AIM INVESTMENT FUNDS, N-30D, 1998-12-30

AIM INVESTMENT FUNDS
N-30D, 1998-12-30

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<PAGE>

ANNUAL REPORT / OCTOBER 31, 1998

AIM EMERGING MARKETS FUND

Artwork

Logo

INVEST WITH DISCIPLINE-Registered Trademark-

<PAGE>

Artwork

MURAL FROM THE TEMPLE OF LONGING BY PAUL KLEE

PAUL KLEE'S ART WAS TRANSFORMED BY A TRIP HE TOOK TO TUNISIA IN 1914, WHERE HE
WAS AWED BY THE LANDSCAPE'S BEAUTIFULLY INTENSE COLOR AND LIGHT. KLEE BROUGHT
THOSE QUALITIES TO HIS OWN WORK, CREATING IMAGINATIVE, LIGHT-FILLED PAINTINGS
LIKE THE ONE ON THE COVER. RADIATING WITH OPTIMISM AND ENERGY, KLEE'S MURAL IS
A FITTING EMBLEM FOR THE DYNAMIC GROWTH PUSHING TODAY'S EMERGING MARKETS INTO
THE 21ST CENTURY.

AIM Emerging Markets Fund is for shareholders who seek long-term growth of
capital. The Fund primarily invests in equity securities of companies located
in emerging markets, which generally include every country except the U.S.,
Canada, Japan, Australia, New Zealand, and most of the countries of western
Europe.

ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:

- - AIM Emerging Markets Fund (formerly GT Global Emerging Markets Fund)
performance figures are historical and reflect reinvestment of all
distributions and changes in net asset value. Unless otherwise indicated, the
Fund's performance is computed at net asset value without a sales charge.

- - When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% sales charge, and Class B 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 performance of the Fund's Class B shares will differ from that of Class A
shares due to differences in sales charge structure and Fund expenses.

- - Advisor Class shares are not sold directly to the general public and are
available only through certain employee benefit plans, financial
institutions, and other entities that have entered into specific agreements
with the Fund's Distributor. Please see the Fund's prospectus for more
complete information.

- - 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.

- - International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
fluctuations in the value of the U.S. dollar relative to the values of other
currencies, the custody arrangements made for the Fund's foreign holdings,
differences in accounting, political risks, and the lesser degree of public
information required to be provided by non-U.S. companies.

ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:

- - The IFC Investable Composite Index is a market value-weighted average of
the performance of the securities listed on the exchange of 29 countries. It
includes the effect of reinvested dividends and is measured in U.S. dollars.

- - The MSCI Emerging Markets Free Index is a group of unmanaged securities
from emerging markets tracked by Morgan Stanley Capital International. A
"free" index includes only securities available to non-domestic investors.

- - An investment cannot be made in any index listed. Unless otherwise
indicated, index results include reinvested dividends and do not reflect
sales charges

MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENTS ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY; ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE; AND ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

This report may be distributed only to current shareholders or to persons who
have received a current prospectus of the Fund.

AIM EMERGING MARKETS FUND

<PAGE>
ANNUAL REPORT / CHAIRMAN'S LETTER
Photo

DEAR FELLOW SHAREHOLDER:

During the fiscal year covered by this report, a variety of events converged
to produce harsh market conditions in several sectors and geographic areas:
fallout from currency devaluations in Southeast Asia, the seemingly
intractable downturn in Japan, Russia's default on much of its foreign debt,
fear that Latin America could be engulfed by the world's difficulties, and the
virtual collapse of commodity prices as worldwide economic growth faltered
and many nations slipped into recession.

We understand how unnerving it is to have an investment lose value. While the
difficult market environment helps explain much of your Fund's poor
performance, it is not the whole story. When we added the former GT Global
funds to our fund family, we understood that several of them needed to
bolster their performance substantially. We also recognized their significant
long-term potential, and now that we are the funds' investment adviser, we
will strive to see that potential realized. Where necessary, we have begun to
make the changes in management and investment strategy we believe will
enhance your Fund's performance. We intend to continue managing your Fund
with the careful oversight and disciplined investment strategy used in all
AIM funds, and we hope you will share our patience as investors while we work
to improve your Fund's performance.

On the pages that follow, your Fund's management team offers more detailed
discussion of how markets behaved, how they managed the portfolio during the
fiscal year, and what they foresee for your Fund and the markets where it
invests. We hope you find their discussion informative.

INVESTING FUNDAMENTALS UNCHANGED

The abrupt reversals of market sentiment during this reporting period
reinforce our conviction that markets are unpredictable in the short term.
Since even the best money managers cannot know exactly when to enter and exit
a market, we remain convinced that the wisest strategy is to stay fully
invested despite volatility and short-term disappointment.

However difficult many markets have been this fiscal year, the fundamental
principles of investing are unchanged:

- - broad portfolio diversification, in which this Fund is part of a complete
investment strategy designed with your personal financial goals in mind;

- - realistic expectations, recognizing that the potential for downturns is
always present; and

- - as always, long-term thinking.

Your financial consultant is your best resource for helping you construct a
diversified portfolio, weather turbulent markets, and keep your eye on your
long-term goals.

We are pleased to send you this report on your Fund's 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 AIM Investor Line at
800-246-5463 or on 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

WE INTEND TO CONTINUE MANAGING YOUR FUND WITH THE CAREFUL OVERSIGHT AND
DISCIPLINED INVESTMENT STRATEGY USED IN ALL AIM FUNDS.

AIM EMERGING MARKETS FUND

<PAGE>

ANNUAL REPORT / MANAGERS' OVERVIEW

FLIGHT TO QUALITY AFFECTS EMERGING MARKETS

GLOBAL MARKET VOLATILITY DOMINATED FINANCIAL NEWS IN 1998. HOW DID THE FUND
PERFORM IN THIS ENVIRONMENT?

We have been in a very challenging environment over the last year. The Fund
has suffered from the particular crises hitting individual countries, but it
has also been hurt by the increasingly negative perception of the riskiness
of emerging market investing.

Results for the fiscal year ended October 31, 1998 were quite disappointing.
Total return was -39.62% for Class A shares and -39.90% for Class B shares.
In comparison, the MSCI Emerging Markets Free Index had a return of -30.98%.

WHY WAS MARKET TURMOIL SO PERVASIVE?

The chain reaction started in Asia. Devalued currencies plus billions in bad
loans curtailed the region's ability to purchase goods and raw materials from
the world's sellers. When Asian companies flooded global commodities markets
with their inventories to produce desperately needed revenues, the
combination of oversupply and weakened demand caused prices to plummet,
contributing to worldwide deflation.

Meanwhile, investors worried over news of Russia's overwhelming government
debt and the speculative borrowing practiced by its private banks. The
situation was especially troubling because it was set against a backdrop of
weakening oil and commodity prices. In August, Russia attempted to stabilize
the banking system by floating the ruble and suspending repayment of much of
its foreign debt. These events spurred a worldwide flight to quality,
resulting in a broad-based selloff. Even though Russia has a relatively small
economy and engages in just a tiny portion of world trade, many investors
sustained millions of dollars in losses from their exposure to both its debt
and equity markets.

IN THE WAKE OF THE ASIAN AND RUSSIAN CRISES, INVESTORS BEGAN TO REDUCE THEIR
EXPOSURE TO EMERGING MARKETS.

In the wake of the Asian and Russian crises, investors began to reduce their
exposure to emerging markets. As external capital drained away, expectations
deteriorated for further growth in places like Brazil. Latin America as well
as the more open markets in the Emerging EMEA (Europe, Middle East, and
Africa) region suffered both from investor flight and from the associated
rising interest rates.

WHAT IS YOUR OVERALL STRATEGY IN MANAGING THE FUND?

First we determine the portfolio's target country allocations through a
top-down process that evaluates and scores countries based on their economic
growth, monetary cycle, government policy, and overall earnings growth. Our
stock research and selection process identifies stocks demonstrating growth,
but at a reasonable price. We then adjust our top-down allocation depending
on the availability of stocks suitable for investment in a particular country
or sector.

WHAT ARE THE MOST SIGNIFICANT CHANGES YOU'VE MADE IN THE PORTFOLIO RECENTLY?

The most important strategy we've taken in the last few months has been to
concentrate the portfolio in the markets and stocks where we are most
confident about the growth and valuation outlook. We've deliberately reduced
the breadth of holdings, bringing the number down from over 200 to about 110,
and we've nearly eliminated exposures to such highly unstable markets as
Pakistan, Sri Lanka, the Philippines, Thailand, and Malaysia. We've also
virtually eliminated the Fund's exposure to Russia. We don't expect to invest
in the Russian market until the political and economic environment has
stabilized.

YOUR LARGEST COUNTRY ALLOCATIONS ARE IN LATIN AMERICA. WHY DID YOU FAVOR THIS
REGION?

