<PAGE> 1
ANNUAL REPORT / JULY 31 1999
AIM HIGH YIELD FUND II
[Art work for High Yield II]
[AIM LOGO APPEARS HERE]
<PAGE> 2
[ART WORK FOR HIGH YIELD FUND II]
-------------------------------------
LANDSCAPE AT AUVERS AFTER THE RAIN
BY VINCENT VAN GOGH (1853-1890, DUTCH)
VAN GOGH SPENT ONLY THREE MONTHS IN AUVERS-SUR-OISE, A
SMALL VILLAGE NORTH OF PARIS, WHERE HE PRODUCED THE LAST
OF HIS BELOVED PAINTINGS. THIS LANDSCAPE, AMONG HIS
TRIBUTES TO THE HEALTH AND RESTORATIVE FORCES OF THE FRENCH
COUNTRYSIDE, IS A FITTING EMBLEM FOR THE GROWTH POTENTIAL
OF AIM'S NEWEST HIGH-YIELD FUND.
-------------------------------------
AIM High Yield Fund II is for shareholders who seek a high level of current
income. The fund invests in a portfolio consisting primarily of publicly traded
non-investment grade debt securities. The fund will also consider the
possibility of capital growth when it buys and sells securities.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM High Yield Fund II performance figures are historical and reflect
reinvestment of all distributions and changes in net asset value.
o Had the advisor not absorbed fund expenses, performance figures would have
been lower.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B and Class C
share performance reflects the applicable contingent deferred sales charge
(CDSC) for the period involved. The CDSC on Class B shares declines from 5%
beginning at the time of purchase to 0% at the beginning of the seventh
year. The CDSC on Class C shares is 1% for the first year after purchase.
The performance of the fund's Class B and Class C shares will differ from
that of Class A shares due to differences in sales charge structure and
expenses.
o Because the fund has been offered for less than one year, all total return
figures reflect cumulative total returns that have not been annualized.
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 Had the advisor not absorbed fund expenses, the 30-day SEC yield as of July
31, 1999 would have been 9.36%, 9.07% and 9.07% for Class A, Class B and
Class C shares, respectively.
o The fund invests primarily in higher-yielding, lower-rated corporate bonds,
commonly known as "junk bonds." These bonds have a greater risk of price
fluctuation and loss of principal and income than U.S. government
securities, such as U.S. Treasury bonds and bills, which offer a government
guarantee as to the repayment of principal and interest if held to maturity.
o The fund's investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The Lehman High Yield Bond Index is an unmanaged composite generally
considered representative of high-yield debt securities. It is compiled by
Lehman Brothers, a well-known global investment bank.
o The unmanaged Lipper High Yield Bond Index represents an average of the
performance of the 30 largest high-yield funds charted by Lipper, Inc., an
independent mutual fund performance monitor. Results shown reflect
reinvestment of dividends.
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 will vary with market conditions.
o An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THERE IS A
RISK THAT YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
This report may be distributed only to current shareholders or to persons who
have received a current prospectus of the fund.
AIM HIGH YIELD FUND II
<PAGE> 3
ANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
With only several months remaining in 1999, the question on
[PHOTO OF many of your minds may be, "How will the year 2000 computer
Charles T. issue affect AIM and my investments?" We would like you to
Bauer, feel comfortable. We are pleased to be able to report to you
Chairman of that as of June 1999 we achieved a major milestone toward
the Board of year 2000 compliance status: we have successfully completed
THE FUND the testing of all of our mission-critical systems.
APPEARS HERE] Earlier this year, AIM participated in an industrywide
test that gave us a chance to see how our technology systems
might be affected by the changeover to the year 2000 (Y2K).
Everything went as well as we had hoped; in general, the
industry sailed through the testing process with flying
colors. The financial industry has been seen as a leader in
planning for year 2000 concerns. Thus, it was no surprise to
most participants that the test was an overwhelming success.
The general purpose of the process was to test
electronic interfaces among financial industry members in the United States and
to follow transactions through a typical trading cycle--from order entry to the
settlement process. Investment banks, broker-dealers, custodian banks and mutual
fund companies all worked together to make this possible. Approximately 400
firms were involved in the testing; AIM was one of 70 asset managers.
During the testing process, thousands of transactions were submitted and
approximately 260,000 steps were tested. Of those, only a handful experienced
minor glitches--just 0.02% of the total number of transactions. All problems
were worked through quickly before the hypothetical trades were settled. Of
course, AIM will keep testing and planning throughout 1999 as a precaution.
AIM'S INTERNAL EFFORTS CONTINUE
As you know from our previous communications to you, AIM has been addressing the
year 2000 issue for several years. Now that we have finished adjusting our
applications and systems, our focus for the rest of 1999 is to continue
monitoring the year 2000 readiness status of outside sources we're linked to
electronically. On the investment side, our portfolio management staff is
continually evaluating the Y2K preparedness of the domestic and foreign
companies in which we invest.
We feel that our preparations for 2000 are very comprehensive, and the
industrywide testing showed that our colleagues in the financial industry are
also working hard to be ready for the new year. We do not think shareholders
need to take any extraordinary measures with their investments to prepare for
2000. However, if you have any lingering concerns, it may reassure you to know
that AIM is finalizing contingency plans that will be ready if necessary. Our
plans will give AIM employees guidelines to follow for a wide variety of
situations.
For a more comprehensive discussion of our Y2K efforts and for periodic
updates, please visit our Web site, www.aimfunds.com.
