<PAGE> 1
AIM LIMITED MATURITY TREASURY SHARES
[AIM LOGO APPEARS HERE] ANNUAL REPORT JULY 31, 1997
<PAGE> 2
AIM LIMITED MATURITY TREASURY SHARES
For shareholders who seek
high monthly income free from
state taxes while
maintaining relative stability of principal by
investing only in U.S. Treasury notes with
maturities of three years or less.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Limited Maturity Treasury Shares' performance figures are
historical and reflect reinvestment of all distributions and changes
in net asset value. Unless otherwise indicated, the Fund's performance
is computed at net asset value without a sales charge. When sales
charges are included in performance figures, those figures reflect the
maximum 1.00% sales charge.
o During the fiscal year ended July 31, 1997, the Fund paid
distributions of $0.54 per share.
o The 30-day yield is calculated on the basis of a formula defined by
the SEC. The formula is based on the portfolio's potential earnings
from dividends, interest, yield-to-maturity or yield-to-call of the
bonds in the portfolio, net of all expenses and expressed on an
annualized basis.
o The Fund's investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less
than their original cost.
o The Fund's portfolio composition is subject to change and there is no
assurance the Fund will continue to hold any particular security.
o Past performance cannot guarantee comparable future results.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o Standard Poor's Corporation (S&P) is a widely known credit rating
agency. S&P's ratings are historical and are based on an annual
analysis of the Fund's credit quality, composition and management.
Funds are rated from the highest quality (AAA) to lowest quality
(CCC).
o Government securities, such as U.S. Treasury bills, notes, and bonds,
offer a high degree of safety and are guaranteed as to the timely
payment of principal and interest if held to maturity. Fund shares are
not insured and their value and yield will vary with market
conditions.
o The Lehman Brothers 1-2 Year U.S. Government Bond Index is an
unmanaged index composed of short-term U.S. agency and Treasury issues
(maturities of one to two years).
o The Lehman Brothers 1-3 Year U.S. Government Bond Index is an
unmanaged index composed of short-term U.S. agency and Treasury issues
(maturities of one to three years).
o Unless otherwise indicated, comparative index results include
reinvested dividends and do not reflect sales charges.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY
THE FDIC OR ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK OR ANY AFFILIATE;
AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
This report may be distributed only to current shareholders or to persons who
have received a current prospectus of the Fund.
<PAGE> 3
The Chairman's Letter
Dear Fellow Shareholder:
As 1997 passed its midway point, the market environment was
[PHOTO OF ideal for fixed-income investments. The course was not
Charles T. smooth; indeed, bond markets fluctuated widely during the
Bauer, first seven months of the year amid concerns over vigorous
Chairman of economic growth and rising interest rates. Only after
the Board of subsequent reports indicated that economic growth had
the Fund, moderated and that inflation was still absent did bond
APPEARS HERE] markets recover.
On the following pages, your Fund's portfolio management
team offers a complete discussion of recent market activity
and how the Fund was affected. They also discuss the Fund's
portfolio strategy, why they believe the portfolio is
well-positioned for attractive current income, and why they
are confident that the reasons for investing in the Fund
remain as compelling as ever. These discussions are offered
to help you better understand the relative performance of
your Fund.
The point we want to emphasize most is that market
volatility has become the norm rather than the exception. Those of you who are
long-time investors, and who are new shareholders in The AIM Family of
Funds--Registered Trademark--, should recognize that periods of falling prices
in both stock and bond markets are inevitable. Indeed, we can learn important
lessons about investing in periods of market uncertainty.
That's why it's a good idea to reassess your financial goals periodically
with your financial consultant. Managing your investments in changing markets
can be challenging. But your financial consultant knows a few time-tested
investment strategies that can help. Diversification, for example, can help you
cushion the effects of volatility and reduce your risk exposure in any one type
of security.
In our experience, we have observed that the best action to take is to stay
focused-not on the market, but on your own long-term goals. The market can
change from day to day. Those who try to "time" the market, over time, tend to
be less successful than those who continue to follow a disciplined investment
strategy.
It's also important to maintain realistic expectations about investing.
Short-term volatility in financial markets may tempt some investors to
liquidate investments regardless of their personal financial objectives.
Remember that time is the best medicine for uncertain markets. The market's
performance early in the year was driven by concerns about the possibility of
rising inflation. Yet, no evidence of inflation has materialized.