Despite recent market turbulence, we still believe in Latin America's
long-term potential. Growth estimates have indeed been revised down for 1999,
but, with the exception of Venezuela, growth is expected in the region.
Relative to Asia, Latin America stands to perform much better because of its
more favorable trade ties to the United States. The governments of the major
economies in Latin America continue to emphasize responsible fiscal and
monetary policies. We feel that many are truly committed to reform and
deregulation. In fact, we've already witnessed important restructuring efforts
in the banking industries of several Latin American countries and the first
stages of fiscal reform in Brazil.

WHICH LATIN AMERICAN STOCKS HAVE YOU LIKED?

In Brazil, we own a number of privatization candidates. Many of the larger
utilities in Brazil appear undervalued given the strong medium-term growth
prospects for the economy. We emphasized oil and natural resource stocks
because they benefit from U.S. dollar revenues and from privatization
efforts, which should encourage greater operating efficiency. We also liked
Brazil's utilities such as Companhia Energetica de Minas Gerais (CEMIG),
provider of electric power to the Brazilian state of Minas Gerais. With
political uncertainties now reduced, such stocks have attracted investor
interest once again.

Our second largest country allocation

SEE IMPORTANT FUND AND INDEX DISCLOSURES INSIDE FRONT COVER.
AIM EMERGING MARKETS FUND

<PAGE>

ANNUAL REPORT / MANAGERS' OVERVIEW

was in Mexico, which we believe will show relatively stable economic growth
into 1999. We've focused on blue chips as well as stocks that stand to benefit
from the large devaluation of the peso. Although earnings will certainly be
affected this year by the monetary correction, the competitive position of
Mexico's exporters has been protected by it.

That should help companies like soft-drink producer Fomento Economico
Mexicano S.A. de C.V., one of our largest holdings in Mexico. The company
exports to 63 countries around the world and benefits from strong domestic
demand.

WHERE ELSE ARE YOU FINDING OPPORTUNITIES?

One of the advantages of a global emerging markets portfolio is its
diversity. We have found a number of investments that were relatively
sheltered from global economic difficulties. For example, Hindustan Lever,
one of the largest low-end consumer good manufacturers in India, announced
better-than-anticipated earnings for the third quarter of 1998. The company
makes soap, toothpaste, and other personal care products.

Global volatility has created good buying opportunities in smaller markets
such as Egypt and Morocco, which have demonstrated relatively strong growth,
falling interest rates, a decline in inflation, and attractive valuations. As
investors turned negative on emerging markets as an asset class, the
resulting market correction allowed us to acquire some fundamentally sound
stocks at good prices.

Similarly, problems in Russia have affected the prices of some of Eastern
Europe's more attractive stocks. For instance, Magyar Olaj-es Gazipari (MOL)
the gas distributor in Hungary, and Kreditbank of Poland are both strong
stocks that we believe are trading at a discount.

GLOBAL VOLATILITY HAS CREATED GOOD BUYING OPPORTUNITIES IN SMALLER MARKETS
SUCH AS EGYPT AND MOROCCO . . .

We've raised our weighting in Greece, which is committed to joining Europe's
Economic and Monetary Union (EMU). In anticipation of that goal, the country
has made major strides in economic and fiscal reform. An example of a Greek
company we liked is Stet Hellas, a cellular company that has shown very
strong earnings growth in recent quarters.

WHAT IS YOUR OUTLOOK FOR EMERGING MARKETS AND FOR THE FUND?

Although we expect growth to be disappointing over the next year, we believe
that emerging markets continue to offer a long-term investment option for the
most aggressive investors. The fundamentals driving growth in emerging
markets are still there: consumption, industrialization, a maturing financial
services industry, and continuing investment in infrastructure.

Emerging markets potentially can offer earnings growth rates that exceed
those in developed countries as well as valuations at a considerable discount
in many cases; however, there are also many more risks and uncertainties
associated with this type of investment. We urge you to read your prospectus
for more information about the fund's objectives, strategies, and risks.

TOP 10 PORTFOLIO HOLDINGS
As of 10/31/98, based on total net assets

<TABLE>
<S> <C> <C>
1. Telecomunicacoes Brasileiras S.A. 4.8%
(Telebras) - ADR (Brazil)
2. Merrill Lynch - Kospi 200 Call 2.8
Warrants, due 9/9/99 (United States)
3. Telefonos de Mexico, S.A. de C.V. 2.7
"L" - ADR (Mexico)
4. Grupo Carso, S.A. de C.V. "A1" (Mexico) 2.5
5. Petroleo Brasileiro, S.A.(Petrobras) 2.2
Preferred (Brazil)
6. Hindustan Lever Ltd. (India) 2.1
7. Companhia Energetica de Minas Gerais 2.0
(CEMIG) - ADR (Brazil)
8. Heliopolis Housing (Egypt) 2.0
9. Magyar Tavkozlesi Rt. - ADR (Hungary) 2.0
10. South African Breweries Ltd. 1.9
(South Africa)
</TABLE>

TOP 10 COUNTRIES
As of 10/31/98, based on total net assets

<TABLE>
<S> <C> <C>
1. Brazil 15.3%
2. Mexico 13.9
3. United States & Other 10.3
4. Egypt 7.2
5. Taiwan 6.8
6. South Africa 6.8
7. India 6.3
8. Greece 6.1
9. Israel 5.6
10. Argentina 3.9
</TABLE>

TOP 10 INDUSTRIES
As of 10/31/98, based on total net assets

<TABLE>
<S> <C> <C>
1. Services 22.1%
2. Finance 18.1
3. Consumer Non-Durables 11.7
4. Energy 10.4
5. Materials/Basic Industry 9.1
6. Multi-Industry/Miscellaneous 7.3
7. Technology 5.0
8. Capital Goods 3.6
9. Health Care 2.2
10. Consumer Durables 0.3
</TABLE>

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.

SEE IMPORTANT FUND AND INDEX DISCLOSURES INSIDE FRONT COVER.
AIM EMERGING MARKETS FUND

<PAGE>

ANNUAL REPORT / PERFORMANCE HISTORY

YOUR FUND'S LONG-TERM PERFORMANCE

RESULTS OF A $10,000 INVESTMENT
AIM EMERGING MARKETS FUND VS. BENCHMARK INDEXES

5/31/92-10/31/98

IFC Investable AIM Emerging MSCI Emerging Markets
Composite Index Markets Fund, Class A Free Index
<S> <C> <C> <C>
5/18/92 $10,000 $9,525 $10,000
7/92 8,804 9,333 8,682
10/92 8,626 9,258 9,078
1/93 8,816 9,269 9,548
4/93 9,669 9,915 10,372
7/93 10,476 10,386 11,887
10/93 12,774 12,107 14,023
1/94 16,015 15,556 16,342
4/94 13,759 13,270 15,064
7/94 14,554 13,858 17,490
10/94 16,279 16,051 16,468
1/95 12,126 12,809 13,186
4/95 12,439 12,711 14,604
7/95 13,395 13,344 14,623
10/95 12,449 12,354 13,747
1/96 13,892 13,282 15,134
4/96 14,337 13,612 15,791
7/96 13,435 12,675 15,182
10/96 13,754 12,728 15,156
1/97 15,009 13,792 16,959
4/97 15,089 13,604 17,015
7/97 16,433 14,846 15,879
10/97 12,373 10,889 13,143
1/98 11,169 9,835 13,699
4/98 12,827 11,193 12,201
7/98 10,478 8,915 8,010
10/98 8,805 6,574 9,415
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
For periods ending 10/31/98, including sales charges

<TABLE>
<S> <C>
CLASS A SHARES
Inception (5/31/92) -6.29%
5 years -12.35
1 year -42.50*

CLASS B SHARES
Inception (4/1/93) -7.22%
5 years -12.28
1 year -42.90**

ADVISOR CLASS
(Sales charges do not apply.)
Inception (6/1/95) -18.12%
1 year -39.23
</TABLE>

*-39.62%, excluding sales charges
**-39.90%, excluding sales charges

Source: Towers Data Systems HYPO-Registered Trademark-.

Your Fund's total return includes sales charges, expenses, and management
fees. The performance of the Fund's Class B and Advisor Class shares will
differ from Class A shares due to differing fees and expenses. For Fund data
performance calculations and descriptions of indexes cited on this page,
please refer to the inside front cover.

MARKET VOLATILITY CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF
AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
PERFORMANCE SHOWN.

Past performance cannot guarantee comparable future results.

ABOUT THIS CHART

The chart above compares your Fund's Class A shares to benchmark indexes. Use
of these indexes is intended to give you a general idea of your Fund's
comparative performance. It is important to understand the differences
between your Fund and these indexes. An index measures performance of a
hypothetical portfolio.

A market index such as the MSCI Emerging Markets Free 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.

Since the last reporting period, AIM Emerging Markets Fund has elected to use
the MSCI Emerging Markets Free Index as its benchmark. This index more
closely reflects the performance of the securities in which the Fund invests.
In previous reports to shareholders, the Fund used the IFC Investable
Composite Index. In the future, we will no longer use this index. Because
this is the first reporting period since we adopted the new index, SEC
guidelines require that we compare the Fund's performance to both the old and
the new index.

