AIM INVESTMENT FUNDS, N-30D, 1999-01-08

AIM INVESTMENT FUNDS
N-30D, 1999-01-08

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<PAGE>

ANNUAL REPORT / OCTOBER 31 1998

AIM EMERGING MARKETS DEBT FUND

[Cover IMAGE]

[AIM Logo APPEARS HERE]

INVEST WITH DISCIPLINE-Registered Trademark-

<PAGE>

[COVER IMAGE]

REFLECTION OF THE SUN IN THE SEA BY NICOLAS TARKHOFF

AT THE DAWN OF EACH NEW DAY, AIM SEARCHES THE INVESTMENT HORIZON FOR NEW
OPPORTUNITIES. WHILE NEGATIVE EVENTS CAN CREATE VOLATILE INVESTMENT
CONDITIONS IN EMERGING MARKETS, AIM BELIEVES THAT A DISCIPLINED INVESTMENT
APPROACH, SUPPORTED BY THOROUGH RESEARCH AND ANALYSIS, CREATES OPPORTUNITY
FOR PROFIT IN THE FACE OF ADVERSITY.

AIM Emerging Markets Debt Fund is for shareholders who primarily seek a high
level of current income and secondarily seek capital appreciation. The Fund
invests primarily in debt securities of issuers located in emerging markets.

ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:

- - AIM Emerging Markets Debt Fund (formerly GT Global High Income 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.

- - During the fiscal year ended 10/31/98 the Fund paid distributions of $4.25
per Class A share, $4.17 per class B share, and $4.30 per Advisor Class
share.

- - 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 annualized distribution rate reflects the Fund's most recent
monthly dividend distribution multiplied by 12 and divided by the most
recent month-end maximum offering price. The Fund's distribution rate and
30-day SEC yield will differ.

- - The 30-day yield is calculated on the basis of a formula defined by the
Securities and Exchange Commission (SEC). The formula is based on the
portfolio's potential earnings from dividends, interest, yield-to-maturity
or yield-to-call of its holdings, net of all expenses, and expressed on an
annualized basis.

- - 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.

- - The Fund's portfolio composition is subject to change, and there is no
assurance the Fund will continue to hold any particular security.

- - 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 J.P. Morgan EMBI (Emerging Markets Bond Index) (Brady) tracks total
returns for traded external debt Brady bonds in ten emerging bond markets.
It includes the effects of reinvested coupons and is measured in U.S.
dollars. Brady bonds are foreign bonds collateralized by U.S. Treasury
bonds.

- - 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 DEBT FUND

<PAGE>

ANNUAL REPORT / CHAIRMAN'S LETTER

[PHOTO OF CHARLES T. BAUER, CHAIRMAN OF THE BOARD OF THE FUND, APPEARS HERE]

THE FISCAL YEAR CLOSED WITH INTERNATIONAL EQUITIES RALLYING AND BONDS LOSING
SOME OF THEIR MOMENTUM.

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

AIM EMERGING MARKETS DEBT FUND

<PAGE>

ANNUAL REPORT / MANAGERS' OVERVIEW

FUND SEES NEW OPPORTUNITIES IN EMERGING MARKETS

ONE COUNTRY WHERE WE SEE ENORMOUS POTENTIAL IS BULGARIA, AND WE ANTICIPATE
INCREASING OUR EXPOSURE THERE.

THIS WAS A VOLATILE TIME IN THE EMERGING MARKETS SECTOR. HOW DID THE FUND
PERFORM DURING THE REPORTING PERIOD?

The emerging markets sector suffered tremendous setbacks at the hands of a
growing economic crisis in Asia. Though its effects were initially contained
to the countries of the Pacific Rim, the crisis began to expand its reach in
early May. By August, the Asian crisis was applying severe pressure on
economies around the globe, sending markets tumbling.

As a result, the Fund's total return for the year ended October 31, 1998
was -30.07% for Class A shares and -30.49% for Class B shares. The Fund's
30-day distribution rate at net asset value was 13.74% for Class A shares and
13.13% for Class B shares. The Fund's 30-day SEC yield at maximum offering
price was 10.80% for Class A shares.

HOW DID EVENTS IN RUSSIA AFFECT FUND PERFORMANCE?

The main risk we faced this year was the burgeoning Asian crisis. While
emerging markets were feeling tremors from the Asian marketplace for much of
the reporting period, it was not to an extent that was unmanageable. By
August, however, it became apparent that the problems in Asia were creating
an economic slowdown of global proportions. A weakening Japanese yen and a
struggling Japanese stock market adversely impacted currencies in other Asian
countries. Commodity-based markets such as Canada, Australia, and Russia also
began to feel pressure as a result.

Despite these factors, no one was prepared for Russia's actions in
mid-August. The International Monetary Fund (IMF) had awarded the country
over $20 billion to help rejuvenate the country's struggling economy and it
appeared that Russia would have little trouble servicing its debt obligations
in the near term yet, shortly after receiving the stimulus package from the
IMF, Russia declared a 90-day moratorium on the repayment of domestic debt, a
significant amount of which was held by foreign investors.

Akin to a declaration of bankruptcy, Russia's actions changed the
investment dynamic considerably. Almost immediately, fear became the
dominating factor in the investment community. Total return aspirations were
quickly replaced with the goal of preserving capital. The result was a global
sell-off as investors began a flight from all forms of investment risk and
into "safer" government bonds of industrialized countries. Although the
Fund's exposure to russia was limited, the value of the Fund's investments
dropped substantially as investors fled from equity and non-investment grade
fixed-income markets.

HOW DID YOU ALTER YOUR STRATEGY AFTER RUSSIA DECLARED ITS DEBT MORATORIUM?

Initially, we adopted a very defensive investment approach. Markets around
the world were tumbling, and most investment opportunities in the emerging
markets sector became too risky given the Fund's investment criteria. At that
point, the most prudent approach was to develop and maintain a large cash
position until the markets regained some stability. Fortunately, in late
September and again in mid-October, the United States Federal Reserve Board
(the Fed) cut the federal funds rate by a total 0.50%. Many other countries
followed suit, breathing new life into the market. Since that time we've been
able to selectively buy debt securities that are still promising, given
recent market conditions. Though Fund performance suffered during the month
of August, the Fund rebounded approximately 11% during the final seven weeks
of the fiscal year. At the close of the fiscal year, we had reduced our cash
position to normal levels and were again fully invested.

