<PAGE> 1
[COVER PHOTO APPEARS HERE]
AIM LIMITED
MATURITY
TREASURY SHARES
[AIM LOGO APPEARS HERE] ANNUAL REPORT JULY 31, 1996
<PAGE> 2
AIM LIMITED MATURITY TREASURY SHARES
For shareholders who seek high monthly income free from state taxes while
maintaining relative stability of principal by investing only in U.S. Treasury
Notes with maturities of three years or less.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Limited Maturity Treasury Shares' performance figures are historical
and reflect reinvestment of all distributions and changes in net asset
value. Unless otherwise indicated, the Fund's performance is computed
without a sales charge.
o When sales charges are included in performance figures, those figures
reflect the maximum 1.00% sales charge.
o During the fiscal year ended July 31, 1996, the Fund paid distributions of
$0.549 per share.
o The 30-day yield is calculated on the basis of a formula defined by the
SEC. The formula is based on the portfolio's potential earnings from
dividends, interest, yield-to-maturity or yield-to-call of the bonds in the
portfolio, net of all expenses and expressed on an annualized basis.
o The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
o The Fund's portfolio composition is subject to change and there is no
assurance the Fund will continue to hold any particular security.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Fund had an average quality rating of AAAf, the highest such rating
assigned by Standard & Poor's Corporation (S&P), a widely known
credit-rating agency. S&P's ratings are historical and are based on an
annual analysis of the Fund's credit quality, composition, and management.
Funds are rated from highest quality (AAA) to lowest credit quality (CCC).
o Government securities, such as U.S. Treasury bills, notes, and bonds, offer
a high degree of safety and are guaranteed as to the timely payment of
principal and interest if held to maturity. Fund shares are not insured and
their value and yield will vary with market conditions.
o The Lehman Brothers 1-3 Year U.S. Government Bond Index is an unmanaged
index composed of short-term U.S. agency and Treasury issues (maturities of
one to three years).
o The Consumer Price Index is a measure of change in consumer prices as
determined by the U.S. Bureau of Labor Statistics.
o Unless otherwise indicated, comparative index results include reinvested
dividends and do not reflect sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
During periods of market volatility, I am reminded of a
story. When asked what the market was going to do, J.P.
[PHOTO OF Morgan reportedly replied, "It will fluctuate."
CHARLES T. BAUER, Fixed-income investors can certainly agree with that
Chairman of statement: Bond markets underwent major shifts in momentum
the Board of at least twice in just the first six months of 1996 as
the Fund, investors worried first about the possibility of recession
APPEARS HERE] and then about rising inflation.
Those of you who are long-time investors, and those who
are brand-new shareholders in The AIM Family of
Funds--Registered Trademark--, should recognize that periods of falling prices
in both the stock and bond markets are inevitable. Indeed, we can learn
important lessons about investing in periods of market uncertainty.
In our experience, we have observed that the best action to take is to stay
focused--not on the market, but on your own long-term goals. The market can
change from day to day. Those who try to "time" the market, over time, tend to
be less successful than those who continue to follow a disciplined investment
strategy.
Short-term volatility in financial markets may tempt some investors to
liquidate investments regardless of their personal financial objectives.
Remember that time is the best medicine for uncertain markets. The market's
performance in recent months has been driven by concerns about the possibility
of an overheated economy and rising inflation. However, the latest economic
data suggest conditions that prompted 1995's strong market performance should
continue: corporate earnings are healthy and economic growth is moderate,
without significant inflation.
You may cushion the effects of changing markets and reduce your risk
exposure in any one type of security by diversification--spreading your assets
across several kinds of investments. Prudent investors maintain a balanced
portfolio of stock and bond investments, with due consideration for their
personal financial objectives, risk tolerance, and investment time horizon.
There is one constant you can count on, regardless of changing
markets--AIM's commitment to you, our shareholders. At AIM, we take our
responsibility to you very seriously in managing a well-conceived and
significantly diversified menu of mutual funds. AIM investment management teams
provide a blend of skills, education, experience, and maturity that produces a
balanced, thoughtful approach to decision-making and quality investment
products. Consistent performance, coupled with outstanding customer service and
a highly professional staff, has helped AIM build relationships with 3 million
shareholders over the past 20 years.