We are pleased to send you this report covering your fund's performance over
the fiscal year. If you have any questions or comments, please contact our
Client Services department at 800-959-4246, or e-mail your inquiry to us at
[email protected]. You can access information about your account through our
automated AIM Investor Line at 800-246-5463 or at our Web site.
Thank you for your continued participation in The AIM Family of Funds
- --Registered Trademark--. We appreciate your business.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman
A I M Advisors, Inc.
-------------------------------------
THE FINANCIAL
INDUSTRY HAS BEEN SEEN
AS A LEADER IN
PLANNING FOR
YEAR 2000 CONCERNS.
-------------------------------------
PLEASE NOTE THAT THE INFORMATION ABOUT THE YEAR 2000 IN THIS LETTER IS DEEMED
AIM'S YEAR 2000 READINESS DISCLOSURE.
AIM HIGH YIELD FUND II
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND POSTS IMPRESSIVE RETURNS DESPITE
DIFFICULT HIGH-YIELD MARKET
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR ENDED JULY 31, 1999?
We are pleased to report that the fund posted very impressive returns during the
reporting period despite a difficult high-yield market environment. Cumulative
total return at net asset value, that is, without the effect of sales charges,
from inception on September 30, 1998 to July 31, 1999, was 22.39% for Class A
shares. The fund's Class A shares' performance outpaced the 4.79% return of the
Lehman High Yield Bond Index and the 7.16% gain by the Lipper High Yield Bond
Index for the same period. The fund's Class B and Class C shares returned at net
asset value 13.03% and 12.93%, respectively, from their inception on November
20, 1998 to July 31, 1999.
Although the high-yield market in general lagged during the fiscal year, the
fund continued to provide extremely attractive current income. As of July 31,
1999, the fund's 30-day SEC yield was 9.98% for Class A shares and 9.72% for
Class B and Class C shares. By comparison, the yield on the benchmark 30-year
U.S. Treasury bond was just 6.10%.
AIM's newest high-yield fund continued to attract investor interest. Net
assets under management more than tripled during the last six months for a total
of $59.1 million on July 31.
WHAT WERE THE MAJOR TRENDS IN FIXED-INCOME MARKETS DURING THE REPORTING PERIOD?
Bond performance was generally disappointing for the reporting period. This poor
performance stemmed from heightened concerns that the Federal Reserve Board (the
Fed) would raise interest rates to slow economic growth and combat inflation.
These concerns surfaced early in 1999 after economic data showed that the U.S.
gross domestic product continued to expand at a blistering pace. But the primary
catalyst for concerns about a Fed rate hike was the dramatic and unexpected rise
in the inflation rate in April.
Uncertainty regarding the extent to which the Fed might raise interest rates
eroded bond prices in May and June, sending their yields higher. On June 30, the
Fed raised the federal funds rate from 4.75% to 5%. Initially, the Fed's
decision was well received and sparked a relief rally. However, later in July,
as the possibility of higher inflation loomed and Fed chairman Alan Greenspan
hinted at the potential for more rate tightenings, bond markets began to falter.
HOW DID HIGH-YIELD BONDS FARE IN THIS MARKET ENVIRONMENT?
High-yield bonds have been in a challenging market environment. Since late 1998,
a convergence of factors has led to the decline in high-yield bond prices. A
succession of global economic crises and political controversy in the United
States at the beginning of the fiscal year caused investors to favor the safest
and most liquid investment classes. This shift in investor sentiment occurred at
the expense of high-yield bonds.
When bond markets started to recover in late 1998, riskier assets once again
outperformed higher-quality issues as bond issuers compensated investors for
taking on more risk. During this time, emerging-markets debt and high-yield
securities were among the better-performing segments of the bond market.
High-yield bonds also generally outperform other fixed-income assets when
interest rates rise because these bonds usually have higher coupons and shorter
durations, which make them less sensitive to interest-rate moves.
PORTFOLIO COMPOSITION
As of 7/31/99, based on total net assets
<TABLE>
<CAPTION>
==================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Sterling Chemicals, Inc. 3.48% 1. Telecommunications (Cellular/Wireless) 10.79%
2. Lodgian Financing Corp. 3.42 2. Telephone 8.88
3. Earthwatch Inc. 2.96 3. Telecommunications (Long Distance) 5.74
4. Falcon Products, Inc. 2.95 4. Computers (Software & Services) 4.72
5. JL French Automotive Casting 2.87 5. Foods 4.28
6. Powertell, Inc. 2.86 6. Textiles (Apparel) 3.82
7. Comstock Resources, Inc. 2.61 7. Chemicals 3.48
8. Vista Eyecare, Inc. 2.61 8. Financial (Diversified) 3.42
9. KMC Telecom Holdings, Inc. 2.60 9. Oil & Gas (Exploration & Production) 3.40
10. Western Gas Resources, Inc. 2.57 10. Metals (Mining) 3.08
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
==================================================================================================
</TABLE>
See important fund and index disclosures inside front cover.
AIM HIGH YIELD FUND II
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
Despite these positive changes, the high-yield market continued to suffer
from lack of investor confidence. Although high-yield bonds performed better
than most other types of fixed-income instruments in the first half of the year,
investors remained wary of the bonds' riskier nature. This general decline in
investor confidence was also fueled by an increase in default rates. Through the
first six months of 1999, the default rate for high-yield bonds was 4.5%,
compared to 3.4% last year and 2% in 1997.
WHAT CONTRIBUTED TO THE FUND'S STRONG GAINS DURING THE REPORTING PERIOD?
