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 STRATEGIC INCOME FUND

[COVER IMAGE]

[AIM LOGO APPEARS HERE]

INVEST WITH DISCIPLINE-Registered Trademark-

<PAGE>

[COVER IMAGE]

THE CHESS GAME BY ALICE KENT STODDARD
CHESS IS LARGELY VIEWED AS A GAME OF STRATEGY, WHERE PLANNING THE MOVES OF EACH
PIECE ON THE BOARD LEADS TO THE ULTIMATE GOAL OF WINNING THE GAME. LIKE A
THOUGHTFUL CHESS PLAYER, THIS FUND'S MANAGEMENT TEAM CAREFULLY WEIGHS ITS
OPTIONS AND CHOOSES SECURITIES FOR THE PORTFOLIO THAT WILL HELP THE FUND REACH
ITS OBJECTIVE.

AIM Strategic Income Fund is for shareholders who seek high current income and,
secondarily, capital appreciation by investing mainly in debt securities of
issuers in the U.S., developed foreign countries and emerging markets.

ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:

- - AIM Strategic Income Fund (formerly GT Global Strategic 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 $0.840
per share for Class A shares and $0.762 per share for Class B shares.

- - 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 and Advisor Class shares will
differ from that of Class A shares due to differences in sales charge
structure and Fund expenses.

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

- - The Fund's investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.

- - 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 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.

- - 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.

- - Higher-yielding, lower-rated corporate bonds, commonly known as "junk
bonds," have a greater risk of price fluctuation and loss of principal and
income than U.S. Treasury securities, which offer a government guarantee as
to the repayment of principal and interest if held to maturity. Purchasers
should carefully assess the risks associated with an investment in this
Fund.

- - Government securities, such as U.S. Treasury bills, notes, and bonds, offer
a high degree of safety and are guaranteed as to the timely payment of
principal and interest if held to maturity. Fund shares are not insured and
their value and yield will vary with market conditions.

ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:

- - The J.P. Morgan Global Government Bond Index is a market value-weighted
average of government bonds from 13 major bond markets. It includes the
effect of reinvested coupons and is measured in U.S. dollars.

- - The J.P. Morgan EMBI+ (Emerging Markets Bond Index Plus) is a market
value-weighted average of government bonds from 13 emerging bond markets.
It includes the effect of reinvested coupons and is measured in U.S.
dollars.

- - 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 STRATEGIC INCOME FUND

<PAGE>
ANNUAL REPORT / CHAIRMAN'S LETTER

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

DEAR FELLOW SHAREHOLDER:

Throughout the fiscal year covered by this report, markets worldwide
vacillated between optimism that the woes in Asia would be contained and
worry that they would become a major economic drag on the U.S. and the rest
of the world. As a result, markets worldwide were especially volatile.

We understand how unnerving this year's level of volatility can be. Many of
you undoubtedly were tempted simply to exit the markets completely. Our
reaction, of course, is that you should not. The abrupt reversals of
sentiment during this fiscal year reinforce our conviction that markets are
unpredictable in the short term. Since even the best money managers cannot
know when to enter and exit a market, we think the wisest strategy is to stay
fully invested despite volatility and short-term disappointment.

MARKET RECAP

Even in a year as unsettling as this one, August was particularly difficult. A
variety of events converged to produce harsh market conditions around the globe:
the seemingly intractable downturn in Japan, Russia's default on much of its
foreign debt, and fear that Latin America could be engulfed by the world's
difficulties. In a global display of lost confidence, investors flocked to
securities perceived as safe and liquid, especially U.S. Treasury issues. Even
high-quality corporate bonds went out of favor. High-yield corporate bonds
plummeted in value.

THE ABRUPT REVERSALS OF SENTIMENT DURING THIS FISCAL YEAR REINFORCE OUR
CONVICTION THAT MARKETS ARE UNPREDICTABLE IN THE SHORT TERM.

Fortunately, the U.S. Federal Reserve Board (the Fed) intervened. For most
of the fiscal year, the Fed had focused on the potential for inflation in the
U.S. economy. Shortly before the fiscal year ended, it shifted direction,
lowering interest rates twice to pump liquidity and confidence into the
markets and demonstrate that it would intervene to forestall a recession.
Numerous interest rate cuts in other countries followed. (After the fiscal
year closed, as this report was being written, the Fed lowered rates a third
time.) Investors responded favorably, and by the close of the fiscal year,
many bond markets were regaining equilibrium.

However difficult this fiscal year has been, the fundamental principles of
investing remain unchanged:

- broad portfolio diversification;

- 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 and weather turbulent markets.

YOUR FUND MANAGERS' COMMENTS

We are pleased to send you this report on your Fund's fiscal year. On the
pages that follow, your Fund's management team offers more detailed
discussion of how markets behaved, how they managed the portfolio, and what
they foresee for your Fund and the markets where it invests. We hope you find
their discussion informative. 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 STRATEGIC INCOME FUND

<PAGE>

ANNUAL REPORT / MANAGERS' OVERVIEW

GLOBAL MARKET TROUBLES
KEEP FUND ON ITS TOES

IT WAS A TURBULENT YEAR IN THE BOND MARKET. HOW DID AIM STRATEGIC INCOME FUND
PERFORM?

Bond markets, particularly non-investment grade, endured a bumpy ride during
this volatile year, but the Fund managed to recover some of its previous losses
and finish the fiscal year near positive territory.

For the fiscal year ended October 31, 1998, the Fund posted a total return
of -3.41% for Class A shares and -4.04% for Class B shares. Comparatively,
the J.P. Morgan Global Government Bond Index had a return of 13.56% for the
fiscal year. The Fund's aggregate benchmark (60% J.P. Morgan Global
Government Bond Index and 40% J.P. Morgan EMBI+) returned 4.89% for the same
period.

The Fund's 30-day SEC yield at net asset value was 6.24% for Class A shares
and 5.90% for Class B shares.

THE FUND HAS IN THE PAST INVESTED SIGNIFICANTLY IN EMERGING MARKETS. WHY DID
THOSE MARKETS HAVE SUCH A DIFFICULT YEAR?