We are pleased to send you this report on AIM Limited Maturity Treasury
Shares. As always, we are ready to respond to your questions and comments.
Please call one of our representatives at 800-959-4246 if we may be of service.
For automated account information 24 hours a day, call the AIM Investor Line
toll-free at 800-246-5463.
Respectfully submitted,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-----------------------------
GROWTH IN ASSETS
-----------------------------
AIM LIMITED MATURITY TREASURY
SHARES. IN MILLIONS.
7/31/95 7/31/95
$274 $359
-----------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
MORNINGSTAR RATINGS
FUNDS IN
FIXED-INCOME
PERIOD RATINGS CATEGORY
1 Year **** 1,484
3 Years **** 898
5 Years **** 481
10 Years N/A N/A
Overall **** N/A
Morningstar proprietary ratings reflect risk-adjusted performance through
7/31/96. The ratings are subject to change every month. Ratings are calculated
from the funds' three-, five-, and 10-year returns (with fee adjustments) in
excess of 90-day Treasury bill returns, and a risk factor that reflects fund
performance below 90-day T-bill returns. The one-year rating is calculated
using the same methodology, but is not a component of the overall rating. Ten
percent of the funds in a rating category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and 10% receive
one star.
- --------------------------------------------------------------------------------
The Managers' Overview
FUND'S DISCIPLINE SERVES IT WELL IN VOLATILE BOND MARKET
A roundtable discussion with the Fund management team for AIM Limited Maturity
Treasury Shares about the fiscal year ended July 31, 1996.
- --------------------------------------------------------------------------------
Q: HOW DID AIM LIMITED MATURITY TREASURY SHARES PERFORM DURING THE FISCAL YEAR
COVERED BY THIS REPORT?
A: The Fund continued to provide steady monthly income combined with share
price stability.
As of July 31, the Fund's 30-day SEC yield was 5.49%. During the fiscal
year, Fund share prices fluctuated within a very narrow range, a low of
$9.94 and a high of $10.14. That was impressive stability, especially since
fixed-income markets have undergone major shifts in momentum during the
fiscal year.
Q: PLEASE DESCRIBE THOSE MAJOR SHIFTS IN MARKET MOMENTUM.
A: The first occurred late in 1995. After a robust showing of 3.5% annualized
growth during the third quarter of 1995, the economy slowed to a mere 0.5%
rate of growth during the year's final quarter. There were various signals
of weakness: Consumer debt was growing, wages were stagnant, and some major
corporations were announcing extensive layoffs.
On this evidence of a potentially significant downturn, the Federal
Reserve Board twice moved to lower interest rates to boost the economy. On
December 18, 1995, it reduced the federal funds rate from 5.75% to 5.50%.
On January 30, it reduced the rate again, to 5.25%.
Q: HOW DID THE DIRECTION OF THE ECONOMY CHANGE?
A: During the second half of the Fund's fiscal year, the economy picked up
even more than market participants originally anticipated. Markets focused
on evidence indicating shortages in the labor market, especially after
reports of surprisingly strong job growth during February and March.
Economic growth bounced back to an annualized rate of 2.0% the first
quarter of 1996.
Amid growing concern about possible wage inflation, the credit markets
raised interest rates in anticipation of a Fed tightening. The yield to
maturity of a 2-year U.S. Treasury note, which had reached a low of 4.79%
in January of 1996, rose to a high of 6.43% in July as the Fund's fiscal
year was drawing to a close.
Q: DID YOU MANAGE THE FUND DIFFERENTLY IN RESPONSE TO THESE CHANGES IN THE
ECONOMIC ENVIRONMENT?
A: No. This Fund practices a clearly defined discipline. After analyzing the
risk and return characteristics, adjusted for market price
- --------------------------------------------------------------------------------
YIELD CURVE--U.S. TREASURY ISSUES
AS OF 7/31/96
- --------------------------------------------------------------------------------
MATURITY YIELD
3 Months 5.301%
6 Months 5.457
1 Year 5.826
2 Years 6.216
3 Years 6.358
5 Years 6.562
10 Years 6.794
30 Years 6.973
Source: Bloomberg
The yield curve graphically represents interest rates relative to maturity
(the length of time until repayment is scheduled) in three maturity ranges:
short-term (less than two years); intermediate term (two to 10 years); and
long-term (longer than 10 years). In most markets, the one- to two-year
maturity range usually exhibits the steepest slope. Historically, this area of
the curve has provided 85% to 95% of the yield of the entire Treasury curve,
and research by A I M Capital Management, Inc. concluded that the most
favorable risk/return trade-off for investors in U.S. Treasuries is generally
found in this portion of the curve. That research was the basis of the strict
investment discipline employed by AIM Limited Maturity Treasury Shares.
