<PAGE>
GT GLOBAL INCOME FUNDS
PROSPECTUS -- MARCH 1, 1997
- --------------------------------------------------------------------------------
GT GLOBAL GOVERNMENT INCOME FUND ("GOVERNMENT INCOME FUND") seeks a high level
of current income by investing primarily in high quality U.S. and foreign
government debt securities. The Fund's secondary objectives are capital
appreciation and protection of principal through active management of its
maturity structure and currency exposure.
GT GLOBAL STRATEGIC INCOME FUND ("STRATEGIC INCOME FUND") primarily seeks high
current income and secondarily seeks capital appreciation. The Fund allocates
its assets among debt securities of issuers in: (1) the United States; (2)
developed foreign countries; and (3) emerging markets.
GT GLOBAL HIGH INCOME FUND ("HIGH INCOME FUND") primarily seeks high current
income and secondarily seeks capital appreciation by investing all of its
investable assets in the Global High Income Portfolio ("Portfolio"), which, in
turn, invests primarily in the debt securities of issuers located in emerging
markets. The Portfolio's investment objectives are identical to those of the
Fund.
Individually, a "Fund" and, collectively, the "Funds."
There can be no assurance that any Fund or the Portfolio will achieve its
investment objectives. The investment experience of the High Income Fund will
correspond directly with the investment experience of the Portfolio.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY,
ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
The Funds and the Portfolio are managed and/or administered by Chancellor LGT
Asset Management, Inc. (the "Manager"). The Manager and its worldwide affiliates
are part of Liechtenstein Global Trust, a provider of global asset management
and private banking products and services to individual and institutional
investors.
The Funds are designed for long-term investors and not as trading vehicles, do
not represent a complete investment program and are not suitable for all
investors. An investment in any of the Funds involves risk factors that should
be reviewed carefully by potential investors. The Strategic Income Fund and the
Portfolio both are authorized to borrow money for investment purposes, which
would increase the volatility of their performance and involves additional
risks. See "Investment Objectives and Policies" and "Risk Factors."
THE STRATEGIC INCOME FUND INVESTS UP TO 50% OF ITS TOTAL ASSETS, AND THE GLOBAL
HIGH INCOME PORTFOLIO INVESTS UP TO 100% OF ITS TOTAL ASSETS, IN LOWER QUALITY
AND UNRATED FOREIGN GOVERNMENT BONDS WHOSE CREDIT QUALITY IS GENERALLY
CONSIDERED THE EQUIVALENT OF U.S. CORPORATE DEBT SECURITIES COMMONLY KNOWN AS
"JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS OF
PRINCIPAL AND INTEREST. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED
WITH AN INVESTMENT IN THESE FUNDS. SEE "INVESTMENT OBJECTIVES AND POLICIES" AND
"RISK FACTORS."
This Prospectus sets forth concisely information an investor should know before
investing and should be read carefully and retained for future reference. A
Statement of Additional Information, dated March 1, 1997, has been filed with
the Securities and Exchange Commission ("SEC") and, as supplemented or amended
from time to time, is incorporated herein by reference. The Statement of
Additional Information is available without charge by writing to the Funds at 50
California Street, 27th Floor, San Francisco, California 94111, or by calling
(800) 824-1580.
FOR FURTHER INFORMATION, CALL (800) 824-1580 OR CONTACT YOUR FINANCIAL ADVISER.
[LOGO]
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Page 1
<PAGE>
GT GLOBAL INCOME FUNDS
TABLE OF CONTENTS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary........................................................................ 3
Financial Highlights...................................................................... 7
Alternative Purchase Plan................................................................. 13
Investment Objectives and Policies........................................................ 14
Risk Factors.............................................................................. 24
How to Invest............................................................................. 29
How to Make Exchanges..................................................................... 36
How to Redeem Shares...................................................................... 37
Shareholder Account Manual................................................................ 40
Calculation of Net Asset Value............................................................ 41
Dividends, Other Distributions and Federal Income Taxation................................ 41
Management................................................................................ 43
Other Information......................................................................... 47
Appendix A -- Description of Debt Ratings................................................. 50
</TABLE>
Prospectus Page 2
<PAGE>
GT GLOBAL INCOME FUNDS
PROSPECTUS SUMMARY
- ------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information appearing in the body of this Prospectus.
<TABLE>
<S> <C> <C>
The Funds and the Portfolio: Each Fund is a non-diversified series of G.T. Investment Funds,
Inc. (the "Company"). The Portfolio is a non-diversified, open-end
management investment company.
Investment Objectives: The Government Income Fund primarily seeks high current income and
secondarily seeks capital appreciation and protection of
principal. The Strategic Income Fund and the High Income Fund
primarily seek high current income and secondarily seek capital
appreciation.
Principal Investments: The Government Income Fund invests primarily in high quality U.S.
and foreign government debt obligations.
The Strategic Income Fund allocates its assets among debt
securities of issuers in: (1) the United States; (2) developed
foreign countries; and (3) emerging markets, and selects
particular securities in each sector based on their relative
investment merit.
The High Income Fund invests all of its investable assets in the
Portfolio, which, in turn, invests primarily in debt securities of
issuers located in emerging markets.
Principal Risk Factors: There is no assurance that the Funds or the Portfolio will achieve
their investment objectives. Each Fund's net asset value will
fluctuate, reflecting fluctuations in the market value of its or
its corresponding Portfolio's portfolio holdings. The value of
debt securities held by the Government Income Fund, the Strategic
Income Fund and the Portfolio generally fluctuates inversely with
interest rate movements.
The Government Income Fund, the Strategic Income Fund and the
Portfolio will invest in foreign securities. Investments in
foreign securities involve risks relating to political and
economic developments abroad and the differences between the
regulations to which U.S. and foreign issuers are subject.
Individual foreign economies also may differ favorably or unfavor-
ably from the U.S. economy. Changes in foreign currency exchange
rates will affect a Fund's or the Portfolio's net asset value,
earnings and gains and losses realized on sales of securities.
Securities of foreign companies may be less liquid and their
prices more volatile than those of securities of comparable U.S.
companies. The Portfolio will normally invest at least 65% of its
total assets in debt securities of issuers in emerging markets and
the Strategic Income Fund may invest in such securities. Such
investments entail greater risks than investing in securities of
issuers in developed markets.
The Government Income Fund, the Strategic Income Fund and the
Portfolio may engage in certain foreign currency, options and
futures transactions to attempt to hedge against the overall level
of investment and currency risk associated with its present or
planned investments. Such transactions involve certain risks and
transaction costs.
</TABLE>
Prospectus Page 3
<PAGE>
GT GLOBAL INCOME FUNDS
PROSPECTUS SUMMARY
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Strategic Income Fund may invest up to 50% of its total
assets, and the Portfolio may invest up to 100% of its total
assets, in debt securities rated below investment grade or, if not
rated, determined by the Manager to be of comparable quality.
Investments of this type are subject to greater risk of loss of
principal and interest.
See "Investment Objectives and Policies" and "Risk Factors."
Investment Manager: The Manager is part of Liechtenstein Global Trust, a provider of
global asset management and private banking products and services
to individual and institutional investors, entrusted with
approximately $84 billion in total assets as of December 31, 1996.
The Manager and its worldwide asset management affiliates maintain
fully staffed investment offices in Frankfurt, Hong Kong, London,
New York, San Francisco, Singapore, Sydney, Tokyo and Toronto. See
"Management."
Alternative Purchase Plan: Investors may select Class A or Class B shares, each subject to
different expenses and a different sales charge structure.
Class A Shares: Offered at net asset value plus any applicable sales charge
(maximum is 4.75% of public offering price) and subject to service
and distribution fees at the annualized rate of up to 0.35% of the
average daily net assets of each Fund's Class A shares.