WHAT FACTORS WILL AFFECT FUND PERFORMANCE IN THE COMING MONTHS?

Interest rate cuts have instilled a renewed confidence in the markets. While
these rate cuts provide temporary relief, resolution of the economic struggles
stemming from Asia will require more complex measures.

Certainly, the world will continue to watch Japan and how it approaches the
issue of bank reform. As Japan is the second largest economy in the world,
its economic struggles are arguably responsible for some of the recent
volatility in the emerging markets.

In Latin America, we believe the strength of Brazil's economy largely
will determine how the rest of Latin America performs in the coming months.
Shortly after the close of the reporting period, Brazil was the recipient of
an economic stimulus package from the IMF. While this is promising, we are
still cautious about increasing our exposure in Brazil over the long term. We
have adjusted the portfolio to capitalize on some of the short-term
opportunities there, but at the same time we have been mindful about keeping
our investments in Brazil highly liquid.

SEE IMPORTANT FUND AND INDEX DISCLOSURES INSIDE FRONT COVER.

AIM EMERGING MARKETS DEBT FUND

2
<PAGE>

ANNUAL REPORT / MANAGERS' OVERVIEW

WHILE THE RECENT MARKET VOLATILITY CREATED SOME SHORT-TERM DISAPPOINTMENTS,
WE BELIEVE INVESTORS SHOULD REMAIN FOCUSED ON LONG-TERM INVESTMENT GOALS AND
STAY THE COURSE.

ARE THERE ANY COUNTRIES YOU ARE TARGETING AT THIS TIME?

Overall, we are seeing a lot of opportunities resulting from the recent market
downturns in the emerging markets arena. Many countries have fallen out of favor
with investors despite having strong economic fundamentals. We believe there are
ample opportunities in these countries, and we are taking advantage of this dip
in the markets to replenish the Fund's portfolio with undervalued debt
securities.

One country where we see enormous potential is Bulgaria, and we anticipate
increasing our exposure there. As part of Eastern Europe, it has suffered from
"guilt-by-association" after Russia's economic turmoil in recent months.
However, Bulgaria continues to maintain relatively solid economic and fiscal
strength. It has secured international financing from the IMF and we believe it
should have no problem servicing its debt in the near term as long as it
continues to abide by IMF guidelines.

Latin America will remain a staple of our portfolio and it has been
encouraging to see how quickly many of the region's countries have rebounded in
recent months. We anticipate increasing our weighting in Argentina as bonds
there, as in Bulgaria, seem relatively undervalued. Mexico will continue to
constitute a large portion of the portfolio, although we have reduced our
exposure there due to a growing trade deficit and our concerns about its banking
system.

WHAT IS YOUR OUTLOOK FOR THE NEAR TERM?

The final months of the reporting period were especially turbulent in the
emerging markets. And while the markets have bounced back, we remain cautious as
we approach the new year.

The fallout from Russia's debt moratorium left many investors shaken and
uncertain. But one should keep in mind that all markets have peaks and valleys.
This is the time when discipline is most important. While past performance is
not a guarantee of future results, it should be pointed out that emerging market
debt investors who sold in the aftermath of the recent Mexican and Asian crises
have missed opportunities to recover their losses. In contrast, investors who
were bold and purchased emerging debt assets during the depth of market despair
were rewarded.

We realize it is easy to be discouraged in light of recent events. However, we
are approaching this market dip as an opportunity to make fundamentally sound
investments at discounted prices. While the recent market volatility created
some short-term disappointments, we believe investors should remain focused on
long term investment goals and stay the course. We believe that opportunity for
profit may be on the horizon and that in the long term the fund could provide
the substantial returns it has provided in the past.

GEOGRAPHIC ALLOCATION
As of 10/31/98, based on total net assets

[PIE CHART]

<TABLE>
<S> <C>
EASTERN EUROPE 18%
U.S. & OTHER 2%
AFRICA 9%
ASIA-PACIFIC 2%
LATIN AMERICA 69%
</TABLE>

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

TOP 5 COUNTRIES

<TABLE>
<S> <C>
Mexico 19.9%
Argentina 19.9
Brazil 10.8
Bulgaria 7.2
Jamaica 5.4
</TABLE>

Please keep in mind 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 DEBT FUND

3
<PAGE>

ANNUAL REPORT / PERFORMANCE HISTORY

YOUR FUND'S LONG-TERM PERFORMANCE

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

10/22/92-10/31/98

<TABLE>
<CAPTION>
EMBI INDEX CLASS B CLASS A
<S> <C> <C> <C>
10/22/92 $10,000.00 $10,000.00 $ 9,525.00
4/30/93 11,217.00 11,379.00 10,887.00
10/31/93 14,011.00 14,260.00 13,681.00
4/30/94 11,988.00 11,871.00 11,413.00
10/31/94 12,693.00 13,269.00 12,799.00
4/30/95 11,785.00 11,869.00 11,489.00
10/31/95 13,710.00 13,543.00 13,159.00
4/30/96 16,635.00 15,685.00 15,283.00
10/31/96 19,180.00 18,710.00 18,297.00
4/30/97 21,462.00 20,574.00 20,170.00
10/31/97 21,866.00 21,286.00 20,944.00
4/30/98 25,050.00 23,280.00 22,981.00
10/31/98 20,511.00 14,796.00 14,645.00
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/98, including sales charges

CLASS A SHARES

<TABLE>
<S> <C>
Inception (10/22/92) 6.54%
5 years 2.39
1 year -33.41

CLASS B SHARES
Inception (10/22/92) 6.72%
5 years 2.54
1 year -33.02

ADVISOR CLASS SHARES*
Inception (6/1/95) 5.08%
1 year -29.79
</TABLE>

*Sales charge not applicable

Source: Bloomberg, Towers Data Systems HYPO-Registered Trademark-.