AIM EMERGING MARKETS FUND

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

- --------------------------------------------------------------------------------

To the Shareholders of AIM Emerging Markets Fund (formerly GT Global Emerging
Markets Fund) and Board of Trustees of AIM Investment Funds (formerly G.T.
Investment Funds, Inc.):

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Emerging Markets Fund at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinions expressed above.

PRICEWATERHOUSECOOPERS LLP

BOSTON, MASSACHUSETTS
DECEMBER 11, 1998
<PAGE>
PORTFOLIO OF INVESTMENTS

October 31, 1998

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Services (22.1%)
Telecomunicacoes Brasileiras S.A. (Telebras) Preferred -
ADR{\/} ................................................... BRZL 59,262 $ 4,500,208 4.8
TELEPHONE NETWORKS
Telefonos de Mexico, S.A. de C.V. "L" - ADR{\/} ............ MEX 48,027 2,536,426 2.7
TELEPHONE NETWORKS
Magyar Tavkozlesi Rt. - ADR{\/} ............................ HGRY 67,990 1,827,231 2.0
TELEPHONE NETWORKS
Cifra, S.A. de C.V. " V"-/- ................................ MEX 995,730 1,350,243 1.4
RETAILERS-OTHER
Hellenic Telecommunication Organization S.A. (OTE) ......... GREC 57,266 1,302,888 1.4
TELEPHONE NETWORKS
Telecomunicacoes de Sao Paulo S.A. (TELESP): ............... BRZL -- -- 1.3
TELEPHONE - REGIONAL/LOCAL
Common-/- ................................................ -- 10,859,000 1,179,032 --
Preferred ................................................ -- 185,406 31,088 --
Telefonica del Peru S.A. - ADR{\/} ......................... PERU 81,400 1,058,200 1.1
TELEPHONE NETWORKS
Telefonica de Argentina S.A. - ADR{\/} ..................... ARG 30,983 1,024,375 1.1
TELEPHONE NETWORKS
Grupo Televisa, S.A. de C.V. - GDR-/- {\/} ................. MEX 35,100 952,088 1.0
BROADCASTING & PUBLISHING
Companhia de Saneamento Basico do Estado de Sao Paulo -
SABESP .................................................... BRZL 10,607,155 853,695 0.9
BUSINESS & PUBLIC SERVICES
Mahanagar Telephone Nigam Ltd.: ............................ IND -- -- 0.9
TELECOM - OTHER
GDR{\/} .................................................. -- 43,300 465,475 --
Common ................................................... -- 84,400 365,135 --
STET Hellas Telecommunications S.A. - ADR-/- {\/} .......... GREC 24,829 651,761 0.7
WIRELESS COMMUNICATIONS
Telecom Argentina S.A. - ADR{\/} ........................... ARG 19,400 625,650 0.7
TELEPHONE NETWORKS
Nortel Inversora S.A. - ADR{\/} ............................ ARG 27,900 620,775 0.7
TELEPHONE NETWORKS
Videsh Sanchar Nigam Ltd. - Reg S GDR-/- {c} {\/} .......... IND 37,000 388,500 0.4
TELECOM - OTHER
ONA (Omnium Nord Africain) S.A. "A" ........................ MOR 2,809 365,111 0.4
BUSINESS & PUBLIC SERVICES
Bezeq Israeli Telecommunication Corporation Ltd. ........... ISRL 108,700 312,714 0.3
TELEPHONE NETWORKS
Blue Square Chain Investments & Properties Ltd.-/- ......... ISRL 18,591 237,753 0.3
RETAILERS-FOOD
-----------
20,648,348
-----------
Finance (18.1%)
Liberty Life Association of Africa Ltd. .................... SAFR 91,470 1,570,862 1.7
INSURANCE-LIFE
Cathay Life Insurance Co., Ltd. ............................ TWN 382,800 1,353,841 1.4
INSURANCE-LIFE
National Bank of Greece S.A. ............................... GREC 8,845 1,257,732 1.3
BANKS-MONEY CENTER
Alpha Credit Bank .......................................... GREC 14,955 1,195,922 1.3
BANKS-REGIONAL
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Finance (Continued)
Bank Hapoalim Ltd. ......................................... ISRL 642,510 $ 1,162,416 1.2
BANKS-MONEY CENTER
Grupo Financiero Banamex Accival, S.A. de C.V. "B"-/- ...... MEX 1,007,400 1,046,986 1.1
BANKS-MONEY CENTER
Bank Leumi Le - Israel ..................................... ISRL 768,745 983,119 1.1
BANKS-MONEY CENTER
Turkiye Is Bankasi (Isbank) "C" ............................ TRKY 34,305,200 941,566 1.0
BANKS-MONEY CENTER
Uniao de Bancos Brasileiros S.A. (Unibanco): ............... BRZL -- -- 1.0
BANKS-MONEY CENTER
Units{=} ................................................. -- 16,569,429 543,841 --
GDR{\/} .................................................. -- 21,670 379,225 --
MISR International Bank - Reg S GDR{c} {\/} ................ EGPT 95,500 900,088 1.0
BANKS-MONEY CENTER
BIG Bank Gdanski S.A. - Reg S GDR{c} {\/} .................. POL 46,000 740,600 0.8
BANKS-REGIONAL
Ergo Bank S.A. ............................................. GREC 7,170 637,220 0.7
BANKS-REGIONAL
Commercial Bank of Greece S.A. ............................. GREC 7,460 632,496 0.7
BANKS-MONEY CENTER
Yapi ve Kredi Bankasi AS ................................... TRKY 48,631,340 549,115 0.6
BANKS-REGIONAL
Credicorp Ltd. - ADR{\/} ................................... PERU 77,770 524,948 0.5
BANKS-MONEY CENTER
Banco de Galicia y Buenos Aires, S.A. de C.V. - ADR{\/} .... ARG 28,226 481,606 0.5
BANKS-MONEY CENTER
Wafabank ................................................... MOR 3,500 456,830 0.5
BANKS-MONEY CENTER
KREDYT BANK S.A. - Reg S GDR-/- {c} {\/} ................... POL 22,010 439,100 0.5
BANKS-MONEY CENTER
Akbank T.A.S. .............................................. TRKY 22,711,500 335,350 0.4
BANKS-REGIONAL
Banco Rio de La Plata S.A. - ADR{\/} ....................... ARG 32,100 288,900 0.3
BANKS-MONEY CENTER
Inversiones y Representaciones S.A. (IRSA) - GDR{\/} ....... ARG 10,750 278,156 0.3
REAL ESTATE
National Development Bank .................................. SLNKA 68,000 78,598 0.1
BANKS-REGIONAL
Kazkommertsbank Co. - GDR-/- {\/} .......................... KAZ 12,610 69,986 0.1
BANKS-REGIONAL
Commercial International Bank .............................. EGPT 4,200 33,723 --
BANKS-MONEY CENTER
State Bank of India Ltd. ................................... IND 1,650 6,070 --
BANKS-REGIONAL
Housing Development Finance Corp. .......................... IND 5 264 --
OTHER FINANCIAL
-----------
16,888,560
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (11.7%)
Hindustan Lever Ltd. ....................................... IND 51,000 $ 1,932,695 2.1
PERSONAL CARE/COSMETICS
South African Breweries Ltd. ............................... SAFR 92,963 1,809,369 1.9
BEVERAGES - ALCOHOLIC
Fomento Economico Mexicano, S.A. de C.V. - ADR{\/} ......... MEX 64,322 1,676,392 1.8
BEVERAGES - NON-ALCOHOLIC
ITC Ltd. ................................................... IND 92,128 1,524,032 1.6
TOBACCO
Panamerican Beverages, Inc. "A"{\/} ........................ MEX 50,000 1,012,500 1.1
BEVERAGES - NON-ALCOHOLIC
A-Ahram Beverages Co., S.A.E.: ............................. EGPT -- -- 1.0
BEVERAGES - ALCOHOLIC
144A GDR{.} {\/} ......................................... -- 21,235 595,642 --
GDR{\/} .................................................. -- 11,000 308,550 --
Compania Cervecerias Unidas S.A. - ADR{\/} ................. CHLE 36,546 657,828 0.7
BEVERAGES - ALCOHOLIC
Companhia de Tecidos Norte de Minas Preferred .............. BRZL 5,002,000 578,702 0.6
TEXTILES & APPAREL
Companhia Cervejaria Brahma Preferred ...................... BRZL 663,129 311,328 0.3
BEVERAGES - ALCOHOLIC
Oriental Weavers "C" ....................................... EGPT 12,000 258,920 0.3
TEXTILES & APPAREL
Zaklady Piwowarskie w Zywcu S.A. (Zywiec) .................. POL 1,560 212,562 0.2
BEVERAGES - ALCOHOLIC
Truworths International Ltd. ............................... SAFR 58,916 44,898 0.1
TEXTILES & APPAREL
-----------
10,923,418
-----------
Energy (10.4%)
Petroleo Brasileiro S.A. (Petrobras) Preferred ............. BRZL 16,324,080 2,052,827 2.2
OIL
Companhia Energetica de Minas Gerais (CEMIG) - ADR{\/} ..... BRZL 96,750 1,874,531 2.0
ELECTRICAL & GAS UTILITIES
MOL Magyar Olaj-es Gazipari RT - Reg S GDR{c} {\/} ......... HGRY 72,410 1,649,138 1.8
GAS PRODUCTION & DISTRIBUTION
Huaneng Power International, Inc. - ADR-/- {\/} ............ CHNA 110,068 1,513,435 1.6
ELECTRICAL & GAS UTILITIES
Enersis S.A. - ADR{\/} ..................................... CHLE 44,268 924,095 1.0
ELECTRICAL & GAS UTILITIES
Companhia de Eletricidade do Estado da Bahia - COELBA ...... BRZL 15,100,000 481,053 0.5
ELECTRICAL & GAS UTILITIES
Surgutneftegaz - ADR{\/} ................................... RUS 225,855 451,710 0.5
OIL
Eletropaulo Metropolitana Preferred ........................ BRZL 9,317,824 314,031 0.3
ELECTRICAL & GAS UTILITIES
Light - Servicos de Electricidade S.A. ..................... BRZL 2,158,561 267,830 0.3
ELECTRICAL & GAS UTILITIES
Empresa Bandeirante de Energia S.A.-/- ..................... BRZL 9,317,824 90,538 0.1
ELECTRICAL & GAS UTILITIES
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Energy (Continued)
Companhia Brasileira de Petroleo Ipiranga S.A. Preferred ... BRZL 14,418,000 $ 77,360 0.1
GAS
Pakistan State Oil Co., Ltd. ............................... PAK 65 64 --
OIL
-----------
9,696,612
-----------
Materials/Basic Industry (9.1%)
Suez Cement Co. - Reg S GDR{c} {\/} ........................ EGPT 109,535 1,615,641 1.7
CEMENT
Anglo American Platinum Corporation Ltd. ................... SAFR 90,800 1,380,680 1.5
METALS - NON-FERROUS
Sociedad Quimica y Minera de Chile S.A. - ADR{\/} .......... CHLE 34,370 1,142,803 1.2
CHEMICALS
Cemex, S.A. de C.V.: ....................................... MEX -- -- 1.0
CEMENT
"CPO" .................................................... -- 349,153 832,880 --
"A" ...................................................... -- 43,400 104,387 --
Companhia Vale do Rio Doce "A" Preferred ................... BRZL 54,200 817,907 0.9
METALS - STEEL
Compania de Minas Buenaventura S.A. - ADR{\/} .............. PERU 54,606 668,924 0.7
GOLD
Apasco, S.A. de C.V. "A" ................................... MEX 147,781 541,215 0.6
CEMENT
Hindalco Industries Ltd.: .................................. IND -- -- 0.4
METALS - NON-FERROUS
"GDR"{\/} ................................................ -- 34,200 400,995 --
Common ................................................... -- 1,802 21,790 --
Grupo Cementos de Chihuahua, S.A. de C.V. "B" .............. MEX 537,100 288,140 0.3
CEMENT
Siderca S.A. "A" ........................................... ARG 187,600 262,719 0.3
METALS - STEEL
Makhteshim-Agan Industries Ltd.-/- ......................... ISRL 142,780 253,624 0.3
CHEMICALS
Engro Chemicals Pakistan Ltd. .............................. PAK 72,711 67,027 0.1
CHEMICALS
Nan Ya Plastics Corp.-/- ................................... TWN 43,350 54,899 0.1
PLASTICS & RUBBER
Associated Cement Cos., Ltd. ............................... IND 16 356 --
CEMENT
Dewan Salman Fibre Ltd.-/- ................................. PAK 4 1 --
CHEMICALS
-----------
8,453,988
-----------
Multi-Industry/Miscellaneous (7.3%)
Grupo Carso, S.A. de C.V. "A1" ............................. MEX 664,600 2,302,385 2.5
MULTI-INDUSTRY
Rembrandt Group Ltd. ....................................... SAFR 228,160 1,522,427 1.6
CONGLOMERATE
Haci Omer Sabanci Holding AS ............................... TRKY 57,726,250 872,422 0.9
CONGLOMERATE
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Multi-Industry/Miscellaneous (Continued)
China Development Corp. .................................... TWN 380,700 $ 752,581 0.8
CONGLOMERATE
Koor Industries Ltd. - ADR{\/} ............................. ISRL 31,615 511,768 0.6
CONGLOMERATE
Central Asia Regional Growth Fund(::) -/- {\/} ............. IRE 156,000 468,000 0.5
COUNTRY FUNDS
Koc Holding AS ............................................. TRKY 3,488,650 321,194 0.3
CONGLOMERATE
Romanian Growth Fund-/- {\/} ............................... ROM 75,800 94,750 0.1
COUNTRY FUNDS
John Keells Holdings Ltd. .................................. SLNKA 3,800 10,768 --
CONGLOMERATE
KEC International Ltd.-/- .................................. IND 200 113 --
MISCELLANEOUS
-----------
6,856,408
-----------
Technology (5.0%)
Taiwan Semiconductor Manufacturing Co.-/- .................. TWN 667,450 1,350,362 1.4
SEMICONDUCTORS
Asustek Computer Inc. - Reg S GDR-/- {c} {\/} .............. TWN 127,997 982,377 1.1
COMPUTERS & PERIPHERALS
Hon Hai Precision Industry ................................. TWN 141,960 684,039 0.7
COMPUTERS & PERIPHERALS
Compal Electronics, Inc.-/- ................................ TWN 212,000 661,375 0.7
COMPUTERS & PERIPHERALS
Delta Electronics, Inc. .................................... TWN 196,800 568,364 0.6
COMPUTERS & PERIPHERALS
Formula Systems Ltd.-/- .................................... ISRL 21,505 460,212 0.5
SOFTWARE
-----------
4,706,729
-----------
Capital Goods (3.6%)
MISR Elgadida for Housing and Reconstruction ............... EGPT 20,165 1,844,170 2.0
CONSTRUCTION
NASR (El) City Company For Housing & Construction .......... EGPT 27,170 842,865 0.9
CONSTRUCTION
Corporacion GEO, S.A. de C.V. "B"-/- ....................... MEX 214,600 371,721 0.4
CONSTRUCTION
Arabian International Construction-/- ...................... EGPT 41,822 303,927 0.3
CONSTRUCTION
-----------
3,362,683
-----------
Health Care (2.2%)
Teva Pharmaceutical Industries Ltd. ........................ ISRL 29,600 1,166,886 1.3
PHARMACEUTICALS
Ranbaxy Laboratories Ltd. .................................. IND 75,000 885,195 0.9
MEDICAL TECHNOLOGY & SUPPLIES
-----------
2,052,081
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