Class B Shares: Offered at net asset value (a maximum contingent deferred sales
charge of 5% of the lesser of the shares' net asset value or the
original purchase price is imposed on certain redemptions made
within six years of date of purchase) and subject to service and
distribution fees at the annualized rate of up to 1.00% of the
average daily net assets of each Fund's Class B shares.
Shares Available Through: Class A and Class B shares of each Fund's common stock are
available through broker/dealers who have entered into agreements
to sell shares with the Funds' distributor, GT Global, Inc. ("GT
Global"). Shares also may be acquired directly through GT Global
or through exchanges of shares of the other GT Global Mutual
Funds, which are open-end management investment companies advised
and/or administered by the Manager. See "How to Invest" and
"Shareholder Account Manual."
Exchange Privileges: Shares of a class of a Fund may be exchanged without a sales
charge for shares of the corresponding class of other GT Global
Mutual Funds. See "How to Make Exchanges" and "Shareholder Account
Manual."
Redemptions: Shares may be redeemed either through broker/dealers or the Funds'
transfer agent, GT Global Investor Services, Inc. ("Transfer
Agent"). See "How to Redeem Shares" and "Shareholder Account
Manual."
Dividends and Other Dividends are paid monthly from net investment income; other
Distributions: distributions are paid annually from net short term capital gain,
net capital gain and net gains from foreign currency transactions,
if any.
Reinvestment: Dividends and other distributions may be reinvested automatically
in Fund shares of the distributing class or in shares of the
corresponding class of other GT Global Mutual Funds without a
sales charge.
</TABLE>
Prospectus Page 4
<PAGE>
GT GLOBAL INCOME FUNDS
PROSPECTUS SUMMARY
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
First Purchase: $500 minimum ($100 for individual retirement accounts ("IRAs") and
reduced amounts for certain other retirement plans).
Subsequent Purchases: $100 minimum (reduced amounts for IRAs and certain other
retirement plans).
Net Asset Values: Class A and Class B shares of the Funds are quoted daily in the
financial section of most newspapers.
Other Features:
Class A Shares Letter of Intent Reinstatement Privilege
Quantity Discounts Systematic Withdrawal Plan
Right of Accumulation Automatic Investment Plan
Portfolio Rebalancing Program Dollar Cost Averaging Program
Class B Shares Reinstatement Privilege Automatic Investment Plan
Systematic Withdrawal Plan Dollar Cost Averaging Program
Portfolio Rebalancing Program
</TABLE>
Prospectus Page 5
<PAGE>
GT GLOBAL INCOME FUNDS
PROSPECTUS SUMMARY
(Continued)
- --------------------------------------------------------------------------------
SUMMARY OF INVESTOR COSTS. The expenses and maximum transaction costs associated
with investing in the Class A and Class B shares of the Funds are reflected in
the following tables (1):
<TABLE>
<CAPTION>
GOVERNMENT STRATEGIC INCOME HIGH INCOME
INCOME FUND FUND FUND
---------------- ---------------- ----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION COSTS (2):
Maximum sales charge on purchases of shares (as a % of
offering price).......................................... 4.75% None 4.75% None 4.75% None
Sales charges on reinvested distributions to
shareholders............................................. None None None None None None
Maximum deferred sales charge (as a % of net asset value at
time of purchase or sale, whichever is less)............. None 5.00% None 5.00% None 5.00%
Redemption charges......................................... None None None None None None
Exchange fees:
-- On first four exchanges each year..................... None None None None None None
-- On each additional exchange........................... $7.50 $7.50 $7.50 $7.50 $7.50 $7.50
ANNUAL FUND OPERATING EXPENSES (3):
(AS A % OF AVERAGE NET ASSETS)
Investment management and administration fees.............. 0.72% 0.72% 0.72% 0.72% 0.99% 0.99%
12b-1 distribution and service fees........................ 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other expenses............................................. 0.32% 0.32% 0.33% 0.33% 0.35% 0.35%
------- ------- ------- ------- ------- -------
Total Fund Operating Expenses.............................. 1.39% 2.04% 1.40% 2.05% 1.69% 2.34%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
HYPOTHETICAL EXAMPLE OF EFFECT OF EXPENSES:
An investor would have directly or indirectly paid the following expenses at the
end of the periods shown on a $1,000 investment in the Funds, assuming a 5%
annual return:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Government Income Fund
Class A Shares (4)..................................................................... $61 $90 $121 $209
Class B Shares
Assuming a complete redemption at end of period (5).................................. $71 $95 $131 $240
Assuming no redemption............................................................... $21 $65 $111 $240
Strategic Income Fund
Class A Shares (4)..................................................................... $61 $90 $122 $210
Class B Shares
Assuming a complete redemption at end of period (5).................................. $71 $95 $132 $241
Assuming no redemption............................................................... $21 $65 $112 $241
High Income Fund
Class A Shares (4)..................................................................... $64 $99 $136 $241
Class B Shares
Assuming a complete redemption at end of period (5).................................. $74 $104 $147 $271
Assuming no redemption............................................................... $24 $74 $127 $271
</TABLE>
- --------------
(1) THESE TABLES ARE INTENDED TO ASSIST INVESTORS IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES ASSOCIATED WITH INVESTING IN A FUND. Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. rules regarding investment companies. THE "HYPOTHETICAL
EXAMPLE" IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. THE FUNDS' AND
THE PORTFOLIO'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
tables and the assumption in the Hypothetical Example of a 5% annual return
are required by regulation of the SEC applicable to all mutual funds; the 5%
annual return is not a prediction of and does not represent the Funds' or
the Portfolio's projected or actual performance.
(2) Sales charge waivers are available for Class A and Class B shares, and
reduced sales charge purchase plans are available for Class A shares. The
maximum 5% contingent deferred sales charge on Class B shares applies to
redemptions during the first year after purchase. The charge generally
declines by 1% annually thereafter, reaching zero after six years. See "How
to Invest."
(3) Expenses are based on the Funds' fiscal year ended October 31, 1996. "Other
expenses" include custody, transfer agency, legal, audit and other operating
expenses. See "Management" herein and the Statement of Additional
Information for more information. The Funds also offer Advisor Class shares
to certain categories of investors. See "Alternative Purchase Plan." Advisor
Class shares are not subject to 12b-1 distribution and service fees. The
Board of Directors of the Company believes that the aggregate per share
expenses of the High Income Fund and the Portfolio will be less than or
approximately equal to the expenses which the Fund would incur if the assets
of that Fund were invested directly in the type of securities being held by
the Portfolio.
(4) Assumes payment of maximum sales charge by the investor.
(5) Assumes deduction of the applicable contingent deferred sales charge.
Prospectus Page 6
<PAGE>
GT GLOBAL INCOME FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below provide condensed financial information concerning income and
capital changes for one share of each class of shares of each Fund, offered
through this Prospectus, for the periods shown. For the period March 29, 1988
(commencement of operations) to October 22, 1992, the Strategic Income Fund was
named G.T. Global Bond Fund and operated under different investment objectives,
policies and limitations. This information is supplemented by the financial
statements and accompanying notes appearing in the Statement of Additional
Information. The financial statements and notes for fiscal year ended October
31, 1996 and each of the preceding four years have been audited by Coopers &
Lybrand L.L.P., independent accountants, whose report thereon also is included
in the Statement of Additional Information.
