<PAGE>
EARNING
INCOME
AROUND
THE WORLD
GT GLOBAL
GOVERNMENT
INCOME FUND
ANNUAL REPORT
OCTOBER 31, 1995
[LOGO]
<PAGE>
TABLE
OF CONTENTS
<TABLE>
<S> <C>
Report from the Fund
Managers and Key
Portfolio Holdings..... 1
Report of Independent
Accountants............ F-1
Financial Statements... F-2
</TABLE>
REPORT FROM THE FUND MANAGERS
The G.T. Global Government Income Fund seeks high current income by investing
primarily in high-quality U.S. and foreign government securities. The Fund's
secondary objectives are capital appreciation and protection of principal
through active management of the maturity structure and currency exposure of the
portfolio.
PERFORMANCE REVIEW
The Fund's total return for the 12 months ended October 31, 1995, was 9.22% for
Class A shares (4.03% including the maximum 4.75% sales charge). Total return
for Class B shares was 8.22% (3.22% including the maximum effect of the 5%
contingent deferred sales charge). Total return for the J.P. Morgan Global
Government Bond Index(1) over the same period was 15.36%. The index is not
available for investment and does not include the effects of sales charges and
professional management fees. For more information, please see page 8.
Global bond markets performed favorably over the period as yields in the major
markets dropped dramatically. U.S. dollar returns in several foreign markets
were also enhanced as a result of a strengthening in foreign currencies against
the dollar. The Fund underperformed the index due mainly to other currency
movements, particularly by the Japanese yen. From January through April of this
year, the yen appreciated sharply, gaining about 20% against the dollar. The
German mark also strengthened against the U.S. dollar during this period. At the
time, we expected the dollar to rebound and therefore underweighted the yen and
European currencies accordingly.
The investment decisions regarding the bond markets themselves had less of an
impact on the relative performance of the Fund. At the beginning of the year,
the average maturity of the Fund was around five years, compared to the index
maturity of approximately seven years. However, as the markets rallied in the
first part of the year, the average maturity of the Fund increased to over seven
years. Since the end of the first quarter of 1995, maturity has ranged from 7 to
12 years.
- ------------------------------
(1) The J.P. Morgan Global Government Bond Index is an arithmetic average,
weighted by market value, of government bonds from 13 major bond markets. It
includes the effect of reinvested dividends and is measured in U.S. dollars.
The Fund has changed benchmarks from indices provided by Salomon Brothers to
indices provided by J.P. Morgan. Because the J.P. Morgan indices use
weightings based on liquidity, we consider them a better reflection of the
investment opportunities.
1
<PAGE>
For a substantial part of this year the Fund was underweighted in long bonds in
the U.S. market and overweighted in long bonds in Germany. This allocation
affected performance because even though both markets rallied, U.S. bond prices
rose more than Germany's.
MARKET REVIEW
The U.S. economy slowed this year, primarily as a result of 1994's tightening in
monetary policy when the Fed raised short-term interest rates from 3% to 6%.
Inflation has remained low and we see no signs of any major price pressures in
the economy. Core inflation as of October 31 stood at roughly 3%. Against this
favorable economic backdrop, U.S. long bond yields have fallen from around 8% a
year ago to under 6.5% at period-end. Bond yields in other major markets
followed suit.
The German economy has also been weak and inflation has been trending down.
This, in conjunction with a strong currency, has allowed the Bundesbank to
continue lowering short-term interest rates.
Meanwhile, the Japanese economy remains in a deflationary trend, where prices of
goods and services have declined over the past year and continues to grow very
slowly (less than 1% over the last year). The large rise in the yen earlier in
the year forced the Bank of Japan to cut short-term rates to below 0.5%,
anchoring Japanese bond yields at around 3%.
The three major bond markets (the U.S., Germany and Japan) rose strongly over
the last year, providing support for a rally in other bond markets. However, the
smaller, higher-yielding markets in Europe, particularly Spain and Italy, have
been volatile and have generally underperformed others in this category. One
factor was the strength of the German mark, which kept Spanish and Italian
currencies under pressure. In addition, the inflation rates of these countries
were the highest of the major European economies.
2
<PAGE>
PORTFOLIO STRATEGY
We believe bond yields are trending lower and, accordingly, have increased the
average maturity of the Fund to 10 to 12 years. The U.S. remains the key market
and we continue to watch it closely for any indication that we need to adjust
maturity. In terms of regional allocation, we are overweighted in the U.S. and
Europe, and slightly underweighted in Japan. Within Europe, we are most
overweighted in the higher yielding markets of Italy, Spain and Sweden, where we
have increased allocations since April in the belief that their governments have
acted more responsibly with respect to their public debt and fiscal deficits and
consequently offer considerable value. While the Italian market has been
volatile, the Fund benefited from a large fall in Swedish bond yields.(2)
OUTLOOK
The outlook for global bond markets remains positive. The U.S., Japan and
Germany all have low or falling inflation, slowing or weak economies and central
banks with a bias toward lower rates. This benign economic environment provides
the main support for bond markets. To some extent, however, this is already
priced into bond markets, as the yield on the global bond index has fallen over
1.5 percentage points this year. In the U.S., large investors appear to be fully
invested and bullish sentiment is high. Hence, in the short term, bond markets
could be vulnerable to a pickup in growth.
European markets in general appear to offer better value. Over the last year
they have lagged the U.S. and Japan, their real yields are higher and the German
yield curve is considerably steeper than the U.S. curve. We believe markets such
as Spain and Italy, although historically more volatile, have a great deal of
potential if their monetary and fiscal policy remain favorable. The longer-term
outlook for Japanese bonds is deteriorating as Japanese authorities attempt to
reflate the economy by using both fiscal and monetary policies. For the moment,
however, deflation and low short-term rates present an obstacle to rising
yields.
- ------------------------------
(2) Portfolio holdings are subject to change with changing market conditions.
3
<PAGE>
There are two possible longer-term risks for global bond markets. The easing of
monetary policy by central banks this year could result in higher than
anticipated growth next year, and any rebound in Japan's economy could cause
real global bond yields to rise. Japan's government is starting to run a very
large budget deficit and if credit demand in the Japanese private sector
increases as well, less Japanese savings will be available for investment
abroad. Many countries, particularly the U.S., have relied on Japanese capital
to fund their current account deficits, and real yields around the world may
need to rise to remain attractive.
GARY KREPS ROBERT ALLEN
CHIEF INVESTMENT OFFICER PORTFOLIO MANAGER
GLOBAL FIXED INCOME INVESTMENTS SAN FRANCISCO
SAN FRANCISCO
NOVEMBER 20, 1995
G.T. GLOBAL GOVERNMENT INCOME FUND
4
<PAGE>
KEY MARKETS*
U.S.
The U.S. economy has been growing steadily while enjoying low and stable
inflation. Although growth has been weak in the last few months, there are no
signs of a serious slowdown. Even if growth continues to slow, the Federal
Reserve has plenty of room to ease rates because inflation is very low and there
is virtually no inflationary pressure in the economy. There has been no
significant increase in consumer prices this year, despite the strong economic
growth of last year. Core inflation has stayed around 3% for several months now.