We started AIM High Yield Fund II at an advantageous time in 1998. During the
high-yield market downturn, we were able to invest in new positions at very
attractive levels. Since then, the fund has benefited from a significant rebound
in the metals, energy, paper and chemical industries. In a dramatic reversal of
trends, sectors that had been hardest hit during the market downturn in 1998
have rebounded the most so far in 1999.
With a cash position of approximately 5% during the reporting period, the
fund continued its trend of opportunistic buying. Volatility in the high-yield
market created some exceptional values in profitable sectors, such as the
telecommunications and telephone industries. Telecommunications firms continued
to benefit from consolidation and from growing investor interest in the new
generation of communications spawned by the computer age. At the reporting
period's end, these industries were the fund's largest, accounting for more than
25% of total net assets.
The fund's strong performance was also fueled by its equity holdings, which
represented approximately 5% to 6% of total net assets during the reporting
period. Since we buy equities of only those companies whose high-yield bonds the
fund already owns, we were able to leverage our research effort to increase the
fund's gains without incurring additional costs. This small position in equities
boosted the fund's total return by approximately 3% to 4% for the reporting
period. A notable example in this arena was Nextel Communications, which
provides mobile phone service, two-way radio dispatch and paging services to
business users. We bought Nextel's common stock in the low $20s back in late
1998 and sold it for approximately $50 after the market rebounded.
WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 1999?
Several economic forces for favorable bond performance are now in place: modest
inflationary pressures, full employment, income growth, relatively low interest
rates and robust capital formation. By the end of the reporting period,
high-yield bonds boasted some excellent values relative to other fixed-income
securities. Indeed, even if the prices of high-yield bonds remain low, their
yields of about 10%, on average, provide a valuable safety cushion. As
fundamentals continue to improve in the next few months, a full recovery in the
high-yield market may depend on the time it takes for investors to become
comfortable again with the risk-reward profile of this asset class. Although we
cannot predict if and when this shift in market sentiment will occur, we believe
that AIM High Yield Fund II remains an attractive option for investors looking
for high income with some potential of appreciation.
YOUR FUND'S PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM HIGH YIELD FUND II VS. BENCHMARK INDEXES
9/30/98-7/31/99
In thousands
- -------------------------------------------------------------------------
LEHMAN
HIGH YIELD II LIPPER HIGH YIELD HIGH YIELD
BOND FUND INDEX BOND INDEX
- -------------------------------------------------------------------------
9/30 $ 9525.00 10000.00 10000.00
10/98 9664.00 9773.00 9795.00
11/98 10333.00 10347.00 10201.00
12/98 10334.00 10315.00 10213.00
1/99 10474.00 10501.00 10364.00
2/99 10508.00 10459.00 10303.00
3/99 10822.00 10644.00 10401.00
4/99 11369.00 10919.00 10603.00
5/99 11342.00 10711.00 10460.00
6/99 11519.00 10713.00 10437.00
7/99 11656.00 10716.00 10479.00
=========================================================================
The chart compares your fund's Class A shares to benchmark indexes. It is
important to understand differences between your fund and these indexes. An
index measures performance of a hypothetical portfolio. A market index such as
the Lehman High Yield Bond Index is not managed, incurring no sales charges,
expenses or fees. If you could buy all the securities that make up a market
index, you would incur expenses that would affect your investment's return. An
index of funds such as the Lipper High Yield Bond Index includes a number of
mutual funds grouped by investment objective. Each of those funds interprets
that objective differently, and each employs a different management style and
investment strategy. Use of these indexes is intended to give you a general idea
of how your fund performed compared to these benchmarks.
================================================================================
CUMULATIVE TOTAL RETURNS
As of 7/31/99, including sales charges
CLASS A SHARES
Since Inception (9/30/98) 16.56%
CLASS B SHARES
Since Inception (11/20/98) 8.03%
CLASS C SHARES
Since Inception (11/20/98) 11.93%
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE
SHOWN.
See important fund and index disclosures inside front cover.
AIM HIGH YIELD FUND II
3
<PAGE> 6
SCHEDULE OF INVESTMENTS
July 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NON-CONVERTIBLE BONDS &
NOTES-85.88%
AIRLINES-1.71%
Dunlop Standard Aero Holdings, Sr.
Notes, 11.875%, 05/15/09(a) $ 990,000 $ 1,012,275
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-2.87%
JL French Automotive Castings,
Inc., Sr. Sub. Notes, 11.50%,
06/01/09(a) 1,670,000 1,695,050
- --------------------------------------------------------------
CHEMICALS-3.48%
Sterling Chemicals, Inc., Sec.
Notes, 12.375%, 07/15/06(a) 2,000,000 2,055,000
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-2.52%
Key Plastics Holdings, Inc., Series
B Sr. Sub. Notes, 10.25%,
03/15/07 1,540,000 1,488,011
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-4.66%
Cybernet Internet Services
International, Inc., Notes,
14.00%, 07/01/09(a) 1,000,000 1,007,500
- --------------------------------------------------------------
Earthwatch Inc., Sr. Disc. Notes,
13.00%, 07/15/07 (Acquired
07/07/99; Cost $1,711,525)(b)(c) 2,500,000 1,749,891
- --------------------------------------------------------------
2,757,391
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-1.30%
Panda Funding Corp., Series A-1
Pooled Project Bonds, 11.625%,
08/20/12 750,000 768,750
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-3.42%
Lodgian Financing Corp., Sr. Sub.