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CLASS A+
-----------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------------
1996 1995(C) 1994(c) 1993(c) 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------- --------
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 8.81 $ 8.63 $ 11.07 $ 9.83 $ 10.29 $ 10.46 $ 10.45 $ 10.86
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income......... 0.57 0.62 0.65 0.74 0.92 0.99 1.18 1.15
Net realized and unrealized
gain (loss) on investments... 0.03 0.15 (1.52) 1.34 (0.31) (0.07) (0.02) (0.35)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
resulting from investment
operations................. 0.60 0.77 (0.87) 2.08 0.61 0.92 1.16 0.80
-------- -------- -------- -------- -------- -------- -------- --------
Distributions:
From net investment income.... (0.57) (0.59) (0.65) (0.74) (0.83) (1.00) (1.15) (1.20)
From net realized gain on
investments.................. (0.10) (0.00) (0.27) (0.00) (0.13) (0.09) (0.00) (0.00)
In excess of net realized gain
on investments............... (0.00) (0.00) (0.55) (0.00) (0.00) (0.00) (0.00) (0.00)
Return of capital............. (0.00) (0.00) (0.10) (0.00) (0.00) (0.00) (0.00) (0.00)
From sources other than net
investment income............ (0.00) (0.00) (0.00) (0.10) (0.11) (0.00) (0.00) (0.01)
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions......... (0.67) (0.59) (1.57) (0.84) (1.07) (1.09) (1.15) (1.21)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period.. $ 8.74 $ 8.81 $ 8.63 $ 11.07 $ 9.83 $ 10.29 $ 10.46 $ 10.45
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total investment return(d)...... 7.11% 9.22% (8.87)% 21.9% 6.3% 9.4% 11.9% 7.2%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Ratios and supplemental data:
Net assets, end of period
(in 000's)..................... $240,945 $385,404 $502,094 $708,301 $623,387 $399,200 $259,726 $122,526
Ratio of net investment income
to average net assets.......... 6.52% 6.98% 6.87% 7.1% 9.0% 9.5% 11.4% 10.7%
Ratio of expenses to average net
assets:
With expense reductions....... 1.34% 1.35% 1.33% 1.4% 1.6% 1.6% 1.8% 1.7%
Without expense reductions.... 1.39% 1.38% --%** --%** --%** --%** --%** --%**
Portfolio turnover rate +++..... 268% 385% 625% 495% 351% 326% 334% 413%
<CAPTION>
MARCH 29, 1988
(COMMENCE-
MENT OF
OPERATIONS) TO
OCTOBER 31,
1988
--------------
Per Share Operating Performance:
<S> <C>
Net asset value, beginning of
period......................... $11.43
--------------
Income from investment
operations:
Net investment income......... 0.49*
Net realized and unrealized
gain (loss) on investments... (0.44)
--------------
Net increase (decrease)
resulting from investment
operations................. 0.05
--------------
Distributions:
From net investment income.... (0.49)
From net realized gain on
investments.................. (0.12)
In excess of net realized gain
on investments............... (0.00)
Return of capital............. (0.00)
From sources other than net
investment income............ (0.01)
--------------
Total distributions......... (0.62)
--------------
Net asset value, end of period.. $10.86
--------------
--------------
Total investment return(d)...... 1.1%(a)
--------------
--------------
Ratios and supplemental data:
Net assets, end of period
(in 000's)..................... $57,063
Ratio of net investment income
to average net assets.......... 7.41%(b)*
Ratio of expenses to average net
assets:
With expense reductions....... 1.8%(b)*
Without expense reductions.... --%**
Portfolio turnover rate +++..... 291%(b)
<FN>
- ------------------
+ All capital shares issued and outstanding as of October 21, 1992 were
reclassified as Class A shares.
+++ Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
* Net of $0.01 per share of Fund operating expenses reimbursed by the
Manager.
** Calculation of "Ratio of expenses to average net assets" was made without
considering the effect of expense reductions, if any.
(a) Not annualized.
(b) Annualized.
(c) These selected per share data were calculated based upon weighted average
shares outstanding during the period.
(d) Total investment return does not include sales charges.
</TABLE>
Prospectus Page 7
<PAGE>
GT GLOBAL INCOME FUNDS
GOVERNMENT INCOME FUND
(CONTINUED)
<TABLE>
<CAPTION>
CLASS B++
---------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------
1996 1995(C) 1994(c) 1993(c)
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................................... $ 8.80 $ 8.64 $ 11.07 $ 9.83
-------- -------- ----------- -----------
Income from investment operations:
Net investment income....................................................... 0.51 0.55 0.59 0.67
Net realized and unrealized gain (loss) on investments...................... 0.04 0.14 (1.52) 1.34
-------- -------- ----------- -----------
Net increase (decrease) resulting from investment operations.............. 0.55 0.69 (0.93) 2.01
-------- -------- ----------- -----------
Distributions:
From net investment income.................................................. (0.51) (0.53) (0.59) (0.67)
From net realized gain on investments....................................... (0.10) (0.00) (0.27) (0.00)
In excess of net realized gain on investments............................... (0.00) (0.00) (0.54) (0.00)
Return of capital........................................................... (0.00) (0.00) (0.10) (0.00)
From sources other than net investment income............................... (0.00) (0.00) (0.00) (0.10)
-------- -------- ----------- -----------
Total distributions....................................................... (0.61) (0.53) (1.50) (0.77)
-------- -------- ----------- -----------
Net asset value, end of period................................................ $ 8.74 $ 8.80 $ 8.64 $ 11.07
-------- -------- ----------- -----------
-------- -------- ----------- -----------
Total investment return(d).................................................... 6.54% 8.22% (9.39)% 21.1%
-------- -------- ----------- -----------
-------- -------- ----------- -----------
Ratios and supplemental data:
Net assets, end of period (in 000's).......................................... $166,577 $235,481 $ 262,405 $ 182,972
Ratio of net investment income to average net assets.......................... 5.87% 6.33% 6.22% 6.5%
Ratio of expenses to average net assets:
With expense reductions..................................................... 1.99% 2.00% 1.98% 2.0%
Without expense reductions.................................................. 2.04% 2.03% --%** --%**
Portfolio turnover rate +++................................................... 268% 385% 625% 495%
<CAPTION>
OCTOBER 22,
1992 TO
OCTOBER 31,
1992
-----------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................................... $ 9.87
-----------
Income from investment operations:
Net investment income....................................................... 0.02
Net realized and unrealized gain (loss) on investments...................... (0.06)
-----------
Net increase (decrease) resulting from investment operations.............. (0.04)
-----------
Distributions:
From net investment income.................................................. (0.00)
From net realized gain on investments....................................... (0.00)
In excess of net realized gain on investments............................... (0.00)
Return of capital........................................................... (0.00)
From sources other than net investment income............................... (0.00)
-----------
Total distributions....................................................... (0.00)
-----------
Net asset value, end of period................................................ $ 9.83
-----------
-----------
Total investment return(d).................................................... (0.4)%(a)
-----------
-----------
Ratios and supplemental data:
Net assets, end of period (in 000's).......................................... $ 2,624
Ratio of net investment income to average net assets.......................... 8.0%(b)
Ratio of expenses to average net assets:
With expense reductions..................................................... 1.9%(b)
Without expense reductions.................................................. --%**
Portfolio turnover rate +++................................................... 351%
</TABLE>
- ------------------
++ Commencing October 22, 1992, the Fund began offering Class B shares.
+++ Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
* Net of $0.01 per share of Fund operating expenses reimbursed by the Manager.
** Calculation of "Ratio of expenses to average net assets" was made without
considering the effect of expense reductions, if any.
(a) Not annualized.
(b) Annualized.
(c) These selected per share data were calculated based upon weighted average
shares outstanding during the period.
(d) Total investment return does not include sales charges.