Wages are under control and the industrial capacity utilization rate (one
measure of economic overheating) has been falling since the beginning of the
year.
The economic environment is favorable for the bond market but at the current
level of yields, we believe the market is already pricing in most of the good
news. Two-year bond yields are below the Federal funds rate (the overnight
lending rate among banks), indicating that the market is expecting the Fed to
lower rates. Real yields (the difference between market yields and inflation)
are low compared to the range they have traded in over the past few years. Value
is not as attractive as it was at the end of 1994, when real yields were at
their highs.
In the short term, the market could be vulnerable to any sign of a pickup in
growth, but we believe the underlying trend to lower inflation will keep the
overall downtrend in bond yields in place.
AUSTRALIA/CANADA
The economic cycles of Australia and Canada are very closely tied to the U.S.,
and their interest rates have tended to move generally in line with U.S. rates.
In 1994, both central banks followed the Federal Reserve's lead to raise rates,
but the Reserve Bank of Australia acted after the Bank of Canada. As a result,
economic growth in Australia has remained much stronger over the last few months
than in the U.S. or Canada. Consequently, Australian inflation is still rising,
while inflation in Canada has stabilized at approximately 2.5%. Over the first
10 months of 1995, both bond markets have followed the U.S. but, in our opinion,
there is a risk that Australian bonds could underperform unless that economy
slows. However, bond yields in Australia are one percentage point higher than in
Canada, so there is some relative value in the Australian market.
- ------------------------------
* The Fund may or may not continue to hold securities from these countries.
5
<PAGE>
Both economies have deficit problems. Canada has a large budget deficit (around
4% of GDP) and Australia has a large current account deficit (nearly 5% of GDP).
These situations are slowly improving. The deficit problems, combined with
volatile inflation histories, mean that bond yields in both markets trade at a
pre-
mium to the U.S. We believe that over the short term both markets are unlikely
to outperform the U.S., but have the potential to do so over the longer run.
JAPAN
Japan is experiencing unique economic conditions of weak growth and negative
inflation. This environment, combined with a very strong yen earlier in the
year, has forced the Bank of Japan to cut interest rates to below 0.5%, which
has held bond yields down to 3%. Over the next few months, we expect that
deflation and low short-term interest rates will probably result in yields
staying low.
However, government efforts to reflate the economy by loosening monetary policy
and running a large budget deficit will, in our opinion, mean deteriorating
long-term fundamentals for Japanese bonds. After several years of strong
performance relative to other major markets, the Japanese bond market could soon
start to underperform.
CORE EUROPEAN MARKETS: GERMANY, FRANCE, HOLLAND, BELGIUM, DENMARK
German economics continue to guide core European markets, with the notable
exception of France. Because the economies of France, Holland, Belgium and
Denmark are closely integrated with the German economy and their currencies are
tied to the German DM, their interest rates generally follow those in Germany.
The German economy continues to grow, although the rate of growth has slowed.
Personal consumption, which is a large component of the economy, has been weak
for almost three years and inflation continues to trend down. Since the
beginning of 1994, the German mark has been strong against the U.S. dollar and
on a trade-weighted basis. For these reasons, the Bundesbank has continued to
lower short-term interest rates. The combination of falling short rates and
declining U.S. bond yields has underpinned the German bond market. With no signs
of any significant increase in growth, the Bundesbank can probably lower rates
further and German bond yields should continue to fall. If, however, U.S. bond
yields were to rise, the likelihood of a reversal in the German bond market
would, in our opinion, become significant. We believe that U.S. bond yields have
heavily influenced the direction of the German market over the last two years.
6
<PAGE>
From late August to late October, the French market significantly underperformed
other European markets as a result of investor disappointment over the French
government's budget. Analysts were concerned France would not meet the fiscal
criteria for the initial phase of European Monetary Union. The market has
rebounded strongly since President Chirac reaffirmed that the priority of his
economic policy is to cut government spending.
PERIPHERAL EUROPEAN MARKETS: ITALY, SPAIN, SWEDEN
These markets have been extremely volatile this year and performed poorly in
late 1994 and the first quarter of 1995 as a result of movements of the dollar
against the DM and yen. The dollar's weakness caused the peripheral European
currencies to fall against the mark, putting upward pressure on interest rates
in these markets. Since March, the DM has stabilized against the dollar,
allowing peripheral currencies to recover and their bond markets to rally.
Within these broad trends, Sweden has performed significantly better than the
southern European markets. Swedish inflation has remained relatively lower by a
consider-
able margin, and there has been a sharp drop in the budget deficit this year.
Going forward, we believe these markets offer significant value. We find the
underlying fundamentals are improving, while real yields remain high. Although
these economies have had severe fiscal problems in recent years, their
governments have undertaken to reduce spending, reform entitlement programs and
raise taxes where necessary. Monetary policies have been tightened in response
to rising inflation rates, which have risen more than the rest of Europe.
Moreover, their currencies are still undervalued, as evidenced by strong export
growth and expanding trade surpluses. While we believe the economic fundamentals
of these markets are a long way from being on par with the core European
markets, current valuation levels do not appear to reflect the improvements that
have occurred in the last several months.
7
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
PORTFOLIO SUMMARY
THE CHART AT RIGHT SHOWS THE PERFORMANCE OF THE G.T. GLOBAL
GOVERNMENT INCOME FUND CLASS A SHARES SINCE THE FUND'S INCEPTION VERSUS THE J.P.