Notes, 12.25%, 07/15/09(a) 2,000,000 2,020,000
- --------------------------------------------------------------
FOODS-4.28%
Vlasic Foods International, Inc.,
Sr. Sub. Notes, 10.25%,
07/01/09(a) 1,500,000 1,458,744
- --------------------------------------------------------------
Volume Services America Inc., Sr.
Sub. Notes, 11.25%, 03/01/09(a) 1,000,000 1,070,000
- --------------------------------------------------------------
2,528,744
- --------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-2.41%
Venetian Casino Resort LLC, Sec.
Gtd. Mortgage Notes, 12.25%,
11/15/04 1,500,000 1,424,972
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-1.77%
King Pharmaceuticals, Inc., Sr.
Unsec. Gtd. Sub. Notes, 10.75%,
02/15/09 1,000,000 1,045,000
- --------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-1.37%
Harborside Healthcare, Sr. Unsec.
Gtd. Disc. Sub. Notes, 11.00%,
08/01/08(c) 2,000,000 809,527
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES)-1.64%
DJ Orthopedics, LLC, Sr. Sub.
Notes, 12.625%, 06/15/09(a) $ 1,000,000 $ 970,000
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-1.76%
Team Health, Inc., Sr. Sub. Notes,
12.00%, 03/15/09(a) 1,010,000 1,037,775
- --------------------------------------------------------------
HOUSEHOLD FURNISHING &
APPLIANCES-2.95%
Falcon Products, Inc., Sr. Sub.
Notes, 11.375%, 06/15/09(a) 1,750,000 1,745,625
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-1.54%
Marvel Enterprises, Inc., Sr.
Notes, 12.00%, 06/15/09(a) 910,000 912,275
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.62%
Anthony Crane Rentals LP, Series B
Sr. Unsec. Gtd. Notes, 10.375%,
08/01/08 1,000,000 960,000
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-1.53%
First Wave Marine, Inc., Sr. Unsec.
Gtd. Notes, 11.00%, 02/01/08 1,000,000 904,990
- --------------------------------------------------------------
METALS MINING-3.08%
Centaur Mining & Exploration Ltd.
(Australia), Sr. Gtd. Yankee
Notes, 11.00%, 12/01/07 1,000,000 904,978
- --------------------------------------------------------------
Doe Run Resources Corp. (The),
Series B Sr. Unsec. Gtd. Notes,
11.25%, 03/15/05 1,000,000 914,960
- --------------------------------------------------------------
1,819,938
- --------------------------------------------------------------
NATURAL GAS-2.57%
Western Gas Resources, Inc., Sr.
Sub. Notes, 10.00%, 06/15/09(a) 1,500,000 1,522,500
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.68%
Global Imaging Systems Inc., Sr.
Sub. Notes, 10.75%, 02/15/07(a) 1,000,000 995,000
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-1.73%
Pride International, Inc., Sr.
Unsec. Notes, 10.00%, 06/01/09 1,000,000 1,025,000
- --------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-2.61%
Comstock Resources, Inc., Sr.
Notes, 11.25%, 05/01/07(a) 1,500,000 1,545,000
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-1.65%
American Tissue Inc., Sr. Sec.
Notes, 12.50%, 07/15/06(a) 1,000,000 974,992
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-1.78%
Polaroid Corp., Sr. Unsec. Notes,
11.50%, 02/15/06 1,000,000 1,055,000
- --------------------------------------------------------------
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RAILROADS-1.26%
Railworks Corp., Sr. Sub. Notes,
11.50%, 04/15/09(a) $ 750,000 $ 745,313
- --------------------------------------------------------------
RETAIL (SPECIALTY)-2.61%
Vista Eyecare, Inc., Series B Sr.
Unsec. Gtd. Notes, 12.75%,
10/15/05 1,600,000 1,543,989
- --------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-1.74%
Avis Rent A Car, Inc., Sr. Sub.
Notes, 11.00%, 05/01/09(a) 1,000,000 1,027,500
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-6.81%
KMC Telecom Holdings, Inc., Sr.
Notes, 13.50%, 05/15/09(a) 1,500,000 1,537,500
- --------------------------------------------------------------
Nextel International, Inc., Sr.
Unsec. Disc. Notes, 12.125%,
04/15/08(c) 1,500,000 798,381
- --------------------------------------------------------------
Powertel, Inc., Sr. Unsec. Disc.
Notes, 12.00%, 05/01/06(c) 2,000,000 1,692,483
- --------------------------------------------------------------
4,028,364
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-3.63%
Call-Net Enterprises, Inc.
(Canada), Sr. Unsec. Disc. Yankee
Notes, 10.80%, 05/15/09(c) 2,500,000 1,374,907
- --------------------------------------------------------------
Interamericas Communications, Sr.
Notes, 14.00%, 10/27/07 1,000,000 772,461
- --------------------------------------------------------------
2,147,368
- --------------------------------------------------------------
TELEPHONE-8.27%
Alestra S.A. (Mexico), Sr. Notes,
12.625%, 05/15/09(a) 1,500,000 1,413,750
- --------------------------------------------------------------
Logix Communications Enterprises,
Inc., Sr. Unsec. Notes, 12.25%,
06/15/08 1,295,000 1,155,771
- --------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec. Notes,
15.00%, 07/01/08 1,270,000 1,311,275
- --------------------------------------------------------------
United Pan-Europe Communications,
N.V. (Netherlands), Sr. Notes,
10.875%, 08/01/09(a) 1,000,000 1,007,500
- --------------------------------------------------------------
4,888,296
- --------------------------------------------------------------
TEXTILES (APPAREL)-3.82%
Perry Ellis International Inc., Sr.