Hard-hit by internal economic and political strife and Japan's extensive
financial problems, many emerging markets struggled to maintain currency
value and avoid recession. Japan's banking system was seriously hindered by a
proliferation of bad loans, causing a major withdrawal of funding from
Asia--the biggest destabilizing factor in Asia this year. With Russia's bond
default in August, the crisis continued to spread to other emerging markets,
including Latin America.

Investor sentiment in the face of this global instability caused a capital
flight to safe havens as preservation of capital quickly became the leading
investment objective. This meant that investors pulled their money out of
nearly any market that was perceived to be a risky investment, and demand for
U.S. investment-grade bonds soared in due course.

Since August of 1997, we have been lowering our allocation to emerging
market debt. The Fund's emerging market weighting now stands at 20%--an
all-time low for the Fund and substantially lower than the 50% peak of a year
ago. We will be further reducing our emerging market exposure while risk
remains high.

WHAT HAPPENED TO U.S. MARKETS AS A RESULT OF GLOBAL DIFFICULTIES?

Markets in the U.S. were at first largely unaffected by overseas economic
uncertainty because of continued domestic growth, low inflation, and high
consumer confidence. However, as the crisis in Asia grew and concerns about a
slowing economy spread, U.S. markets began to stutter. Russia's woes and the
collapse of several hedge funds were the last straw, and equity markets
plunged in response to investors' "flight to quality and liquidity."

Investment-grade bond markets jumped as a result, with the spread between
U.S. Treasury securities and high-yield bonds at its widest ever as investors
fled to high-quality bonds. The yield on the 30-year U.S. government bond
fell to an all-time low of 4.71% as a result. At the end of the fiscal year,
12.6% of the Fund's holdings were U.S. Treasuries.

WHY DOES EUROPE CONTINUE TO HAVE A STRONG BOND MARKET?

The major long-term themes driving growth in Europe have sheltered it
somewhat from the extreme losses felt in other parts of the world. The strict
budgets and tough financial standards required for admittance to the European
Economic and Monetary Union (EMU) have helped Europe's governments clean up
their books. Interest rates have dropped and inflation has lessened. The
coming economic and monetary union is also prodding European companies toward
more competitive practices, and the results are starting to be seen on the
bottom line. With nearly 38% of the Fund's current holdings in Europe, we
will be watching Europe closely in 1999 to see how the introduction of the
euro (see sidebar) affects the region as 11 bond markets are consolidated
into one.

WE REMAIN OPTIMISTIC ABOUT THE INCOME POTENTIAL OF OVERSEAS
MARKET DEBT.

DID YOUR INVESTMENT STRATEGY CHANGE, GIVEN THE MARKET'S VOLATILITY?

After paring our emerging market weighting, we added more U.S.
investment-grade bonds, U.K. gilts (government bonds) and German bonds. We
believe the economic fundamentals of those countries remain strong and
provide a good measure of liquidity, safety and diversification. We increased
the Fund's exposure to U.S. corporate bonds because we believe they are an
attractive asset class at current spread levels.

At the end of the reporting period, the Fund's total net assets were
divided as follows: domestic government bonds, 13.9%; foreign government
bonds, 48.5%; domestic corporate bonds, 14.5%; foreign corporate bonds, 5.6%;
other, 17.5%.

SEE IMPORTANT FUND AND INDEX DISCLOSURES INSIDE FRONT COVER.

AIM STRATEGIC INCOME FUND

<PAGE>

ANNUAL REPORT / MANAGERS' OVERVIEW

HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD?

The Fund had 98 holdings as of October 31, 1998. The Fund had 78.25% of its
holdings in investment-grade bonds--those rated BBB and above--and an average
portfolio quality rating of BBB as measured by the widely known credit rating
agency Standard & Poor's Corporation. The remaining 21.75% of the portfolio was
invested in so-called "junk" bonds, those rated BB and below.

WHAT IS YOUR OUTLOOK FOR THE FUTURE?

Overseas events have offered some positive developments that may improve
attitudes about foreign markets. Japan has proposed initiatives to address
the multitude of bad loans in the commercial banking system by providing
public funds to shore up problem institutions. The U.S. Congress passed
funding for the International Monetary Fund (IMF) and initial talks to extend
credit to Brazil have helped to improve the emerging market debt outlook.
Additional funding requests from other entities may be coming as the IMF has
more resources to lend to nations in need.

As for the Fund, we remain optimistic about the income potential of
overseas market debt. To that end, in September we decided to make the
following changes in our investment strategy: At least 35% of the Fund's
total assets will be invested in investment-grade debt securities; up to 65%
of the Fund's total assets may be invested in non-investment grade debt
securities, an increase from 50%; and up to 35% of the Fund's total assets
may be invested in equities. We believe these changes will allow us to
enhance the risk-return profile of the Fund by giving us the fluidity to
invest where we think we can get the best results.

WELCOME THE EURO

Starting January 1, 1999, Europe will launch a brand new currency--the euro.
At first, only 11 countries will adopt it: Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.
These countries have met the financial and economic criteria required for
membership in the European Economic and Monetary Union (EMU), and they have
agreed to follow certain monetary, exchange rate, and budgetary policies.

The changeover to euro will take place gradually. New coins and paper
currency will not be introduced until January 2002. Until then, Spanish
shoppers will still use pesetas and the French will still use francs, but
these will be thought of simply as denominations of the euro the same way
that a quarter is a denomination of a dollar.

A NEW BUSINESS ENVIRONMENT

The euro is expected to bring greater unity to the European business world:
Price comparison of goods, services, and labor across Europe will be much
easier.

Because of this price transparency, European companies will be forced to
become more competitive. An increase in merger and acquisition activity is
expected.

The equity markets are likely to become broader and more liquid, since
European companies may find it easier to attract capital across borders.

Europe's fixed-income markets could also be transformed. Since currency
risk will be reduced, Europe's investors can focus on credit risk.
Eventually, the euro-denominated debt market could be as large and liquid as
that of the U.S.

The introduction of a new currency can present unique risks and
uncertainties for investors. Please see your prospectus for more information
about these risk factors.