AIM/INVESCO MERGER FINALIZED
We are pleased to announce that the merger of A I M Management Group Inc. and
INVESCO PLC was concluded on February 28, 1997. AIM is now part of one of the
world's largest independent investment management groups with approximately
$177 billion in assets under management. The combined company, AMVESCAP PLC,
has the financial strength necessary to meet your needs in an increasingly
competitive financial services environment, both in the United States and
worldwide. The merger will not result in any change of portfolio management or
investment style of your AIM Fund.
We appreciate the trust you have placed in us and we look forward to our
continued close association. If you have any questions or comments about this
report, we invite you to call Client Services at 800-959-4246 during normal
business hours. For automated account information 24 hours a day, call the AIM
Investor Line at 800-246-5463. We also invite you to visit AIM's Internet Web
site at www.aimfunds.com.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
-----------------------
It is important
to maintain
realistic expectations
about
investment performance.
-----------------------
<PAGE> 4
The Managers' Overview
FUND PROVIDES STEADY INCOME,
SHARE-PRICE STABILITY
A roundtable discussion with the Fund management team for AIM Limited Maturity
Treasury Portfolio for the fiscal year ended July 31, 1997.
- -------------------------------------------------------------------------------
Q. IT WAS A TUMULTUOUS YEAR FOR FIXED-INCOME INVESTMENTS. HOW DID THE FUND
PERFORM DURING THE REPORTING PERIOD?
A. It was indeed a year marked with considerable market fluctuation. And we
know that shareholders rely on us to remain committed to our investment
discipline--high current income and price stability--particularly during
periods of market uncertainty.
Price stability was clearly maintained. Net asset value per share
remained within a range of $9.95 and $10.07 during the reporting period.
In addition to relative price stability, the Fund produced attractive
current income. As of July 31, 1997, the 30-day yield of AIM Limited
Maturity Treasury Shares was 5.39%, based on maximum offering price.
Total return was 6.55% for the year ended July 31, 1997.
Q. WHAT TOUCHED OFF THE VOLATILITY IN THE BOND MARKET?
A. Investors were concerned about rapid economic growth and rising interest
rates. After a selloff in the summer of 1996, the bond market rallied in
the fall amid mounting evidence that the economy was growing at a
reasonable rate without significant inflation.
But rapid economic expansion during the first quarter of 1997 raised
concerns that the Federal Reserve Board (the Fed) would tighten monetary
policy to forestall inflation. Bond prices were already falling--and
yields rising--when the Fed raised interest rates in March.
The decline continued until the end of April when indications of
slowing eco-
AIM LIMITED MATURITY TREASURY PORTFOLIO TAKES A STRUCTURED APPROACH TO INVESTING
AIM Limited Maturity Treasury Portfolio has generated a positive total return
every fiscal year since its inception in 1987. One reason is that it uses a
strategy of "rolling down the yield curve" to take advantage of potential price
appreciation, as shown in chart at upper right. This strategy also enhanced
share-price stability, as shown in chart at lower right.
The Fund purchases two-year U.S. Treasury notes and holds them for about 13
months. We then sell them and use the proceeds to buy new two-year U.S.
Treasury notes. About 8% of the Fund's portfolio is turned over each month.
Thus, the Fund consistently remains invested over the entire stretch of the
one- to two-year maturity range of the yield curve.
The Fund's strategy is based on a study by A I M Capital Management, Inc.,
covering the period from 1973 to 1994, which showed that the most favorable
return/risk ratio is in the one- to two-year maturity range of the yield curve,
the point where it tends to steepen.
During the reporting period, the Fund provided 90% of the yield of the
30-year U.S. Treasury bond at less than 25% of the risk.
===============================================================================
YIELD CURVE - U.S. TREASURY SECURITIES AS OF 7/31/97
- -------------------------------------------------------------------------------
3 months 5.227%
6 months 5.307
1 year 5.408)
2 years 5.724) AREA OF INVESTMENT FOCUS
3 years 5.780)
5 years 5.898
10 years 6.009
30 years 6.299
===============================================================================
===============================================================================
RELATIVE PRICE STABILITY 7/31/87-7/31/97
- -------------------------------------------------------------------------------
7/31/87 9.96% 7/93 10.21
9.83 10.19
9.93 10.12
7/88 9.89 10.01
9.86 7/94 9.92
9.74 9.78
9.66 9.92
7/89 9.83 10.01
9.77 7/95 10.04
9.81 10.02
9.72 10.25
7/90 9.78 10.16
9.80 7/96 9.98
9.89 9.99
9.92 10.03
7/91 9.93 9.96
10.04 7/97 10.07
10.20
7/92 10.13
10.13
10.15
10.22
===============================================================================
Sources: Bloomberg and Towers Data Systems HYPO--Registered Trademark--. There
is no guarantee the Fund will maintain a constant NAV. Investment return and
principal value will vary so that you may have a gain or a loss when you sell
shares. Past performance cannot guarantee comparable future results.
