<PAGE> 1
AIM INVESTMENT
SECURITIES FUNDS
AIM LIMITED MATURITY
TREASURY FUND
INSTITUTIONAL
CLASS
[LOGO APPEARS HERE] ANNUAL REPORT JULY 31, 1998
Fund Management Company
<PAGE> 2
[AIM LOGO APPEARS HERE] LETTER TO OUR SHAREHOLDERS JULY 31, 1998
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 economic slump in Japan, becoming a significant
THE FUND drag on 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
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. It 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
800-659-1005 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, 800-659-1005 (option 3).
Thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
<PAGE> 3
The Managers' Overview
FUND PROVIDES STABILITY DURING VOLATILE YEAR
A roundtable discussion with the Fund management team for AIM Limited Maturity
Treasury Fund--Institutional Class for the fiscal year ended July 31, 1998.
- -------------------------------------------------------------------------------
Q. HOW DID THE 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 5.26%. The 30-day SEC yield
at NAV was 4.79%.
Total return for the year ended July 31, 1998 was 5.66%. In comparison,
the Lehman Brothers 1-2 Year U.S. Government Bond Index brought in a return
of 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 achieved its
year-to-date peak of 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. Unemployment stayed
low as well. This mix of elements provided a favorable environment for
bonds.
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
===============================================================================
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
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.
<PAGE> 4
is ongoing, the Fund always has holdings with a range of maturities.
Over time, this 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. 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 AAAf, 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 an
analysis of several factors, including the credit quality of the investments
within the portfolio, diversification of the assets, management, liquidity,
and investment practices.
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. There was a marked increase in demand for
shorter-dated securities, which was heightened by a dramatic dive in the Dow
Jones late in August. It's very unlikely that we 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.
===============================================================================
<PAGE> 5
Long-Term Performance
AIM LIMITED MATURITY TREASURY FUND--INSTITUTIONAL CLASS VS. BENCHMARK INDEX
The chart below compares the Institutional Class shares of your Fund to a
benchmark index. It is intended to give you a general idea of how the
Institutional Class shares of your Fund performed compared to the bond market
over the period 7/31/88-7/31/98.
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 the Fund's portfolio.
An investment cannot be made in an index. Index results exclude sales
charges, expenses and fees.
- -------------------------------------------------------------------------------
AIM Limited Maturity Treasury Fund Lehman Brothers 1-2 Year
-Institutional Class U.S. Government Bond Index
- -------------------------------------------------------------------------------
7/88 $ 10,000 $ 10,000
7/89 10,944 11,000
7/90 11,800 11,906
7/91 12,883 13,049
7/92 14,128 14,338
7/93 14,817 15,047
7/94 15,181 15,445
7/95 16,184 16,500
7/96 17,037 17,303
7/97 18,194 18,498
7/98 19,224 19,602
================================================================================
Past performance cannot guarantee comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/98
10 years 6.75%
5 years 5.35
1 year 5.66
As of 6/30/98 (the most recent calendar quarter end)
10 years 6.72%
5 years 5.30
1 year 6.22
================================================================================
Source: Tower Data Systems HYPO--Registered Trademark-- and Lipper Analytical
Services, Inc. Performance figures are historical and reflect reinvested
distributions and changes in net asset value, net of fees and expenses.
Investment return and principal value will vary so an investor may have a gain
or loss when selling shares.
MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
<PAGE> 6
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> 7
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>
6
<PAGE> 8
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>
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> 9
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
8
<PAGE> 10
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 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.
9
<PAGE> 11
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>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of the Institutional Class
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 0.56 0.56 0.58 0.57 0.37 0.44
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) -- 0.10 (0.06) 0.07 (0.20) 0.05
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Total from investment operations 0.56 0.66 0.52 0.64 0.17 0.49
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.56) (0.56) (0.58) (0.57) (0.37) (0.44)
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Distributions from net realized gains -- -- -- -- (0.08) (0.02)
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Total distributions (0.56) (0.56) (0.58) (0.57) (0.45) (0.46)
- --------------------------------------------- ------- ------- -------- -------- -------- --------
Net asset value, end of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96 $ 10.24
============================================= ======= ======= ======== ======== ======== ========
Total return(a) 5.66% 6.79% 5.27% 6.61% 1.72% 4.88%
============================================= ======= ======= ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $50,609 $48,866 $143,468 $129,530 $134,971 $130,690
============================================= ======= ======= ======== ======== ======== ========
Ratio of expenses to average net assets 0.32%(b) 0.31% 0.27% 0.28% 0.25%(c) 0.24%
============================================= ======= ======= ======== ======== ======== ========
Ratio of net investment income to average net
assets 5.51%(b) 5.56% 5.72% 5.70% 3.98%(c) 4.30%
============================================= ======= ======= ======== ======== ======== ========
Portfolio turnover rate 133% 130% 117% 120% 120% 123%
============================================= ======= ======= ======== ======== ======== ========
</TABLE>
(a) Total returns are not annualized for the periods less than one year.
(b) Ratios are based on average net assets of $49,917,358.
(c) Annualized.
10
<PAGE> 12
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 portfolio 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> 13
<TABLE>
<S> <C>
TRUSTEES
Charles T. Bauer
Bruce L. Crockett Robert H. Graham
Edward K. Dunn, Jr. Owen Daly II
Jack Fields Lewis F. Pennock
Carl Frischling Ian w. Robinson
Louis S. Sklar
OFFICERS
Charles T. Bauer Chairman
Robert H. Graham President
John J. Arthur Sr. Vice President & Treasurer
Gary T. Crum Sr. Vice President
Carol F. Relihan Sr. Vice President & Secretary
Melville B. Cox Vice President
Karen Dunn Kelley Vice President
Dana R. Sutton Vice President & Assistant Treasurer
Renee A. Friedli Assistant Secretary
P. Michelle Grace Assistant Secretary
Jeffrey H. Kupor Assistant Secretary
Nancy L. Martin Assistant Secretary
Lisa A. Moss Assistant Secretary
Ofelia M. Mayo Assistant Secretary
Kathleen J. Pflueger Assistant Secretary
Samuel D. Sirko Assistant Secretary
Stephen I. Winer Assistant Secretary
Mary J. Benson Assistant Treasurer
INVESTMENT ADVISOR
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046
800-347-1919
DISTRIBUTOR
Fund Management Company
11 Greenway Plaza, Suite 100
Houston, TX 77046
800-659-1005
CUSTODIAN
The Bank of New York
90 Washington Street, 11th Floor
New York, NY 10286
LEGAL COUNSEL TO FUND
Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, PA 19103-7599
LEGAL COUNSEL TO TRUSTEES
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
TRANSFER AGENT
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
AUDITORS
KPMG Peat Marwick LLP
700 Louisiana
NationsBank Building
Houston, TX 77002
This report may be distributed only to current shareholders or
to persons who have received a current Fund prospectus.
</TABLE>
