<PAGE> 1
AIM INVESTMENT
SECURITIES FUNDS
Prospectus
- --------------------------------------------------------------------------------
LIMITED
MATURITY
TREASURY
PORTFOLIO
INSTITUTIONAL
SHARES
NOVEMBER 21, 1996
The Limited Maturity Treasury Portfolio (the
"Fund"), a portfolio of AIM Investment Securities Funds
(the "Trust"), is an open-end, series, management
mutual fund designed for institutions seeking liquidity
with minimum fluctuation in principal value, and,
consistent with this investment objective, the highest
total return achievable. To achieve its objective, the
Fund will invest in an actively managed portfolio of
U.S. Treasury notes and other direct obligations of the
U.S. Treasury.
THERE CAN BE NO ASSURANCE THAT THE FUND WILL
ACHIEVE ITS OBJECTIVE. THE NET ASSET VALUE OF THE FUND
VARIES DEPENDING ON THE MARKET VALUE OF ITS ASSETS. THE
FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUND'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. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth basic information that
investors should know about the Fund prior to investing
and should be read and retained for future reference. A
Statement of Additional Information, dated November 21,
1996, has been filed with the United States Securities
and Exchange Commission (the "SEC") and is hereby
incorporated by reference. For a copy of the Statement
of Additional Information, write to the address below
or call (800) 659-1005.
This Prospectus relates solely to the
Institutional Shares of the Fund. Shares of a Retail
Class of the Fund are offered pursuant to a separate
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[LOGO APPEARS HERE]
Fund Management Company
11 Greenway Plaza
Suite 1919
Houston, Texas 77046-1173
(800) 659-1005
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SUMMARY
THE FUND AND ITS INVESTMENT OBJECTIVE
AIM Investment Securities Funds (the "Trust") is a Delaware business trust
organized as an open-end, series, management investment company and currently
has one portfolio: the Limited Maturity Treasury Portfolio (the "Fund"). The
Fund consists of two classes: AIM Limited Maturity Treasury Shares (the "Retail
Class") and the Institutional Shares (the "Institutional Shares"). This
Prospectus relates solely to the Institutional Shares.
Shares of the Retail Class are offered to investors pursuant to a separate
prospectus. To obtain information about the Retail Class, please call (800)
347-4246.
Because the Trust declares dividends for each class of the Fund on a daily
basis, each class of the Fund is expected to have the same net asset value
(proportionate interest in the net assets of the Fund). Moreover, each class
bears equally those expenses, such as the advisory fee, that are allocated to
the Fund as a whole. Both classes of shares of the Fund share a common
investment objective and portfolio of investments. However, each of the classes
of the Fund have different shareholders and are separately allocated certain
class expenses, such as distribution and/or service fees related to their
respective shares. For example, a shareholder servicing fee of up to 0.15% of
the average daily net assets of the Fund attributable to the Retail Class will
be allocated to such class; such fee, however, will not be allocated to the
Institutional Shares. Therefore, assuming that the allocations of other
class-related expenses to the Institutional Shares and the Retail Class are the
same, the yield of the Institutional Shares will be higher than the yield of the
Retail Class in an amount which reflects such shareholder servicing fee.
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. To achieve its objective, the Fund will
invest in U.S. Treasury notes and other direct obligations of the U.S. Treasury,
and may (but does not currently intend to) engage in repurchase agreement
transactions with respect to such obligations. The Fund will attempt to enhance
its total return through capital appreciation when market factors, such as
economic and market conditions and the prospects for interest rate changes,
indicate that capital appreciation may be available without significant risk to
principal. The Fund will only purchase securities whose remaining maturities,
measured from the date of settlement, do not exceed three (3) years. Under
normal circumstances, the average portfolio maturity of the U.S. Treasury notes
and other direct obligations of the U.S. Treasury owned by the Fund will range
between one-and-one-half (1 1/2) and two (2) years.
INVESTORS IN INSTITUTIONAL SHARES
The Institutional Shares are designed to be a convenient and economical
vehicle through which institutions ("Institutions"), acting for themselves or on
behalf of clients for whom they exercise investment discretion, can invest in a
portfolio consisting of U.S. Treasury notes and other U.S. Treasury obligations
with remaining maturities of three (3) years or less. Although the Institutional
Shares may not be purchased by individuals directly, Institutions may purchase
such shares for themselves or on a discretionary basis for accounts they
maintain on behalf of their customers. The Institutional Shares may be
particularly appropriate for Institutions investing short-term cash reserves for
the benefit of customer accounts with respect to which Institutions exercise
substantial investment discretion. Institutions may charge their customers a
recordkeeping, account maintenance or other fee in connection with their
accounts, and such customers should consult with their Institutions to obtain a
schedule of applicable fees. See "Suitability For Investors."
PURCHASE OF SHARES
Institutional Shares are sold at net asset value. No purchase or redemption
charges are imposed by the Fund. Institutions may charge fees to their customers
for services provided in connection with the maintenance of customer accounts
with the Institutions, and customers should consult with their Institutions to
obtain a schedule of any applicable fees. The minimum initial investment in the
Institutional Shares is $1,000,000. There is no minimum amount for subsequent
investments. Payment for shares purchased must be in federal funds or other
funds immediately available to the Fund. See "Purchase of Shares."
REDEMPTION OF SHARES
Redemptions of the Institutional Shares may be made without charge at net
asset value. Payment for redeemed shares for which redemption orders are
received prior to 4:00 p.m. Eastern Time will normally be made in federal funds
on the next business day. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared as a dividend daily to
shareholders of record immediately prior to 4:00 p.m. Eastern Time. Dividends
are paid monthly by check or wire transfer unless the shareholder has previously
elected to
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have such dividends automatically reinvested in additional shares of the
Institutional Shares. Distributions of short-term capital gains and long-term
capital gains, if any, are made annually. See "Dividends and Distributions."
INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM") serves as the Fund's investment advisor pursuant
to a Master Investment Advisory Agreement with the Trust (the "Advisory
Agreement"). AIM, together with its affiliates, manages or advises 43 investment
company portfolios. As of November 1, 1996, the total assets advised or managed
by AIM or its affiliates were approximately $58 billion. Under the Advisory
Agreement, AIM receives a fee for its services based on the Fund's average daily
net assets. Under a separate administrative services agreement, AIM is permitted
to receive reimbursement of its costs in performing certain accounting and other
administrative services for the Fund. Under a Transfer Agency and Service
Agreement, A I M Institutional Fund Services, Inc. ("Transfer Agent" or "AIFS"),
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. See "Management of the Trust."
On November 4, 1996, A I M Management Group Inc. ("AIM Management") announced
that it has entered into an Agreement and Plan of Merger among INVESCO plc
("INVESCO"), INVESCO Group Services Inc. and AIM Management, pursuant to which
AIM Management will be merged with INVESCO Group Services Inc. Subject to a
number of conditions being met, it is currently anticipated that the transaction
will occur in the early part of 1997. The Trust's investment advisor, AIM, is a
wholly owned subsidiary of AIM Management.
The proposed transaction may be deemed to cause an "assignment" (as that term
is defined under the Investment Company Act of 1940 (the "1940 Act")) of the
investment advisory agreement between the Trust and AIM. Under the 1940 Act and
the investment advisory agreement, an assignment results in the automatic
termination of the investment advisory agreement. The completion of the
transaction is contingent upon, among other things, the approval of both the
Board of Directors of the Trust and the shareholders of the Trust of a new
investment advisory agreement between the Trust and AIM. Management of the Trust
anticipates that the essential terms of the new investment advisory agreement,
including the investment advisory fees, would be the same as those under the
current investment advisory agreement between the Trust and AIM. It is also
anticipated that the investment advisory personnel responsible for the Trust
will remain unchanged. Upon consummation of the proposed transaction, employees
of INVESCO Group Services, Inc. and affiliated companies will be able to
purchase shares of The AIM Family of Funds at net asset value.
DISTRIBUTOR
Fund Management Company ("FMC") acts as the exclusive distributor of the
Institutional Shares. FMC does not receive any fee from the Fund. See "Purchase
of Shares" and "Management of the Trust -- Distribution of Shares."
SPECIAL CONSIDERATIONS
The Fund's price per share will fluctuate inversely with changes in interest
rates. However, the price changes in the Fund's shares due to changes in
interest rates should be more moderate than the per share fluctuations of a fund
which invests in longer-term bonds. This is because debt securities with longer
maturities generally tend to produce higher yields but are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities. The Fund is designed for the investor who seeks a
higher yield and greater stability of income than a money market fund offers,
and less capital fluctuation than a long-term bond fund might provide.
AIM, AIM Institutional Funds, AIM LINK, The AIM Family of Funds, The AIM
Family of Funds and Design (i.e., the AIM logo), and AIM and Design are
registered service marks and La Familia AIM de Fondos and La Familia AIM de
Fondos and Design are service marks of A I M Management Group Inc.
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TABLE OF FEES AND EXPENSES
The following table is designed to help an investor understand the various
costs and expenses that an investor in the Institutional Shares will bear
directly or indirectly. The fees and expenses set forth in this table are based
on the average net assets of the Institutional Shares of the Fund for the fiscal
year ended July 31, 1996.
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as a % of
offering price)................................................ None
Maximum sales load on reinvested dividends (as a % of offering
price)......................................................... None
Deferred sales load (as a % of original purchase price or
redemption proceeds, as applicable)............................ None
Redemption fees (as a % of amount redeemed, if applicable)........ None
Exchange fee...................................................... None
Annual Fund Operating Expenses
(as a % of average net assets)
Management fees................................................... .20%
12b-1 fees........................................................ None
Other expenses.................................................... .07%
-----
Total fund operating expenses..................................... .27%
=====
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
-------
<S> <C>
1 year....................................................... $ 3
3 years...................................................... $ 9
5 years...................................................... $15
10 years...................................................... $34
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED TO BE REPRESENTATIVE OF THE SHARES
OF THE INSTITUTIONAL SHARES OF THE FUND'S ACTUAL OR FUTURE EXPENSES, WHICH MAY
BE GREATER OR LESS THAN THOSE SHOWN. IN ADDITION, WHILE THE EXAMPLES ASSUME A 5%
ANNUAL RETURN, THE ACTUAL PERFORMANCE OF THE INSTITUTIONAL SHARES WILL VARY AND
MAY RESULT IN AN ACTUAL RETURN THAT IS GREATER OR LESS THAN 5%. THE EXAMPLES
ASSUME REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND THAT THE PERCENTAGE
AMOUNT FOR TOTAL FUND OPERATING EXPENSES REMAINS THE SAME FOR EACH YEAR.