- --------------------------------------------------------------------------------
2
<PAGE> 5
volatility, of various maturities of U.S. Treasury securities for a 15-year
period, AIM has concluded that the most favorable risk/return trade-off
generally occurs in the one- to two-year maturity range.
Usually the area of steepest slope in the yield curve, the two-year
area of the yield curve historically has produced 85% to 95% of the yield
of the 30-year Treasury bond. It did so during the fiscal year covered by
this report. The Fund maintains a laddered maturity structure within this
one- to two-year range on the yield curve.
Q: WHAT IS A LADDERED MATURITY STRUCTURE?
A: The Fund buys two-year U.S. Treasury notes, holds them until they have one
year to maturity, then sells these notes and reinvests the proceeds in the
two-year range. Each month, approximately 8% of the Fund's portfolio
reaches the point of having one year to maturity and is turned over in this
way. Thus, reinvestments from the sale of securities in the portfolio take
place on a regular schedule, and the Fund consistently remains invested
along the whole one- to two-year stretch of the yield curve.
Q: WHY LADDER THE PORTFOLIO IN THIS WAY?
A: It acts as a cushion against volatility by keeping the duration of the
portfolio relatively short and constant. Duration is a much-used gauge of
bond and bond fund volatility expressed in years. The laddered structure of
the AIM Limited Maturity Treasury Shares portfolio results in a duration of
1.4 years, which means the Fund's net asset value (NAV) should decline 1.4%
if interest rates rise 1%, and its NAV should rise 1.4% if interest rates
decline 1%.
This carefully managed short Fund duration explains the Fund's
stability. Since inception in 1987, the Fund never has had a negative total
return for a fiscal year, and the rolling 12-month net asset value of a
Fund share never has deviated more than 1.71%.
Q: WHAT IS YOUR MARKET OUTLOOK FOR THE NEXT FEW MONTHS?
A: Evidence indicates that the U.S. economy is growing reasonably and that
inflationary pressures remain modest. At its July meeting, and again in
August after the close of the fiscal year covered by this report, the Fed
elected to leave monetary policy unchanged. In its report prepared for the
August meeting, the Fed reported some softness in retail sales but
continued expansion in the manufacturing sector.
The only disturbing comments in the Fed's review concerned the labor
market, where shortages were appearing for both skilled and entry-level
positions. Should this cause wage inflation, the credit markets would raise
interest rates again. However, the Fed expects economic growth to slow
during the second half of the year, and that would lessen the likelihood
that monetary policy would be tightened.
The Fund will continue to maintain its laddered maturity structure,
offering investors steady monthly income and relative net asset value
stability.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
IN THOUSANDS. 12/15/87 - 7/31/96
PAST PERFORMANCE CANNOT GUARANTEE COMPARABLE FUTURE RESULTS.
<TABLE>
<CAPTION>
AIM LIMITED MATURITY LEHMAN BROTHERS
TREASURY SHARES COST OF 1-3 YEAR
YEARS (INCLUDING SALES CHARGE) LIVING INDEX U.S. GOVERNMENT INDEX
<S> <C> <C> <C>
12/15/87 $ 9,900 $10,000 $10,000
7/88 10,283 10,269 10,370
7/89 11,239 10,780 11,451
7/90 12,101 11,300 12,374
7/91 13,185 11,802 13,595
7/92 14,436 12,175 15,045
7/93 15,106 12,513 15,885
7/94 15,443 12,860 16,235
7/95 16,424 13,215 17,391
7/31/96 17,242 13,579 18,343
</TABLE>
Source: Towers Data System HYPO--Registered Trademark--for Cost of Living
Index; Lipper Analytical Services, Inc. for Lehman Brothers Index
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
For periods ended 7/31/96. Including
sales charges.
