<PAGE> 1
AIM LIMITED MATURITY
TREASURY FUND
[AIM LOGO APPEARS HERE] ANNUAL REPORT JULY 31, 1998
<PAGE> 2
-------------------------------------
AIM LIMITED MATURITY TREASURY FUND
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 Funds' 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, 1998, the Fund paid distributions of
$0.5328 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-D2 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 Consumer Price Index (CPI) is a measure of change in consumer prices as
determined by the U.S. Bureau of Labor Statistics.
o The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded primarily industrial stocks.
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:
The fiscal year covered by this report was framed by the
financial crises in Asia, which caused turmoil in world
markets first during August of 1997 and again as the
[PHOTO OF reporting period was coming to a close. Markets had shrugged
Charles T. off the Asian crises for a while late in 1997, but toward the
Bauer, close of the fiscal year, concern was increasing about the
Chairman of contraction of Asian economies, especially the seemingly
the Board of intractable slump in Japan, becoming a significant drag on
THE FUND economic activity worldwide.
APPEARS HERE] In such troubled times, U.S. Treasury securities
typically act as safe havens, and, as discussed in the pages
that follow, they attracted considerable investor interest
during this period.
While many overseas economies struggled, domestic
economic news remained so good that debate centered on
whether the Federal Reserve Board (the Fed) should or would
raise interest rates to slow economic expansion. The U.S.
unemployment rate continued at long-term lows. Since a tight labor market is
widely regarded as an inflationary threat, many argued for a rate increase to
temper economic growth. However, the turmoil in Asia, combined with a near
collapse of commodity prices, has helped to hold recorded inflation in the U.S.
to a historically low level.
In the end, the Fed left short-term rates unchanged throughout the year
covered by this report, and the U.S. economy continued to exhibit sound
fundamentals: steady growth that seemed to be moderating of its own accord with
little or no inflation. As the reporting period closed, the yield curve was
unusually flat: the yield on 30-year Treasuries was 5.71%, just slightly higher
than yields on two-year Treasuries. Such a flat curve reflects investors'
confidence that inflation will remain contained. This is a favorable environment
for fixed-income securities. All in all, we at AIM remain cautiously optimistic
that the economic expansion may continue for the foreseeable future.
AIM FURTHER DIVERSIFIES ITS OFFERINGS
Shortly before the close of the reporting period, AIM broadened its offerings to
shareholders through the addition of the GT Global group of mutual funds. During
the next few months you will be receiving more details about this transaction
and the products it adds to The AIM Family of Funds--Registered Trademark--.
This transaction gives you, our shareholders, access to a greater
variety of investment choices through the expanded lineup of AIM funds. A
complete list of the funds now included in the AIM family appears on the back
cover of this report. We encourage you to discuss with your financial consultant
how these funds may fit into your portfolio.
The transaction also helps strengthen AIM's position as a major participant
in the money-management industry worldwide. Such strength will enable us to
continue enlarging both the scope of our fund offerings and our menu of services
for our shareholders. AIM continuously reviews its products and services with a
view to enhancing our ability to help shareholders meet their investment goals.
YOUR FUND MANAGERS COMMENT
On the pages that follow, the managers of your AIM Fund discuss how the Fund
performed during the fiscal year covered by this report and give their near-term
market outlook. We hope you will find their discussion informative.
We are pleased to send you this report on your Fund. If you have any
questions or comments, please contact our Client Services department at
800-959-4246 or visit our Web site at www.aimfunds.com. You can access
information about your account on our Web site and also on our automated AIM
Investor Line, 800-246-5463.
Thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
<PAGE> 4
The Managers' Overview
FUND PROVIDES STABILITY DURING VOLATILE YEAR
A roundtable discussion with the Fund management team for AIM Limited Maturity
Treasury Fund for the fiscal year ended July 31, 1998.
Q. HOW DID AIM LIMITED MATURITY TREASURY FUND PERFORM DURING THE REPORTING
PERIOD?
