<PAGE> 1
ANNUAL REPORT / JULY 31 1999
AIM LIMITED MATURITY TREASURY FUND
[COVER IMAGE]
[AIM LOGO APPEARS HERE]
<PAGE> 2
[ COVER IMAGE ]
-------------------------------------
ALEXANDER HAMILTON BY JOHN TRUMBULL (AMERICAN, 1756-1843)
AS THE UNITED STATES' FIRST SECRETARY OF THE TREASURY, ALEXANDER HAMILTON
PROVIDED THE BASIC MODEL FOR OUR PRESENT
ECONOMIC SYSTEM. AFTER THE REVOLUTIONARY WAR, WHEN THE NEWLY FORMED UNITED
STATES FOUND ITSELF DEEP IN DEBT, HAMILTON PROPOSED ISSUING A NEW SERIES OF
GOVERNMENT BONDS WHICH WOULD PRESUMABLY SELL (AND DID) BECAUSE OF HIGH PUBLIC
CONFIDENCE IN THE NEW COUNTRY. U.S. TREASURY SECURITIES CONTINUE TO BE A
POPULAR INVESTMENT CHOICE TODAY FOR THE VERY SAME REASON.
-------------------------------------
AIM Limited Maturity Treasury Fund is for shareholders who seek high monthly
income free from state taxes while maintaining relative stability of principal
by investing in U.S. Treasury notes with maturities of three years or less.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Limited Maturity Treasury Fund performance figures are historical and
reflect reinvestment of all distributions and changes in net asset value.
When sales charges are included in performance figures, those figures
reflect the maximum 1.00% sales charge. Had fund expenses not been waived
in the past, performance figures would have been lower.
o AIM Limited Maturity Treasury Fund's average annual total returns,
including sales charges, for periods ended June 30, 1999, the most recent
calendar quarter end, were as follows: one year, 3.44% (4.46% excluding
sales charges); five years, 5.41%; 10 years, 6.04%; inception (12/15/87),
6.26%.
o The 30-day yield is calculated on the basis of a formula defined by the
Securities and Exchange Commission (SEC). The formula is based on the
fund's potential earnings from dividends, interest, yield-to-maturity or
yield-to-call of its holdings, net of all expenses and expressed on an
annualized basis.
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.
o The fund's portfolio composition is subject to change, and there is no
assurance that the fund will continue to hold any particular security.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o Government securities, such as U.S. Treasury bills, notes and bonds, offer
a high degree of safety and are guaranteed as to the timely payment of
principal and interest if held to maturity. Fund shares are not insured,
and their value and yield will vary with market conditions.
o The Lehman 1- to 2-Year U.S. Government Bond Index is an unmanaged index
composed of U.S. agency and Treasury issues with maturities of one to two
years.
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 LIMITED MATURITY TREASURY FUND
<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
Chairman of you that as of June 1999 we achieved a major milestone
the Board of toward year 2000 compliance status: we have successfully
THE FUND completed the testing of all of our mission-critical
APPEARS HERE] systems.
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 LIMITED MATURITY TREASURY FUND
<PAGE> 4
ANNUAL REPORT / MANAGERS' OVERVIEW
FUND REMAINS STABLE IN CHANGING
MARKET ENVIRONMENT
HOW DID AIM LIMITED MATURITY TREASURY FUND PERFORM DURING THE FISCAL YEAR?
The recovery of markets since last year's global financial crisis was tempered
somewhat by inflation fears in the United States, especially in bond markets.
The fund stuck to its discipline, and net asset value (NAV) per share
remained between $10.01 and $10.27 during the 12-month reporting period,
showing low volatility.
The fund also continued to provide attractive income during the fiscal
year. As of July 31, 1999, the 30-day distribution rate at NAV was 4.55%. The
30-day SEC yield at maximum offering price was 4.95%.
Total return for the fund as of the end of the fiscal year was 4.32% at
NAV, which does not include sales charges. Comparatively, the Lehman 1- to
2-Year U.S. Government Bond Index had a return of 4.96% for the reporting
period. Total net assets in the fund stood at $407 million at the end of the
fiscal year.