Unsec. Gtd. Sub. Notes, 12.25%,
04/01/06(a) 1,250,000 1,275,000
- --------------------------------------------------------------
St. John Knits, Inc., Sr. Sub.
Notes, 12.50%, 07/01/09(a) 1,000,000 982,500
- --------------------------------------------------------------
2,257,500
- --------------------------------------------------------------
WASTE MANAGEMENT-1.81%
Allied Waste North America, Sr. Sub
Notes, 10.00%, 08/01/09(a) 1,070,000 1,067,325
- --------------------------------------------------------------
Total Non-Convertible Bonds &
Notes (Cost $50,555,340) 50,778,470
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS & OTHER EQUITY
INTERESTS-8.12%
COMPUTERS (SOFTWARE &
SERVICES)-0.06%
Cybernet Internet Services
International, Inc.(d) 2,000 $ 33,750
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC &
OTHER)-0.18%
King Pharmaceuticals, Inc.(d) 4,000 108,500
- --------------------------------------------------------------
HOMEBUILDING-0.19%
Schuler Homes, Inc.(d) 15,000 110,625
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.20%
Pride International, Inc.(d) 10,000 118,750
- --------------------------------------------------------------
OIL & GAS (EXPLORATION &
PRODUCTION)-0.79%
Chesapeake Energy Corp.(d) 40,000 152,500
- --------------------------------------------------------------
Comstock Resources, Inc.(d) 20,000 90,000
- --------------------------------------------------------------
Forest Oil Corp.(d) 6,000 89,250
- --------------------------------------------------------------
Pogo Producing Co. 7,000 133,437
- --------------------------------------------------------------
465,187
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/
WIRELESS)-3.98%
Clearnet Communications, Inc.(d) 6,500 112,125
- --------------------------------------------------------------
Metrocall, Inc.(d) 35,000 118,125
- --------------------------------------------------------------
Microcell Telecommunications Inc.
(Canada)(d) 12,000 127,500
- --------------------------------------------------------------
Nextel Communications, Inc.-Class
A(d) 4,000 214,250
- --------------------------------------------------------------
Nextel Communications, Inc., Series
E $111.25 PIK Pfd. 1,500 1,522,500
- --------------------------------------------------------------
Powertel, Inc.(d) 7,000 257,250
- --------------------------------------------------------------
2,351,750
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG
DISTANCE)-2.11%
Call-Net Enterprises, Inc.
(Canada)(d) 15,000 67,500
- --------------------------------------------------------------
Convergent Communications, Inc.(d) 10,000 160,000
- --------------------------------------------------------------
Convergent Communications, Wts.,
expiring 04/01/08(d) 1,200 25,514
- --------------------------------------------------------------
Destia Communications, Inc.(d) 9,000 95,344
- --------------------------------------------------------------
Interamericas Communications(d) 50,000 512,500
- --------------------------------------------------------------
Long Distance International, Wts.,
expiring 04/13/08(d) 670 1,675
- --------------------------------------------------------------
Primus Telecommunications Group,
Inc.(d) 6,000 96,750
- --------------------------------------------------------------
Viatel, Inc.(d) 7,765 287,305
- --------------------------------------------------------------
1,246,588
- --------------------------------------------------------------
TELEPHONE-0.61%
GST Telecommunications, Inc.(d) 8,000 120,000
- --------------------------------------------------------------
ICG Communications, Inc.(d) 5,300 119,913
- --------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
Intermedia Communications, Inc.(d) 4,500 $ 124,031
- --------------------------------------------------------------
363,944
- --------------------------------------------------------------
Total Common Stocks & Other
Equity Interests (Cost
$3,665,961) 4,799,094
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-3.09%(e)
SBC Warburg Dillon Read, Inc.,
5.13%, 08/02/99 (Cost
$1,828,705)(f) $ 1,828,705 $ 1,828,705
- --------------------------------------------------------------
TOTAL INVESTMENTS-97.09% 57,406,269
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.91% 1,718,636
- --------------------------------------------------------------
NET ASSETS-100.00% $59,124,905
==============================================================
</TABLE>
Investment Abbreviations:
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Wts. - Warrants
Notes to Schedule of Investments:
(a) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1993, as amended.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of this security has been determined in
accordance with procedures established by the Board of Trustees. The market
value of this security at 07/31/99 was $1,749,891 which represented 2.96% of
the Fund's net assets.
(c) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(d) Non-income producing security.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 07/30/99 with a maturing value of
$500,213,750. Collateralized by U.S. Government obligations.
See Notes to Financial Statements.