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FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights during each of the fiscal
years ended July 31, 1996 and 1995, the eleven months ended July 31, 1994, each
of the years in the six-year period ended August 31, 1993 and the period July
13, 1987 (date operations commenced) through August 31, 1987. All data have been
audited by KPMG Peat Marwick LLP, independent auditors, whose reports on the
financial statements and the related notes appear in the Statement of Additional
Information.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
----------------------------- ----------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------
<S> <C> <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 $10.00
Income from
investment
operations:
Net investment
income........... 0.58 0.57 0.37 0.44 0.60 0.73 0.79 0.85 0.73 0.09
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) (0.08)
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------
Total from
investment
operations..... 0.52 0.64 0.17 0.49 0.89 0.95 0.80 0.83 0.61 0.01
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------
Less distributions:
Dividends from net
investment income (0.58) (0.57) (0.37) (0.44) (0.60) (0.73) (0.79) (0.85) (0.73) (0.09)
Distributions from
net realized
capital gains.... -- -- (0.08) (0.02) (0.09) -- -- -- -- --
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------
Total
distributions.. (0.58) (0.57) (0.45) (0.46) (0.69) (0.73) (0.79) (0.85) (0.73) (0.09)
-------- -------- -------- -------- -------- ------- ------- ------- ------- ------
Net asset value,
end of period.... $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01 $ 9.79 $ 9.78 $ 9.80 $ 9.92
======== ======== ======== ======== ======== ======= ======= ======= ======= ======
Total return(a)... 5.27% 6.61% 1.72% 4.88% 9.14% 10.08% 8.52% 8.87% 6.34% 0.14%
======== ======== ======== ======== ======== ======= ======= ======= ======= ======
Ratios/supplemental
data:
Net assets, end
of period (000s
omitted)........ $143,468 $129,530 $134,971 $130,690 $ 89,352 $25,528 $10,378 $16,065 $35,310 $4,202
======== ======== ======== ======== ======== ======= ======= ======= ======= ======
Ratio of expenses
to average net
assets........... 0.27%(b) 0.28% 0.25%(c) 0.24% 0.28% 0.41%(d) 0.31%(e) 0.31%(f) 0.31%(f) 0.25%(c)(f)
======== ======== ======== ======== ======== ======= ======= ======= ======= ======
Ratio of net
investment
income to
average net
assets........... 5.72%(b) 5.70% 3.98%(c) 4.30% 5.76% 7.36%(d) 8.12%(e) 8.69%(f) 7.46%(f) 6.98%(c)(f)
======== ======== ======== ======== ======== ======= ======= ======= ======= ======
Portfolio
turnover rate.... 117.09% 120.01% 120.40% 122.99% 119.62% 214.74% 192.46% 219.53% 140.83% 28.29%
======== ======== ======== ======== ======== ======= ======= ======= ======= ======
Borrowings for the
period:
Amount of debt
outstanding
at end of
period (000s
omitted)........ -- -- -- -- -- -- -- $ 2,257 $10,892 --
Average amount of
debt outstanding
during the period
(000s omitted)(g) -- -- -- -- -- -- $ 834 $ 3,562 $ 3,754 --
Average number of
shares outstanding
during the period
(000s omitted)(g) 13,982 12,540 16,864 9,785 6,097 1,477 1,208 1,817 2,118 390
Average amount of
debt per share
during the period -- -- -- -- -- -- $ 0.69 $ 1.96 $ 1.69 --
</TABLE>
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(a) For periods less than one year, total returns is not annualized.
(b) Ratios are based on average net assets of $140,898,895.
(c) Annualized.
(d) After expense reimbursements.
(e) After waiver of advisory fees and expense reimbursements.
(f) After waiver of advisory fees.
(g) Averages computed on a daily basis.
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SUITABILITY FOR INVESTORS
The Institutional Shares are designed to be a convenient and economical
vehicle through which Institutions can invest in a portfolio consisting of U.S.
Treasury notes and other direct obligations of the U.S. Treasury with remaining
maturities of three (3) years or less. Although shares of Institutional Shares
may not be purchased directly by individuals, Institutions may purchase such
shares for themselves or for accounts they maintain on behalf of their
customers. The Institutional Shares may be particularly appropriate for
Institutions investing short-term cash reserves for the benefit of customer
accounts with respect to which Institutions exercise substantial investment
discretion. It is the responsibility of a prospective institutional investor to
determine if an investment in the Institutional Shares is consistent with the
objectives of an account and with applicable state and federal laws and
regulations.
Each share of beneficial interest of the Fund, regardless of class, has the
same net asset value (proportionate interest in the net assets of the Fund) and
bears equally those expenses, such as the advisory fee, that are allocated to
the Fund as a whole. All classes of the Fund share a common investment objective
and portfolio of investments. However, each class of the Fund has different
shareholders and is separately allocated certain class expenses.
An investment in the Fund may relieve the Institution of many of the
investment and administrative burdens encountered when investing in a portfolio
of debt instruments directly. These functions include: selection of portfolio
investments; surveying the market for the best price at which to buy and sell;
valuation of portfolio securities; selection and scheduling of maturities;
receipt and delivery and safekeeping of securities; and portfolio recordkeeping.
It is anticipated that most Institutions will perform their own sub-accounting.
The price per share of the Fund's shares will fluctuate inversely with changes
in interest rates. However, the price changes in the Fund's shares due to
changes in interest rates should be more moderate than the per share
fluctuations of a fund which invests in longer-term obligations. The Fund is
designed for the investor who seeks a higher yield and greater stability of
income than a money market fund offers, and less capital fluctuation than a
long-term bond fund might provide.
INVESTMENT PROGRAM
INVESTMENT POLICIES
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. There can be no assurance, however, that
the Fund will achieve its objective.
To achieve its objective, the Fund will invest in an actively managed
portfolio of U.S. Treasury notes and other direct obligations of the U.S.
Treasury. The Fund may invest in U.S. Treasury obligations, which are direct
obligations of the U.S. Treasury and which differ only in their interest rates,
maturities, and times of issuance, including U.S. Treasury bills, U.S. Treasury
notes and U.S. Treasury bonds. The Fund will attempt to enhance its total return
through capital appreciation when market factors, such as economic and market
conditions and the prospects for interest rate changes, indicate that capital
appreciation may be available without significant risk to principal. The Fund
will only purchase securities whose maturities do not exceed three (3) years.
Under normal circumstances, the average portfolio maturity of the Fund will
range between one-and-one-half (1 1/2) and two (2) years. Since brokerage
commissions are not normally paid on investments of the type made by the Fund,
the high turnover rate should not adversely affect the net income of the Fund.
Loans of Portfolio Securities. Subject to its investment restrictions (see
"Investment Restrictions") the Fund may from time to time loan securities from
its portfolio to brokers, dealers and financial institutions and receive
collateral in cash or U.S. Treasury obligations which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities; provided, however, that such loans are made according to the
guidelines of the SEC and the Trust's Board of Trustees. The Fund will be
entitled to the interest paid upon investment of the cash collateral in its
permitted investments, or to the payment of a premium or fee for the loan. The
Fund may at any time call such loans and obtain the securities loaned. However,
if the borrower of the securities should default on its obligation to return the
securities borrowed, the value of the collateral may be insufficient to permit
the Fund to reestablish its position by making a comparable investment due to
changes in market conditions. The Fund may pay reasonable fees to persons
unaffiliated with the Fund in connection with the arranging of such loans. The
Fund will only engage in securities lending transactions with broker-dealers
registered with the SEC, or with federally supervised banks or savings and loan
associations.
When-Issued or Delayed Delivery Trading. The Fund may purchase U.S. Treasury
obligations on a when-issued basis, and it may purchase or sell such securities
for delayed delivery. These transactions occur when securities are purchased or
sold by the Fund with payment and delivery to take place in the future in order
to secure what is considered an advantageous yield and price to the Fund at the
time of entering into the transaction. The value of the security on the delivery
date may be more or less than its purchase price. The Fund's custodian bank will
segregate cash or short-term U.S. Treasury obligations in an aggregate
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<PAGE> 7
amount equal to the amount of its commitments in connection with such delayed
delivery and when-issued purchase transactions. No delayed delivery or
when-issued commitments will be made if, as a result, more than 25% of the
Fund's net assets would be so committed.
Borrowing. Subject to its investment restrictions (see "Investment
Restrictions"), the Fund may borrow money from banks for temporary or emergency
purposes such as to meet redemption requests which might otherwise require the
untimely disposition of securities. The Fund may not borrow for the purpose of
increasing income. If there are unusually heavy redemptions because of changes
in interest rates or for any other reason, the Fund may have to sell a portion
of its investment portfolio at a time when it may be disadvantageous to do so.
Selling Fund securities under these circumstances may result in a lower net
asset value per share or decreased dividend income, or both. The Fund believes
that, in the event of abnormally heavy redemption requests, its borrowing
provisions would help to mitigate any such effects and could make the forced
sale of its portfolio securities less likely.
Reverse Repurchase Agreements. A reverse repurchase agreement involves the
sale of securities held by the Fund, with an agreement that the Fund will
repurchase such securities at an agreed-upon price, date and interest payment.
It is the current operating policy of the Fund to enter into reverse repurchase
agreements (which are considered to be borrowings under the 1940 Act) only for
temporary or emergency purposes and not as a means to increase income, even
though the Fund's investment restrictions permit the Fund to engage in reverse
repurchase agreements for income enhancement. The Fund will enter into a reverse
repurchase agreement only when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. During the time a reverse repurchase agreement is
outstanding, the Fund will maintain a segregated custodial account containing
U.S. Treasury obligations having a value equal to the repurchase price under
such reverse repurchase agreement. Any investment gains made by the Fund with
monies borrowed through reverse repurchase agreements will cause the net asset
value of the Fund's shares to rise faster than would be the case if the Fund had
no such borrowings. On the other hand, if the investment performance resulting
from the investment of borrowings obtained through reverse repurchase agreements
fails to cover the cost of such borrowings to the Fund, the net asset value of
the Fund will decrease faster than would otherwise be the case.
Illiquid Securities. The Fund will limit its investment in illiquid securities
to no more than 15% of its net assets, including repurchase agreements with
remaining maturities in excess of seven days.
The investment policies described above may be changed by the Board of
Trustees without the affirmative vote of a majority of the outstanding shares of
beneficial interest of the Fund.
INVESTMENT RESTRICTIONS
The Fund'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 certain types of securities or engaging in
certain transactions. The most significant of these restrictions provide that
the Fund will not:
(1) purchase any security unless the security is a direct obligation
of the U.S. Treasury or is a repurchase agreement with respect to a direct
obligation of the U.S. Treasury;
(2) issue senior securities in the form of indebtedness, borrow money,
except from banks for temporary or emergency purposes, such as to meet
redemption requests (not for the purpose of increasing income), or borrow
through reverse repurchase agreements (which may be entered into for the
purpose of increasing income) if, as a result of any such borrowings, the
amount borrowed would exceed 33 1/3% of the value of the Fund's assets
(including the proceeds of such senior securities issued or money borrowed)
less its liabilities (not including the liabilities incurred in connection
with such issuance or borrowing);
(3) make loans of money other than (a) through the purchase of debt
securities in accordance with the Fund's investment program, and (b) by
entering into repurchase agreements; or
(4) lend any portfolio securities if the value of the securities
loaned by it would exceed an amount equal to one-third of its total assets;
The foregoing investment restrictions (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 the holders of a majority of
the outstanding shares of beneficial interest of the Fund.
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<PAGE> 8
PURCHASE OF SHARES
The Institutional Shares are sold to Institutions on a continuing basis at the
net asset value of such shares next determined after an order has been accepted
by the Fund. No purchase or redemption charges are imposed by the Fund; however,
Institutions may charge their customers a recordkeeping, account maintenance or
other fee in connection with their accounts, and such customers should consult
with their Institutions to obtain a schedule of applicable fees. In order to
maximize its income, the Fund attempts to remain as fully invested as
practicable. Accordingly, in order to be accepted for execution, purchase orders
must be received by the Fund prior to the determination of net asset value (4:00
p.m. Eastern Time) on a business day of the Fund, which means any day on which
the New York Stock Exchange (the "NYSE") is open for business. It is expected
that the NYSE will be closed during the next twelve months on Saturdays and
Sundays and on the observed holidays of New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Banks will be required to certify to the Trust that they comply with
applicable state laws regarding registration as broker-dealers, or that they are
exempt from such registration.
To facilitate the investment of the proceeds of purchase orders, the Fund
urges Institutions to place their orders as early in the day as possible.
Subject to the conditions stated above and the Fund's right to reject any
purchase order, purchase orders received by the Fund prior to 4:00 p.m. Eastern
Time on any business day will be accepted on that day (a) when payment for the
shares of the class of the Fund 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 AIFS or (b) at the time the order is placed, if the Fund is
assured of payment, and will be priced at the net asset value determined as of
4:00 p.m. Eastern Time on such day. Payment for such shares must be received by
The Bank of New York on the next business day of the Fund following the
effective date of purchase. Dividends begin accruing on the first business day
of the Fund following the day on which a purchase order for the Fund is
effective. Purchase orders received by the Fund after 4:00 p.m. Eastern Time on
any business day will be effective on the next business day of the Fund and will
be priced at the net asset value determined at the end of such day.
Payments for shares purchased must be in the form of federal funds or other
funds immediately available to the Fund. 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 Fund
and any funds received for which an order has not been received will be returned
to the sending Institution. An order to purchase shares must specify which class
of shares of the Fund is being purchased; otherwise any funds received will be
returned to the sending Institution.
