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SHORT-TERM
INVESTMENTS CO.
Prospectus
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PRIME The Prime Portfolio (the "Portfolio") is a money market fund whose investment
PORTFOLIO objective is the maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity. The Portfolio
INSTITUTIONAL seeks to achieve its objective by investing in high grade money market
CLASS instruments, such as U.S. Government obligations, bank obligations, commercial
instruments and repurchase agreements. The instruments purchased by the
DECEMBER 17, 1997 Portfolio will have maturities of sixty days or less.
The Portfolio is a series portfolio of Short-Term Investments Co. (the
"Fund"), an open-end diversified series management investment company. This
Prospectus relates solely to the Institutional Class of the Portfolio, a class
of shares designed to be a convenient vehicle in which institutions,
particularly banks, acting for themselves or in a fiduciary, advisory, agency,
custodial or other similar capacity can invest in a diversified money market
fund.
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 INSTITUTIONAL 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. A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION IS
ATTACHED HERETO. 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
[LOGO APPEARS HERE] SHARE. SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
Fund Management Company LOSS OF PRINCIPAL.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
(800) 659-1005
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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 Institutional 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
obligations, bank obligations, commercial instruments and repurchase
agreements. The instruments purchased by the Portfolio will have maturities of
sixty days or less. The investment objective of the Portfolio is the
maximization of current income to the extent consistent with the preservation
of capital and the maintenance of liquidity.
Pursuant to separate prospectuses, the Fund also offers shares of other
classes of common stock of the Fund representing interests in the Portfolio:
the Cash Management Class, the Private Investment Class, the Personal
Investment Class and the Resource Class. Such classes have different
distribution arrangements and are designed for institutional and other
categories of investors. The Fund also offers shares of classes of another
portfolio, the Liquid Assets Portfolio, each pursuant to a separate prospectus.
Such classes have different distribution arrangements and are designed for
institutional and other categories of investors. The portfolios of the Fund are
referred to collectively as the "Portfolios."
All classes of the Portfolio share a common investment objective and
portfolio of investments. Shares of each class of the Portfolio have the same
net asset value (proportionate interest in the net assets of the Portfolio) and
bear equally those expenses, such as the advisory fee, that are allocated to
the Portfolio as a whole. However, different classes of the Portfolio have
different shareholder qualifications and are separately allocated certain class
expenses, such as those associated with the distribution of their shares.
Therefore, each class will have a different dividend payment and a different
yield.
INVESTORS IN THE CLASS
The Class is designed to be a convenient vehicle in which institutions,
particularly banks, acting for themselves or in a fiduciary, advisory, agency,
custodial or other similar capacity can invest short-term cash reserves in a
diversified, open-end money market fund.
PURCHASE OF SHARES
Shares of the Class that are offered hereby are sold at net asset value
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 funds immediately available to the
Portfolio. See "Purchase of Shares."
REDEMPTION OF SHARES
Redemptions may be made without charge at net asset value. Payment for
redeemed shares of the Class for which redemption orders are received prior to
4:00 p.m. Eastern Time will normally be made on the same day. See "Redemption
of Shares."
DIVIDENDS
The net income of the Portfolio is declared as a dividend daily to
shareholders of record immediately after 4:00 p.m. Eastern Time. Dividends are
paid monthly by check or wire transfer unless the shareholder has previously
elected to have such dividends automatically reinvested in additional shares of
the Class. Information concerning the amount of the dividends declared on any
particular day will normally be available by 5:00 p.m. Eastern Time on that
day. See "Dividends."
CONSTANT NET ASSET VALUE
The Fund uses the amortized cost method of valuing the securities held by the
Portfolio and rounds the per share net asset value to the nearest whole cent.
Accordingly, the net asset value per share of the Portfolio will normally
remain constant at $1.00. AN INVESTMENT IN THE PORTFOLIO IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE PORTFOLIO
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE. See "Net Asset Value."
2
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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 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
Fund Management Company ("FMC") acts as the exclusive distributor of the
shares of the Class. FMC does not receive any fee for distribution services
from the Fund with respect to the shares of the Class. See "Management of the
Fund--Distributor."
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 -- INSTITUTIONAL 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 -- INSTITUTIONAL CLASS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees......................................................... 0.06%
12b-1 Fees.............................................................. None
Other Expenses.......................................................... 0.03%
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Total Operating Expenses -- Institutional Class......................... 0.09%
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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.
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........................................................... $1
3 years.......................................................... $3
5 years.......................................................... $5
10 years......................................................... $12
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The Table of Fees and Expenses is designed to assist an investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management of the Fund" below.) The fees and expense
figures are based upon actual costs and fees charged to the Class for the
fiscal year ended August 31, 1997. To the extent any service providers assume
expenses of the Class, such assumption will have the effect of lowering the
Class' overall expense ratio and increasing its yield to investors. Beneficial
owners of shares of the Class should also consider the effect of any charges
imposed by the institution maintaining their accounts.
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 -- Institutional 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") for each of the years in the ten-year period ended
August 31, 1997. 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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1997 1996 1995 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
investment
operations:
Net investment
income......... 0.05 0.05 0.06 0.04 0.03 0.04 0.07 0.08
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less
distributions:
Dividends from
net investment
income.......... (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.07) (0.08)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
Total return..... 5.54% 5.64% 5.80% 3.64% 3.20% 4.44% 7.11% 8.72%
========== ========== ========== ========== ========== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end
of period (000s
omitted)......... $5,593,043 $5,264,601 $3,752,693 $4,080,753 $4,349,945 $3,993,340 $6,108,991 $6,475,123
========== ========== ========== ========== ========== ========== ========== ==========
Ratio of expenses
to average net
assets.......... 0.09%(a) 0.09% 0.09% 0.08% 0.07% 0.08% 0.07% 0.07%
========== ========== ========== ========== ========== ========== ========== ==========
Ratio of net
investment
income to
average net
assets.......... 5.40%(a) 5.48% 5.64% 3.58% 3.15% 4.43% 6.89% 8.39%
========== ========== ========== ========== ========== ========== ========== ==========
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1989 1988
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Net asset value,
beginning of
period.......... $ 1.00 $ 1.00
Income from
investment
operations:
Net investment
income......... 0.09 0.07
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Less
distributions:
Dividends from
net investment
income.......... (0.09) (0.07)
----------- -----------
Net asset value,
end of period .. $ 1.00 $ 1.00
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Total return..... 9.42% 7.34%
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Ratios/supplemental
data:
Net assets, end
of period (000s
omitted)......... $7,003,546 $5,841,901
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Ratio of expenses
to average net
assets.......... 0.08% 0.09%
=========== ===========
Ratio of net
investment
income to
average net
assets.......... 9.07% 7.11%
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(a) Ratios are based on average net assets of $6,200,589,926.
SUITABILITY FOR INVESTORS
The Class is intended for use primarily by institutions, particularly banks,
as a convenient and economical vehicle in which to invest short-term cash
reserves 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.
Investors in the Class have the opportunity to receive a somewhat higher
yield than might be obtainable through direct investment in money market
instruments and enjoy the benefits of diversification, economies of scale and
same-day liquidity. Generally, higher interest rates can be obtained on the
purchase of very large blocks of money market instruments. Of course, any such
relative increase in interest rates may be offset to some extent by the
operating expenses of the Class. However, these expenses are expected to be
relatively small due primarily to the following factors: the Class will have a
small number of shareholders who do not need many of the services provided by
other money market investment companies, thereby resulting in lower transfer
agent fees and cost for printing reports and proxy statements; sales of the
shares of the Class to institutions acting for themselves or in a fiduciary
capacity are exempt from the registration requirements of most state securities
laws, thereby resulting in reduced state registration fees; and the relatively
low investment advisory fee paid to AIM. 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 the maximization of current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity. The Portfolio seeks to achieve its objective by
investing in high grade money market instruments. The money market instruments
in which the Portfolio invests are considered to carry very little risk and
accordingly may not have as high a yield as that available on money market
instruments of lesser quality. The Portfolio consists exclusively of money
market instruments which have maturities of 60 days or less from the date of
purchase (except for securities subject to repurchase agreements which may have
longer maturities), and normally does not maintain a dollar-weighted average
maturity of its portfolio securities in excess of 40 days.
INVESTMENT POLICIES
The Portfolio may invest in a broad range of government, bank and commercial
obligations and taxable municipal securities that may be available in the money
markets. Such obligations are collectively referred to as "Money Market
Obligations" and include U.S. Treasury obligations, which include Treasury
bills, notes and bonds, and repurchase agreements relating to such securities.
The Portfolio may also engage in certain investment practices described below.
The market values of the money market instruments held by the Portfolio will be
affected by changes in the yields available on similar securities. If yields
have increased since a security was purchased, the market value of such
security will generally have decreased. Conversely, if yields have decreased,
the market value of such security will generally have increased.
Money Market Obligations
The following list of descriptions illustrates the types of Money Market
Obligations in which the Portfolio intends to invest. The list does not purport
to be an exhaustive list of all Money Market Obligations, and the Portfolio
reserves the right to invest in Money Market Obligations other than those
listed below.
COMMERCIAL INSTRUMENTS. The Portfolio intends to invest in commercial
instruments, including commercial paper, master notes and other short-term
corporate instruments, that are denominated in U.S. dollars and which at the
date of purchase are "First Tier" securities as defined in Rule 2a-7 under the
Investment Company Act of 1940 ("1940 Act"), as such Rule may be amended from
time to time. Generally, "First Tier" securities are securities that are rated
in the highest rating category by two nationally recognized statistical rating
organizations ("NRSROs") or, if only rated by one NRSRO, are rated in the
highest rating category by that NRSRO or, if unrated, are determined by AIM
(under the supervision of and pursuant to guidelines established by the Board
of Directors) to be of comparable quality to a rated security that meets the
foregoing quality standards. Commercial paper consists of short-term promissory
notes issued by corporations. Commercial paper may be traded in the secondary
market after its issuance. Master notes are demand notes that permit the
investment of fluctuating amounts of money at varying rates of interest
pursuant to arrangements with issuers who meet the quality criteria of the
Portfolio. The interest rate on a master note may fluctuate based upon changes
in specified interest rates or be reset periodically according to a prescribed
formula or may be a set rate. Although there is no secondary market in master
notes, if such notes have a demand feature, the payee may demand payment of the
principal amount of the note upon relatively short notice.
REPURCHASE AGREEMENTS. The Portfolio intends to invest in repurchase
agreements with banks and broker-dealers pertaining to the securities described
above. A repurchase agreement is an instrument under which the Portfolio
acquires ownership of a debt security and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed-upon time and price,
thereby determining the yield during the Portfolio's holding period. Repurchase
transactions are limited to a term not to exceed 365 days. The Portfolio may
enter into repurchase agreements only with institutions believed by the Fund's
Board of Directors to present minimal credit risk. With regard to repurchase
transactions, in the event of a bankruptcy or other default of a seller of a
repurchase agreement (such as the seller's failure to repurchase the obligation
in accordance with the terms of the agreement), the Portfolio could experience
both delays in liquidating the underlying securities and losses, including: (a)
a possible decline in the value of the underlying security during the period
while the Portfolio seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period, and (c)
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, see the Statement of Additional Information.
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GOVERNMENT OBLIGATIONS. The Portfolio may invest in securities issued or
guaranteed as to principal and interest by the U.S. Government or by its
agencies or instrumentalities. Such obligations may be supported (a) by the
full faith and credit of the U.S. Treasury (as in the case of Government
National Mortgage Association Certificates), (b) by the right of the issuer to
borrow from the U.S. Treasury (as in the case of obligations of the Federal
Home Loan Bank), (c) by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality (as in the case
of the Federal National Mortgage Association), or (d) only by the credit of the
agency or instrumentality itself (as in the case of obligations of the Student
Loan Marketing Association). No assurance can be given that the U.S. Government
will provide financial support to such U.S. Government sponsored agencies or
instrumentalities in the future, and it is not obligated to do so by law.
BANK INSTRUMENTS. The Portfolio may invest in certificates of deposit
("CDs"), time deposits and bankers' acceptances of domestic commercial banks
having total assets in excess of $1.5 billion as of the date of their most
recently published financial statements and CDs of other domestic banks that
are fully insured as to principal by the Federal Deposit Insurance Corporation.
CDs represent short-term interest-bearing deposits of commercial banks against
which negotiable certificates bearing stated rates of interest are issued.
Bankers' acceptances are short-term negotiable drafts endorsed by commercial
banks which arise primarily from international commercial transactions.
The Portfolio may invest in certificates of deposit ("Eurodollar CDs") and
time deposits ("Eurodollar time deposits") of foreign branches of domestic
banks having total assets in excess of $1.5 billion as of the date of their
most recently published financial statements. Time deposits are non-negotiable
deposits maintained in a banking institution for a specified period of time at
a stated interest rate. The Portfolio will not make any time or savings deposit
if, immediately after making such deposit, over 5% of the Portfolio's total
assets would be invested in time and savings deposits.