Prospectus Page 8
<PAGE>
GT GLOBAL INCOME FUNDS
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
CLASS A+
--------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
1996 1995(C) 1994 1993(c) 1992 1991 1990 1989
-------- -------- -------- --------- --------- --------- --------- --------
Per Share Operating
Performance:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 10.32 $ 10.88 $ 13.61 $ 11.25 $ 10.91 $ 11.20 $ 11.17 $ 11.25
-------- -------- -------- --------- --------- --------- --------- --------
Income from investment
operations:
Net investment income..... 0.89 0.97 0.79 0.96 0.86 0.84* 1.04* 0.82*
Net realized and
unrealized gain (loss) on
investments.............. 1.44 (0.69) (2.14) 2.85 0.31 (0.02) (0.17) (0.10)
-------- -------- -------- --------- --------- --------- --------- --------
Net increase (decrease)
from investment
operations............. 2.33 0.28 (1.35) 3.81 1.17 0.82 0.87 0.72
-------- -------- -------- --------- --------- --------- --------- --------
Distributions:
From net investment
income................... (0.82) (0.80) (0.79) (0.96) (0.83) (0.60) (0.84) (0.80)
From net realized gain on
investments.............. (0.00) (0.00) (0.38) (0.37) (0.00) (0.51) (0.00) (0.00)
In excess of net
investment income........ (0.07) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Return of capital......... (0.00) (0.04) (0.21) (0.00) (0.00) (0.00) (0.00) (0.00)
From sources other than
net investment income.... (0.00) (0.00) (0.00) (0.12) (0.00) (0.00) (0.00) (0.00)
-------- -------- -------- --------- --------- --------- --------- --------
Total distributions..... (0.89) (0.84) (1.38) (1.45) (0.83) (1.11) (0.84) (0.80)
-------- -------- -------- --------- --------- --------- --------- --------
Net asset value, end of
period.................... $ 11.76 $ 10.32 $ 10.88 $ 13.61 $ 11.25 $ 10.91 $ 11.20 $ 11.17
-------- -------- -------- --------- --------- --------- --------- --------
-------- -------- -------- --------- --------- --------- --------- --------
Total investment
return(d)................. 23.00% 3.06% (10.44)% 37.0% 11.1% 7.7% 8.3% 6.8%
-------- -------- -------- --------- --------- --------- --------- --------
-------- -------- -------- --------- --------- --------- --------- --------
Ratios and supplemental
data:
Net assets, end of period
(in 000's)................ $185,126 $188,165 $275,241 $ 287,870 $ 83,849 $ 55,967 $ 44,545 $ 37,820
Ratio of net investment
income to average net
assets.................... 8.09% 9.64% 6.74% 7.2% 7.6% 7.2%* 9.6%* 7.7%*
Ratio of expenses to average
net assets:
With expense reductions... 1.38% 1.42% 1.40% 1.7% 1.8% 1.9%* 1.9%* 1.8%*
Without expense
reductions............... 1.40% 1.45% --%** --%** --%** --%** --%** --%**
Ratio of interest expenses
to average net assets..... N/A N/A 0.10% N/A N/A N/A N/A N/A
Portfolio turnover
rate+++................... 177% 238% 583% 310% 418% 630% 501% 385%
<CAPTION>
MARCH 29, 1988
(COMMENCE-
MENT OF
OPERATIONS) TO
OCTOBER 31,
1988
---------------
Per Share Operating
Performance:
<S> <C>
Net asset value, beginning
of period................. $ 11.43
---------------
Income from investment
operations:
Net investment income..... 0.45*
Net realized and
unrealized gain (loss) on
investments.............. (0.24)
---------------
Net increase (decrease)
from investment
operations............. 0.21
---------------
Distributions:
From net investment
income................... (0.39)
From net realized gain on
investments.............. (0.00)
In excess of net
investment income........ (0.00)
Return of capital......... (0.00)
From sources other than
net investment income.... (0.00)
---------------
Total distributions..... (0.39)
---------------
Net asset value, end of
period.................... $ 11.25
---------------
---------------
Total investment
return(d)................. 1.2%(a)
---------------
---------------
Ratios and supplemental
data:
Net assets, end of period
(in 000's)................ $ 21,830
Ratio of net investment
income to average net
assets.................... 7.2%*(e)
Ratio of expenses to average
net assets:
With expense reductions... 1.7%*(e)
Without expense
reductions............... --%**
Ratio of interest expenses
to average net assets..... N/A
Portfolio turnover
rate+++................... 340%(e)
</TABLE>
- ------------------
+ All capital shares issued and outstanding as of October 21, 1992 were
reclassified as Class A shares.
+++ Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
* Includes reimbursement by the Manager of Fund operating expenses of $0.01,
$0.04, $0.02 and 0.05 for the year ended October 31, 1991, 1990, 1989 and
1988, respectively. Without such reimbursements, the expense ratios would
have been 1.92%, 2.20%, 2.02% and 2.42% and the ratio of net investment
income to average net assets would have been 7.16%, 9.26%, 7.56% and 6.42%
for the year ended October 31, 1991, 1990, 1989 and 1988, respectively.
** Calculation of "Ratio of expenses to average net assets" was made without
considering the effect of expense reductions, if any.
(a) Not annualized.
(b) Ratios are not meaningful due to short period of operation of Class B
shares.
(c) These selected per share data were calculated based upon weighted average
shares outstanding during the period.
(d) Total investment return does not include sales charges.
(e) Annualized.
N/A Not applicable.
Prospectus Page 9
<PAGE>
GT GLOBAL INCOME FUNDS
STRATEGIC INCOME FUND
(CONTINUED)
<TABLE>
<CAPTION>
CLASS B++
-------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------
1996 1995(C) 1994(C) 1993(c)
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................................... $ 10.33 $ 10.88 $ 13.60 $ 11.24
------- ------- ----------- -----------
Income from investment operations:
Net investment income....................................................... 0.82 0.91 0.73 0.89
Net realized and unrealized gain (loss) on investments...................... 1.44 (0.69) (2.14) 2.85
------- ------- ----------- -----------
Net increase (decrease) from investment operations........................ 2.26 0.22 (1.41) 3.74
------- ------- ----------- -----------
Distributions:
From net investment income.................................................. (0.75) (0.73) (0.72) (0.89)
From net realized gain on investments....................................... (0.00) (0.00) (0.38) (0.37)
In excess of net investment income.......................................... (0.07) (0.00) (0.00) (0.00)
Return of capital........................................................... (0.00) (0.04) (0.21) (0.00)
From sources other than net investment income............................... (0.00) (0.00) (0.00) (0.12)
------- ------- ----------- -----------
Total distributions....................................................... (0.82) (0.77) (1.31) (1.38)
------- ------- ----------- -----------
Net asset value, end of period................................................ $ 11.77 $ 10.33 $ 10.88 $ 13.60
------- ------- ----------- -----------
------- ------- ----------- -----------
Total investment return(d).................................................... 22.15% 2.48% (11.02)% 36.2%
------- ------- ----------- -----------
------- ------- ----------- -----------
Ratios and supplemental data:
Net assets, end of period (in 000's).......................................... $338,178 $357,852 $ 458,550 $ 310,431
Ratio of net investment income to average net assets.......................... 7.44% 8.99% 6.09% 6.5%
Ratio of expenses to average net assets:
With expense reductions..................................................... 2.03% 2.07% 2.05% 2.4%
Without expense reductions.................................................. 2.05% 2.10% --%** --%**
Ratio of interest expenses to average net assets.............................. N/A N/A 0.10% N/A
Portfolio turnover rate+++.................................................... 177% 238% 583% 310%
<CAPTION>
OCTOBER 22,
1992 TO
OCTOBER 31,
1992
-----------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................................... $ 11.36
-----------
Income from investment operations:
Net investment income....................................................... 0.01
Net realized and unrealized gain (loss) on investments...................... (0.13)
-----------
Net increase (decrease) from investment operations........................ (0.12)
-----------
Distributions:
From net investment income.................................................. (0.00)
From net realized gain on investments....................................... (0.00)
In excess of net investment income.......................................... (0.00)
Return of capital........................................................... (0.00)
From sources other than net investment income............................... (0.00)
-----------
Total distributions....................................................... (0.00)
-----------
Net asset value, end of period................................................ $ 11.24
-----------
-----------
Total investment return(d).................................................... (1.1)%(a)
-----------
-----------
Ratios and supplemental data:
Net assets, end of period (in 000's).......................................... $ 533
Ratio of net investment income to average net assets.......................... N/A(b)
Ratio of expenses to average net assets:
With expense reductions..................................................... N/A(b)
Without expense reductions.................................................. --%**
Ratio of interest expenses to average net assets.............................. N/A
Portfolio turnover rate+++.................................................... 418%
</TABLE>
- ------------------
++ Commencing October 22, 1992, the Fund began offering Class B shares.