The minimum initial investment for the purchase of shares of the Institutional
Shares is $1,000,000. No minimum amount is required for subsequent investments
in the Institutional Shares nor are minimum balances required. Prior to the
initial purchase of shares, an Account Application must be completed and sent to
AIFS, 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173. Account
Applications may be obtained from AIFS. Any changes made to the information
provided in the Account Application must be made in writing or by completing a
new form and providing it to AIFS.
In the interest of economy and convenience, certificates representing shares
of the Fund 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 Trust 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 at the net asset value next
determined after receipt of the redemption request in proper form by the Fund.
There is no charge for redemption. Since shares of the Fund are not maintained
at a constant net asset value, but fluctuate in value with changes in the market
value of securities held by the Fund, the value of the shares of the Fund on
redemption may be more or less than the shareholder's initial cost, depending
upon the value of the Fund's investments at the time of redemption. Redemption
requests with respect to the Institutional Shares may also be made via AIM
LINK(R), a personal computer application software product. See "Net Asset
Value." Redemption requests with respect to shares for which certificates have
not been issued are normally made by calling AIFS at (800) 659-1005.
Payment for redeemed shares is normally made by Federal Reserve wire to the
commercial bank account designated in the shareholder's Account Application. If
a redemption request is received by AIFS prior to 4:00 p.m. Eastern Time on a
business day of the Fund, the redemption will be effected at the net asset value
determined as of 4:00 p.m. Eastern Time on such day and the shares to be
redeemed will receive the dividend declared on the day the request is received.
The proceeds of a redemption request effected prior to 4:00 p.m. Eastern Time
will not be wired to the redeeming shareholder until the next business day of
the Fund. A redemption request received by AIFS after 4:00 p.m. Eastern Time or
on other than a business day of the Fund will be effected at the net asset value
of the Fund determined as of 4:00 p.m. Eastern Time on the next business day of
the Fund, and
8
<PAGE> 9
the proceeds of such redemption will normally be wired on the business day next
following such determination, or two (2) business days after the receipt of the
redemption request.
A shareholder may change the bank account designated to receive redemption
proceeds by written notice to the Fund. The authorized signature on such notice
must be signature guaranteed by a commercial bank or a trust company. Additional
documentation may be required when deemed appropriate by the Fund or AIFS.
Payment for shares redeemed by mail and payment for telephone redemptions in
amounts of under $1,000 will be made by check mailed within seven (7) 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 Fund's best interest to do so.
The Fund's shares are not redeemable at the option of the Trust unless the
Board of Trustees determines in its sole discretion that failure to so redeem
may have materially adverse consequences to the shareholders of the Fund.
Notwithstanding the foregoing, the Fund is permitted to redeem shares in any
account with a net asset value less than $500.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income (not including any net short-term
capital gains) earned by the Fund are declared daily and paid monthly.
Distributions from net realized short-term capital gains and long-term capital
gains, if any, are paid annually.
The dividends accrued and paid for each class of the Fund's shares will
consist of: (a) interest accrued and discounts earned (including both original
issue and market discount) for the Fund, allocated based upon each class's pro
rata share of the net assets of the Fund, less (b) Trust expenses accrued for
the applicable dividend period attributable to the Fund, such as custodian fees,
trustee's fees, and accounting and legal expenses, allocated based upon each
class' pro rata share of the net assets of the Fund, less (c) expenses directly
attributable to each class which accrued for the applicable dividend period,
such as shareholder servicing plan expenses, if any, or transfer agent fees
unique to each class.
Dividends are declared to shareholders of record immediately prior to the
determination of the net asset value of the Fund. Accordingly, dividends begin
accruing on the first business day of the Fund following the day on which a
purchase order for shares of the Fund is effective, and accrue through the day
on which a redemption order is effective. Thus, if a purchase order is effective
on a Friday, dividends will begin accruing on the following Monday (unless such
day is not a business day of the Fund).
All dividends declared during a month will be paid by check or wire transfer.
(Wire transfers may only be made in amounts of $1,000 or more.) In such case,
payment will normally be made on the first business day of the following month.
A shareholder may elect to have all dividends and distributions automatically
reinvested in additional full and fractional shares of the Fund at the net asset
value of such shares. Such election, or any revocation thereof, must be made in
writing by the institution to AIFS at 11 Greenway Plaza, Suite 1919, Houston,
Texas 77046-1173 and will become effective with dividends paid after its receipt
by AIFS. If a shareholder redeems all the shares 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.
TAXES
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
imposes certain requirements that must be met each year for the Fund to qualify
as a regulated investment company. As long as the Fund qualifies for tax
treatment as a regulated investment company, the Fund (but not its shareholders)
will not be subject to income tax on income and capital gains distributed to
shareholders. Consistent with the distribution requirements of the Code, the
Fund's policy is to distribute to its shareholders at least 90% of its
investment company taxable income for each year. The Fund intends to meet the
distribution requirements imposed by the Code in order to avoid the imposition
of a 4% excise tax; 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 12-month period ending on October 31 prior to the end of each calendar
year; and to meet the other requirements of Subchapter M of the Code, including
the requirements with respect to diversification of assets and sources of
income.
Under the Code, dividends paid by the Fund are generally subject to taxation
as of the date of payment, whether received by shareholders in cash or in shares
of the Fund. The Code provides an exception to this general rule; if the Fund
declares a dividend in October, November or December to shareholders of record
and pays the dividend before February 1 of the next year, a shareholder will be
treated for tax purposes as having received the dividend on December 31 of the
year in which it is declared rather than in January of the following year when
it is paid. Dividends paid by the Fund from its net investment income and
realized short term capital gains are taxable to shareholders at ordinary income
tax rates. It is anticipated that no portion of dividends paid by the Fund will
be eligible for the dividends received deduction for corporations. Distributions
of the Fund's
9
<PAGE> 10
long term capital gains (capital gains dividends) will be taxable to the
shareholder as long-term capital gains regardless of the length of time the
shareholder held his shares.
A portfolio of the Trust (a "Portfolio") will be treated as a separate
corporation for purposes of determining taxable income, distribution
requirements and other requirements of Subchapter M. Therefore one Portfolio may
not offset its gains against the other Portfolio's losses and each Portfolio
must specifically comply with all the provisions of the Code.
Distributions and transactions referred to above 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 tax advisors concerning the application of state, local or foreign
taxes. Certain states exempt payments of interest by mutual funds with respect
to U.S. Treasury obligations from state income taxes, and investors should
consult with their own tax advisors concerning the availability of such
exemption in their state.
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 AIFS.
The foregoing discussion of federal income tax consequences is only a summary
based on tax laws and regulations in effect on the date of this Prospectus,
which laws and regulations are subject to change by legislative or
administrative action. For additional information regarding certain tax
consequences of an investment in the Institutional Shares, see the Statement of
Additional Information.
NET ASSET VALUE
The net asset value per share of the Fund is determined once daily as of 4:00
p.m. Eastern Time on each business day of the Fund. Net asset value per share of
the Fund is determined by subtracting the liabilities (e.g., accrued expenses
and dividends payable) of the Fund allocated to the class from the value of
securities, cash and other assets (including interest accrued but not collected)
of the Fund allocated to the class and dividing the result by the total number
of shares outstanding of such class of the Fund. Portfolio securities are valued
using current market values, if available. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the Trust's officers in accordance
with methods which are specially authorized by the Board of Trustees of the
Trust. Short-term obligations with maturities of sixty (60) days or less are
valued at amortized cost as reflecting fair value.
PERFORMANCE INFORMATION
Performance information for the Institutional Shares of the Fund can be
obtained by calling the Fund at (800) 659-1005.
The performance of the Institutional Shares may be quoted in advertising in
terms of yield or total return. Both types of performance are based on
historical results and are not intended to indicate future performance. See the
Statement of Additional Information for further details concerning performance
comparisons used in advertisements by the Fund.
The yield of the Institutional Shares is a way of showing the rate of income
the Institutional Shares class earns on its investments as a percentage of the
Institutional Shares' price. In order to calculate yield, the Fund takes the
interest income earned from its portfolio of investments attributable to the
Institutional Shares for a 30-day period (net of expenses), divides such
interest by the number of shares of the Institutional Shares class and expresses
the result as an annualized percentage rate based on the net asset value per
share of the Institutional Shares at the end of the 30-day period. Yields are
calculated according to accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, the yield of the Institutional Shares may not
equal the income paid to an investor's account or the income reported in the
financial statements for the Institutional Shares.
The Fund may also quote the distribution rate for the Institutional Shares,
which is calculated by dividing dividends declared during a specified period by
the net asset value per share of the Institutional Shares at the end of the
period and annualizing the results.
The total return of the Institutional Shares shows the overall change in value
of the Institutional Shares, including changes in share price assuming all of
the Institutional Shares' dividends and capital gain distributions are
reinvested. A cumulative total return reflects the performance of the
Institutional Shares over a stated period of time. An average annual total
return reflects the hypothetical annually compounded return that would have
produced the same cumulative total return if the performance of the
Institutional Shares had been constant over the entire period. Because average
annual returns tend to smooth out variations in the return of the Institutional
Shares, investors should recognize that such returns are not the same as actual
year-by-year
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<PAGE> 11
results. To illustrate the components of overall performance, the Institutional
Shares may separate its cumulative and average annual returns into income
results and capital gain or loss.
From time to time and in its discretion, AIM may waive all or a portion of its
advisory fees and/or assume certain expenses of the Fund. Such a practice will
have the effect of increasing the Fund's yield and total return. The performance
of the Fund will vary from time to time and past results are not necessarily
indicative of future results. The Fund's performance is a function of its
portfolio management in selecting the type and quality of portfolio securities
and is affected by operating expenses of the Fund and market conditions. Further
information about the performance of the Fund is contained in the Fund's annual
report to shareholders, a copy of which may be obtained without charge upon
written request to the Trust.
REPORTS TO SHAREHOLDERS
The Fund furnishes shareholders with annual and semi-annual reports containing
information about the Fund and its operations, including a list of the
investments held by the Fund and financial statements. The annual financial
statements are audited by the Fund's independent auditors. A copy of the current
list of the investments of the Fund will be sent to shareholders upon request.
Unless otherwise requested by the shareholder, 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 periodic 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 TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Fund is vested in
the Trust's Board of Trustees. The Board of Trustees approves all significant
agreements between the Trust 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 Trust's officers and to AIM, subject always to the objectives
and policies of the Fund and to the general supervision of the Trust's Board of
Trustees.
INVESTMENT ADVISOR
A I M Advisors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173, acts as the Fund's investment advisor pursuant to a Master
Investment Advisory Agreement, dated October 18, 1993 (the "Advisory
Agreement"). AIM was organized in 1976 and, together with its affiliates,
manages or advises 43 investment company portfolios (including the Fund). As of
November 1, 1996, the total assets of the investment company portfolios were
approximately $58 billion.
AIM is a wholly-owned subsidiary of A I M Management Group Inc. ("AIM
Management"). Certain trustees and officers of the Trust are affiliated with AIM
and AIM Management.
Under the terms of the Advisory Agreement, AIM supervises all aspects of the
Fund's operations and provides investment advisory services to the Fund. AIM
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Fund. The Advisory Agreement
provides that, upon the request of the Trust's Board of Trustees, 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 Board of Trustees has
made such a request. As a result, AIM and the Fund have entered into a Master
Administrative Services Agreement (the "Administrative Services Agreement"),
dated as of October 18, 1993, pursuant to which AIM is entitled to receive from
the Fund reimbursement of its costs or such reasonable compensation as may be
approved by the Board of Trustees. Currently, AIM is reimbursed for the services
of the Fund's principal financial officer and his staff, and any expenses
related to such services, as well as the services of staff responding to various
shareholder inquiries. In addition, the Fund and A I M Institutional Fund
Services, Inc., a wholly-owned subsidiary of AIM and registered transfer agent,
have entered into the Transfer Agency and Service Agreement, pursuant to which
AIFS provides transfer agency, dividend distribution and disbursement, and
shareholder services to the Fund.
For the fiscal year ended July 31, 1996, the Fund paid 0.20% of its average
daily net assets to AIM for its advisory services, and the Institutional Shares'
total expenses for the same period, stated as a percentage of average daily net
assets of the Institutional Shares was 0.27%.
11
<PAGE> 12
For the fiscal year ended July 31, 1996 the Fund paid 0.01% of its average
daily net assets to AIM for reimbursement for administrative services.