Your Fund's total return includes applicable sales charges, expenses, and
management fees. The performance of Advisor Class shares will differ from
that of Class A and Class B shares due to differing fees and expenses. For
Fund 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 to its benchmark index. It is intended to
give you a general idea of how your Fund compared to the bond market over the
period 10/22/92-10/31/98. It is important to understand differences between
your Fund and an index. Your Fund's total return is shown with a sales charge
and includes fund expenses and management fees. An index measures performance
of a hypothetical portfolio, in this case the J.P. Morgan EMBI (Emerging
Markets Bond Index) (Brady) Index. Unlike your Fund, an index is not managed,
incurring no sales charges, expenses, or fees. But if you could buy all the
securities that make up a market index, you would incur expenses that would
affect the return on your investment. In addition, the J.P. Morgan EMBI
(Brady) maintains relatively low exposure to emerging markets outside of
Latin America. As a result, its performance may differ significantly from a
more globally diversified emerging markets portfolio.

AIM EMERGING MARKETS DEBT FUND

<PAGE>

YEAR 2000 READINESS DISCLOSURE

AIM PREPARES FOR THE YEAR 2000

THE YEAR 2000. THE WORDS STIR THE IMAGINATION, MAKING US WONDER WHAT THE NEXT
MILLENIUM WILL BRING. BUT THE WORDS ARE ALSO STARTING TO MAKE SOME PEOPLE
WORRY, SINCE THERE'S BEEN SO MUCH TALK LATELY ABOUT A COMPUTER GLITCH CALLED
"THE YEAR 2000 PROBLEM." BECAUSE THIS IS A PROBLEM THAT COULD AFFECT MOST
AMERICAN INDUSTRIES, INCLUDING THE MUTUAL FUND INDUSTRY, WE WANT TO BRING YOU
THIS UPDATE TO LET YOU KNOW HOW AIM IS GETTING READY.

[PICTURE]

WHAT IS THE YEAR 2000 PROBLEM?

It has to do with the way computers understand dates. Most computers were
programmed to recognize only the last two digits of a four-digit date ("98"
for 1998). When the year 2000 hits, the computer will read "00"--but it may
interpret that as the year 1900. So, if the computer makes a calculation
involving a date of January 1, 2000, or later, it could be processed
incorrectly. Date-sensitive calculations are found in all kinds of
places--from elevators to air traffic control systems--but they are
especially prevalent in the financial services industry.

AIM'S YEAR 2000 COMPLIANCE

AIM's technology team has been addressing Year 2000 issues for some time now.
Our internal team, together with an independent technology consultant, are
implementing a comprehensive Year 2000 Compliance Project for A I M
Management Group Inc. and its subsidiaries.

So far, we've inventoried all software applications that we rely on, and
we've identified the applications that might need adjustments to function
properly when the year 2000 arrives. We are now in the final phase of the
project, making corrections and testing applications that need adjustment. We
plan to complete this phase during the fourth quarter of 1998.

AN INDUSTRY-WIDE TEST

In the spring of 1999, AIM intends to participate in industry-wide testing
that should simulate the arrival of the year 2000. This should allow mutual
fund companies, banks, exchanges, and other players in the financial
community to test various kinds of transactions and to determine if any
further adjustments need to be made before the end of the year.

We believe our plans are quite comprehensive, and we're committed to
monitoring all software applications through the critical period, extending
as far as needed into the 21st century.

AIM EMERGING MARKETS DEBT FUND

5
<PAGE>

ANNUAL REPORT / FOR CONSIDERATION

FIVE STEPPING STONES TO A
MORE PROSPEROUS RETIREMENT

A comfortable retirement is within your reach. But you will need a practical
investment plan to get there. Consider the five steps described here and talk
them over with your financial consultant. He or she can help you devise a
plan and choose investments suited to your unique circumstances.

1. IF YOU HAVE A 401(k) PLAN, CONTRIBUTE TO IT--AND MAKE THE MOST OF
EMPLOYER MATCHING. If your employer matches 401(k) contributions, contribute
at least enough to maximize the company's contribution. If the company match
is 5% of your salary, contribute at least 5% of your pay yourself. From your
standpoint, the employer contribution is "free" money.

2. CONTRIBUTE TO AN IRA TOO. Even if you cannot deduct an IRA
contribution, you can enjoy an IRA's tax-deferred compounding. And, don't
forget the added advantage of the new spousal IRA.

3. DIVERSIFY! Asset diversification helps manage risk because different
types of assets behave differently. If you put your retirement assets into
mutual funds, consider buying more than one type of fund.

4. IF YOU HAVE TIME, INVEST AGGRESSIVELY. Historically, small-company
stocks have provided the highest returns. They can be volatile in the short
term, but if you can be patient, consider including aggressive small-company
growth funds in your portfolio.

5. START EARLY AND DON'T STOP! The advantages of an early start are hard
to overstate, as you can see in the chart below.

AN EARLY START PAYS OFF
FOR 401(k) OR IRA INVESTORS

INVESTOR A
- - Starts Early: at Age 25
- - Invests Less: $2,000 a year for a total of $80,000
- - Accumulates More by Age 65: $885,185

INVESTOR B
- - Starts Late: at Age 40
- - Invests More: $4,000 a year for a total of $100,000
- - Accumulates Less by Age 65: $393,388

[GRAPH]
<TABLE>

Assumes annual return of 10% based on the 13.11% average annual total return
of the Standard & Poor's Composite Index of 500 Stocks (S&P 500) for the
50-year period 12/31/47--12/31/97. The S&P 500 is a group of unmanaged
securities widely regarded as representative of the stock market in general.
Income taxes will be due when you make withdrawals from your 401(k) or IRA.