TOTAL EQUITY INVESTMENTS (cost $113,133,206) ................. 83,861,449 89.8
----------- -----
<CAPTION>

NO. OF VALUE % OF NET
WARRANTS COUNTRY WARRANTS (NOTE 1) ASSETS
- -------------------------------------------------------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Merrill Lynch - Kospi 200 Call Warrants, due 9/9/99.
Performance linked to
equity securities. Redemption amount 100% of the final
closing price of the
Korean Kospi 200 Index converted to the prevailing foreign
exchange rate. (cost $2,596,012) ......................... US 796,274 2,675,640 2.8
----------- -----
INVESTMENT MANAGEMENT
<CAPTION>

VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust Co.,
due November 2, 1998, for an effective yield of 5.30%,
collateralized by $9,170,000 U.S. Treasury Notes, 5.75% due
9/30/99 (market value of collateral is $9,328,082,
including accrued interest). (cost $9,141,000) ............ 9,141,000 9.8
----------- -----

TOTAL INVESTMENTS (cost $124,870,218) * ..................... 95,678,089 102.4
Other Assets and Liabilities ................................. (2,275,508) (2.4)
----------- -----

NET ASSETS ................................................... $93,402,581 100.0
----------- -----
----------- -----
</TABLE>

- --------------

-/- Non-income producing security.
{*} Denominated in Hong Kong Dollars.
{.} Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
{\/} U.S. currency denominated.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
{=} Each unit represents one preferred share of Unibanco and one
preferred "B" share of Unibanco Holdings.
(::) Valued in good faith at fair value usingprocedures approved by the
Board of Trustees (See Note 1 of Notes to Financial Statements).
* For Federal income tax purposes, cost is $125,339,599 and
appreciation (depreciation) is as follows:

<TABLE>
<S> <C>
Unrealized appreciation: $ 3,991,003
Unrealized depreciation: (33,652,513)
-------------
Net unrealized depreciation: $ (29,661,510)
-------------
-------------
</TABLE>

Abbreviations:
ADR--American Depositary Receipt
GDR--Global Depositary Receipt

The accompanying notes are an integral part of the financial statements.