Investment Practices
BORROWING MONEY/REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow money
and enter into reverse repurchase agreements with respect to its portfolio
securities in amounts up to 10% of the value of its total assets at the time of
borrowing or entering into a reverse repurchase agreement. Reverse repurchase
agreements involve the sale by the Portfolio of a portfolio security at an
agreed-upon price, date and interest payment. The Portfolio will borrow money
or enter into reverse repurchase agreements solely for temporary or defensive
purposes, such as to facilitate the orderly sale of portfolio securities or to
accommodate abnormally heavy redemption requests should they occur. Reverse
repurchase transactions are limited to a term not to exceed 92 days. The
Portfolio will use reverse repurchase agreements when the interest income to be
earned from the securities that would otherwise have to be liquidated to meet
redemption requests is greater than the interest expense of the reverse
repurchase transaction. Reverse repurchase agreements involve the risk that the
market value of securities retained by the Portfolio in lieu of liquidation may
decline below the repurchase price of the securities sold by the Portfolio
which it is obligated to repurchase. The risk, if encountered, could cause a
reduction in the net asset value of the Portfolio's shares. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the 1940 Act.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may also lend its portfolio
securities in amounts up to 33-1/3% of its total assets to financial
institutions in accordance with the investment restrictions of the Portfolio.
Such loans would involve risks of delay in receiving additional collateral in
the event the value of the collateral decreased below the value of the
securities loaned or of delay in recovering the securities loaned or even loss
of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by AIM to be
of good standing and only when, in AIM's judgment, the income to be earned from
the loans justifies the attendant risks.
PURCHASING DELAYED DELIVERY AND WHEN-ISSUED SECURITIES. The Portfolio may
enter into delayed delivery agreements and may purchase securities on a "when-
issued" basis.
Delayed delivery agreements are commitments by the Portfolio to dealers or
issuers to acquire securities beyond the customary settlement date for such
securities. These commitments fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, the Portfolio's
investment advisor can anticipate that cash for investment purposes will result
from scheduled maturities of existing portfolio instruments or from net sales
of shares of the Portfolio and may enter into delayed delivery agreements to
assure that the Portfolio will be as fully invested as possible in instruments
meeting its investment objective.
7
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Debt securities are sometimes offered on a "when-issued" basis; that is, the
date for delivery of and payment for the securities is not fixed at the date of
purchase, but is set after the securities are issued (normally within forty-
five days after the date of the transaction). The payment obligation and the
interest rate that will be received on the securities are fixed at the time the
buyer enters into the commitment. The Portfolio will only make commitments to
purchase such debt securities with the intention of actually acquiring the
securities, but the Portfolio may sell these securities before the settlement
date if it is deemed advisable.
If the Portfolio enters into a delayed delivery agreement or purchases a
when-issued security, the Portfolio will direct its custodian bank to segregate
liquid assets (including Money Market Obligations) in an amount equal to its
delayed delivery agreement obligations or when-issued commitments. If the
market value of such securities declines, additional cash or securities will be
segregated on a daily basis so that the market value of the account will equal
the amount of the Portfolio's delayed delivery agreement obligations and when-
issued commitments. To the extent that funds are segregated, they will not be
available for new investment or to meet redemptions. Investment in securities
on a when-issued basis and use of delayed delivery agreements may increase the
Portfolio's exposure to market fluctuation, or may increase the possibility
that the Portfolio will incur a short-term loss, if the Portfolio must engage
in portfolio transactions in order to honor a when-issued commitment or accept
delivery of a security under a delayed delivery agreement. The Portfolio will
employ techniques designed to minimize these risks. No additional delayed
delivery agreements or when-issued commitments will be made by the Portfolio
if, as a result, more than 25% of the Portfolio's net assets would become so
committed.
ILLIQUID SECURITIES. The Portfolio will invest no more than 10% of its net
assets in illiquid securities.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Portfolio may invest in other
investment companies to the extent permitted by the 1940 Act, and rules and
regulations thereunder, and, if applicable, exemptive orders granted by the
SEC.
PORTFOLIO TRANSACTIONS. The Portfolio does not seek profits through short-
term trading and will generally hold portfolio securities to maturity, but AIM
may seek to enhance the yield of the Portfolio by taking advantage of yield
disparities or other factors that occur in the money markets. For example,
market conditions frequently result in similar securities trading at different
prices. AIM may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with AIM's judgment as to desirable portfolio maturity structure or
if such disposition is believed to be advisable due to other circumstances or
conditions. Securities held by the Portfolio will be disposed of prior to
maturity if an earlier disposition is deemed desirable by AIM to meet
redemption requests. In addition, AIM will continually monitor the credit
worthiness of issuers whose securities are held by the Portfolio, and
securities held by the Portfolio may be disposed of prior to maturity as a
result of a revised credit evaluation of the issuer or other circumstances or
considerations. The Portfolio's policy of investing in securities with
maturities of sixty days or less will result in high portfolio turnover. Since
brokerage commissions are not normally paid on investments of the type made by
the Portfolio, the high turnover rate should not adversely affect the
Portfolio's net income.
INVESTMENT RESTRICTIONS
The Portfolio's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in specified types of securities or engaging in
certain transactions and to limit the amount of the Portfolio's assets which
may be concentrated in any specific industry or issuer. The most significant of
these restrictions provide that the Portfolio will not:
(1) concentrate 25% or more of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and bank instruments such as
CDs, bankers' acceptances, time deposits and bank repurchase agreements;
(2) purchase securities of any one issuer (other than obligations of the
U.S. Government, its agencies or instrumentalities) if, immediately after
such purchase, more than 5% of the value of the Portfolio's total assets
would be
8
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invested in such issuer, except as permitted by Rule 2a-7 under the 1940
Act, as such Rule may be amended from time to time, 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 to accommodate abnormally heavy redemption requests),
the Portfolio may borrow money from banks or obtain funds by entering into
reverse repurchase agreements, and (b) to the extent that entering into
commitments to purchase securities in accordance with the Portfolio's
investment program may be considered the issuance of senior securities. The
Portfolio will not purchase portfolio securities while borrowings in excess
of 5% of its total assets are outstanding.
The Portfolio's investment objective and the three investment restrictions of
the Portfolio set forth above (as well as certain others set forth in the
Statement of Additional Information) are matters of fundamental policy which
may not be changed without the affirmative vote of a majority of the
outstanding shares of the Portfolio. The investment policies described above
under the heading "Investment Policies" may be changed without the affirmative
vote of a majority of the outstanding shares of the Portfolio.
In addition to the restrictions described above, the Portfolio must also
comply with the requirements of Rule 2a-7 under the 1940 Act, as such Rule may
be amended from time to time, which govern the operations of money market
funds, and may be more restrictive than the policies described herein. 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 all 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 Institutional 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 to 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 Class purchased must be in 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 must specify that it is
for the purchase of "Shares of the Institutional Class of the Prime Portfolio,"
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 Portfolio 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 net asset
value per share of the Portfolio will remain constant at $1.00. See "Net Asset
Value." Redemption requests with respect to shares of the Class for which
certificates have not been issued are normally made 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 institution'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 Class 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 Fund. The authorized signature on the notice
must be guaranteed by a commercial bank or a trust company. Additional
documentation may be required when deemed appropriate by the Fund or the
Transfer Agent.
Shareholders may request a redemption by telephone. 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 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 confirmations
promptly after the transaction.
10
<PAGE>
Payment for shares of the Class redeemed by mail and payment for telephone
redemptions in amounts of less than $1,000 may be made by check mailed within
seven days after receipt of the redemption request in proper form. The Fund may
make payment for telephone redemptions in excess of $1,000 by check when it is
considered to be in the Portfolio's best interest to do so.
The shares of the Class are not redeemable at the option of the Fund unless
the Board of Directors of the Fund determines in its sole discretion that
failure to so redeem may have materially adverse consequences to the
shareholders of the Fund.
DIVIDENDS
Dividends from the net income of the Portfolio are declared daily to
shareholders of record of the Class immediately after 4:00 p.m. Eastern Time on
the day of declaration. Net income for dividend purposes is determined daily as
of 4:00 p.m. Eastern Time. The dividend accrued and paid for the Class will
consist of (a) income of the Portfolio, the allocation of which is based upon
the Class' pro rata share of the total outstanding shares representing an
interest in the Portfolio, less (b) Fund expenses, such as custodian fees,
directors' fees, accounting and legal expenses, based upon the Class's 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 its net asset value, they are not expected to be of an amount
which would affect its $1.00 per-share net asset value for purposes of
purchases and redemptions. See "Net Asset Value." Distributions from net
realized short-term gains may be declared and paid yearly or more frequently.
See "Taxes." The Portfolio does not expect to realize any long-term capital
gains or losses.
All dividends declared during a month will normally be paid by wire transfer.
Payment will normally be made on the first business day of the following month.
A shareholder may elect to have all dividends automatically reinvested in
additional full and fractional shares of the Class at the net asset value as of
4:00 p.m. Eastern Time on the last business day of the month. Such election, or
any revocation thereof, must be made in writing by the institution to 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 of the Class in its account at
any time during the month, all dividends declared through the date of
redemption are paid to the shareholder along with the proceeds of the
redemption.
The Portfolio uses its best efforts to maintain the net asset value per share
of the Portfolio at $1.00 for purposes of sales and redemptions. See "Net Asset
Value." Should the Fund incur or anticipate any unusual expense, loss or
depreciation which could adversely affect the income or net asset value of the
Portfolio, the Fund's Board of Directors would at that time consider whether to
adhere to the present dividend policy described above or to revise it in light
of the then prevailing circumstances. For example, under such unusual
circumstances the Board of Directors might reduce or suspend the daily dividend
in order to prevent, to the extent possible, the net asset value per share of
the Portfolio from being reduced below $1.00. Thus, such expenses, losses or
depreciation may result in a shareholder receiving no dividends for the period
during which it held its shares of the Class and cause such a shareholder to
receive upon redemption a price per share lower than the shareholder's original
cost.
TAXES
The policy of the Portfolio is to distribute to its shareholders at least 90%
of its investment company taxable income for each year and consistent therewith
to meet the distribution requirements of Part I of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Portfolio also intends to
meet the distribution requirements imposed by the Code in order to avoid the
imposition of a 4% excise tax. The Portfolio intends to distribute at least 98%
of its net investment income for the calendar year and at least 98% of its net
realized capital gains, if any, for the period ending on October 31. The
Portfolio also intends to meet the other requirements of Subchapter M,
including the requirements with respect to diversification of assets and
sources of income, so that the Portfolio will pay no taxes on net investment
income and net realized capital gains paid to shareholders.
Dividends paid by the Portfolio are subject to taxation as of the date of
payment, whether received by shareholders in cash or in additional shares of
the Class. The Code provides an exception to this general rule: if the
Portfolio declares a dividend in October, November or December to shareholders
of record in such months and pays the dividend during January of the next year,
a shareholder will be treated for tax purposes as having received the dividend
on December 31 of the year in which
11
<PAGE>
it is declared rather than in January when it is paid. It is anticipated that
no portion of distributions will be eligible for the dividends received
deduction for corporations. Dividends paid by the Portfolio from its net
investment income and short-term capital gains are taxable to shareholders at
ordinary income tax rates.
The Portfolio will be treated as a separate corporation for purposes of
determining taxable income, distribution requirements and other requirements of
Subchapter M. Therefore, the Portfolio may not offset its gains against the
losses of the other portfolio of the Fund and each portfolio of the Fund must
specifically comply with all the provisions of the Code.
Distributions and transactions referred to in the preceding paragraphs may be
subject to state, local or foreign taxes, and the treatment thereof may differ
from the federal income tax consequences discussed herein. Shareholders are
advised to consult with their own tax 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 Fund. Net asset value per share
is determined by dividing the value of the Portfolio's securities, cash and
other assets (including interest accrued but not collected) less all of its
liabilities (including accrued expenses and dividends payable), by the number
of shares outstanding of the Portfolio and rounding the resulting per share net
asset value to the nearest one cent.
The securities of the Portfolio are valued on the basis of amortized cost
pursuant to rules promulgated by the SEC applicable to money market funds. This
method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Portfolio would receive if the security were sold.
During such periods, the daily yield on shares of the Portfolio, computed as
described in "Purchases and Redemptions -- Performance Information" in the
Statement of Additional Information, may differ somewhat from an identical
computation made by an investment company with identical investments utilizing
available indications as to market value to value its portfolio securities.
YIELD INFORMATION
Yield information for the Class can be obtained by calling the Fund at (800)
659-1005. 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 5.56% and 5.71%, respectively. These yields are
quoted for illustration purposes only. The yields for any other seven-day
period may be substantially different from the yields quoted above.