Inception (12/15/87) 6.52%
5 Years 5.30%
1 Year 3.93%*
*4.98% excluding sales charges.
For periods ended 6/30/96 (most
recent quarter end)
Inception (12/15/87) 6.54%
5 Years 5.40%
1 Year 4.01%**
**5.06% excluding sales charges.
- -------------------------------------------------------------------------------
3
<PAGE> 6
-------------------
Some investments
may benefit
from a
market trend
when others do not.
-------------------
ASSET ALLOCATION HELPS
YOU COPE WITH CHANGING MARKETS
Every mutual fund investor would like to invest in a market that only goes
up--a tide that floats all ships. The truth is, markets also decline. But
market changes do not affect all investments the same way. Some investments may
benefit from a market trend when others do not.
Market changes are not the only factors an investor must manage. There are
a number of important considerations with every investment including investment
risk, and investment risk takes many forms:
o MARKET RISK. The prices of some investments will fluctuate according to
changes in the market.
o INTEREST RATE RISK. The value of some investments, such as fixed-income
securities, will rise and fall as interest rates change.
o REINVESTMENT RISK. When interest rates fall, investors face the possibility
that investment income cannot be reinvested at higher rates previously
available.
o INFLATION RISK. Inflation can cause the value of some investments to erode
as the cost of living increases.
o CURRENCY RATE RISK. Investments valued in U.S. dollars will rise and fall
according to the dollar's value against other world currencies.
To manage these changing conditions, investors have learned to diversify
their assets across a wide variety of investments. For most investors, mutual
funds offer convenient and affordable methods to diversify their assets.
For as little as $500, an investor has access to a portfolio of hundreds of
professionally selected securities.
When you invest in more than one fund, you increase the level of
diversification. You also gain another important benefit. Since mutual funds
are managed according to specific investment objectives, such as growth or
income, you can invest in mutual funds with different investment objectives to
create a personalized investment plan which suits your unique financial
objectives. This investment strategy is called asset allocation.
Mutual fund investors tend to seek growth, or current income, or some
combination of both. Generally, investors who choose to assume more investment
risk get the potential for a higher return. With asset allocation, you can
fine-tune your investment plan to be more conservative, or more aggressive,
depending on your personal financial goals and risk tolerance.
Your financial consultant can assist you in developing an asset allocation
strategy and selecting the appropriate investments to help you meet your
long-term investment goals.
4
<PAGE> 7
Financials
SCHEDULE OF INVESTMENTS
July 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
MATURITY (000s) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-98.82%
6.00% 08/31/97 $ 41,475 $ 41,494,908
- ------------------------------------------------------------------------------------------------
5.75% 09/30/97 41,360 41,262,804
- ------------------------------------------------------------------------------------------------
5.625% 10/31/97 42,175 41,988,165
- ------------------------------------------------------------------------------------------------
5.375% 11/30/97 41,585 41,230,280
- ------------------------------------------------------------------------------------------------
5.25% 12/31/97 41,850 41,405,553
- ------------------------------------------------------------------------------------------------
5.00% 01/31/98 41,610 40,966,293
- ------------------------------------------------------------------------------------------------
5.125% 02/28/98 41,525 40,905,032
- ------------------------------------------------------------------------------------------------
6.125% 03/31/98 41,825 41,822,909
- ------------------------------------------------------------------------------------------------
5.875% 04/30/98 41,400 41,211,216
- ------------------------------------------------------------------------------------------------
6.00% 05/31/98 41,500 41,370,935
- ------------------------------------------------------------------------------------------------
6.25% 06/30/98 41,330 41,381,249
- ------------------------------------------------------------------------------------------------
6.25% 07/31/98 41,500 41,539,010
- ------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 496,578,354
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-98.82% 496,578,354
- ------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.18% 5,937,451
- ------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $502,515,805
================================================================================================
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 8
Financials
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $498,859,636) $ 496,578,354
- -----------------------------------------------------------------------------------------
Cash 287
- -----------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 2,978,883
- -----------------------------------------------------------------------------------------
Interest 5,958,137
- -----------------------------------------------------------------------------------------
Investment in deferred compensation plan 14,009
- -----------------------------------------------------------------------------------------
Other assets 135,367
- -----------------------------------------------------------------------------------------
Total assets 505,665,037
- -----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,889,916
- -----------------------------------------------------------------------------------------
Dividends 1,015,880
- -----------------------------------------------------------------------------------------
Deferred compensation 14,009