AIM EMERGING MARKETS DEBT FUND

6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

To the Shareholders of AIM Emerging Markets Debt Fund (formerly GT Global High
Income 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 Debt Fund
- -Consolidated 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 opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

BOSTON, MASSACHUSETTS
DECEMBER 18, 1998

7
<PAGE>
PORTFOLIO OF INVESTMENTS

October 31, 1998

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

<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (75.6%)
Algeria (4.3%)
Algeria Tranche 1 Loan Assignment, 6.625% due
9/4/06+ .............................................. USD 15,200,000 $ 7,752,000 4.3
Argentina (18.4%)
Republic of Argentina:
I.O. Strip, 12.11% due 4/10/05 ...................... USD 10,390,000 9,142,145 5.1
Discount Bond, 6.625% due 3/31/23+ .................. USD 12,518,000 8,527,888 4.7
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ .......................................... USD 11,540,000 8,020,300 4.4
Global Bond, 9.75% due 9/19/27 ...................... USD 4,573,000 3,970,507 2.2
7.297% due 7/8/05 ................................... ITL 7,780,000,000 3,526,648 2.0
Brazil (4.7%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ............................................. USD 14,398,000 8,557,811 4.7
Bulgaria (7.2%)
Republic of Bulgaria:
Discount Bond Series A, 6.6875% due 7/28/24 -
Euro+ .............................................. USD 11,120,000 7,811,800 4.3
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ ...................... USD 9,427,000 5,208,418 2.9
Colombia (4.3%)
Republic of Colombia:
8.625% due 4/1/08 ................................... USD 6,498,000 5,100,930 2.8
7.27% due 6/15/03 - 144A{.} ......................... USD 3,300,000 2,689,500 1.5
Ivory Coast (4.8%)
Ivory Coast:
Past Due Interest Bond, 1.9% (2.9% at 3/31/09) due
3/29/18++ .......................................... FRF 153,852,500 6,856,419 3.8
Past due Interest Bond, 2% (3% at 3/31/09) due
3/29/18++ .......................................... USD 5,875,625 1,718,620 1.0
Jamaica (3.8%)
Government of Jamaica, 10.875% due 6/10/05 -
144A{.} .............................................. USD 9,054,000 6,790,500 3.8
Korea (0.6%)
Korea Republic Restructured Debt, 8.281% due
4/8/00+ .............................................. USD 1,230,000 1,143,900 0.6
Mexico (13.5%)
United Mexican States:
9.875% due 1/15/07 .................................. USD 7,390,000 7,029,738 3.9
Discount Bond Series A, 6.1156% due 12/31/19+ +/+ ... USD 8,295,000 6,475,284 3.6
6.63% due 12/31/19 .................................. FRF 39,000,000 5,468,652 3.0
Global Bond, 11.375% due 9/15/16 .................... USD 2,688,000 2,684,640 1.5
Discount Bond Series D, 6.6016% due 12/31/19+ ....... USD 2,210,000 1,725,181 1.0
Discount Bond Series B, 6.47656% due 12/31/19+
+/+ ................................................ USD 1,265,000 987,491 0.5
Panama (3.2%)
Republic of Panama:
Interest Reduction Bond, 4.00% (4.25% at 7/99) due
7/17/14++ .......................................... USD 4,350,000 3,183,656 1.8
8.875% due 9/30/27 .................................. USD 2,689,000 2,480,603 1.4
Peru (4.6%)
Republic of Peru, Past Due Interest Bond, 4% (4.5% at
3/8/99) due 3/7/17++ ................................. USD 14,305,000 8,225,375 4.6
</TABLE>

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

8
<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Poland (4.6%)
Poland:
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ......... USD 8,210,000 $ 5,459,650 3.0
Past Due Interest, 5% (6% at 10/28/99) 10/27/14 -
Euro++ ............................................. USD 3,138,000 2,853,619 1.6
Russia (1.6%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ ................ USD 37,242,372 2,956,113 1.6
------------
Total Government & Government Agency Obligations (cost
$164,789,707) ............................................ 136,347,388
------------
Corporate Bonds (20.9%)
Argentina (1.5%)
Disco S.A., 9.875% due 5/15/08 - 144A{.} .............. USD 1,960,000 1,367,100 0.8
Mastellone Hermanos S.A., 11.75% due 4/1/08 -
144A{.} .............................................. USD 1,943,000 1,185,230 0.7
Brazil (6.1%)
Globo Comunicacoes Participacoes, 10.625% due 5/12/08 -
144A{.} .............................................. USD 5,995,000 3,432,138 1.9
Banco Hipotecario Espana, 10% due 4/17/03 - 144A{.} ... USD 3,679,000 3,237,520 1.8
Banco Nacional de Desenvolvimento Economico e Social
(BNDES):
10.8% due 6/16/08 -144A{.} .......................... USD 1,694,000 1,185,800 0.7
10.8% due 6/16/08 - Reg S{c} ........................ USD 1,375,000 962,500 0.5
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} ...... USD 3,708,000 1,668,600 0.9
CSN Iron S.A., 9.125% due 6/1/07 ...................... USD 985,000 558,988 0.3
Colombia (0.9%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} ................................................. USD 2,200,000 1,613,260 0.9
Jamaica (1.6%)
Mechala Group Jamaica:
12.75% due 12/30/99 - Series B ...................... USD 2,846,000 1,992,200 1.1
12.75% due 12/30/99 - Reg S{c} ...................... USD 1,288,000 901,600 0.5
Korea (0.9%)
Pohang Iron & Steel, 2% due 10/9/00 ................... JPY 224,000,000 1,665,177 0.9
Luxembourg (1.7%)
Cellco Finance N.V., 15% due 8/1/05 - Reg S{c} ........ USD 3,790,000 3,069,900 1.7
Mexico (6.4%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} .............................................. USD 9,257,000 7,544,455 4.2
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} ...... USD 2,060,000 1,627,400 0.9
Cemex Valenciana, 9.66% due 11/29/49 - 144A{.} ........ USD 1,430,000 1,201,200 0.7
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} ................................................. USD 1,180,000 1,076,750 0.6
Russia (0.9%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} .............................................. USD 2,283,000 833,295 0.5
Mosenergo Finance BV, 8.375% due 10/9/02 - 144A{.} .... USD 4,200,000 735,000 0.4
Singapore (0.9%)
Krung Thai Bank, 6.23% due 9/30/04 .................... USD 2,500,000 1,650,000 0.9
------------
Total Corporate Bonds (cost $53,441,317) .................. 37,508,113
------------
</TABLE>

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

9
<PAGE>
PORTFOLIO OF INVESTMENTS (cont'd)

October 31, 1998

TOTAL FIXED INCOME INVESTMENTS (cost $223,281,024) ........ 177,549,576 98.5
------------ -----
<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 5.30%
collateralized by $5,000 U.S. Treasury Bonds, 8.75% due
05/15/17 (market value of collateral is $7,211 including
accrued interest). (cost $7,000) ...................... 7,000 --
------------ -----