PORTFOLIO COMPOSITION
As of 10/31/98

<TABLE>
<CAPTION>
GEOGRAPHIC ALLOCATION BOND ALLOCATION
<S> <C>

AFRICA 2.4% SHORT-TERM & OTHER 6.5%

LATIN AMERICA 13.0% MORTGAGE BACKED 11.0%

ASIA-PACIFIC 1.6% CORPORATE 20.1%

EUROPE 37.8% GOVERNMENT/AGENCY 62.4%

NORTH AMERICA & OTHER 45.2%

PIE CHART PERCENTAGES PIE CHART PERCENTAGES
</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 STRATEGIC INCOME FUND

<PAGE>

ANNUAL REPORT / PERFORMANCE HISTORY

YOUR FUND'S LONG-TERM PERFORMANCE

RESULTS OF A $10,000 INVESTMENT
AIM STRATEGIC INCOME FUND VS. BENCHMARK INDEX

3/29/88 -10/31/98

In thousands

<TABLE>
<CAPTION>
AIM Strategic Income J.P Morgan Global
Fund, Class A shares Government Bond Index
<S> <C> <C>
3/88 9,525 10,000
10/88 9,705 10,264
10/89 10,366 10,770
10/90 11,229 11,942
10/91 12,095 13,284
10/92 13,440 14,955
10/93 18,410 16,600
10/94 16,489 17,036
10/95 16,993 19,651
10/96 20,901 20,851
10/97 22,866 21,578
10/98 23,188 24,379
</TABLE>

Past performance is no guarantee of comparable future results.

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

<TABLE>
<S> <C>
CLASS A SHARES

Inception (3/29/88) 7.77%
5 years 2.70
1 year -8.01*

CLASS B SHARES

Inception (10/22/92) 7.74%
5 years 2.76
1 year -8.54**

ADVISOR CLASS SHARES

Inception (6/1/95) 9.36%
3 years 9.57
1 year -2.97
</TABLE>

*-3.41%, excluding sales charges

**-4.04%, excluding sales charges

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

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

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

ABOUT THIS CHART

The chart compares your Fund's Class A shares to a benchmark index. It is
important to understand differences between your Fund and this 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. A market index such as the J.P. Morgan Global Government Bond
Index is not managed, incurring no sales charges, expenses, or fees. If you
could buy all the securities that make up a market index, you would incur
expenses that would affect your investment's return. Use of this index is
intended to give you a general idea of how your Fund performed compared to
the stock market.

AIM STRATEGIC INCOME FUND

4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

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

PRICEWATERHOUSECOOPERS LLP

BOSTON, MASSACHUSETTS
DECEMBER 18, 1998

5
<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 (62.4%)
Algeria (1.1%)
Algeria Tranche 1 Loan Assignment, 6.625% due
9/4/06+ ............................................ USD 6,400,000 $ 3,264,000 1.1
Argentina (3.1%)
Republic of Argentina:
I.O. Strip, 12.11% due 4/10/05 .................... USD 3,385,000 2,978,800 1.0
Par Bond Series L, 5.75% (6% at 3/31/99) due
3/31/23++ ........................................ USD 3,750,000 2,606,250 0.9
Discount Bond, 6.625% due 3/31/23+ ................ USD 3,605,000 2,455,906 0.8
7.297% due 7/8/05 ................................. ITL 2,865,000,000 1,298,695 0.4
Global Bond, 9.75% due 9/19/27 .................... USD 140,000 121,555 --
Belgium (0.5%)
Kingdom of Belgium, 5.75% due 3/28/08 ............... BEF 43,600,000 1,412,469 0.5
Brazil (1.0%)
Brazil Floating Rate Discount Note, 6.125% due
4/15/24+ ........................................... USD 4,918,000 2,923,135 1.0
Bulgaria (1.3%)
Republic of Bulgaria:
Front Loaded Interest Reduction Bond Series A, 2.5%
(2.75% at 7/99) due 7/28/12++ .................... USD 3,786,000 2,091,765 0.7
Discount Bond Series A, 6.6875% due 7/28/24 -
EURO+ ............................................ USD 2,585,000 1,815,963 0.6
Canada (1.3%)
Canadian Government, 6% due 6/1/08 .................. CAD 5,370,000 3,719,138 1.3
Colombia (1.2%)
Republic of Colombia:
8.625% due 4/1/08 ................................. USD 2,674,000 2,099,090 0.7
7.27% due 6/15/03 - 144A{.} ....................... USD 1,790,000 1,458,850 0.5
Germany (17.5%)
Deutschland Republic:
6% due 1/5/06 ..................................... DEM 32,300,000 21,798,743 7.5
6.5% due 7/4/27 ................................... DEM 27,830,000 19,974,175 6.8
6% due 7/4/07 ..................................... DEM 9,520,000 6,485,288 2.2
6.5% due 10/14/05 ................................. DEM 4,050,000 2,808,157 1.0
Greece (1.0%)
Hellenic Republic:
9.2% due 3/21/02 .................................. GRD 650,000,000 2,298,569 0.8
8.8% due 6/19/07 .................................. GRD 200,000,000 738,137 0.2
Italy (3.7%)
Italian Government, 7.25% due 11/1/26 ............... ITL 11,430,000,000 8,781,841 3.0
Italian Buoni Poliennali Del Tesoro (BTPS), 8.5% due
1/1/04 ............................................. ITL 2,730,000,000 2,006,667 0.7
Ivory Coast (1.3%)
Ivory Coast Government:
1.9% (2.9% at 3/31/09) due 3/29/18++ .............. FRF 63,693,750 2,838,505 1.0
2% (3% at 3/31/09) due 3/29/18++ .................. USD 2,765,000 808,763 0.3
Jamaica (0.3%)
Government of Jamaica, 10.875% due 6/10/05 -
144A{.} ............................................ USD 1,158,000 868,500 0.3
Korea (0.6%)
Korea Republic Restructured Debt, 8.281% due
4/8/00+ ............................................ USD 1,800,000 1,674,000 0.6
</TABLE>