- -----------------------------------------------------------------------------------------
Accrued advisory fees 83,900
- -----------------------------------------------------------------------------------------
Accrued distribution fees 45,194
- -----------------------------------------------------------------------------------------
Accrued transfer agent fees 33,086
- -----------------------------------------------------------------------------------------
Accrued operating expenses 67,247
- -----------------------------------------------------------------------------------------
Total liabilities 3,149,232
- -----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING $ 502,515,805
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL AIM
SHARES SHARES FUND
<S> <C> <C> <C>
NET ASSETS: $143,467,539 $359,048,266 $502,515,805
=========================================================================================
Shares outstanding, $0.01 par value
per share 14,388,919 36,010,350 50,399,269
=========================================================================================
NET ASSET VALUE AND REDEMPTION PRICE
PER SHARE $ 9.97
=========================================================================================
OFFERING PRICE PER SHARE:
(Net asset value of $9.97
divided by 99.00%) $ 10.07
=========================================================================================
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 9
Financials
STATEMENT OF OPERATIONS
For the year ended July 31, 1996
<TABLE>
<CAPTION>
INSTITUTIONAL AIM
SHARES SHARES FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,467,903 $ 19,481,627 $ 27,949,530
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 283,049 650,158 933,207
- ---------------------------------------------------------------------------------------------------
Administrative service fees 18,681 42,176 60,857
- ---------------------------------------------------------------------------------------------------
Custodian fees 6,923 29,591 36,514
- ---------------------------------------------------------------------------------------------------
Transfer agent fees 10,350 255,502 265,852
- ---------------------------------------------------------------------------------------------------
Trustees' fees and expenses 2,802 6,544 9,346
- ---------------------------------------------------------------------------------------------------
Distribution fees -- 488,557 488,557
- ---------------------------------------------------------------------------------------------------
Other 61,928 275,898 337,826
- ---------------------------------------------------------------------------------------------------
Total expenses 383,733 1,748,426 2,132,159
- ---------------------------------------------------------------------------------------------------
Net investment income $ 8,084,170 $ 17,733,201 25,817,371
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on sales of investment securities 3,022,827
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (6,292,910)
- ---------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities (3,270,083)
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 22,547,288
===================================================================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
Financials
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 25,817,371 $ 22,353,697
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 3,022,827 (7,239,070)
- --------------------------------------------------------------------------------------------
Net unrealized (depreciation) appreciation of investment
securities (6,292,910) 9,384,912
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,547,288 24,499,539
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Institutional Shares (8,084,170) (7,065,914)
- --------------------------------------------------------------------------------------------
AIM Shares (17,733,201) (15,287,783)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Institutional Shares 14,818,211 (6,229,532)
- --------------------------------------------------------------------------------------------
AIM Shares 86,957,303 (56,819,839)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 98,505,431 (60,903,529)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 404,010,374 464,913,903
- --------------------------------------------------------------------------------------------
End of period $502,515,805 $404,010,374
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $511,800,420 $410,024,906
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (7,003,333) (10,026,160)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (2,281,282) 4,011,628
- --------------------------------------------------------------------------------------------
$502,515,805 $404,010,374
============================================================================================
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 11
Financials
NOTES TO FINANCIAL STATEMENTS
July 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Investment Securities Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company. The Trust is organized as a Delaware business
trust consisting of one portfolio, the Limited Maturity Treasury Portfolio (the
"Fund"). The investment objective of the Fund is to seek liquidity with minimum
fluctuation in principal value and, consistent with this investment objective,
the highest total return achievable. The Fund currently offers two different
classes of shares: the AIM Limited Maturity Treasury Shares (the "AIM Shares")
and the Institutional Shares. Matters affecting each class are voted on
exclusively by such shareholders.
The following is a summary of the significant accounting policies followed by
the Fund 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 these financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A. Security Valuations--Debt obligations that are issued or guaranteed by the
U.S. Treasury are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as yield, type of issue, coupon rate and maturity date.