FEE WAIVERS
In order to increase the yield to investors, AIM may from time to time
voluntarily waive or reduce its fee, while retaining its ability to be
reimbursed for such fee prior to the end of such fiscal year. Fee waivers or
reductions and waivers of expense reimbursements, other than those set forth in
the Advisory Agreement, may be rescinded, at any time, without notice to
investors.
PORTFOLIO MANAGEMENT
AIM uses a team approach and disciplined investment strategy in providing
investment advisory services to all its accounts, including the Fund. AIM's
investment staff consists of 118 individuals. While individual members of AIM's
investment staff are assigned primary responsibility for the day-to-day
management of each of AIM's accounts, all accounts are reviewed on a regular
basis by AIM's Investment Policy Committee to ensure that they are being
invested in accordance with the accounts' and AIM's investment policies. The
individuals on the investment team who are primarily responsible for the
day-to-day management of the Fund are Karen Dunn Kelley, Meggan M. Walsh and
Paula A. Permenter. Ms. Kelley is Senior Vice President of A I M Capital
Management, Inc. ("AIM Capital"), a wholly-owned subsidiary of AIM; Vice
President of AIM and of the Trust; and has been responsible for the Fund since
1992. Ms. Kelly has been associated with AIM since 1989 and has a total of 14
years of experience as an investment professional. Ms. Walsh is Vice President
of AIM Capital and has been responsible for the Fund since 1992. Ms. Walsh has
been associated with AIM since 1991 and has a total of nine years of experience
as an investment professional. Prior to 1991, Ms. Walsh was Manager of
Short-Term U.S. Commercial Paper and Euro-Commercial Paper Programs at
Nationale-Nederlanden North America Corporation. Paula A. Permenter has been
responsible for the Fund since 1996. Ms. Permenter has been associated with AIM
since 1996 and has eight years of experience as an investment professional.
Prior to joining AIM, she was an Associate Trader and Investment Assistant with
Van Kampen American Capital Asset Management, Inc.
DISTRIBUTION OF SHARES
The Trust has entered into a Distribution Agreement, dated October 18, 1993,
relating to the shares of the Institutional Shares (the "Distribution
Agreement") with Fund Management Company, a registered broker-dealer and a
wholly-owned subsidiary of AIM, to act as the distributor of shares of the
Institutional Shares. The address of FMC is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. Certain trustees and officers of the Trust are
affiliated with FMC. The Distribution Agreement provides FMC with the exclusive
right to distribute shares of the Institutional Shares either directly or
through other broker-dealers.
FMC may, from time to time, at its expense, pay a bonus or other consideration
or incentive to dealers or banks who sell a minimum dollar amount of shares of
the Institutional Shares during a specific period of time. In some instances,
these incentives may be offered only to certain dealers or institutions who have
sold or may sell significant amounts of shares. The total amount of such
additional bonus payments or other consideration shall not exceed 0.05% of the
net asset value of the shares of the Institutional Shares sold. Any such bonus
or incentive programs will not change the price paid by investors for the
purchase of shares of the Institutional Shares or the amount received as
proceeds from such sales. Sales of the Institutional Shares may not be used to
qualify for any incentives to the extent that such incentives may be prohibited
by the laws of any jurisdiction.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
AIM is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection and negotiation of commission rates. Since purchases and
sales of portfolio securities by the Fund are usually principal transactions,
the Fund 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 Fund 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 Fund's investment program. Certain research services
furnished by dealers may be useful to AIM with clients other than the Fund.
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 Fund. In accordance with policies established by the
12
<PAGE> 13
trustees, AIM may take into account sales of shares of the Fund and other funds
advised by AIM in selecting broker-dealers to effect portfolio transactions on
behalf of the Fund.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Trust is organized as a Delaware business trust pursuant to an Agreement
and Declaration of Trust, dated May 5, 1993, as amended (the "Trust Agreement").
The Trust is an open-end series, management investment company, and may consist
of one or more series portfolios as authorized from time to time by the Board of
Trustees. The Trust was originally organized as a Maryland corporation on
November 4, 1988 and on October 15, 1993 was reorganized as a Delaware business
trust and the Fund.
DESCRIPTION OF SHARES
All shares of the Trust have equal rights with respect to voting, except that
(i) the holders of shares of all classes of a particular Portfolio, voting
together, will have the exclusive right to vote on matters (such as advisory
fees) pertaining solely to that portfolio, and (ii) the holders of shares of a
particular class will have the exclusive right to vote on matters pertaining to
distribution plans or shareholder service plans, if any such plans are adopted,
relating solely to such class. The holders of each class have distinctive rights
with respect to dividends which are more fully described in the Statement of
Additional Information. In the event of dissolution or liquidation, holders of
each portfolio's shares 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 Trust
attributable to the respective portfolio or allocated between the portfolios
based on the respective liquidation values of each such portfolio. The Trust
will not normally hold annual shareholders' meetings. Shareholders may remove
trustees from office by votes cast at a meeting of shareholders called for that
purpose or by written consent, and a meeting of shareholders may be called at
the request of the holders of 10% or more of the Trust's outstanding voting
securities.
The Institutional Class and Retail Class have different shareholders and are
allocated certain differing class expenses, such as distribution and/or service
fees related to their respective shares. To obtain information about the Retail
Class, please call A I M Distributors, Inc. ("AIM Distributors"), a registered
broker-dealer and wholly-owned subsidiary of A I M Advisors, Inc., at (800)
347-4246. AIM Distributors is the exclusive distributor of the Retail Class.
There are no preemptive or conversion rights applicable to any of the Trust's
shares. The Trust's shares, when issued, will be fully paid and non-assessable.
The Board of Trustees may create additional classes or series of the Trust's
shares without shareholder approval.
TRANSFER AGENT AND CUSTODIAN
A I M Institutional Fund Services, Inc., 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173, acts as transfer agent and dividend disbursing agent
for the Institutional Shares. The Bank of New York, 90 Washington Street, 11th
Floor, New York, New York 10286, serves as custodian for the Fund's portfolio
securities and cash.
LEGAL COUNSEL
The law firm of Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania
serves as counsel to the Trust and has passed upon the legality of the Shares.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed
to the Fund at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173, or may
be made by calling (800) 659-1005.
OTHER INFORMATION
This Prospectus sets forth basic information that investors should know about
the Fund 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 Trust 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.
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<PAGE> 14
===============================================================================
AIM INVESTMENT SECURITIES FUNDS
LIMITED MATURITY TREASURY PORTFOLIO
INSTITUTIONAL SHARES
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(800) 659-1005
INVESTMENT ADVISOR
A I M ADVISORS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(713) 626-1919
DISTRIBUTOR
FUND MANAGEMENT COMPANY
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
(800) 659-1005
AUDITORS
KPMG PEAT MARWICK LLP
NationsBank Building
700 Louisiana
Houston, Texas 77002
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street, 11th Floor
New York, New York 10286
TRANSFER AGENT
A I M INSTITUTIONAL FUND SERVICES, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THE PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFERING MAY NOT LAWFULLY BE MADE.
===============================================================================
===============================================================================
PROSPECTUS
November 21, 1996
AIM
INVESTMENT
SECURITIES FUNDS
---------------------
LIMITED MATURITY
TREASURY PORTFOLIO
---------------------
INSTITUTIONAL SHARES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.......................................... 2
Table of Fees and Expenses....................... 4
Financial Highlights............................. 5
Suitability For Investors........................ 6
Investment Program............................... 6
Purchase of Shares............................... 8
Redemption of Shares............................. 8
Dividends and Distributions...................... 9
Taxes............................................ 9
Net Asset Value.................................. 10
Performance Information.......................... 10
Reports to Shareholders.......................... 11
Management of the Trust.......................... 11
Portfolio Transactions and Brokerage
Allocation..................................... 12
General Information.............................. 13
</TABLE>
===============================================================================
<PAGE> 15
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
LIMITED MATURITY TREASURY PORTFOLIO
INSTITUTIONAL SHARES
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TEXAS 77046-1173
(800) 659-1005
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF THE
ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED FREE
OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
FUND MANAGEMENT COMPANY, 11 GREENWAY PLAZA,
SUITE 1919, HOUSTON, TEXAS 77046-1173
OR BY CALLING (800) 659-1005
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 21, 1996
RELATING TO THE PROSPECTUS DATED NOVEMBER 21, 1996
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction....................................................... 1
General Information About the Fund................................. 1
The Fund and Its Shares....................................... 1
Trustees and Officers......................................... 2
Remuneration of Trustees...................................... 4
AIM Funds Retirement Plan for Eligible Directors/Trustees..... 5
Deferred Compensation Agreements.............................. 6
The Investment Advisor........................................ 6
Transfer Agent and Custodian.................................. 7
Reports....................................................... 8
Principal Holders of Securities............................... 8
Purchases and Redemptions.......................................... 9
Net Asset Value Determination................................. 9
The Distribution Agreement.................................... 9
Suspension of Redemption Rights............................... 9
Investment Program and Restrictions................................ 10
Investment Program............................................ 10
Investment Restrictions....................................... 10
Performance Information............................................ 11
Yield Calculations............................................ 11
Total Return Calculations..................................... 12
Historical Portfolio Results.................................. 12
Portfolio Transactions............................................. 13
Taxes.............................................................. 14
Qualification as a Regulated Investment Company............... 14
Excise Tax on Regulated Investment Companies.................. 15
Fund Distributions............................................ 16
Sale or Redemption of Fund Shares............................. 16
Foreign Shareholders.......................................... 17
Effect of Future Legislation; Local Tax Considerations........ 17
Financial Statements............................................... FS-1
</TABLE>
i
<PAGE> 17
INTRODUCTION
AIM Investment Securities Funds (the "Trust") is a series mutual fund
currently offering one portfolio: the Limited Maturity Treasury Portfolio (the
"Fund"). Currently, the Fund has two classes of shares, consisting of the
Institutional Shares (the "Institutional Shares") and AIM Limited Maturity
Treasury Shares (the "Retail Class"). This Statement of Additional Information
relates solely to the Institutional Shares of the Fund.
The rules and regulations of the United States Securities and Exchange
Commission (the "SEC") require all mutual funds to furnish prospective investors
certain information concerning the activities of the fund being considered for
investment. This information is included in a Prospectus for the Institutional
Shares (the "Prospectus"), dated November 21, 1996. Copies of the Prospectus and
additional copies of this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Fund's shares, Fund
Management Company ("FMC"), 11 Greenway Plaza, Suite 1919, 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 the Institutional Shares. Some
of the information required to be in this Statement of Additional Information is
also included in the current Prospectus; and, in order to avoid repetition,
reference will be made to sections of the Prospectus. Additionally, the
Prospectus and this Statement of Additional Information omit certain information
contained in the registration statement filed with the SEC. Copies of the
registration statement, including items omitted from the Prospectus and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUND
THE FUND AND ITS SHARES
The Fund is an open-end, series portfolio of the Trust. The Trust is an
open-end, series, management investment company which was originally organized
as a Maryland corporation on November 4, 1988. On October 15, 1993, the Trust
was reorganized as a Delaware business trust and the Fund, which previously had
been a portfolio of another open-end investment company, was redomesticated as a
portfolio of the Trust. A copy of the Trust's Agreement and Declaration of Trust
dated May 5, 1993, as amended (the "Declaration of Trust") is on file with the
SEC.
Shares of beneficial interest of the Fund will be redeemable at the net asset
value thereof at the option of the shareholder, or at the option of the Fund in
certain circumstances.
Shareholders of the Trust do not have cumulative voting rights. Therefore, the
holders of more than 50% of the outstanding shares of all series or classes
voting together for election of trustees may elect all of the members of the
Board of Trustees and in such event, the remaining holders cannot elect any
members of the Board of Trustees.
The Declaration of Trust provides for the perpetual existence of the Trust.
The Trust or any portfolio or class thereof, however, may be terminated at any
time, upon the recommendation of the Board of Trustees, by vote of the holders
of a majority of the outstanding shares of the Trust, such portfolio or such
class, respectively; provided, however, that the Board of Trustees may
terminate, without such shareholder approval, the Trust, any portfolio or any
class thereof with respect to which there are fewer than 100 holders of record.