See important Fund & index disclosures inside front cover.
2
<PAGE> 5
nomic growth, combined with improved prospects for a balanced federal
budget, ignited a bond-market rally that persisted through the end of the
reporting period.
The market volatility was reflected in the yield on the two-year U.S.
Treasury note which ranged from a low of 5.58% in November to a high of
6.54% in April before ending the period at 5.73%.
Q. HOW WERE THE FUND'S INVESTMENTS IN U.S. TREASURY SECURITIES AFFECTED?
A. U.S. Treasury securities tended to be less susceptible to market price
swings because of diminishing new issue supply and high demand. The
healthy economy boosted corporate profits and personal incomes,
bolstering the federal government's tax receipts.
Consequently, the federal government was able to cut back on U.S.
Treasury security issuance because of reduced borrowing needs. Some
analysts are predicting net issuance of U.S. Treasury securities could be
as low as $30 billion in 1997 compared to $140 billion in 1996.
Additionally, foreign demand for U.S. Treasury securities remained
strong because their yields were significantly higher than
foreign-government securities. At 1997's midpoint, U.S. Treasury security
yields on average were more than 1.5% higher than foreign-government
issues. To stimulate economic growth, Japan and many European countries
have reduced interest rates to lower levels in comparison with the U.S.
That has given U.S. Treasuries a yield advantage over foreign-government
securities.
Q. HOW DID YOU TAKE ADVANTAGE OF MARKET TRENDS?
A. We maintained our time-tested strategy of emphasizing the one- to
two-year maturity range of the yield curve (see chart on page 2). The
yield curve is a representation of the yields of fixed-income securities
of the same quality with short-, intermediate-, and long-term maturities.
Yields tend to increase along with maturities as investors demand higher
interest rates for assuming longer-term risk.
Q. HOW DOES THE FUND'S INVESTMENT APPROACH ENHANCE PRICE STABILITY?
A. It keeps the duration of the Fund relatively short. Funds with shorter
durations tend to be less sensitive to market price fluctuations (see
nearby chart). As of July 31, 1997, the Fund's duration was 1.43 years
and its weighted average maturity was 1.54 years.
Q. WHAT WAS THE FUND'S CREDIT QUALITY RATING?
A. The Fund had an average credit quality rating of AAAf, the highest such
rating assigned by Standard & Poor's Corporation (S&P), a widely known
credit-rating agency. S&P's ratings are historical and are based on an
annual analysis of the Fund's credit quality, composition, and
management. Funds are rated from the highest quality (AAA) to lowest
credit quality (CCC).
Q. WHAT IS YOUR MARKET OUTLOOK?
A. Conditions appear to be favorable for the bond market. Economic growth is
slowing to a moderate pace, inflation continues to be low, and a balanced
budget package has been enacted into law. Moreover, the Federal Reserve
Board has indicated that further tightening of monetary policy may be
unnecessary for the rest of the year.
We expect the federal government to continue to reduce issuance of U.S.
Treasury securities as its borrowing needs continue to decline, and that
should continue to support the value of outstanding U.S. Treasury
securities. Going forward, we will take advantage of such opportunities
as we manage the Fund to provide attractive monthly income while
maintaining relative price-share stability.
FUND MANAGERS USE DURATION AND WEIGHTED AVERAGE MATURITY TO MANAGE RISK
In this report, we discuss the Fund's duration and weighted average maturity.
These both measure the effects of time on the portfolio, but there the
similarity ends.
o DURATION is the average time it takes to receive the interest and
principal on a bond.
o WEIGHTED AVERAGE MATURITY is an average of the term to maturity remaining
on each of the Fund's bond holdings.
For example, if we compared two bonds of identical quality and maturity, the
two bonds could have the same weighted average maturity. However, the bond with
the higher coupon would have the lower duration because the investor would
collect all payments in a shorter average amount of time.
Using these tools, fund managers can manage the sensitivity of a portfolio to
changes in interest rates. A longer duration on a bond or a portfolio, like a
longer weighted average maturity, indicates more sensitivity to interest rate
changes because the investment is committed for a longer period. During periods
of rising interest rates as noted earlier in 1997, fund managers tend to
shorten one or both of these measures to reduce the impact on the fund's share
values.
See important Fund & index disclosures inside front cover.
3
<PAGE> 6
Long-Term Performance
AIM LIMITED MATURITY TREASURY SHARES VS. BENCHMARK INDEXES
The charts below compare your Fund to benchmark indexes. They are intended to
give you a general idea of how your Fund performed compared to the bond market
over the period 12/15/87-7/31/97. It is important to understand the difference
between your Fund and an index. An index measures the performance of a
hypothetical portfolio, in this case, the Lehman Brothers 1-2 Year U.S.