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

6
<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)
Mexico (1.7%)
United Mexican States:
6.63% due 12/31/19 ................................ FRF 12,000,000 $ 1,682,662 0.6
9.875% due 1/15/07 ................................ USD 1,560,000 1,483,950 0.5
11.375% due 9/15/16 ............................... USD 936,000 934,830 0.3
Discount Bond Series B, 6.47656% due
12/31/19++/+ ..................................... USD 575,000 448,859 0.2
Discount Bond Series D, 6.6016% due12/31/19+ ...... USD 250,000 195,156 0.1
Panama (0.8%)
Republic of Panama:
8.875% due 9/30/27 ................................ USD 1,373,000 1,266,593 0.4
Interest Reduction Bond, 4% (4.25% at 7/99) due
7/17/14++ ........................................ USD 1,720,000 1,258,825 0.4
Peru (1.2%)
Republic of Peru, Past Due Interest Bond, 4% (4.25%
at 3/8/99) due 3/7/17++ ............................ USD 5,871,000 3,375,825 1.2
Poland (0.9%)
Republic of Poland:
3% (3.5% at 10/28/99) due 10/27/24 - Euro++ ....... USD 2,785,000 1,852,025 0.6
Past Due Interest Bond, 5% (6% at 10/28/99) due
10/27/14 - Euro++ ................................ USD 1,005,000 913,922 0.3
Russia (0.4%)
Bank for Foreign Economic Affairs (Venesheconombank)
Principal Loans, 6.625% due 12/15/20+ .............. USD 16,555,492 1,314,092 0.4
Sweden (1.1%)
Swedish Government, 6.5% due 10/25/06 ............... SEK 21,700,000 3,134,271 1.1
United Kingdom (8.5%)
United Kingdom Treasury, 9% due 10/13/08 ............ GBP 11,310,000 24,683,511 8.5
United States (13.9%)
United States Treasury:
6.375% due 8/15/27{./} ............................ USD 20,300,000 23,428,658 8.0
5.625% due 5/15/08{./} ............................ USD 12,390,000 13,354,097 4.6
Federal National Mortgage Association, 7.25% due
6/20/02 ............................................ NZD 7,000,000 3,829,514 1.3
------------
Total Government & Government Agency Obligations (cost
$194,543,627) .......................................... 182,483,751
------------
Corporate Bonds (20.1%)
Argentina (0.4%)
Disco S.A., 9.875% due 5/15/08 - 144A{.} ............ USD 750,000 523,125 0.2
Mastellone Hermanos S.A., 11.75% due 4/1/08 -
144A{.} ............................................ USD 745,000 454,450 0.2
Brazil (1.3%)
Banco Hipotecario Espana, 10% due 4/17/03 -
144A{.} ............................................ USD 1,675,000 1,474,000 0.5
RBS Participacoes S.A., 11% due 4/1/07 - 144A{.} .... USD 1,773,000 797,850 0.3
Banco Nacional de Desenvolvimento Economico e Social
(BNDES):
10.8% due 6/16/08 - 144A{.} ....................... USD 1,335,000 934,500 0.3
10.8% due 6/16/08 - Reg S{c} ...................... USD 825,000 577,500 0.2
</TABLE>

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

7
<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>
Corporate Bonds (Continued)
Colombia (0.2%)
Financiera Energia Nacional, 9.375% due 6/15/06 - Reg
S{c} ............................................... USD 836,000 $ 613,039 0.2
Jamaica (0.2%)
Mechala Group Jamaica, 12.75% due 12/30/99 - Reg
S{c} ............................................... USD 719,000 503,300 0.2
Korea (0.3%)
Pohang Iron & Steel, 2% due 10/9/00 ................. JPY 119,000,000 884,625 0.3
Luxembourg (0.4%)
Cellco Finance N.V., 15% due 8/1/05 - Reg S{c} ...... USD 1,550,000 1,255,500 0.4
Mexico (1.6%)
Petroleos Mexicanos (PEMEX), 9.25% due 3/30/18 -
144A{.} ............................................ USD 2,950,000 2,404,250 0.8
Monterrey Power, S.A. de C.V., 9.625% due 11/15/09 -
144A{.} ............................................ USD 1,245,000 834,150 0.3
Dine, S.A. de C.V., 8.75% due 10/15/07 - 144A{.} .... USD 860,000 679,400 0.2
Cemex Valenciana, 9.66% due 12/29/49 ................ USD 545,000 457,800 0.2
Banco Nacional Comercio Exte., 8% due 7/18/02 - Reg
S{c} ............................................... USD 421,000 384,163 0.1
Russia (0.3%)
Lukinter Finance BV Convertible, 3.5% due 5/6/02 -
144A{.} ............................................ USD 1,526,000 556,990 0.2
Mosenergo Finance BV, 8.375% due 10/9/02 -
144A{.} ............................................ USD 1,040,000 182,000 0.1
Singapore (0.2%)
Krung Thai Bank (Singapore), 6.73% due 9/30/04 ...... USD 1,000,000 660,000 0.2
United Kingdom (0.7%)
Orange PLC, 7.625% due 8/1/08 ....................... ECU 1,000,000 1,139,466 0.4
Colt Telecom Group PLC, 7.625% due 7/31/08 .......... DEM 1,600,000 857,355 0.3
United States (14.5%)
Chase Manhattan Corp., 6.25% due 1/15/06 ............ USD 2,835,000 2,934,222 1.0
General Motors Acceptance Corp., 6.625% due
10/15/05 ........................................... USD 2,700,000 2,852,711 1.0
Ford Motor Credit Corp., 5.25% due 6/16/08 .......... DEM 4,610,000 2,829,116 1.0
Unisys Corp., 7.875% due 4/1/08 ..................... USD 2,350,000 2,373,500 0.8
Engle Homes, Inc., 9.25% due 2/1/08 ................. USD 2,350,000 2,208,770 0.8
Merrill Lynch & Co., 7.25% due 5/2/02 ............... USD 2,070,000 2,154,601 0.7
United Stationers Supply, 8.375% due 4/15/08 -
144A{.} ............................................ USD 2,000,000 2,005,000 0.7
Lenfest Communications, 8.25% due 2/15/08 -
144A{.} ............................................ USD 1,850,000 1,877,917 0.6
Smithfield Foods, Inc., 7.625% due 2/15/08 -
144A{.} ............................................ USD 1,725,000 1,690,500 0.6
Hollywood Casino Corp., 12.75% due 11/1/03 .......... USD 1,700,000 1,674,500 0.6
Eagle Family Foods, 8.75% due 1/15/08 - 144A{.} ..... USD 1,875,000 1,668,750 0.6
Graham Packaging/GPC Capital, 8.75% due 1/15/08 -
144A{.} ............................................ USD 1,725,000 1,638,750 0.6
Riddell Sports, Inc., 10.5% due 7/15/07 ............. USD 1,700,000 1,530,000 0.5
Lin Television Corp., 8.375% due 3/1/08 - 144A{.} ... USD 1,500,000 1,440,000 0.5
Trump Atlantic Association Funding, Inc., 11.25% due
5/1/06 ............................................. USD 1,700,000 1,394,000 0.5
Chancellor Media Corp., 8.125% due 12/15/07 -
144A{.} ............................................ USD 1,300,000 1,228,500 0.4
Drypers Corp. Series B, 10.25% due 6/15/07 .......... USD 1,300,000 1,202,500 0.4
PSINET, Inc., 10% due 2/15/05 ....................... USD 1,000,000 952,200 0.3
Fisher Scientific International, 9% due 2/1/08 ...... USD 1,000,000 925,880 0.3
Penn National Gaming, Inc., 10.625% due 12/15/04 -
144A{.} ............................................ USD 875,000 857,500 0.3
</TABLE>

