfolio will be subject to U.S. federal income tax at the rated applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Portfolio may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax unless such shareholders furnish
the Portfolio with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Portfolio, including the applicability of foreign taxes.
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 December
17, 1997. 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.
28
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
SCHEDULE OF INVESTMENTS
August 31, 1997
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER - 21.72%(a)
CAPITAL GOODS - 1.33%
MACHINERY - 1.33%
Caterpillar Financial Services Corp.
5.51% 12/08/97 $20,000 $ 19,700,011
- -----------------------------------------------------------------------
5.54% 01/12/98 2,530 2,478,218
- -----------------------------------------------------------------------
5.54% 01/15/98 12,800 12,532,110
- -----------------------------------------------------------------------
5.53% 04/03/98 19,300 18,665,555
- -----------------------------------------------------------------------
Total Capital Goods 53,375,894
- -----------------------------------------------------------------------
CONSUMER DURABLES - 5.39%
AUTOMOBILE - 3.91%
Daimler-Benz North America Corp.
5.52% 11/07/97 25,000 24,743,167
- -----------------------------------------------------------------------
5.52% 11/18/97 30,000 29,641,200
- -----------------------------------------------------------------------
5.51% 01/16/98 25,000 24,475,784
- -----------------------------------------------------------------------
5.54% 02/04/98 15,000 14,639,900
- -----------------------------------------------------------------------
5.50% 02/11/98 20,000 19,502,397
- -----------------------------------------------------------------------
Ford Motor Credit Co.
5.53% 12/09/97 20,000 19,695,850
- -----------------------------------------------------------------------
Hertz Corp.
5.53% 12/16/97 25,000 24,592,931
- -----------------------------------------------------------------------
157,291,229
- -----------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES - 0.61%
First Data Corp.
5.51% 01/21/98 25,000 24,456,653
- -----------------------------------------------------------------------
PAPERS & FOREST PRODUCTS - 0.87%
Weyerhaeuser Real Estate Co.
5.60% 09/30/97 35,000 35,000,000
- -----------------------------------------------------------------------
Total Consumer Durables 216,747,882
- -----------------------------------------------------------------------
ENERGY - 2.11%
OIL & GAS (INTEGRATED) - 2.11%
Shell 96
5.70% 09/24/97 30,000 30,000,000
- -----------------------------------------------------------------------
5.63% 10/22/97 30,000 30,000,000
- -----------------------------------------------------------------------
5.62% 12/03/97 25,000 25,000,000
- -----------------------------------------------------------------------
Total Energy 85,000,000
- -----------------------------------------------------------------------
</TABLE>
FS-1
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
FINANCIAL - 9.93%
ASSET-BACKED SECURITIES - 1.48%
Delaware Funding Corp.
5.52% 10/20/97 $25,000 $ 24,812,166
- ----------------------------------------------------------------------
5.55% 11/05/97 10,107 10,005,719
- ----------------------------------------------------------------------
Preferred Receivables Funding Corp.
5.53% 12/15/97 25,000 24,596,771
- ----------------------------------------------------------------------
59,414,656
- ----------------------------------------------------------------------
BROKERAGE/INVESTMENTS - 0.62%
Merrill Lynch & Co., Inc.
5.29% 11/10/97 25,000 24,742,847
- ----------------------------------------------------------------------
LEASING COMPANIES - 0.25%
International Lease Finance Corp.
5.52% 11/10/97 10,000 9,892,666
- ----------------------------------------------------------------------
PERSONAL CREDIT - 3.48%
Associates Corp. of North America
5.62% 09/02/97 140,000 139,978,144
- ----------------------------------------------------------------------
MULTIPLE INDUSTRY - 4.10%
General Electric Capital Corp.
5.63% 09/02/97 140,000 139,978,125
- ----------------------------------------------------------------------
5.42% 09/09/97 25,000 24,969,889
- ----------------------------------------------------------------------
164,948,014
- ----------------------------------------------------------------------
Total Financial 398,976,327
- ----------------------------------------------------------------------
UTILITIES - 1.13%
TELEPHONE - 1.13%
MCI Communications Corp.