Securities for which market prices are not provided by the pricing service
are valued at the mean between last bid and asked prices based upon quotes
furnished by independent sources. Securities for which market quotations are
not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers
in a manner specifically authorized by the Board of Trustees. Securities with
a remaining maturity of 60 days or less are valued at amortized cost which
approximates market value.
B. Securities Transactions and Investment Income--Securities transactions are
accounted for on a trade date basis. Interest income, adjusted for
amortization of discounts on investments, is earned from settlement date and
is recorded on the accrual basis. It is the policy of the Fund not to
amortize bond premiums for financial reporting purposes. Interest income is
allocated to each class daily, based upon each class' pro-rata share of the
total shares of the Fund outstanding. Realized gains and losses from
securities transactions are recorded on the identified cost basis.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Distributions from net realized capital gains, if any, are recorded
on ex-dividend date and are paid annually.
D. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward (which may
be carried forward to offset future taxable capital gains, if any) of
$6,725,562, which expires, if not previously utilized, through the year 2004.
E. Expenses--Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to more than
one class, e.g., advisory fees, are allocated between them.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM") with respect to the Fund. Under the terms of the master
investment advisory agreement, the Fund pays AIM an advisory fee at the annual
rate of 0.20% of the first $500 million of the Fund's average daily net assets
plus 0.175% of the Fund's average daily net assets in excess of $500 million.
This agreement requires AIM to reduce its fee or, if necessary, make payments to
the extent required to satisfy any expense limitations imposed by the securities
laws or regulations thereunder of any state in which the Fund shares are
qualified for sale.
9
<PAGE> 12
Financials
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES-(continued)
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended July 31, 1996, the Fund
reimbursed AIM $60,857 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the AIM Shares. During the year ended July 31, 1996, AFS
was paid $160,400 for such services. During the year ended July 31, 1996, the
Fund paid A I M Institutional Fund Services, Inc. ("AIFS") $10,350 pursuant to a
transfer agency and shareholder services agreement with respect to the
Institutional Shares.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the AIM
Shares and a master distribution agreement with Fund Management Company ("FMC")
to serve as the distributor for the Institutional Shares. The Trust has adopted
a Plan pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with respect to
the AIM Shares. The Fund pays AIM Distributors compensation at an annual rate of
0.15% of the average net assets attributable to the AIM Shares. The Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs and provides periodic payments to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own AIM Shares of the Fund. 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 Fund. During the year ended
July 31, 1996, the AIM Shares paid AIM Distributors $488,557 as compensation
under the Plan.
AIM Distributors received commissions of $193,686 during the year ended July
31, 1996 from sales of AIM Shares. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, proceeds from sales of
AIM shares. Certain officers and trustees of the Trust are officers and
directors of AIM, AIM Distributors, FMC, AFS and AIFS.
During the year ended July 31, 1996, the Fund paid legal fees of $4,141 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board
of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank d/b/a Chemical Bank. The Fund
may borrow up to the lesser of (i) $325,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which are
parties to the line of credit may borrow on a first come, first served basis.
Interest on borrowings under the line of credit is payable on maturity or
prepayment date. During the year ended July 31, 1996, the Fund did not borrow
under the line of credit agreement. The funds which are party to the line of
credit are charged a commitment fee of 0.08% on the unused balance of the
committed line. The commitment fee is allocated among the funds based on their
respective average net assets for the period. Prior to an amendment of the line
of credit on July 19, 1996, the Fund was limited to borrowing $6,700,000.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 1996 was
$648,234,412 and $546,804,207, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis as, of July 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ --
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,558,630)
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $ (2,558,630)
============================================================================
</TABLE>
Cost of investments for tax purposes is $499,136,984.