MORGAN GLOBAL GOVERNMENT BOND INDEX AND THE SALOMON BROTHERS WORLD GOVERNMENT
BOND INDEX. THIS REPRESENTS A CUMULATIVE RETURN OF 63.37% AND AN AVERAGE ANNUAL
TOTAL RETURN OF 6.68%. THE CHART ASSUMES A HYPOTHETICAL $10,000 INITIAL
INVESTMENT IN THE FUND'S CLASS A SHARES AND REFLECTS ALL FUND EXPENSES AND THE
MAXIMUM 4.75% SALES CHARGE. INVESTORS SHOULD NOTE THAT THE FUND IS A
PROFESSIONALLY MANAGED MUTUAL FUND WHILE THE INDEX IS UNMANAGED, DOES NOT INCUR
EXPENSES AND IS NOT AVAILABLE FOR INVESTMENT. THE PERFORMANCE OF THE OTHER
CLASSES WILL BE GREATER OR LESS THAN THE LINE SHOWN BASED ON THE DIFFERENCES IN
CHARGES AND FEES PAID BY SHAREHOLDERS INVESTING IN DIFFERENT CLASSES.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MONTH G.T. GLOBAL GOVERNMENT INCOME FUND JP MORGAN GLOBAL GOVERNMENT BOND INDEX
<S> <C> <C>
03/29/88 9,525 10,000
03/31/88 9,525 10,022
04/30/88 9,442 9,975
05/31/88 9,299 9,868
06/30/88 9,290 9,780
07/31/88 9,256 9,704
08/31/88 9,231 9,635
09/30/88 9,379 9,875
10/31/88 9,589 10,264
11/30/88 9,721 10,353
12/31/88 9,632 10,292
01/31/89 9,722 10,190
02/28/89 9,413 10,173
03/31/89 9,468 10,087
04/30/89 9,635 10,254
05/31/89 9,664 10,143
06/30/89 9,957 10,374
07/31/89 10,350 10,787
08/31/89 10,090 10,468
09/30/89 10,168 10,633
10/31/89 10,345 10,770
11/30/89 10,424 10,866
12/31/89 10,704 10,992
01/31/90 10,543 10,829
02/28/90 10,421 10,712
03/31/90 10,400 10,646
04/30/90 10,400 10,605
05/31/90 10,610 10,944
06/30/90 10,886 11,142
07/31/90 11,283 11,470
08/31/90 11,206 11,381
09/30/90 11,206 11,487
10/31/90 11,579 11,942
11/30/90 11,655 12,151
12/31/90 11,644 12,286
01/31/91 11,904 12,565
02/28/91 11,937 12,575
03/31/91 11,868 12,182
04/30/91 11,996 12,329
05/31/91 12,090 12,340
06/30/91 11,877 12,176
07/31/91 11,913 12,433
08/31/91 12,106 12,691
09/30/91 12,519 13,155
10/31/91 12,667 13,284
11/30/91 12,667 13,501
12/31/91 13,235 14,183
01/31/92 13,045 13,905
02/29/92 13,161 13,864
03/31/92 13,007 13,737
04/30/92 13,098 13,851
05/31/92 13,267 14,244
06/30/92 13,320 14,633
07/31/92 13,613 14,955
08/31/92 13,733 15,353
09/30/92 13,357 15,338
10/31/92 13,465 14,955
11/30/92 13,313 14,690
12/31/92 13,493 14,829
01/31/93 13,715 15,080
02/28/93 14,358 15,323
03/31/93 14,414 15,558
04/30/93 14,399 15,842
05/31/93 14,627 15,943
06/30/93 15,246 15,955
07/31/93 15,536 15,962
08/31/93 16,236 16,435
09/30/93 16,119 16,608
10/31/93 16,413 16,600
11/30/93 16,325 16,479
12/31/93 16,936 16,647
01/31/94 17,084 16,804
02/28/94 15,915 16,620
03/31/94 15,453 16,543
04/30/94 15,221 16,531
05/31/94 14,818 16,394
06/30/94 14,837 16,589
07/31/94 14,887 16,744
08/31/94 14,699 16,701
09/30/94 14,734 16,785
10/31/94 14,958 17,036
11/30/94 14,906 16,821
12/31/94 14,573 16,860
01/31/95 14,732 17,201
02/28/95 15,086 17,644
03/31/95 15,478 18,542
04/30/95 15,852 18,838
05/31/95 16,208 19,364
06/30/95 16,131 19,484
07/31/95 16,145 19,577
08/31/95 15,849 19,033
09/30/95 16,120 19,461
10/31/95 16,337 19,652
<CAPTION>
MONTH SALOMON WORLD GOVERNMENT BOND INDEX
<S> <C>
03/29/88 10,000
03/31/88 10,027
04/30/88 9,978
05/31/88 9,884
06/30/88 9,669
07/31/88 9,610
08/31/88 9,502
09/30/88 9,748
10/31/88 10,198
11/30/88 10,353
12/31/88 10,248
01/31/89 10,099
02/28/89 10,106
03/31/89 9,965
04/30/89 10,097
05/31/89 9,884
06/30/89 10,082
07/31/89 10,542
08/31/89 10,188
09/30/89 10,380
10/31/89 10,467
11/30/89 10,563
12/31/89 10,692
01/31/90 10,552
02/28/90 10,389
03/31/90 10,286
04/30/90 10,254
05/31/90 10,596
06/30/90 10,790
07/31/90 11,127
08/31/90 11,040
09/30/90 11,163
10/31/90 11,662
11/30/90 11,856
12/31/90 11,973
01/31/91 12,272
02/28/91 12,276
03/31/91 11,831
04/30/91 12,013
05/31/91 11,997
06/30/91 11,872
07/31/91 12,126
08/31/91 12,361
09/30/91 12,845
10/31/91 12,980
11/30/91 13,182
12/31/91 13,868
01/31/92 13,622
02/29/92 13,546
03/31/92 13,403
04/30/92 13,497
05/31/92 13,912
06/30/92 14,301
07/31/92 14,635
08/31/92 15,045
09/30/92 15,195
10/31/92 14,782
11/30/92 14,547
12/31/92 14,634
01/31/93 14,888
02/28/93 15,181
03/31/93 15,414
04/30/93 15,739
05/31/93 15,897
06/30/93 15,863
07/31/93 15,908
08/31/93 16,387
09/30/93 16,581
10/31/93 16,553
11/30/93 16,434
12/31/93 16,574
01/31/94 16,708
02/28/94 16,598
03/31/94 16,575
04/30/94 16,594
05/31/94 16,448
06/30/94 16,685
07/31/94 16,818
08/31/94 16,760
09/30/94 16,881
10/31/94 17,152
11/30/94 16,916
12/31/94 16,963
01/31/95 17,319
02/28/95 17,762
03/31/95 18,817
04/30/95 19,166
05/31/95 19,705
06/30/95 19,821
07/31/95 19,867
08/31/95 19,185
09/30/95 19,613
10/31/95 19,759
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS+
OCTOBER 31, 1995
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE WITH SALES CHARGE++
--------------------------- ---------------------------
SHARE LIFE OF LIFE OF
CLASS 1 YEAR 5 YEAR FUND 1 YEAR 5 YEAR FUND
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A* 9.22% 7.13% 7.36% 4.03% 6.09% 6.68%
CLASS B** 8.22% N/A 5.74% 3.22% N/A 5.21%
ADVISOR
CLASS*** N/A N/A 0.83% N/A N/A N/A
</TABLE>
* The Fund began operations on March 29, 1988.
** The Fund began offering Class B shares on October 22, 1992.
*** The Fund began offering Advisor Class shares on June 1, 1995. Advisor Class
shares are not sold directly to the general public and are only available
through certain employee benefit plans, financial institutions and other
entities that have entered into specific agreements with G.T. Global. Please
see the "Alternative Purchase Plan" section in the Fund's prospectus.
+ Figures assume reinvestment of all dividends and capital gains distributions
at net asset value.
++ The performance of the Class A and Class B shares reflects the effects of
the maximum 4.75% sales charge or the maximum applicable contingent deferred
sales charge (5% in first year, decreasing to 0% after six years).