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares, $0.01 par value, of each class of shares of
beneficial interest of the Trust. The Board of Trustees may establish additional
series or classes of shares from time to time without shareholder approval.
Additional information concerning the rights of share ownership is set forth in
the prospectus applicable to each such class or series of shares of the Trust.
The assets received by the Trust for the issuance or sale of shares of each
class relating to a portfolio and all income, earnings, profits, losses and
proceeds therefrom, subject only to the rights of creditors, will be allocated
to that portfolio, and constitute the underlying assets of that portfolio. The
underlying assets of each portfolio will be segregated and will be charged with
the expenses with respect to that portfolio and with a share of the general
expenses of the Trust. While certain expenses of the Trust will be allocated to
the separate books of account of each portfolio, certain other expenses may be
legally chargeable against the assets of the entire Trust.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. However, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or the trustees to all
parties, and each party
1
<PAGE> 18
thereto must expressly waive all rights of action directly against shareholders
of the Trust. The Declaration of Trust provides for indemnification out of the
Trust's property for all losses and expenses of any shareholder of the Trust
held liable on account of being or having been a shareholder. Thus, the risk of
a shareholder incurring financial loss due to shareholder liability is limited
to circumstances in which the Trust would be unable to meet its obligations and
wherein the complaining party was held not to be bound by the disclaimer.
The Declaration of Trust further provides that the trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a trustee against any liability to which a trustee
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Declaration of Trust provides for indemnification by the Trust of
the trustees and the officers of the Trust except with respect to any matter as
to which any such person did not act in good faith in the reasonable belief that
his action was in or not opposed to the best interests of the Trust. Such person
may not be indemnified against any liability to the Trust or to the Trust's
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust also authorizes
the purchase of liability insurance on behalf of trustees and officers.
As described in the Prospectus, the Trust will not normally hold annual
shareholders' meetings. At such time as less than a majority of the trustees
have been elected by the shareholders, the trustees then in office will call a
shareholders' meeting for the election of trustees. In addition, trustees may be
removed from office by a written instrument signed by at least two-thirds of the
trustees of the Trust or by a vote of the holders of a majority of the shares
present at a meeting of which a quorum is present and which has been duly called
for that purpose, which meeting shall be held upon written request of the
holders of not less than 10% of the outstanding shares of the Trust.
As used herein and in the Prospectus, the term "majority of the outstanding
shares" of beneficial interest of the Trust or a portfolio means, respectively,
the lesser of (i) 67% or more of the shares of beneficial interest of the Trust
or the portfolio present at a meeting, if the holders of more than 50% of the
outstanding shares of beneficial interest of the Trust or the portfolio are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of beneficial interest of the Trust or the portfolio.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations during
the last five years are set forth below. Unless otherwise indicated, the address
of each trustee and officer is 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173.
*CHARLES T. BAUER, Trustee and Chairman (77)
Director, Chairman and Chief Executive Officer, A I M Management Group
Inc.; and Chairman of the Board of Directors, A I M Advisors, Inc., A I M
Capital Management, Inc., A I M Distributors, Inc., A I M Fund Services,
Inc., A I M Institutional Fund Services, Inc. and Fund Management Company.
BRUCE L. CROCKETT, Trustee (52)
906 Fromme Lane
McLean, VA 22102
Formerly, Director, President and Chief Executive Officer, COMSAT
Corporation (includes COMSAT World Systems, COMSAT Mobile Communications,
COMSAT Video Enterprises and COMSAT RSI and COMSAT International Ventures),
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT; (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services
company).
OWEN DALY II, Trustee (72)
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.
- ---------------
* A trustee who is an "interested person" of the Trust and A I M Advisors, Inc.
("AIM"), as defined in the Investment Company Act of 1940 (the "1940 Act").
2
<PAGE> 19
***CARL FRISCHLING, Trustee (59)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis & Frankel (law firm). Formerly,
Partner, Reid & Priest (law firm); and, prior thereto, Partner, Spengler
Carlson Gubar Brodsky & Frischling (law firm).
*ROBERT H. GRAHAM, Trustee and President (49)
Director, President and Chief Operating Officer, A I M Management
Group Inc.; Director and President, A I M Advisors, Inc.; and 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.
JOHN F. KROEGER, Trustee (72)
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, Trustee (54)
6363 Woodway, Suite 825
Houston, TX 77057
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Trustee (73)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management
services to telephone companies); Executive Vice President, Bell Atlantic
Corporation (parent of seven telephone companies); and Vice President and
Chief Financial Officer, Bell Telephone Company of Pennsylvania and Diamond
State Telephone Company.
LOUIS S. SKLAR, Trustee (57)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasurer (52)
Senior Vice President and Treasurer, 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, Senior Vice President (49)
Director and President, A I M Capital Management, Inc.; Director and
Senior Vice President, A I M Management Group Inc., A I M Advisors, Inc.;
and Director, A I M Distributors, Inc.
- ---------------
* A trustee who is an "interested person" of the Trust and AIM as defined in
the 1940 Act.
** A trustee who is an "interested person" of the Trust as defined in the 1940
Act.
*** Mr. Arthur and Ms. Relihan are married to each other.
3
<PAGE> 20
***CAROL F. RELIHAN, Senior Vice President and Secretary (42)
Senior Vice President, Secretary and General Counsel, A I M Advisors,
Inc.; Vice President, General Counsel and Secretary, A I M Management Group
Inc.; Vice President and General Counsel Fund Management Company; and Vice
President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., and A I M Institutional Fund Services, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (37)
Vice President and Fund Controller, A I M Advisors, Inc.; and
Assistant Vice President and Assistant Treasurer, Fund Management Company.
MELVILLE B. COX, Vice President (53)
Vice President and Chief Compliance Officer, A I M Advisors, Inc.,
A I M Capital Management, Inc., A I M Fund Services, Inc., A I M
Institutional Fund Services, Inc., A I M Distributors, Inc. and Fund
Management Company. Formerly, Vice President, Charles Schwab & Co., Inc.;
Assistant Secretary, Charles Schwab Family of Funds and Schwab Investments;
Chief Compliance Officer, Charles Schwab Investment Management, Inc.; and
Vice President, Integrated Resources Life Insurance Co. and Capitol Life
Insurance Co.
KAREN DUNN KELLEY, Vice President (36)
Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
The standing committees of the Board of Trustees are the Audit Committee, the
Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Daly, Kroeger (Chairman),
Pennock and Robinson. The Audit Committee is responsible for meeting with the
Trust'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 trustees as
a whole with respect to the Trust'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 Trustees and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Kroeger and Pennock. The Investments Committee is responsible for
reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, or considering such
matters as may from time to time be set forth in a charter adopted by the board
and such committee.
The members of the Nominating and Compensation Committee are Messrs. Crockett,
Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and Compensation
Committee is responsible for considering and nominating individuals to stand for
election as trustees who are not interested persons as long as the Trust
maintains a distribution plan pursuant to Rule 12b-1 under the 1940 Act,
reviewing from time to time the compensation payable to the disinterested
trustees, or considering such matters as may from time to time be set forth in a
charter adopted by the board and such committee.
All of the trustees of the Trust also serve as directors or trustees of some
or all of the other investment companies managed or advised by AIM. Certain of
the executive officers of the Trust hold similar offices with some or all of
such investment companies.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with each
meeting of the Board of Trustees or any committee thereof. Each trustee who is
not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a trustee or director of other funds in The AIM Family of Funds(R),
AIM Institutional Funds and all other investment companies managed or advised by
AIM (the "AIM Funds"). Each such trustee receives a fee, allocated among the AIM
Funds for which he or she serves as a director or trustee, which consists of an
annual retainer component and a meeting fee component.
- ---------------
*** Mr. Arthur and Ms. Relihan are married to each other.
4
<PAGE> 21
Set forth below is information regarding compensation paid or accrued for each
trustee of the Fund:
<TABLE>
<CAPTION>
RETIREMENT TOTAL
AGGREGATE BENEFITS COMPENSATION
COMPENSATION ACCRUED FROM
FROM BY ALL ALL
THE AIM AIM
DIRECTOR FUND(1) FUNDS(2) FUNDS(3)
------------------------------------------------------ ------ ------- -------
<S> <C> <C> <C>
Charles T. Bauer...................................... $ 0 $ 0 $ 0
Bruce L. Crockett..................................... 1,279 3,655 57,750
Owen Daly II.......................................... 1,464 18,662 58,125
Carl Frischling....................................... 1,448 11,323 57,250
Robert H. Graham...................................... 0 0 0
John F. Kroeger....................................... 1,375 22,313 58,125
Lewis F. Pennock...................................... 1,237 5,067 58,125
Ian W. Robinson....................................... 1,283 15,381 56,750
Louis S. Sklar........................................ 1,460 6,632 57,250
</TABLE>
- ---------------
(1) The total amount of compensation deferred by all Trustees of the Fund during
the fiscal year ended July 31, 1996, including interest earned thereon, was
$5,261.
(2) During the fiscal year ended July 31, 1996, the total amount of expenses
allocated to the Fund in respect of such retirement benefits was $2,759.
Data reflects compensation estimated for the calendar year ended December
31, 1995.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a Director
or Trustee of a total of 11 AIM Funds. Messrs Crockett, Frischling,
Robinson and Sklar each serves as a Director or Trustee of a total of 10
AIM Funds. Data reflects compensation estimated for the calendar year ended
December 31, 1995.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (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 Trustees.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible trustee has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible trustee is entitled to receive an annual benefit from
the Applicable AIM Funds commencing on the first day of the calendar quarter
coincident with or following his date of retirement equal to 75% of the retainer
paid or accrued by the Applicable AIM Funds for such trustee during the
twelve-month period immediately preceding the trustee's retirement (including
amounts deferred under a separate agreement between the Applicable AIM Funds and
the trustee) for the number of such Trustee'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 trustee in quarterly installments. If an
eligible trustee dies after attaining the normal retirement date but before
receipt of any benefits under the Plan commences, the trustee's surviving spouse
(if any) shall receive a quarterly survivor's benefit equal to 50% of the amount
payable to the deceased trustee, for no more than ten years beginning the first
day of the calendar quarter following the date of the trustee'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 trustee upon retirement assuming various compensation and years of
service classifications. The estimated credited years of service for Messrs.
Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar are 9, 9, 19,
18, 14, 9, and 7 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
NUMBER OF
YEARS OF ANNUAL COMPENSATION PAID BY ALL AIM
SERVICE WITH FUNDS
THE AIM -------------------------------------
FUNDS $55,000 $60,000 $65,000
------------------------- ------- ------- -------
<S> <C> <C> <C>
10....................... $41,250 $45,000 $48,750
9....................... $37,125 $40,500 $43,875
8....................... $33,000 $36,000 $39,000
7....................... $28,875 $31,500 $34,125
6....................... $24,750 $27,000 $29,250
5....................... $20,625 $22,500 $24,375
</TABLE>
5
<PAGE> 22
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of this
paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring trustees may elect to defer receipt of up to 100% of
their compensation payable by the Fund, and such amounts are placed into a
deferral account. Currently, the deferring trustees may select various AIM Funds
in which all or part of their deferral accounts shall be deemed to be invested.
Distributions from the deferring trustees' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of ten years
beginning on the date the deferring trustee's retirement benefits commence under
the Plan. The Fund's Board of Trustees, in its sole discretion, may accelerate
or extend the distribution of such deferral accounts after the deferring
director's termination of service as a trustee of the Fund. If a deferring
trustee 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 trustee's death. The Agreements are not funded and, with respect to
the payments of amounts held in the deferral accounts, the deferring trustees
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 July 31, 1996 the Fund paid $4,141 to Kramer,
Levin, Naftalis & Frankel, the law firm in which Mr. Frischling, a trustee of
the Trust, is a partner.
THE INVESTMENT ADVISOR
A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173, serves as the investment advisor to the Fund pursuant to a Master
Investment Advisory Agreement with the Trust, dated October 18, 1993 (the
"Advisory Agreement"). AIM was organized in 1976, and together with its
affiliates, advises or manages 43 investment company portfolios. As of November
1, 1996, the total assets of the investment company portfolios advised or
managed by AIM and its affiliates were approximately $58 billion.