WHAT WAS THE MARKET ENVIRONMENT LIKE DURING THE FISCAL YEAR?
During the late summer and early fall of 1998, financial crises overseas
pummeled markets with record volatility. This caused a "flight to quality" that
sharply increased the demand for U.S. Treasury securities, pushing up their
prices. As a result, the yield on the two-year Treasury note fell 121 basis
points (1.21%) to 4.27% during the third quarter of 1998. Global markets began
to rebound late in the year, spurred by U.S. interest-rate cuts made by the
Federal Reserve Board (the Fed). At the same time, the U.S. economy drove ahead
despite predictions that it would slow.
As global markets continued to recover into 1999, Treasury yields began to
increase, reflecting strong domestic economic growth. Investors and economists
worried that the strong U.S. economy would spark inflation and force the Fed to
raise interest rates. These fears roiled bond markets during the second quarter
of 1999, eroding Treasury prices in May and June and sending their yields
higher. The yield on the benchmark 30-year Treasury bond soared from 5.09% at
the beginning of 1999 to 6.16% on June 24, its highest level since 1997.
Speculation surrounding the Fed's possible action did not end until the
central bank raised the federal funds rate from 4.75% to 5% on June 30. The Fed
also said it had shifted from a tightening to a neutral bias, which seemed to
indicate that it planned no further rate hikes in the near future. That sparked
a relief rally in bond markets as investors were reassured that the Fed remained
vigilant toward preventing inflation. As of June 30, the two-year Treasury note
was yielding 5.52%.
However, Fed Chairman Alan Greenspan jolted financial markets in July when
he said that the Fed would need to be especially alert to inflation risks,
citing the tight job market as a reason. Indeed, the employment cost index--a
widely watched gauge of wage trends--registered an unexpected 1.1% increase in
July, its largest rise since 1991. Some market watchers worried that this
increase raised the odds of a future interest-rate hike.
HOW DID THE MARKET ENVIRONMENT AFFECT THE FUND?
The fund has looked particularly strong compared to the broader fixed-income
universe so far in 1999. Although bond yields were volatile during the past
fiscal year, the fact that the fund invests in securities between one and two
years to maturity helped dampen the impact of rising
------------------------------------
THE RECOVERY OF MARKETS
SINCE LAST YEAR'S GLOBAL
FINANCIAL CRISIS WAS TEMPERED
SOMEWHAT BY INFLATION FEARS
IN THE UNITED STATES . . .
------------------------------------
YIELD CURVE--U.S. TREASURY SECURITIES
As of 7/31/99, with time to maturity
AREA OF INVESTMENT FOCUS
================================================================================
0-3 Months 4.74%
6 Months 4.84%
1 Year 5.10%
2 Years 5.62%
5 Years 5.79%
10 Years 5.90%
30 Years 6.10%
================================================================================
Source: Bloomberg
See important fund and index disclosures inside front cover.
AIM LIMITED MATURITY TREASURY FUND
2
<PAGE> 5
ANNUAL REPORT / MANAGERS' OVERVIEW
-------------------------------------
WE BELIEVE THE FUND'S LOW PRICE
VOLATILITY AND CONSISTENT YIELD OVER
TIME SHOULD CONTINUE TO PROVIDE AN
EXCELLENT RISK/RETURN RELATIONSHIP.
-------------------------------------
interest rates on its NAV. The shorter a bond's maturity, the less its price
reacts to interest-rate changes like the ones we have seen.
While inflation fears drove yields higher during the first half of 1999,
the fund's short maturity helped produce a positive total return. At the same
time, government and high-grade bond funds that invest in longer-term
securities struggled with higher interest rates, and many posted negative
returns over the same period.
DID YOUR STRATEGY CHANGE OVER THE FISCAL YEAR?