A. The last year has seen extraordinary volatility in both the fixed-income and
equity markets. Throughout all these ups and downs, the Fund adhered to its
investment discipline, producing competitive results.
Net asset value (NAV) per share remained stable, staying between
$10.03 and $10.13 during the reporting period. That's a volatility rate of
less than 1%.
The Fund also continued to provide attractive income. As of
July 31, 1998, the 30-day distribution rate at NAV was 5.04%. The 30-day SEC
yield at maximum offering price was 4.51%.
Total return for the year ended July 31, 1998 was 5.42%. In comparison,
the Lehman Brothers 1-2 Year U.S. Government Bond Index returned 5.97%.
Q. WHAT FACTORS CONTRIBUTED TO VOLATILITY IN THE FIXED-INCOME ARENA OVER THE
LAST YEAR?
A. Just over a year ago, world markets were rattled by the first shock waves of
the Asian financial crisis. Marked uncertainty about the impact of the
crisis sent investors to the relative safety of U.S. Treasury securities.
As investors sorted out their feelings about Asia, many traveled back
and forth between equity markets and U.S. Treasuries. However, during May
and June of 1998, negative sentiment gripped the equity markets. A series of
disappointing corporate earnings results suggested that the Asian fever had
spread across the Pacific. Toward the end of the reporting period and even
in the weeks beyond, the Dow Jones Industrial Average (the Dow) experienced
significant fluctuations. On July 17, 1998, the Dow peaked for the year at
9,337.98. Two weeks later, on July 31, it had sunk over 450 points to
8,883.29-a decline of nearly 5%. Investor interest in U.S. Treasuries surged
once again.
The result was a rally that sent the yield on the 30-year Treasury bond
to historic lows, falling to 5.71% as of July 31, 1998. At the end of the
reporting period, the yield on the two-year note stood at 5.48%. This small
difference in yield between long-term and short-term debt is displayed
graphically in the yield curve below.
In stark contrast to Asia's economic troubles, the U.S. domestic economy
has enjoyed continued low inflation and solid growth. The cost of living
increased just 1.56% during the reporting period. According to the Consumer
Price Index, unemployment stayed low as well. This mix of elements provided
a favorable environment for bonds.
---------------
In stark contrast to
Asia's economic troubles,
the U.S. domestic economy
has enjoyed
continued low inflation
and solid growth.
---------------
================================================================================
Yield Curve - U.S. Treasury Securities
As of 7/31/98
3 mos. 5.08%
6 mos. 5.187
1 year 5.351 --|
3 years 5.484 --| AREA OF INVESTMENT FOCUS
5 years 5.462
10 years 5.499
20 years 5.494
30 years 5.714
================================================================================
Source: Bloomberg. 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. Fund shares are not insured and their value
and yield will vary with market conditions.
See Important fund and index disclosures inside front cover.
<PAGE> 5
Q. WHAT WAS YOUR MANAGEMENT STRATEGY IN THIS ENVIRONMENT?
A. During volatile periods, we know that investors want stability. We strive to
provide that by following a highly disciplined strategy. The Fund purchases
two-year Treasury notes, holds them for 13 months, then sells them and buys
new two-year notes with the proceeds. Because this process is ongoing, the
Fund always has holdings with a range of maturities.
Over time, our strategy has kept volatility low, an important
consideration for investors seeking a safe haven during times of market
uncertainty and turmoil. The strategy also provides the Fund with exposure
across the entire one-to-two year maturity range. AIM research has shown
that this is the area that historically has provided the most attractive
risk/return ratio.
Q. HOW HAVE CHANGES IN TREASURY SUPPLY AFFECTED THE FUND?
A. Supplies of U.S. Treasuries have continued to diminish, as the government's
need for financing has been shrinking in light of a substantial U.S. budget
surplus. In May, the Treasury Department (the Treasury) announced a major
restructuring of its calendar for selling certain government securities.
Three-year notes, which have been auctioned monthly since 1976, will be
eliminated. The Treasury felt that two- and five-year notes offered
investors similar choices. In addition, five-year notes will be auctioned
quarterly instead of monthly.
