<PAGE> 1
SEMIANNUAL REPORT / JANUARY 31, 1999
AIM HIGH YIELD FUND II
[COVER ART]
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 2
[PHOTO]
---------------------------------------
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 WAS AMONG HIS TRIBUTES TO THE HEALTH AND
RESTORATIVE FORCES OF THE FRENCH COUNTRYSIDE AND 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 purchases 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 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
class expenses.
o Since inception (10/1/98), cumulative total return including sales charges
was 4.74% for Class A shares. Since inception (11/20/98), cumulative total
returns including sales charges were -2.97% and 1.13% for Class B and Class
C shares, respectively. Because Class A, B, and C shares have been offered
less than one year, all total return figures reflect cumulative total
returns that have not been annualized.
o Market volatility can significantly impact short-term performance. Results
of an investment made today may differ substantially from the historical
performance shown.
o The 30-day yield is calculated on the basis of a formula defined by the SEC.
The formula is based on the portfolio's potential earnings from dividends,
interest, yield-to-maturity or yield-to-call of the bonds in the portfolio,
net of all expenses and expressed on an annualized basis.
o The Fund 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 securi
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 that 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 Current Yield Funds 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 A PORTION 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
SEMIANNUAL REPORT / CHAIRMAN'S LETTER
Dear Fellow Shareholder:
As the period covered by this report opened, markets were in
the midst of a serious loss of confidence stemming from
[PHOTO OF global financial crises and widespread decline in U.S.
Charles T. corporate earnings growth. From July till October, a major
Bauer, correction for equities, including previously market-leading
Chairman of blue chips, bolstered U.S. Treasury issues, whose safety
the Board of attracts investors in doubtful times. The reporting period
THE FUND would bring two particularly serious financial shocks, first
APPEARS HERE] the debt default by Russia, and later the currency
devaluation by Brazil. The result was another six months of
market volatility here and abroad.
Beginning in late September, the U.S. Federal Reserve
Board intervened to pump liquidity and confidence into
markets. Investors responded favorably, and the reporting
period closed on a positive note with domestic equities
rallying and bonds displaying much less momentum.
Some stock indexes produced excellent total return for the six-month
reporting period, with the S&P 500 index of large-company stocks up a dramatic
15.02%. But focusing on one market benchmark may give you an incomplete view.
There was wide divergence among market segments during this reporting period.
For example, the Russell 2000 index of small-company stocks rose only 2.40%
during the six months covered by this report. Even within the S&P 500, the
bigger the company, the better the performance.
HOW SHOULD INVESTORS RESPOND?
We understood how unnerving this level of volatility could have been. Of course,
our repeated message to you is to keep a long-term outlook on investments
rather than responding to short-term fluctuations. And we are pleased to note
that most mutual fund shareholders remained cool headed and did not pull out of
the markets. In the end, most were rewarded for their long-term perspective.
In view of recent volatility and the divergent performance of market
sectors, this may be a very good time to meet with your financial consultant to
review your current asset allocation and the diversification of your portfolio.
Broad portfolio diversification remains one of the most fundamental principles
of investing, along with long-term thinking and realistic expectations.
YOUR FUND MANAGERS' COMMENTS
On the pages that follow, your Fund's managers, experienced professionals who
have weathered previous periods of market turbulence, offer more detailed
discussion of how markets behaved, how they managed the portfolio in light of
recent volatility, and what they foresee for markets and your Fund. We hope you
find their discussion informative.
YEAR 2000 CONCERN
Many of our shareholders have asked us about AIM's year 2000 readiness status.
We appreciate these concerns, and we take the year 2000 issue seriously. AIM
has devoted considerable effort to creating a comprehensive plan for assessing,
correcting and testing our in-house systems. We will also participate in an
industrywide testing effort scheduled to begin in March. But no matter how well
we prepare and test, no one can know for sure what the year 2000 will bring.
Our industry's systems are connected in complex ways to many third parties, and
there may be unforeseen problems when the year 2000 actually arrives. Though we
cannot predict what all those problems might be, we are working with our
business recovery team to develop contingency plans appropriate for a variety
of year 2000 scenarios.
We are pleased to send you this report on your Fund's recent performance.
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
AIM Investor Line at 800-246-5463 or at our Web site, www.aimfunds.com. We often
post market updates on our Web site.
We thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ CHARLES T. BAUER
Charles T. Bauer
Chairman, A I M Advisors, Inc.
---------------------------------------
. . . WE ARE PLEASED TO
NOTE THAT MOST MUTUAL FUND
SHAREHOLDERS REMAINED COOL HEADED AND
DID NOT PULL OUT OF THE MARKETS.
---------------------------------------
AIM HIGH YIELD FUND II
<PAGE> 4
SEMIANNUAL REPORT / MANAGERS' OVERVIEW
NEW FUND TAKES ADVANTAGE OF MARKET DOWNTURN
HOW DID THE NEW AIM HIGH YIELD FUND II PERFORM DURING THE RECENT MARKET
TURBULENCE?