We maintained our disciplined approach throughout the reporting period. In
researching U.S. Treasury securities for the fund, we have found that a
favorable risk/return scenario generally occurs in the one- to two-year range
of securities. This is the area of the steepest slope in the yield curve (see
the chart on the previous page). So we buy two-year Treasury notes every month
and sell them after a year, a strategy called "rolling down the yield curve"
that creates a laddered portfolio. Because two-year Treasury notes are
coupon-bearing securities (meaning they have a fixed interest rate), they tend
to appreciate slightly in price as they roll down the yield curve to a lower
interest-rate environment. This strategy has historically provided a consistent
yield and a greater degree of price stability for the fund.
THE U.S. TREASURY RECENTLY ANNOUNCED CHANGES TO ITS AUCTION SCHEDULE AND A
DEBT-REPURCHASE PLAN. HOW WILL THE FUND BE AFFECTED?
In early August, Treasury Secretary Lawrence Summers announced a cut from three
to two annual 30-year bond auctions, and he also hinted at changes to the
current monthly auction schedules for one-year Treasury bills and two-year
Treasury notes. We will not know how changes in the monthly auction might
affect the fund until they are actually announced. The short maturity of the
two-year note readily appeals to both retail and institutional investors and
offers the Treasury flexibility in managing its debt balances. As a result,
market participants do not anticipate drastic changes in the auction schedule
for two-year notes.
For more on the debt-repurchase plan, please see the sidebar.
WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?
The Greenspan Fed has been working to keep inflation out of the U.S. economy.
In the long run, a move to raise interest rates this fall could be seen as good
news for the bond market because inflation is the primary threat to
fixed-income investments.
If interest rates do continue to rise, it is important to note that the
fund's NAV will fall. However, the short-term nature of the fund's investments
limits the NAV impact of rising yields. The opportunity to buy higher-yielding
securities should both help the fund's total return and offset at least some of
the NAV drop. We believe the fund's low price volatility and consistent yield
over time should continue to provide an excellent risk/return relationship.
TREASURY TO BUY BACK DEBT
On August 4, the U.S. Treasury announced a proposal to reduce the amount of
outstanding government debt by repurchasing a portion of the more than $3
trillion of Treasury securities held by the public. The proposal came as the
United States approaches its second straight annual budget surplus. If
approved, it will be the first time this century that the Treasury has done a
buyback of this nature.
Treasury Secretary Lawrence Summers said the buyback would help prolong the
U.S. economy's long-running expansion because
o the United States could rely less on borrowing from abroad to finance
American investment;
o there would be less domestic interest-rate pressure; and
o borrowing costs for businesses and families would be lower as a result.
Government officials believe the budget surplus will continue for several
years, so there will be less need for borrowing by the U.S. government, meaning
fewer Treasury securities issued. Treasury issuance has already been dropping
steadily during recent years, from $546 billion in 1995 to $486 billion in 1998;
by late July 1999, only $191 billion had been issued.
What does this mean for your fund? The repurchase plan will probably most
affect longer-term bonds with higher interest rates, such as those with 15 to 30
years to maturity. Because there is strong demand for shorter-term Treasury
securities like the ones in which this fund invests, we believe that the buyback
will not materially affect the fund. The Treasury's proposed plan, available for
comment on its Web site (www.ustreas.gov), will most likely be implemented
gradually to avoid disrupting bond markets.
See important fund and index disclosure inside front cover.
AIM LIMITED MATURITY TREASURY FUND
3
<PAGE> 6
ANNUAL REPORT / PERFORMANCE HISTORY
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
AIM LIMITED MATURITY TREASURY FUND VS. BENCHMARK INDEX
7/31/89-7/31/99
In thousands
================================================================================
AIM Limited Maturity Lehman 1-to-2 Year
Treasury Fund U.S. Government Bond Index
- --------------------------------------------------------------------------------
7/89 $10,000 $10,000
7/90 10,765 10,823
7/91 11,737 11,863
7/92 12,850 13,035
7/93 13,448 13,679
7/94 13,746 14,041
7/95 14,619 15,000
7/96 15,349 15,730
7/97 16,353 16,817
7/98 17,241 17,803
7/99 17,796 18,788
Past performance cannot guarantee comparable future results.