In general, a smaller supply could drive the prices of bonds up,
decreasing yields. However, we believe the changes in Treasury auctions
won't have an immediate, direct effect on the Fund. Normally, we only
purchase securities with maturities out to two years.
Even though the Treasury is working to reduce supply, we don't believe
it will eliminate the two-year notes. They have been issued since 1974 and
have become important investment instruments. With such a strong precedent,
we believe the Treasury will continue to offer the two-year note. However,
there are discussions underway about the possibility of reducing the number
of auctions on two-year notes if the budget surplus continues to grow.
Should this happen, the Fund has the flexibility to adjust its strategy
appropriately.
Q. DESCRIBE THE PORTFOLIO AT THE END OF THE REPORTING PERIOD.
A. The weighted average maturity of the portfolio was 1.54 years. Its duration
was 1.4 years. The Fund had an average credit rating of AAA, the highest
rating possible, as measured by Standard and Poor's (S&P), a widely-known
credit-rating agency. These ratings are historical and are based on analysis
of the individual securities in the Fund's portfolio.
Q. WHAT IS YOUR OUTLOOK FOR THE GOVERNMENT BOND MARKET?
A. Federal Reserve Board Chairman Alan Greenspan, speaking to Congress in July,
warned that the tight labor market could eventually accelerate inflation,
which could lead to an increase in rates. However, at its mid-August meeting
(after the end of the reporting period), the Fed left rates unchanged,
reflecting its concern about continued turmoil in Asia and recent struggles
in the Russian economy.
We've seen a marked increase in demand for shorter-dated securities,
which was heightened by a dramatic dive in the Dow Jones Industrial Average
late in August. It's very unlikely that the U.S. will experience inflation
during the short-term, and deflation may even be a possibility. In such an
environment, we believe the bond market will continue to attract investors.
================================================================================
Stability of Net Asset Value
7/31/88-7/31/98
- --------------------------------------------------------------------------------
7/88 9.84%
7/89 9.88
7/90 9.82
7/91 9.95
7/92 10.21
7/93 10.20
7/94 9.96
7/95 10.09
7/96 9.97
7/97 10.07
7/98 10.07
================================================================================
Source: Towers Data Systems HYPO--Registered Trademark--. There is no
guarantee that the Fund will maintain a constant NAV. Investment return and
principal value will vary so that you may have a gain or loss when you sell
shares. Past performance cannot guarantee future results.
---------------
Over time, our strategy
has kept volatility low,
an important consideration for
investors seeking a safe haven
during times of market
uncertainty and turmoil.
---------------
See important fund and index disclosures inside front cover.
<PAGE> 6
Long-Term Performance
AIM LIMITED MATURITY TREASURY FUND VS. BENCHMARK INDEXES
The chart below compares your Fund to a benchmark index. It is intended to give
you a general idea of how your Fund performed compared to the bond market over
the period 7/31/88-7/31/98.
It's important to understand the difference between your Fund and an index.
An index like the Lehman Brothers 1-2 Year U.S. Government Bond Index
(illustrated below) measures the performance of a hypothetical portfolio of
short-term government bonds. The composition of this portfolio may not be
exactly the same as your Fund's portfolio.
There are other differences as well. You cannot invest in an index; it is
simply a measuring tool. Because indexes are not managed, there are no sales
charges, expenses or fees. But even if you could buy all the securities that
make up a particular index, your purchase would include expenses, making the
actual return lower than that shown below.
GROWTH OF A $10,000 INVESTMENT
7/31/88-7/31/98
- --------------------------------------------------------------------------------
AIM LIMITED MATURITY LEHMAN 1-2 YEAR U.S.
TREASURY FUND GOVERNMENT BOND INDEX
- --------------------------------------------------------------------------------
(In thousands)
7/31/88 $9,899 10,000
7/31/89 10,819 11,000
7/31/90 11,650 11,906
7/31/91 12,693 13,049
7/31/92 13,987 14,338
7/31/93 14,542 15,047
7/31/94 14,866 15,445
7/31/95 15,811 16,500
7/31/96 16,385 17,303
7/31/97 17,684 18,498
7/31/98 18,643 19,602
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURN
As of 7/31/98, including sales charges.