+++ Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
* Includes reimbursement by the Manager of Fund operating expenses of $0.01,
$0.04, $0.02 and 0.05 for the year ended October 31, 1991, 1990, 1989 and
1988, respectively. Without such reimbursements, the expense ratios would
have been 1.92%, 2.20%, 2.02% and 2.42% and the ratio of net investment
income to average net assets would have been 7.16%, 9.26%, 7.56% and 6.42%
for the year ended October 31, 1991, 1990, 1989 and 1988, respectively.
** Calculation of "Ratio of expenses to average net assets" was made without
considering the effect of expense reductions, if any.
(a) Not annualized.
(b) Ratios are not meaningful due to short period of operation of Class B
shares.
(c) These selected per share data were calculated based upon weighted average
shares outstanding during the period.
(d) Total investment return does not include sales charges.
(e) Annualized.
N/A Not applicable.
Prospectus Page 10
<PAGE>
GT GLOBAL INCOME FUNDS
HIGH INCOME FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
OCTOBER 22, 1992
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS)
-------------------------------------- TO OCTOBER 31,
1996 1995 1994 (c) 1993 (c) 1992
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period...................................... $ 11.70 $ 12.56 $ 14.92 $ 11.43 $11.43
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income................................................... 1.27 1.35 0.94 0.78 0.00
Net realized and unrealized gain (loss) on investments.................. 3.09 (1.09) (1.87) 3.92 0.00
-------- -------- -------- -------- -------
Net increase (decrease) from investment operations.................... 4.36 0.26 (0.93) 4.70 0.00
-------- -------- -------- -------- -------
Distributions:
From net investment income.............................................. (1.11) (1.03) (0.94) (0.78) (0.00)
From net realized gain on investments................................... (0.10) (0.03) (0.27) (0.00) (0.00)
In excess of net realized gain on investments........................... (0.00) (0.00) (0.22) (0.00) (0.00)
From sources other than net investment income........................... (0.00) (0.00) (0.00) (0.43) (0.00)
Return of capital....................................................... (0.00) (0.06) (0.00) (0.00) (0.00)
-------- -------- -------- -------- -------
Total distributions................................................... (1.21) (1.12) (1.43) (1.21) (0.00)
-------- -------- -------- -------- -------
Net asset value, end of period............................................ $ 14.85 $ 11.70 $ 12.56 $ 14.92 $11.43
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total investment return(e)................................................ 39.05% 2.81% (6.45)% 43.6% 0.0%(b)
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratios and supplemental data:
Net assets, end of period (in 000's)...................................... $178,318 $142,002 $167,974 $143,171 $ 207
Ratio of net investment income (loss) to average net assets............... 9.52% 11.85% 7.00% 6.4% N/A(d)
Ratio of expenses to average net assets................................... 1.69% 1.75% 1.57% 2.2% N/A(d)
Ratio of interest expense to average net assets........................... 0.04% N/A 0.22% N/A N/A
Portfolio turnover rate (f)............................................... 290% --% --% --% --%
</TABLE>
- ------------------
(a) Annualized.
(b) Not annualized.
(c) These selected per share data were calculated based upon weighted average
shares during the year.
(d) Ratios are not meaningful due to short period of operation.
(e) Total investment return does not include sales charges.
(f) The Fund invests only in the Portfolio and does not engage in securities
transactions. Accordingly, the portfolio turnover rates presented are for
the Portfolio.
N/A Not applicable.
Prospectus Page 11
<PAGE>
GT GLOBAL INCOME FUNDS
HIGH INCOME FUND
(CONTINUED)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
OCTOBER 22, 1992
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS)
-------------------------------------- TO OCTOBER 31,
1996 1995 1994 (c) 1993 (c) 1992
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period...................................... $ 11.69 $ 12.56 $ 14.90 $ 11.43 $11.43
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income................................................... 1.17 1.27 0.86 0.70 0.00
Net realized and unrealized gain (loss) on investments.................. 3.09 (1.09) (1.85) 3.90 0.00
-------- -------- -------- -------- -------
Net increase (decrease) from investment operations.................... 4.26 0.18 (0.99) 4.60 0.00
-------- -------- -------- -------- -------
Distributions:
From net investment income.............................................. (1.03) (0.96) (0.86) (0.70) (0.00)
From net realized gain on investments................................... (0.09) (0.03) (0.27) (0.00) (0.00)
In excess of net realized gain on investments........................... (0.00) (0.00) (0.22) (0.00) (0.00)
From sources other than net investment income........................... (0.00) (0.00) (0.00) (0.43) (0.00)
Return of capital....................................................... (0.00) (0.06) (0.00) (0.00) (0.00)
-------- -------- -------- -------- -------
Total distributions................................................... (1.12) (1.05) (1.35) (1.13) (0.00)
-------- -------- -------- -------- -------
Net asset value, end of period............................................ $ 14.83 $ 11.69 $ 12.56 $ 14.90 $11.43
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Total investment return(e)................................................ 38.16% 2.07% (6.99)% 42.6% 0.0%(b)
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Ratios and supplemental data:
Net assets, end of period (in 000's)...................................... $251,002 $214,897 $232,423 $127,035 $ 53
Ratio of net investment income (loss) to average net assets............... 8.87% 11.20% 6.35% 5.8% N/A(d)
Ratio of expenses to average net assets................................... 2.34% 2.40% 2.22% 2.8% N/A(d)
Ratio of interest expense to average net assets........................... 0.04% N/A 0.22% N/A N/A
Portfolio turnover rate (f)............................................... 290% --% --% --% --%
</TABLE>
- ------------------
(a) Annualized.
(b) Not annualized.
(c) These selected per share data were calculated based upon weighted average
shares during the year.
(d) Ratios are not meaningful due to short period of operation.
(e) Total investment return does not include sales charges.
(f) The Fund invests only in the Portfolio and does not engage in securities
transactions. Accordingly, the portfolio turnover rates presented are for
the Portfolio.
N/A Not applicable.
Prospectus Page 12
<PAGE>
GT GLOBAL INCOME FUNDS
ALTERNATIVE PURCHASE PLAN
- --------------------------------------------------------------------------------
DIFFERENCES BETWEEN THE CLASSES. The primary difference between the two classes
of each Fund's shares offered through this Prospectus lies in their sales charge
structures and ongoing expenses, as summarized below. Class A and Class B shares
of a Fund represent interests in the same Fund and have the same rights, except
that each class bears the separate expenses of its Rule 12b-1 distribution plan
and has exclusive voting rights with respect to such plan, and each class has a
separate exchange privilege. See "Management" and "How to Exchange Shares." Each
class has distinct advantages and disadvantages for different investors, and
investors should choose the class that better suits their circumstances and
objectives.
CLASS A SHARES. Class A shares of each Fund are sold at net asset value plus an
initial sales charge of up to 4.75% of the public offering price imposed at the
time of purchase. This initial sales charge is reduced or waived for certain
purchases. Purchases of $500,000 or more must be for Class A shares. Class A
shares of each Fund also bear annual service and distribution fees of up to
0.35% of the average daily net assets of that class.
CLASS B SHARES. Class B shares of each Fund are sold at net asset value with no
initial sales charge at the time of purchase. Therefore, the entire amount of an
investor's purchase payment is invested in that Fund. Class B shares bear annual
service and distribution fees of up to 1.00% of the average daily net assets of
that class, and Class B shareholders pay a contingent deferred sales charge of
up to 5% of the lesser of the original purchase price or the net asset value of
Class B shares at the time of redemption. The higher service and distribution
fees paid by the Class B shares of each Fund will cause that class to have a
higher expense ratio and to pay lower dividends per share than Class A shares of
the Fund.