Government Bond Index and the Lehman Brothers 1-3 Year U.S. Government Bond
Index. Unlike your Fund, the indexes are not managed; therefore, there are no
sales charges, expenses or fees. You cannot invest in an index. But if you
could buy all the securities that make up a particular index, you would incur
expenses that would affect the return on your investment.
===============================================================================
AVERAGE ANNUAL TOTAL RETURN
As of 7/31/97, including sales charges
- -------------------------------------------------------------------------------
Inception (12/15/87) 6.52%
5 Years 4.73
1 Year 5.49*
*6.55% excluding sales charges
===============================================================================
===============================================================================
FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
- -------------------------------------------------------------------------------
Inception (12/15/87) 6.47%
5 Years 4.72
1 Year 4.83**
**5.89% excluding sales charges
===============================================================================
Limited Maturity Treasury Portfolio has elected to use the Lehman Brothers 1-2
Year U.S. Government Bond Index, which more closely reflects the performance of
the securities in which the Fund invests. Index performance is for the period
8/31/88-7/31/97. In previous reports to shareholders, the Fund used the Lehman
Brothers 1-3 Year U.S. Government Bond Index. In accordance with SEC
guidelines, we have included a comparison of the Fund's performance to that of
the Lehman Brothers 1-3 Year U.S. Government Bond Index, which was used in
previous reports, and the Lehman Brothers 1-2 Year U.S.
Government Bond Index.
===============================================================================
GROWTH OF A $10,000 INVESTMENT
7/31/87-7/31/97
<TABLE>
<CAPTION>
AIM Limited Maturity Lehman Brothers 1-3 Year
Treasury Shares U.S. Government Bond Index
(In thousands)
- -------------------------------------------------------------------------------
<S> <C> <C>
12/15/87 $9,900 $10,441
7/88 10,283 10,777
7/89 11,239 11,932
7/90 12,101 13,224
7/91 13,185 14,582
7/92 14,436 15,732
7/93 15,106 16,284
7/94 15,443 15,510
7/95 16,424 18,220
7/96 17,021 19,298
7/97 18,370 19,824
===============================================================================
</TABLE>
Past performance cannot guarantee comparable future results.
===============================================================================
<TABLE>
<CAPTION>
AIM Limited Maturity Lehman Brothers 1-2 Year
Treasury Shares U.S. Government Bond Index
(In thousands)
- -------------------------------------------------------------------------------
<S> <C> <C>
12/15/87 $9,900
7/88 10,283 $10,031
7/89 11,239 11,000
7/90 12,101 11,906
7/91 13,185 13,049
7/92 14,436 14,338
7/93 15,106 15,047
7/94 15,443 15,445
7/95 16,424 16,500
7/96 17,021 17,303
7/97 18,370 18,498
===============================================================================
</TABLE>
Past performance cannot guarantee comparable future results.
Source: Tower Data Systems HYPO--Registered Trademark-- and Lipper Analytical
Services, Inc. Your Fund's total return includes sales charges, expenses, and
management fees. For Fund performance calculations and descriptions of indexes
cited on this page, please refer to the inside front cover.
4
<PAGE> 7
MARKETS LOOK TO INDICATORS TO SEE WHICH WAY THE ECONOMIC WIND BLOWS
Every month, the government releases reports of key economic indicators--the
harbingers of the business cycle considered so vital to financial markets. Have
you ever wondered why economic indicators are so important? We asked Gary
Beauchamp, AIM's Economic Strategist, to discuss a few widely followed
indicators that may be of interest to investors.
GROSS DOMESTIC PRODUCT (GDP)
GDP measures the final output of goods and services produced in the United
States in one year, which makes it the broadest measure of economic
performance. Initial estimates are released about a month after the close of
each quarter.
Financial markets react strongly to the GDP number because it indicates the
pace of economic activity. For instance, if the GDP is growing at a faster rate
than in previous periods, it's an indication that the economy may be heating
up. Rapid growth strains the economy, and that drives up prices and interest
rates. The resulting inflation erodes corporate profits and the value of
financial securities. Conversely, growth that is too slow causes prices and
profits to fall, and that drives up unemployment and dries up demand.
EMPLOYMENT DATA
When the various economic indicators are mixed, many analysts consider
employment data to be the most important. An increase in employment, a decrease
in initial jobless claims, or a decrease in unemployment can bode well for the
economy. However, an unusually low level of unemployment, such as the 4.9% rate
reported for the month of April 1997, can signal the potential for inflation.