<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1998, was concentrated in the
following countries:

<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS {D}
-------------------------------------------
FIXED INCOME
& SHORT-TERM
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY WARRANTS & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Argentina (ARG/ARS) .................. 3.9 3.9
Brazil (BRZL/BRL) .................... 15.3 15.3
Chile (CHLE/CLP) ..................... 2.9 2.9
China (CHNA/RMB) ..................... 1.9 1.9
Egypt (EGPT/EGP) ..................... 7.2 7.2
Greece (GREC/GRD) .................... 6.1 6.1
Hungary (HGRY/HUF) ................... 3.8 3.8
India (IND/INR) ...................... 6.3 6.3
Ireland (IRE/IEP) .................... 0.5 0.5
Israel (ISRL/ILS) .................... 5.6 5.6
Kazakhstan (KAZ/KTS) ................. 0.1 0.1
Mexico (MEX/MXN) ..................... 13.9 13.9
Morocco (MOR/MAD) .................... 0.9 0.9
Pakistan (PAK/PKR) ................... 0.1 0.1
Peru (PERU/PES) ...................... 2.3 2.3
Poland (POL/PLZ) ..................... 1.5 1.5
Romania (ROM/ROL) .................... 0.1 0.1
Russia (RUS/SUR) ..................... 0.5 0.5
South Africa (SAFR/ZAR) .............. 6.8 6.8
Sri Lanka (SLNKA/LKR) ................ 0.1 0.1
Taiwan (TWN/TWD) ..................... 6.8 6.8
Turkey (TRKY/TRL) .................... 3.2 3.2
United States (US/USD) ............... 2.8 7.4 10.2
------ ----- ----- -----
Total ............................... 89.8 2.8 7.4 100.0
------ ----- ----- -----
------ ----- ----- -----
</TABLE>

- --------------

{d} Percentages indicated are based on net assets of $93,402,581.

The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998

- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $124,870,218) (Note 1).......................... $ 95,678,089
U.S. currency.................................................................. $ 827
Foreign currencies (cost $1,251,796)........................................... 1,235,418 1,236,245
---------
Receivable for Fund shares sold........................................................... 413,554
Dividends and dividend withholding tax reclaims receivable................................ 320,223
Receivable for securities sold............................................................ 66,130
Interest receivable....................................................................... 2,692
------------
Total assets............................................................................ 97,716,933
------------
Liabilities:
Payable for securities purchased.......................................................... 3,143,073
Payable for investment management and administration fees (Note 2)........................ 394,425
Payable for Fund shares repurchased....................................................... 288,586
Payable for service and distribution expenses (Note 2).................................... 147,714
Payable for transfer agent fees (Note 2).................................................. 136,937
Payable for printing and postage expenses................................................. 102,809
Payable for professional fees............................................................. 43,949
Payable for registration and filing fees.................................................. 24,709
Payable for custodian fees................................................................ 8,199
Payable for fund accounting fees (Note 2)................................................. 4,847
Payable for Trustees' fees and expenses (Note 2).......................................... 4,101
Other accrued expenses.................................................................... 15,003
------------
Total liabilities....................................................................... 4,314,352
------------
Net assets.................................................................................. $ 93,402,581
------------
------------
Class A:
Net asset value and redemption price per share ($43,925,435 DIVIDED BY 5,964,824 shares
outstanding)............................................................................... $ 7.36
------------
------------
Maximum offering price per share (100/95.25 of $7.36) *..................................... $ 7.73
------------
------------
Class B:+
Net asset value and offering price per share ($49,439,410 DIVIDED BY 6,894,258 shares
outstanding)............................................................................... $ 7.17
------------
------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($37,736 DIVIDED
BY 5,067 shares outstanding)............................................................... $ 7.45
------------
------------
Net assets consist of:
Paid in capital (Note 4).................................................................. $206,291,653
Accumulated net realized loss on investments and foreign currency transactions............ (83,677,566)
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies............................................................................... (19,377)
Net unrealized depreciation of investments................................................ (29,192,129)
------------
Total -- representing net assets applicable to capital shares outstanding................... $ 93,402,581
------------
------------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>

The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS

Year ended October 31, 1998

- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income (net of foreign withholding tax of $336,014)............................... $ 4,700,768
Interest income............................................................................ 250,454
Securities lending income.................................................................. 186,080
------------
Total investment income.................................................................. 5,137,302
------------
Expenses:
Investment management and administration fees (Note 2)..................................... 1,660,548
Service and distribution expenses:(Note 2)
Class A.................................................................... $ 406,198
Class B.................................................................... 871,360 1,277,558
------------
Transfer agent fees (Note 2)............................................................... 1,069,500
Interest expense (Note 1).................................................................. 447,556
Printing and postage expenses.............................................................. 219,000
Custodian fees............................................................................. 160,000
Professional fees.......................................................................... 122,310
Registration and filing fees............................................................... 74,900
Fund accounting fees (Note 2).............................................................. 45,603
Trustees' fees and expenses (Note 2)....................................................... 13,870
Other expenses (Note 1).................................................................... 10,950
------------
Total expenses before reductions......................................................... 5,101,795
------------
Expenses reimbursed by A I M Advisors, Inc............................................. (821,992)
Expense reductions (Note 5)............................................................ (39,255)
------------
Total net expenses....................................................................... 4,240,548
------------
Net investment income........................................................................ 896,754
------------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments............................................. (72,668,661)
Net realized loss on foreign currency transactions........................... (2,512,849)
------------
Net realized loss during the year........................................................ (75,181,510)
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies........................................... 601,285
Net change in unrealized depreciation of investments......................... 5,031,551
------------
Net unrealized appreciation during the year.............................................. 5,632,836
------------
Net realized and unrealized loss on investments and foreign currencies....................... (69,548,674)
------------
Net decrease in net assets resulting from operations......................................... $(68,651,920)
------------
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income (loss).............................................. $ 896,754 $ (1,050,632)
Net realized gain (loss) on investments and foreign currency
transactions............................................................. (75,181,510) 26,113,895
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................. 601,285 (282,179)
Net change in unrealized appreciation (depreciation) of investments....... 5,031,551 (52,070,476)
---------------- ----------------
Net decrease in net assets resulting from operations.................... (68,651,920) (27,289,392)
---------------- ----------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................ -- (37,319)
In excess of net investment income........................................ -- (104,807)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................ -- (4,161)
In excess of net investment income........................................ -- (11,686)
---------------- ----------------
Total distributions..................................................... -- (157,973)
---------------- ----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested.......................... 483,750,036 1,140,272,411
Decrease from capital shares repurchased.................................. (564,596,584) (1,314,030,266)
---------------- ----------------
Net decrease from capital share transactions............................ (80,846,548) (173,757,855)
---------------- ----------------
Total decrease in net assets................................................ (149,498,468) (201,205,220)
Net assets:
Beginning of year......................................................... 242,901,049 444,106,269
---------------- ----------------
End of year *............................................................. $ 93,402,581 $ 242,901,049
---------------- ----------------
---------------- ----------------
* Includes undistributed net investment income of.......................... $ -- $ --
---------------- ----------------
---------------- ----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.

CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (D) 1997 (D) 1996 (D) 1995 (D) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.20 $ 14.26 $ 13.85 $ 18.81 $ 14.42
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.08* -- 0.11 0.13 (0.02)
Net realized and unrealized gain
(loss) on investments................ (4.92) (2.05) 0.30 (4.32) 4.68
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (4.84) (2.05) 0.41 (4.19) 4.66
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- -- (0.01)
From net realized gain on
investments.......................... -- -- -- (0.77) (0.26)
In excess of net investment income.... -- (0.01) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions................. -- (0.01) -- (0.77) (0.27)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.36 $ 12.20 $ 14.26 $ 13.85 $ 18.81
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Total investment return (c)............. (39.62)% (14.45)% 2.96% (23.04)% 32.58%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 43,925 $ 113,319 $ 224,964 $ 252,457 $ 417,322
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 0.78% (0.01)% 0.76% 0.89% (0.11)%
Without expense reductions and
reimbursement........................ 0.27% (0.09)% 0.64% 0.87% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.97% 2.10% 1.96% 2.12% 2.06%
Without expense reductions and
reimbursement........................ 2.48% 2.18% 2.08% 2.14% N/A
Ratio of interest expense to average net
assets++............................... 0.26% N/A N/A N/A N/A
Portfolio turnover rate++............... 114% 150% 104% 114% 100%
</TABLE>

- ----------------

(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Before reimbursement the net investment income per share would have
been reduced by $0.05 for Class A, B, and Advisor.
+ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++ Portfolio turnover rates and ratio of interest expense to average net
assets are calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
N/A Not Applicable.