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES. In deciding which class of
shares of a Fund to purchase, investors should consider the foregoing factors as
well as the following:
INTENDED HOLDING PERIOD. Over time, the cumulative expense of the 1.00% annual
service and distribution fees on a Fund's Class B shares will approximate or
exceed the expense of the applicable 4.75% maximum initial sales charge plus the
0.35% service and distribution fees on that Fund's Class A shares. For example,
if net asset value remains constant, the Class B shares' service and
distribution fees would be equal to the Class A shares' initial maximum sales
charge and service and distribution fees approximately seven years after
purchase. Thereafter, Class B shares would experience higher cumulative
expenses. Investors who expect to maintain their investment in a Fund over the
long-term but do not qualify for a reduced initial sales charge might elect the
Class A initial sales charge alternative because the indirect expense to the
shareholder of the accumulated service and distribution fees on the Class B
shares eventually will exceed the initial sales charge paid by the shareholder
plus the indirect expense to the shareholder of the accumulated service and
distribution fees of Class A shares. Class B investors, however, enjoy the
benefit of permitting all their dollars to work from the time the investments
are made. Any positive investment return on this additional invested amount
would partially or wholly offset the higher annual expenses borne by Class B
shares. Because the Funds' future returns cannot be predicted, however, there
can be no assurance that such a positive return will be achieved.
Finally, Class B shareholders pay a contingent deferred sales charge if they
redeem during the first six years after purchase, unless a sales charge waiver
applies. Investors expecting to redeem during this period should consider the
cost of the applicable contingent deferred sales charge in addition to the
annual Class B service and distribution fees, as compared with the cost of the
applicable initial sales charge and annual service and distribution fees
applicable to the Class A shares.
REDUCED SALES CHARGES. Class A share purchases of $50,000 or more and Class A
share purchases made under a Fund's reduced sales charge plans may be made at a
reduced initial sales charge. See "How to Invest" for a complete list of reduced
sales charges applicable to Class A purchases.
WAIVER OF SALES CHARGES. The entire initial sales charge on Class A shares of a
Fund is waived for
Prospectus Page 13
<PAGE>
GT GLOBAL INCOME FUNDS
certain eligible purchasers and these purchasers' entire purchase price would be
immediately invested in a Fund. Investors eligible for complete initial sales
charge waivers should purchase Class A shares. The contingent deferred sales
charge is waived for certain redemptions of Class B shares. A 1% contingent
deferred sales charge is imposed on certain redemptions of Class A shares on
which no initial sales charge was assessed.
Investors should understand that the contingent deferred sales charge on the
Class B shares and the initial sales charge on the Class A shares are both
intended to compensate GT Global and selling broker/dealers for their
distribution services. Broker/dealers may receive different levels of
compensation for selling a particular class of shares of a Fund.
See "How to Invest," "How to Redeem Shares," and "Management" for a more
complete description of the initial and contingent deferred sales charges,
service fees and distribution fees for the Class A and Class B shares of each
Fund and "Dividends, Other Distributions and Federal Income Taxation" and
"Calculation of Net Asset Value" for other differences between these two
classes.
ADVISOR CLASS SHARES. Advisor Class shares may be offered through a separate
prospectus to (a) trustees or other fiduciaries purchasing shares for employee
benefit plans which are sponsored by organizations which have at least 1,000
employees; (b) any account with assets of at least $10,000 if (i) a financial
planner, trust company, bank trust department or registered investment adviser
has investment discretion over such account, and (ii) the account holder pays
such person as compensation for its advice and other services an annual fee of
at least .50% on the assets in the account; (c) any account with assets of a
least $10,000 if (i) such account is established under a "wrap fee" program and
(ii) the account holder pays the sponsor of such program an annual fee of at
least .50% on the assets in the account; (d) accounts advised by one of the
companies composing or affiliated with Liechtenstein Global Trust; and (e) any
of the companies composing or affiliated with Liechtenstein Global Trust.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
AND POLICIES
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
The Government Income Fund seeks a high level of current income by investing
primarily in high quality debt securities of the U.S. and foreign governments,
their agencies and instrumentalities. The Fund's secondary objectives are
capital appreciation and protection of principal through active management of
its maturity structure and currency exposure.
At least 65% of the Fund's total assets normally are invested in debt
obligations issued or guaranteed by the U.S. or foreign governments (including
foreign states, provinces or municipalities) or their agencies, authorities or
instrumentalities. For purposes of this policy, the Fund considers debt
obligations of supranational entities organized or supported by several national
governments, such as the World Bank and the Asian Development Bank, to be
"government securities."
The Fund invests primarily in high quality government debt securities. "High
quality" debt securities are those rated in the top two ratings categories of
Moody's Investors Service, Inc. ("Moody's") or Standard and Poor's Ratings Group
("S&P"), or, if not rated, determined to be of comparable quality by the
Manager. A description of Moody's and S&P ratings is included in the Appendix to
this Prospectus.
The Fund currently contemplates that it will invest principally in obligations
of the United States, Canada, Japan, the Western European nations, New Zealand
and Australia, as well as in multinational currency units. Under normal market
conditions, the Fund invests in issues of not less than three different
countries; investments in the securities of any one country, other than the
United States, normally represent no more than 40% of the Fund's total assets.
The Fund will not invest in a foreign currency or in securities denominated in a
foreign currency if such currency is not at the time of investment considered by
the Manager to be fully exchangable into U.S. dollars (or a multinational
currency unit) without legal restriction.
Prospectus Page 14
<PAGE>
GT GLOBAL INCOME FUNDS
The Fund may also invest up to 35% of its total assets in: (1) foreign
government securities that are not high quality but are rated at least
"investment grade," i.e., rated within the four highest ratings categories of
Moody's or S&P or, if not rated, determined by the Manager to be of comparable
quality; (2) corporate debt obligations of U.S. or foreign issuers rated at
least investment grade by Moody's or S&P, including debt obligations convertible
into equity securities or having attached warrants or rights to purchase equity
securities; and (3) common stocks, preferred stocks and warrants to acquire such
securities, provided that the Fund will not invest more than 20% of its total
assets in such securities.
STRATEGIC INCOME FUND
The Strategic Income Fund primarily seeks high current income and secondarily
seeks capital appreciation.
The Fund invests in debt securities of issuers in: (1) the United States; (2)
developed foreign countries; and (3) emerging markets. The Fund selects debt
securities from those issued by governments, their agencies and
instrumentalities; central banks; and commercial banks and other corporate
entities. Debt securities in which the Fund may invest include bonds, notes,
debentures, and other similar instruments. The Fund normally invests at least
50% of its net assets in U.S. and foreign debt and other fixed income securities
that, at the time of purchase, are rated at least investment grade by Moody's or
S&P or, if not rated, determined by the Manager to be of comparable quality. No
more than 50% of the Fund's total assets may be invested in securities rated
below investment grade. Such securities involve a high degree of risk and are
predominantly speculative. They are the equivalent of high yield, high risk
bonds, commonly known as "junk bonds." The Fund may also invest in securities
that are in default as to payment of principal and/or interest.
The Fund's investments in emerging market securities may consist substantially
of Brady Bonds (see "General Policies -- Brady Bonds," below) and other
sovereign debt securities issued by emerging market governments that are traded
in the markets of developed countries or groups of developed countries. The
Manager may invest in debt securities of emerging market issuers that it
determines to be suitable investments for the Fund without regard to ratings.
Currently, the substantial majority of emerging market debt securities are
considered to have a credit quality below investment grade. The Fund also may
invest in below-investment grade debt securities of corporate issuers in the
United States and in developed foreign countries, subject to the overall 50%
limitation.