10
<PAGE> 13
Financials
NOTE 5-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 6-SHARE INFORMATION
Changes in the AIM Shares outstanding during the years ended July 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C> <C> <C>
---------------------------- ----------------------------
Shares Amount Shares Amount
----------- ------------- ----------- -------------
Sold 25,131,827 $ 252,267,687 15,641,151 $ 155,346,148
- -------------------------------------------------------------------------------- ----------------------------
Issued as reinvestment of dividends 1,451,553 14,553,507 1,083,758 10,758,338
- -------------------------------------------------------------------------------- ----------------------------
Reacquired (17,942,356) (179,863,891) (22,488,544) (222,924,325)
- -------------------------------------------------------------------------------- ----------------------------
8,641,024 $ 86,957,303 (5,763,635) $ (56,819,839)
================================================================================ ============================
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of AIM Shares
outstanding during each of the years in the two-year period ended July 31, 1996,
the eleven months ended July 31, 1994, each of the years in the five-year period
ended August 31, 1993 and the period December 15, 1987 (date operations
commenced) through August 31, 1988.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
------------------------------- ----------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01 $ 9.79 $ 9.78 $ 9.80 $ 9.92
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Income from investment
operations:
Net investment income 0.55 0.54 0.35 0.42 0.58 0.72 0.77 0.84 0.52
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net gains (losses) on
securities (both
realized
and unrealized) (0.06) 0.07 (0.20) 0.05 0.29 0.22 0.01 (0.02) (0.12)
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total from investment
operations 0.49 0.61 0.15 0.47 0.87 0.94 0.78 0.82 0.40
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.55) (0.54) (0.35) (0.42) (0.58) (0.72) (0.77) (0.84) (0.52)
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Distributions from net
realized capital
gains -- -- (0.08) (0.02) (0.09) -- -- -- --
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Total distributions (0.55) (0.54) (0.43) (0.44) (0.67) (0.72) (0.77) (0.84) (0.52)
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Net asset value, end of
period $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01 $ 9.79 $ 9.78 $ 9.80
========================= ======== ======== ======== ======== ======== ======== ======= ======= =======
Total return(a) 4.98% 6.36% 1.52% 4.65% 8.93% 9.95% 8.32% 8.71% 4.11%
========================= ======== ======== ======== ======== ======== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $359,048 $274,480 $329,942 $348,937 $260,454 $131,880 $79,871 $70,781 $62,342
========================= ======== ======== ======== ======== ======== ======== ======= ======= =======
Ratio of expenses to
average net assets 0.54%(b) 0.51% 0.47%(c) 0.46% 0.48% 0.54% 0.50%(d) 0.45%(e) 0.35%(c)(e)
========================= ======== ======== ======== ======== ======== ======== ======= ======= =======
Ratio of net investment
income to average net
assets 5.45%(b) 5.44% 3.75%(c) 4.07% 5.60% 7.25% 7.90%(d) 8.59%(e) 7.02%(c)(e)
========================= ======== ======== ======== ======== ======== ======== ======= ======= =======
Portfolio turnover rate 117.09% 120.01% 120.40% 122.99% 119.62% 214.74% 192.46% 219.53% 140.83%
========================= ======== ======== ======== ======== ======== ======== ======= ======= =======
Borrowings for the
period:
Amount of debt
outstanding at end of
period
(000s omitted) -- -- -- -- -- -- -- $ 9,943 $19,232
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Average amount of debt
outstanding during
the period
(000s omitted)(f) -- -- -- -- -- -- $ 5,101 $14,301 $ 4,110
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Average number of
shares outstanding
during the period
(000s omitted)(f) 32,350 28,337 34,101 30,416 18,378 10,559 7,389 7,295 2,429
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
Average amount of debt
per share during the
period -- -- -- -- -- -- $ 0.69 $ 1.96 $ 1.69
- ------------------------- -------- -------- -------- -------- -------- -------- ------- ------- -------
</TABLE>
(a) Does not deduct sales charges and for periods less than one year, total
return is not annualized.
(b) Ratios are based on average net assets of $325,704,724.
(c) Annualized.
(d) After waiver of advisory fees.
(e) After waiver of advisory fees and expense reimbursements.
(f) Averages computed on a daily basis.
11
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Investment Securities Funds
We have audited the accompanying statement of assets and liabilities of the
Limited Maturity Treasury Portfolio (a series of AIM Investment Securities
Funds), including the schedule of investments, as of July 31, 1996, 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 two-year period then
ended, the eleven months ended July 31, 1994, each of the years in the five-year
period ended August 31, 1993 and the period December 15, 1987 (date operations
commenced) through August 31, 1988. 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 the 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 July
31, 1996, 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
Limited Maturity Treasury Portfolio as of July 31, 1996, 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 two-year period then ended, the eleven months ended
July 31, 1994, each of the years in the five-year period ended August 31, 1993
and the period December 15, 1987 (date operations commenced) through August 31,
1988, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
August 23, 1996
Houston, Texas
12
<PAGE> 15
Trustees &
Officers
<TABLE>
<S> <C> <C>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman and Chief Executive Officer Chairman Suite 1919
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Formerly Director, President, and A I M Advisors, Inc.