To assist banks and other institutions performing their own sub-accounting,
same day information as to the daily dividend per share for the Portfolio to
eight decimal places and current yield normally will be available by 5:00 p.m.
Eastern time.
From time to time and in its discretion, AIM 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.
12
<PAGE>
REPORTS TO SHAREHOLDERS
The Fund furnishes shareholders with semi-annual reports containing
information about the Portfolio and its operations, including a list of the
investments held by the Portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors.
Each shareholder will be provided with a written confirmation 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
its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including agreements with the Fund's investment advisor, distributor,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's officers and to AIM, subject always to the objective
and policies of the Fund and to the general supervision of the Fund's Board of
Directors. 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 investment advisor for the Portfolio 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 or advises 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.
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 pursuant to the
Advisory Agreement with respect to the Portfolio which represented 0.06% of the
Portfolio's average daily net assets. During such fiscal year, the expenses of
the Class, including AIM's fees, amounted to 0.09% of the Class's average daily
net assets.
ADMINISTRATOR
The Fund has entered into a Master Administrative Services Agreement dated as
of February 28, 1997 with AIM (the "Administrative Services Agreement"),
pursuant to which AIM has agreed to provide or arrange for the provision of
certain accounting and other administrative services to the Portfolio,
including the services of a principal financial officer of the Fund and related
staff. As compensation to AIM for its services under the Administrative
Services Agreement, the Portfolio may reimburse AIM for expenses incurred by
AIM in connection with such services.
13
<PAGE>
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.
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. FMC does not receive any fee for
distribution services from the Fund with respect to 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. The
Distribution Agreement provides that FMC has the exclusive right to distribute
shares of the Fund either directly or through other broker-dealers. FMC is the
distributor of several of the mutual funds managed or advised by AIM.
PORTFOLIO TRANSACTIONS AND BROKERAGE
AIM is responsible for decisions to buy and sell securities for the
Portfolio, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Portfolio are usually
principal transactions, the Portfolio incurs little or no brokerage
commissions. Portfolio securities are normally purchased directly from the
issuer or from a market maker for the securities. The purchase price paid to
dealers serving as market makers may include a spread between the bid and asked
prices. The Portfolio may also purchase securities from underwriters at prices
which include a concession paid by the issuer to the underwriter.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the extent
that the executions and prices offered by more than one dealer are comparable,
AIM may, in its discretion, effect transactions with dealers that furnish
statistical, research or other information or services which are deemed by AIM
to be beneficial to the Portfolio's investment program. Certain research
services furnished by dealers may be useful to AIM with respect to clients
other than the Portfolio. Similarly, any research services received by AIM
through placement of portfolio transactions of other clients may be of value to
AIM in fulfilling its obligations to the Portfolio.
GENERAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund was incorporated in Maryland on May 3, 1993. On October 15, 1993,
the Portfolio succeeded to the assets and assumed the liabilities of the Prime
Portfolio (the "Predecessor Portfolio") of Short-Term Investments Co., a
Massachusetts business trust ("STIC"), pursuant to an Agreement and Plan of
Reorganization between the Fund and STIC. All historical financial and other
information contained in this Prospectus for periods prior to October 15, 1993
relating to the Portfolio (or a class thereof) is that of the Predecessor
Portfolio (or the corresponding class thereof). Shares of common stock of the
Fund are divided into nine classes. Five classes, including the Class,
represent interests in the Portfolio, and four classes represent interests in
the Liquid Assets Portfolio. Each class of shares has a par value of $.001 per
share. The other classes of the Fund may have different sales charges and other
expenses which may affect performance. An investor may obtain information
concerning the Fund's other classes by contacting FMC.
14
<PAGE>
All shares of the Fund have equal rights with respect to voting, except that
the holders of shares of a particular portfolio or class will have the
exclusive right to vote on matters pertaining solely to that portfolio or
class. For example, holders of shares of a particular portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such portfolio. In addition, holders of shares
of a particular class will have the exclusive right to vote on any matter, such
as distribution arrangements, which relates solely to such class. The holders
of shares of each portfolio have distinctive rights with respect to dividends
and redemption which are more fully described in this Prospectus. In the event
of liquidation or termination of the Fund, holders of shares of each portfolio
will receive pro rata, subject to the rights of creditors, (a) the proceeds of
the sale of the assets held in the respective portfolio to which such shares
relate, less (b) the liabilities of the Fund attributable or allocated to the
respective portfolio based on the respective liquidation value of each
portfolio. Fractional shares of each portfolio have the same rights as full
shares to the extent of their proportionate interest. The Fund will not
normally hold annual shareholders' meetings.
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 the 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) 659-1005.
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.
15
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
SHORT-TERM INVESTMENTS CO.
PRIME PORTFOLIO
(CASH MANAGEMENT CLASS)
(INSTITUTIONAL CLASS)
(PERSONAL INVESTMENT CLASS)
(PRIVATE INVESTMENT CLASS)
(RESOURCE 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 EACH
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 PRIME
PORTFOLIO: CASH MANAGEMENT CLASS PROSPECTUS DATED DECEMBER 17, 1997,
INSTITUTIONAL CLASS PROSPECTUS DATED DECEMBER 17, 1997, PERSONAL INVESTMENT
CLASS PROSPECTUS DATED DECEMBER 17, 1997, PRIVATE INVESTMENT CLASS PROSPECTUS
DATED DECEMBER 17, 1997 AND RESOURCE CLASS PROSPECTUS DATED DECEMBER 17, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.................................................... A-3
General Information about the Fund.............................. A-3
The Fund and Its Shares....................................... A-3
Directors and Officers........................................ A-4
Remuneration of Directors..................................... A-7
AIM Funds Retirement Plan for Eligible Directors/Trustees..... A-8
Deferred Compensation Agreements.............................. A-8
Investment Advisor............................................ A-8
Administrator................................................. A-10
Expenses...................................................... A-10
Transfer Agent and Custodian.................................. A-11
Reports....................................................... A-11
Fee Waivers................................................... A-11
Principal Holders of Securities............................... A-12
Purchases and Redemptions....................................... A-16
Net Asset Value Determination................................. A-16
Distribution Agreement........................................ A-16
Distribution Plan............................................. A-17
Banking Regulations........................................... A-17
Performance Information....................................... A-18
Investment Program and Restrictions............................. A-18
Investment Program............................................ A-18
Eligible Securities........................................... A-19
Commercial Paper Ratings...................................... A-20
Bond Ratings.................................................. A-20
Investment Restrictions....................................... A-22
Portfolio Transactions.......................................... A-23
Tax Matters..................................................... A-24
Qualification as a Regulated Investment Company............... A-24
Excise Tax On Regulated Investment Companies.................. A-25
Portfolio Distributions....................................... A-25
Sale or Redemption of Shares.................................. A-26
Foreign Shareholders.......................................... A-26
Effect of Future Legislation; Local Tax Considerations........ A-27
Financial Statements............................................ FS
</TABLE>
A-2
<PAGE>
INTRODUCTION
The Prime Portfolio (the "Portfolio") is an investment portfolio of Short-
Term Investments Co. (the "Fund"), a mutual fund. The rules and regulations of
the United States Securities and Exchange Commission (the "SEC") require all
mutual funds to furnish prospective investors certain information concerning
the activities of the fund being considered for investment. This information is
included in the Cash Management Class Prospectus dated December 17, 1997, the
Institutional Class Prospectus dated December 17, 1997, the Personal Investment
Class Prospectus dated December 17, 1997, the Private Investment Class
Prospectus dated December 17, 1997 and the Resource Class Prospectus dated
December 17, 1997 (each a "Prospectus"). Additional copies of each Prospectus
and 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. On October 15, 1993, the Portfolio succeeded to the assets and
assumed the liabilities of the Prime Portfolio (the "Predecessor Portfolio") of
Short-Term Investments Co., a Massachusetts business trust ("STIC"), pursuant
to an Agreement and Plan of Reorganization between the Fund and STIC. All
historical financial and other information contained in this Statement of
Additional Information for periods prior to October 15, 1993 relating to the
Portfolio (or a class thereof) is that of the Predecessor Portfolio (or the
corresponding class thereof). Shares of common stock of the Fund are redeemable
at their net asset value at the option of the shareholder or at the option of
the Fund in certain circumstances. For information concerning the methods of
redemption and the rights of share ownership, investors should consult 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 Liquid Assets Portfolio (together, the
"Portfolios"). The Portfolio consists of the following five classes of shares:
Cash Management Class, Institutional Class, Personal Investment Class, Private
Investment Class and the Resource Class. The Liquid Assets Portfolio consists
of four classes of shares. Each class of shares has different shareholder
qualifications and bears expenses differently. This Statement of Additional
Information relates to each Class of the Portfolio. The classes of the Liquid
Assets Portfolio are offered pursuant to separate prospectuses and separate
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.
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").
A-3
<PAGE>
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 Liquid Assets Portfolio (or class thereof) and 22 billion shares represent
an interest in the Portfolio (or class thereof). A share of a Portfolio (or
class) represents an equal proportionate interest in such Portfolio (or class)
with each other share of that Portfolio (or class) and is entitled to a
proportionate interest in the dividends and distributions from that Portfolio
(or class). Additional information concerning the rights of share ownership is
set forth in the Prospectus.
The assets received by the Fund for the issue or sale of shares of each of
the Portfolios and all income, earnings, profits, losses and proceeds
therefrom, subject only to the rights of creditors, are allocated to that
Portfolio, and constitute the underlying assets of that Portfolio. The
underlying assets of each of the Portfolios are segregated and are charged with
the expenses with respect to that Portfolio and with a share of the general
expenses of the Fund. While the expenses of the Fund are allocated to the
separate books of account of each of the Portfolios, certain expenses may be
legally chargeable against the assets of the entire Fund.
The Charter provides that no director or officer of the Fund shall be liable
to the Fund or its shareholders for money damages, except (i) to the extent
that it is proved that such director or officer actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received, or (ii) to the
extent that a judgment or other final adjudication adverse to such director or
officer is entered in a proceeding based on a finding in the proceeding that
such director's or officer's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. The foregoing shall not be construed to protect
or purport to protect any director or officer of the Fund against any liability
to the Fund or its shareholders to which such director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
office. The Fund shall indemnify and advance expenses to its currently acting
and its former directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Fund shall
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors may by By-Law, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents of the Fund to the
fullest extent permitted by the Maryland General Corporation Law.
As described in the Prospectus, the Fund will not normally hold annual
shareholders' meetings. At such time as less than a majority of the directors
have been elected by the shareholders, the directors then in office will call a
shareholders' meeting for the election of directors. Upon written request by
ten or more shareholders who have been such for at least six months and who
hold shares constituting 1% of the outstanding shares, 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.
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.
*CHARLES T. BAUER, Director and Chairman (78)
11 Greenway Plaza, Suite 100
Houston, TX 77046
Chairman of the Board of Directors, A I M Management Group Inc., A I M
Advisors, Inc., A I M Capital Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc., A I M Institutional Fund Services, Inc. and Fund
Management Company; and Vice Chairman and Director, AMVESCAP PLC.
- ------
* A director who is an "interested person" of the Fund and AIM as defined in
the 1940 Act.
A-4
<PAGE>
BRUCE L. CROCKETT, Director (53)
906 Frome Lane
McLean, VA 22102
Director, ACE Limited (insurance company). Formerly, Director, President and
Chief Executive Officer, COMSAT Corporation; and Chairman, Board of Governors
of INTELSAT (international communications company).
OWEN DALY II, Director (73)
Six Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly, Director,
CF & I Steel Corp., Monumental Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of Equitable Bancorporation.
JACK M. FIELDS, Director (45)
Texana Global, Inc.
8810 Will Clayton Parkway
Jetero Plaza, Suite E
Humble, TX 77338
Formerly, Member of the U.S. House of Representatives.
**CARL FRISCHLING, Director (60)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis & Frankel (law firm); and Director, ERD
Waste, Inc. (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, Director and President (51)
11 Greenway Plaza, Suite 100
Houston, TX 77046
Director, President and Chief Executive Officer, A I M Management Group
Inc.; Director and President, A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., 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, Director (73)
37 Pippins Way
Morristown, NJ 07960
Director, Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc., Flag
Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund, Inc.,
Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc.,
Alex. Brown Cash Reserve Fund, Inc. and North American Government Bond Fund,
Inc. (investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (55)
6363 Woodway, Suite 825
Houston, TX 77057
Attorney in private practice in Houston, Texas.