6
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$56,050,006) $ 57,406,269
- --------------------------------------------------------
Receivables for:
Fund shares sold 879,649
- --------------------------------------------------------
Investment sold 3,034,036
- --------------------------------------------------------
Interest and dividends 1,157,426
- --------------------------------------------------------
Investments for deferred compensation
plan 2,449
- --------------------------------------------------------
Other assets 51,811
- --------------------------------------------------------
Total assets 62,531,640
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investment purchased 2,894,450
- --------------------------------------------------------
Fund shares redeemed 298,558
- --------------------------------------------------------
Deferred compensation 2,449
- --------------------------------------------------------
Dividends 169,289
- --------------------------------------------------------
Accrued distribution fees 26,175
- --------------------------------------------------------
Accrued transfer agent fees 1,255
- --------------------------------------------------------
Accrued custodian fees 1,667
- --------------------------------------------------------
Accrued trustees fees 667
- --------------------------------------------------------
Accrued administrative service fees 8,356
- --------------------------------------------------------
Accrued operating expenses 3,869
- --------------------------------------------------------
Total liabilities 3,406,735
- --------------------------------------------------------
Net assets applicable to shares
outstanding $ 59,124,905
- --------------------------------------------------------
NET ASSETS:
Class A $ 34,991,606
========================================================
Class B $ 20,994,372
========================================================
Class C $ 3,138,927
========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 3,110,524
========================================================
Class B 1,869,356
========================================================
Class C 279,728
========================================================
Class A:
Net asset value and redemption price
per share $ 11.25
========================================================
Offering price per share:
(Net asset value of $11.25/ 95.25%) $ 11.81
========================================================
Class B:
Net asset value and offering price per
share $ 11.23
========================================================
Class C:
Net asset value and offering price per
share $ 11.22
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period September 30, 1998 (date operations commenced) through July 31,
1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 2,498,346
- -------------------------------------------------------
Dividends 7,952
- -------------------------------------------------------
Total investment income 2,506,298
- -------------------------------------------------------
EXPENSES:
Advisory fees 146,069
- -------------------------------------------------------
Administrative services fees 64,643
- -------------------------------------------------------
Custodian fees 9,788
- -------------------------------------------------------
Transfer agent fees-Class A 8,955
- -------------------------------------------------------
Transfer agent fees-Class B 3,029
- -------------------------------------------------------
Transfer agent fees-Class C 519
- -------------------------------------------------------
Trustees' fees 6,714
- -------------------------------------------------------
Distribution fees-Class A 43,292
- -------------------------------------------------------
Distribution fees-Class B 52,186
- -------------------------------------------------------
Distribution fees-Class C 8,358
- -------------------------------------------------------
Other 70,584
- -------------------------------------------------------
Total expenses 414,137
- -------------------------------------------------------
Less: Fee waivers (135,584)
- -------------------------------------------------------
Expenses paid indirectly (3,313)
- -------------------------------------------------------
Net expenses 275,240
- -------------------------------------------------------
Net investment income 2,231,058
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 1,689,995
- -------------------------------------------------------
Change in net unrealized appreciation of
investment securities 1,356,263
- -------------------------------------------------------
Net gain from investment securities 3,046,258
- -------------------------------------------------------
Net increase in net assets resulting from
operations $ 5,277,316
=======================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
For the period September 30, 1998 (date operations commenced) through July 31,
1999
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 2,231,058
- ------------------------------------------------------------------------------
Net realized gain from investment securities 1,689,995
- ------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 1,356,263
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,277,316
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (1,710,595)
- ------------------------------------------------------------------------------
Class B (446,277)
- ------------------------------------------------------------------------------
Class C (70,876)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (22,467)
- ------------------------------------------------------------------------------
Class B (421)
- ------------------------------------------------------------------------------
Class C (64)
- ------------------------------------------------------------------------------
Share transactions-net:
Class A 32,499,124
- ------------------------------------------------------------------------------
Class B 20,530,581
- ------------------------------------------------------------------------------
Class C 3,068,584
- ------------------------------------------------------------------------------
Net increase in net assets 59,124,905
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------------
End of period $ 59,124,905
==============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 56,080,847
- ------------------------------------------------------------------------------
Undistributed investment income 20,746
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 1,667,049
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,356,263
- ------------------------------------------------------------------------------
$ 59,124,905
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund II (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of two
separate series portfolios. The Fund commenced operations on September 30, 1998.
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B and Class C shares are sold with a contingent deferred
sales charge. 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 Fund's objective is
to achieve a high level of current income by investing primarily in publicly
traded non-investment grade debt securities. The Fund will also consider the
possibility of capital growth when it purchases and sells securities. Debt
securities of less than investment grade are considered "high risk" securities
(commonly referred to as junk bonds). These bonds may involve special risks in
addition to the risks associated with investment in higher-rated debt
securities. High yield bonds may be more susceptible to real or perceived
adverse economic and competitive industry conditions than are higher-grade
bonds. Also, the secondary market in which high yield bonds are traded may be
less liquid than the market for higher-grade bonds.
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 the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations -- Debt securities (including convertible bonds) 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
institution-size trading in similar groups of securities, developments
related to special securities, yield, quality, coupon rate, maturity, type
of issue, individual trading characteristics and other market data. Equity
securities which are listed or traded on an exchange or the NASDAQ
National
8
<PAGE> 11
Market System are valued at the last sales price on the exchange where
principally traded or, lacking any sales on a particular day, at the
closing bid price on that day. Securities traded in the over-the-counter
market, except (i) securities priced by the pricing service, (ii)
securities for which representative exchange prices are available, and
(iii) securities reported in the NASDAQ National Market System, are valued
at the last bid price obtained from an electronic quotation reporting
system, if such prices are available, or from established market makers.
Securities for which market quotations either 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. Short-term obligations having 60 days
or less to maturity are valued at amortized cost which approximates market
value.
B. Securities Transactions, Investment Income and Distributions -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of
the securities sold. Interest income is recorded as earned from settlement
date and is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date. It is the policy of the Fund to declare daily
dividends from net investment income. Such distributions are paid monthly.