The new Fund's Class A shares' inception on October 1, 1998, was very fortuitous
as we took advantage of investments at attractive levels after the market
downturn in August and September. The Fund's good fortunes are reflected in its
returns for the reporting period. Cumulative return at net asset value, that is,
without a sales charge, from inception to January 31, 1999, was 9.98% for Class
A shares. In comparison, the Lehman High Yield Bond Index returned just 3.64%
for the period from September 30, 1998 to January 31, 1999. Cumulative returns
at net asset value from inception (November 20, 1998) to January 31, 1999, were
2.03% and 2.13% for Class B and Class C shares, respectively. For performance
results that include sales charges, please refer to the inside front cover.
Despite a difficult high-yield market environment, the Fund continued to
provide attractive current income. As of January 31, 1999, the Fund's 30-day
SEC yields were 10.11%, 9.69%, and 9.69% for Class A, B, and C shares,
respectively. By comparison, the yield on the benchmark 30-year U.S. Treasury
bond was just 5.09%. The new Fund continued to attract investor interest. Net
assets under management grew to $19.4 million at the end of the reporting
period.
WHAT WERE THE MAJOR TRENDS IN THE FINANCIAL MARKETS DURING THE REPORTING PERIOD?
Markets succumbed to the second wave of "Asian contagion" during the summer of
1998. Russia's bond default and the downturn that ensued involved even the
very large, very liquid stocks that were chiefly responsible for the U.S.
markets' earlier rise. Domestically, the markets were hit by the collapse of
several hedge funds. Investors sought shelter from market volatility in the
safest and most liquid investment classes, particularly large-cap equities and
U.S. Treasury securities.
The Federal Reserve Board (the Fed) announced the first of three interest
rate cuts in September, hoping to shelter the United States from a potential
global recession. Boosted by the Fed easing, the U.S. markets rebounded and led
the way for recovery in many foreign markets.
In January 1999, the Brazilian government's decision to devalue its
currency sparked new fears that a crisis in developing countries could spread
worldwide. Domestically, resilient technology and Internet securities weathered
the renewed
PORTFOLIO COMPOSITION
As of 1/31/99, based on total net assets
<TABLE>
<CAPTION>
===========================================================================================================
Top 5 Holdings Top 5 Industries
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Nextel Communications, Inc. 4.43% 1. Telecommunications (Long Distance) 12.50%
2. Sterling Chemicals, Inc. 4.17 2. Retail (Specialty) 8.66
3. Panda Funding Corp. 4.00 3. Telecommunications (Cellular/Wireless) 7.85
4. Econophone, Inc. 3.97 4. Telephone 7.60
5. Texas Petrochemical Corp. 3.81 5. Gaming, Lottery & Parimutuel Companies 6.85
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
PORTFOLIO CREDIT QUALITY
- --------------------------------------------------------------------------------
BAR CHART
A BBB BB B CCC NON-RATED
<S> <C> <C> <C> <C> <C>
0.56% 1.14% 13.86% 49.56% 6.85% 16.05%
Please keep in mind that the Fund's portfolio is subject to change and there is no
assurance 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
SEMIANNUAL REPORT / MANAGERS' OVERVIEW
turbulence and dominated the performance of many market indexes.
HOW DID HIGH-YIELD BONDS FARE IN THIS MARKET ENVIRONMENT?
The high-yield market did not escape the volatility that engulfed both the
equity and Treasury markets during the third quarter of 1998. High-yield bonds
were hit hard during the "flight to quality" when investors turned to U.S.
Treasury securities for their relative safety. Beginning in August, investor
demand did not keep up with record levels of new high-yield offerings,
generating broad-based volatility in the high-yield market. As market
volatility increased, the volume of new high-yield issues dropped
significantly. Performance of many high-yield funds deteriorated in the wake of
falling corporate profits and rising default rates. However, AIM High Yield
Fund II did not suffer from any defaults during the reporting period.
The high-yield market began to recover after the third quarter of 1998,
boosted by the Fed's interest rate cuts. New issuance reappeared as liquidity
slowly returned to the market. During November, more than $2.5 billion in new
corporate debt entered the market, with much of it issued by a group of
fast-growing telecommunications companies. In early 1999, the high-yield
market's supply-and-demand fundamentals continued to improve.
GIVEN CURRENT MARKET CONDITIONS, HOW HAVE YOU MANAGED THE PORTFOLIO?
During the fourth quarter of 1998, as volatility in the high-yield market
continued, we focused on maintaining quality in the Fund's portfolio.
Volatility in the high-yield market created some exceptional values in
higher-quality debt. We added holdings in the higher-quality BB segment of the
market. BB-rated bonds represented 13.86% of total net assets as of January 31.
Conversely, we kept in check the Fund's holdings in CCC and non-rated
securities. These securities accounted for 22.90% of the Fund's total net assets
at the close of the fiscal year. Overall, we maintained about 50% of the Fund's
total net assets in the B sector. The ratings above are made by Standard &
Poor's, a widely known credit-rating agency. At the close of the fiscal year,
the Fund's largest holdings were in the telecommunications industries. These
industries continue to perform well, driven by the recent increase in merger and
acquisition activities.
The Fund can invest up to 15% of its total net assets in equities of
companies that offer high-yield bonds. As of January 31, the Fund had
approximately 8% in equity holdings. In addition, the Fund can invest up to 10%
of its total net assets in emerging market debt securities. In light of their
dismal performance in 1998, we have no plans to invest in such securities in the
immediate future.
Our cash position at the close of the fiscal year was 8.23%. We aim to
maintain the Fund's cash weighting around 5% to take advantage of new issues, as
the supply of high-yield issues is expected to increase in 1999.