================================================================================
ABOUT THIS CHART
The chart compares your fund to a benchmark index, which measures the
performance of a hypothetical portfolio. It is important to understand the
difference between your fund and an index. Your fund's total return is shown
with a sales charge, and it includes fund expenses and management fees. A
market index such as the Lehman 1- to 2-Year U.S. Government Bond Index is not
managed and incurs 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. Use of this index is intended to give you a
general idea of how your fund performed compared to the bond market.
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/99, including sales charges
================================================================================
Inception (12/15/87) 6.23%
10 years 5.93
5 years 5.31
1 year 3.29*
*4.32%, excluding sales charges
Sources: Towers Data Systems HYPO--Registered Trademark--, Bloomberg.
================================================================================
Your fund's total return includes sales charges, expenses and management fees.
For fund data performance calculations and descriptions of benchmarks cited on
this page, please see the inside front cover.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS
OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.
AIM LIMITED MATURITY TREASURY FUND
4
<PAGE> 7
SCHEDULE OF INVESTMENTS
July 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
MATURITY (000) VALUE
-------- --------- ------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES
U.S. TREASURY NOTES-100.19%
5.125% 8/31/00 $ 34,330 $ 34,238,339
- ------------------------------------------------------------------------------------------------------------
4.50% 9/30/00 34,000 33,648,440
- ------------------------------------------------------------------------------------------------------------
4.00% 10/31/00 34,060 33,472,806
- ------------------------------------------------------------------------------------------------------------
4.625% 11/30/00 34,100 33,734,789
- ------------------------------------------------------------------------------------------------------------
4.625% 12/31/00 35,100 34,681,959
- ------------------------------------------------------------------------------------------------------------
4.50% 1/31/01 34,100 33,607,255
- ------------------------------------------------------------------------------------------------------------
5.00% 2/28/01 34,500 34,222,965
- ------------------------------------------------------------------------------------------------------------
4.875% 3/31/01 34,000 33,625,660
- ------------------------------------------------------------------------------------------------------------
5.00% 4/30/01 34,200 33,877,836
- ------------------------------------------------------------------------------------------------------------
5.25% 5/31/01 34,240 34,031,136
- ------------------------------------------------------------------------------------------------------------
5.75% 6/30/01 34,090 34,160,907
- ------------------------------------------------------------------------------------------------------------
5.50% 7/31/01 34,700 34,623,660
============================================================================================================
TOTAL U.S. TREASURY SECURITIES (COST $410,249,128) 407,925,752
============================================================================================================
TOTAL INVESTMENTS-100.19% 407,925,752
============================================================================================================
LIABILITIES LESS OTHER ASSETS-(0.19%) (777,262)
============================================================================================================
NET ASSETS-100.00% $407,148,490
============================================================================================================
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$410,249,128) $407,925,752
- -------------------------------------------------------
Cash 2,864,297
- -------------------------------------------------------
Receivables for:
Investments sold 34,703,269
- -------------------------------------------------------
Fund shares sold 3,745,894
- -------------------------------------------------------
Interest 4,198,519
- -------------------------------------------------------
Investment in deferred compensation plan 30,068
- -------------------------------------------------------
Other assets 54,032
- -------------------------------------------------------
Total assets 453,521,831
- -------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 34,638,671
- -------------------------------------------------------
Fund shares reacquired 10,858,373
- -------------------------------------------------------
Dividends 495,043
- -------------------------------------------------------
Deferred compensation 30,068
- -------------------------------------------------------
Accrued advisory fees 71,337
- -------------------------------------------------------
Accrued distribution fees 74,125
- -------------------------------------------------------
Accrued transfer agent fees 52,749
- -------------------------------------------------------
Accrued operating expenses 152,975
- -------------------------------------------------------
Total liabilities 46,373,341
- -------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $407,148,490
=======================================================
</TABLE>
<TABLE>
<S> <C>
NET ASSETS:
Class A $390,017,633
=======================================================
Institutional Class $ 17,130,857
- -------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 38,882,645
=======================================================
Institutional Class 1,707,856
- -------------------------------------------------------
Class A:
Net asset value and redemption price
per share $ 10.03
- -------------------------------------------------------
Offering price per share:
(Net asset value of $10.03 / 99.00%) $ 10.13