5.50% 12/04/97 10,000 9,856,389
- ----------------------------------------------------------------------
5.50% 12/16/97 10,000 9,838,056
- ----------------------------------------------------------------------
5.52% 12/18/97 16,000 15,735,040
- ----------------------------------------------------------------------
5.50% 12/22/97 10,000 9,828,889
- ----------------------------------------------------------------------
Total Utilities 45,258,374
- ----------------------------------------------------------------------
OTHER - 1.83%
METAL MINING- 0.61%
RTZ America, Inc.
5.53% 01/13/98 25,000 24,485,403
- ----------------------------------------------------------------------
MISCELLANEOUS - 1.22%
Cargill Incorporated
5.51% 12/19/97 25,000 24,582,924
- ----------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
OTHER - (continued)
MISCELLANEOUS - (CONTINUED)
Cargill Financial Services Corp.
5.52% 01/21/98 $25,000 $ 24,455,667
- ------------------------------------------------------------------------------
49,038,591
- ------------------------------------------------------------------------------
Total Other 73,523,994
- ------------------------------------------------------------------------------
Total Commercial Paper 872,882,471
- ------------------------------------------------------------------------------
BANK NOTES - 1.04%
First U.S.A. Bank
6.03% 09/30/97 42,000 42,013,702
- ------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT - 0.49%
Huntington National Bank
6.23% 04/24/98 20,000 20,040,517
- ------------------------------------------------------------------------------
COMMERCIAL PAPER TRUST CERTIFICATES - 4.23%
Citibank, N.A.
5.82%(b) 12/26/97 170,000 170,000,000
- ------------------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 17.27%
Goldman Sachs Group (The), L.P.
5.625%(c) 10/20/97 178,000 178,000,000
- ------------------------------------------------------------------------------
Merrill Lynch Mortgage Capital Inc.
5.9875%(d) 08/17/98 155,000 155,000,000
- ------------------------------------------------------------------------------
Morgan (J.P.) Securities Inc.
5.7875%(e) 10/06/97 185,000 185,000,000
- ------------------------------------------------------------------------------
Morgan Stanley Group Inc.
5.7875%(f) 11/24/97 177,000 177,000,000
- ------------------------------------------------------------------------------
Total Master Note Agreements 695,000,000
- ------------------------------------------------------------------------------
MEDIUM TERM NOTES - 0.62%
Associates Corp. of North America
5.69%(g) 03/02/98 25,000 24,990,374
- ------------------------------------------------------------------------------
Total Investments (excluding Repurchase
Agreements) 1,824,927,064
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 54.87%(h)
Bear, Stearns & Co. Inc.
5.63%(i) -- 140,000 140,000,000
- ------------------------------------------------------------------------------
CIBC Wood Gundy Securities Corp.
5.62%(j) 09/02/97 140,000 140,000,000
- ------------------------------------------------------------------------------
Deutsche Bank Securities Corp.
5.64%(k) -- 140,000 140,000,000
- ------------------------------------------------------------------------------
Dresdner Securities (USA) Inc.
5.62%(l) 09/02/97 140,000 140,000,000
- ------------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
MATURITY PAR (000) VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - (continued)
Goldman, Sachs & Co.
5.60%(m) 09/02/97 $105,916 $ 105,916,016
- ------------------------------------------------------------------------------
5.61%(n) 09/02/97 195,606 195,605,918
- ------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
5.62%(o) 09/02/97 140,000 140,000,000
- ------------------------------------------------------------------------------
HSBC Securities, Inc.
5.64%(p) 09/02/97 140,000 140,000,000
- ------------------------------------------------------------------------------
Merrill Lynch Government Securities Inc.
5.69%(q) -- 400,000 400,000,000
- ------------------------------------------------------------------------------
Nesbitt Burns Securities Inc.
5.62%(r) -- 125,000 125,000,000
- ------------------------------------------------------------------------------
Sanwa Securities (USA) Co., L.P.
5.62%(s) 09/02/97 147,732 147,732,342
- ------------------------------------------------------------------------------
SBC Capital Markets, Inc.
5.62%(t) 09/02/97 140,000 140,000,000
- ------------------------------------------------------------------------------
UBS Securities LLC.