WHAT IS YOUR OUTLOOK FOR 1999?
Our outlook for the high-yield market in 1999 is one of cautious optimism.
Historically, November to February is, on average, the best-performing period in
the high-yield market, adding approximately 15% on an annualized basis. With the
yield spreads between high-yield bonds and U.S. Treasury securities at their
widest since the early 1990s, many analysts believe that high-yield bonds rep
resent a good bargain for the near term. Investors may be rewarded by the
appreciation that we believe should occur as yields return to more normal
levels.
The three factors for an ideal high-yield market environment are now in
place: low inflation, slowing economic growth, and low interest rates. With a
slowing economy expected through 1999, the key to continuing recovery in the
high-yield market will be corporate earnings. As the rate of defaults continues
to increase due to more volatile market conditions, we believe that credit
quality will become more of a differentiating factor in total return
performance. However, if the three economic factors mentioned above stay in
place during 1999 and there are no unpleasant surprises in the equity market, we
believe that high-yield bonds may have a better-than-average year, significantly
in excess of the long-term historical 10% to 12% total return.
================================================================================
HIGH-YIELD BEST/WORST TIME PERIOD RETURNS 1987-1998
- --------------------------------------------------------------------------------
BAR CHART
NOV.-FEB. MAR.-JUNE JULY-OCT.
14.96% 9.89% -2.78%
Returns were calculated by annualizing the average cumulative returns for
each period from 1987 to 1998.
Sources: Lehman High Yield Bond Index, Bear Stearns
================================================================================
See important Fund and index disclosures inside front cover.
AIM HIGH YIELD FUND II
3
<PAGE> 6
SCHEDULE OF INVESTMENTS
January 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NON-CONVERTIBLE BONDS & NOTES-81.67%
BUILDING MATERIALS-3.05%
Congoleum Corp., Sr. Unsec.
Notes, 8.625%, 08/01/08 $ 600,000 $ 592,500
- ---------------------------------------------------------------
CHEMICALS-4.17%
Sterling Chemicals, Inc., Sr.
Unsec. Sub. Notes, 11.75%,
08/15/06 925,000 809,375
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-2.70%
Key Plastic, Inc., Sr. Sub.
Notes, 10.25%, 03/15/07 540,000 523,800
- ---------------------------------------------------------------
COMPUTERS (NETWORKING)-1.29%
Convergent Communication, Inc.,
Sr. Unsec. Notes, 13.00%,
04/01/08 500,000 250,000
- ---------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER)-2.49%
MVE Inc., Sr. Sec. Notes, 12.50%,
02/15/02 500,000 482,500
- ---------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-4.00%
Panda Funding Corp., Series A-1
Pooled Project Bonds, 11.625%,
08/20/12 750,000 776,250
- ---------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES-6.85%
Circus Circus Enterprises, Inc.,
Sr. Sub. Notes, 9.25%, 12/01/05 600,000 724,283
- ---------------------------------------------------------------
Venetian Casino Resort LLC, Gtd.
Mortgage Notes, 12.25%,
11/15/04 700,000 604,500
- ---------------------------------------------------------------
1,328,783
- ---------------------------------------------------------------
HEALTH CARE (LONG TERM CARE)-4.59%
Harborside Healthcare Corp., Sr.
Unsec. Gtd. Disc. Sub. Notes,
11.00%, 08/01/08(a) 1,250,000 581,250
- ---------------------------------------------------------------
Mariner Post-Acute Network, Inc.,
Series B Sr. Unsec. Sub. Notes,
9.50%, 11/01/07 400,000 309,000
- ---------------------------------------------------------------
890,250
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.31%
Willis Corroon Corp., Sr. Sub.
Notes, 9.00%, 02/01/09
(Acquired 01/28/99; Cost
$60,000)(b) 60,000 60,488
- ---------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-2.89%
First Wave Marine, Inc., Sr.
Notes, 11.00%, 02/01/08 600,000 561,000
- ---------------------------------------------------------------
METAL MINING-2.94%
Centaur Mining & Exploration
Ltd., Sr. Yankee Sec. Gtd.
Notes, 11.00%, 12/01/07 600,000 570,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-3.50%
Pogo Producing Co., Sr. Sub.
Notes, 10.375%, 02/15/09
(Acquired 01/12/99; Cost
$293,100)(b) 300,000 297,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-(CONTINUED)
Queen Sand Resources, Inc., Sr.
Unsec. Gtd. Notes, 12.50%,
07/01/08 $ 575,000 $ 382,375
- ---------------------------------------------------------------
679,375
- ---------------------------------------------------------------
OIL & GAS (REFINING & MARKETING)-3.81%
Texas Petrochemical Corp., Sr.
Unsec. Sub. Notes, 11.125%,
07/01/06 750,000 738,750
- ---------------------------------------------------------------
RAILROADS-0.95%
TFM, SA DE CV (Mexico), Yankee
Bonds, 10.25%, 06/15/07 225,000 185,625
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-2.76%
Plainwell Inc., Series B Sr.
Unsec. Sub. Notes, 11.00%,
03/01/08 675,000 536,625
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-8.16%
Amazon.Com Inc., Sr. Unsec. Disc.
Notes, 10.00%, 05/01/08(a) 500,000 322,500
- ---------------------------------------------------------------
National Vision Association, Sr.