Chief Executive Officer John J. Arthur 11 Greenway Plaza
COMSAT Corporation Senior Vice President and Treasurer Suite 1919
Houston, TX 77046
Owen Daly II Gary T. Crum
Director Senior Vice President TRANSFER AGENT
Cortland Trust Inc. A I M Fund Services, Inc.
Carol F. Relihan P.O. Box 4739
Carl Frischling Vice President and Secretary Houston, TX 77210-4739
Partner
Kramer, Levin, Naftalis & Frankel Melville B. Cox CUSTODIAN
Vice President The Bank of New York
Robert H. Graham 90 Washington Street, 11th Floor
President and Chief Operating Officer Karen Dunn Kelley New York, NY 10286
A I M Management Group Inc. Vice President
COUNSEL TO THE FUND
John F. Kroeger Dana R. Sutton Ballard Spahr
Formerly Consultant Vice President Andrews & Ingersoll
Wendell & Stockel Associates, Inc. and Assistant Treasurer 1735 Market Street
Philadelphia, PA 19103
Lewis F. Pennock P. Michelle Grace
Attorney Assistant Secretary COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel
Ian W. Robinson David L. Kite 919 Third Avenue
Consultant; Formerly Executive Assistant Secretary New York, NY 10022
Vice President and
Chief Financial Officer Nancy L. Martin DISTRIBUTOR
Bell Atlantic Management Assistant Secretary A I M Distributors, Inc.
Services, Inc. 11 Greenway Plaza
Ofelia M. Mayo Suite 1919
Louis S. Sklar Assistant Secretary Houston, TX 77046
Executive Vice President
Hines Interests Kathleen J. Pflueger AUDITORS
Limited Partnership Assistant Secretary KPMG Peat Marwick LLP
700 Louisiana
Samuel D. Sirko NationsBank Building
Assistant Secretary Houston, TX 77002
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
STATE TAX INFORMATION: Of the total dividends paid, 100% was derived from
U.S. Treasury obligations.
<PAGE> 16
<TABLE>
<S> <C>
[PHOTO OF ELEVEN GREENWAY THE AIM FAMILY OF FUNDS --Registered Trademark--
PLAZA APPEARS HERE]
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH
AIM Global Growth Fund
AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME
AIM Balanced Fund
AIM Charter Fund
INCOME AND GROWTH
AIM Global Utilities Fund
HIGH CURRENT INCOME
AIM High Yield Fund
CURRENT INCOME
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of CT
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE
OF SAFETY
AIM Intermediate Government Fund**
HIGH DEGREE OF SAFETY AND
CURRENT INCOME
AIM Limited Maturity Treasury Shares
STABILITY, LIQUIDITY, AND
CURRENT INCOME
AIM Money Market Fund
STABILITY, LIQUIDITY, AND
CURRENT TAX-FREE INCOME
AIM Tax-Exempt Cash Fund
AIM Management Group has provided
leadership in the mutual fund industry *AIM Aggressive Growth Fund was closed
since 1976 and currently manages more to new investors on July 18, 1995. **On
than $55 billion in assets for more than September 25, 1995, AIM Government
3 million shareholders, including Securities Fund was renamed AIM
individual investors, corporate clients, Intermediate Government Fund. For more
and financial institutions. The AIM complete information about any AIM
Family of Funds--Registered Trademark-- Fund(s), including sales charges and
is distributed nationwide, and AIM today expenses, ask your financial consultant
ranks among the nation's top 15 mutual or securities dealer for a free
fund companies in assets under management, prospectus(es). Please read the
according to Lipper Analytical Services, prospectus(es) carefully before you
Inc. invest or send money.
</TABLE>
[AIM LOGO APPEARS HERE] ---------------
BULK RATE
A I M Distributors, Inc. U.S. POSTAGE
11 Greenway Plaza, Suite 1919 PAID
Houston, TX 77046 HOUSTON, TX
Permit No. 1919
---------------