AIM is a wholly-owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173. AIM
Management is a holding company that has been engaged in the financial services
business since 1976. Certain of the directors and officers of AIM are also
executive officers of the Fund and their affiliations are shown under "Trustees
and Officers." A I M Capital Management, Inc. ("AIM Capital"), a wholly-owned
subsidiary of AIM, is engaged in the business of providing investment advisory
services to investment companies, corporations, institutions and other accounts.
AIM and the Fund have adopted a Code of Ethics which requires investment
personnel and certain other employees (a) to pre-clear all personal securities
transactions subject to the Code of Ethics, (b) to file reports or duplicate
confirmations regarding such transactions, (c) to refrain from personally
engaging in (i) short-term trading of a security, (ii) transactions involving a
security within seven days of an AIM Fund transaction involving the same
security, and (iii) transactions involving securities being considered for
investment by an AIM Fund and, (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Trustees reviews quarterly and annual reports (including information on
any substantial violations of the Code of Ethics). Violations of the Code of
Ethics may include censure, monetary penalties, suspension or termination of
employment.
The Advisory Agreement became effective on October 18, 1993 and will continue
in effect until June 30, 1997, and from year to year thereafter only if such
continuance is specifically approved at least annually by (i) the Trust's Board
of Trustees or the vote of a "majority of the outstanding voting securities" of
the Fund (as defined in the 1940 Act) and (ii) the affirmative vote of a
majority of the trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party (the "Non-Interested Trustees") by votes
cast in person at a meeting called for such purpose. The Trust or AIM may
terminate the Advisory Agreement on sixty (60) days' written notice without
penalty. The Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act.
Pursuant to the terms of the Advisory Agreement, AIM manages the investments
of the Fund and obtains and evaluates economic, statistical and financial
information to formulate and implement investment policies for the Fund. Any
investment program undertaken by AIM will at all times be subject to the
policies and control of the Trust's Board of Trustees. 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. Pursuant
to the Advisory Agreement, AIM receives a fee as compensation for its services
with respect to the Fund, calculated daily and paid monthly, at an annual rate
equal to 0.20% of the first $500 million of the Fund's aggregate average daily
net assets, plus 0.175% of the Fund's aggregate average daily net assets in
excess of $500 million.
6
<PAGE> 23
The Advisory Agreement provides that, upon the request of the Trust's Board of
Trustees, 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 Board of
Trustees has made such a request. As a result, AIM and the Fund have entered
into a Master Administrative Services Agreement (the "Administrative Services
Agreement"), dated as of October 18, 1993, pursuant to which AIM is entitled to
receive from the Fund reimbursement of its costs or such reasonable compensation
as may be approved by the Board of Trustees. Currently, AIM is reimbursed for
the services of the Fund's principal financial officer and his staff, and any
expenses related to such services, as well as the services of staff responding
to various shareholder inquiries.
In addition to the fees paid to AIM pursuant to the Advisory Agreement and the
Administrative Services Agreement, the Trust, on behalf of the Fund, also pays
or causes to be paid all other expenses attributable to the Fund, including,
without limitation: the charges and expenses of any registrar, any custodian or
depository appointed by the Trust for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents; brokers' commissions in connection with portfolio securities
transactions of the Fund; all taxes, including securities issuance and transfer
taxes, and fees payable to federal, state or other governmental agencies; the
cost and expenses of engraving or printing share certificates; all costs and
expenses in connection with registration and maintenance of registration 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 proxy statements, reports to
shareholders, prospectuses and statements of additional information of the Fund
and supplements thereto; expenses of shareholders' and trustees' meetings; fees
and travel expenses of trustees and trustee members of any advisory board or
committee; expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses of
any outside pricing service; fees and expenses of legal counsel, including
counsel to the Non-Interested Trustees of the Trust or AIM, and of independent
accountants; membership dues of industry associations; interest payable on
borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Trust; 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 reports to shareholders, prospectuses and statements of additional
information (other than those reports to shareholders, prospectuses and
statements of additional information distributed to existing shareholders of the
Institutional Shares) 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 shares of the Institutional Shares.
Expenses of the Trust which are not directly attributable to the operations of
any class of shares or Portfolio of the Trust are prorated among all classes of
the Trust based upon the relative net assets of each class or Portfolio.
Expenses of the Trust which are not directly attributable to a specific class of
shares but are directly attributable to a specific Portfolio are prorated among
all classes of such Portfolio based upon the relative net assets of each such
class. Expenses of the Trust which are directly attributable to a specified
class of shares are charged against the income available for distribution as
dividends to such shares.
During the fiscal years ended July 31, 1996, 1995 and the eleven-month period
ended July 31, 1994, AIM received advisory fees of $933,207, $809,449, and
$942,205, respectively, pursuant to the Advisory Agreement. During the fiscal
years ended July 31, 1996, 1995 and the eleven-month period ended July 31, 1994,
AIM was reimbursed $60,857, $82,199, and $91,445, respectively, pursuant to the
Administrative Services Agreement.
The Advisory Agreement requires AIM to reduce its fees to the extent required
to satisfy any expense limitations imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale. As
described in the Prospectus, AIM may voluntarily waive its fees from time to
time, while retaining the ability to be reimbursed by the Fund for such amounts
prior to the end of the fiscal year.
TRANSFER AGENT AND CUSTODIAN
The Bank of New York acts as custodian for the Fund's portfolio securities and
cash. The Bank of New York receives such compensation from the Trust for its
services as is agreed to from time to time by The Bank of New York and the
Trust. The address of The Bank of New York is 90 Washington Street, 11th floor,
New York, New York 10286.
A I M Institutional Fund Services, Inc. ("AIFS"), 11 Greenway Plaza, Suite
1919, Houston, Texas 77046-1173, serves as transfer agent and dividend
disbursing agent for the Institutional Shares. The Fund pays AIFS such
compensation as may be agreed upon from time to time. During the fiscal year
ended July 31, 1996 and 1995, AIFS received from the Fund transfer agency and
shareholder services fees with respect to the Institutional Shares in the amount
of $10,350 and $3,349, respectively.
7
<PAGE> 24
REPORTS
The Trust furnishes holders of the Institutional Shares with semi-annual
reports containing information about the Trust and its operations, including a
schedule of investments held by the Fund and its financial statements. The
annual financial statements are audited by the Fund's independent certified
public accountants. The Board of Trustees has selected KPMG Peat Marwick LLP,
NationsBank Building, 700 Louisiana, Houston, Texas 77002, as the independent
auditors to audit the financial statements and review the tax returns of the
Fund.
PRINCIPAL HOLDERS OF SECURITIES
To the best of the Trust's knowledge, as of November 1, 1996, the trustees and
officers of the Trust owned less than 1% of the outstanding shares of any class
of the Trust.
INSTITUTIONAL SHARES:
To the best of the Trust's knowledge, the names and addresses of the holders
of 5% or more of the outstanding shares of the Institutional Class, as of
November 1, 1996, and the percent of outstanding shares owned by such
shareholders are as follows:
<TABLE>
<CAPTION>
OWNED OF
PERCENT
NAME AND ADDRESS RECORD
OF RECORD OWNER ONLY*
---------------- --------
<S> <C>
Frost National Bank 73.04%**
P.O. Box 1600
San Antonio, TX 78296
Mississippi Treasury Dept. 7.84%
P.O. Box 138
Jackson, MS 39205
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
** A shareholder who holds more than 25% of the outstanding shares of a class
may be presumed to be in "control" of such class of shares, as defined in the
1940 Act.
AIM LIMITED MATURITY TREASURY SHARES:
To the best of the Trust's knowledge, the names and addresses of the holders
of 5% or more of the outstanding shares of the Retail Class, as of November 1,
1996, and the percent of outstanding shares owned by such shareholders are as
follows:
<TABLE>
<CAPTION>
PERCENT
PERCENT OWNED
OWNED OF
OF RECORD
NAME AND ADDRESS RECORD AND
OF RECORD OWNER ONLY* BENEFICIALLY
---------------- ------- ------------
<S> <C> <C>
Merrill Lynch Pierce Fenner & Smith -0- 16.55%
FBO the Sole Benefit of Customers
Mutual Fund Operations
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246
Bob & Co 9.32% -0-
c/o Bank of Boston
Attn: Mutual Funds
P.O. Box 1809
Boston, MA 02105
BHC Securities Inc. -0-% 5.12%
FBO CB Clients
Trade House Account
2005 Market Street
Philadelphia, PA 19103
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
8
<PAGE> 25
PURCHASES AND REDEMPTIONS
NET ASSET VALUE DETERMINATION
A complete description of the manner by which shares of the Institutional
Shares may be purchased appears in the Prospectus under the caption "Purchase of
Shares."
The Institutional Shares are sold at the net asset value of such shares.
Shareholders may at any time redeem all or a portion of their shares at net
asset value. The investor's price for purchases and redemptions will be the net
asset value next determined following the receipt of an order to purchase or a
request to redeem shares. The net asset value of the Fund varies depending on
the market value of its assets.
In accordance with the current rules and regulations of the SEC, the net asset
value per share of the Fund is determined once daily as of the close of trading
of the New York Stock Exchange ("NYSE") which is generally 4:00 p.m. Eastern
Time on each business day of the Fund. In the event the NYSE closes early (i.e.
before 4:00 p.m. Eastern Time) on a particular day, the net asset value of a
Fund share is determined as of the close of the NYSE on such day. Net asset
value per share of the Fund is determined by subtracting the liabilities (e.g.,
accrued expenses and dividends payable) of the Fund allocated to the class from
the value of securities, cash and other assets (including interest accrued but
not collected) of the Fund allocated to the class, and dividing the result by
the total number of shares outstanding of such class of the Fund. Determination
of the Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
Securities will be valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing services may be determined
without exclusive reliance on quoted prices, and may reflect appropriate factors
such as yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which prices are not provided by the pricing service are valued
at the mean between the last bid and asked prices based upon quotes furnished by
market makers for such securities. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in accordance with methods which
are specifically authorized by the Board of Trustees of the Trust. Short-term
obligations having sixty (60) days or less to maturity are valued at amortized
cost, which approximates market value. (See also "Purchase of Shares,"
"Redemption of Shares" and "Net Asset Value" in the Prospectus.)
The Trust agrees to redeem shares of the Fund solely in cash up to the lesser
of $250,000 or 1% of the Fund's net assets during any 90-day period for any one
shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption price exceeding
this amount in whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that shares would ever be
redeemed in kind. If shares are redeemed in kind, however, the redeeming
shareholder should expect to incur transaction costs upon the disposition of the
securities received in the distribution.
THE DISTRIBUTION AGREEMENT
The Trust has entered into a Distribution Agreement with FMC, dated as of
October 18, 1993 (the "Distribution Agreement"), pursuant to which FMC has
agreed to act as the exclusive distributor of shares of the Institutional
Shares. The address of FMC is 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173. The Distribution Agreement provides that FMC has the exclusive right
to distribute the Institutional Shares either directly or through other
broker-dealers. The Distribution Agreement also provides that FMC will pay
promotional expenses, including the incremental costs of printing prospectuses
and statements of additional information, annual reports and other periodic
reports for distribution to persons who are not shareholders of the
Institutional Shares and the costs of preparing and distributing any other
supplemental sales literature. FMC has not undertaken to sell any specified
number of the Institutional Shares. FMC does not receive any fees from the Fund
pursuant to the Distribution Agreement.
FMC is a registered broker-dealer and is also a wholly-owned subsidiary of
AIM.
The Distribution Agreement became effective October 18, 1993 and will continue
in effect until June 30, 1997, and from year to year only if such continuation
is specifically approved at least annually by (i) the Trust's Board of Trustees
or the vote of a "majority of the outstanding securities" of the Fund (as
defined in the 1940 Act) and (ii) the affirmative vote of a majority of the
Non-Interested Directors by votes cast in person at a meeting called for such
purpose. The Fund or FMC may terminate the Distribution Agreement on sixty (60)
days' written notice without penalty. The Distribution Agreement will terminate
in the event of its "assignment," as defined in the 1940 Act.