Notes, 12.75%, 10/15/05
(Acquired 10/05/98-10/16/98;
Cost $591,546)(b) 600,000 636,000
- ---------------------------------------------------------------
Renters Choice Inc., Sr. Sub.
Notes, 11.00%, 08/15/08
(Acquired 10/01/98-10/16/98;
Cost $574,400)(b) 600,000 625,500
- ---------------------------------------------------------------
1,584,000
- ---------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-4.96%
Big 5 Corp., Sr. Unsec. Notes,
10.875%, 11/15/07 600,000 608,250
- ---------------------------------------------------------------
Specialty Retailers, Inc., Series
B Sr. Unsec. Gtd. Notes, 8.50%,
07/15/05 400,000 354,000
- ---------------------------------------------------------------
962,250
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-6.02%
Metrocall Inc., Sr. Sub. Notes,
11.00%, 09/15/08 (Acquired
12/17/98; Cost $397,216)(b) 400,000 404,000
- ---------------------------------------------------------------
Nextel Communications, Inc., Sr.
Disc. Notes, 10.65%,
09/15/07(a) 1,100,000 764,500
- ---------------------------------------------------------------
1,168,500
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-9.93%
Call-Net Enterprises, Inc., Sr.
Yankee Disc. Notes, 8.94%,
08/15/08(a) 1,000,000 585,000
- ---------------------------------------------------------------
Econophone, Inc., Sr. Unsec.
Notes, 13.50%, 07/15/07 750,000 770,625
- ---------------------------------------------------------------
Long Distance International,
Inc., Sr. Notes, 12.25%,
04/15/08 (Acquired 10/01/98-
10/15/98; Cost $537,700)(b) 670,000 571,175
- ---------------------------------------------------------------
1,926,800
- ---------------------------------------------------------------
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-6.30%
ICG Services Inc., Sr. Unsec.
Disc. Notes, 10.00%,
02/15/08(a) $ 1,010,000 $ 556,570
- ---------------------------------------------------------------
U.S. Xchange LLC, Sr. Unsec.
Notes, 15.00%, 07/01/08 640,000 667,200
- ---------------------------------------------------------------
1,223,770
- ---------------------------------------------------------------
Total Non-Convertible Bonds &
Notes (Cost $15,348,903) 15,850,641
- ---------------------------------------------------------------
CONVERTIBLE BONDS & NOTES-3.16%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.26%
Jacor Communications, Inc., Conv.
Unsec. Notes, 4.75%,
02/09/18(c) 100,000 51,179
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.19%
Comverse Technology Inc., Conv.
Sub. Notes, 4.50%, 07/01/05 25,000 36,375
- ---------------------------------------------------------------
COMPUTERS (HARDWARE)-0.23%
Candescent Technology Corp.,
Conv. Sr. Sub. Deb., 7.00%,
05/01/03 (Acquired
11/06/98-11/30/98; Cost
$44,325)(b) 50,000 45,000
- ---------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.12%
EMC Corp., Conv. Sub. Notes,
3.25%, 03/15/02 5,000 24,106
- ---------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-0.17%
Elan Finance Corp., Conv. Gtd.
Sub. Notes, 3.25%, 12/14/18
(Acquired 01/08/99; Cost
$34,163)(b)(c) 60,000 33,900
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.21%
Loews Corp., Conv. Sub. Notes,
3.125%, 09/15/07 50,000 40,125
- ---------------------------------------------------------------
METAL FABRICATORS-0.08%
Western Digital Corp., Conv. Sub.
Deb., 7.525%, 02/18/18(c) 50,000 15,375
- ---------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.37%
Costco Companies, Inc., Conv.
Sub. Notes, 3.50%, 08/19/17(c) 75,000 72,094
- ---------------------------------------------------------------
RETAIL (SPECIALTY)-0.50%
Corporate Express, Inc., Conv.
Notes, 4.50%, 07/01/00 40,000 34,780
- ---------------------------------------------------------------
Office Depot, Inc., Conv. Notes,
5.00%, 12/11/07(c) 60,000 62,025
- ---------------------------------------------------------------
96,805
- ---------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.39%
Affiliated Computer Services,
Conv. Sub. Notes, 4.00%,
03/15/05 60,000 76,650
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.29%
Global Telesystems Group, Conv.
Sr. Sub. Deb., 5.75%, 07/01/10 45,000 55,463
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-0.24%
NTL Inc., Conv. Sub. Notes,
7.00%, 12/15/08
(Acquired 12/11/98; Cost
$30,000)(b) $ 30,000 $ 45,937
- ---------------------------------------------------------------
WASTE MANAGEMENT-0.11%
WMX Technologies, Conv. Sub.
Notes, 2.00%, 01/24/05 20,000 20,375
- ---------------------------------------------------------------
Total Convertible Bonds &
Notes (Cost $547,501) 613,384
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCKS-4.73%
HEALTH CARE (LONG TERM CARE)-0.29%
Mariner Post-Acute Network,
Inc.(d) 12,000 57,000
- ---------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES)-0.36%
Total Renal Care Holdings,
Inc.(d) 3,000 69,938
- ---------------------------------------------------------------
IRON & STEEL-0.19%
Metal Management, Inc.(d) 20,000 36,875
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.20%
Forest Oil Corp.(d) 6,000 38,625
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-1.34%
Clearnet Communications Inc.