10 Years 6.43%
5 Years 4.89
1 Year 4.39*
*5.42% excluding sales charges
As of 6/30/98 (the most recent calendar quarter end), including sales charges
10 Years 6.40%
5 Years 4.85
1 Year 4.93**
**5.98% excluding sales charges
================================================================================
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.
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
<PAGE> 7
SCHEDULE OF INVESTMENTS
JULY 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000S) VALUE
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-99.00%
5.875% 08/31/99 $32,250 $ 32,384,160
- -------------------------------------------------------------------------------------------------------------
5.75% 09/30/99 32,045 32,143,378
- -------------------------------------------------------------------------------------------------------------
5.625% 10/31/99 32,275 32,324,058
- -------------------------------------------------------------------------------------------------------------
5.625% 11/30/99 33,400 33,456,446
- -------------------------------------------------------------------------------------------------------------
5.625% 12/31/99 33,000 33,059,400
- -------------------------------------------------------------------------------------------------------------
5.375% 01/31/00 33,075 33,022,742
- -------------------------------------------------------------------------------------------------------------
5.50% 02/29/00 33,000 33,006,930
- -------------------------------------------------------------------------------------------------------------
5.50% 03/31/00 32,000 32,008,320
- -------------------------------------------------------------------------------------------------------------
5.625% 04/30/00 32,300 32,367,184
- -------------------------------------------------------------------------------------------------------------
5.50% 05/31/00 32,500 32,501,300
- -------------------------------------------------------------------------------------------------------------
5.375% 06/30/00 32,840 32,783,515
- -------------------------------------------------------------------------------------------------------------
5.375% 07/31/00 33,000 32,936,930
- -------------------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $391,293,845) 391,994,363
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.00% 391,994,363
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.00% 3,970,184
- -------------------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $395,964,547
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$391,293,845) $ 391,994,363
- --------------------------------------------------------
Cash 58,653
- --------------------------------------------------------
Receivables for:
Fund shares sold 1,240,495
- --------------------------------------------------------
Interest 4,627,571
- --------------------------------------------------------
Investment in deferred compensation plan 24,994
- --------------------------------------------------------
Other assets 73,132
- --------------------------------------------------------
Total assets 398,019,208
- --------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,023,583
- --------------------------------------------------------
Dividends 599,786
- --------------------------------------------------------
Deferred compensation 24,994
- --------------------------------------------------------
Accrued administrative services fees 5,227
- --------------------------------------------------------
Accrued advisory fees 67,422
- --------------------------------------------------------
Accrued distribution fees 62,503
- --------------------------------------------------------
Accrued transfer agent fees 33,450
- --------------------------------------------------------
Accrued operating expenses 237,696
- --------------------------------------------------------
Total liabilities 2,054,661
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 395,964,547
========================================================
</TABLE>
<TABLE>
<S> <C>
NET ASSETS:
Class A $ 345,355,189
========================================================
Institutional Class $ 50,609,358
========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 34,300,002
========================================================
Institutional Class 5,026,426
========================================================
Class A:
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
========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.07
- --------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $24,949,619
- -------------------------------------------------------
EXPENSES:
Advisory fees 855,900
- -------------------------------------------------------
Administrative services fees 59,396
- -------------------------------------------------------
Custodian fees 36,726
- -------------------------------------------------------
Transfer agent fees-Class A 307,594
- -------------------------------------------------------
Transfer agent fees-Institutional Class 45,118
- -------------------------------------------------------
Trustees' fees and expenses 24,508
- -------------------------------------------------------
Distribution fees-Class A (See Note 2) 567,049
- -------------------------------------------------------
Other 298,763
- -------------------------------------------------------
Total expenses 2,195,054
- -------------------------------------------------------
Less: Expenses paid indirectly (4,054)
- -------------------------------------------------------
Net expenses 2,191,000
- -------------------------------------------------------
Net investment income 22,758,619
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 1,855,056
- -------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (1,793,413)
- -------------------------------------------------------
Net gain from investment securities 61,643
- -------------------------------------------------------