5.62%(u) 09/02/97 252,650 252,649,596
- ------------------------------------------------------------------------------
Total Repurchase Agreements 2,206,903,872
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.24% 4,031,830,936(v)
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.24)% (9,620,578)
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $4,022,210,358
==============================================================================
</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) Variable rate trust certificates representing an interest in a trust
(comprised of eligible debt obligations) entitling the Portfolio to receive
variable rate interest. The Fund has the right, upon seven calendar days'
notice to the trustee, to put its certificates to the trust at par value
plus accrued interest. Because variable rate trust certificates involve a
trust and a third party put feature, they involve complexities and
potential risks that may not be present where the debt obligation is owned
directly. Rate shown is the rate in effect on 08/31/97.
(c) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon seven business days' prior written notice to
the issuer. Interest rates on master notes are redetermined periodically.
Rate shown is the rate in effect on 08/31/97.
(d) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon two business days' notice. Interest rates on
master notes are redetermined periodically. Rate shown is the rate in
effect on 08/31/97.
(e) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon seven days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
08/31/97 .
(f) Master Note Purchase Agreement may be terminated by either party upon three
business days' prior written 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 08/31/97.
(g) Interest rates are redetermined daily. Rate shown is the rate in effect on
08/31/97.
FS-4
<PAGE>
(h) 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, private accounts and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(i) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates, par and collateral are redetermined daily.
Collateralized by $268,177,242 U.S. Government obligations, 0% to 11.50%
due 02/01/01 to 09/01/27 with an aggregate market value at 08/31/97 of
$208,921,813.
(j) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$200,124,889. Collateralized by $200,585,000 U.S. Government obligations,
5.53% to 7.93% due 02/02/98 to 07/30/07 with an aggregate market value at
08/31/97 of $204,002,656.
(k) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates, par and collateral are redetermined daily.
Collateralized by $243,062,487 U.S. Government obligations, 0% to 9.00% due
11/24/97 to 08/20/27 with an aggregate market value at 08/31/97 of
$204,000,923.
(l) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$200,124,889. Collateralized by $356,015,498 U.S. Government obligations,
0% to 7.778% due 07/01/01 to 02/01/37 with an aggregate market value at
08/31/97 of $204,000,810.
(m) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$250,155,556. Collateralized by $246,226,835 U.S. Government obligations,
6.752% to 8.111 % due 07/01/22 to 08/01/36 with an aggregate market value
at 08/31/97 of $255,000,001.
(n) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$400,249,333. Collateralized by $403,862,867 U.S. Government obligations,
5.901% to 8.117% due 12/01/17 to 01/01/35 with an aggregate market value at
08/31/97 of $408,000,001.
(o) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$300,187,333. Collateralized by $299,652,416 U.S. Government obligations,
5.50% to 10.00% due 09/01/00 to 06/01/27 with an aggregate market value at
08/31/97 of $306,000,589.
(p) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$300,188,000. Collateralized by $340,004,979 U.S. Government obligations,
0% to 9.00% due 04/15/98 to 11/01/35 with an aggregate market value at
08/31/97 of $306,000,024.
(q) Open repurchase agreement. Either party may terminate the agreement upon
demand. Interest rates, par and collateral are redetermined daily.
Collateralized by $467,972,543 U.S. Government obligations 5.50% to 12.00%
due 10/01/01 to 09/01/27 with an aggregate market value at 08/31/97 of
$408,001,549.
(r) Open repurchase agreement. Either party may terminate the agreement upon
demand. Interest rates, par and collateral are redetermined daily.
Collateralized by $130,662,000 U.S. Government obligations, 0% to 7.21% due
10/17/97 to 07/15/20 with an aggregate market value at 08/31/97 of
$127,500,871.
(s) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$200,124,889 . Collateralized by $203,307,000 U.S. Government obligations,
0% to 7.875% due 09/02/97 to 08/27/12 with an aggregate market value at
08/31/97 of $204,000,079.
(t) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$300,187,333. Collateralized by $304,538,273 U.S. Government obligations,
6.029% to 9.00% due 06/01/09 to 09/01/36 with an aggregate market value at
08/31/97 of $307,989,473.
(u) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$300,187,333. Collateralized by $351,233,831 U.S. Government obligations,
0% to 9.00% due 01/15/03 to 08/15/27 with an aggregate market value at
08/31/97 of $306,004,400.