(Canada)(d) 6,500 84,500
- ---------------------------------------------------------------
Metrocall, Inc.(d) 15,000 78,750
- ---------------------------------------------------------------
Nextel Communications, Inc.-Class
A(d) 3,000 96,000
- ---------------------------------------------------------------
259,250
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-1.29%
FirstCom Corp.(d) 25,000 68,750
- ---------------------------------------------------------------
Viatel, Inc.(d) 10,000 182,500
- ---------------------------------------------------------------
251,250
- ---------------------------------------------------------------
TELEPHONE-1.06%
GST Telecommunications, Inc.(d) 8,000 67,500
- ---------------------------------------------------------------
ICG Communications, Inc.(d) 4,000 75,250
- ---------------------------------------------------------------
Intermedia Communications Inc.(d) 4,500 62,437
- ---------------------------------------------------------------
205,187
- ---------------------------------------------------------------
Total Common Stocks (Cost
$940,287) 918,125
- ---------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS-3.19%
BROADCASTING (TELEVISION, RADIO & CABLE)-0.30%
Chancellor Media Corp.-$3.00
Conv. Pfd 500 58,187
- ---------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.35%
Monsanto Co., Conv. Pfd. ACES,
11/30/03(e) 1,400 68,425
- ---------------------------------------------------------------
ENTERTAINMENT-0.27%
Houston Industries Inc.-$3.22
Conv. Pfd 500 53,188
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.04%
Conseco Finance Trust-$3.50
Series F Conv. Pfd 200 8,050
- ---------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (REFINING & MARKETING)-0.12%
Tosco Financing Trust-$2.88 Conv.
PRIDES 500 $ 22,750
- ---------------------------------------------------------------
RAILROADS-0.26%
Union Pacific Capital
Trust-$3.125 Conv. Pfd 1,000 50,000
- ---------------------------------------------------------------
RETAIL (DRUG STORES)-0.25%
CVS Corp-Conv. Pfd. TRACES
05/15/01(f) 500 48,250
- ---------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.49%
Loral Space & Communications
Ltd.-$3.00 Conv. Pfd 900 54,226
- ---------------------------------------------------------------
Mediaone Group Inc.-$3.63 Conv.
Pfd 500 41,125
- ---------------------------------------------------------------
95,351
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.98%
Nextel Communications, Inc.,
Conv. Pfd (Acquired 12/17/98;
Cost $32,470)(b) 128 44,112
- ---------------------------------------------------------------
Viatel Inc.-$10.00 Series A Conv.
Pfd 1,000 145,500
- ---------------------------------------------------------------
189,612
- ---------------------------------------------------------------
TELECOM (SATELLITE)-0.13%
Globalstar Telecommunications
Ltd., $4.00 Conv. Pfd (Acquired
01/26/99; Cost $25,587)(b) 500 25,000
- ---------------------------------------------------------------
Total Convertible Preferred
Stocks (Cost $581,320) 618,813
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WARRANTS-0.01%
COMPUTERS (NETWORKING)-0.00%
Convergent Communications,
expiring 04/01/08 (Acquired
10/26/98-01/28/99; Cost
$20)(b)(d) 3,200 $ 32
- ---------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.01%
Long Distance International,
expiring 04/13/08(d) 670 1,675
- ---------------------------------------------------------------
Total Warrants (Cost $20) 1,707
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT(G)-8.23%
Dean Witter Reynolds, Inc.,
4.78%, 02/01/99 (Cost
$1,597,675)(h) $ 1,597,675 1,597,675
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.99% 19,600,345
- ---------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(0.99%) (192,892)
- ---------------------------------------------------------------
NET ASSETS-100.00% $ 19,407,453
- ---------------------------------------------------------------
</TABLE>
Abbreviations:
ACES - Adjustable Conversion-Rate Equity Security Units
ADR - American Depositary Receipts
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Gtd. - Guaranteed
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TRACES - Trust Automatic Common Exchange Securities
Unsec. - Unsecured
(a) Discounted bond at purchase. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(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 these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at 1/31/99 was $2,788,144 which
represented 14.37% of the Fund's net assets.
(c) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(d) Non-income producing security.
(e) This unit entitles the holder to receive 0.8197 shares per unit upon
maturity.
(f) This security entitles the holder to receive 0.8197 shares upon maturity.
(g) 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.
(h) Joint repurchase agreement entered into 01/29/99 with a maturing value of
$300,119,500. Collateralized by $304,204,000 U. S. Government obligations,
0% due 02/04/99 to 02/20/07 with an aggregate market value at 01/31/99 of
$306,000,685
See Notes to Financial Statements.