- -------------------------------------------------------
Institutional Class:
Net asset value, redemption price and
offering price per share $ 10.03
=======================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $21,893,952
- -------------------------------------------------------
EXPENSES:
Advisory fees 850,738
- -------------------------------------------------------
Administrative services fees 70,069
- -------------------------------------------------------
Transfer agent fees-Class A 474,047
- -------------------------------------------------------
Transfer agent fees-Institutional Class 3,113
- -------------------------------------------------------
Distribution fees-Class A (See Note 2) 591,643
- -------------------------------------------------------
Other 229,521
- -------------------------------------------------------
Total expenses 2,219,131
- -------------------------------------------------------
Less: Expenses paid indirectly (4,605)
- -------------------------------------------------------
Net expenses 2,214,526
- -------------------------------------------------------
Net investment income 19,679,426
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment
securities 1,359,439
- -------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (3,023,894)
- -------------------------------------------------------
Net gain (loss) from investment
securities (1,664,455)
- -------------------------------------------------------
Net increase in net assets resulting from
operations $18,014,971
=======================================================
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 9
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 19,679,426 $ 22,758,619
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 1,359,439 1,855,056
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (3,023,894) (1,793,413)
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 18,014,971 22,820,262
- ------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A (18,245,067) (20,003,878)
- ------------------------------------------------------------------------------------------
Institutional Class (1,523,201) (2,754,741)
- ------------------------------------------------------------------------------------------
SHARE TRANSACTIONS-NET:
Class A 46,655,684 (44,498,315)
- ------------------------------------------------------------------------------------------
Institutional Class (33,718,444) 1,723,996
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 11,183,943 (42,712,676)
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 395,964,547 438,677,223
- ------------------------------------------------------------------------------------------
End of period $407,148,490 $395,964,547
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $413,559,490 $400,652,004
- ------------------------------------------------------------------------------------------
Undistributed net investment income 29,754 88,842
- ------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (4,117,378) (5,476,817)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (2,323,376) 700,518
- ------------------------------------------------------------------------------------------
$407,148,490 $395,964,547
==========================================================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (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 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 the 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. Realized gains and
losses from securities transactions are recorded on the identified cost
basis. On July 31, 1999, undistributed net investment income was increased
by $29,754 and paid-in-capital decreased by $29,754 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 distributions
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 $2,924,409, which expires, if not previously utilized,
through the year 2005.
E. Expenses -- Distribution and transfer agency expenses directly attributable
to a class of shares are charged to that class' operations. All other
expenses which are attributable to more than one class are allocated
between the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM") with respect to the Fund. Under the terms of the master
investment advisory agreement, the Fund pays AIM an advisory fee at the annual
rate of 0.20% of the first $500 million of the Fund's average daily net assets
plus 0.175% of the Fund's average daily net assets in excess of $500 million.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the year ended July 31, 1999, the Fund
paid AIM $70,069 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. During the year ended July 31, 1999, the Fund
paid AFS $206,185 for such services.
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
8
<PAGE> 11
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, 1999, the Fund paid AIM Distributors $591,643 as compensation under the
Plan.
AIM Distributors received commissions of $75,023 during the year ended July
31, 1999 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, 1999, the Fund paid legal fees of $4,376 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.
NOTE 3-INDIRECT EXPENSES
The Fund received reductions in transfer agency fees from AFS (an affiliate of
AIM) of $4,605 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $4,605 during the year ended 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 year
ended July 31, 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. The commitment fee is
allocated among such funds based on their respective average net assets for the
period. Prior to May 28, 1999, the commitment fee rate was 0.05%.
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, 1999 was
$804,343,804 and $787,113,635, 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 $ 30,522
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,546,327)
- ---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $ (3,515,805)
=========================================================
</TABLE>
Cost of investments for tax purposes is $411,441,557.