Distributions from net realized capital gains, if any, are recorded on ex-
dividend date and are paid annually. On July 31, 1999, undistributed net
investment income was increased by $17,436, undistributed net realized
gains increased by $6 and paid-in-capital decreased by $17,442 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. 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.
D. 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 among 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 an advisory fee to AIM at an annual
rate of 0.625% of the first $500 million of the Fund's average daily net assets,
plus 0.55% of the Fund's average daily net assets in excess of $500 million to
and including $1 billion, plus 0.50% of the Fund's average daily net assets in
excess of $1 billion. During the period September 30, 1998 (date operations
commenced) through July 31, 1999, AIM waived advisory fees in the amount of
$135,584.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period September 30, 1998 (date
operations commenced) through July 31, 1999, AIM was paid $64,643 for such
services.
The Fund, pursuant to a transfer agency 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. During the period September 30, 1998 (date
operations commenced) through July 31, 1999, the Fund paid AFS $7,750 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted
distribution plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan"), and the
Fund's Class B shares (the "Class B Plan") (collectively, the "Plans"). The
Fund, pursuant to the Class A and C Plan, pays AIM Distributors compensation at
an annual rate of 0.25% of the average daily net assets of the Class A shares
and 1.00% of the average daily net assets of the Class C shares. The Fund,
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the average daily net assets of the Class B shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period September 30, 1998 (date operations commenced)
through July 31, 1999, the Class A, Class B and Class C shares paid AIM
Distributors $43,292, $52,186 and $8,358, respectively, as compensation under
the Plans.
During the period September 30, 1998 (date operations commenced) through July
31, 1999, the Fund paid legal fees of $1,967 for services rendered by Kramer,
Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of
that firm is a trustee of the Trust.
AIM Distributors received commissions of $61,541 from sales of the Class A
shares of the Fund during the period September 30, 1998 (date operations
commenced) through July 31, 1999. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A shares. During the period September 30, 1998 (date operations
commenced) through July 31, 1999, AIM Distributors received $111 in contingent
deferred sales charges imposed on redemptions of Fund shares. Certain officers
and trustees of the Trust are officers and directors of AIM, AIM Distributors
and AFS.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) and reductions in custodian fees of $246 and $3,067, respectively, under an
expense offset arrangement which resulted in a reduction of the Fund's total
expenses of $3,313 during the period September 30, 1998 (date operations
commenced) through July 31, 1999.
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 billion 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. During the period
ended July 31,
9
<PAGE> 12
1999, 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 0.09% on
the unused balance of the committed line. Prior to May 28, 1999, the commitment
fee rate was 0.05%. 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 period September 30, 1998 (date
operations commenced) through July 31, 1999 was $112,136,400 and $59,967,805,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of July 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment
securities $2,010,805
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (654,542)
- ------------------------------------------------------------
Net unrealized appreciation of investment
securities $1,356,263
============================================================
Investments had the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 6-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are 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 period September 30, 1998 (date
operations commenced) through July 31, 1999 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Sold:
Class A 3,879,343 $40,951,231
- ----------------------------------------------------------------------
Class B* 2,156,519 23,713,819
- ----------------------------------------------------------------------
Class C* 322,660 3,551,731
- ----------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 99,704 1,082,276
- ----------------------------------------------------------------------
Class B* 23,551 261,935
- ----------------------------------------------------------------------
Class C* 3,953 43,955
- ----------------------------------------------------------------------
Reacquired:
Class A (868,523) (9,534,383)
- ----------------------------------------------------------------------
Class B* (310,714) (3,445,173)
- ----------------------------------------------------------------------
Class C* (46,885) (527,102)
- ----------------------------------------------------------------------
5,259,608 $56,098,289
======================================================================
</TABLE>
*Class B and Class C shares commenced sales on November 20, 1998 .
10
<PAGE> 13
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A shares
outstanding during the period September 30, 1998 (date operations commenced) to
July 31, 1999, and for a share of Class B and Class C outstanding during the
period November 20, 1998 (date sales commenced) to July 31, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.59 $ 10.59
- ------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.90 0.68 0.68
- ------------------------------------------------------------ ------- ------- -------
Net gains on securities (both realized and unrealized) 1.26 0.65 0.64
- ------------------------------------------------------------ ------- ------- -------
Total from investment operations 2.16 1.33 1.32
- ------------------------------------------------------------ ------- ------- -------
Less distributions:
Dividends from net investment income (0.90) (0.68) (0.68)
- ------------------------------------------------------------ ------- ------- -------
Distributions from net realized gains (0.01) (0.01) (0.01)
- ------------------------------------------------------------ ------- ------- -------
Total distributions (0.91) (0.69) (0.69)
- ------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 11.25 $ 11.23 $ 11.22
============================================================ ======= ======= =======
Total return(a) 22.39% 13.03% 12.93%
============================================================ ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,992 $20,994 $ 3,139
============================================================ ======= ======= =======
Ratio of expenses to average net assets(b)
Including waivers and reimbursement 1.00% 1.75% 1.75%
============================================================ ======= ======= =======
Excluding waivers and reimbursement 1.58% 2.33% 2.33%
============================================================ ======= ======= =======
Ratio of net investment income to average net assets(b)(c) 9.74%(d) 8.99%(d) 8.99%(d)
============================================================ ======= ======= =======
Portfolio turnover rate 223% 223% 223%
============================================================ ======= ======= =======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $20,791,446,
$7,499,236 and $1,201,066, for Class A, Class B and Class C shares,
respectively.
(c) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 9.14% (annualized), 8.39% (annualized) and 8.39%
(annualized) for Class A, Class B and Class C shares, respectively.