TOTAL INVESTMENTS (cost $223,288,024) * .................. 177,556,576 98.5
Other Assets and Liabilities .............................. 2,766,571 1.5
------------ -----

NET ASSETS ................................................ $180,323,147 100.0
------------ -----
------------ -----
</TABLE>

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

[::] Certain events may cause the contract to terminate prior to date
shown.
{.} 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.
{c} Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
+ The coupon rate shown on floating rate note represents the rate at
period end.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
* For Federal income tax purposes, cost is $229,575,059 and
appreciation (depreciation) is as follows:

<TABLE>
<S> <C>
Unrealized appreciation: $ 2,192,621
Unrealized depreciation: (54,211,104)
-------------
Net unrealized depreciation: $ (52,018,483)
-------------
-------------
</TABLE>

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

FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998

<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- ------------ -------- --------------
<S> <C> <C> <C> <C>
French Francs........................... 6,685,024 5.45470 03/18/99 $ 79,784
Japanese Yen............................ 1,596,301 118.80000 11/27/98 (38,220)
-------------- --------------
Total Contracts to Sell (Receivable
amount $8,322,889)................... 8,281,325 41,564
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 4.59%.
Total Open Forward Foreign Currency
Contracts............................ $ 41,564
--------------
--------------
</TABLE>

- ----------------
See Note 1 of Notes to the Financial Statements.

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

10
<PAGE>
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1998

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

<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $223,288,024) (Note 1)............................ $177,556,576
U.S. currency.................................................................... $ 90
Foreign currencies (cost $655,357)............................................... $ 647,780 647,870
---------
Receivable for securities sold.............................................................. 11,083,854
Interest receivable......................................................................... 5,228,106
Receivable for Fund shares sold............................................................. 1,421,034
Receivable for open forward foreign currency contracts (Note 1)............................. 41,564
-----------
Total assets.............................................................................. 195,979,004
-----------
Liabilities:
Payable for securities purchased............................................................ 11,070,590
Payable for loan outstanding (Note 1)....................................................... 2,000,000
Payable for Fund shares repurchased......................................................... 927,125
Distribution payable........................................................................ 863,058
Payable for service and distribution expenses (Note 2)...................................... 339,869
Payable for investment management and administration fees (Note 2).......................... 142,609
Payable for transfer agent fees (Note 2).................................................... 100,252
Payable for printing and postage expenses................................................... 83,667
Payable for professional fees............................................................... 51,163
Payable for custodian fees.................................................................. 30,000
Payable for registration and filing fees.................................................... 12,051
Payable for Trustees' fees and expenses (Note 2)............................................ 11,850
Payable for fund accounting fees (Note 2)................................................... 4,476
Other accrued expenses...................................................................... 19,047
-----------
Total liabilities......................................................................... 15,655,757
Minority interest (Notes 1 & 2)............................................................. 100
-----------
Net assets.................................................................................... $180,323,147
-----------
-----------
Class A:
Net asset value and redemption price per share $(69,321,193 DIVIDED BY 8,818,139 shares
outstanding)............................................................................... $ 7.86
-----------
-----------
Maximum offering price per share (100/95.25 of $7.86) *..................................... $ 8.25
-----------
-----------
Class B:+
Net asset value and offering price per share $(109,406,337 DIVIDED BY 13,918,010 shares
outstanding)................................................................................. $ 7.86
-----------
-----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share $(1,595,617
DIVIDED BY 203,898 shares outstanding)..................................................... $ 7.83
-----------
-----------
Net assets consist of:
Paid in capital (Note 4).................................................................... $285,771,413
Accumulated net investment loss............................................................. (41,564)
Accumulated net realized loss on investments and foreign currency transactions.............. (59,706,950)
Net unrealized appreciation on translation of assets and liabilities in foreign
currencies................................................................................. 31,696
Net unrealized depreciation of investments.................................................. (45,731,448)
-----------
Total -- representing net assets applicable to capital shares outstanding..................... $180,323,147
-----------
-----------
<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.

11
<PAGE>
STATEMENT OF OPERATIONS

Year ended October 31, 1998

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

<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income.......................................................................... $ 39,014,757
Securities lending income................................................................ 957,492
-------------
Total investment income................................................................ 39,972,249
-------------
Expenses:
Investment management and administration fees (Note 2)................................... 3,009,607
Service and distribution expenses: (Note 2)
Class A.................................................................... $ 396,089
Class B.................................................................... 1,911,164 2,307,253
----------
Transfer agent fees (Note 2)............................................................. 580,010
Printing and postage expenses............................................................ 194,145
Professional fees........................................................................ 123,970
Custodian fees........................................................................... 103,300
Fund accounting fees (Note 2)............................................................ 82,450
Registration and filing fees............................................................. 48,875
Trustees' fees and expenses (Note 2)..................................................... 23,526
Other expenses........................................................................... 116,753
-------------
Total net expenses..................................................................... 6,589,889
-------------
Net investment income...................................................................... 33,382,360
-------------
Net realized and unrealized loss on investments and foreign currencies: (Note
1)
Net realized loss on investments............................................. (66,692,221)
Net realized loss on foreign currency transactions........................... (2,809,719)
----------
Net realized loss during the year...................................................... (69,501,940)
Net change in unrealized appreciation on translation of assets and
liabilities in foreign currencies........................................... 951,172
Net change in unrealized depreciation of investments......................... (50,094,366)
----------
Net unrealized depreciation during the year............................................ (49,143,194)
-------------
Net realized and unrealized loss on investments and foreign currencies..................... (118,645,134)
-------------
Net decrease in net assets resulting from operations....................................... $ (85,262,774)
-------------
-------------
</TABLE>