SUSPENSION OF REDEMPTION RIGHTS
The right of redemption may be suspended or the date of payment upon
redemption may be postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than cus-
9
<PAGE> 26
tomary weekend or holiday closings, (c) the SEC has by order permitted such
suspension, or (d) an emergency, as determined by the SEC, exists making
disposition of portfolio securities or the valuation of the net assets of the
Fund not reasonably practicable.
INVESTMENT PROGRAM AND RESTRICTIONS
INVESTMENT PROGRAM
Information concerning the Fund's investment objective and fundamental and
operating policies is set forth in the Prospectus. The principal features of the
Fund's investment program and the primary risks associated with that investment
program are also discussed in the Prospectus. There can be no assurance that the
Fund will achieve its objective. The values of the securities in which the Fund
invests fluctuate based upon interest rates and market factors.
Repurchase Agreements. The Fund's investment policies permit the Fund to
invest in repurchase agreements with banks and broker-dealers pertaining to U.S.
Treasury obligations. However, in order to maximize the Fund's dividends which
are exempt from state taxation, as a matter of operating policy, the Fund does
not currently invest in repurchase agreements. A repurchase agreement involves
the purchase by the Fund of an investment contract from a financial institution,
such as a bank or broker-dealer, which contract is secured by U.S. Treasury
obligations of the type described above whose value is equal to or greater than
the value of the repurchase agreement, including the agreed-upon interest. The
agreement provides that the seller will repurchase the underlying securities at
an agreed-upon time and price. The total amount received on repurchase will
exceed the price paid by the Fund, reflecting the agreed-upon rate of interest
for the period from the date of the repurchase agreement to the settlement date.
This rate of return is not related to the interest rate on the underlying
securities. The difference between the total amount received upon the repurchase
of the securities and the price paid by the Fund upon their acquisition is
accrued daily as interest. Investments in repurchase agreements may involve
risks not associated with investments in the underlying securities. If the
seller defaulted on its repurchase obligation, the Fund would incur a loss to
the extent that the proceeds from a sale of the underlying securities were less
than the repurchase price under the agreement. The Fund will limit repurchase
agreements to transactions with sellers believed by AIM to present minimal
credit risk. Securities subject to repurchase agreements will be held by the
Fund's custodian or in the custodian's account with the Federal Reserve Treasury
Book-Entry System. Although the securities subject to repurchase agreements
might bear maturities in excess of one year, the Fund will not enter into a
repurchase agreement with an agreed-upon repurchase date in excess of seven
calendar days from the date of acquisition by the Fund, unless the Fund has the
right to require the selling institution to repurchase the underlying securities
within seven days of the date of acquisition.
INVESTMENT RESTRICTIONS
The most significant investment restrictions applicable to the Fund's
investment program are set forth in the Prospectus under "Investment
Program -- Restrictions." Additionally, as a matter of fundamental policy which
may not be changed without a vote of the holders of a majority of the
outstanding shares of beneficial interest of all classes of the Fund, the Fund
will not:
(1) mortgage, pledge or hypothecate any assets except to secure
permitted borrowings of money from banks for temporary or emergency
purposes and then only in amounts not in excess of 33 1/3% of the value of
its total assets at the time of such borrowing;
(2) 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 Fund's investment program may be deemed
an underwriting;
(3) invest in real estate or other interests in real estate;
(4) purchase or sell commodities or commodity futures contracts,
engage in arbitrage transactions, purchase securities on margin, make short
sales or invest in puts or calls;
(5) invest in any obligation not payable as to principal and interest
in United States currency;
(6) invest 25% or more of the value of its total assets in securities
of issuers engaged in any one industry (excluding securities which are a
direct obligation of the U.S. Treasury or are repurchase agreements with
respect to a direct obligation of the U.S. Treasury); or
(7) acquire for value the securities of any other investment company,
except in connection with a merger, consolidation, reorganization or
acquisition of assets.
In addition to those policies discussed in the Prospectus and above, the Fund
generally will not invest in any company for the purpose of exercising control
or management, or purchase securities of an issuer if the officers and trustees
of the Trust and the
10
<PAGE> 27
officers and directors of the Fund's investment advisor collectively own
beneficially over 5% of the outstanding voting securities of such issuer, in
each case excluding holdings of any officer, trustee or director of less than
1/2 of 1% of the outstanding voting securities of such issuer. These
restrictions are not matters of fundamental policy and may be changed at any
time by the trustees without the approval of shareholders.
The percentage limitations set forth in the restrictions noted above are
calculated by giving effect to the purchase in question and are based upon
values at the time of purchase. The Fund may, however, retain any security
purchased in accordance with such restrictions irrespective of changes in the
values of the Fund's assets occurring subsequent to the time of purchase.
The Trust has obtained an opinion of Dechert Price & Rhoads, special counsel
to the Trust, that shares of the Fund are eligible for investment by a federal
credit union. In order to ensure that shares of the Fund meet the requirements
for eligibility for investment by federal credit unions, the Fund has adopted
the following policies:
(1) The Fund will enter into repurchase agreements only with: (a)
banks insured by the Federal Deposit Insurance Corporation (FDIC); (b)
savings and loan associations insured by the FDIC; or (c) registered
broker-dealers. The Fund will only enter into repurchase transactions
pursuant to a master repurchase agreement in writing with the Fund's
counterparty. Under the terms of a written agreement with its custodian,
the Fund receives on a daily basis written confirmation of each purchase of
a security subject to a repurchase agreement and a receipt from the Fund's
custodian evidencing each transaction. In addition, securities subject to a
repurchase agreement may be recorded in the Federal Reserve Book-Entry
System on behalf of the Fund by its custodian. The Fund purchases
securities subject to a repurchase agreement only when the purchase price
of the security acquired is equal to or less than its market price at the
time of the purchase.
(2) The Fund will only enter into reverse repurchase agreements and
purchase additional securities with the proceeds when such proceeds are
used to purchase other securities that either mature on a date simultaneous
with or prior to the expiration date of the reverse repurchase agreement,
or are subject to an agreement to resell such securities within that same
time period.
(3) The Fund will only enter into securities lending transactions that
comply with the same counterparty, safekeeping, maturity and borrowing
restrictions that the Fund observes when participating in repurchase and
reverse repurchase transactions.
(4) The Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and settlement
date does not exceed 120 days, and only when settlement is on a cash basis.
When the delivery of securities purchased in such manner is to occur within
30 days of the trade date, the Fund will purchase the securities only at
their market price as of the trade date.
In addition, in order to comply with regulations governing the liquidity
requirements applicable to federal savings and loan associations, as a matter of
fundamental policy, the Fund will only invest in eligible securities having a
remaining term to maturity of three years or less.
In order to permit the sale of the Fund's shares in certain states, the Fund
may from time to time make commitments more restrictive than the restrictions
described herein. These restrictions are not matters of fundamental policy, and
should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the states involved.
To permit the sale of shares of the Fund in Texas, the Fund will limit its
investment in securities which are not readily marketable to 15% of its net
assets.
PERFORMANCE INFORMATION
YIELD CALCULATIONS
Yields for the Institutional Shares used in advertising are computed as
follows: (a) divide the interest and dividend income of the Institutional Shares
for a given 30-day or one-month period, net of expenses, by the average number
of shares entitled to receive dividends during the period; (b) divide the figure
arrived at in step (a) by the net asset value of the Institutional Shares at the
end of the period; and (c) annualize the result (assuming compounding of income)
in order to arrive at an annual percentage rate. For purposes of yield
quotation, income is calculated in accordance with standardized methods
applicable to all stock and bond mutual funds. In general, interest income is
reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion of the
discount to daily income. Capital gains and losses are excluded from the
calculation.
Income calculated for the purposes of calculating the yield of the
Institutional Shares differs from income as determined for other accounting
purposes. Because of the different accounting methods used, and because of the
compounding assumed in
11
<PAGE> 28
yield calculations, the yield quoted for the Institutional Shares may differ
from the rate of distributions the Institutional Shares paid over the same
period or the rate of income reported in the financial statements of the
Institutional Shares.
The Fund may also quote the distribution rate for the Institutional Shares,
which expresses the historical amount of income dividends of the Institutional
Shares to its shareholders as a percentage of the net asset value per share of
the Institutional Shares. The distribution rate for the Institutional Shares for
the thirty day period ended July 31, 1996 was 5.45%. This distribution rate was
calculated by dividing dividends declared over the thirty days ended July 31,
1996 by the net asset value per share of the Institutional Shares at the end of
that period and annualizing the result.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the Institutional
Shares' return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the net asset value per share of the
Institutional Shares over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical investment in the
Institutional Shares over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the performance of the Institutional Shares is not
constant over time, but changes from year to year, and that average annual
returns do not represent the actual year-to-year performance of the
Institutional Shares.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The following chart shows the total returns for the Institutional Shares for
the twelve months and five year periods ended July 31, 1996, and the period
beginning July 13, 1987 (the date operations commenced) through July 31, 1996.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL CUMULATIVE
RETURN RETURN
------ ---------
<S> <C> <C>
Twelve months ended 7/31/96.................................. 5.27% 5.27%
Five years ended 7/31/96..................................... 5.75% 32.25%
7/13/87 - 7/31/96............................................ 6.79% 81.17%
</TABLE>
The 30 day yield of the Institutional Shares as of July 31, 1996 was 5.83%.
A hypothetical investment of $1,000 in the Institutional Shares made during
the twelve months ended July 31, 1996 would have been worth $1,059.34. During
the five-year period ended July 31, 1996, a hypothetical $1,000 investment in
the Institutional Shares at the beginning of such period would have been worth
$1,330.38. A hypothetical investment of $1,000 made on July 13, 1987 (the date
operations commenced) through July 31, 1996, would have been worth $1,809.90,
assuming in each case that all distributions were reinvested.
The performance of the Institutional Shares may be compared in advertising to
the performance of other mutual funds in general or of particular types of
mutual funds, especially those with similar objectives. Such performance data
may be prepared by Lipper Analytical Services, Inc. and other independent
services which monitor the performance of mutual funds. The Institutional Shares
may also advertise mutual fund performance rankings which have been assigned to
the Institutional Shares by such monitoring services.
12
<PAGE> 29
PORTFOLIO TRANSACTIONS
AIM is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection and negotiation of commission rates. Since purchases and
sales of portfolio securities by the Fund are usually principal transactions,
the Fund 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 Fund may also purchase
securities from underwriters at prices which include a commission 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 execution and prices offered by more than one dealer are comparable,
AIM may, in its discretion, effect transactions with dealers that furnish
statistical, research or other information or services which are deemed by AIM
to be beneficial to the Fund's investment program. Certain research services
furnished by dealers may be useful to AIM with clients other than the Fund.
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 Fund. AIM is of the opinion that the material received is
beneficial in supplementing AIM's research and analysis; and therefore, it may
benefit the Fund by improving the quality of AIM's investment advice. The
advisory fees paid by the Fund are not reduced because AIM receives such
services.
AIM and its affiliates manage several other investment companies (the "AIM
Funds"), some of which may have objectives similar to those of the Fund. It is
possible that, at times, identical securities will be appropriate for investment
by the Fund and by one or more of the AIM Funds. The position of each account,
however, 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 consistent with the investment policies of the Fund and one or more
of the AIM Funds is considered at or about the same time, transactions in such
securities will be allocated among the Fund and the AIM Funds in a manner deemed
equitable by AIM. AIM may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Simultaneous transactions could, however, adversely affect
the ability of the Fund to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Under the 1940 Act, persons affiliated with the Fund are prohibited from
dealing with the Fund as principal in any purchase or sale of securities unless
an exemptive order allowing such transactions is obtained from the SEC. The
Board of Trustees has adopted procedures pursuant to Rule 17a-7 under the 1940
Act relating to portfolio transactions between the Fund and the AIM Funds and
the Fund may from time to time enter into transactions in accordance with such
Rule and procedures.
From time to time, an identical security may be sold by an AIM Fund or another
investment account advised by AIM or AIM Capital and simultaneously purchased by
another investment account advised by AIM or AIM Capital, when such transactions
comply with applicable rules and regulations and are deemed consistent with the
investment objective(s) and policies of the investment accounts advised by AIM
or AIM Capital. Procedures pursuant to Rule 17a-7 under the 1940 Act regarding
transactions between investment accounts advised by AIM or AIM Capital have been
adopted by the Boards of Directors/Trustees of the various AIM Funds, including
the Fund. Although such transactions may result in custodian, tax or other
related expenses, no brokerage commissions or other direct transaction costs are
generated by transactions among the investment accounts advised by AIM or AIM
Capital.