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 years ended July 31, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 66,719,952 $ 675,218,081 22,832,451 $ 229,871,705
- --------------------------------------------------------------------------------
Institutional Class 489,034 4,947,727 1,450,340 14,604,304
- --------------------------------------------------------------------------------
Issued as a
reinvestment of
dividends:
Class A 1,524,802 15,430,990 1,671,295 16,825,885
- --------------------------------------------------------------------------------
Institutional Class 1,998 20,239 4,391 44,205
- --------------------------------------------------------------------------------
Reacquired:
Class A (63,662,111) (643,993,387) (28,922,414) (291,195,905)
- --------------------------------------------------------------------------------
Institutional Class (3,809,602) (38,686,410) (1,281,958) (12,924,513)
- --------------------------------------------------------------------------------
1,264,073 $ 12,937,240 (4,245,895) $ (42,774,319)
================================================================================
</TABLE>
9
<PAGE> 12
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A outstanding
during each of the years in the five-year period ended July 31, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.07 $ 9.97 $ 10.03 $ 9.96
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.47 0.53 0.54 0.55 0.54
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) (0.04) -- 0.10 (0.06) 0.07
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 0.43 0.53 0.64 0.49 0.61
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.47) (0.53) (0.54) (0.55) (0.54)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 10.03 $ 10.07 $ 10.07 $ 9.97 $ 10.03
============================================================ ======== ======== ======== ======== ========
Total return(a) 4.32% 5.42% 6.55% 4.98% 6.36%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $390,018 $345,355 $389,812 $359,048 $274,480
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.54%(b) 0.54% 0.54% 0.54% 0.51%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 4.61%(b) 5.29% 5.35% 5.45% 5.44%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 184% 133% 130% 117% 120%
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $394,428,791.
10
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Investment Securities Funds:
We have audited the accompanying statement of assets and
liabilities of AIM Limited Maturity Treasury Fund (a
series of AIM Investment Securities Funds) including the
schedule of investments, as of July 31, 1999, and the
related statement of operations for the year then ended,
the statements of changes in net assets for each of the
two years in the period then ended, and the financial
highlights for each of the five years in the period then
ended. 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, 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 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 AIM Limited
Maturity Treasury Fund as of July 31, 1999, the results
of its operations for the year then ended, the changes in
its net assets for each of the two years in the period
then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
September 3, 1999
Houston, Texas
11
<PAGE> 14
<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 Bank of New York
90 Washington Street, 11th Floor
Jack Fields Mary J. Benson New York, NY 10286
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 and Andrews & Ingersoll, LLP
Carl Frischling 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.
Metropolitan Transportation Authority of Assistant Secretary 11 Greenway Plaza
New York State Suite 100
Ofelia M. Mayo Houston, TX 77046
Lewis F. Pennock Assistant Secretary
Attorney AUDITORS
Lisa A. Moss
Louis S. Sklar Assistant Secretary KPMG LLP
Executive Vice President 700 Louisiana
Hines Interests Kathleen J. Pflueger Houston, TX 77002
Limited Partnership Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
</TABLE>
STATE TAX INFORMATION
Of the total dividends paid, 100% was derived from U.S. Treasury obligations.
12
<PAGE> 15
------------------------------------
WE INFORM
OUR SHAREHOLDERS ABOUT
THEIR INVESTMENTS
WITH REGULAR MAILINGS THROUGHOUT THE YEAR.
------------------------------------
AIM FUNDS(SM) KEEPS YOU POSTED ON YOUR INVESTMENT
We inform our shareholders about their investments with regular mailings
throughout the year. Here is a description of the documents you will receive
concerning your account and fund.
o DAILY CONFIRMATION STATEMENTS. A record of the transactions you initiate.
For example, if you transfer part or all of your investment from one AIM
fund to another, you will receive a statement confirming that the
transaction took place.
o QUARTERLY STATEMENTS. These show you how your account has performed over
the fiscal quarter and provide information on any applicable dividend
payments. Statement inserts that sometimes accompany these mailings may
give specific information about your fund or may contain educational
information of general interest.
o PROXY. As a shareholder of an AIM fund, you have the right to vote on any
change to a fund's published bylaws or objectives. If the fund's board of
directors proposes such a change, AIM will send a proxy to the
shareholders. The proxy allows you to direct an authorized person to cast
your vote according to your instructions. You can vote your proxy by mail,
phone or e-mail.
o PROSPECTUS. AIM sends you an updated version of your fund's prospectus
every year. Your prospectus contains valuable information about your fund's
objectives, risks, management and fees. Because this information is
important, you should keep your prospectus with your other fund records.
o ANNUAL AND SEMIANNUAL REPORTS. AIM fund reports are sent to you twice a
year, the semiannual covering the first six months of the fiscal year for
a fund and the annual covering the entire fiscal year. These reports give
you an idea of how your fund performed compared to the market in general.