- ------
** 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.
A-5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
POSITIONS HELD DURING AT LEAST THE PAST
NAME, ADDRESS AND AGE WITH REGISTRANT 5 YEARS
--------------------- --------------- ------------------------
- --------------------------------------------------------------------------------
<C> <C> <S>
IAN W. ROBINSON, (74) Director Formerly, Executive Vice
183 River Drive President and Chief
Tequesta, FL 33469 Financial Officer, Bell
Atlantic Management
Services, Inc. (provider
of centralized
management services to
telephone companies);
Executive Vice
President, Bell Atlantic
Corporation (parent of
seven telephone
companies); and Vice
President and Chief
Financial Officer, Bell
Telephone Company of
Pennsylvania and Diamond
State Telephone Company.
- --------------------------------------------------------------------------------
LOUIS S. SKLAR, (58) Director Executive Vice
Transco Tower, 50th Floor President, Development
2800 Post Oak Blvd. and Operations, Hines
Houston, TX 77056 Interests Limited
Partnership (real estate
development).
- --------------------------------------------------------------------------------
***JOHN J. ARTHUR, (53) Senior Vice President Director, Senior Vice
11 Greenway Plaza, Suite 100 and Treasurer President and Treasurer,
Houston, TX 77046 A I M Advisors, Inc.;
and Vice President and
Treasurer, A I M
Management Group Inc.,
A I M Capital
Management, Inc., A I M
Distributors, Inc.,
A I M Fund Services,
Inc., A I M
Institutional Fund
Services, Inc. and Fund
Management Company.
- --------------------------------------------------------------------------------
GARY T. CRUM, (50) Senior Vice President Director and President,
11 Greenway Plaza, Suite 100 A I M Capital
Houston, TX 77046 Management, Inc.;
Director and Senior Vice
President, A I M
Management Group Inc.
and A I M Advisors,
Inc.; and Director,
A I M Distributors, Inc.
and AMVESCAP PLC.
- --------------------------------------------------------------------------------
***CAROL F. RELIHAN, (43) Senior Vice President Director, Senior Vice
11 Greenway Plaza, Suite 100 and Secretary President, General
Houston, TX 77046 Counsel and Secretary,
A I M Advisors, Inc.;
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
11 Greenway Plaza, Suite 100 and Assistant Treasurer Controller, A I M
Houston, TX 77046 Advisors, Inc.; and
Assistant Vice President
and Assistant Treasurer,
Fund Management Company.
- --------------------------------------------------------------------------------
MELVILLE B. COX, (54) Vice President Vice President and Chief
11 Greenway Plaza, Suite 100 Compliance Officer,
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.
- --------------------------------------------------------------------------------
KAREN DUNN KELLEY, (37) Vice President Senior Vice President,
11 Greenway Plaza, Suite 100 A I M Capital
Houston, TX 77046 Management, Inc. and
Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------
J. ABBOTT SPRAGUE, (42) Vice President Director and President,
11 Greenway Plaza, Suite 100 Fund Management Company;
Houston, TX 77046 Director and Senior Vice
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.
</TABLE>
- ------
*** Mr. Arthur and Ms. Relihan are married to each other.
A-6
<PAGE>
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.
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 of Directors and
such Committee.
All of the Fund's directors also serve as directors or trustees of some or
all of the other investment companies managed or advised by A I M Advisors,
Inc. ("AIM") or distributed and administered by FMC. Most of the Fund's
executive officers hold similar offices with some or all of such investment
companies.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. The directors of
the Fund who do not serve as officers of the Fund are compensated for their
services according to a fee schedule which recognizes the fact that they also
serve as directors or trustees of certain other regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "AIM
Funds"). Each such director receives a fee, allocated among the AIM Funds for
which he serves as a director or trustee, which consists of an annual retainer
component and a meeting fee component.
Set forth below is information regarding compensation paid or accrued for
each director of the Fund:
<TABLE>
<CAPTION>
RETIREMENT TOTAL
AGGREGATE BENEFITS COMPENSATION
COMPENSATION ACCRUED BY ALL FROM ALL
DIRECTOR FROM FUND(/1/) AIM FUNDS(/2/) AIM FUNDS(/3/)
-------- -------------- -------------- --------------
<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 Fund 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 total compensation 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 A-8 regarding fees earned by Mr. Frischling's law firm.
A-7
<PAGE>
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 an 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
trustee's retirement (including amounts deferred under a separate agreement
between the AIM Funds and the director for the number of such Director's years
of service (not in excess of 10 years of service) completed with respect to any
of the AIM Funds. Such benefit is payable to each eligible director in
quarterly installments. If an eligible director dies after attaining the normal
retirement date but before receipt of any benefits under the Plan commences,
the director's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% 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
<TABLE>
<CAPTION>
NUMBER OF
YEARS OF ANNUAL RETAINER
SERVICE WITH PAID BY ALL
THE AIM FUNDS AIM FUNDS
------------- ---------------
$80,000
-------
<S> <C>
10................................ $60,000
9................................ $54,000
8................................ $48,000
7................................ $42,000
6................................ $36,000
5................................ $30,000
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors elected to defer receipt of 100% of their
compensation payable by the Fund, and such amounts are placed into a deferral
account. Currently, the deferring directors may select various AIM Funds in
which all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring directors' deferral accounts will be paid in
cash, in generally in 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, $44,129 in directors' fees and
expenses were allocated to the Portfolio.
The Portfolio paid legal fees of $19,291 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
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").
A-8
<PAGE>
AIM was organized in 1976 and, together with its subsidiaries, advises or
manages 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. A I M 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, AIM receives a monthly fee which is
calculated by applying the following annual rates to the average daily net
assets of the Portfolio:
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C>
First $100 million.............................................. .20%
Over $100 million to $200 million............................... .15%
Over $200 million to $300 million............................... .10%
Over $300 million to $1.5 billion............................... .06%
Over $1.5 billion............................................... .05%
</TABLE>
The Advisory Agreement requires AIM to reduce its fee to the extent required
to satisfy any expense limitations imposed by the securities laws or
regulations thereunder of any state in which the Portfolio's shares are
qualified for sale.
The Advisory Agreement provides that, upon the request of the Board of
Directors, AIM may perform (or arrange for the performance of) certain
additional services on behalf of the Portfolio which are not required by the
Advisory Agreement. AIM may receive reimbursement or reasonable compensation
for such additional services, as may be agreed upon by AIM and the Board of
Directors, based upon a finding by the Board of Directors that the provision of
such services would be in the best interest of the Portfolio and its
shareholders. The Board of Directors has made such a finding and, accordingly,
the Fund has entered into a master administrative services agreement under
which AIM will provide the additional services described below under the
caption "Administrator."
For the fiscal years ended August 31, 1997, 1996 and 1995, AIM received fees
pursuant to the Advisory Agreement with respect to the Portfolio in the amounts
of $4,007,070, $3,007,431, and $2,567,762, 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 $851,042, $746,937 and $455,208,
respectively.
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 Advisory Agreement
on 60 days' notice without penalty. The Advisory Agreement terminates
automatically in the event of its "assignment," as defined in the 1940 Act.
A-9
<PAGE>
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 $114,738,
$126,321 and $154,963, respectively, for fund accounting services for the
Portfolio. For the period from August 31, 1994 through June 30, 1995, A I M
Institutional Fund Services, Inc. or its affiliates received shareholder
services fees from AIM with respect to the Portfolio in the amount of $95,254.
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
fiscal years ended August 31, 1997 and 1996, AIFS received transfer agency fees
with respect to the Portfolio in the amounts of $645,673 and $424,496,
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) 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 in the next sentence are prorated among all
classes of such Portfolios. Distribution and service fees, transfer agency fees
and shareholder recordkeeping fees which are directly attributable to a
specific class of shares are charged against the income available for
distribution as dividends to the holders of such shares.
A-10
<PAGE>
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 each class of the Portfolio 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 A I M Institutional Fund Services,
Inc. 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.
A-11
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
PRIME PORTFOLIO
To the best of the knowledge of the Fund, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of the Portfolio
as of December 1, 1997, and the percentage of the Portfolio's outstanding
shares owned by such shareholders as of such date are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED OF
OF RECORD OWNER RECORD ONLY(a)
---------------- --------------
CASH MANAGEMENT CLASS
---------------------
<S> <C>
THE BANK OF NEW YORK......................................... 40.75%(b)
One Wall Street, 2nd Floor
New York, NY 10286
OPPENHEIMER & CO............................................. 14.79%
Oppenheimer Tower
World Financial Tower
New York, NY 10281
FUND SERVICES ASSOCIATES..................................... 9.27%
11835 West Olympic Blvd
Los Angeles, CA 90064
<CAPTION>
INSTITUTIONAL CLASS
-------------------
<S> <C>
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
<CAPTION>
PERSONAL INVESTMENT CLASS
-------------------------
<S> <C>
THE BANK OF NEW YORK......................................... 70.46%(b)
4 Fisher Lane
White Plains, NY 10603
CULLEN/FROST DISCOUNT BROKERS................................ 26.15%(b)
P.O. Box 2358
San Antonio, TX 78299
</TABLE>
- ------
(a) The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
(b) 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.
A-12
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED OF
OF RECORD OWNER RECORD ONLY(a)
---------------- ----------------
PRIVATE INVESTMENT CLASS
------------------------
<S> <C>
HUNTINGTON CAPITAL CORP .................................... 38.17%(b)
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 OF OKLAHOMA CITY............... 12.30%
P.O. Box 25848
Oklahoma City, OK 73125-0000
FIRST TRUST................................................. 12.09%
Funds Control, Suite 0404
180 East Fifth St.
St. Paul, MN 55101
LAU & CO. c/o Frost......................................... 7.16%
P.O. Box 2479
San Antonio, TX 78298-2479
<CAPTION>
RESOURCE CLASS
--------------
<S> <C>
CORESTATES CAPITAL MARKETS.................................. 58.10%(b)
1345 Chestnut St.
Philadelphia, PA 19101
MELLON BANK................................................. 19.92%
P.O. Box 710
Pittsburgh, PA 15230-0710
</TABLE>
- ------
(a) The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
(b) 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.
A-13
<PAGE>
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:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED OF
OF RECORD OWNER RECORD ONLY(a)
---------------- ----------------
CASH MANAGEMENT CLASS
---------------------
<S> <C>
OPPENHEIMER & CO. ......................................... 42.04%(b)
World Financial Center
New York, NY 10281
MELLON BANK................................................ 25.65%(b)
P.O. Box 710
Pittsburgh, PA 15230
THE BANK OF NEW YORK....................................... 22.04%
One Wall Street, 2nd Floor
New York, NY 10286
<CAPTION>
INSTITUTIONAL CLASS
-------------------
<S> <C>
STATE STREET BANK AND TRUST COMPANY........................ 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
</TABLE>
- ------
(a) The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
(b) 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.
A-14
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED OF
OF RECORD OWNER RECORD ONLY(a)
---------------- ----------------
PRIVATE INVESTMENT CLASS
------------------------
<S> <C>
MELLON BANK............................................... 81.93%(b)
P.O. Box 710
Pittsburgh, PA 15230-0710
<CAPTION>
MSTC CASH RESERVES CLASS
------------------------
<S> <C>
MORGAN STANLEY TRUST COMPANY.............................. 100.00%(b)
1 Pierrepont Plaza
Brooklyn, NY 11201
</TABLE>
- ------
(a) The Fund has no knowledge as to whether all or any portion of the shares of
the class owned of record are also owned beneficially.
(b) 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.
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 the Portfolio are sold at net asset value. Shareholders may at any
time redeem all or a portion of their shares at net asset value. The investor's
price for purchases and redemptions will be the net asset value next determined
following the receipt of an order to purchase or a request to redeem shares.
The valuation of the portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Portfolio is permitted in accordance with applicable rules and regulations
of the SEC, including Rule 2a-7 under the 1940 Act, which require the Portfolio
to adhere to certain conditions. These rules require that the Portfolio
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 calendar days or
less and invest only in securities determined by the Board of Directors to be
"Eligible Securities" and to present minimal credit risk to the Portfolio.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Portfolio's price per
share at $1.00 as computed for the purpose of sales and redemptions. Such
procedures include review of the Portfolio's holdings by the Board of
Directors, at such intervals as they may deem appropriate, to determine whether
the net asset value calculated by using available market quotations or other
reputable sources for the Portfolio deviates from $1.00 per share and, if so,
whether such deviation may result in material dilution or is otherwise unfair
to existing holders of the Portfolio's shares. In the event the Board of
Directors determines that such a deviation exists, it will take such corrective
action as the Board of Directors deems necessary and appropriate, including the
sales of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; the withholding of
dividends; redemption of shares in kind; or the establishment of a net asset
value per share by using available market quotations.
A-15
<PAGE>
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 Officers" and "General Information
about the Fund -- Investment Advisor" for information as to the affiliation of
certain directors and officers of the Fund with FMC, AIM and AIM Management.