6
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$19,015,706) $ 19,600,345
- --------------------------------------------------------
Receivables for:
Fund shares sold 476,615
- --------------------------------------------------------
Investment sold 91,634
- --------------------------------------------------------
Interest and dividends 436,191
- --------------------------------------------------------
Other assets 59,509
- --------------------------------------------------------
Total assets 20,664,294
- --------------------------------------------------------
LIABILITIES:
Payables for:
Investment purchased 1,187,023
- --------------------------------------------------------
Dividends 57,536
- --------------------------------------------------------
Accrued advisory fees 7,227
- --------------------------------------------------------
Accrued distribution fees 4,383
- --------------------------------------------------------
Accrued transfer agent fees 272
- --------------------------------------------------------
Accrued operating expenses 400
- --------------------------------------------------------
Total liabilities 1,256,841
- --------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 19,407,453
- --------------------------------------------------------
NET ASSETS:
Class A $ 17,949,401
========================================================
Class B $ 1,388,641
========================================================
Class C $ 69,411
========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 1,693,395
========================================================
Class B 131,084
========================================================
Class C 6,549
========================================================
Class A:
Net asset value and redemption price
per share $ 10.60
- --------------------------------------------------------
Offering price per share:
(Net asset value of $10.60
divided by 95.25%) $ 11.13
========================================================
Class B:
Net asset value and offering price per
share $ 10.59
========================================================
Class C:
Net asset value and offering price per
share $ 10.60
========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period October 1, 1998
(Date operations commenced)
through January 31, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 583,787
- -------------------------------------------------------
Dividends 1,706
- -------------------------------------------------------
Total investment income 585,493
- -------------------------------------------------------
EXPENSES:
Advisory fees 31,215
- -------------------------------------------------------
Administrative services fees 19,279
- -------------------------------------------------------
Custodian fees 2,503
- -------------------------------------------------------
Transfer agent fees-Class A 651
- -------------------------------------------------------
Transfer agent fees-Class B & Class C 29
- -------------------------------------------------------
Trustees' fees 2,620
- -------------------------------------------------------
Distribution fees-Class A 12,242
- -------------------------------------------------------
Distribution fees-Class B 878
- -------------------------------------------------------
Distribution fees-Class C 98
- -------------------------------------------------------
Other 619
- -------------------------------------------------------
Total expenses 70,134
- -------------------------------------------------------
Less: Fee waivers (17,741)
- -------------------------------------------------------
Expenses paid indirectly (1,934)
- -------------------------------------------------------
Net expenses 50,459
- -------------------------------------------------------
Net investment income 535,034
- -------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from:
Investment securities 554,336
- -------------------------------------------------------
Net unrealized appreciation of investment
securities 584,639
- -------------------------------------------------------
Net gain from investment securities 1,138,975
- -------------------------------------------------------
Net increase in net assets resulting from
operations $ 1,674,009
=======================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
For the period October 1, 1998
(Date operations commenced)
through January 31, 1999
(Unaudited)
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 535,034
- ------------------------------------------------------------------------------
Net realized gain from investment securities 554,336
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 584,639
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,674,009
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (526,170)
- ------------------------------------------------------------------------------
Class B (7,977)
- ------------------------------------------------------------------------------
Class C (887)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (22,466)
- ------------------------------------------------------------------------------
Class B (421)
- ------------------------------------------------------------------------------
Class C (64)
- ------------------------------------------------------------------------------
Share transactions-net:
Class A 16,834,919
- ------------------------------------------------------------------------------
Class B 1,386,909
- ------------------------------------------------------------------------------
Class C 69,601
- ------------------------------------------------------------------------------
Net increase in net assets 19,407,453
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 0
- ------------------------------------------------------------------------------
End of period $ 19,407,453
==============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 18,291,429
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment securities
and foreign currencies 531,385
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 584,639
- ------------------------------------------------------------------------------
$ 19,407,453
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
January 31, 1999
(Unaudited)
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 October 1, 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 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.
Investment securities
8
<PAGE> 11
for which prices are not provided by the pricing service and which are listed or
traded on an exchange (except convertible bonds) 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 unless the Board of
Trustees, or persons designated by the Board of Trustees, determines that
over-the-counter quotations more closely reflect the current market value of
the security. 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. Each security reported in the
NASDAQ National Market System is valued at the last sales price on the
valuation date or absent a last sales price, at the closing bid price.
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 dividends are paid monthly. Distributions
from net realized capital gains, if any, are recorded on ex-dividend date
and are paid annually.
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. Foreign Currency Translation -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
E. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of that security. The Fund could be exposed to
risk if counterparties to the contracts are unable to meet the terms of
their contracts.
F. 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 October 1, 1998 (date operations
commenced) through January 31, 1999, AIM waived advisory fees in the amount of
$17,741.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the period October 1, 1998 (date
operations commenced) through January 31, 1999, AIM was reimbursed $6,766 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 October 1, 1998 (date
operations commenced) through January 31, 1999, the Fund paid AFS $478 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 October 1, 1998 (date operations commenced) through
January 31, 1999, the Class A, Class B and Class C shares paid AIM Distributors
$12,242, $878 and $98, respectively, as compensation under the Plans.
AIM Distributors received commissions of $7,397 from sales of the Class A
shares of the Fund during the period October 1, 1998 (date operations commenced)
through January 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 October 1, 1998 (date operations commenced) through
January 31, 1999, AIM Distributors received $0 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.