Net increase in net assets resulting from
operations $22,820,262
=======================================================
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 9
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,758,619 $ 22,525,910
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 1,855,056 (328,964)
- --------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (1,793,413) 4,775,213
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,820,262 26,972,159
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (20,003,878) (19,613,259)
- --------------------------------------------------------------------------------------------
Institutional Class (2,754,741) (2,912,651)
- --------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A (44,498,315) 27,226,897
- --------------------------------------------------------------------------------------------
Institutional Class 1,723,996 (95,511,728)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (42,712,676) (63,838,582)
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 438,677,223 502,515,805
- --------------------------------------------------------------------------------------------
End of period $395,964,547 $ 438,677,223
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $400,652,004 $ 443,515,589
- --------------------------------------------------------------------------------------------
Undistributed net investment income 88,842 --
- --------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (5,476,817) (7,332,297)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 700,518 2,493,931
- --------------------------------------------------------------------------------------------
$395,964,547 $ 438,677,223
============================================================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
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 AIM Limited Maturity Treasury Fund (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 Class A shares and the Institutional Class. Matters
affecting each portfolio or class are voted on exclusively by the shareholders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these financial
statements pertains only to the Fund.
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. The
following is a summary of the significant accounting policies followed by the
Fund in the preparation of its financial statements.
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. On
July 31, 1998, undistributed net investment income was increased by $88,842,
undistributed net realized gain (loss) decreased by $424 and paid-in-capital
decreased by $89,266 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the Fund were unaffected by the reclassifications
discussed above.
C. Dividends and Distributions to Shareholders--It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Distributions from net realized capital gains, if any, are recorded
on ex-dividend date and are paid annually.
D. Federal Income Taxes--The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward (which may be carried forward to offset future taxable capital
gains, if any) of $5,440,638, 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, 1998, the Fund
reimbursed AIM $59,396 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 Fund. On September 20, 1997, the Board of Trustees
of the Fund approved the appointment of AFS as transfer agent of the
Institutional Class effective December 29, 1997. During the year ended July 31,
1998, AFS was paid $136,066 with respect to Class A shares, and for the period
December 29, 1997 through July 31, 1998, AFS was paid $26,979 with respect to
the Institutional Class. Prior to the effective date of the agreement with AFS,
the Fund paid A I M Institutional Fund Services, Inc. $18,419 pursuant to a
transfer agency and shareholder services agreement with respect to the
Institutional Class for the period August 1, 1997 through December 28, 1997.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and a master distribution agreement with Fund Management Company
("FMC") to serve as
8
<PAGE> 11
the distributor for the Institutional Class. The Trust has adopted a Plan
pursuant to Rule 12b-1 under the 1940 Act (the "Plan") with respect to the Class
A shares. The Fund pays AIM Distributors compensation at an annual rate of 0.15%
of the average daily net assets attributable to the Class A 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 Class A shares of the Fund. Any amounts not paid
as a service fee under the 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, 1998, the Fund paid AIM Distributors $567,049 as compensation under the
Plan.
AIM Distributors received commissions of $56,989 during the year ended
July 31, 1998 from sales of Class A shares. Such commissions are not an expense
of the Fund. They are deducted from, and are not included in, proceeds from
sales of Class A shares. Certain officers and trustees of the Trust are officers
and directors of AIM, AIM Distributors, FMC and AFS.
During the year ended July 31, 1998, the Fund paid legal fees of $4,177 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
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) of $4,054 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $4,054 during the year ended July 31, 1998.
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) $1,000,000,000 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 May 1, 1998, the Fund was limited
to borrowing up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. During the year ended July 31, 1998, 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, 1998 was
$569,622,549 and $612,378,696, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 692,739
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (17,945)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 674,794
=========================================================
Cost of investments for tax purposes is $391,319,569.