HIGH INCOME FUND
The High Income Fund primarily seeks high current income, and secondarily seeks
capital appreciation. The Fund seeks its objectives by investing all of its
investable assets in the Portfolio, which in turn seeks the same objectives as
the Fund by normally investing at least 65% of its total assets in debt
securities of issuers in emerging markets.
The Portfolio intends to invest in the following types of debt securities:
bonds, notes and debentures of emerging market governments; securities issued or
guaranteed by such governments' agencies or instrumentalities; securities issued
or guaranteed by the central banks of emerging market countries; and securities
issued by other banks and companies in such countries and securities denominated
in or indexed to the currencies of emerging markets. Under current market
conditions, the Portfolio expects its investments in emerging market securities
to consist substantially of Brady Bonds (see "General Policies -- Brady Bonds,"
below) and other sovereign debt securities.
The Portfolio may also invest up to 35% of its total assets in (1) equity
securities of issuers in emerging markets included in the list below under the
caption "Emerging Markets"; (2) equity and debt securities of issuers in
developed countries, including the United States; (3) securities of issuers in
emerging markets not included in the emerging markets list, if investing therein
becomes feasible and desirable subsequent to the date of this Prospectus; and
(4) cash and money market instruments. In evaluating investments in securities
of issuers in developed markets, the Manager will consider, among other things,
the business activities of the issuer in emerging markets and the impact that
developments in emerging markets are likely to have on the issuer's financial
condition.
Under normal circumstances, substantially all of the Portfolio's assets will be
invested in debt securities of both governmental and corporate issuers in
emerging markets. Emerging markets debt securities generally are considered to
have a credit quality below investment grade, as defined above. Lower quality
securities involve a high degree of risk and are predominantly speculative.
These debt securities are the equivalent of high yield, high risk bonds,
commonly known as "junk bonds." See "Risk Factors." Many emerging market debt
securities are
Prospectus Page 15
<PAGE>
GT GLOBAL INCOME FUNDS
not rated by U.S. ratings agencies such as Moody's and S&P. The Portfolio's
ability to achieve its investment objectives is thus more dependent on the
Manager's credit analysis. The Portfolio may invest in securities that are in
default as to payment of principal and/or interest.
OTHER INFORMATION REGARDING THE PORTFOLIO. As previously described, investors
should be aware that the High Income Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objectives by investing all of its investable assets in the
Portfolio, which is a separate investment company. Since the Fund will invest
only in the Portfolio, the Fund's shareholders will acquire only an indirect
interest in the investments of the Portfolio. The High Income Fund may redeem
its investment from the Portfolio at any time, if the Board of Directors of the
Company determines that it is in the best interests of the Fund and its
shareholders to do so. A change in the Portfolio's investment objectives,
policies or limitations that is not approved by the Board or the shareholders of
the High Income Fund could require the Fund to redeem its interest in the
Portfolio. Any such redemption could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for the Fund and could adversely affect the liquidity of the Fund.
Should such a distribution occur, the Fund could incur brokerage fees or other
transaction costs in converting such securities to cash. Upon redemption, the
Board would consider what action might be taken, including the investment of all
the investable assets of the Fund in another pooled investment entity having
substantially the same investment objectives as the Fund or the retention by the
Fund of its own investment advisor to manage the Fund's assets in accordance
with the investment objectives, policies and limitations discussed herein with
respect to the Portfolio.
In addition to selling its interests to the Fund, the Portfolio may sell its
interests to other non-affiliated investment companies and/or other
institutional investors. All institutional investors in the Portfolio will pay a
proportionate share of the Portfolio's expenses and will invest in the Portfolio
on the same terms and conditions. However, if another investment company invests
all of its assets in the Portfolio, it would not be required to sell its shares
at the same public offering price as the Fund and may charge different sales
commissions. Therefore, investors in the Fund may experience different returns
from investors in another investment company which invests exclusively in the
Portfolio. As of the date of this Prospectus, the High Income Fund is the only
institutional investor in the Portfolio.
Investors in the Fund should be aware that the Funds' investment in the
Portfolio may be materially affected by the actions of large investors in the
Portfolio, if any. For example, as with all open-end investment companies, if a
large investor were to redeem its interest in the Portfolio, the Portfolio's
remaining investors could experience higher pro rata operating expenses, thereby
producing lower returns. As a result, the Portfolio's security holdings may
become less diverse, resulting in increased risk. Institutional investors in the
Portfolio that have a greater pro rata ownership interest in the Portfolio than
the Fund could have effective voting control over the operation of the
Portfolio. A change in the Portfolio's fundamental objectives, policies and
restrictions, which is not approved by the shareholders of the Fund, could
require the Fund to redeem its interest in the Portfolio. Any such redemption
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution) by the Portfolio. Should such a distribution occur, the Fund
could incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund.
GENERAL POLICIES
TEMPORARY DEFENSIVE STRATEGIES. The Manager may employ a temporary defensive
investment strategy if it determines such a strategy to be warranted due to
market, economic or political conditions. Pursuant to such a defensive strategy,
the Government Income Fund, the Strategic Income Fund and the Portfolio
temporarily may hold cash (U.S. dollars, foreign currencies or multinational
currency units) and/or invest up to 100% of their respective assets in high
quality debt securities or money market instruments of U.S. or foreign issuers.
In addition, for temporary defensive purposes, most or all of the Government
Income Fund's, the Strategic Income Fund's or the Portfolio's investments may be
made in the United States and denominated in U.S. dollars. To the extent the
Funds or the Portfolio employ a temporary defensive strategy, they will not be
invested so as to achieve directly their investment objectives.
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GT GLOBAL INCOME FUNDS
In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, the Government Income Fund, the Strategic Income
Fund and the Portfolio may hold cash (U.S. dollars, foreign currencies or
multinational currency units) and may invest in high quality foreign or domestic
money market instruments.
EMERGING MARKET SECURITIES. The Strategic Income Fund and the Portfolio consider
"emerging markets" to consist of all countries determined by the Manager to have
developing or emerging economies and markets. These countries generally include
every country in the world except the United States, Canada, Japan, Australia,
New Zealand and most countries located in Western Europe. The Strategic Income
Fund and the Portfolio will consider investment in the following emerging
markets:
<TABLE>
<S> <C> <C>
Algeria Hong Kong Peru
Argentina Hungary Philippines
Bolivia India Poland
Botswana Indonesia Portugal
Brazil Israel Republic of
Bulgaria Ivory Coast Slovakia
Chile Jamaica Russia
China Jordan Singapore
Colombia Kazakhstan Slovenia
Costa Rica Kenya South Africa
Cyprus Lebanon South Korea
Czech Malaysia Sri Lanka
Republic Mauritius Swaziland
Dominican Mexico Taiwan
Republic Morocco Thailand
Ecuador Nicaragua Turkey
Egypt Nigeria Ukraine
El Salvador Oman Uruguay
Finland Pakistan Venezuela
Ghana Panama Zambia
Greece Paraguay Zimbabwe
</TABLE>
The Strategic Income Fund and the Portfolio will not be invested in all such
markets at all times. Moreover, investing in some of those markets currently may
not be desirable or feasible, due to the lack of adequate custody arrangements,
overly burdensome repatriation requirements and similar restrictions, the lack
of organized and liquid securities markets, unacceptable political risks or for
other reasons.
As used in this Prospectus and the Statement of Additional Information, an
issuer in an emerging market is an entity: (i) for which the principal
securities trading market is an emerging market, as defined above; (ii) that
(alone or on a consolidated basis) derives 50% or more of its total revenue from
either goods produced, sales made or services performed in emerging markets; or
(iii) organized under the laws of, or with a principal office in, an emerging
market.