11
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and
liabilities of AIM High Yield Fund II (a series of AIM
Investment Securities Funds) including the schedule of
investments, as of July 31, 1999, and the related
statement of operations, changes in net assets, and
financial highlights for the period September 30, 1998
(date operations commenced) through July 31, 1999. 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 audit 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, 1999, by correspondence
with the custodian and brokers. 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 audit provides 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 AIM High
Yield Fund II as of July 31, 1999, the results of its
operations, changes in its net assets, and financial
highlights for the period September 30, 1998 (date
operations commenced) through July 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
September 3, 1999
Houston, Texas
12
<PAGE> 15
<TABLE>
<CAPTION>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
<S> <C> <C>
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; Carol F. Relihan A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Secretary 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Gary T. Crum Houston, TX 77046
Senior Vice President
Owen Daly II TRANSFER AGENT
Director Dana R. Sutton
Cortland Trust Inc. Vice President and Treasurer A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Melville B. Cox Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Karen Dunn Kelley
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Mary J. Benson Boston, MA 02110
Chief Executive Officer Assistant Vice President and
Texana Global, Inc.; Assistant Treasurer COUNSEL TO THE FUND
Formerly Member
of the U.S. House of Representatives Sheri Morris Ballard Spahr
Assistant Vice President Andrews & Ingersoll, LLP
Carl Frischling and Assistant Treasurer 1735 Market Street
Partner Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel LLP Renee A. Friedli
Assistant Secretary COUNSEL TO THE TRUSTEES
Robert H. Graham
President and Chief Executive Officer P. Michelle Grace Kramer, Levin, Naftalis & Frankel LLP
A I M Management Group Inc. Assistant Secretary 919 Third Avenue
New York, NY 10022
Prema Mathai-Davis Jeffrey H. Kupor
Chief Executive Officer, YWCA of the U.S.A., Assistant Secretary DISTRIBUTOR
Commissioner, New York City Dept. for
the Aging; and member of the Board of Directors Nancy L. Martin A I M Distributors, Inc.
Assistant Secretary 11 Greenway Plaza
Lewis F. Pennock Suite 100
Attorney Ofelia M. Mayo Houston, TX 77046
Assistant Secretary
Louis S. Sklar AUDITORS
Executive Vice President Lisa A. Moss
Hines Interests Assistant Secretary KPMG LLP
Limited Partnership 700 Louisiana
Kathleen J. Pflueger Houston, TX 77002
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
</TABLE>
13
<PAGE> 16
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS MONEY MARKET FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund (1) AIM Money Market Fund leadership in the mutual-fund industry since 1976
AIM Blue Chip Fund AIM Tax-Exempt Cash Fund and managed approximately $121 billion in assets
AIM Capital Development Fund for more than 6.3 million shareholders, including
AIM Constellation Fund INTERNATIONAL GROWTH FUNDS individual investors, corporate clients and
AIM Dent Demographic Trends Fund AIM Advisor International Value Fund financial institutions, as of June 30, 1999.
AIM Large Cap Growth Fund AIM Asian Growth Fund The AIM Family of Funds--Registered Trademark--
AIM Mid Cap Equity Fund AIM Developing Markets Fund is distributed nationwide, and AIM today is the
AIM Select Growth Fund AIM Euroland Growth Fund (A) 10th-largest mutual-fund complex in the United
AIM Small Cap Growth Fund AIM European Development Fund States in assets under management, according to
AIM Small Cap Opportunities Fund AIM International Equity Fund Strategic Insight, an independent mutual-fund
AIM Value Fund AIM Japan Growth Fund monitor.
AIM Weingarten Fund AIM Latin American Growth Fund
AIM New Pacific Growth Fund
GROWTH & INCOME FUNDS
AIM Advisor Flex Fund GLOBAL GROWTH FUNDS
AIM Advisor Large Cap Value Fund AIM Global Aggressive Growth Fund
AIM Advisor Real Estate Fund AIM Global Growth Fund
AIM Balanced Fund
AIM Basic Value Fund GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund AIM Global Growth & Income Fund
AIM Global Utilities Fund
INCOME FUNDS
AIM Floating Rate Fund GLOBAL INCOME FUNDS
AIM High Yield Fund AIM Emerging Markets Debt Fund
AIM High Yield Fund II AIM Global Government Income Fund
AIM Income Fund AIM Global Income Fund
AIM Intermediate Government Fund AIM Strategic Income Fund
AIM Limited Maturity Treasury Fund
THEME FUNDS
TAX-FREE INCOME FUNDS AIM Global Consumer Products and Services Fund
AIM High Income Municipal Fund AIM Global Financial Services Fund
AIM Municipal Bond Fund AIM Global Health Care Fund
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Infrastructure Fund
AIM Tax-Free Intermediate Fund AIM Global Resources Fund
AIM Global Telecommunications and Technology Fund (B)
AIM Global Trends Fund (C)
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998. (A)
On September 1, 1999, AIM Europe Growth Fund was renamed AIM Euroland Growth
Fund. (B) On June 1, 1999, AIM Global Telecommunications Fund was renamed AIM
Global Telecommunications and Technology Fund. (C) Effective August 27, 1999,
AIM Global Trends Fund was restructured to operate as a traditional mutual fund.
Prior to August 27, 1999, the fund operated as a fund of funds. 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. If used as sales material after October 20, 1999, this report must
be accompanied by a current Quarterly Review of Performance for AIM Funds.
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