The Distribution Agreement provides that FMC has the exclusive right to
distribute the shares of each class of the Portfolio either directly or through
other broker-dealers. The Distribution Agreement also provides that FMC will
pay promotional expenses, including the incremental costs of printing
prospectuses and statements of additional information, annual reports and other
periodic reports for distribution to persons who are not shareholders of the
Portfolio and the costs of preparing and distributing any other supplemental
sales literature. FMC has not undertaken to sell any specified number of shares
of the Portfolio.
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 Private Investment Class, Personal
Investment Class, Resource Class and Cash Management Class of the Portfolio.
These services may include among other things: (i) answering customer inquiries
regarding the shares of the Class and the Portfolio; (ii) assisting customers
in changing dividend options, account designations and addresses; (iii)
performing sub-accounting; (iv) establishing and maintaining shareholder
accounts and records; (v) processing purchase and redemption transactions; (vi)
automatic investment in shares of the Class of customer cash accounting
balances; (vii) providing periodic statements showing a customer's account
balance and integrating such statements with those of other transactions and
balances in the customer's other accounts serviced by such firm; (viii)
arranging for bank wires; and (ix) such other services as the Fund may request
on behalf of the shares of the Class, to the extent such firms are permitted to
engage in such services by applicable statute, rule or regulation. The Plan may
only be used for the purposes specified above and as stated in the Plan.
Expenses may not be carried over from year to year.
For the fiscal year ended August 31, 1997, FMC received compensation pursuant
to the Plan in the amount of $684,755, or an amount equal to 0.30% of the
average net daily assets of the Private Investment Class, $480,510 or an amount
equal to 0.50% of the average net daily assets of the Personal Investment
Class, $195,561, or an amount equal to 0.16% of the average net daily assets of
the Resource Class, and $421,577, or an amount equal to 0.08% of the average
net daily assets of the Cash Management Class. With respect to the Private
Investment Class, $590,479 of such amount (or an amount equal to 0.26% of the
average daily net assets of the class) was paid to dealers and financial
institutions and $94,276 (or an amount equal to 0.04% of the average daily net
assets of the class) was retained by FMC. With respect to the Personal
Investment Class, $375,714 of such amount (or an amount equal to 0.39% of the
average daily net assets of the class) was paid to dealers and financial
institutions and $104,796 (or an amount equal to 0.11% of the average daily net
assets) was retained by FMC. With respect to the Resource Class, $195,561 of
such amount (or an amount equal to 0.16% of the average daily net assets of the
class) was paid to dealers and financial institutions and $0 (or an amount
equal to 0% of the average daily net assets of the class) was retained by FMC.
With respect to the Cash Management Class, $421,034 of such amount (or an
amount equal to 0.08% of the average daily net assets of the class) was paid to
dealers and financial institutions and $543 (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.
A-16
<PAGE>
BANKING REGULATIONS
The Glass-Steagall Act and other applicable laws or regulations, among other
things, generally prohibit federally chartered or supervised banks from
engaging in the business of underwriting, selling or distributing securities,
but permit banks to make shares of mutual funds available to their customers
and to perform administrative and shareholder servicing functions. However,
judicial or administrative decisions or interpretations of such laws, as well
as changes in either federal or state statutes or regulations relating to the
permissible activities of banks or their subsidiaries or affiliates, could
prevent a bank from continuing to perform all or a part of its servicing
activities. If a bank were prohibited from so acting, shareholder clients of
such bank would be permitted to remain shareholders of the Fund and alternate
means for continuing the servicing of such shareholders would be sought. In
such event, changes in the operation of the Fund might occur and shareholders
serviced by such bank might no longer be able to avail themselves of any
automatic investment or other services then being provided by such bank. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and certain banks and financial institutions may be required to register as
dealers pursuant to state law.
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 Fund may also furnish a quotation of effective yield for
the Class that assumes the reinvestment of dividends for a 365-day year and a
return for the entire year equal to the average annualized yield for the
period, which will be computed by compounding the unannualized current yield
for the period by adding 1 to the unannualized current yield, raising the sum
to a power equal to 365 divided by the number of days in the period, and then
subtracting 1 from the result.
For the seven-day period ended August 31, 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 5.56% and 5.71%, for the Institutional Class, were 5.48% and
5.63%, for the Cash Management Class, were 5.06% and 5.18%, for the Personal
Investment Class, were 5.26% and 5.39%, for the Private Investment Class and
were 5.40% and 5.54%, for the Resource 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 Fund may compare the performance of a class or the performance of
securities in which the Portfolio may invest to:
. IBC/Donoghue's Money Fund Averages, which are average yields of various
types of money market funds that include the effect of compounding
distributions;
. other mutual funds, especially those with similar investment objectives.
These comparisons may be based on data published by IBC/Donoghue's Money
Fund Report--Registered Trademark-- of Holliston, Massachusetts or by Lipper
Analytical Services, Inc., a widely recognized independent service located in
Summit, New Jersey, which monitors the performance of mutual funds;
. yields on other money market securities or averages of other money
market securities as reported by the Federal Reserve Bulletin, by TeleRate,
a financial information network, or by Bloomberg, a financial information
firm; and
. other fixed-income investments such as Certificates of Deposit ("CDs").
The principal value and interest rate of CDs and money market securities are
fixed at the time of purchase whereas 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 Fund may reference the growth and variety of money market mutual funds
and AIM's innovation and participation in the industry.
A-17
<PAGE>
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
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 $1.5 billion as of the date of their most recently
published financial statements. Accordingly, an investment in the Portfolio may
involve risks that are different in some respects from those incurred by an
investment company which invests only in debt obligations of U.S. domestic
issuers. Such risks include future political and economic developments, the
possible seizure or nationalization of foreign deposits, the possible
imposition of United Kingdom withholding taxes on interest income payable on
Eurodollar CDs or Eurodollar time deposits, and the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on
Eurodollar CDs and Eurodollar time deposits.
Rule 2a-7 under the 1940 Act provides that a money market fund shall not
invest more than 5% of its total assets in securities issued by a single
issuer, provided that such a fund may invest more than 5% of its total assets
in the First Tier securities of a single issuer for a period of up to 3
business days after the purchase thereof if the money market fund is a
diversified investment company, provided further, that the fund may not make
more than one investment in accordance with the foregoing proviso at any time.
Under Rule 2a-7, for purposes of determining the percentage of a fund's total
assets that are invested in securities of an issuer, a repurchase agreement
shall be deemed to be an acquisition of the underlying securities, provided
that the obligation of the seller to repurchase the securities from the money
market fund is fully collateralized. To be fully collateralized, the collateral
must, among other things, consist entirely of U.S. Government securities or
securities that, at the time the repurchase agreement is entered into, are
rated in the highest rating category by Requisite NRSROs.
The Portfolio may also lend its portfolio securities in amounts up to 33 1/3%
of its total assets to financial institutions in accordance with the investment
restrictions of the Portfolio. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering
the securities loaned or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will be made only
to borrowers deemed by AIM to be of good standing and only when, in AIM's
judgment, the income to be earned from the loans justifies the attendant risks.
ELIGIBLE SECURITIES
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 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.
A-18
<PAGE>
FITCH--Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. The short-term rating places greater emphasis than a long-
term rating on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner. Fitch short-term ratings are as follows:
F-1
Exceptionally Strong Credit Quality. Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
F-2
Very Strong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1."
PLUS(+) AND MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category.
LOC
The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
BOND RATINGS
The following is a description of the factors underlying the bond ratings of
Moody's, S&P and Fitch.
MOODY'S--The following are the two highest bond ratings of Moody's.
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
S&P--The following are the two highest bond ratings of S&P.
AAA
Bonds rated AAA are the highest grade obligations. They possess the ultimate
degree of protection as to principal and interest. Market values of bonds rated
AAA move with interest rates, and hence provide the maximum safety on all
counts.
AA
Bonds rated AA also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in small degree. Here, too, prices move
with the long-term money market.
FITCH--Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
A-19
<PAGE>
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1."
INVESTMENT RESTRICTIONS
As a matter of fundamental policy which may not be changed without the
approval of the holders 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 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;
A-20
<PAGE>
(4) mortgage, pledge or hypothecate any assets except to secure permitted
borrowings and except for reverse repurchase agreements and then only in an
amount up to 33 1/3% of the value of its total assets at the time of
borrowing or entering into a reverse repurchase agreement;
(5) make loans of money or securities other than (a) through the purchase
of debt securities in accordance with the Portfolio's investment program,
(b) by entering into repurchase agreements and (c) by lending portfolio
securities to the extent permitted by law or regulation;
(6) underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such securities
in accordance with the Portfolio's investment program may be deemed an
underwriting;
(7) invest in real estate, except that the Portfolio may purchase and sell
securities secured by real estate or interests therein or issued by issuers
which invest in real estate or interests therein;
(8) purchase or sell commodities or commodity futures contracts, purchase
securities on margin, make short sales or invest in puts or calls; 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 markets. For example,
market conditions frequently result in similar securities trading at different
prices. AIM may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with AIM's judgment as to desirable portfolio maturity structure or
if such disposition is believed to be advisable due to other circumstances or
conditions. The investment policy of the Portfolio requires that investments
mature within 60 days or less. Thus, there is likely to be relatively high
portfolio turnover, but since brokerage commissions are not normally paid on
money market instruments, the high rate of portfolio turnover is not expected
to have a material effect on the net income or expenses of the Portfolio.
AIM's primary consideration in effecting a security transaction is to obtain
the best net price and the most favorable execution of the order. To the extent
that the execution and prices offered by more than one broker-dealer are
comparable, AIM may, in its discretion, effect transactions with broker-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.
A-21
<PAGE>
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 broker-dealers may
be useful to AIM with clients other than the Portfolio. Similarly, any research
services received by AIM through placement of portfolio transactions of other
clients may be of value to AIM in fulfilling its obligations to the Portfolio.
AIM is of the opinion that the material received is beneficial in supplementing
AIM's research and analysis; and therefore, it may benefit the Portfolio by
improving the quality of AIM's investment advice. The advisory fees paid by the
Portfolio are not reduced because AIM receives such services.
From time to time, the Fund may sell a security to, or purchase a security
from, an AIM Fund or another investment account advised by AIM or A I M Capital
Management, Inc. ("AIM Capital"), when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment
objective(s) and policies of the investment accounts advised by AIM or AIM
Capital. Procedures pursuant to Rule 17a-7 under the 1940 Act regarding
transactions between investment accounts advised by AIM or AIM Capital have
been adopted by the Board 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 and is
considered at or about the same time, transactions in such securities will be
allocated in good faith among such accounts, in accordance with applicable laws
and regulations, in order to obtain the best net price and most favorable
execution. The allocation and combination of simultaneous securities purchases
on behalf of the Portfolio will be made in the same way that such purchases are
allocated among or combined with those of other AIM accounts. Simultaneous
transactions could adversely affect the ability of the Portfolio to obtain or
dispose of the full amount of a security which it seeks to purchase or sell.
Under the 1940 Act, certain persons affiliated with the Fund are prohibited
from dealing with the Portfolios 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.
A-22
<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.
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.
A-23
<PAGE>
PORTFOLIO DISTRIBUTIONS
The Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for federal
income tax purposes, but they will not qualify for the 70% dividends received
deduction for corporations.
Distributions by the Portfolio will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio. Shareholders receiving a distribution in
the form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date.
Ordinarily, shareholders are required to take distributions by the Portfolio
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year.
The Portfolio will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of the ordinary income dividends and capital gain dividends
and, in certain cases, the proceeds of redemption of shares, paid to any
shareholder (1) who has provided either an incorrect tax identification number
or no number at all, (2) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend
income properly, or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or that it is a corporation or other "exempt
recipient."
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 gain 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 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. trade
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 rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Portfolio may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax unless such shareholders furnish
the Portfolio with proper notification of their foreign status.
A-24
<PAGE>
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 investment in the Fund.
A-25
<PAGE>
FINANCIAL STATEMENTS
FS
<PAGE>
SCHEDULE OF INVESTMENTS
August 31, 1997
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER - 78.34%(a)
BASIC INDUSTRY - 3.14%
CHEMICALS - 0.29%
Bayer Corp.
5.50% 09/09/97 $ 20,000 $ 19,975,578
- ----------------------------------------------------------------------
METAL MINING - 0.58%
U.S. Borax, Inc.
5.51% 10/24/97 20,000 19,837,761
- ----------------------------------------------------------------------
5.54% 10/28/97 20,000 19,824,567
- ----------------------------------------------------------------------
39,662,328
- ----------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 2.27%
Weyerhaeuser Co.
5.50% 09/25/97 33,000 32,879,000
- ----------------------------------------------------------------------
Weyerhaeuser Real Estate Co.