Changes in the portfolio holdings of the Fund are made without regard to
whether a sale would result in a profit or loss. The portfolio turnover rate of
the Fund for the years ended July 31, 1996, 1995 and the eleven month period
ended July 31, 1994, were 117.09%, 120.01%, and 120.40%, respectively. High
portfolio turnover involves correspondingly greater transaction costs which are
borne directly by the Fund, and may increase capital gains which are taxable as
ordinary income when distributed to shareholders.
Provisions of the 1940 Act and the rules and regulations thereunder have been
construed to prohibit the Fund from purchasing securities or instruments from,
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed or advised by AIM. The Fund has
obtained an order of exemption from the SEC which permits the Fund to engage in
certain transactions with such 5% holder if the Fund complies with conditions
and procedures designed to ensure that such transactions are executed at fair
market value and present no conflicts of interest.
At the present time, the Fund does not intend to engage in any transactions
with such 5% holders other than repurchase agreement transactions.
13
<PAGE> 30
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Fund 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 Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify 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 Fund is not subject to federal income tax on the portion
of its net investment income (i.e., its taxable interest, dividends and other
taxable ordinary income, net of expenses) and realized 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 Fund made during the
taxable year or, under specified circumstances, within 12 months after the close
of the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, the Fund must (1)
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Fund's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement");
and (2) derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forward
contracts, will not be characterized as Short-Short Gain if they are directly
related to the Fund's principal business of investing in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the Fund may
have to limit the sale of appreciated securities that it has held for less than
three months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded. Interest (including
original issue discount) received by the Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an asset
will be a capital gain or loss. However, gain recognized on the disposition of a
debt obligation purchased by the Fund at a market discount (generally, at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, if the Fund purchases a
debt obligation that was originally issued at a discount, the Fund is generally
required to include in gross income each year the portion of the original issue
discount which accrues during such year.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (ii) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a "qualified covered call option" with respect thereto) or (iii) the
asset is stock and the Fund grants an in-the-money qualified covered call option
with respect thereto. However, for purposes of the Short-Short Gain Test, the
holding period of the asset disposed of may be reduced only in the case of
clause (i) above. In addition, the Fund may be required to defer the recognition
of a loss on the disposition of an asset held as part of a straddle to the
extent of any unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Transactions that may be engaged in by the Fund (such as regulated futures
contracts and options on stock indexes and futures contracts) will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if
14
<PAGE> 31
they are sold for their fair market value on the last business day of the
taxable year, regardless of whether a taxpayer's obligations (or rights) under
such contracts have terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss is recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
taken into account for the taxable year together with any other gain or loss
that was previously recognized upon the termination of Section 1256 contracts
during that taxable year. Any capital gain or loss for the taxable year
(including any capital gain or loss arising as a consequence of the year-end
deemed sale of such contracts) is treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The Fund may elect not to have this
special tax treatment apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of the Fund that are not Section 1256
contracts. The Internal Revenue Service ("IRS") has held in several private
rulings that gains arising from Section 1256 contracts will be treated for
purposes of the Short-Short Gain Test as being derived from securities held not
less than three months if the gains arise as a result of a constructive sale
under Code Section 1256.
The Fund may enter into notional principal contracts, including interest rate
swaps, caps, floors and collars. Under Treasury regulations, in general, the net
income or deduction from a notional principal contract for a taxable year is
included in or deducted from gross income for that taxable year. The net income
or deduction from a notional principal contract for a taxable year equals the
total of all of the periodic payments (generally, payments that are payable or
receivable at fixed periodic intervals of one year or less during the entire
term of the contract) that are recognized from that contract for the taxable
year and all of the non-periodic payments (including premiums for caps, floors
and collars), even if paid in periodic installments, that are recognized from
that contract for the taxable year. A periodic payment is recognized ratably
over the period to which it relates. In general, a non-periodic payment must be
recognized over the term of the notional principal contract in a manner that
reflects the economic substance of the contract. A non-periodic payment that
relates to an interest rate swap, cap, floor or collar shall be recognized over
the term of the contract by allocating it in accordance with the values of a
series of cash-settled forward or option contracts that reflect the specified
index and notional principal amount upon which the notional principal contract
is based (or, in the case of a swap or of a cap or floor that hedges a debt
instrument, under alternative methods contained in the regulations and, in the
case of other notional principal contracts, under alternative methods that the
IRS may provide in a revenue procedure).
Treasury regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or part of any net capital loss, any net long-term
capital loss or any net foreign currency loss incurred after October 31 as if it
had been incurred in the succeeding year.
In addition to satisfying the requirement described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the 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 the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), an no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund 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 Fund'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 regulated investment companies
that fail 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 and
foreign currency gain or loss 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 (a
"taxable year election")). 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.
For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude Section
988 foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election)
15
<PAGE> 32
in determining the amount of ordinary taxable income for the current calendar
year (and, instead, include such gains and losses in determining ordinary
taxable income for the succeeding calendar year).
The Fund 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 Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income and short-term capital gains 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.
The Fund may either retain or distribute to shareholders its net long-term
capital gain for each taxable year. The Fund currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if the Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate tax rate. If the Fund elects to
retain net capital gain, it is expected that the Fund also will elect to have
shareholders treated as if each received a distribution of its pro rata share of
such gain, with the result that each shareholder will be required to report its
pro rata share of such gain on its tax return as long-term capital gain, will
receive a refundable tax credit for its pro rata share of tax paid by the Fund
on the gain, and will increase the tax basis for its shares by an amount equal
to the deemed distribution less the tax credit.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or any other fund in the AIM Funds). 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. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund 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 Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made in certain cases)
during the year.
The Fund is required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and 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 FUND SHARES
A shareholder will recognize gain or loss on the sale or redemption of shares
of the Fund 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. In
general, any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of the Fund 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. Long-term
capital gains of non-corporate taxpayers are currently taxed at a maximum rate
11.6% lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
16
<PAGE> 33
If a shareholder (i) incurs a sales load in acquiring shares of the Fund, (ii)
disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the same or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
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 Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends and
return of capital 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 distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or
redemption of shares of the Fund, capital gain dividends and amounts retained by
the Fund that are designated as undistributed net capital gains.
If the income from the Fund 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 or redemption of
shares of the Fund 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 non-corporate shareholders, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisors with respect to
the particular tax consequences to them of an investment in the Fund, 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 regulations issued thereunder as in effect on the date of
this Statement of Additional Information. 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. The tax treatment of foreign
investors may also differ from the treatment for U.S. investors described above.
Shareholders are urged to consult their tax advisors as to the consequences of
these and other state and local tax rules affecting investments in the Fund.
17
<PAGE> 34
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 six-year
period ended August 31, 1993 and the period July 13, 1987 (date operations
commenced) through August 31, 1987. 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 six-year period ended August 31, 1993
and the period July 13, 1987 (date operations commenced) through August 31,
1987, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
August 23, 1996
Houston, Texas
FS-1
<PAGE> 35
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.
FS-2
<PAGE> 36
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
=========================================================================================
* There is no sales charge or 12b-1 fee on sales of Institutional
Shares.
</TABLE>
See Notes to Financial Statements.
FS-3
<PAGE> 37
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.
FS-4
<PAGE> 38
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.
FS-5
<PAGE> 39
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
FS-6
<PAGE> 40
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES-(continued)
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.
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.
FS-7
<PAGE> 41
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.
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 Institutional 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 5,925,940 $ 59,531,203 1,443,720 $ 14,412,733
- -------------------------------------------------------- ----------------------------
Issued as reinvestment of
dividends 113,885 1,142,722 113,174 1,124,015
- -------------------------------------------------------- ----------------------------
Reacquired (4,566,815) (45,855,714) (2,194,873) (21,766,280)
- -------------------------------------------------------- ----------------------------
1,473,010 $ 14,818,211 (637,979) $ (6,229,532)
======================================================== ============================
</TABLE>
FS-8
<PAGE> 42
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a share of Institutional
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
six-year period ended August 31, 1993 and the period July 13, 1987 (date
operations commenced) through August 31, 1987.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
---------------------------------- -----------------------------------------------
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <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
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.58 0.57 0.37 0.44 0.60 0.73 0.79
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.06) 0.07 (0.20) 0.05 0.29 0.22 0.01
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.52 0.64 0.17 0.49 0.89 0.95 0.80
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.58) (0.57) (0.37) (0.44) (0.60) (0.73) (0.79)
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized
capital gains -- -- (0.08) (0.02) (0.09) -- --
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.58) (0.57) (0.45) (0.46) (0.69) (0.73) (0.79)
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01 $ 9.79
=================================== ======== ======== ======== ======== ======== ======== ========
Total return(a) 5.27% 6.61% 1.72% 4.88% 9.14% 10.08% 8.52%
=================================== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $143,468 $129,530 $134,971 $130,690 $ 89,352 $ 25,528 $ 10,378
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets 0.27%(b) 0.28% 0.25%(c) 0.24% 0.28% 0.41%(d) 0.31%(e)
=================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 5.72%(b) 5.70% 3.98%(c) 4.30% 5.76% 7.36%(d) 8.12%(e)
=================================== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 117.09% 120.01% 120.40% 122.99% 119.62% 214.74% 192.46%
=================================== ======== ======== ======== ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) -- -- -- -- -- -- --
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Average amount of debt outstanding
during the period (000s
omitted)(g) -- -- -- -- -- -- $ 834
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Average number of shares
outstanding during the period
(000s omitted)(g) 13,982 12,540 16,864 9,785 6,097 1,477 1,208
- ----------------------------------- -------- -------- -------- -------- -------- -------- --------
Average amount of debt per share
during the period -- -- -- -- -- -- $ 0.69
=================================== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
AUGUST 31,
-------------------------------
1989 1988 1987
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 9.80 $ 9.92 $ 10.00
- ----------------------------------- ------- ------- -------
Income from investment operations:
Net investment income 0.85 0.73 0.09
- ----------------------------------- ------- ------- -------
Net gains (losses) on securities
(both realized and unrealized) (0.02) (0.12) (0.08)
- ----------------------------------- ------- ------- -------
Total from investment operations 0.83 0.61 0.01
- ----------------------------------- ------- ------- -------
Less distributions:
Dividends from net investment
income (0.85) (0.83) (0.09)
- ----------------------------------- ------- ------- -------
Distributions from net realized
capital gains -- -- --
- ----------------------------------- ------- ------- -------
Total distributions (0.73) (0.73) (0.09)
- ----------------------------------- ------- ------- -------
Net asset value, end of period $ 9.78 $ 9.80 $ 9.92
=================================== ======= ======= =======
Total return(a) 8.87% 6.34% 0.14%
=================================== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $16,065 $35,310 $ 4,202
=================================== ======= ======= =======
Ratio of expenses to average net
assets 0.31%(f) 0.31%(f) 0.25%(c)(f)
=================================== ======= ======= =======
Ratio of net investment income to
average net assets 8.69%(f) 7.46%(f) 6.98%(c)(f)
=================================== ======= ======= =======
Portfolio turnover rate 219.53% 140.83% 28.29%
=================================== ======= ======= =======
Borrowings for the period:
Amount of debt outstanding at
end of period (000s omitted) $ 2,257 $10,892 --
- ----------------------------------- ------- ------- -------
Average amount of debt outstanding
during the period (000s
omitted)(g) 3,562 3,754
- ----------------------------------- ------- ------- -------
Average number of shares
outstanding during the period
(000s omitted)(g) 1,817 2,118 390
- ----------------------------------- ------- ------- -------
Average amount of debt per share
during the period $ 1.96 $ 1.69 --
=================================== ======= ======= =======
</TABLE>
(a) For periods less than one year, the total return is not annualized.
(b) Ratios are based on average net assets of $140,898,895.
(c) Annualized.
(d) After expense reimbursements.
(e) After waiver of advisory fees and expense reimbursements.
(f) After waiver of advisory fees.
(g) Averages computed on a daily basis.
FS-9