INDUSTRIAL PRODUCTION AND CAPACITY UTILIZATION
Monthly industrial production and capacity utilization indicators report the
efficiency of economic productivity. The index of industrial production
measures changes in the output of the mining, manufacturing, and gas and
electric utilities sectors of the economy. Capacity utilization is the rate at
which industrial production sectors operate--it is an indicator of industry's
current physical limits.
Together, these indicators can reveal expansion or contraction in the economy
before the GDP. High levels are positive; but maximum levels of industrial
production and capacity utilization can indicate inordinate strain on the
economy, which can lead to inflation. Conversely, low levels of capacity
utilization often generate increased productivity efficiency, and that can
signal an upturn in the economy from recession.
HOUSING STARTS
Released monthly by the U.S. Department of Commerce, the housing starts figure
is an estimate of the number of new homes and apartments under construction
within a stated period. The housing starts figure is sensitive to changes in
interest rates and reported levels of new home sales--another indicator of
consumer confidence. When consumers feel secure about the direction of the
economy, they are more likely to make long-term financial commitments like home
mortgages. Conversely, housing starts tend to fall well before the onset of
recession. One of the most volatile indicators, housing start figures often
vary widely from month to month and are sometimes substantially revised.
INDEX OF LEADING ECONOMIC INDICATORS
The U.S. Commerce Department tracks the performance of the economy by measuring
changes in the business cycle--the alternating progression of the economy from
periods of expansion when business is growing to periods of contraction when
business activity slows and unemployment increases.
Every month, the Commerce Department compiles its composite index of leading
economic indicators. Leading indicators are those factors that have shown the
tendency to signal change before the economy makes a major turn. The index
measures changes in such factors as stock prices, new orders for durable goods,
contracts and orders for plant and equipment, and average weekly claims for
state unemployment compensation. Positive changes in the index signal
improvement in the economy. Negative changes are understood to be warnings that
the economy might contract.
"The composite index of leading economic indicators is not the square root of
the universe. There is no single index or formula that provides all the answers
to the problems of business forecasting."
Michael B. Lehman, The Business One Irwin Guide to Using The Wall Street Journal
5
<PAGE> 8
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000S) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES - 99.03%
6.125% 08/31/98 $36,300 $ 36,511,629
- -------------------------------------------------------------------------------------------------------
6.00% 09/30/98 36,200 36,368,692
- -------------------------------------------------------------------------------------------------------
5.875% 10/31/98 36,200 36,305,704
- -------------------------------------------------------------------------------------------------------
5.625% 11/30/98 35,880 35,878,924
- -------------------------------------------------------------------------------------------------------
5.75% 12/31/98 36,200 36,266,970
- -------------------------------------------------------------------------------------------------------
5.875% 01/31/99 36,200 36,320,184
- -------------------------------------------------------------------------------------------------------
5.875% 02/28/99 36,200 36,319,460
- -------------------------------------------------------------------------------------------------------
6.25% 03/31/99 36,300 36,635,775
- -------------------------------------------------------------------------------------------------------
6.375% 04/30/99 36,300 36,713,457
- -------------------------------------------------------------------------------------------------------
6.25% 05/31/99 36,300 36,646,302
- -------------------------------------------------------------------------------------------------------
6.00% 06/30/99 35,000 35,195,650
- -------------------------------------------------------------------------------------------------------
5.875% 07/31/99 35,150 35,259,668
- -------------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 434,422,415
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.03% 434,422,415
- -------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.97% 4,254,808
- -------------------------------------------------------------------------------------------------------
NET ASSETS - 100.00% $438,677,223
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$431,928,484) $ 434,422,415
- --------------------------------------------------------
Cash 20,611
- --------------------------------------------------------
Receivables for:
Fund shares sold 819,782
- --------------------------------------------------------
Interest 5,523,917
- --------------------------------------------------------
Investment in deferred compensation plan 19,535
- --------------------------------------------------------
Other assets 83,788
- --------------------------------------------------------
Total assets 440,890,048
- --------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,248,586
- --------------------------------------------------------
Dividends 674,022
- --------------------------------------------------------
Deferred compensation 19,535
- --------------------------------------------------------
Accrued advisory fees 71,077
- --------------------------------------------------------
Accrued distribution fees 47,502
- --------------------------------------------------------
Accrued transfer agent fees 38,977
- --------------------------------------------------------
Accrued operating expenses 113,126
- --------------------------------------------------------
Total liabilities 2,212,825
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 438,677,223
========================================================
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL AIM
SHARES SHARES FUND
<S> <C> <C> <C>