During the period October 1, 1998 (date operations commenced) through January
31, 1999, the Fund paid legal fees of $187 for services rendered by Kramer,
Levin, Naftalis & Frankel as
9
<PAGE> 12
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) and any reductions in custodian fees of $57 and $1,877 respectively under
an expense offset arrangement which resulted in a reduction of the Fund's total
expenses of $1,934 during the period October 1, 1998 (date operations commenced)
through January 31, 1999.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period October 1, 1998 (date
operations commenced) through January 31, 1999 was $35,076,584 and $18,349,592,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of January 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment
securities $ 830,121
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (245,482)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $ 584,639
===========================================================
Investments had the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 5-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the period October 1, 1998 (date operations
commenced) through January 31, 1999 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Sold:
Class A 1,691,395 $16,816,834
- ----------------------------------------------------------------------
Class B* 130,752 1,383,397
- ----------------------------------------------------------------------
Class C* 6,519 69,287
- ----------------------------------------------------------------------
Issued as a reinvestment of dividends:
Class A 34,371 361,363
- ----------------------------------------------------------------------
Class B* 332 3,512
- ----------------------------------------------------------------------
Class C* 30 314
- ----------------------------------------------------------------------
Reacquired:
Class A (32,371) (343,278)
- ----------------------------------------------------------------------
1,831,028 $18,291,429
======================================================================
</TABLE>
* Class B and Class C shares commenced sales on November 20, 1998.
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A shares
outstanding during the period October 1, 1998 (date operations commenced) to
January 31, 1999, and for a share of Class B and Class C outstanding during the
period November 20, 1998 (date sales commenced) to January 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 0.37 0.20 0.20
- ------------------------------------------------------------ ------- ------ ------
Net gains on securities (both realized and unrealized) 0.61 0.01 0.02
- ------------------------------------------------------------ ------- ------ ------
Total from investment operations 0.98 0.21 0.22
- ------------------------------------------------------------ ------- ------ ------
Less distributions:
Dividends from net investment income (0.37) (0.20) (0.20)
- ------------------------------------------------------------ ------- ------ ------
Distributions from net realized gains (0.01) (0.01) (0.01)
- ------------------------------------------------------------ ------- ------ ------
Total distributions (0.38) (0.21) (0.21)
- ------------------------------------------------------------ ------- ------ ------
Net asset value, end of period $ 10.60 $10.59 $10.60
============================================================ ======= ====== ======
Total return(a) 9.98% 2.03% 2.13%
============================================================ ======= ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $17,949 $1,389 $ 69
============================================================ ======= ====== ======
Ratio of expenses to average net assets(b) 1.03%(c)(d) 1.79%(c)(d) 1.81%(c)(d)
============================================================ ======= ====== ======
Ratio of net investment income to average net assets(b) 10.72%(e) 9.99%(e) 9.97%(e)
============================================================ ======= ====== ======
Portfolio turnover rate 136% 136% 136%
============================================================ ======= ====== ======
</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 $14,531,391,
$438,789 and $48,756, for Class A, Class B and Class C, respectively.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.39% (annualized), 2.15% (annualized) and 2.17% (annualized) for Class A,
Class B and Class C, respectively.
(d) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have been 1.00% (annualized),
1.73% (annualized) and 1.75% (annualized) for Class A, Class B and Class C,
respectively.
(e) 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 10.33% (annualized), 9.57% (annualized) and 9.55%
(annualized) for Class A, Class B and Class C, respectively.
10
<PAGE> 13
<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; John J. Arthur A I M Advisors, Inc.
Formerly Director, President, and Senior Vice President and Treasurer 11 Greenway Plaza
Chief Executive Officer Suite 100
COMSAT Corporation Carol F. Relihan Houston, TX 77046
Senior Vice President and Secretary
Owen Daly II TRANSFER AGENT
Director Gary T. Crum
Cortland Trust Inc. Senior Vice President A I M Fund Services, Inc.
P.O. Box 4739
Edward K. Dunn Jr. Dana R. Sutton Houston, TX 77210-4739
Chairman, Mercantile Mortgage Corp.; Vice President and Assistant Treasurer
Formerly Vice Chairman and President, CUSTODIAN
Mercantile-Safe Deposit & Trust Co.; and Melville B. Cox
President, Mercantile Bankshares Vice President State Street Bank and Trust Company
225 Franklin Street
Jack Fields Karen Dunn Kelley Boston, MA 02110
Chief Executive Officer Vice President
Texana Global, Inc.; COUNSEL TO THE FUND
Formerly Member Mary J. Benson
of the U.S. House of Representatives Assistant Vice President and Ballard Spahr
Assistant Treasurer Andrews & Ingersoll, LLP
Carl Frischling 1735 Market Street
Partner Sheri Morris Philadelphia, PA 19103
Kramer, Levin, Naftalis & Frankel LLP Assistant Vice President
and Assistant Treasurer COUNSEL TO THE TRUSTEES
Robert H. Graham
President and Chief Executive Officer Renee A. Friedli Kramer, Levin, Naftalis & Frankel LLP
A I M Management Group Inc. Assistant Secretary 919 Third Avenue
New York, NY 10022
Prema Mathai-Davis P. Michelle Grace
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 Jeffrey H. Kupor A I M Distributors, Inc.
Assistant Secretary 11 Greenway Plaza
Lewis F. Pennock Suite 100
Attorney Nancy L. Martin Houston, TX 77046
Assistant Secretary
Ian W. Robinson
Consultant; Formerly Executive Ofelia M. Mayo
Vice President and Assistant Secretary
Chief Financial Officer
Bell Atlantic Management Lisa A. Moss
Services, Inc. Assistant Secretary
Louis S. Sklar Kathleen J. Pflueger
Executive Vice President Assistant Secretary
Hines Interests
Limited Partnership Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
</TABLE>
11
<PAGE> 14
[THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 15
HOW AIM MAKES INVESTING
EASY FOR YOU
o LOW INITIAL INVESTMENT. You can get your investment program started for as
little as $500. Subsequent investments can be made for only $50.