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

12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS

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

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------- -------------
Decrease in net assets
Operations:
Net investment income...................................................... $ 33,382,360 $ 31,937,784
Net realized gain (loss) on investments and foreign currency
transactions.............................................................. (69,501,940) 69,702,746
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies.............................. 951,172 (1,099,793)
Net change in unrealized appreciation (depreciation) of investments........ (50,094,366) (36,470,606)
------------- -------------
Net increase (decrease) in net assets resulting from operations.......... (85,262,774) 64,070,131
------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income................................................. (9,422,518) (12,555,399)
From net realized gain on investments...................................... (24,756,370) (2,751,509)
Return of capital.......................................................... (3,147,917) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income................................................. (14,937,576) (17,789,317)
From net realized gain on investments...................................... (41,863,802) (3,911,565)
Return of capital.......................................................... (4,936,309) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................................................. (246,624) (1,289,469)
From net realized gain on investments...................................... (638,983) (264,339)
Return of capital.......................................................... (82,579) --
------------- -------------
Total distributions...................................................... (100,032,678) (38,561,598)
------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested........................... 273,854,427 561,523,639
Decrease from capital shares repurchased................................... (274,028,239) (665,858,246)
------------- -------------
Net decrease from capital share transactions............................. (173,812) (104,334,607)
------------- -------------
Total decrease in net assets................................................. (185,469,264) (78,826,074)
Net assets:
Beginning of year.......................................................... 365,792,411 444,618,485
------------- -------------
End of year *.............................................................. $ 180,323,147 $ 365,792,411
------------- -------------
------------- -------------
* Includes undistributed/accumulated net investment income (loss)........... $ (41,564) $ 303,600
------------- -------------
------------- -------------
</TABLE>

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

13
<PAGE>
FINANCIAL HIGHLIGHTS

- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the 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 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.56 $ 14.85 $ 11.70 $ 12.56 $ 14.92
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 1.35* 1.19 1.27 1.35 0.94
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.80) 0.93 3.09 (1.09) (1.87)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (3.45) 2.12 4.36 0.26 (0.93)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (1.06) (1.18) (1.11) (1.03) (0.94)
From net realized gain on
investments.......................... (2.83) (0.23) (0.10) (0.03) (0.27)
In excess of net realized gain on
investments.......................... -- -- -- -- (0.22)
Return of capital..................... (0.36) -- -- (0.06) --
---------- ---------- ---------- ---------- ----------
Total distributions................. (4.25) (1.41) (1.21) (1.12) (1.43)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.86 $ 15.56 $ 14.85 $ 11.70 $ 12.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Total investment return (c)............. (30.07)% 14.46% 39.05% 2.81% (6.45)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 69,321 $ 133,973 $ 178,318 $ 142,002 $ 167,974
Ratio of net investment income to
average net assets..................... 11.27% 7.39% 9.52% 11.85% 7.00%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.74% 1.53% 1.69% 1.75% 1.57%
Without expense reductions............ 1.74% 1.58% 1.69% 1.75% 1.57%
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate++............... 339% 214% 290% 213% 178%
</TABLE>

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

(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share operating data were calculated based upon
average shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.21 per
share for each of 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 among the classes of shares issued.
N/A Not Applicable.

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

14
<PAGE>
FINANCIAL HIGHLIGHTS (cont'd)

CLASS B
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 (d) 1996 (d) 1995 1994 (d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 15.54 $ 14.83 $ 11.69 $ 12.56 $ 14.90
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 1.28* 1.09 1.17 1.27 0.86
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.79) 0.93 3.09 (1.09) (1.85)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (3.51) 2.02 4.26 0.18 (0.99)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.98) (1.08) (1.03) (0.96) (0.86)
From net realized gain on
investments.......................... (2.83) (0.23) (0.09) (0.03) (0.27)
In excess of net realized gain on
investments.......................... -- -- -- -- (0.22)
Return of capital..................... (0.36) -- -- (0.06) --
---------- ---------- ---------- ---------- ----------
Total distributions................. (4.17) (1.31) (1.12) (1.05) (1.35)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 7.86 $ 15.54 $ 14.83 $ 11.69 $ 12.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Total investment return (c)............. (30.49)% 13.77% 38.16% 2.07% (6.99)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 109,406 $ 228,101 $ 251,002 $ 214,897 $ 232,423
Ratio of net investment income to
average net assets..................... 10.62% 6.74% 8.87% 11.20% 6.35%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.39% 2.18% 2.34% 2.40% 2.22%
Without expense reductions............ 2.39% 2.23% 2.34% 2.40% 2.22%
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A 0.22%
Portfolio turnover rate++............... 339% 214% 290% 213% 178%
</TABLE>

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

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

15
<PAGE>
FINANCIAL HIGHLIGHTS (cont'd)

<TABLE>
<CAPTION>
ADVISOR CLASS+
---------------------------------------------------
JUNE 1, 1995
YEAR ENDED 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.... $ 15.52 $ 14.83 $ 11.71 $ 11.44
----------- ----------- ---------- -------------
Income from investment operations:
Net investment income................. 1.40* 1.22 1.34 0.57
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (4.79) 0.93 3.05 0.17
----------- ----------- ---------- -------------
Net increase (decrease) from
investment operations.............. (3.39) 2.15 4.39 0.74
----------- ----------- ---------- -------------
Distributions to shareholders:
From net investment income............ (1.11) (1.23) (1.16) (0.44)
From net realized gain on
investments.......................... (2.83) (0.23) (0.11) --
In excess of net realized gain on
investments.......................... -- -- -- --
Return of capital..................... (0.36) -- -- (0.03)
----------- ----------- ---------- -------------
Total distributions................. (4.30) (1.46) (1.27) (0.47)
----------- ----------- ---------- -------------
Net asset value, end of period.......... $ 7.83 $ 15.52 $ 14.83 $ 11.71
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------

Total investment return (c)............. (29.79)% 14.72% 39.38% 6.54%(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 1,596 $ 3,719 $ 15,298 $ 1,463
Ratio of net investment income to
average net assets..................... 11.62% 7.74% 9.87% 12.20%(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.39% 1.18% 1.34% 1.40%(a)
Without expense reductions............ 1.39% 1.23% 1.34% 1.40%(a)
Ratio of interest expense to average net
assets++............................... N/A N/A 0.04% N/A
Portfolio turnover rate++............... 339% 214% 290% 213%(a)
</TABLE>

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

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

16
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
October 31, 1998

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

1. SIGNIFICANT ACCOUNTING POLICIES (SEE ALSO NOTE 2)
AIM Emerging Markets Debt Fund (the "Fund"), formerly AIM Global High Income
Fund and prior to that GT Global High Income Fund, a non-diversified 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 an 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 invests substantially all of its investable assets in the Emerging
Markets Debt Portfolio (the "Portfolio", formerly the Global High Income
Portfolio), a Delaware business trust and is registered under the 1940 Act as a
non-diversified, open-end management investment company.