NET ASSETS $48,865,566 $389,811,657 $438,677,223
==================================================================
Shares outstanding,
$0.01 par value per
share 4,853,653 38,718,670 43,572,323
==================================================================
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE $ 10.07
==================================================================
OFFERING PRICE PER SHARE:
(Net asset value of $10.07 divided by 99.00%) $ 10.17
==================================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $24,654,293
- -------------------------------------------------------
EXPENSES:
Advisory fees 837,760
- -------------------------------------------------------
Administrative service fees 66,785
- -------------------------------------------------------
Custodian fees 35,063
- -------------------------------------------------------
Transfer agent fees 342,339
- -------------------------------------------------------
Trustees' fees and expenses 10,907
- -------------------------------------------------------
Distribution fees (See Note 2) 549,759
- -------------------------------------------------------
Other 290,933
- -------------------------------------------------------
Total expenses 2,133,546
- -------------------------------------------------------
Less: Expenses paid indirectly (5,163)
- -------------------------------------------------------
Net expenses 2,128,383
- -------------------------------------------------------
Net investment income 22,525,910
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain (loss) on sales of
investment securities (328,964)
- -------------------------------------------------------
Unrealized appreciation of investment
securities 4,775,213
- -------------------------------------------------------
Net gain on investment securities 4,446,249
- -------------------------------------------------------
Net increase in net assets resulting from
operations $26,972,159
=======================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,525,910 $ 25,817,371
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (328,964) 3,022,827
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities 4,775,213 (6,292,910)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,972,159 22,547,288
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Institutional Shares (2,912,651) (8,084,170)
- --------------------------------------------------------------------------------------------
AIM Shares (19,613,259) (17,733,201)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Institutional Shares (95,511,728) 14,818,211
- --------------------------------------------------------------------------------------------
AIM Shares 27,226,897 86,957,303
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (63,838,582) 98,505,431
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 502,515,805 404,010,374
- --------------------------------------------------------------------------------------------
End of period $438,677,223 $ 502,515,805
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $443,515,589 $ 511,800,420
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (7,332,297) (7,003,333)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 2,493,931 (2,281,282)
- --------------------------------------------------------------------------------------------
$438,677,223 $ 502,515,805
============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
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
8
<PAGE> 11
net realized capital gains, if any, are recorded on ex-dividend date and are
paid annually.
D. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward (which may be carried forward to offset future taxable capital
gains, if any) of $7,172,445, which expires, if not previously utilized,
through the year 2005.
E. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated between
the classes.
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.
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, 1997, the Fund
reimbursed AIM $66,785 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 holders of the AIM Shares. During the year ended July
31, 1997, AFS was paid $171,697 for such services. During the year ended July
31, 1997, the Fund paid A I M Institutional Fund Services, Inc. ("AIFS") $4,714
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 daily 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, 1997, the Fund paid AIM Distributors $549,759 as
compensation under the Plan.
AIM Distributors received commissions of $105,675 during the year ended July
31, 1997 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, 1997, the Fund paid legal fees of $5,153 for
services rendered by Kramer, Levin, Naftalis & Frankel as counsel to the Board
of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund. For the year ended
July 31, 1997 the Fund's expenses were reduced by $471. In addition, the Fund
received reductions in transfer agency fees from AFS (an affiliate of AIM) of
$4,692 under an expense offset arrangement. The effect of the above arrangements
resulted in a reduction of the Fund's total expenses of $5,163 during the year
ended July 31, 1997.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $500,000,000 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.
Prior to an amendment of the line of credit on July 15, 1997, the Fund was
limited to borrowing up to the lesser of (i) $325,000,000 or (ii) the limits set
by its prospectus for borrowings. During the year ended July 31, 1997, the Fund
did not borrow under the line of credit agreement. The funds which are parties
to the line of credit are charged a commitment fee of 0.05% on the unused
balance of the committed line. The commitment fee is allocated among such funds
based on their respective average net assets for the period.
NOTE 5-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, 1997 was
$548,531,112 and $615,465,271, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis as, of July 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 2,424,721
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities --
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 2,424,721
=========================================================
</TABLE>
Cost of investments for tax purposes is $431,997,694.