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

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

October 31, 1998

TOTAL FIXED INCOME INVESTMENTS (cost $295,149,545) ...... 274,474,817 94.0
------------ -----
<CAPTION>

PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (9.6%)
United States (9.6%)
Ford Motor Credit, effective yield 5.09%, due
11/18/98 ........................................... USD 14,000,000 13,966,349 4.8
GE Capital, effective yield 5.09%, due 11/18/98 ..... USD 14,000,000 13,966,349 4.8
------------
Total Commercial Paper - Discounted (cost
$27,932,698) ........................................... 27,932,698
------------ -----

TOTAL SHORT-TERM INVESTMENTS (cost $27,932,698) ......... 27,932,698 9.6
------------ -----
</TABLE>

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

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

October 31, 1998

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- --------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 30, 1998, with State Street Bank & Trust
Co., due November 2, 1998, for an effective yield of
5.30%, collateralized by $12,030,000 U.S. Treasury
Notes, 5.75% due 9/30/99 (market value of collateral
is $12,225,488, including accrued interest)
(cost $11,982,000) .................................. $ 11,982,000 4.1
------------ -----

TOTAL INVESTMENTS (cost $335,064,243) * ................ 314,389,515 107.7
Other Assets and Liabilities ............................ (22,602,184) (7.7)
------------ -----

NET ASSETS .............................................. $291,787,331 100.0
------------ -----
------------ -----
</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.
(::) Valued in good faith at fair value using procedures approved by the
Board of Trustees (see Note 1 of Notes to Financial Statements).
+ 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.
{./} All or part of the Fund's holdings in this security is segregated
as collateral for derivative securities and securities purchased on
a forward commitment basis. See Note 1 to the Financial Statements.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
{*} Purchased on a forward commitment basis.
* For Federal income tax purposes, cost is $337,572,672 and
appreciation (depreciation) is as follows:

<TABLE>
<S> <C>
Unrealized appreciation: $ 4,236,684
Unrealized depreciation: (27,419,841)
-------------
Net unrealized depreciation: $ (23,183,157)
-------------
-------------
</TABLE>

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

FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1998

<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 3,695,654 1.54785 3/18/99 $ (13,127)
French Francs........................... 2,753,722 5.45470 3/18/99 32,865
Japanese Yen............................ 819,279 118.80000 11/27/98 (19,616)
------------- ---------------
Total Contracts to Sell (Receivable
amount $7,268,777)................... 7,268,655 122
------------- ---------------
THE VALUE OF CONTRACTS TO SELL AS A
PERCENTAGE OF NET ASSETS IS 2.49%.
Total Open Forward Foreign Currency
Contracts............................ $ 122
---------------
---------------
</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 $335,064,243) (Note 1)............................... $ 314,389,515
U.S. currency................................................................. $ 983
Foreign currencies (cost $1,866,855).......................................... 1,867,904 1,868,887
-------------
Receivable for securities sold................................................................. 31,828,916
Interest receivable............................................................................ 6,062,576
Receivable for Fund shares sold................................................................ 440,563
Miscellaneous receivable....................................................................... 12,228
Receivable for open forward foreign currency contracts (Note 1)................................ 122
-------------
Total assets................................................................................. 354,602,807
-------------
Liabilities:
Payable for securities purchased............................................................... 59,770,608
Payable for Fund shares repurchased............................................................ 1,127,005
Distribution payable........................................................................... 713,718
Payable for service and distribution expenses (Note 2)......................................... 491,179
Payable for investment management and administration fees (Note 2)............................. 213,197
Payable for transfer agent fees (Note 2)....................................................... 208,968
Payable for custodian fees..................................................................... 100,456
Payable for printing and postage expenses...................................................... 92,249
Payable for professional fees.................................................................. 42,265
Payable for registration and filing fees....................................................... 18,805
Payable for Trustees' fees and expenses (Note 2)............................................... 11,792
Payable for fund accounting fees (Note 2)...................................................... 7,217
Other accrued expenses......................................................................... 18,017
-------------
Total liabilities............................................................................ 62,815,476
-------------
Net assets....................................................................................... $ 291,787,331
-------------
-------------
Class A:
Net asset value and redemption price per share ($102,279,959 DIVIDED BY 9,474,511 shares
outstanding).................................................................................... $ 10.80
-------------
-------------
Maximum offering price per share (100/95.25 of $10.80) *......................................... $ 11.34
-------------
-------------
Class B:+
Net asset value and offering price per share ($188,660,057 DIVIDED BY 17,458,947 shares
outstanding).................................................................................... $ 10.81
-------------
-------------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($847,315 DIVIDED BY
78,237 shares outstanding)...................................................................... $ 10.83
-------------
-------------
Net assets consist of:
Paid in capital (Note 4)....................................................................... $ 387,101,752
Accumulated net investment loss................................................................ (122)
Accumulated net realized loss on investments and foreign currency transactions................. (74,693,113)
Net unrealized appreciation on translation of assets and liabilities in foreign currencies..... 53,542
Net unrealized depreciation of investments..................................................... (20,674,728)
-------------
Total -- representing net assets applicable to capital shares outstanding........................ $ 291,787,331
-------------
-------------
<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............................................................................ $33,776,429
Securities lending income.................................................................. 741,430
-----------
Total investment income.................................................................. 34,517,859
-----------
Expenses:
Service and distribution expenses: (Note 2)
Class A..................................................................... $ 439,823
Class B..................................................................... 2,448,700 2,888,523
-----------
Investment management and administration fees (Note 2)..................................... 2,691,901
Transfer agent fees (Note 2)............................................................... 799,100
Custodian fees............................................................................. 220,500
Printing and postage expenses.............................................................. 201,000
Professional fees.......................................................................... 142,500
Fund accounting fees (Note 2).............................................................. 99,805
Registration and filing fees............................................................... 64,750
Trustees' fees and expenses (Note 2)....................................................... 21,950
Other expenses............................................................................. 286,421
-----------
Total expenses........................................................................... 7,416,450
-----------
Net investment income........................................................................ 27,101,409
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized loss on investments.............................................. (14,842,820)
Net realized gain on foreign currency transactions............................ 5,025,299
-----------
Net realized loss during the year........................................................ (9,817,521)
Net change in unrealized appreciation (depreciation) on translation of assets
and liabilities in foreign currencies........................................ (1,692,009)
Net change in unrealized appreciation (depreciation) of investments........... (26,689,090)
-----------
Net unrealized depreciation during the year.............................................. (28,381,099)
-----------
Net realized and unrealized loss on investments and foreign currencies....................... (38,198,620)
-----------
Net decrease in net assets resulting from operations......................................... $(11,097,211)
-----------
-----------
</TABLE>