THE DATA ABOVE REPRESENT PAST PERFORMANCE OF THE FUND'S SHARES, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GEOGRAPHIC ALLOCATION OF NET ASSETS
<S> <C>
AS OF OCTOBER 31, 1995
EUROPE 52.3%
NORTH AMERICA & OTHER 31.3%
ASIA - PACIFIC 7.4%
SUPRANATIONAL 3.9%
AFRICA 3.0%
LATIN AMERICA 2.1%
</TABLE>
ALLOCATIONS WILL CHANGE BASED ON CURRENT MARKET CONDITIONS.
8
<PAGE>
GT GLOBAL
GOVERNMENT
INCOME FUND
FINANCIAL
STATEMENTS
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
ANNUAL REPORT
To the Shareholders of G.T. Global Government Income Fund and Board of Directors
of G.T. Investment Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of G.T.
Global Government Income Fund, one of the funds organized as a series of G.T.
Investment Funds, Inc., including the portfolio of investments, as of October
31, 1995, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
G.T. Global Government Income Fund as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
DECEMBER 15, 1995
F-1
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market % of Net
Fixed Income Investments Currency Amount Value Assets {d}
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (92.2%)
Australia (5.4%)
Australian Government, 7% due 4/15/00 ............... AUD 26,050,000 $ 18,926,518 3.1
New South Wales Treasury, 11.5% due 7/1/99 .......... AUD 16,662,000 13,982,148 2.3
Austria (4.9%)
Republic of Austria, 3.75% due 2/3/09 ............... JPY 2,946,000,000 30,091,224 4.9
Canada (5.1%)
Canadian Government, 8.50% due 3/1/00 ............... CAD 40,580,000 31,859,830 5.1
Denmark (3.9%)
Kingdom of Denmark, 7% due 12/15/04 ................. DKK 140,500,000 24,394,862 3.9
Finland (2.3%)
Finnish Housing Fund, 10.75% due 3/15/02 ............ FIM 53,000,000 14,529,659 2.3
France (7.7%)
French Treasury Bond (BTAN), 7% due 10/12/00 ........ FRF 231,000,000 48,033,446 7.7
Germany (6.8%)
Deutschland Republic, 6.25% due 1/4/24 .............. DEM 67,500,000 42,407,536 6.8
Italy (8.8%)
Italian Buoni Poliennali del Tesoro (BTPS):
10.5% due 4/1/05 ................................. ITL 60,500,000,000 35,704,420 5.8
9.50% due 12/1/99 ................................. ITL 31,340,000,000 18,609,601 3.0
New Zealand (2.0%)
New Zealand Government, 10% due 3/15/02 ............. NZD 16,700,000 12,570,834 2.0
South Africa (3.0%)
Republic of South Africa, 11.5% due 5/30/00 ......... ZAR 75,700,000 18,748,024 3.0
Spain (4.0%)
Kingdom of Spain, 10% due 2/28/05 ................... ESP 3,195,000,000 24,918,432 4.0
Sweden (7.6%)
Swedish Government, 13% due 6/15/01 ................. SEK 266,700,000 47,141,592 7.6
United Kingdom (6.3%)
United Kingdom Treasury:
8.5% due 12/7/05 ................................. GBP 12,000,000 19,701,280 3.2
8% due 12/7/15 ................................... GBP 12,500,000 19,521,989 3.1
United States (24.4%)
United States Treasury Note, 7.875% due 11/15/04 .... USD 68,500,000 76,891,250 12.4
United States Treasury Bond, 6.875% due 8/15/25 ..... USD 69,800,000 74,795,097 12.0
------------
Total Government & Government Agency Obligations (cost
$557,951,013) ......................................... 572,827,742
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Principal Market % of Net
Fixed Income Investments Currency Amount Value Assets {d}
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Supranational Bond (3.9%)
International Bank of Reconstruction & Development,
4.75% due 12/20/04 (cost $25,982,989) ................ JPY 2,156,300,000 $ 24,208,534 3.9
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $583,934,002) ..... 597,036,276 96.1
------------ -----
<CAPTION>
Principal Market % of Net
Short-Term Investments Currency Amount Value Assets {d}
- --------------------------------------------------------- -------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Treasury Bills (2.1%)
Mexico (2.1%)
Mexican Tesobonos, effective yield 15.73%, due
11/9/95 ............................................ USD 7,000,000 6,975,610 1.1
Mexican Cetes, effective yield 47.60%, due
1/18/96 ............................................ MXN 46,650,000 5,939,357 1.0
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $13,392,083) ......... 12,914,967 2.1
------------ -----
TOTAL INVESTMENTS (cost $597,326,085) ................... 609,951,243 98.2
Other Assets and Liabilities ............................ 11,064,585 1.8
------------ -----
NET ASSETS .............................................. $621,015,828 100.0
------------ -----
------------ -----
</TABLE>
- ----------------
{d} Percentages indicated are based on net assets of $621,015,828.
* For Federal income tax purposes, cost is $598,758,374 and
appreciation (depreciation) is as follows:
Unrealized appreciation: $ 20,143,317
Unrealized depreciation: (8,950,448)
-------------
Net unrealized appreciation: $ 11,192,869
-------------
-------------
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1995
<TABLE>
<CAPTION>
Market Value Unrealized
(U.S. Contract Delivery Appreciation
Contracts to Buy: Dollars) Price Date (Depreciation)
- ----------------------------------------------------------------------------- ------------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Deutsche Marks............................................................... 19,179,095 1.42383 11/30/95 $ 249,600
Deutsche Marks............................................................... 12,299,865 1.38974 11/30/95 (137,713)
Deutsche Marks............................................................... 12,196,684 1.41600 11/30/95 92,164
Deutsche Marks............................................................... 12,345,450 1.38179 01/24/96 (174,542)
Deutsche Marks............................................................... 17,621,881 1.39266 01/24/96 (109,654)
Danish Kroner................................................................ 1,830,563 5.77080 11/14/95 97,701
Danish Kroner................................................................ 787,142 5.43400 11/14/95 (4,172)
Spanish Pesetas.............................................................. 1,016,324 122.62500 11/07/95 5,926
Finnish Marks................................................................ 1,179,528 4.23407 12/28/95 (1,369)
French Francs................................................................ 13,368,831 5.14091 11/30/95 648,846
French Francs................................................................ 1,740,086 4.93220 12/04/95 14,285
French Francs................................................................ 4,077,070 4.95845 12/04/95 54,876
Japanese Yen................................................................. 6,134,934 99.25500 11/24/95 (169,030)
Japanese Yen................................................................. 323,729 99.53299 11/24/95 (7,990)
Swedish Krona................................................................ 5,377,185 6.64000 01/05/96 (21,911)
------------- -------------
Total Contracts to Buy (Payable amount $108,941,350)....................... 109,478,367 537,017
------------- -------------
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF NET ASSETS IS 17.63%
<CAPTION>
Contracts to Sell:
<S> <C> <C> <C> <C>
Australian Dollars........................................................... 8,734,032 1.32675 01/18/96 (119,012)
Canadian Dollars............................................................. 13,137,809 1.33941 11/20/95 2,305
Deutsche Marks............................................................... 576,389 1.41720 11/30/95 (4,840)
Danish Kroner................................................................ 14,644,502 5.51880 11/14/95 (148,597)
Danish Kroner................................................................ 1,450,721 5.75380 11/14/95 (73,370)
Spanish Pesetas.............................................................. 6,619,637 120.34000 11/07/95 86,362
Spanish Pesetas.............................................................. 6,931,343 127.61000 11/07/95 (309,605)
Finnish Marks................................................................ 16,513,387 4.35890 12/28/95 (454,290)
French Francs................................................................ 17,786,319 5.06050 11/30/95 (594,342)
French Francs................................................................ 6,711,780 5.12790 11/30/95 (309,549)
French Francs................................................................ 11,283,321 4.95714 11/30/95 (149,636)