The accompanying notes are an integral part of the financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS (cont'd)

CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (D) 1997 (D) 1996 (D) 1995 (D) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 11.94 $ 14.02 $ 13.68 $ 18.68 $ 14.39
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.02* (0.08) 0.04 0.06 (0.12)
Net realized and unrealized gain
(loss) on investments................ (4.79) (2.00) 0.30 (4.29) 4.67
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (4.77) (2.08) 0.34 (4.23) 4.55
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ -- -- -- -- --
From net realized gain on
investments.......................... -- -- -- (0.77) (0.26)
In excess of net investment income.... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions................. -- -- -- (0.77) (0.26)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.17 $ 11.94 $ 14.02 $ 13.68 $ 18.68
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Total investment return (c)............. (39.90)% (14.91)% 2.49% (23.37)% 31.77%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 49,439 $ 127,658 $ 216,004 $ 225,861 $ 291,289
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 0.28% (0.51)% 0.26% 0.39% (0.61)%
Without expense reductions and
reimbursement........................ (0.23)% (0.59)% 0.14% 0.37% N/A
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 2.47% 2.60% 2.46% 2.62% 2.56%
Without expense reductions and
reimbursement........................ 2.98% 2.68% 2.58% 2.64% N/A
Ratio of interest expense to average net
assets++............................... 0.26% N/A N/A N/A N/A
Portfolio turnover rate++............... 114% 150% 104% 114% 100%
</TABLE>

- ----------------

The accompanying notes are an integral part of the financial statements.

<PAGE>
FINANCIAL HIGHLIGHTS (cont'd)

<TABLE>
<CAPTION>
ADVISOR CLASS+
-----------------------------------------------
JUNE 1,
YEAR ENDED 1995
OCTOBER 31, TO
---------------------------------- OCTOBER 31,
1998 (D) 1997 (D) 1996 (D) 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.27 $ 14.38 $ 13.88 $ 14.71
---------- ---------- ---------- -----------
Income from investment operations:
Net investment income (loss).......... 0.13* 0.05 0.18 0.08
Net realized and unrealized gain
(loss) on investments................ (4.95) (2.05) 0.32 (0.91)
---------- ---------- ---------- -----------
Net increase (decrease) from
investment operations.............. (4.82) (2.00) 0.50 (0.83)
---------- ---------- ---------- -----------
Distributions to shareholders:
From net investment income............ -- (0.03) -- --
From net realized gain on
investments.......................... -- -- -- --
In excess of net investment income.... -- (0.08) -- --
---------- ---------- ---------- -----------
Total distributions................. -- (0.11) -- --
---------- ---------- ---------- -----------
Net asset value, end of period.......... $ 7.45 $ 12.27 $ 14.38 $ 13.88
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------

Total investment return (c)............. (39.23)% (14.05)% 3.60% (5.71)%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 38 $ 1,924 $ 3,139 $ 1,675
Ratio of net investment income (loss) to
average net assets:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.28% 0.49% 1.26% 1.39%(a)
Without expense reductions and
reimbursement........................ 0.77% 0.41% 1.14% 1.37%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions and
reimbursement (Notes 2 & 5).......... 1.47% 1.60% 1.46% 1.62%(a)
Without expense reductions and
reimbursement........................ 1.98% 1.68% 1.58% 1.64%(a)
Ratio of interest expense to average net
assets++............................... 0.26% N/A N/A N/A
Portfolio turnover rate++............... 114% 150% 104% 114%(a)
</TABLE>

- ----------------

The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS

October 31, 1998

- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Emerging Markets Fund (the "Fund"), formerly GT Global Emerging Markets
Fund, is a separate series of AIM Investment Funds (the "Trust"), formerly G.T.
Investment Funds, Inc. The Trust is organized as a Delaware business trust and
is registered under the Investment Company Act of 1940, as amended ("1940 Act"),
as a diversified, open-end management investment company. The Trust has thirteen
series of shares in operation, each series corresponding to a distinct portfolio
of investments.

The Fund offers Class A, Class B, and Advisor Class shares, each of which has
equal rights as to assets and voting privileges. Class A and Class B each has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the Fund are allocated on a pro rata basis to each class based on
the relative net assets of each class to the total net assets of the Fund. Each
class of shares differs in its respective service and distribution expenses, and
may differ in its transfer agent, registration, and certain other class-specific
fees and expenses.

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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.

(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.

Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or in the principal over-the-counter market in which
such securities are traded, as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by A I M Advisors, Inc. (the
"Manager") to be the primary market.

Fixed income investments are valued at the mean of representative quoted bid and
ask prices for such investments or, if such prices are not available, at prices
for investments of comparative maturity, quality and type; however, when the
Manager deems it appropriate, prices obtained for the day of valuation from a
bond pricing service will be used. Short-term investments with a maturity of 60
days or less are valued at amortized cost adjusted for foreign exchange
translation and market fluctuation, if any.

Investments for which market quotations are not readily available (including
restricted securities which are subject to limitations on their sale) are valued
at fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.

Portfolio securities which are primarily traded on foreign exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S. dollars at
the current exchange rates, except that when an occurrence subsequent to the
time a value was so established is likely to have materially changed such value,
then the fair value of those securities will be determined by consideration of
other factors by or under the direction of the Trust's Board of Trustees.

(B) FOREIGN CURRENCY TRANSLATION
The accounting records are maintained in U.S. dollars. The market values of
foreign securities, currency holdings, and other assets and liabilities are
recorded in the books and records of the Fund after translation to U.S. dollars
based on the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are translated at
prevailing exchange rates when earned or incurred.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.

(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, U.S. government securities or other
high quality debt securities of which the value, including accrued interest, is
at least equal to the amount to be repaid to the Fund under each agreement at
its maturity.

(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract

<PAGE>
fluctuates with changes in currency exchange rates. The Forward Contract is
marked-to-market daily and the change in market value is recorded by the Fund as
an unrealized gain or loss. When the Forward Contract is closed, the Fund
records a realized gain or loss equal to the difference between the value at the
time it was opened and the value at the time it was closed. The Fund could be
exposed to risk if a counterparty is unable to meet the terms of the contract or
if the value of the currency changes unfavorably. The Fund may enter into
Forwards Contracts in connection with planned purchases or sales of securities,
or to hedge against adverse fluctuations in exchange rates between currencies.

(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, a gain or loss is realized
from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the cost of the underlying security purchased would be decreased by
the premium originally received. The Fund can write options only on a covered
basis, which, for a call, requires that the Fund hold the underlying securities
and, for a put, requires the Fund to set aside cash, U.S. government securities,
or other liquid securities in an amount not less than the exercise price or
otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.

The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund would realize a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund would
realize a gain or loss, depending on whether proceeds from the closing sale
transaction are greater or less than the cost of the option. If the Fund
exercises a call option, the cost of the securities acquired by exercising the
call is increased by the premium paid to buy the call. If the Fund exercises a
put option, it realizes a gain or loss from the sale of the underlying security,
and the proceeds from such sale are decreased by the premium originally paid.

The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.

(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.

(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the other party to the transaction fails to deliver and causes the Fund to
subsequently invest at less advantageous prices.

(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of approximately $12,179,747
were on loan to brokers. The loans were secured by cash collateral of
$12,442,778 received by the Fund. For the year ended October 31, 1998, the Fund
received fees of $186,080.

For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of each loan. The cash collateral is
invested in a securities lending trust which consists

<PAGE>
of a portfolio of high quality short duration securities whose average effective
duration is restricted to 120 days or less.

(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund currently has a capital loss carryforward of
$83,208,185, of which $5,742,880 expires in 2003, $4,421,874 expires in 2004,
and $73,043,431 expires in 2006.

(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.

(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the prices of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.

(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.

(M) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted
securities, if any, (excluding 144A issues), are shown at the end of the Fund's
Portfolio of Investments.

(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with each of BankBoston and State Street Bank and
Trust Company. The arrangements with the banks allow the Fund and certain other
Funds to borrow, on a first come, first serve basis, an aggregate maximum amount
of $250,000,000. The Fund is limited to borrowing up to 33 1/3% of the value of
the Fund's total assets. On October 31, 1998, the Fund had no loans outstanding.

For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $9,465,579, with a weighted average interest rate of 6.30%.
Interest expense for the Fund for the year ended October 31, 1998 was $428,894.
Other interest expense charges amounted to $18,662.

2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, is the Fund's distributor as of the close of business
on May 29, 1998. The Trust was reorganized from a Maryland corporation into a
Delaware business trust on September 8, 1998. Finally, as of the close of
business on September 4, 1998, A I M Fund Services, Inc. ("AFS"), an affiliate
of the Manager and AIM Distributors, replaced GT Global Investor Services, Inc.
("GT Services") as the transfer agent of the Fund.

The Fund pays investment management and administration fees to the Manager at
the annualized rate of 0.975% on the first $500 million of average daily net
assets of the Fund; 0.95% on the next $500 million; 0.925% on the next $500
million and 0.90% on amounts thereafter. These fees are computed daily and paid
monthly.

AIM Distributors, an affiliate of the Manager, serves as the Fund's distributor.
For the period ended May 29, 1998, GT Global, Inc. ("GT Global"), an affiliate
of the investment sub-advisor, served as the Fund's distributor. The Fund offers
Class A, Class B, and Advisor Class shares for purchase.

Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended October 31, 1998, AIM Distributors and GT
Global retained sales charges of $6,628 and $9,517, respectively. Purchases of
Class A shares exceeding $1,000,000 may be subject to a contingent deferred
sales charge ("CDSC") upon redemption, in accordance with the Fund's current
prospectus. AIM Distributors and GT Global collected CDSCs for the year ended
October 31, 1998 of $0 and $1,590, respectively. AIM Distributors also makes
ongoing shareholder

<PAGE>
servicing and trail commission payments to dealers whose clients hold Class A
shares.

Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors, from its own resources, pays commissions to dealers
through which the sales are made. Certain redemptions of Class B shares made
within six years of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. For the year ended October 31, 1998, AIM Distributors and GT
Global collected CDSCs in the amount of $163,704 and $623,588, respectively. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.

For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan") and Class B
shares ("Class B Plan"), the Fund reimbursed GT Global for a portion of its
shareholder servicing and distribution expenses. Under the Class A Plan, the
Fund was permitted to pay GT Global a service fee at the annualized rate of up
to 0.25% of the average daily net assets of the Fund's Class A shares for GT
Global's expenditures incurred in servicing and maintaining shareholder
accounts, and was permitted to pay GT Global a distribution fee at the
annualized rate of up to 0.50% of the average daily net assets of the Fund's
Class A shares, less any amounts paid by the Fund as the aforementioned service
fee, for GT Global's expenditures incurred in providing services as distributor.
All expenses for which GT Global was reimbursed under the Class A Plan would
have been incurred within one year of such reimbursement.

For the period ended May 29, 1998, pursuant to the Class B Plan, the Fund was
permitted to pay GT Global a service fee at the annualized rate of up to 0.25%
of the average daily net assets of the Fund's Class B shares for GT Global's
expenditures incurred in servicing and maintaining shareholder accounts, and was
permitted to pay GT Global a distribution fee at the annualized rate of up to
0.75% of the average daily net assets of the Fund's Class B shares for GT
Global's expenditures incurred in providing services as distributor. Expenses
incurred under the Class B Plan in excess of 1.00% annually were permitted to be
carried forward for reimbursement in subsequent years as long as that Plan
continued in effect.

Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees adopted a Master Distribution Plan
applicable to the Fund's Class A shares ("Class A Plan") and Class B shares
("Class B Plan"), pursuant to which the Fund compensates AIM Distributors for
the purpose of financing any activity that is intended to result in the sale of
Class A or Class B shares of the Fund. Under the Class A Plan, the Fund
compensates AIM Distributors at the annualized rate of 0.50% of the average
daily net assets of the Fund's Class A shares. Under the Class B Plan, the Fund
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares.

The Class A Plan and the Class B Plan (together, the "Plans") are designed to
compensate AIM Distributors for certain promotional and other sales-related
costs, and to implement a dealer incentive program that provides for periodic
payments to selected dealers who furnish continuing personal shareholder
services to their customers who purchase and own Class A and Class B shares of
the Fund. Payments also can be directed by AIM Distributors to financial
institutions who have entered into service agreements with respect to Class A
and Class B shares of the Fund and who provide continuing personal services to
their customers who own Class A and Class B shares of the Fund. The service fees
payable to selected financial institutions are calculated at the annual rate of
0.25% of the average daily net asset value of those Fund shares that are held in
such institution's customers' accounts that were purchased on or after a
prescribed date set forth in the Plans.

The Manager and AIM Distributors voluntarily have undertaken to limit the Fund's
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expenses) to the maximum annual rate of 2.00% 2.50%, and 1.50% of the average
daily net assets of the Fund's Class A, Class B and Advisor Class shares,
respectively. If necessary, this limitation will be effected by waivers by the
Manager of investment management and administration fees, waivers by AIM
Distributors of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or AIM Distributors of portions of the Fund's
other operating expenses.

Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay A I M Fund Services,
Inc. ("AFS") an annualized fee of $24.85 per shareholder accounts that are open
during any monthly period (this fee includes all out-of-pocket expenses), and an
annualized fee of $0.70 per shareholder account that is closed during any
monthly period. Both fees shall be billed by AFS monthly in arrears on a
prorated basis of 1/12 of the annualized fee for all such accounts.

For the period November 1, 1997 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
also was reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.

The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services to the Manager is a percentage, not to exceed 0.03% annually,
of a Fund's average daily net assets. The annual fee rate is derived based on
the aggregate net assets of the funds which comprise the following investment
companies: AIM Growth Series, AIM Investment Funds, AIM Investment Portfolios,
AIM Series Trust, G.T. Global Variable Investment Series and G.T. Global
Variable Investment Trust. The fee is calculated at the rate of 0.03% of the
first $5 billion of assets and 0.02% to the assets in excess of

<PAGE>
$5 billion. An amount is allocated to and paid by each such fund based on its
relative average daily net assets.

The Trust pays each Trustee who is not an employee, officer or director of the
Manager, or any other affiliated company, $5,000 per year plus $300 for each
meeting of the board or any committee thereof attended by the Trustee.

3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1998, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $192,075,345 and $285,778,997, respectively. For the
year ended October 31, 1998, there were no purchases or sales of U.S. government
obligations.

4. CAPITAL SHARES
At October 31, 1998, there were 6,000,000,000 shares of the Trust's common stock
authorized, at $0.0001 par value. Of this amount, 400,000,000 were classified as
shares of the AIM Global Telecommunications Fund; 400,000,000 were classified as
shares of AIM Global Government Income Fund; 200,000,000 were classified as
shares of AIM Global Health Care Fund; 200,000,000 were classified as shares of
AIM Strategic Income Fund; 200,000,000 were classified as shares of AIM
Developing Markets Fund; 200,000,000 were classified as shares of GT Global
Currency Fund (inactive); 200,000,000 were classified as shares of AIM Global
Growth & Income Fund; 200,000,000 were classified as shares of GT Global Small
Companies Fund (inactive); 200,000,000 were classified as shares of AIM Latin
American Growth Fund; 200,000,000 were classified as shares of AIM Emerging
Markets Fund; 200,000,000 were classified as shares of AIM Emerging Markets Debt
Fund; 200,000,000 were classified as shares of AIM Global Financial Services
Fund; 200,000,000 were classified as shares of AIM Global Resources Fund;
200,000,000 were classified as shares of AIM Global Infrastructure Fund;
200,000,000 were classified as shares of AIM Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Trusts were
divided equally into two classes, designated Class A and Class B common stock.
With respect to the issuance of Advisor Class shares, 100,000,000 shares were
classified as shares of each of the fifteen series of the Trusts and designated
as Advisor Class common stock. 1,100,000,000 shares remain unclassified.
Transactions in capital shares of the Fund were as follows:

CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1998 YEAR ENDED OCTOBER 31, 1997
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 34,143,237 $ 357,364,219 57,294,454 $ 859,844,827
Shares issued in connection with reinvestment of
distributions................................................ -- -- 8,654 123,333
------------ ------------- ------------ -------------
34,143,237 357,364,219 57,303,108 859,968,160
Shares repurchased............................................. (37,470,268) (396,532,594) (63,783,507) (962,241,730)
------------ ------------- ------------ -------------
Net decrease................................................... (3,327,031) $ (39,168,375) (6,480,399) $(102,273,570)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------

CLASS B
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 7,002,516 $ 75,225,005 16,394,355 $ 245,887,976
Shares repurchased............................................. (10,803,195) (116,402,011) (21,109,926) (316,251,415)
------------ ------------- ------------ -------------
Net decrease................................................... (3,800,679) $ (41,177,006) (4,715,571) $ (70,363,439)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
<CAPTION>
ADVISOR CLASS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................... 4,672,316 $ 51,160,812 2,213,447 $ 34,400,471
Shares issued in connection with reinvestment of
distributions................................................ -- -- 1,106 15,804
------------ ------------- ------------ -------------
4,672,316 51,160,812 2,214,553 34,416,275
Shares repurchased............................................. (4,824,080) (51,661,979) (2,275,943) (35,537,121)
------------ ------------- ------------ -------------
Net decrease................................................... (151,764) $ (501,167) (61,390) $ (1,120,846)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>

5. EXPENSE REDUCTIONS
The Manager has directed certain portfolio trades to brokers who then paid a
portion of the Fund's expenses. For the year ended October 31, 1998, the Fund's
expenses were reduced by $39,255 under these arrangements.

6. ADDITIONAL INFORMATION
The Board of Trustees of AIM Investment Funds unanimously approved, on September
23, 1998, a Plan of Reorganization and Termination ("Plan") pursuant to which
the Fund would transfer substantially all of its assets to AIM Developing
Markets Fund ("Developing Markets Fund"). As a result of the transaction,
shareholders of the Fund would receive shares of Developing Markets Fund in
exchange for their shares of the Fund, and the Fund would cease operations.
While Developing Markets Fund may invest more extensively in debt securities (up
to 50% of its assets) than the Fund, like the Fund, Developing Markets Fund
invests primarily in securities of issuers located in emerging markets.