</TABLE>
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, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 22,832,451 $ 229,871,705 22,795,689 $ 228,371,816
- --------------------------------------------------------------------------------
Institutional Class 1,450,340 14,604,304 2,663,678 26,662,958
- --------------------------------------------------------------------------------
Issued as a
reinvestment of
dividends:
Class A 1,671,295 16,825,885 1,600,608 16,029,270
- --------------------------------------------------------------------------------
Institutional Class 4,391 44,205 16,172 161,587
- --------------------------------------------------------------------------------
Reacquired:
Class A (28,922,414) (291,195,905) (21,687,977) (217,174,189)
- --------------------------------------------------------------------------------
Institutional Class (1,281,958) (12,924,513) (12,215,116) (122,336,273)
- --------------------------------------------------------------------------------
(4,245,895) $ (42,774,319) (6,826,946) $ (68,284,831)
================================================================================
</TABLE>
9
<PAGE> 12
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A shares
outstanding during each of the years in the four-year period ended July 31,
1998, the eleven months ended July 31, 1994 and the year ended August 31, 1993.
<TABLE>
<CAPTION>
JULY 31,
----------------------------------------------------- AUGUST 31,
1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24 $ 10.21
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.53 0.54 0.55 0.54 0.35 0.42
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) -- 0.10 (0.06) 0.07 (0.20) 0.05
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total from investment operations 0.53 0.64 0.49 0.61 0.15 0.47
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.53) (0.54) (0.55) (0.54) (0.35) (0.42)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- (0.08) (0.02)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total distributions (0.53) (0.54) (0.55) (0.54) (0.43) (0.44)
- ------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24
============================================================ ======== ======== ======== ======== ======== ========
Total return(a) 5.42% 6.55% 4.98% 6.36% 1.52% 4.65%
============================================================ ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $345,355 $389,812 $359,048 $274,480 $329,942 $348,937
============================================================ ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.51% 0.47%(c) 0.46%
============================================================ ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 5.29%(b) 5.35% 5.45% 5.44% 3.75%(c) 4.07%
============================================================ ======== ======== ======== ======== ======== ========
Portfolio turnover rate 133% 130% 117% 120% 120% 123%
============================================================ ======== ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are based on average net assets of $378,032,807.
(c) 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 AIM
Limited Maturity Treasury Fund (a series of AIM Investment Securities Funds)
including the schedule of investments, as of July 31, 1998, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the four-year period then ended,
the eleven months ended July 31, 1994 and the year 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, 1998, 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
AIM Limited Maturity Treasury Fund as of July 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the four-year period then ended, the eleven months ended
July 31, 1994 and the year ended August 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
September 4, 1998
Houston, Texas
11
<PAGE> 14
Trustees & Officers
<TABLE>
<S> <C> <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
Director
ACE Limited; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II TRANSFER AGENT
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Melville B. Cox
President, Mercantile Bankshares Vice President The Bank of New York
90 Washington Street, 11th Floor
Jack Fields Karen Dunn Kelley New York, NY 10286
Chief Executive Officer Vice President
Texana Global, Inc.; COUNSEL TO THE FUND
Formerly Member Renee A. Friedli
of the U.S. House of Representatives Assistant Secretary Ballard Spahr
Andrews & Ingersoll, LLP
Carl Frischling P. Michelle Grace 1735 Market Street
Partner Assistant Secretary Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel
Jeffrey H. Kupor COUNSEL TO THE TRUSTEES
Robert H. Graham Assistant Secretary
President and Chief Executive Officer Kramer, Levin, Naftalis & Frankel
A I M Management Group Inc. Nancy L. Martin 919 Third Avenue
Assistant Secretary New York, NY 10022
Lewis F. Pennock
Attorney Ofelia M. Mayo DISTRIBUTOR
Assistant Secretary
Ian W. Robinson A I M Distributors, Inc.