French Francs................................................................ 12,097,168 4.90654 12/04/95 (36,340)
French Francs................................................................ 9,218,481 5.07865 12/13/95 (338,169)
French Francs................................................................ 1,205,965 4.93700 12/13/95 (10,908)
French Francs................................................................ 8,385,441 4.95600 12/18/95 (107,170)
French Francs................................................................ 619,295 4.88750 12/18/95 654
Pounds Sterling.............................................................. 1,416,935 0.63710 01/16/96 (4,295)
Pounds Sterling.............................................................. 818,673 0.63623 01/16/96 (1,363)
Pounds Sterling.............................................................. 676,980 0.63355 01/16/96 1,732
Italian Lira................................................................. 5,286,464 1,634.54999 01/11/96 (86,256)
Italian Lira................................................................. 1,915,566 1,609.59999 01/11/96 (2,047)
Italian Lira................................................................. 12,504,077 1,637.27600 01/26/96 (199,585)
Italian Lira................................................................. 12,482,507 1,640.29200 01/26/96 (221,826)
Swedish Krona................................................................ 27,973,362 7.03330 01/05/96 (1,456,649)
Swedish Krona................................................................ 7,612,992 6.80770 01/05/96 (157,280)
------------- -------------
Total Contracts to Sell (Receivable amount $201,909,070)................... 206,603,146 (4,694,076)
------------- -------------
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF NET ASSETS IS 33.27%
Total Open Forward Foreign Currency Contracts, Net......................... $(4,157,059)
-------------
-------------
</TABLE>
- --------------------------
See Note 1 to the financial statements.
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$597,326,085) (Note 1)........................... $ 609,951,243
Interest and interest withholding tax reclaims
receivable....................................... 17,932,615
Receivable for Fund shares sold................... 2,584,411
Receivable for securities sold.................... 700
Cash held as collateral for securities loaned
(Note 1)......................................... 144,235,681
-------------
Total assets.................................... 774,704,650
-------------
Liabilities:
Payable for open forward foreign currency
contracts, net (Note 1).......................... 4,157,059
Payable for Fund shares repurchased............... 3,428,606
Payable for forward foreign currency contracts --
closed (Note 1).................................. 520,441
Payable for investment management and
administration fees (Note 2)..................... 386,836
Payable for service and distribution expenses
(Note 2)......................................... 318,422
Due to custodian.................................. 303,622
Payable for printing and postage expenses......... 137,943
Payable for transfer agent fees (Note 2).......... 93,567
Payable for professional fees..................... 32,987
Payable for custodian fees (Note 1)............... 23,750
Payable for registration and filing fees.......... 22,289
Payable for fund accounting fees (Note 2)......... 13,536
Distribution payable (Note 1)..................... 8,264
Payable for Directors' fees and expenses (Note
2)............................................... 1,662
Other accrued expenses............................ 4,157
Collateral for securities loaned (Note 1)......... 144,235,681
-------------
Total liabilities............................... 153,688,822
-------------
Net assets.......................................... $ 621,015,828
-------------
-------------
Class A:
Net asset value and redemption price per share
($385,403,553 DIVIDED BY 43,758,850 shares
outstanding)....................................... $ 8.81
-------------
-------------
Maximum offering price per share
(100/95.25 of $8.81) *............................. $ 9.25
-------------
-------------
Class B:+
Net asset value and offering price per share
($235,480,993 DIVIDED BY 26,744,046 shares
outstanding)....................................... $ 8.80
-------------
-------------
Advisor Class: (Notes 1 & 4)
Net asset value, offering price per share, and
redemption price per share
($131,282 DIVIDED BY 14,914 shares outstanding).... $ 8.80
-------------
-------------
Net assets consist of:
Paid in capital (Note 4).......................... $ 758,763,464
Undistributed net investment income............... 1,761,999
Accumulated net realized loss on investments and
foreign currency transactions.................... (148,171,697)
Net unrealized depreciation on translation of
assets and liabilities in foreign currencies..... (3,963,096)
Net unrealized appreciation of investments........ 12,625,158
-------------
Total -- representing net assets applicable to
capital shares outstanding......................... $ 621,015,828
-------------
-------------
<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.
F-5
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest income (net of foreign withholding tax of $524).... $57,430,425
-----------
Total investment income................................... 57,430,425
-----------
Expenses:
Investment management and administration fees (Note 2)...... 4,946,971
Service and distribution expenses: (Note 2)
Class A.................................. $ 1,536,304
Class B.................................. 2,500,417 4,036,721
------------
Transfer agent fees (Note 2)................................ 1,094,433
Printing and postage expenses............................... 333,530
Custodian fees (Note 1)..................................... 430,398
Fund accounting fees (Note 2)............................... 175,158
Audit fees.................................................. 60,225
Legal fees.................................................. 28,150
Directors' fees and expenses (Note 2)....................... 18,450
Registration and filing fees................................ 14,457
Insurance expenses.......................................... 8,030
Other expenses.............................................. 9,855
-----------
Total expenses before reductions.......................... 11,156,378
-----------
Expense reductions (Note 1)............................. (218,967)
-----------
Total net expenses........................................ 10,937,411
-----------
Net investment income......................................... 46,493,014
-----------
Net realized and unrealized gain (loss) on
investments and foreign currencies: (Note 1)
Net realized gain on investments........... 21,102,232
Net realized loss on foreign currency
transactions.............................. (25,567,655)
------------
Net realized loss during the year......................... (4,465,423)
Net change in unrealized depreciation on
translation of assets and liabilities in
foreign currencies........................ 3,260,081
Net change in unrealized appreciation of
investments............................... 12,089,374
------------
Net unrealized appreciation during the year............... 15,349,455
-----------
Net realized and unrealized gain on investments and foreign
currencies................................................... 10,884,032
-----------
Net increase in net assets resulting from operations.......... $57,377,046
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
----------------- -----------------
Decrease in net assets
<S> <C> <C>
Operations:
Net investment income...................... $ 46,493,014 $ 59,484,891
Net realized loss on investments and
foreign currency transactions............. (4,465,423) (146,390,203)
Net change in unrealized appreciation
(depreciation) on translation of assets
and liabilities in foreign currencies..... 3,260,081 (5,037,165)
Net change in unrealized appreciation
(depreciation) of investments............. 12,089,374 (996,786)
----------------- -----------------
Net increase (decrease) in net assets
resulting from operations............... 57,377,046 (92,939,263)
Class A:
Distributions to shareholders: (Note 1)