9
<PAGE> 12
NOTE 6-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 7-SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
AIM shares 22,795,689 $ 228,371,816 25,131,827 $ 252,267,687
- ---------------------------------------------------------------------------------------------------------------------
Institutional shares 2,663,678 26,662,958 5,925,940 59,531,203
- ---------------------------------------------------------------------------------------------------------------------
Issued as a reinvestment of dividends:
AIM shares 1,600,608 16,029,270 1,451,553 14,553,507
- ---------------------------------------------------------------------------------------------------------------------
Institutional shares 16,172 161,587 113,885 1,142,722
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
AIM shares (21,687,977) (217,174,189) (17,942,356) (179,863,891)
- ---------------------------------------------------------------------------------------------------------------------
Institutional shares (12,215,116) (122,336,273) (4,566,815) (45,855,714)
- ---------------------------------------------------------------------------------------------------------------------
(6,826,946) $ (68,284,831) 10,114,034 $ 101,775,514
=====================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for an AIM Share outstanding during
each of the years in the three-year period ended July 31, 1997, the eleven
months ended July 31, 1994 and each of the years in the two-year period ended
August 31, 1993.
<TABLE>
<CAPTION>
JULY 31, AUGUST 31,
-------------------------------------------- -------------------
1997 1996 1995 1994 1993 1992
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21 $ 10.01
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.54 0.55 0.54 0.35 0.42 0.58
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 0.10 (0.06) 0.07 (0.20) 0.05 0.29
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Total from investment operations 0.64 0.49 0.61 0.15 0.47 0.87
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.54) (0.55) (0.54) (0.35) (0.42) (0.58)
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Distributions from net realized capital gains -- -- -- (0.08) (0.02) (0.09)
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Total distributions (0.54) (0.55) (0.54) (0.43) (0.44) (0.67)
- ------------------------------------------------------------ ---------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21
============================================================ ========== ======== ======== ======== ======== ========
Total return(a) 6.55% 4.98% 6.36% 1.52% 4.65% 8.93%
============================================================ ========== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 389,812 $359,048 $274,480 $329,942 $348,937 $260,454
============================================================ ========== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b)(c) 0.54% 0.51% 0.47%(d) 0.46% 0.48%
============================================================ ========== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.35%(b) 5.45% 5.44% 3.75%(d) 4.07% 5.60%
============================================================ ========== ======== ======== ======== ======== ========
Portfolio turnover rate 130% 117% 120% 120% 123% 120%
============================================================ ========== ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges and for periods less than one year, total
return is not annualized.
(b) Ratios are based on average net assets of $366,506,207.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(d) Annualized.
10
<PAGE> 13
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, 1997, and the related
statement of operations for the year then ended, the statement
of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of
the years in the three-year period then ended, the eleven
months ended July 31, 1994 and each of the years in the
two-year period ended August 31, 1993. These financial
statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of July 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of the Limited Maturity
Treasury Portfolio as of July 31, 1997, the results of its
operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in
the three-year period then ended, the eleven months ended July
31, 1994 and each of the years in the two-year period ended
August 31, 1993, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
August 22, 1997
Houston, Texas
11
<PAGE> 14
SUPPLEMENTAL PROXY INFORMATION -- SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Trust was held on February 7, 1997.
The meeting was held for the following purposes:
(1) To elect trustees as follows: Charles T. Bauer, Bruce L. Crockett, Owen Daly
II, Carl Frischling, Robert H. Graham, John F. Kroeger, Lewis F. Pennock,
Ian W. Robinson, and Louis S. Sklar.
(2) To approve a new Investment Advisory Agreement between the Trust and AIM.
(3) To approve the elimination of the fundamental investment policy prohibiting
or restricting investments in other investment companies.
(4) Ratification of KPMG Peat Marwick LLP as independent accountants for the
Trust's fiscal year ending July 31, 1997.
The following votes were cast with respect to each item:
<TABLE>
<CAPTION>
Votes Withhold/
Trustee/Matter Votes For Against Abstentions
-------------- ---------- -------- -----------
<S> <C> <C> <C> <C>
(1) Charles T. Bauer............................................ 24,723,862 N/A 816,471
Bruce L. Crockett........................................... 24,739,783 N/A 800,550
Owen Daly II................................................ 24,732,865 N/A 807,468
Carl Frischling............................................. 24,740,400 N/A 799,932
Robert H. Graham............................................ 24,713,427 N/A 826,906
John F. Kroeger............................................. 24,723,261 N/A 817,072
Lewis F. Pennock............................................ 24,711,556 N/A 828,777
Ian W. Robinson............................................. 24,726,994 N/A 813,339
Louis S. Sklar.............................................. 24,738,381 N/A 801,951
(2) Approval of new Investment Advisory Agreement............... 24,083,611 459,095 997,626
(3) Elimination of policy restricting investments in other
investment companies........................................ 18,256,848 944,757 1,058,718
(4) KPMG Peat Marwick LLP....................................... 24,540,046 174,346 825,941
</TABLE>
12
<PAGE> 15
Trustees & Officers
<TABLE>
<S> <C>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
Chairman Chairman Suite 100
A I M Management Group Inc. Houston, TX 77046
Robert H. Graham
Bruce L. Crockett President INVESTMENT ADVISOR
Formerly Director, President, and Chief
Executive Officer John J. Arthur A I M Advisors, Inc.