The reports also give you information about the holdings in your fund's
portfolio and how market conditions and management decisions have affected
your fund.
o YEAR-END TAX INFORMATION. This includes your year-end account statement,
cost-basis statement and any tax forms pertinent to your AIM account. The
tax forms report distributions you have received from your AIM funds,
redemptions or exchanges you have made and any contributions you have made
to tax-advantaged retirement accounts. It is important to retain the
latter, IRS Form 5498, if you need to track deductible vs. nondeductible
IRA contributions. The cost-basis statements are also important to retain
because they can be very useful for calculating capital gains or losses if
you use the "average basis single category" method of calculating cost
basis. Year-end tax information will be accompanied by tax communications
from AIM to help you fill out your tax forms. Your tax advisor can assist
you in sorting through your year-end statements and other tax
communications.
<PAGE> 16
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS INTERNATIONAL GROWTH FUNDS A I M Management Group Inc. has provided
AIM Aggressive Growth Fund(1) AIM Advisor International Value Fund leadership in the mutual-fund industry
AIM Blue Chip Fund AIM Asian Growth Fund since 1976 and managed approximately $121
AIM Capital Development Fund AIM Developing Markets Fund billion in assets for more than 6.3 million
AIM Constellation Fund AIM Euroland Growth Fund(A) shareholders, including individual investors,
AIM Dent Demographic Trends Fund AIM European Development Fund corporate clients and financial institutions,
AIM Large Cap Growth Fund AIM International Equity Fund as of June 30, 1999.
AIM Mid Cap Equity Fund AIM Japan Growth Fund The AIM Family of Funds--Registered Trademark--
AIM Select Growth Fund AIM Latin American Growth Fund is distributed nationwide, and AIM today is the
AIM Small Cap Growth Fund AIM New Pacific Growth Fund 10th-largest mutual-fund complex in the United
AIM Small Cap Opportunities Fund States in assets under management, according to
AIM Value Fund GLOBAL GROWTH FUNDS Strategic Insight, an independent mutual-fund
AIM Weingarten Fund AIM Global Aggressive Growth Fund monitor.
AIM Global Growth Fund
GROWTH & INCOME FUNDS
AIM Advisor Flex Fund GLOBAL GROWTH & INCOME FUNDS
AIM Advisor Large Cap Value Fund AIM Global Growth & Income Fund
AIM Advisor Real Estate Fund AIM Global Utilities Fund
AIM Balanced Fund
AIM Basic Value Fund GLOBAL INCOME FUNDS
AIM Charter Fund AIM Emerging Markets Debt Fund
AIM Global Government Income Fund
INCOME FUNDS AIM Global Income Fund
AIM Floating Rate Fund AIM Strategic Income Fund
AIM High Yield Fund
AIM High Yield Fund II THEME FUNDS
AIM Income Fund AIM Global Consumer Products and Services Fund
AIM Intermediate Government Fund AIM Global Financial Services Fund
AIM Limited Maturity Treasury Fund AIM Global Health Care Fund
AIM Global Infrastructure Fund
TAX-FREE INCOME FUNDS AIM Global Resources Fund
AIM High Income Municipal Fund AIM Global Telecommunications and Technology Fund(B)
AIM Municipal Bond Fund AIM Global Trends Fund(C)
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund
MONEY MARKET FUNDS
AIM Money Market Fund
AIM Tax-Exempt Cash Fund
</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.
[AIM LOGO APPEARS HERE]
INVEST WITH DISCIPLINE
--Registered Trademark--
LTD-AR-1