5.48% 09/04/97 18,000 17,991,780
- ----------------------------------------------------------------------
5.50% 09/19/97 15,000 14,958,750
- ----------------------------------------------------------------------
5.52% 09/22/97 50,000 49,839,000
- ----------------------------------------------------------------------
5.50% 10/01/97 20,000 19,908,333
- ----------------------------------------------------------------------
5.50% 10/02/97 20,000 19,905,278
- ----------------------------------------------------------------------
155,482,141
- ----------------------------------------------------------------------
Total Basic Industry 215,120,047
- ----------------------------------------------------------------------
BUSINESS SERVICES - 1.09%
COMPUTER SOFTWARE & SERVICES - 1.09%
First Data Corp.
5.50% 09/03/97 30,000 29,990,833
- ----------------------------------------------------------------------
5.51% 09/23/97 25,000 24,915,820
- ----------------------------------------------------------------------
5.50% 10/21/97 20,000 19,847,222
- ----------------------------------------------------------------------
Total Business Services 74,753,875
- ----------------------------------------------------------------------
CAPITAL GOODS - 4.39%
COMPUTERS & OFFICE EQUIPMENT - 0.59%
Electronic Data Systems Corp.
5.50% 09/08/97 40,000 39,957,222
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.25%
Siemens Capital Corp.
5.47% 09/30/97 15,000 14,933,904
- ----------------------------------------------------------------------
Sony Capital Corp.
5.52% 09/12/97 50,000 49,915,743
- ----------------------------------------------------------------------
5.50% 10/03/97 30,000 29,853,333
- ----------------------------------------------------------------------
5.52% 10/07/97 30,000 29,834,400
- ----------------------------------------------------------------------
5.50% 10/09/97 30,000 29,825,833
- ----------------------------------------------------------------------
154,363,213
- ----------------------------------------------------------------------
</TABLE>
FS-1
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
CAPITAL GOODS - (continued)
MACHINERY - 1.55%
Deere (John) Capital Corp.
5.49% 09/24/97 $ 25,000 $ 24,912,313
- ------------------------------------------------------------------
Dover Corp.
5.50% 09/23/97 23,000 22,922,694
- ------------------------------------------------------------------
5.55% 10/07/97 33,000 32,816,850
- ------------------------------------------------------------------
5.55% 10/10/97 26,000 25,843,675
- ------------------------------------------------------------------
106,495,532
- ------------------------------------------------------------------
Total Capital Goods 300,815,967
- ------------------------------------------------------------------
CONSUMER DURABLES - 10.12%
AUTOMOBILE - 10.12%
Daimler-Benz North America Corp.
5.52% 09/19/97 27,000 26,925,480
- ------------------------------------------------------------------
5.48% 09/23/97 35,000 34,882,789
- ------------------------------------------------------------------
5.50% 10/03/97 25,000 24,877,778
- ------------------------------------------------------------------
5.52% 10/08/97 15,000 14,914,900
- ------------------------------------------------------------------
5.50% 10/14/97 50,000 49,671,528
- ------------------------------------------------------------------
5.51% 10/20/97 25,000 24,812,507
- ------------------------------------------------------------------
5.54% 10/22/97 30,000 29,764,550
- ------------------------------------------------------------------
Ford Motor Credit Co.
5.49% 09/26/97 50,000 49,809,375
- ------------------------------------------------------------------
5.49% 09/30/97 100,000 99,557,750
- ------------------------------------------------------------------
5.49% 10/06/97 50,000 49,733,125
- ------------------------------------------------------------------
Hertz Corp.
5.50% 09/12/97 50,000 49,915,972
- ------------------------------------------------------------------
5.50% 09/17/97 35,000 34,914,444
- ------------------------------------------------------------------
5.50% 10/03/97 35,000 34,828,889
- ------------------------------------------------------------------
Toyota Motor Credit Corp.
5.49% 09/15/97 25,000 24,946,625
- ------------------------------------------------------------------
5.50% 09/19/97 50,000 49,862,500
- ------------------------------------------------------------------
5.48% 09/22/97 20,000 19,936,066
- ------------------------------------------------------------------
5.48% 09/26/97 35,000 34,866,806
- ------------------------------------------------------------------
5.49% 10/03/97 20,000 19,902,400
- ------------------------------------------------------------------
5.50% 10/10/97 20,000 19,880,833
- ------------------------------------------------------------------
Total Consumer Durables 694,004,317
- ------------------------------------------------------------------
</TABLE>
FS-2
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
CONSUMER NONDURABLES - 6.26%
BEVERAGES - 1.85%
Brown-Forman Corp.
5.50% 09/16/97 $ 11,100 $ 11,074,562
- ---------------------------------------------------------------------------
PepsiCo, Inc
5.47% 09/11/97 49,000 48,925,547
- ---------------------------------------------------------------------------
5.47% 09/17/97 50,000 49,878,444
- ---------------------------------------------------------------------------
5.52% 10/03/97 17,000 16,916,587
- ---------------------------------------------------------------------------
126,795,140
- ---------------------------------------------------------------------------
DRUGS - 2.01%
Abbott Laboratories
5.46% 09/18/97 25,000 24,935,542
- ---------------------------------------------------------------------------
Eli Lilly & Co.
5.48% 09/08/97 30,000 29,968,033
- ---------------------------------------------------------------------------
Pfizer Inc.
5.49% 09/09/97 43,000 42,947,540
- ---------------------------------------------------------------------------
5.48% 09/29/97 40,000 39,829,511
- ---------------------------------------------------------------------------
137,680,626
- ---------------------------------------------------------------------------
FOOD PROCESSING - 1.33%
Campbell Soup Co.
5.49% 09/24/97 22,000 21,922,835
- ---------------------------------------------------------------------------
Heinz (H.J.) Co.
5.48% 09/16/97 15,000 14,965,750
- ---------------------------------------------------------------------------
5.50% 09/22/97 29,200 29,106,317
- ---------------------------------------------------------------------------
5.47% 09/29/97 26,000 25,889,384
- ---------------------------------------------------------------------------
91,884,286
- ---------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.30%
Kimberly-Clark Corp.
5.48% 09/22/97 20,500 20,434,468
- ---------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 0.44%
Gannett Co., Inc.
5.50% 09/05/97 30,000 29,981,667
- ---------------------------------------------------------------------------
PUBLISHING (EXCLUDING NEWSPAPERS) - 0.33%
Donnelley (R.R.) & Sons Company
5.50% 09/03/97 22,500 22,493,125
- ---------------------------------------------------------------------------
Total Consumer Nondurables 429,269,312
- ---------------------------------------------------------------------------
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
ENERGY - 1.65%
OIL & GAS - 1.65%
ARCO Coal Australia Inc.
5.50% 09/17/97 $ 24,856 $ 24,795,241
- ------------------------------------------------------------------------
Exxon Imperial U.S., Inc.
5.47% 09/11/97 38,325 38,266,767
- ------------------------------------------------------------------------
Koch Industries, Inc.
5.46% 09/10/97 50,000 49,931,750
- ------------------------------------------------------------------------
Total Energy 112,993,758
- ------------------------------------------------------------------------
FINANCIAL - 47.23%
ASSET-BACKED SECURITIES - 24.21%
Asset Securitization Cooperative Corp.
5.51% 09/16/97 30,000 29,931,125
- ------------------------------------------------------------------------
5.53% 09/23/97 60,000 59,797,234
- ------------------------------------------------------------------------
5.52% 09/24/97 30,000 29,894,200
- ------------------------------------------------------------------------
5.53% 09/26/97 40,000 39,846,389
- ------------------------------------------------------------------------
5.49% 09/29/97 40,000 39,829,200
- ------------------------------------------------------------------------
Ciesco, L.P.
5.52% 09/10/97 20,000 19,972,400
- ------------------------------------------------------------------------
Clipper Receivables Corp.
5.52% 09/30/97 50,000 49,777,667
- ------------------------------------------------------------------------
Corporate Asset Funding Co., Inc.
5.52% 09/10/97 50,000 49,931,000
- ------------------------------------------------------------------------
5.52% 09/25/97 50,000 49,816,000
- ------------------------------------------------------------------------
5.54% 10/07/97 50,000 49,723,000
- ------------------------------------------------------------------------
Delaware Funding Corp.
5.53% 09/11/97 17,080 17,053,763
- ------------------------------------------------------------------------
5.52% 09/12/97 40,363 40,294,921
- ------------------------------------------------------------------------
5.50% 09/22/97 35,887 35,771,863
- ------------------------------------------------------------------------
Eiger Capital Corp.
5.53% 09/03/97 25,089 25,081,292
- ------------------------------------------------------------------------
Falcon Asset Securitization Corp.
5.52% 09/18/97 30,094 30,015,555
- ------------------------------------------------------------------------
5.53% 10/21/97 40,000 39,692,778
- ------------------------------------------------------------------------
Matterhorn Capital Corp.
5.52% 09/23/97 25,000 24,915,667
- ------------------------------------------------------------------------
5.53% 09/23/97 25,530 25,443,723
- ------------------------------------------------------------------------
Monte Rosa Capital Corp.
5.55% 09/02/97 14,952 14,949,695
- ------------------------------------------------------------------------
5.52% 09/04/97 10,000 9,995,400
- ------------------------------------------------------------------------
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
FINANCIAL - (continued)
ASSET-BACKED SECURITIES - (CONTINUED)
Monte Rosa Capital Corp. - (continued)
5.55% 09/04/97 $ 25,000 $ 24,988,438
- ------------------------------------------------------------------------
5.54% 09/05/97 22,071 22,057,414
- ------------------------------------------------------------------------
5.51% 09/16/97 30,000 29,931,125
- ------------------------------------------------------------------------
5.51% 09/19/97 40,000 39,889,800
- ------------------------------------------------------------------------
5.52% 09/24/97 30,000 29,894,200
- ------------------------------------------------------------------------
5.54% 09/25/97 33,500 33,376,273
- ------------------------------------------------------------------------
5.52% 10/08/97 33,000 32,812,780
- ------------------------------------------------------------------------
5.54% 10/09/97 34,138 33,938,369
- ------------------------------------------------------------------------
5.56% 10/10/97 40,000 39,759,067
- ------------------------------------------------------------------------
Preferred Receivables Funding Corp.
5.52% 09/10/97 30,850 30,807,427
- ------------------------------------------------------------------------
5.53% 09/10/97 31,625 31,581,278
- ------------------------------------------------------------------------
5.55% 10/08/97 50,000 49,714,792
- ------------------------------------------------------------------------
5.54% 10/15/97 25,200 25,029,368
- ------------------------------------------------------------------------
Receivables Capital Corp.
5.53% 09/05/97 19,483 19,471,030
- ------------------------------------------------------------------------
5.54% 09/05/97 30,000 29,981,533
- ------------------------------------------------------------------------
5.50% 09/09/97 25,000 24,969,444
- ------------------------------------------------------------------------
5.52% 09/11/97 30,133 30,086,796
- ------------------------------------------------------------------------
5.53% 09/12/97 50,000 49,915,514
- ------------------------------------------------------------------------
5.53% 09/15/97 9,735 9,714,064
- ------------------------------------------------------------------------
5.52% 09/16/97 30,000 29,931,000
- ------------------------------------------------------------------------
5.54% 09/22/97 25,000 24,919,208
- ------------------------------------------------------------------------
5.51% 10/16/97 45,706 45,391,200
- ------------------------------------------------------------------------
5.53% 10/23/97 30,210 29,968,689
- ------------------------------------------------------------------------
Sheffield Receivables Corp.
5.54% 09/17/97 23,400 23,342,384
- ------------------------------------------------------------------------
5.52% 09/18/97 27,900 27,827,274
- ------------------------------------------------------------------------
5.54% 09/18/97 44,400 44,283,844
- ------------------------------------------------------------------------
5.50% 09/29/97 19,750 19,665,514
- ------------------------------------------------------------------------
5.52% 09/29/97 27,200 27,083,221
- ------------------------------------------------------------------------
5.52% 09/30/97 50,000 49,777,667
- ------------------------------------------------------------------------
5.54% 10/08/97 40,000 39,772,244
- ------------------------------------------------------------------------
5.54% 10/14/97 28,000 27,814,718
- ------------------------------------------------------------------------
1,659,428,547
- ------------------------------------------------------------------------
</TABLE>
FS-5
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
FINANCIAL--(continued)
BANKING - 0.73%
Bank of America
5.50% 09/15/97 $ 50,000 $ 49,893,056
- ------------------------------------------------------------------------------
BROKERAGE/INVESTMENTS - 9.46%
Bear, Stearns & Co. Inc.
5.51% 09/09/97 50,000 49,938,778
- ------------------------------------------------------------------------------
5.53% 09/29/97 30,000 29,870,967
- ------------------------------------------------------------------------------
5.52% 10/27/97 25,000 24,785,333
- ------------------------------------------------------------------------------
CS First Boston, Inc.
5.52% 09/09/97 20,000 19,975,467
- ------------------------------------------------------------------------------
5.52% 09/11/97 40,000 39,938,667
- ------------------------------------------------------------------------------
Goldman, Sachs & Co.