Consultant; Formerly Executive Lisa A. Moss 11 Greenway Plaza
Vice President and Assistant Secretary Suite 100
Chief Financial Officer Houston, TX 77046
Bell Atlantic Management Kathleen J. Pflueger
Services, Inc. Assistant Secretary AUDITOR
Louis S. Sklar Samuel D. Sirko KPMG Peat Marwick LLP
Executive Vice President Assistant Secretary 700 Louisiana
Hines Interests NationsBank Building
Limited Partnership Stephen I. Winer Houston, TX 77002
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
STATE TAX INFORMATION
Of the total dividends paid, 100% was derived from U.S. Treasury obligations.
12
<PAGE> 15
How AIM Makes Investing
Easy For You
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time, the
power of compounding can significantly increase the value of your assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may be
more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds--Registered Trademark--. The exchange privilege may be
modified or discontinued for any of the AIM Funds.
o RETIREMENT PLANS. You may purchase shares of the Fund for your Individual
Retirement Account (IRA) or any other type of retirement plan, and earn
tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o www.aimfunds.com. As a current shareholder, you can check account balances
24 hours a day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering or forgery.
-------------------
Current shareholders
can call our
AIM Investor Line at
800-246-5463
for 24-hour-a-day
account information.
-------------------
<PAGE> 16
THE AIM FAMILY OF FUNDS--REGISTERED TRADEMARK--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund
AIM Blue Chip Fund AIM Asian Growth Fund
AIM Capital Development Fund AIM Developing Markets Fund(2)
AIM Constellation Fund AIM Emerging Markets Fund(2)
[PHOTO OF AIM Mid Cap Equity Fund(2),(A) AIM Europe Growth Fund(2)
11 GREENWAY PLAZA AIM Select Growth Fund(3) AIM European Development Fund
APPEARS HERE] AIM Small Cap Growth Fund(2),(B) AIM International Equity Fund
AIM Small Cap Opportunities Fund AIM International Growth Fund(2)
AIM Value Fund AIM Japan Growth Fund(2)
AIM Weingarten Fund AIM Latin American Growth Fund(2)
AIM New Pacific Growth Fund(2)
GROWTH & INCOME FUNDS
GLOBAL GROWTH FUNDS
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor MultiFlex Fund AIM Global Growth Fund
AIM Advisor Real Estate Fund AIM Worldwide Growth Fund(2)
AIM Balanced Fund
AIM Basic Value Fund(2),(C) GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund
AIM Global Growth & Income Fund(2)
INCOME FUNDS AIM Global Utilities Fund
AIM Floating Rate Fund(2) GLOBAL INCOME FUNDS
AIM High Yield Fund
AIM Income Fund AIM Emerging Markets Debt Fund(2),(D)
AIM Intermediate Government Fund AIM Global Government Income Fund(2)
AIM Limited Maturity Treasury Fund AIM Global Income Fund
AIM Strategic Income Fund(2)
TAX-FREE INCOME FUNDS
THEME FUNDS
AIM High Income Municipal Fund
AIM Municipal Bond Fund AIM Global Consumer Products and Services Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Financial Services Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Health Care Fund(2)
AIM Global Infrastructure Fund(2)
MONEY MARKET FUNDS
AIM Global Resources Fund(2)
AIM Dollar Fund(2) AIM Global Telecommunications Fund(2)
AIM Money Market Fund AIM Global Trends Fund(2),(E)
AIM Tax-Exempt Cash Fund
</TABLE>
(1)AIM Aggressive Growth Fund was closed to new investors on June 5, 1997.
(2)Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3)On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A)On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B)On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C)On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D)On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E)On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
A I M Management Group Inc. has provided leadership in the mutual fund industry
since 1976 and managed approximately $101 billion in assets for more than 5.2
million shareholders, including individual investors, corporate clients, and
financial institutions, as of June 30, 1998. The AIM Family of
Funds--Registered Trademark-- is distributed nationwide, and AIM today is the
ninth-largest mutual fund complex in the U.S. in assets under management,
according to Strategic Insight, an independent mutual fund monitor.
INVEST WITH DISCIPLINE--REGISTERED TRADEMARK--