<PAGE>
The Plan requires the approval of the Fund's shareholders and will be submitted
to the shareholders for their consideration at a meeting to be held in February
1999. If the Plan is approved by shareholders of the Fund and certain conditions
required by the Plan are satisfied, the transaction is expected to become
effective before the end of February 1999.

7. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-advisory and sub-administration responsibility
for the Fund was transferred from INVESCO (NY), Inc. to INVESCO Asset Management
Ltd., another indirect wholly-owned subsidiary of AMVESCAP PLC. A I M Advisors,
Inc. will continue to serve as the manager and administrator of the Fund. The
transfer will not change the fees paid by A I M Advisors, Inc. for sub-advisory
services and will not change the nature of the sub-advisory services provided to
the Fund or the personnel providing such services.

8. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust"), was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:

(1) To elect Trustees as follows: C. Derek Anderson, Frank S. Bayley, William J.
Guilfoyle, Arthur C. Patterson, Ruth H. Quigley.

(2) To approve a new investment management and administration contract and
sub-advisory and sub-administration contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").

(3) To approve replacement Rule 12b-1 plans of distribution with respect to
Class A and B Shares of the Fund.

(4) To approve changes to the fundamental investment restrictions of the Fund.

(5) To approve an agreement and plan of conversion and termination for the
Trust.

(6) To ratify the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants.

The results of the proxy solicitation on the above matters were as follows:

<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson............................................................... 191,685,088 N/A 13,123,292
Frank S. Bayley................................................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle............................................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson............................................................. 191,845,270 N/A 12,963,109
Ruth H. Quigley................................................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration contract................... 6,334,458 225,808 2,677,734*
(2)(b) Approval of sub-advisory and sub-administration contract........................ 6,254,819 256,680 2,726,501*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................. 4,005,218 147,786 334,721
CLASS B SHARES.................................................................. 4,115,707 138,886 377,670
(4)(a) Modification of Fundamental Restriction on Portfolio Diversification............ 6,228,206 259,907 2,749,887*
(4)(b) Modification of Fundamental Restriction on Concentration........................ 6,228,206 259,907 2,749,887*
(4)(c) Modification of Fundamental Restriction on Issuing Senior Securities and
Borrowing Money................................................................ 6,228,174 259,939 2,749,887*
(4)(d) Modification of Fundamental Restriction on Making Loans......................... 6,228,206 259,907 2,749,887*
(4)(e) Modification of Fundamental Restriction on Underwriting Securities.............. 6,228,206 259,907 2,749,887*
(4)(f) Modification of Fundamental Restriction on Real Estate Investments.............. 6,229,018 259,095 2,749,887*
(4)(g) Modification of Fundamental Restriction on Investing in Commodities............. 6,228,695 259,418 2,749,887*
(4)(h) Modification of Fundamental Restriction on Margin Transactions.................. 6,227,146 260,967 2,749,887*
(4)(i) Elimination of Fundamental Restriction on Pledging Assets....................... 6,226,242 261,871 2,749,887*
(4)(j) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral
Leases and Programs............................................................ 6,229,110 259,003 2,749,887*
(4)(k) Approval of New Fundamental Investment Policy Regarding Investment of All of
Each Fund's Assets in an Open-End Fund......................................... 6,227,272 260,841 2,749,887*
(5) Approval of an agreement and plan of conversion and termination with respect to
the Trust...................................................................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers & Lybrand L.L.P., now known as
PricewaterhouseCoopers LLP, as the Trust's independent public accountants...... 191,358,779 2,114,168 11,333,063
</TABLE>

- ------------------------
* Includes Broker Non-Votes
<PAGE>

BOARD OF TRUSTEES

C. Derek Anderson
President, Plantagenet Capital
Management, LLC (an investment
partnership); Chief Executive Officer,
Plantagenet Holdings, Ltd.
(an investment banking firm)

Frank S. Bayley
Partner, law firm of
Baker & McKenzie

Robert H. Graham
President and Chief Executive Officer,
A I M Management Group Inc.

Arthur C. Patterson
Managing Partner, Accel Partners
(a venture capital firm)

Ruth H. Quigley
Private Investor

OFFICERS

Robert H. Graham
Chairman and President

Helge K. Lee
Vice President & Secretary

Dana R. Sutton
Vice President & Assistant Treasurer

Kenneth W. Chancey
Vice President &
Principal Accounting Officer

John J. Arthur
Vice President

Melville B. Cox
Vice President

Gary T. Crum
Vice President

Carol F. Relihan
Vice President

David P. Hess
Assistant Secretary

Nancy L. Martin
Assistant Secretary

Ofelia M. Mayo
Assistant Secretary

Kathleen J. Pflueger
Assistant Secretary

Samuel D. Sirko
Assistant Secretary

Pamela Ruddock
Assistant Treasurer

Paul Wozniak
Assistant Treasurer

OFFICE OF THE FUND

11 Greenway Plaza
Suite 100
Houston, TX 77046

INVESTMENT MANAGER

A I M Advisors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046

SUB-ADVISOR

INVESCO Asset Management
11 Devonshire Square
London EC2M 4YR
England

TRANSFER AGENT

A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739

CUSTODIAN

State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

COUNSEL TO THE FUND

Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800

COUNSEL TO THE TRUSTEES

Paul, Hastings, Janofsky & Walker LLP
Twenty Third Floor
555 South Flower Street
Los Angeles, CA 90071

DISTRIBUTOR

A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046

AUDITORS

PricewaterhouseCoopers LLP
One Post Office Square
Boston, MA 02109

<PAGE>

A I M MANAGEMENT GROUP INC. HAS PROVIDED LEADERSHIP IN THE MUTUAL FUND
INDUSTRY SINCE 1976 AND MANAGED APPROXIMATELY $91 BILLION IN ASSETS FOR MORE
THAN 5.5 MILLION SHAREHOLDERS, INCLUDING INDIVIDUAL INVESTORS, CORPORATE
CLIENTS, AND FINANCIAL INSTITUTIONS, AS OF SEPTEMBER 30, 1998.

THE AIM FAMILY OF FUNDS-REGISTERED TRADEMARK- IS DISTRIBUTED NATIONWIDE, AND
AIM TODAY IS THE 11TH-LARGEST MUTUAL FUND COMPLEX IN THE U.S. IN ASSETS UNDER
MANAGEMENT, ACCORDING TO STRATEGIC INSIGHT, AN INDEPENDENT MUTUAL FUND
MONITOR.

THE AIM FAMILY OF FUNDS-REGISTERED TRADEMARK-

GROWTH FUNDS
AIM Aggressive Growth Fund(1)
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Constellation Fund
AIM Mid Cap Equity Fund(2), (A)
AIM Select Growth Fund(3)
AIM Small Cap Growth Fund(2), (B)
AIM Small Cap Opportunities Fund
AIM Value Fund
AIM Weingarten Fund

GROWTH & INCOME FUNDS
AIM Advisor Flex Fund
AIM Advisor Large Cap Value Fund
AIM Advisor MultiFlex Fund
AIM Advisor Real Estate Fund
AIM Balanced Fund
AIM Basic Value Fund(2), (C)
AIM Charter Fund

INCOME FUNDS
AIM Floating Rate Fund(2)
AIM High Yield Fund
AIM High Yield Fund II
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund

TAX-FREE INCOME FUNDS
AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Tax-Exempt Bond Fund of Connecticut
AIM Tax-Free Intermediate Fund

MONEY MARKET FUNDS
AIM Dollar Fund(2)
AIM Money Market Fund
AIM Tax-Exempt Cash Fund

INTERNATIONAL GROWTH FUNDS
AIM Advisor International Value Fund
AIM Asian Growth Fund
AIM Developing Markets Fund(2)
AIM Emerging Markets Fund(2)
AIM Europe Growth Fund(2)
AIM European Development Fund
AIM International Equity Fund
AIM International Growth Fund(2)
AIM Japan Growth Fund(2)
AIM Latin American Growth Fund(2)
AIM New Pacific Growth Fund(2)

GLOBAL GROWTH FUNDS
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM Worldwide Growth Fund(2)

GLOBAL GROWTH & INCOME FUNDS
AIM Global Growth & Income Fund(2)
AIM Global Utilities Fund

GLOBAL INCOME FUNDS
AIM Emerging Markets Debt Fund(2), (D)
AIM Global Government Income Fund(2)
AIM Global Income Fund
AIM Strategic Income Fund(2)

THEME FUNDS
AIM Global Consumer Products and Services Fund(2)
AIM Global Financial Services Fund(2)
AIM Global Health Care Fund(2)
AIM Global Infrastructure Fund(2)
AIM Global Resources Fund(2)
AIM Global Telecommunications Fund(2)
AIM Global Trends Fund(2), (E)

(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.

EMM-AR-1