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

12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS

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

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Decrease in net assets
Operations:
Net investment income....................................................... $ 27,101,409 $ 27,580,494
Net realized gain (loss) on investments and foreign currency transactions... (9,817,521) 39,498,013
Net change in unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies............................... (1,692,009) 2,627,595
Net change in unrealized depreciation of investments........................ (26,689,090) (26,190,807)
------------ ------------
Net increase (decrease) in net assets resulting from operations........... (11,097,211) 43,515,295
------------ ------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (7,063,735) (10,228,265)
In excess of net investment income.......................................... -- (775,601)
Return of capital........................................................... (1,864,318) --
Class B:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (12,380,012) (18,434,103)
In excess of net investment income.......................................... -- (1,397,843)
Return of capital........................................................... (3,267,432) --
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income.................................................. (44,834) (43,148)
In excess of net investment income.......................................... -- (3,272)
Return of capital........................................................... (11,833) --
------------ ------------
Total distributions....................................................... (24,632,164) (30,882,232)
------------ ------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested............................ 185,041,479 335,031,026
Decrease from capital shares repurchased.................................... (278,148,568) (445,823,540)
------------ ------------
Net decrease from capital share transactions.............................. (93,107,089) (110,792,514)
------------ ------------
Total decrease in net assets.................................................. (128,836,464) (98,159,451)
Net assets:
Beginning of year........................................................... 420,623,795 518,783,246
------------ ------------
End of year *............................................................... $291,787,331 $420,623,795
------------ ------------
------------ ------------
* Includes accumulated net investment loss/distributions in excess of net
investment income.......................................................... $ (122) $ (3,351,006)
------------ ------------
------------ ------------
</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 each period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.

CLASS A
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 (d) 1997 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.00 $ 11.76 $ 10.32 $ 10.88 $ 13.61
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.91* 0.74 0.89 0.97 0.79
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.27) 0.34 1.44 (0.69) (2.14)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.36) 1.08 2.33 0.28 (1.35)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.65) (0.78) (0.82) (0.80) (0.79)
From net realized gain on
investments.......................... -- -- -- -- (0.38)
In excess of net investment income.... -- (0.06) (0.07) -- --
Return of capital..................... (0.19) -- -- (0.04) (0.21)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.84) (0.84) (0.89) (0.84) (1.38)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 10.80 $ 12.00 $ 11.76 $ 10.32 $ 10.88
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Total investment return (c)............. (3.41)% 9.40% 23.00% 3.06% (10.44)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 102,280 $ 138,715 $ 185,126 $ 188,165 $ 275,241
Ratio of net investment income to
average net assets..................... 7.73% 6.18% 8.09% 9.64% 6.74%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.56% 1.35% 1.38% 1.42% 1.40%
Without expense reductions............ 1.56% 1.44% 1.40% 1.45% N/A
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A 0.10%
Portfolio turnover rate++............... 306% 149% 177% 238% 583%
</TABLE>