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS. Distributions may
be received in cash or reinvested in the Fund free of charge. Over time, the
power of compounding can significantly increase the value of your assets.
o AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.
o EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset value
any day the New York Stock Exchange is open. The price of shares sold may be
more or less than their original cost, depending on market conditions.
o SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at least $50
monthly or quarterly through a systematic withdrawal plan.
o EXCHANGE PRIVILEGE. As your goals change, you may exchange all or part of
your assets for those of other funds within the same share class of The AIM
Family of Funds(R).. The exchange privilege may be modified or discontinued
for any of the AIM funds. Certain restrictions apply.
o RETIREMENT PLANS. You may purchase shares of an AIM fund for your Individual
Retirement Account (IRA), Roth IRA, or any other type of retirement plan,
and earn tax-deferred dollars for your retirement.
o TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line at
800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.
o www.aimfunds.com. As a current shareholder, you can check account balances
24 hours a day over the Internet. State-of-the-art encryption lets you send
us questions that include confidential information without the fear of
eavesdropping, tampering, or forgery.
----------------
CURRENT SHAREHOLDERS
CAN CALL OUR
AIM INVESTOR LINE AT
800-246-5463
FOR 24-HOUR-A-DAY
ACCOUNT INFORMATION.
----------------
<PAGE> 16
THE AIM FAMILY OF FUNDS--Registered Trademark--
<TABLE>
<S> <C> <C>
GROWTH FUNDS 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
AIM Blue Chip Fund AIM Tax-Exempt Cash Fund since 1976 and managed approximately
AIM Capital Development Fund $109 billion in assets for more than 6.2
AIM Constellation Fund INTERNATIONAL GROWTH FUNDS million shareholders, including
AIM Mid Cap Equity Fund(2),(A) AIM Advisor International Value Fund individual investors, corporate clients,
AIM Mid Cap Opportunities Fund AIM Asian Growth Fund and financial institutions, as of
AIM Select Growth Fund(3) AIM Developing Markets Fund(2) December 31, 1998.
AIM Small Cap Growth Fund(2),(B) AIM Europe Growth Fund(2) The AIM Family of Funds--Registered
AIM Small Cap Opportunities Fund AIM European Development Fund Trademark--is distributed nationwide,
AIM Value Fund AIM International Equity Fund and AIM today is the 10th-largest mutual
AIM Weingarten Fund AIM Japan Growth Fund(2) fund complex in the U.S. in assets under
AIM Latin American Growth Fund(2) management, according to Strategic
GROWTH & INCOME FUNDS AIM New Pacific Growth Fund(2) Insight, an independent mutual fund
AIM Advisor Flex Fund monitor.
AIM Advisor Large Cap Value Fund GLOBAL GROWTH FUNDS
AIM Advisor MultiFlex Fund AIM Global Aggressive Growth Fund
AIM Advisor Real Estate Fund AIM Global Growth Fund
AIM Balanced Fund
AIM Basic Value Fund(2),(C) GLOBAL GROWTH & INCOME FUNDS
AIM Charter Fund AIM Global Growth & Income Fund(2)
AIM Global Utilities Fund
INCOME FUNDS
AIM Floating Rate Fund(2) GLOBAL INCOME FUNDS
AIM High Yield Fund AIM Emerging Markets Debt Fund(2),(D)
AIM High Yield Fund II AIM Global Government Income Fund(2)
AIM Income Fund AIM Global Income Fund
AIM Intermediate Government Fund AIM Strategic Income Fund(2)
AIM Limited Maturity Treasury Fund
THEME FUNDS
TAX-FREE INCOME FUNDS AIM Global Consumer Products and Services Fund(2)
AIM High Income Municipal Fund AIM Global Financial Services Fund(2)
AIM Municipal Bond Fund AIM Global Health Care Fund(2)
AIM Tax-Exempt Bond Fund of Connecticut AIM Global Infrastructure Fund(2)
AIM Tax-Free Intermediate Fund AIM Global Resources Fund(2)
AIM Global Telecommunications Fund(2)
AIM Global Trends Fund(2),(E)
</TABLE>
(1) AIM Aggressive Growth Fund reopened to new investors November 16, 1998. (2)
Effective May 29, 1998, A I M Advisors, Inc. became advisor to the former GT
Global Funds. (3) On May 1, 1998, AIM Growth Fund was renamed AIM Select Growth
Fund. (A) On September 8, 1998, AIM Mid Cap Growth Fund was renamed AIM Mid Cap
Equity Fund. (B) On September 8, 1998, AIM Small Cap Equity Fund was renamed AIM
Small Cap Growth Fund. (C) On September 8, 1998, AIM America Value Fund was
renamed AIM Basic Value Fund. (D) On September 8, 1998, AIM Global High Income
Fund was renamed AIM Emerging Markets Debt Fund. (E) On September 8, 1998, AIM
New Dimension Fund was renamed AIM Global Trends Fund. For more complete
information about any AIM Fund(s), including sales charges and expenses, ask
your financial consultant or securities dealer for a free prospectus(es). Please
read the prospectus(es) carefully before you invest or send money.