(v) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value
(amortized cost) $1,824,927,064
- ------------------------------------------------------------------------
Repurchase agreements 2,206,903,872
- ------------------------------------------------------------------------
Interest receivable 8,221,689
- ------------------------------------------------------------------------
Investment for deferred compensation plan 33,770
- ------------------------------------------------------------------------
Other assets 44,228
- ------------------------------------------------------------------------
Total assets 4,040,130,623
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends 17,643,247
- ------------------------------------------------------------------------
Deferred compensation 33,770
- ------------------------------------------------------------------------
Accrued advisory fees 141,022
- ------------------------------------------------------------------------
Accrued distribution fees 35,839
- ------------------------------------------------------------------------
Accrued administrative services fees 6,491
- ------------------------------------------------------------------------
Accrued transfer agent fees 27,000
- ------------------------------------------------------------------------
Accrued operating expenses 32,896
- ------------------------------------------------------------------------
Total liabilities 17,920,265
- ------------------------------------------------------------------------
NET ASSETS $4,022,210,358
========================================================================
NET ASSETS:
Institutional Class $3,787,357,429
========================================================================
Cash Management Class $ 83,487,131
========================================================================
Private Investment Class $ 70,855,883
========================================================================
MSTC Cash Reserves Class $ 80,509,915
========================================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Institutional Class 3,788,657,933
========================================================================
Cash Management Class 83,515,172
========================================================================
Private Investment Class 70,880,159
========================================================================
MSTC Cash Reserves Class 80,537,499
========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE>
STATEMENT OF OPERATIONS
For the year ended August 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $160,945,206
- -------------------------------------------------------------------
EXPENSES:
Advisory
fees 4,369,695
- -------------------------------------------------------------------
Custodian fees 174,747
- -------------------------------------------------------------------
Administrative services fees 68,372
- -------------------------------------------------------------------
Distribution fees (Note 2) 427,798
- -------------------------------------------------------------------
Directors' fees and expenses 16,789
- -------------------------------------------------------------------
Transfer agent fees 260,721
- -------------------------------------------------------------------
Other 355,240
- -------------------------------------------------------------------
Total expenses 5,673,362
- -------------------------------------------------------------------
Less: Fee waivers and expense reimbursements (3,476,063)
- -------------------------------------------------------------------
Net expenses 2,197,299
- -------------------------------------------------------------------
Net investment income 158,747,907
- -------------------------------------------------------------------
Net realized gain on sales of investments 352,792
- -------------------------------------------------------------------
Net increase in net assets resulting from operations $159,100,699
===================================================================
</TABLE>
See Notes to Financial Statements.
FS-7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended August 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 158,747,907 $ 98,908,897
- ----------------------------------------------------------------------------
Net realized gain (loss) on sales of
investments 352,792 (1,596,067)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 159,100,699 97,312,830
- ----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Class (149,604,986) (97,295,860)
- ----------------------------------------------------------------------------
Cash Management Class (4,717,164) (689,376)
- ----------------------------------------------------------------------------
Private Investment Class (2,931,782) (923,661)
- ----------------------------------------------------------------------------
MSTC Cash Reserves Class (1,493,975) --
- ----------------------------------------------------------------------------
Capital stock transactions -- net 1,934,913,244 801,077,731
- ----------------------------------------------------------------------------
Net increase in net assets 1,935,266,036 799,481,664
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 2,086,944,322 1,287,462,658
- ----------------------------------------------------------------------------
End of period $4,022,210,358 $2,086,944,322
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,023,590,763 $2,088,677,519
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investment securities (1,380,405) (1,733,197)
- ----------------------------------------------------------------------------
$4,022,210,358 $2,086,944,322
============================================================================
</TABLE>
See Notes to Financial Statements.
FS-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
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 Prime Portfolio and the Liquid Assets Portfolio. Information presented in
these financial statements pertains only to the Liquid Assets Portfolio (the
"Portfolio") with assets, liabilities and operations of each portfolio
accounted for separately. The Portfolio consists of four different classes of
shares: the Institutional Class, the Cash Management Class, the Private
Investment Class and the MSTC Cash Reserves Class. Matters affecting each class
are voted on exclusively by the shareholders of each class. The Portfolio is a
money market fund whose objective is the maximization of current income to the
extent consistent with the preservation of capital and the maintenance of
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 $1,380,405 (which may be carried forward to offset
future taxable gains, if any) which expires, if not previously utilized,
through the year 2004. The Portfolio cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
D. Expenses - Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses are allocated among the classes.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master advisory agreement, AIM
receives a monthly fee with respect to the Portfolio at the annual rate of
0.15% of the average daily net assets of the Portfolio. During the year ended
August 31, 1997, AIM voluntarily waived fees of $3,344,852 on the Portfolio.