From net investment income................. (29,604,447) (44,148,920)
From net realized gain on investments...... 0 (17,627,677)
In excess of net realized gain on
investments............................... 0 (35,374,886)
Return of capital.......................... 0 (6,291,488)
Class B:
Distributions to shareholders: (Note 1)
From net investment income................. (15,123,091) (16,256,126)
From net realized gain on investments...... 0 (5,517,894)
In excess of net realized gain on
investments............................... 0 (11,171,017)
Return of capital.......................... 0 (2,097,163)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income................. (3,476) 0
----------------- -----------------
Total distributions...................... (44,731,014) (138,485,171)
----------------- -----------------
Capital share transactions: (Note 4)
Increase from capital shares sold and
reinvested................................ 359,717,885 544,282,723
Decrease from capital shares repurchased... (515,847,692) (439,631,119)
----------------- -----------------
Net increase (decrease) from capital
share transactions...................... (156,129,807) 104,651,604
----------------- -----------------
Total decrease in net assets................. (143,483,775) (126,772,830)
Net assets:
Beginning of year.......................... 764,499,603 891,272,433
----------------- -----------------
End of year................................ $ 621,015,828 $ 764,499,603
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share
outstanding, total investment return, ratios and supplemental data. This
information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A+
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
1995(D) 1994(D) 1993(D) 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.63 $ 11.07 $ 9.83 $ 10.29 $ 10.46
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income................. 0.62 0.65 0.74 0.92 0.99
Net realized and unrealized gain
(loss) on investments................ 0.15 (1.52) 1.34 (0.31) (0.07)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from
investment operations.............. 0.77 (0.87) 2.08 0.61 0.92
----------- ----------- ----------- ----------- -----------
Distributions to shareholders:
From net investment income............ (0.59) (0.65) (0.74) (0.83) (1.00)
From net realized gain on
investments.......................... 0.00 (0.27) 0.00 (0.13) (0.09)
In excess of net realized gain on
investments.......................... 0.00 (0.55) 0.00 0.00 0.00
Return of capital..................... 0.00 (0.10) 0.00 0.00 0.00
From sources other than net investment
income............................... 0.00 0.00 (0.10) (0.11) 0.00
----------- ----------- ----------- ----------- -----------
Total distributions................. (0.59) (1.57) (0.84) (1.07) (1.09)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period.......... $ 8.81 $ 8.63 $ 11.07 $ 9.83 $ 10.29
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total investment return (c)............. 9.22% (8.87)% 21.9% 6.3% 9.4%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 385,404 $ 502,094 $ 708,301 $ 623,387 $ 399,200
Ratio of net investment income to
average net assets..................... 6.98% 6.87% 7.1% 9.0% 9.5%
Ratio of expenses to average net assets:
With expense reductions (Note 1)...... 1.35% 1.33% 1.4% 1.6% 1.6%
Without expense reductions............ 1.38% --%* --%* --%* --%*
Portfolio turnover rate++++............. 385% 625% 495% 351% 326%
</TABLE>
- ----------------
(a) Not annualized.
(b) Annualized.
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon weighted
average shares outstanding during the year.
+ All capital shares issued and outstanding as of October 21, 1992 were
reclassified as Class A shares.
++ Commencing October 22, 1992, the Fund began offering Class B shares.
+++ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++++ Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
* Calculation of "Ratio of expenses to average net assets" was made
without considering the effect of expense reductions, if any.
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS (CONT'D)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share
outstanding, total investment return, ratios and supplemental data. This
information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B++ ADVISOR
-------------------------------------------------------- CLASS+++
-------------
YEAR ENDED OCTOBER 22, 1992 JUNE 1, 1995
OCTOBER 31, TO TO
------------------------------------- OCTOBER 31, OCTOBER 31,
1995(D) 1994(D) 1993(D) 1992 1995(D)
----------- ----------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.64 $ 11.07 $ 9.83 $ 9.87 $ 8.98
----------- ----------- ----------- ------- -------------
Income from investment operations:
Net investment income................. 0.55 0.59 0.67 0.02 0.26
Net realized and unrealized gain
(loss) on investments................ 0.14 (1.52) 1.34 (0.06) (0.19)
----------- ----------- ----------- ------- -------------
Net increase (decrease) from
investment operations.............. 0.69 (0.93) 2.01 (0.04) 0.07
----------- ----------- ----------- ------- -------------
Distributions to shareholders:
From net investment income............ (0.53) (0.59) (0.67) 0.00 (0.25)
From net realized gain on
investments.......................... 0.00 (0.27) 0.00 0.00 0.00
In excess of net realized gain on
investments.......................... 0.00 (0.54) 0.00 0.00 0.00
Return of capital..................... 0.00 (0.10) 0.00 0.00 0.00
From sources other than net investment
income............................... 0.00 0.00 (0.10) 0.00 0.00
----------- ----------- ----------- ------- -------------
Total distributions................. (0.53) (1.50) (0.77) 0.00 (0.25)
----------- ----------- ----------- ------- -------------
Net asset value, end of period.......... $ 8.80 $ 8.64 $ 11.07 $ 9.83 $ 8.80
----------- ----------- ----------- ------- -------------
----------- ----------- ----------- ------- -------------
Total investment return (c)............. 8.22% (9.39)% 21.1% (0.4)%(a) 0.83%(a)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 235,481 $ 262,405 $ 182,972 $ 2,624 $ 131
Ratio of net investment income to
average net assets..................... 6.33% 6.22% 6.5% 8.0%(b) 7.33%(b)
Ratio of expenses to average net assets:
With expense reductions (Note 1)...... 2.00% 1.98% 2.0% 1.9%(b) 1.00%(b)
Without expense reductions............ 2.03% --%* --%* --%* 1.03%(b)
Portfolio turnover rate++++............. 385% 625% 495% 351% 385%
</TABLE>
- ----------------
(a) Not annualized.
(b) Annualized.
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon weighted
average shares outstanding during the year.
+ All capital shares issued and outstanding as of October 21, 1992 were
reclassified as Class A shares.
++ Commencing October 22, 1992, the Fund began offering Class B shares.
+++ Commencing June 1, 1995, the Fund began offering Advisor Class shares.
++++ Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
* Calculation of "Ratio of expenses to average net assets" was made
without considering the effect of expense reductions, if any.
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
NOTES TO
FINANCIAL STATEMENTS
October 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
G.T. Global Government Income Fund ("Fund") is a separate series of G.T.
Investment Funds, Inc. ("Company"). The Company is organized as a Maryland
corporation and is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as a non-diversified, open-end management investment
company. The Company has twelve 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. The Fund
commenced sale of Advisor Class shares on June 1, 1995. 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 following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. The
policies are in conformity with generally accepted accounting principles.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of and completes orders to purchase,
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Equity securities are valued at the last sale price on the exchange on which
such securities are traded, or on the principal over-the-counter market on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange determined by G.T. Capital Management,
Inc. ("G.T. Capital") 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 G.T.