5.54% 09/05/97 50,000 49,969,222
- ------------------------------------------------------------------------------
Morgan (J.P.) Securities, Inc.
5.50% 09/15/97 30,000 29,935,833
- ------------------------------------------------------------------------------
5.50% 09/29/97 50,000 49,786,111
- ------------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co.
5.50% 09/02/97 50,000 49,992,361
- ------------------------------------------------------------------------------
Smith Barney Inc.
5.50% 09/03/97 50,000 49,984,722
- ------------------------------------------------------------------------------
5.49% 09/04/97 50,000 49,977,125
- ------------------------------------------------------------------------------
5.49% 09/05/97 30,000 29,981,700
- ------------------------------------------------------------------------------
5.51% 09/15/97 25,000 24,946,431
- ------------------------------------------------------------------------------
5.51% 09/16/97 50,000 49,885,208
- ------------------------------------------------------------------------------
5.52% 09/17/97 50,000 49,877,334
- ------------------------------------------------------------------------------
5.52% 10/02/97 20,000 19,904,933
- ------------------------------------------------------------------------------
5.53% 10/09/97 30,000 29,824,883
- ------------------------------------------------------------------------------
648,575,075
- ------------------------------------------------------------------------------
BUSINESS CREDIT - 0.92%
CIT Group Holdings, Inc.
5.50% 09/25/97 50,000 49,816,667
- ------------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp.
5.48% 09/19/97 13,000 12,964,380
- ------------------------------------------------------------------------------
62,781,047
- ------------------------------------------------------------------------------
INSURANCE - 1.61%
Metlife Funding, Inc.
5.47% 09/16/97 35,287 35,206,575
- ------------------------------------------------------------------------------
5.51% 10/03/97 25,596 25,470,636
- ------------------------------------------------------------------------------
Prudential Funding Corp.
5.49% 09/02/97 50,000 49,992,375
- ------------------------------------------------------------------------------
110,669,586
- ------------------------------------------------------------------------------
</TABLE>
FS-6
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
FINANCIAL--(continued)
LEASING COMPANIES - 1.54%
International Lease Finance Corp.
5.49% 09/08/97 $ 73,000 $ 72,922,073
- -------------------------------------------------------------------
5.50% 10/06/97 32,500 32,326,215
- -------------------------------------------------------------------
105,248,288
- -------------------------------------------------------------------
PERSONAL CREDIT - 5.86%
American Express Credit Corp.
5.48% 09/18/97 50,000 49,870,611
- -------------------------------------------------------------------
5.48% 09/30/97 75,000 74,668,917
- -------------------------------------------------------------------
5.52% 10/27/97 40,000 39,656,533
- -------------------------------------------------------------------
Associates Corp. of North America
5.62% 09/02/97 40,000 39,993,756
- -------------------------------------------------------------------
5.52% 09/08/97 25,000 24,973,167
- -------------------------------------------------------------------
5.50% 09/24/97 50,000 49,824,305
- -------------------------------------------------------------------
AVCO Financial Services, Inc.
5.51% 09/24/97 35,000 34,876,790
- -------------------------------------------------------------------
5.49% 09/26/97 45,000 44,828,438
- -------------------------------------------------------------------
5.51% 10/22/97 43,000 42,664,349
- -------------------------------------------------------------------
401,356,866
- -------------------------------------------------------------------
MISCELLANEOUS - 0.36%
USAA Capital Corp.
5.48% 09/04/97 25,000 24,988,583
- -------------------------------------------------------------------
MULTIPLE INDUSTRY - 2.54%
General Electric Capital Corp.
5.625% 09/02/97 25,000 24,996,094
- -------------------------------------------------------------------
5.52% 09/04/97 50,000 49,977,000
- -------------------------------------------------------------------
5.50% 10/03/97 50,000 49,755,555
- -------------------------------------------------------------------
5.52% 10/27/97 50,000 49,570,667
- -------------------------------------------------------------------
174,299,316
- -------------------------------------------------------------------
Total Financial 3,237,240,364
- -------------------------------------------------------------------
RETAIL - 1.16%
DEPARTMENT STORES - 1.16%
Penney (J.C.) Funding Corp.
5.48% 09/12/97 30,000 29,949,767
- -------------------------------------------------------------------
5.50% 09/26/97 50,000 49,809,028
- -------------------------------------------------------------------
Total Retail 79,758,795
- -------------------------------------------------------------------
</TABLE>
FS-7
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
UTILITIES - 2.57%
TELEPHONE - 2.57%
GTE Funding Inc.
5.52% 09/02/97 $ 24,403 $ 24,399,258
- ----------------------------------------------------------------------------
5.52% 09/03/97 20,000 19,993,867
- ----------------------------------------------------------------------------
5.52% 09/04/97 13,975 13,968,571
- ----------------------------------------------------------------------------
SBC Communications Capital Corp.
5.47% 09/10/97 30,000 29,958,975
- ----------------------------------------------------------------------------
5.48% 09/15/97 28,000 27,940,329
- ----------------------------------------------------------------------------
5.49% 09/19/97 25,000 24,931,375
- ----------------------------------------------------------------------------
5.49% 09/25/97 35,000 34,871,900
- ----------------------------------------------------------------------------
Total Utilities 176,064,275
- ----------------------------------------------------------------------------
OTHER - 0.73%
DIVERSIFIED - 0.73%
Cargill Inc.
5.47% 09/23/97 25,000 24,916,430
- ----------------------------------------------------------------------------
5.48% 10/17/97 25,000 24,824,945
- ----------------------------------------------------------------------------
Total Other 49,741,375
- ----------------------------------------------------------------------------
Total Commercial Paper 5,369,762,085
- ----------------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 2.56%
Goldman Sachs Group, L.P.
5.625%(b) 10/20/97 71,000 71,000,000
- ----------------------------------------------------------------------------
Merrill Lynch Mortgage Capital Inc.
5.9875%(c) 08/17/98 102,600 102,600,000
- ----------------------------------------------------------------------------
Morgan (J.P.) Securities, Inc.
5.7875%(d) 10/06/97 2,000 2,000,000
- ----------------------------------------------------------------------------
Total Master Note Agreements 175,600,000
- ----------------------------------------------------------------------------
Total Investments (excluding Repurchase
Agreements) 5,545,362,085
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 19.56%(e)
Bear, Stearns & Co. Inc.
5.625%(f) -- 60,000 60,000,000
- ----------------------------------------------------------------------------
CIBC Wood Gundy Securities Corp.
5.62%(g) 09/02/97 60,000 60,000,000
- ----------------------------------------------------------------------------
Dean Witter Reynolds Inc.
5.52%(h) 09/02/97 100,000 100,000,000
- ----------------------------------------------------------------------------
Deutche Bank Securities Corp.
5.64%(i) -- 60,000 60,000,000
- ----------------------------------------------------------------------------
Dresdner Securities (USA), Inc.
5.62%(j) 09/02/97 60,000 60,000,000
- ----------------------------------------------------------------------------
Goldman, Sachs & Co.
5.56%(k) 09/02/97 226,100 226,100,475
- ----------------------------------------------------------------------------
5.61%(l) 09/02/97 204,394 204,394,082
- ----------------------------------------------------------------------------
</TABLE>
FS-8
<PAGE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
REPURCHASE AGREEEMENTS - (continued)
Greenwich Capital Markets, Inc.
5.62%(m) 09/02/97 $160,000 $ 160,000,000
- ----------------------------------------------------------------------------
HSBC Securities, Inc.
5.64%(n) 09/02/97 85,000 85,000,000
- ----------------------------------------------------------------------------
SBC Capital Markets, Inc.
5.62%(o) 09/02/97 85,000 85,000,000
- ----------------------------------------------------------------------------
Smith Barney Inc.
5.61%(p) -- 40,000 40,000,000
- ----------------------------------------------------------------------------
5.61%(q) 09/02/97 200,000 200,000,000
- ----------------------------------------------------------------------------
Total Repurchase Agreements 1,340,494,557
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.46% 6,885,856,642(r)
- ----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.46%) (31,146,008)
- ----------------------------------------------------------------------------
NET ASSETS - 100.00% $6,854,710,634
============================================================================
</TABLE>
(a) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Portfolio.
(b) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon seven business days' prior written notice.
Interest rates on master notes are redetermined periodically. 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 two business days' notice. 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 seven days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
08/31/97.
(e) 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.
(f) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates 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.
(g) 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.
(h) Repurchase agreement entered into 08/29/97 with a maturing value of
$100,061,333. Collateralized by $145,600,000 U.S. Government obligations,
0% to 8.55% due 09/04/97 to 06/15/44 with an aggregate market value at
08/31/97 of $102,000,401.
(i) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates 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.
(j) 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.
(k) Joint repurchase agreement entered into 08/29/97 with a maturing value of
$750,463,333. Collateralized by $698,212,000 U.S. Government obligations,
4.75% to 14.00% due 02/28/98 to 08/15/25 with an aggregate market value at
08/31/97 of $765,753,716.
(l) 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.
FS-9
<PAGE>
(m) 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.
(n) 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.
(o) 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.
(p) Open joint repurchase agreement. Either party may terminate the agreement
upon demand. Interest rates are redetermined daily. Collateralized by
$124,224,000 U.S. Government obligations, 0% to 8.28% due 03/12/99 to
01/10/25 with an aggregate market value at 08/31/97 of $102,000,492.
(q) Repurchase agreement entered into 08/29/97 with a maturing value of
$200,124,667. Collateralized by $370,666,000 U.S. Government obligations,
0% to 10.70% due 11/24/97 to 07/15/43 with an aggregate market value at
08/31/97 of $204,000,310.
(r) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value
(amortized cost) $5,545,362,085
- ------------------------------------------------------------------------
Repurchase agreements 1,340,494,557
- ------------------------------------------------------------------------
Interest receivable 1,248,628
- ------------------------------------------------------------------------
Investment for deferred compensation plan 79,009
- ------------------------------------------------------------------------
Other assets 961,282
- ------------------------------------------------------------------------
Total assets 6,888,145,561
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends 32,767,074
- ------------------------------------------------------------------------
Deferred compensation 79,009
- ------------------------------------------------------------------------
Accrued advisory fees 333,910
- ------------------------------------------------------------------------
Accrued distribution fees 189,175
- ------------------------------------------------------------------------
Accrued transfer agent fees 53,683
- ------------------------------------------------------------------------
Accrued operating expenses 12,076
- ------------------------------------------------------------------------
Total liabilities 33,434,927
- ------------------------------------------------------------------------
NET ASSETS $6,854,710,634
========================================================================
NET ASSETS:
Institutional Class $5,593,043,187
========================================================================
Private Investment Class $ 235,446,842
========================================================================
Personal Investment Class $ 97,215,227
========================================================================
Cash Management Class $ 767,304,427
========================================================================
Resource Class $ 161,700,951
========================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Institutional Class 5,593,048,358
========================================================================
Private Investment Class 235,447,059
========================================================================
Personal Investment Class 97,215,317
========================================================================
Cash Management Class 767,305,136
========================================================================
Resource Class 161,701,102
========================================================================
NET ASSET VALUE PER SHARE:
Net asset value, offering and redemption price per share $1.00
========================================================================
</TABLE>
See Notes to Financial Statements.
FS-11
<PAGE>
STATEMENT OF OPERATIONS
For the year ended August 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $393,373,373
- -------------------------------------------------------------------
EXPENSES:
Advisory fees 4,007,070
- -------------------------------------------------------------------
Custodian fees 283,138
- -------------------------------------------------------------------
Administrative services fees 114,738
- -------------------------------------------------------------------
Directors' fees and expenses 44,129
- -------------------------------------------------------------------
Transfer agent fees 645,673
- -------------------------------------------------------------------
Filing fees 548,666
- -------------------------------------------------------------------
Distribution fees (Note 2) 2,633,445
- -------------------------------------------------------------------
Other 482,093
- -------------------------------------------------------------------
Total expenses 8,758,952
- -------------------------------------------------------------------
Less: Fee waivers and expense reimbursements (855,442)
- -------------------------------------------------------------------
Net expenses 7,903,510
- -------------------------------------------------------------------
Net investment income 385,469,863
- -------------------------------------------------------------------
Net realized gain on sales of investments 2,155
- -------------------------------------------------------------------
Net increase in net assets resulting from operations $385,472,018
===================================================================
</TABLE>
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 $ 385,469,863 $ 281,830,371
- ----------------------------------------------------------------------------
Net realized gain on sales of investments 2,155 3,560
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 385,472,018 281,833,931
- ----------------------------------------------------------------------------
Distributions to shareholders from net
investment income:
Institutional Class (334,619,312) (246,851,973)
- ----------------------------------------------------------------------------
Private Investment Class (11,638,406) (9,968,819)
- ----------------------------------------------------------------------------
Personal Investment Class (4,703,034) (5,550,980)
- ----------------------------------------------------------------------------
Cash Management Class (28,088,448) (16,317,285)
- ----------------------------------------------------------------------------
Resource Class (6,420,663) (3,141,314)
- ----------------------------------------------------------------------------
Capital stock transactions-net 702,760,124 1,950,864,683
- ----------------------------------------------------------------------------
Net increase in net assets 702,762,279 1,950,868,243
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 6,151,948,355 4,201,080,112
- ----------------------------------------------------------------------------
End of period $6,854,710,634 $6,151,948,355
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $6,854,716,972 $6,151,956,848
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) on
sales of investments (6,338) (8,493)
- ----------------------------------------------------------------------------
$6,854,710,634 $6,151,948,355
============================================================================
</TABLE>
See Notes to Financial Statements.