The Portfolio has investment objectives, policies and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and the Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
October 31, 1998, all of the shares of beneficial interest of the Portfolio were
owned by the Fund or INVESCO (NY), Inc. (the "Sub-advisor"), which has a nominal
($100) investment in the Portfolio.

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 on the principal over-the-counter market on 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 of the Fund and Portfolio 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 Portfolio 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 Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
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
Portfolio'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 period end, resulting from changes in exchange rates.

17
<PAGE>
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Portfolio, it is the
Portfolio's policy to always receive, as collateral, United States 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 Portfolio
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 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 Portfolio as an unrealized gain or loss. When
the Forward Contract is closed, the Portfolio 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. Forward Contracts involve market risk in excess
of the amount shown in the Portfolio's "Statement of Assets and Liabilities".
The Portfolio 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
Portfolio may enter into Forward 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 Portfolio writes a call or put option, an amount equal to the premium
received is included in the Portfolio'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, unless a quotation
from only one broker is available, in which case only that broker's price will
be used. If an option expires on its stipulated expiration date or if the
Portfolio 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 Portfolio
can write options only on a covered basis, which, for a call, requires that the
Portfolio hold the underlying security and, for a put, requires the Portfolio 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 Portfolio 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 Portfolio for the purchase of a call or put option is
included in the Portfolio'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 Portfolio has purchased expires on
the stipulated expiration date, the Portfolio realizes a loss in the amount of
the cost of the option. If the Portfolio enters into a closing sale transaction,
the Portfolio realizes 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
Portfolio 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
Portfolio 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 Portfolio 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 Portfolio 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
Portfolio 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
Portfolio 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 Portfolio 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 Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio 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 Portfolio is that the
change in value of the underlying securities may not correlate to the change in
value of the contracts. The Portfolio 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 Portfolio 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 Portfolio to
subsequently invest at less advantageous prices.

(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $10,301,788 were on loan
to brokers. The loans were secured by cash collateral of $11,293,368 received by
the Portfolio. For the year ended October 31, 1998, the Fund received fees of
$957,492.

For international securities, cash collateral is received by the Portfolio
against loaned securities in an amount at least equal to 105% of the

18
<PAGE>
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 Portfolio 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 the loan. The
cash collateral is invested in a securities lending trust which consists 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 intended 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 has a capital loss carryforward of $53,419,915 which
expires in 2006.

(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by each 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 Portfolio 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 Portfolio's investment in emerging market
countries may involve greater risks than investments in more developed markets
and the price 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 Portfolio 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 Portfolio 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 BankBoston. The arrangement with the bank
allows all specified funds and certain other Funds to borrow, on a first come,
first serve basis, an aggregate maximum amount of $150,000,000. The Fund is
limited to borrowing up to 33 1/3% of the value of the Fund's total assets. On
October 31, 1998, AIM Emerging Markets Debt Fund had $2,000,000 in 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 $6,402,778, with a weighted average interest rate of 6.27%.
Interest expense for the year ended October 31, 1998 was $80,253 and is included
in "Other Expenses" on the Statement of Operations.

(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Portfolio may trade securities on a when-issued or forward commitment basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Portfolio will generally purchase these securities with the intention of
acquiring such securities, they may sell such securities before the settlement
date. These securities are identified on the accompanying Portfolio of
Investments. The Fund or Portfolio has set aside sufficient cash or liquid
securities as collateral for these purchase commitments.

2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirect wholly-owned subsidiary of
AMVESCAP PLC, is the Fund's and Portfolio's investment manager and administrator
and INVESCO (NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the
Fund's and Portfolio'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, became 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, and the
Portfolio was reorganized from a New York common law trust 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 administration fees to the Manager at the annualized rate of 0.25%
of its average daily net assets. These fees are computed daily and paid monthly.
The AIM Emerging Markets Debt Portfolio pays investment management and
administration fees to the Manager

19
<PAGE>
at the annualized rate of 0.475% on the first $500 million of average daily net
assets of the Portfolio; 0.45% on the next $1 billion; 0.425% on the next $1
billion; and 0.40% on amounts thereafter, plus 2% of the Portfolio's total
investment income calculated in accordance with generally accepted accounting
principles, adjusted daily for currency revaluations, on a mark to market basis,
of the Portfolio's assets; provided, however, that during any fiscal year this
amount shall not exceed 2% of the Portfolio's total investment income calculated
in accordance with generally accepted accounting principles. 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 $21,515 and $35,739, 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 $8 and $435, respectively. AIM Distributors also makes
ongoing shareholder 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 $352,609 and $610,629, 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 0.35% 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 0.35% 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
expense) to the maximum annual rate of 1.75%, 2.40%, and 1.40% 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

20
<PAGE>
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 and Portfolio. 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 $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 Portfolio, other than U.S. government obligations and
short-term investments, aggregated $939,420,479 and $952,299,285, respectively.
For the year ended October 31, 1998, sales of U.S. government obligations
aggregated $27,908,116. There were no purchases 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 YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
-------------------------- ----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Shares sold....................................... 10,918,639 $ 129,801,507 17,142,418 $ 272,139,950
Shares issued in connection with reinvestment of
distributions................................... 2,191,470 26,459,355 574,707 9,164,383
----------- ------------- ----------- ---------------
13,110,109 156,260,862 17,717,125 281,304,333
Shares repurchased................................ (12,901,851) (152,829,526) (21,118,898) (335,756,037)
----------- ------------- ----------- ---------------
Net increase (decrease)........................... 208,258 $ 3,431,336 (3,401,773) $ (54,451,704)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------

CLASS B
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 5,958,185 $ 73,991,330 13,848,218 $ 221,702,040
Shares issued in connection with reinvestment of
distributions................................... 3,020,192 36,460,585 721,148 11,494,889
----------- ------------- ----------- ---------------
8,978,377 110,451,915 14,569,366 233,196,929
Shares repurchased................................ (9,736,068) (113,538,414) (16,813,796) (270,094,630)
----------- ------------- ----------- ---------------
Net decrease...................................... (757,691) $ (3,086,499) (2,244,430) $ (36,897,701)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>

ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 490,309 $ 6,221,370 2,868,282 $ 45,874,009
Shares issued in connection with reinvestment of
distributions................................... 76,464 920,280 72,440 1,148,368
----------- ------------- ----------- ---------------
566,773 7,141,650 2,940,722 47,022,377
Shares repurchased................................ (602,542) (7,660,299) (3,732,584) (60,007,579)
----------- ------------- ----------- ---------------
Net decrease...................................... (35,769) $ (518,649) (791,862) $ (12,985,202)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
</TABLE>

21
<PAGE>
5. SUBSEQUENT EVENT (UNAUDITED)
Effective December 14, 1998, sub-administration responsibility for the Fund and
sub-advisory and sub-administration responsibility for the Portfolio 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 and the
Portfolio. 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 Portfolio or the personnel providing such services.