Capital 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
Company's Board of Directors.
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 Company's Board of Directors.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. Dollars. The market
values of foreign securities, currency holdings, other assets and liabilities
are recorded in the books and records of the Fund after translation to U.S.
dollars based on the exchange rates on that day. The cost of each security is
determined using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized
F-10
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
between the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains or losses arise
from changes in the value of assets and liabilities other than investments in
securities at year end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, 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 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
amounts 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
contracts 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. 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 portfolio hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities or other liquid, high-grade debt 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 bond 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
F-11
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
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 bond 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, 1995, securities with an aggregate value of approximately
$135,853,476 were on loan to brokers. The loans were secured by cash collateral
of $144,235,681.
For international securities, cash collateral is received by the Fund against
loaned securities in an amount at least equal to 105% of the market value of the
loaned securities at the inception of each loan. This collateral must be
maintained at not less than 103% of the market value of the loaned securities
during the period of the loan. For domestic securities, cash collateral is
received by the Fund against loaned securities in the amount at least equal to
102% of the market value of the loaned securities at the inception of each loan.
This collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. For the year ended October
31, 1995, the Fund received $218,967 of income from securities lending which was
used to offset the Fund's custody expenses.
(I) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund currently has a capital loss carryforward of
$161,242,885, of which $145,497,299 expires in 2002, and $15,745,586 expires in
2003.
(J) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(K) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the 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.
2. RELATED PARTIES
G.T. Capital is the Fund's investment manager and administrator. The Fund pays
investment management and administration fees to G.T. Capital at the annualized
rate of 0.725% on the first $500 million of average daily net assets of the
Fund; 0.70% on the
F-12
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
next $1 billion; 0.675% on the next $1 billion and 0.65% on amounts thereafter.
These fees are computed daily and paid monthly, and are subject to reduction in
any year to the extent that the Fund's expenses (exclusive of brokerage
commissions, taxes, interest, distribution-related expenses and extraordinary
expenses) exceed the most stringent limits prescribed by the laws or regulations
of any state in which the Fund's shares are offered for sale, based on the
average total net asset value of the Fund.
G.T. Global Financial Services, Inc. ("G.T. Global"), an affiliate of G.T.
Capital, serves 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. G.T. Global 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, 1995, G.T. Global retained
$58,490 of such sales charges. Purchases of Class A shares exceeding $500,000
may be subject to a contingent deferred sales charge ("CDSC") upon redemption,
in accordance with the Fund's current prospectus. G.T. Global collected CDSCs in
the amount of $56,072 for the year ended October 31, 1995. G.T. Global 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, G.T. Global 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, 1995, G.T. Global collected CDSCs in
the amount of $1,540,013. In addition, G.T. Global makes ongoing shareholder
servicing and trail commission payments to dealers whose clients hold Class B
shares.
Pursuant to Rule 12b-1 under the 1940 Act, the Company's Board of Directors has
adopted separate distribution plans with respect to the Fund's Class A shares
("Class A Plan") and Class B shares ("Class B Plan"), pursuant to which the Fund
reimburses G.T. Global for a portion of its shareholder servicing and
distribution expenses. Under the Class A Plan, the Fund may pay G.T. 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 G.T. Global's expenditures incurred in
servicing and maintaining shareholder accounts, and may pay G.T. 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 G.T. Global's expenditures incurred in providing
services as distributor. All expenses for which G.T. Global is reimbursed under
the Class A Plan will have been incurred within one year of such reimbursement.
Pursuant to the Fund's Class B Plan, the Fund may pay G.T. 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 G.T. Global's expenditures incurred in servicing and
maintaining shareholder accounts, and may pay G.T. 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 G.T. Global's expenditures incurred in providing services as
distributor. Expenses incurred under the Class B Plan in excess of 1.00%
annually may be carried forward for reimbursement in subsequent years as long as
that Plan continues in effect.
G.T. Capital and G.T. Global voluntarily have undertaken to limit the Fund's
expenses (exclusive
of brokerage commissions, taxes, interest, and extraordinary expenses) to the
maximum annual rate of 1.85%, 2.50%, and 1.50% of the average daily net assets
of the Fund's Class A, Class B, and Advisor Class shares, respectively. If
necessary, this limitation will be effected by waivers by G.T. Capital of
investment management and administration fees, waivers by G.T. Global of
payments under the Class A Plan and/or Class B Plan and/or reimbursements by
G.T. Capital or G.T. Global of portions of the Fund's other operating expenses.
G.T. Global Investor Services, Inc. ("G.T. Services"), an affiliate of G.T.
Capital and G.T. Global, is the transfer agent of the Fund.
Effective May 1, 1995, G.T. Capital has assumed the role of pricing and
accounting agent for the Fund. The monthly fee for these services to G.T.
Capital is a percentage, not to exceed 0.03% annually, of the Fund's average
daily net assets. The annual fee rate is derived by applying 0.03% to the first
$5 billion of assets of all registered mutual funds advised by G.T. Capital
("G.T. Funds") and 0.02% to the assets in excess of $5 billion and dividing the
result by the aggregate assets of the G.T. Funds. For the period ended October
31, 1995. the Fund paid fund accounting fees of $40,218 to G.T. Capital.
The Company pays each of its Directors who is not an employee, officer or
director of G.T. Capital, G.T. Global or G.T. Services $5,000 per year plus
F-13
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
$300 for each meeting of the board or any committee thereof attended by the
Director.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1995, purchases and sales of investment
securities by the Fund, other than U.S. government obligations and short-term
investments, aggregated $1,909,751,501 and $2,215,955,836, respectively.
Purchases and sales of U.S. government obligations by the Fund aggregated
$525,622,907 and $384,411,620, respectively.
4. CAPITAL SHARES
At October 31, 1995, there were 6,000,000,000 shares of the Company's common
stock authorized, at $0.0001 par value. Of this amount, 400,000,000 were
classified as shares of the Fund; 200,000,000 were classified as shares of G.T.
Global Strategic Income Fund; 200,000,000 were classified as shares of G.T.