FS-12
<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 Prime Portfolio (the
"Portfolio"), with assets, liabilities and operations of each portfolio
accounted for separately. The Portfolio consists of five different classes of
shares: the Institutional Class, the Private Investment Class, the Personal
Investment Class, the Cash Management Class and the Resource 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 the 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 sixty days or less. The securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is accrued daily. Dividends to shareholders are
declared daily and are paid on the first business day of the following
month.
C. Federal Income Taxes - The Portfolio intends to comply with the requirements
of the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Expenses - 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 calculated by applying a
monthly rate, based upon the following annual rates, to the average daily net
assets of the Portfolio:
<TABLE>
<CAPTION>
Net Assets RATE
- ----------------------------------------
<S> <C>
First $100 million 0.20%
- ----------------------------------------
Over $100 million to $200 million 0.15%
- ----------------------------------------
Over $200 million to $300 million 0.10%
- ----------------------------------------
Over $300 million to $1.5 billion 0.06%
- ----------------------------------------
Over $1.5 billion 0.05%
- ----------------------------------------
</TABLE>
During the year ended August 31, 1997, AIM voluntarily reimbursed expenses of
$4,400.
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 $114,738 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 $645,673 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.
FS-13
<PAGE>
Under the terms of a master distribution agreement between Fund Management
Company ("FMC") and the Fund, FMC acts as the exclusive distributor of the
Fund's shares. The Fund has adopted a master distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Private
Investment Class, the Personal Investment Class, the Cash Management Class and
the Resource Class of the Portfolio. The Plan provides that the Private
Investment Class, the Personal Investment Class, the Cash Management Class and
the Resource Class may pay FMC up to a maximum annual rate of 0.50%, 0.75%,
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 (a) 0.25% of the average daily net assets
of each of the Private Investment Class and the Personal Investment Class, (b)
0.10% of the average daily net assets of the Cash Management Class and (c)
0.20% of the average daily net assets of the Resource Class, to selected banks,
broker-dealers and other financial institutions who offer continuing personal
shareholder services to their customers who purchase and own shares of the
Private Investment Class, the Personal Investment Class, the Cash Management
Class or the Resource Class. Any amounts not paid as a service fee under such
Plan would constitute an asset-based sales charge. The plan also imposes a cap
on the total amount of sales charges, including asset-based sales charges, that
may be paid by the Portfolio with respect to each class. During the year ended
August 31, 1997, the Private Investment Class, the Personal Investment Class,
the Cash Management Class and the Resource Class paid $684,755, $480,510,
$421,577 and $195,561, respectively, as compensation under the Plan. FMC waived
fees of $851,042 for the same period. Certain officers and directors of the
Fund are officers of AIM, FMC, AIFS and AFS.
During the year ended August 31, 1997, the Portfolio paid legal fees of
$19,291 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>
1997 1996
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Institutional Class 77,017,818,307 $77,017,818,307 47,809,368,885 $47,809,368,885
- ------------------------------------------------------------------------------------------
Private Investment
Class 1,686,727,915 1,686,727,915 1,712,695,255 1,712,695,255
- ------------------------------------------------------------------------------------------
Personal Investment
Class 1,399,754,929 1,399,754,929 976,763,335 976,763,335
- ------------------------------------------------------------------------------------------
Cash Management Class 6,007,746,062 6,007,746,062 2,572,268,560 2,572,268,560
- ------------------------------------------------------------------------------------------
Resource Class* 2,959,856,289 2,959,856,289 1,501,999,293 1,501,999,293
- ------------------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Institutional Class 20,826,765 20,826,765 8,231,944 8,231,944
- ------------------------------------------------------------------------------------------
Private Investment
Class 6,892,975 6,892,975 6,300,025 6,300,025
- ------------------------------------------------------------------------------------------
Personal Investment
Class 4,636,763 4,636,763 5,517,924 5,517,924
- ------------------------------------------------------------------------------------------
Cash Management Class 19,021,334 19,021,334 12,713,851 12,713,851
- ------------------------------------------------------------------------------------------
Resource Class* 3,857,837 3,857,837 892,705 892,705
- ------------------------------------------------------------------------------------------
Reacquired:
Institutional Class (76,710,204,729) (76,710,204,729) (46,305,697,661) (46,305,697,661)
- ------------------------------------------------------------------------------------------
Private Investment
Class (1,667,619,183) (1,667,619,183) (1,663,828,112) (1,663,828,112)
- ------------------------------------------------------------------------------------------
Personal Investment
Class (1,419,820,390) (1,419,820,390) (969,266,851) (969,266,851)
- ------------------------------------------------------------------------------------------
Cash Management Class (5,766,709,619) (5,766,709,619) (2,272,214,579) (2,272,214,579)
- ------------------------------------------------------------------------------------------
Resource Class* (2,860,025,131) (2,860,025,131) (1,444,879,891) (1,444,879,891)
- ------------------------------------------------------------------------------------------
Net increase 702,760,124 $ 702,760,124 1,950,864,683 $ 1,950,864,683
===========================================================================================
</TABLE>
* The Resource Class commenced operations on January 16, 1996.
FS-14
<PAGE>
NOTE 5-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding of the Cash Management Class during each of years in the three-year
period ended August 31, 1996 and the period June 30, 1994 (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 0.05 0.06 0.01
- ---------------------------------- -------- -------- -------- -----
Less distributions:
Dividends from net investment
income (0.05) (0.05) (0.06) (0.01)
- ---------------------------------- -------- -------- -------- -----
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $1.00
================================== ======== ======== ======== =====
Total return 5.45% 5.55% 5.71% 4.34%(a)
================================== ======== ======== ======== =====
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $767,304 $507,247 $194,479 $372
================================== ======== ======== ======== =====
Ratio of expenses to average net
assets(b) 0.17%(c) 0.17% 0.17% 0.14%(a)
================================== ======== ======== ======== =====
Ratio of net investment income to
average net assets(d) 5.33%(c) 5.38% 5.69% 4.26%(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
0.19%, 0.19%, 0.32%, and 0.67% (annualized) for the periods 1997-1994,
respectively.
(c) Ratios are based on average net assets of $526,970,789.
(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 5.31%, 5.36%, 5.54%, and 3.73% (annualized) for the
periods 1997-1994, 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 the
Prime 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 June 30, 1994 (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
Prime 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 June 30, 1994 (date
operations commenced) through August 31, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
October 3, 1997
FS-16
<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 five-
year period ended August 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ---------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income 0.05 0.05 0.06 0.04 0.03
- ----------------------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income (0.05) (0.05) (0.06) (0.04) (0.03)
- ----------------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================= ========== ========== ========== ========== ==========
Total return 5.54% 5.64% 5.80% 3.64% 3.20%
======================= ========== ========== ========== ========== ==========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $5,593,043 $5,264,601 $3,752,693 $4,080,753 $4,349,945
======================= ========== ========== ========== ========== ==========
Ratio of expenses to
average net assets 0.09%(a) 0.09% 0.09% 0.08% 0.07%
======================= ========== ========== ========== ========== ==========
Ratio of net investment
income to
average net assets 5.40%(a) 5.48% 5.64% 3.58% 3.15%
======================= ========== ========== ========== ========== ==========
</TABLE>
(a) Ratios are based on average net assets of $6,200,589,926.
FS-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of the
Prime Portfolio (a series portfolio of Short-Term Investments Co.), including
the schedule of investments, as of August 31, 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 five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
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
Prime 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 five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
October 3, 1997
FS-18
<PAGE>
Shown below are the financial highlights for a share of capital stock
outstanding of the Personal Investment Class during each of the years in the
five-year period ended August 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- --------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- ------------------------------- ------- --------- ------- ------ -----
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.03 0.03
- ------------------------------- ------- --------- ------- ------ -----
Less distributions:
Dividends from net investment
income (0.05) (0.05) (0.05) (0.03) (0.03)
- ------------------------------- ------- --------- ------- ------ -----
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- ------------------------------- ------- --------- ------- ------ -----
Total return 5.01% 5.11% 5.27% 3.12% 2.74%
- ------------------------------- ------- --------- ------- ------ -----
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $97,215 $112,645 $99,630 $3,065 $904
- ------------------------------- ------- --------- ------- ------ -----
Ratio of expenses to average
net assets(a) 0.59%(b) 0.59% 0.59% 0.58% 0.52%
- ------------------------------- ------- --------- ------- ------ -----
Ratio of net investment income
to average net assets(c) 4.89%(b) 4.99% 5.23% 3.34% 2.71%
- ------------------------------- ------- --------- ------- ------ -----
</TABLE>
(a) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.84%, 0.89%, 0.86%, 2.39%, and 2.33%, for the periods 1997-1993,
respectively.
(b) Ratios are based on average net assets of $96,102,068.
(c) After fee waivers and/or expense reimbursement. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 4.64%, 4.69%, 4.96%, 1.53%, and 0.90%, for the periods
1997-1993, respectively.
FS-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of the
Prime Portfolio (a series portfolio of Short-Term Investments Co.), including
the schedule of investments, as of August 31, 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 five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
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
Prime 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 five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
October 3, 1997
FS-20
<PAGE>
Shown below are the financial highlights for a share of capital stock
outstanding of the Private Investment Class during each of the years in the
four-year period ended August 31, 1997 and the period July 8, 1993 (date
operations commenced) through August 31, 1993.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.03 0.03
- ----------------------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.05) (0.05) (0.05) (0.03) (0.03)
- ----------------------- -------- -------- -------- ------- -------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================= ======== ======== ======== ======= =======
Total return 5.21% 5.32% 5.48% 3.33% 3.24%(a)
======================= ======== ======== ======== ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $235,447 $209,443 $154,278 $30,834 $17,857
======================= ======== ======== ======== ======= =======
Ratio of expenses to
average net assets(b) 0.39%(c) 0.39% 0.39% 0.38% 0.37%(a)
======================= ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets(d) 5.10%(c) 5.20% 5.50% 3.32% 2.85%(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
0.59%, 0.59%, 0.60%, 1.38% and 0.57% (annualized) for the periods 1997-
1993, respectively.
(c) Ratios are annualized and based on average net assets of $228,251,467.
(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 4.90%, 5.00%, 5.29%, 2.32% and 2.65% (annualized) for
the periods 1997-1993, respectively.
FS-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of the
Prime Portfolio (a series portfolio of Short-Term Investments Co.), including
the schedule of investments, as of August 31, 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 four-year period then ended and the
period July 8, 1993 (date operations commenced) through August 31, 1993. 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
Prime 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 four-year period then ended and the period July 8, 1993 (date operations
commenced) through August 31, 1993, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
October 3, 1997
FS-22
<PAGE>
Shown below are the financial highlights for a share of capital stock
outstanding of the Resource Class during the year ended August 31, 1997 and the
period January 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 5.36% 5.23%(a)
============================================= ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $161,701 $58,012
============================================= ======== =======
Ratio of expenses to average net assets(b) 0.25%(c) 0.25%(a)
============================================= ======== =======
Ratio of net investment income to average net
assets(d) 5.25%(c) 5.18%(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 reimbursement were
0.29% and 0.29% (annualized), for the periods 1997-1996, respectively.
(c) Ratios are based on average net assets of $122,225,567.
(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 5.21% and 5.14% (annualized), for the periods 1997-
1996, respectively.
FS-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders
Short-Term Investments Co.:
We have audited the accompanying statement of assets and liabilities of the
Prime Portfolio (a series portfolio of Short-Term Investments Co.), including
the schedule of investments, as of August 31, 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 January 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
Prime 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 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-24
<PAGE>
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
SHORT-TERM INVESTMENTS CO. PROSPECTUS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 December 17, 1997
(800) 659-1005
SHORT-TERM
INVESTMENT ADVISOR INVESTMENTS CO.
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 100 ------------
Houston, Texas 77046-1173
(713) 626-1919 PRIME PORTFOLIO
DISTRIBUTOR ------------
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 100 INSTITUTIONAL CLASS
Houston, Texas 77046-1173
(800) 659-1005 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............................ 11
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................ 12
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.............. 14
</TABLE>
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