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

(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
* Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 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 between 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 1996 (d) 1995 (d) 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.01 $ 11.77 $ 10.33 $ 10.88 $ 13.60
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.84* 0.67 0.82 0.91 0.73
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.28) 0.33 1.44 (0.69) (2.14)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. (0.44) 1.00 2.26 0.22 (1.41)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.57) (0.71) (0.75) (0.73) (0.72)
From net realized gain on
investments.......................... -- -- -- -- (0.38)
In excess of net investment income.... -- (0.05) (0.07) -- --
Return of capital..................... (0.19) -- -- (0.04) (0.21)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.76) (0.76) (0.82) (0.77) (1.31)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 10.81 $ 12.01 $ 11.77 $ 10.33 $ 10.88
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Total investment return (c)............. (4.04)% 8.70% 22.15% 2.48% (11.02)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 188,660 $ 281,376 $ 333,178 $ 357,852 $ 458,550
Ratio of net investment income to
average net assets..................... 7.08% 5.53% 7.44% 8.99% 6.09%
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 2.21% 2.00% 2.03% 2.07% 2.05%
Without expense reductions............ 2.21% 2.09% 2.05% 2.10% N/A
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A 0.10%
Portfolio turnover rate++............... 306% 149% 177% 238% 583%
</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 1996 (d) 1995 (d)
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 12.02 $ 11.77 $ 10.33 $ 10.32
---------- ---------- ---------- ------------
Income from investment operations:
Net investment income................. 0.95* 0.79 0.93 0.41
Net realized and unrealized gain
(loss) on investments and foreign
currencies........................... (1.26) 0.34 1.44 (0.04)
---------- ---------- ---------- ------------
Net increase (decrease) from
investment operations.............. (0.31) 1.13 2.37 0.37
---------- ---------- ---------- ------------
Distributions to shareholders:
From net investment income............ (0.69) (0.82) (0.86) (0.34)
From net realized gain on
investments.......................... -- -- -- --
In excess of net investment income.... -- (0.06) (0.07) --
Return of capital..................... (0.19) -- -- (0.02)
---------- ---------- ---------- ------------
Total distributions................. (0.88) (0.88) (0.93) (0.36)
---------- ---------- ---------- ------------
Net asset value, end of period.......... $ 10.83 $ 12.02 $ 11.77 $ 10.33
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------

Total investment return (c)............. (2.97)% 9.86% 23.39% 3.72 %(b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 847 $ 533 $ 479 $ 443
Ratio of net investment income to
average net assets..................... 8.08% 6.53% 8.44% 9.99 %(a)
Ratio of expenses to average net assets
excluding interest expense:
With expense reductions............... 1.21% 1.00% 1.03% 1.07 %(a)
Without expense reductions............ 1.21% 1.09% 1.05% 1.10 %(a)
Ratio of interest expense to average net
assets++............................... N/A N/A N/A N/A
Portfolio turnover rate++............... 306% 149% 177% 238 %
</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 Strategic Income Fund (the "Fund"), formerly GT Global Strategic 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 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 complete 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 are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.

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

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

With respect to repurchase agreements entered into by the Fund, it is the Fund'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 Fund under each
agreement at its maturity.

(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set

17
<PAGE>
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 Fund as an unrealized
gain or loss. When the Forward Contract is closed, the Fund records a realized
gain or loss equal to the difference between the value at the time it was opened
and the value at the time it was closed. Forward Contracts involve market risk
in excess of the amount shown in the Fund's "Statement of Assets and
Liabilities". The Fund could be exposed to risk if a counterparty is unable to
meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into 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 Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, 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 Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid securities in an amount not less than the exercise
price, or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.

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

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

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

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

(H) PORTFOLIO SECURITIES LOANED
At October 31, 1998, stocks with an aggregate value of $2,582,613 were on loan
to brokers. The loans were secured by cash collateral of $2,731,376 received by
the Fund. For the year ended October 31, 1998, the Fund received fees of
$741,430.

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

18
<PAGE>
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 $72,184,684 of
which $65,749,433 expires in 2003, and $6,435,251 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 Fund and timing differences.

(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's 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 Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.

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

(N) LINE OF CREDIT
The Fund, along with certain other funds advised and/or administered by the
Manager, has a line of credit with BankBoston. The arrangement with the bank
allows the Fund 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, the Fund had no loans outstanding.

For the year ended October 31, 1998, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $8,506,098, with a weighted average interest rate of 6.28%.
Interest expense for the year ended October 31, 1998 was $243,306 and is
included in "Other Expenses" on the Statement of Operations.

(O) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Fund 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 Fund 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
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 investment manager and administrator and INVESCO
(NY), Inc., (formerly, Chancellor LGT Asset Management, Inc.) is the Fund's
investment sub-advisor and sub-administrator. As of the close of business on May
29, 1998, Liechtenstein Global Trust AG ("LGT"), the former indirect parent
organization of Chancellor LGT Asset Management, Inc. ("Chancellor LGT")
consummated a purchase agreement with AMVESCAP PLC pursuant to which AMVESCAP
PLC acquired LGT's Asset Management Division, which included Chancellor LGT and
certain other affiliates. As a result of this transaction, Chancellor LGT was
renamed INVESCO (NY), Inc., and is now an indirect wholly-owned subsidiary of
AMVESCAP PLC. A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, 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 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 the Manager investment management and administration fees at the
annualized rate of 0.725% on the first $500 million of the average daily net
assets of the Fund; 0.70% on the next $1 billion; 0.675% on the next $1 billion;
and 0.65% on amounts thereafter. These fees are computed daily and paid monthly.

19
<PAGE>
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 the following sales charges: $6,190 and $14,511, 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 $10,171 and $1,119, 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 $379,657 and $916,697, 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 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

20
<PAGE>
agent of the Fund. For performing shareholder servicing, reporting, and general
transfer agent services, GT Services received an annual maintenance fee of
$17.50 per account, a new account fee of $4.00 per account, a per transaction
fee of $1.75 for all transactions other than exchanges and a per exchange fee of
$2.25. GT Services also was reimbursed by the Fund for its out-of-pocket
expenses for such items as postage, forms, telephone charges, stationery and
office supplies.

The Manager is the pricing and accounting agent for the Fund. The monthly fee
for these services paid 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 Fund, other than U.S. government obligations and short-term
investments, aggregated $653,771,935 and $689,755,218, respectively. For the
year ended October 31, 1998,
purchases and sales of U.S. government obligations aggregated $419,099,394 and
$458,023,980, respectively.