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, 1997,
the Portfolio reimbursed AIM $68,372 for such services.
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 year ended
August 31, 1997, the Portfolio paid AIFS $260,721 for such services. On
September 19, 1997, the Board of Directors of the Fund approved the appointment
of A I M Fund Services, Inc. ("AFS") as transfer agent of the Fund to be
effective in late 1997 or early 1998.
Under the terms of a master distribution agreement between Fund Management
Company ("FMC") and the Fund, FMC acts as the exclusive distributor of the
Fund's shares. The Fund has adopted a master distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Private
Investment Class, the Cash Management Class and the MSTC Cash
FS-9
<PAGE>
Reserves Class of the Portfolio. The Plan provides that the Private Investment
Class, Cash Management Class and the MSTC Cash Reserves Class pay FMC up to a
maximum annual rate of 0.50%, 0.10% and 0.20%, 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%,
0.10% and 0.20% of the average daily net assets, respectively, of each of the
Private Investment Class, the Cash Management Class and the MSTC Cash Reserves
Class to selected banks, broker-dealers and other financial institutions who
offer continuing personal shareholder services to their customers who purchase
and own shares of the Private Investment Class, the Cash Management Class or
the MSTC Cash Reserves Class. Any amounts not paid as a service fee under such
Plan would constitute an asset-based sales charge. During the year ended August
31, 1997, the Private Investment Class, the Cash Management Class and the MSTC
Cash Reserves Class paid $170,528, $70,103 and $55,956, respectively, as
compensation under the Plan. FMC waived fees of $131,211 for the same period.
Certain officers and directors of the Fund are officers of AIM, FMC, and AIFS.
During the year ended August 31, 1997, the Portfolio paid legal fees of $8,944
for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the
Board of Directors. A member of that firm is a director of the 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 may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - CAPITAL STOCK
Changes in capital stock during the years ended August 31, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Sold:
Institutional Class 78,261,661,500 $78,261,661,500 51,676,611,824 $ 51,676,611,824
- ----------------------------------------------------------------------------------------------
Cash Management Class* 1,034,402,514 1,034,402,514 320,121,330 320,121,330
- ----------------------------------------------------------------------------------------------
Private Investment
Class** 342,644,258 342,644,258 136,803,186 136,803,186
- ----------------------------------------------------------------------------------------------
MSTC Cash Reserves
Class*** 408,898,275 408,898,275 -- --
- ----------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Class 20,480,836 20,480,836 4,477,681 4,477,681
- ----------------------------------------------------------------------------------------------
Cash Management Class* 2,312,729 2,312,729 283,906 283,906
- ----------------------------------------------------------------------------------------------
Private Investment
Class** 2,744,701 2,744,701 727,956 727,956
- ----------------------------------------------------------------------------------------------
MSTC Cash Reserves
Class*** 1,184,333 1,184,333 -- --
- ----------------------------------------------------------------------------------------------
Reacquired:
Institutional Class (76,483,889,456) (76,483,889,456) (50,978,284,230) (50,978,284,230)
- ----------------------------------------------------------------------------------------------
Cash Management Class* (1,006,454,600) (1,006,454,600) (267,150,707) (267,150,707)
- ----------------------------------------------------------------------------------------------
Private Investment
Class** (319,526,727) (319,526,727) (92,513,215) (92,513,215)
- ----------------------------------------------------------------------------------------------
MSTC Cash Reserves
Class*** (329,545,119) (329,545,119) -- --
- ----------------------------------------------------------------------------------------------
Net increase 1,934,913,244 $ 1,934,913,244 801,077,731 $ 801,077,731
==============================================================================================
</TABLE>
*The Cash Management Class commenced operations on January 17, 1996.