6. 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>
TRUSTEE/MATTER
---------------------------------------------------------------------------------------------------------------
<S> <C>
(1) C. Derek Anderson..............................................................................................
Frank S. Bayley................................................................................................
William J. Guilfoyle...........................................................................................
Arthur C. Patterson............................................................................................
Ruth H. Quigley................................................................................................
(2)(a) Approval of investment management and administration contract..................................................
(2)(b) Approval of sub-advisory and sub-administration contract.......................................................
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.................................................................................................
CLASS B SHARES.................................................................................................
(4)(a) Modification of Fundamental Restriction on Concentration.......................................................
(4)(b) Modification of Fundamental Restriction on Issuing Senior Securities and Borrowing Money.......................
(4)(c) Modification of Fundamental Restriction on Making Loans........................................................
(4)(d) Modification of Fundamental Restriction on Underwriting Securities.............................................
(4)(e) Modification of Fundamental Restriction on Real Estate Investments.............................................
(4)(f) Modification of Fundamental Restriction on Investing in Commodities............................................
(4)(g) Elimination of Fundamental Restriction on Margin Transactions..................................................
(4)(h) Elimination of Fundamental Restriction on Pledging Assets......................................................
(4)(i) Elimination of Fundamental Restriction on Investments in Oil, Gas and Mineral Leases and Programs..............
(4)(j) Elimination of Fundamental Restriction on Diversification Required By Internal Revenue Code....................
(5) Approval of an agreement and plan of conversion and termination with respect to the Trust......................
(6) Approval of the conversion of the portfolios in which certain Funds invest.....................................
(7) Ratification of the selection of Coopers and Lybrand L.L.P., now known as PricewaterhouseCoopers LLP, as the
Trust's independent public accountants.......................................................................

<CAPTION>
VOTES WITHHELD/
VOTES FOR AGAINST ABSTENTIONS
--------------- ------------ --------------
<S> <C> <C> <C>
(1) 191,685,088 N/A 13,123,292
191,766,811 N/A 13,041,568
191,828,959 N/A 12,979,420
191,845,270 N/A 12,963,109
191,869,887 N/A 12,938,492
(2)(a) 11,539,226 325,581 3,653,718*
(2)(b) 11,405,206 398,639 3,714,680*
(3)
5,596,649 164,819 433,984
8,129,440 288,519 787,402
(4)(a) 11,358,960 419,748 3,739,817*
(4)(b) 11,358,802 419,906 3,739,817*
(4)(c) 11,358,802 419,906 3,739,817*
(4)(d) 11,358,960 419,748 3,739,817*
(4)(e) 11,358,802 419,906 3,739,817*
(4)(f) 11,358,593 420,115 3,739,817*
(4)(g) 11,358,436 420,272 3,739,817*
(4)(h) 11,358,960 419,748 3,739,817*
(4)(i) 11,358,960 419,748 3,739,817*
(4)(j) 11,358,713 419,995 3,739,817*
(5) 190,027,469 6,362,084 94,055,040*
(6) 11,391,564 294,742 3,832,219*
(7) 191,358,779 2,114,168 11,333,063
</TABLE>

- --------------
* Includes Broker Non-Votes

- --------------
FEDERAL TAX INFORMATION (UNAUDITED):

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$11,387,137 as capital gain dividends for the fiscal year ended October 31,
1998.

22
<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

Melville B. Cox
Vice President

John J. Arthur
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 Ltd.
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

23
<PAGE>

HOW AIM MAKES INVESTING
EASY FOR YOU

- - LOW INITIAL INVESTMENT. You can get your investment program started
for as little as $500. Subsequent investments can be made for only $50.

- - AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR CAPITAL GAINS.
Distributions may be received in cash or reinvested in the Fund free of
charge. Over time, the power of compounding can significantly increase the
value of your assets.

- - AUTOMATIC INVESTMENT PLAN. You may build your investment by regularly
purchasing additional shares. Pre-authorized checks for $50 or more can be
drafted monthly from your personal checking account.

- - EASY ACCESS TO YOUR MONEY. Your shares may be redeemed at net asset
value any day the New York Stock Exchange is open. The price of shares sold
may be more or less than their original cost, depending on market conditions.

- - SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive checks of at
least $50 monthly or quarterly through a systematic withdrawal plan.

- - EXCHANGE PRIVILEGE. As your goals change, you may exchange all or
part of your assets for those of other funds within the same share class of
The AIM Family of Funds-Registered Trademark-. The exchange privilege may be
modified or discontinued for any of the AIM funds. Certain restrictions apply.

- - RETIREMENT PLANS. You may purchase shares of an AIM fund for your
Individual Retirement Account (IRA), Roth IRA, or any other type of
retirement plan, and earn tax-deferred dollars for your retirement.

- - TOLL-FREE ACCESS. Current shareholders can call our AIM Investor Line
at 800-246-5463 for 24-hour-a-day account information. Or, of course, you may
contact your financial consultant for assistance.

- - WWW.AIMFUNDS.COM. As a current shareholder, you can check account
balances 24 hours a day over the Internet. State-of-the-art encryption lets
you send us questions that include confidential information without the fear
of eavesdropping, tampering, or forgery.

CURRENT SHAREHOLDERS
CAN CALL OUR
AIM INVESTOR LINE AT
800-246-5463
FOR 24-HOUR-A-DAY
ACCOUNT INFORMATION.

<PAGE>

THE AIM FAMILY OF FUNDS-REGISTERED TRADEMARK-

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.

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.

GHI-SAR-1