COMSAT Corporation Senior Vice President and Treasurer 11 Greenway Plaza
Suite 100
Owen Daly II Carol F. Relihan Houston, TX 77046
Director Senior Vice President
Cortland Trust Inc. and Secretary TRANSFER AGENT
Jack Fields Gary T. Crum A I M Fund Services, Inc.
Formerly Member of the Senior Vice President P.O. Box 4739
U.S. House of Representatives Houston, TX 77210-4739
Melville B. Cox
Carl Frischling Vice President CUSTODIAN
Partner
Kramer, Levin, Naftalis & Frankel Karen Dunn Kelly The Bank of New York
Vice President 90 Washington Street, 11th Floor
Robert H. Graham New York, NY 10286
President and Chief Executive Officer Dana R. Sutton
A I M Management Group Inc. Vice President and Assistant Treasurer COUNSEL TO THE FUND
John F. Kroeger P. Michelle Grace Ballard Spahr
Formerly Consultant Assistant Secretary Andrews & Ingersoll
Wendell & Stockel Associates, Inc. 1735 Market Street
Nancy L. Martin Philadelphia, PA 19103
Lewis F. Pennock Assistant Secretary
Attorney COUNSEL TO THE TRUSTEES
Ofelia M. Mayo
Ian W. Robinson Assistant Secretary Kramer, Levin, Naftalis & Frankel
Consultant; Formerly Executive 919 Third Avenue
Vice President and Kathleen J. Pflueger New York, NY 10022
Chief Financial Officer Assistant Secretary
Bell Atlantic Management DISTRIBUTOR
Services, Inc. Samuel D. Sirko
Assistant Secretary A I M Distributors, Inc.
Louis S. Sklar 11 Greenway Plaza
Executive Vice President Stephen I. Winer Suite 100
Hines Interests Assistant Secretary Houston, TX 77046
Limited Partnership
Mary J. Benson AUDITOR
Assistant Treasurer
KPMG Peat Marwick LLP
700 Louisiana
NationsBank Building
Houston, TX 77002
</TABLE>
STATE TAX INFORMATION
Of the total dividends paid, 100% was derived from U.S. Treasury obligations.
<PAGE> 16
<TABLE>
<S> <C>
THE AIM FAMILY OF FUNDS--Registered Trademark--
AGGRESSIVE GROWTH
AIM Aggressive Growth Fund*
AIM Capital Development Fund
AIM Constellation Fund
AIM Global Aggressive Growth Fund
GROWTH OF CAPITAL
AIM Advisor International Value Fund
[PHOTO OF AIM Blue Chip Fund
11 GREENWAY PLAZA AIM Global Growth Fund
APPEARS HERE] AIM Growth Fund
AIM International Equity Fund
AIM Value Fund
AIM Weingarten Fund
GROWTH AND INCOME OR INCOME WITH CAPITAL GROWTH
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Charter Fund
AIM Global Utilities Fund
HIGH CURRENT INCOME OR CURRENT INCOME
AIM High Yield Fund
AIM Global Income Fund
AIM Income Fund
CURRENT TAX-FREE INCOME
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Shares
CURRENT INCOME AND HIGH DEGREE OF SAFETY
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Shares
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
A I M Management Group Inc. has provided leadership in the *AIM Aggressive Growth Fund was closed to new investors on
mutual fund industry since 1976 and managed approximately June 5, 1997. For more complete information about any AIM
$78 billion in assets for more than 3.5 million shareholders, Fund(s), including sales charges and expenses, ask your
including individual investors, corporate clients, and financial financial consultant or securities dealer for a free
institutions as of July 31, 1997. The AIM Family of prospectus(es). Please read the prospectus(es) carefully
Funds--Registered Trademark-- is distributed nationwide, and before you invest or send money.
AIM today ranks among the nation's top 15 mutual fund
companies in assets under management, according to Lipper INVEST WITH DISCIPLINE-SM-
Analytical Services, Inc.
[AIM LOGO APPEARS HERE] -----------------
BULK RATE
A I M Distributors, Inc. U.S. POSTAGE
11 Greenway Plaza, Suite 100 PAID
Houston, TX 77046 HOUSTON, TX
Permit No. 1919
-----------------
</TABLE>