Global Health Care Fund; 200,000,000 were classified as shares of G.T. Global
Growth & Income Fund; 200,000,000 were classified as shares of G.T. Global
Currency Fund (inactive); 200,000,000 were classified as shares of G.T. Latin
America Growth Fund; 200,000,000 were classified as shares of G.T. Global Small
Companies Fund (inactive);
400,000,000 were classified as shares of G.T. Global Telecommunications Fund;
200,000,000 were classified as shares of G.T. Global Emerging Markets Fund;
200,000,000 were classified as shares of G.T. Global Financial Services Fund;
200,000,000 were classified as shares of G.T. Global Natural Resources Fund;
200,000,000 were classified as shares of G.T. Global Infrastructure Fund;
200,000,000 were classified as shares of G.T. Global High Income Fund; and
200,000,000 were classified as shares of G.T. Global Consumer Products and
Services Fund. The shares of each of the foregoing series of the Company 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 fourteen series of the Company and
designated as Advisor Class common stock. 1,400,000,000 shares remain
unclassified. Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold............................................................... 17,764,859 $ 154,603,577 19,001,277 $ 188,254,231
Shares issued in connection with reinvestment of distributions............ 2,042,839 17,630,697 5,879,273 57,782,308
----------- ------------- ----------- -------------
19,807,698 172,234,274 24,880,550 246,036,539
Shares repurchased........................................................ (34,203,619) (297,666,599) (30,701,436) (286,176,445)
----------- ------------- ----------- -------------
Net decrease.............................................................. (14,395,921) $(125,432,325) (5,820,886) $ (40,139,906)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
-------------------------- --------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold............................................................... 20,700,346 $ 178,801,868 28,653,167 $ 277,906,482
Shares issued in connection with reinvestment of distributions............ 1,005,589 8,536,817 2,091,794 20,339,702
----------- ------------- ----------- -------------
21,705,935 187,338,685 30,744,961 298,246,184
Shares repurchased........................................................ (25,343,381) (218,171,165) (16,898,465) (153,454,674)
----------- ------------- ----------- -------------
Net increase (decrease)................................................... (3,637,446) $ (30,832,480) 13,846,496 $ 144,791,510
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 1, 1995
(COMMENCEMENT OF SALE OF
SHARES) TO OCTOBER 31,
1995
--------------------------
ADVISOR CLASS: SHARES AMOUNT
----------- -------------
<S> <C> <C> <C> <C>
Shares sold............................................................... 15,659 $ 141,450
Shares issued in connection with reinvestment of distributions............ 397 3,476
----------- -------------
16,056 144,926
Shares repurchased........................................................ (1,142) (9,928)
----------- -------------
Net increase.............................................................. 14,914 $ 134,998
----------- -------------
----------- -------------
</TABLE>
F-14
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
5. COVERED CALL OPTIONS WRITTEN:
The Fund's written options contracts activity for the year ended October 31,
1995 was as follows:
<TABLE>
<CAPTION>
UNDERLYING NOMINAL
AMOUNT IN USD PREMIUMS
-------------------- ------------
<S> <C> <C>
Options outstanding at October 31, 1994............................................... 0 $ 0
Options written....................................................................... 69,420,000 319,332
Options cancelled in closing purchase transactions ($819,156 loss realized)........... (69,420,000) (319,332)
Options expired prior to exercise..................................................... 0 0
Options exercised..................................................................... 0 0
-------------------- ------------
Options outstanding at October 31, 1995............................................... 0 $ 0
-------------------- ------------
-------------------- ------------
</TABLE>
6. SUBSEQUENT EVENT:
Effective January 1, 1996, as part of a unified corporate identity effort, the
name of the BIL GT Group (of which G.T. Capital is a member) will be changed to
Liechtenstein Global Trust ("LGT"). The Fund's (or Portfolio's) investment
manager and administrator, currently named G.T. Capital Management, Inc., will
be changed to "LGT Asset Management, Inc.", and G.T. Global Financial Service,
Inc., which serves as the Fund's distributor, will be known as "GT Global, Inc."
F-15
<PAGE>
G.T. GLOBAL GOVERNMENT INCOME FUND
NOTES
- --------------------------------------------------------------------------------
<PAGE>
GT GLOBAL GOVERNMENT INCOME FUND
[LOGO]
GT GLOBAL MUTUAL FUNDS
GT GLOBAL OFFERS A BROAD RANGE OF MUTUAL FUNDS TO COMPLEMENT MANY INVESTORS'
PORTFOLIOS. FOR MORE INFORMATION AND A PROSPECTUS ON ANY OF THE GT GLOBAL
MUTUAL FUNDS, PLEASE CONTACT YOUR INVESTMENT COUNSELOR OR CALL GT GLOBAL
DIRECTLY AT 1-800-824-1580. THE PROSPECTUS CONTAINS MORE COMPLETE
INFORMATION, INCLUDING CHARGES, EXPENSES AND RISKS. INVESTORS SHOULD READ
THE PROSPECTUS CAREFULLY BEFORE INVESTING.
GROWTH FUNDS
/ / GLOBALLY DIVERSIFIED FUNDS
GT GLOBAL WORLDWIDE GROWTH FUND
Invests around the world, including the U.S.
GT GLOBAL INTERNATIONAL GROWTH FUND
Provides portfolio diversity by investing outside
the U.S.
GT GLOBAL EMERGING MARKETS FUND
Gives access to the growth potential of developing economies
/ / GLOBAL THEME FUNDS
GT GLOBAL HEALTH CARE FUND
Invests in growing health care industries worldwide
GT GLOBAL TELECOMMUNICATIONS FUND
Invests in companies worldwide that develop, manufacture, or sell
telecommunications services or equipment
GT GLOBAL INFRASTRUCTURE FUND
Seeks companies that build, improve, or maintain a country's infrastructure
GT GLOBAL FINANCIAL SERVICES FUND
Focuses on the worldwide opportunities from the demand for financial services
and products
GT GLOBAL NATURAL RESOURCES FUND
Concentrates on companies that own, explore, or develop natural resources
GT GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
Invests in companies that manufacture, market, retail, or distribute consumer
products or services
/ / REGIONALLY DIVERSIFIED FUNDS
GT GLOBAL NEW PACIFIC GROWTH FUND
Offers access to the emerging and established markets of the Pacific Rim
GT GLOBAL EUROPE GROWTH FUND
Focuses on investment opportunities in the new, unified Europe
GT GLOBAL LATIN AMERICA GROWTH FUND
Invests in the emerging markets of Latin America
/ / SINGLE COUNTRY FUNDS
GT GLOBAL AMERICA GROWTH FUND
Concentrates on small and medium-sized companies in the U.S.
GT GLOBAL AMERICA SMALL CAP GROWTH FUND
Invests in equity securities of small U.S. domiciled companies
GT GLOBAL AMERICA VALUE FUND
Concentrates on large cap equity securities of U.S. companies believed to be
undervalued
GT GLOBAL JAPAN GROWTH FUND
Provides U.S. investors with direct access to the Japanese market
GROWTH AND INCOME FUND
GT GLOBAL GROWTH & INCOME FUND
Invests in blue-chip stocks and government bonds from around the world
INCOME FUNDS
GT GLOBAL GOVERNMENT INCOME FUND
Earns monthly income from global government securities
GT GLOBAL STRATEGIC INCOME FUND
Allocates its assets among debt securities from the U.S., developed foreign
countries and emerging markets
GT GLOBAL HIGH INCOME FUND
Invests in debt securities in emerging markets
MONEY MARKET FUND
GT GLOBAL DOLLAR FUND
Invests in high quality, U.S. dollar-denominated money market securities
worldwide for stability and preservation of capital
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS.
<PAGE>
[LOGO]
GT Global, Inc.
Fifty California Street
27th Floor
San Francisco, California
94111-4624
DATED MATERIAL
PLEASE EXPEDITE