**The Private Investment Class commenced operations on February 16, 1996.
***The MSTC Cash Reserves Class commenced operations on September 23, 1996.
FS-10
<PAGE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding of the Cash Management Class during the year ended August 31, 1997
and the period January 17, 1996 (date operations commenced) through August 31,
1996.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
- ------------------------------------------------------- ------- -------
Income from investment operations:
Net investment income 0.05 0.03
- ------------------------------------------------------- ------- -------
Less distributions:
Dividends from net investment income (0.05) (0.03)
- ------------------------------------------------------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00
======================================================= ======= =======
Total return 5.50% 5.36%(a)
======================================================= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $83,487 $53,209
======================================================= ======= =======
Ratio of expenses to average net assets(b) 0.15%(c) 0.10%(a)
======================================================= ======= =======
Ratio of net investment income to average net assets(d) 5.38%(c) 5.27%(a)
======================================================= ======= =======
</TABLE>
(a) Annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.28% and 0.34% (annualized), for the periods 1997-1996, respectively.
(c) Ratios are based on average net assets of $87,629,028.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.25% and 5.03% (annualized), for the periods 1997-
1996, respectively.
FS-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Short-Term Investments Trust:
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, 1997, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for the year ended August 31, 1997 and the period January
17, 1996 (date operations commenced) through August 31, 1996. 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, 1997 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, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for the year ended
August 31, 1997 and the period January 17, 1996 (date operations commenced)
through August 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
October 3, 1997
FS-12
<PAGE>
Shown below are the financial highlights for a share of capital stock
outstanding of the Institutional Class during each of the years in the three-
year period ended August 31, 1997 and the period November 4, 1993 (date
operations commenced) through August 31, 1994.
<TABLE>
<CAPTION>
1997 1996 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income 0.05 0.06 0.06 0.03
- ----------------------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income (0.05) (0.06) (0.06) (0.03)
- ----------------------- ---------- ---------- ---------- ----------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================= ========== ========== ========== ==========
Total return 5.58% 5.68% 5.83% 3.83%(a)
======================= ========== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $3,787,357 $1,988,755 $1,287,463 $1,028,350
======================= ========== ========== ========== ==========
Ratio of expenses to
average net assets(b) 0.06%(d) 0.03% 0.11% 0.05%(a)
======================= ========== ========== ========== ==========
Ratio of net investment
income to average net
assets(c) 5.46%(d) 5.52% 5.69% 3.85%(a)
======================= ========== ========== ========== ==========
</TABLE>
(a) Annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.18% for the periods 1997-1994 annualized, respectively.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.34%, 5.37%, 5.62% and 3.72% (annualized) for the
periods 1997-1994, respectively.
(d) Ratios are based on average net assets of $2,740,680,327.
FS-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders
Short-Term Investments Trust:
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, 1997, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the three-year period 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, 1997 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, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the three-year period 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
Houston, Texas
October 3, 1997
FS-14
<PAGE>
Shown below are the financial highlights for a share of capital stock
outstanding of the Private Investment Class during the year ended August 31,
1997 and the period February 16, 1996 (date operations commenced) through
August 31, 1996.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
- ------------------------------------------------------- ------- -------
Income from investment operations:
Net investment income 0.05 0.03
- ------------------------------------------------------- ------- -------
Less distributions:
Dividends from net investment income (0.05) (0.03)
- ------------------------------------------------------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00
======================================================= ======= =======
Total return 5.27% 5.10%(a)
======================================================= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,856 $44,981
======================================================= ======= =======
Ratio of expenses to average net assets(b) 0.36%(c) 0.32%(a)
======================================================= ======= =======
Ratio of net investment income to average net assets(d) 5.16%(c) 5.04%(a)
======================================================= ======= =======
</TABLE>
(a) Annualized.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.68% and 0.69% (annualized), for the periods 1997-1996, respectively.
(c) Ratios are based on average net assets of $56,842,586.
(d) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 4.84% and 4.67% (annualized), for the periods 1997-
1996, respectively.
FS-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of Liquid
Assets Portfolio (a series portfolio of Short-Term Investments Co.), including
the schedule of investments, as of August 31, 1997, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for the year ended August 31, 1997 and the period February 16, 1996
(date operations commenced) through August 31, 1996. 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, 1997 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, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for the year ended
August 31, 1997 and the period February 16, 1996 (date operations commenced)
through August 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
October 3, 1997
FS-16