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....................................... 11,087,862 $ 132,840,707 13,750,221 $ 167,009,888
Shares issued in connection with reinvestment of
distributions................................... 520,006 6,103,698 615,860 7,488,021
----------- ------------- ----------- ---------------
11,607,868 138,944,405 14,366,081 174,497,909
Shares repurchased................................ (13,690,399) (162,830,760) (18,557,237) (225,311,673)
----------- ------------- ----------- ---------------
Net decrease...................................... (2,082,531) $ (23,886,355) (4,191,156) $ (50,813,764)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------

CLASS B
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 2,712,341 $ 32,431,379 11,499,580 $ 140,731,511
Shares issued in connection with reinvestment of
distributions................................... 752,045 8,848,630 896,610 10,918,610
----------- ------------- ----------- ---------------
3,464,386 41,280,009 12,396,190 151,650,121
Shares repurchased................................ (9,428,771) (110,869,956) (17,287,235) (211,600,543)
----------- ------------- ----------- ---------------
Net decrease...................................... (5,964,385) $ (69,589,947) (4,891,045) $ (59,950,422)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
<CAPTION>

ADVISOR CLASS
- --------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold....................................... 396,726 $ 4,766,864 712,165 $ 8,839,212
Shares issued in connection with reinvestment of
distributions................................... 4,186 50,201 3,581 43,784
----------- ------------- ----------- ---------------
400,912 4,817,065 715,746 8,882,996
Shares repurchased................................ (367,030) (4,447,852) (712,116) (8,911,324)
----------- ------------- ----------- ---------------
Net increase (decrease)........................... 33,882 $ 369,213 3,630 $ (28,328)
----------- ------------- ----------- ---------------
----------- ------------- ----------- ---------------
</TABLE>

21
<PAGE>
5. PROXY RESULTS (UNAUDITED)
The Special Meeting of Shareholders of the G.T. Investment Funds, Inc., now
known as AIM Investment Funds (the "Trust") was held on May 20, 1998 at the
Trust's offices, 50 California Street, 26th Floor, San Francisco, California.
The meeting was held for the following purposes:

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

(2) To approve a new Investment Management and Administration Contract and
Sub-Advisory and Sub-Administration Contract with respect to each series of
the Trust (each, a "Fund," and collectively, the "Funds").

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

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

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

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

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

<TABLE>
<CAPTION>
VOTES WITHHELD/
TRUSTEE/MATTER VOTES FOR AGAINST ABSTENTIONS
------------------------------------------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(1) C. Derek Anderson........................................... 191,685,088 N/A 13,123,292
Frank S. Bayley............................................. 191,766,811 N/A 13,041,568
William J. Guilfoyle........................................ 191,828,959 N/A 12,979,420
Arthur C. Patterson......................................... 191,845,270 N/A 12,963,109
Ruth H. Quigley............................................. 191,869,887 N/A 12,938,492
(2)(a) Approval of investment management and administration
contract................................................... 14,153,757 379,517 4,085,251*
(2)(b) Approval of sub-advisory and sub-administration contract.... 14,047,606 428,882 1,142,037*
(3) Approval of replacement Rule 12b-1 plans of distribution
CLASS A SHARES.............................................. 5,895,532 233,405 531,389
CLASS B SHARES.............................................. 10,735,339 271,273 981,531
(4)(a) Modification of Fundamental Restriction on Concentration.... 13,819,624 462,105 4,336,796*
(4)(b) Modification of Fundamental Restriction on Issuing Senior
Securities and Borrowing Money............................. 13,817,763 463,966 4,336,796*
(4)(c) Modification of Fundamental Restriction on Making Loans..... 13,819,624 462,105 4,336,796*
(4)(d) Modification of Fundamental Restriction on Underwriting
Securities................................................. 13,819,624 462,105 4,336,796*
(4)(e) Modification of Fundamental Restriction on Real Estate
Investments................................................ 13,817,763 463,966 4,336,796*
(4)(f) Modification of Fundamental Restriction on Investing in
Commodities................................................ 13,815,902 465,827 4,336,796*
(4)(g) Modification of Fundamental Restriction on Margin
Transactions............................................... 13,815,902 465,827 4,336,796*
(4)(h) Elimination of Fundamental Restriction on Investing in
Futures Contracts.......................................... 13,817,763 463,966 4,336,796*
(4)(i) Elimination of Fundamental Restriction on Pledging Assets... 13,817,763 463,966 4,336,796*
(4)(j) Elimination of Fundamental Restriction on Investments in
Oil, Gas and Mineral Leases and Programs................... 13,817,763 463,996 4,336,796*
(4)(k) Elimination of Fundamental Restriction on Investing for the
Purpose of Control......................................... 13,817,763 463,996 4,336,796*
(4)(l) Elimination of Fundamental Restriction on Purchasing
Securities of Issuers in Which Officers and Board Members
of Each Company and its Affiliates Own Securities.......... 13,817,763 463,996 4,336,796*
(4)(m) Elimination of Fundamental Restriction on Investing in
Securities of Companies That Have Been in Operation for
Less than Three Years...................................... 13,819,624 462,105 4,336,796*
(4)(n) Elimination of Fundamental Restriction on Selling Securities
Short...................................................... 13,802,093 479,636 4,336,796*
(4)(o) Approval of New Fundamental Investment Policy Regarding
Investment of All of Each Fund's Assets in an Open-End
Fund....................................................... 13,819,624 462,105 4,336,796*
(5) Approval of an agreement and plan of conversion and
termination with respect to the Trust...................... 190,027,469 6,362,084 94,055,040*
(6) Ratification of the selection of Coopers and Lybrand L.L.P.,
now known as PricewaterhouseCoopers LLP, as the Trust's
independent public accountants............................. 191,358,779 2,114,168 11,333,063
</TABLE>

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

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

John J. Arthur
Vice President

Melville B. Cox
Vice President

Gary T. Crum
Vice President

Carol F. Relihan
Vice President

David P. Hess
Assistant Secretary

Nancy L. Martin
Assistant Secretary

Ofelia M. Mayo
Assistant Secretary

Kathleen J. Pflueger
Assistant Secretary

Samuel D. Sirko
Assistant Secretary

Pamela Ruddock
Assistant Treasurer

Paul Wozniak
Assistant Treasurer

OFFICE OF THE FUND

11 Greenway Plaza
Suite 100
Houston, TX 77046

INVESTMENT MANAGER

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

SUB-ADVISOR

INVESCO (NY), Inc.
50 California Street, 27th Floor
San Francisco, CA 94111

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.

SINC-AR-1