ASSET ALLOCATION. The Government Income Fund, the Strategic Income Fund and the
Portfolio each invests in debt obligations allocated among diverse markets and
denominated in various currencies, including U.S. dollars, or in multinational
currency units such as European Currency Units. The Funds are designed for
investors who wish to accept the risks entailed in such investments, which are
different from those associated with a portfolio consisting entirely of
securities of U.S. issuers denominated in U.S. dollars. The Government Income
Fund, the Strategic Income Fund and the Portfolio may purchase securities that
are issued by the government or a company or financial institution of one
country but denominated in the currency of another country (or a multinational
currency unit).
The Manager allocates the assets of the Government Income Fund, the Strategic
Income Fund and the Portfolio in securities of issuers in countries and in
currency denominations where the combination of fixed income market returns, the
price appreciation potential of fixed income securities and currency exchange
rate movements will present opportunities primarily for high current income and
secondarily for capital appreciation (and, in the case of the Government Income
Fund, secondarily for capital appreciation and protection of principal). In so
doing, the Manager intends to take full advantage of the different yield, risk
and return characteristics that investment in the fixed income markets of
different countries can provide for U.S. investors. Fundamental economic
strength, credit quality and currency and interest rate trends are the principal
determinants of the emphasis given to various country, geographic and industry
sectors within the Government Income Fund, the Strategic Income Fund and the
Portfolio. Securities held by the Government Income Fund, the Strategic Income
Fund and the Portfolio may be invested in without limitation as to maturity.
The Manager selects securities of particular issuers on the basis of its views
as to the best values then currently available in the marketplace. Such values
are a function of yield, maturity, issue classification and quality
characteristics, coupled with expectations regarding the local and world
economies, movements in the general level and term of
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GT GLOBAL INCOME FUNDS
interest rates, currency values, political developments and variations in the
supply of funds available for investment in the world bond market relative to
the demands placed upon it.
The Manager generally evaluates currencies on the basis of fundamental economic
criteria (e.g., relative inflation, interest rate levels and trends, growth rate
forecasts, balance of payments status and economic policies) as well as
technical and political data. The Manager may seek to protect a Fund against
such negative currency movements through the use of sophisticated investment
techniques. See "Options, Futures and Forward Currency Transactions" and "Swaps,
Caps, Floors and Collars."
According to the Manager, as of the date of this Prospectus, more than 50% of
the value of all outstanding government debt obligations throughout the world is
represented by obligations denominated in currencies other than the U.S. dollar.
Moreover, from time to time, the debt securities of issuers located outside the
United States have substantially outperformed the debt obligations of U.S.
issuers. Accordingly, the Manager believes that the Government Income Fund's and
the Strategic Income Fund's policy of investing in debt securities throughout
the world and the Portfolio's policy of investing in debt securities of issuers
in emerging markets may enable the achievement of results superior to those
produced by mutual funds with similar objectives to those of the Funds and the
Portfolio that invest solely in debt securities of U.S. issuers.
BRADY BONDS. The Strategic Income Fund and the Portfolio may invest in "Brady
Bonds," which are debt restructurings that provide for the exchange of cash and
loans for newly issued bonds. Brady Bonds have been issued by the countries of,
among others, Albania, Argentina, Brazil, Bulgaria, Costa Rica, Dominican
Republic, Ecuador, Ivory Coast, Jordan, Mexico, Nigeria, Philippines, Poland,
Russia, Uruguay, Venezuela and Vietnam and are expected to be issued by other
emerging market countries. As of the date of this Prospectus, the Strategic
Income Fund and the Portfolio are not aware of the occurrence of any payment
defaults on Brady Bonds. Investors should recognize, however, that Brady Bonds
have been issued only recently and, accordingly, do not have a long payment
history. In addition, Brady Bonds are often rated below investment grade.
The Strategic Income Fund and the Portfolio may invest in either collateralized
or uncollateralized Brady Bonds. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed rate par bonds or floating rate discount bonds, are
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds. Interest payments on such bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at that time and
is adjusted at regular intervals thereafter.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Strategic Income Fund and the Portfolio
may invest in fixed and floating rate loans ("Loans") arranged through private
negotiations between a foreign entity and one or more financial institutions
("Lenders"). The majority of the Fund's and the Portfolio's investments in Loans
in emerging markets is expected to be in the form of participations in Loans
("Participations") and assignments of portions of Loans from third parties
("Assignments"). Participations typically will result in the Fund and/or the
Portfolio having a contractual relationship only with the Lender, not with the
borrower government. The Fund and/or the Portfolio will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund and/or the Portfolio generally will have no right to
enforce compliance by the borrower with the terms of the loan agreement relating
to the loan ("Loan Agreement"), nor any rights of set-off against the borrower,
and the Fund and/or the Portfolio may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund and/or the Portfolio will assume the credit risk of both the borrower
and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a Participation, the Fund
and/or the Portfolio may be treated as a general creditor of the Lender and may
not benefit from any set-off between the Lender and the borrower. The Fund
and/or the Portfolio will acquire Participations only if the Lender
interpositioned between the Fund and/or the Portfolio and the borrower is
determined by the Manager to be creditworthy. When the Fund and/or the Portfolio
purchases Assignments from Lenders, the Fund and/or the Portfolio will acquire
direct
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<PAGE>
GT GLOBAL INCOME FUNDS
rights against the borrower on the Loan. However, since Assignments are arranged
through private negotiations between potential assignees and assignors, the
rights and obligations acquired by the Fund and/or the Portfolio as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Government Income Fund, the
Strategic Income Fund and the Portfolio may purchase debt securities on a
"when-issued" basis and may purchase or sell such securities on a "forward
commitment" basis in order to hedge against anticipated changes in interest
rates and prices. The price, which is generally expressed in yield terms, is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Funds and the
Portfolio will purchase or sell when-issued securities and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. No income accrues on securities which have been purchased
pursuant to a forward commitment or on a when-issued basis prior to delivery of
the securities. If a Fund or the Portfolio disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss. At
the time a Fund or the Portfolio enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with its custodian and will be
marked to market daily. There is a risk that the securities may not be delivered
and that a Fund or the Portfolio may incur a loss. The Government Income Fund
may invest up to 5% of its total assets in a combination of securities purchased
on a when-issued basis or with respect to which it has entered into forward
commitment agreements.
The Strategic Income Fund and the Portfolio may also sell securities on a "when,
as and if issued" basis for hedging purposes. Under such a transaction, the Fund
or the Portfolio is required to deliver at a future date a security it does not
presently hold, but which it has a right to receive if the security is issued.
Issuance of the security may not occur, in which case the Fund or Portfolio
would have no obligation to the other party, and would not receive payment for
the sale. Selling securities on a "when, as and if issued" basis may reduce risk
of loss to the extent that such a sale wholly or partially offsets unfavorable
price movements on the investments being hedged. However, such sales also limit
the amount the Fund or Portfolio can receive if the "when, as and if issued"
security is in fact issued.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND ROLL TRANSACTIONS. The Government
Income Fund may borrow from banks or may borrow through reverse repurchase
agreements and "roll" transactions in connection with meeting requests for the
redemption of Fund shares. The Government Income Fund also may borrow up to 5%
of its total assets for temporary or emergency purposes other than to meet
redemptions. However, the Government Income Fund will not borrow for investment
purposes, nor will the Fund purchase securities while borrowings are
outstanding.
Both the Strategic Income Fund and the Portfolio are authorized to borrow money
from banks in an amount up to 33 1/3% of its total assets (including the amount
borrowed), less all liabilities and indebtedness other than the borrowings and
may use the proceeds of such borrowings for investment purposes. The Strategic
Income Fund and the Portfolio will borrow for investment purposes only when the
Manager believes that such borrowings will benefit the Fund or the Portfolio,
respectively, after taking into account considerations such as the costs of the
borrowing and the likely investment returns on the securities purchased with the
borrowed monies.
Borrowing for investment purposes is known as leveraging, which is a speculative
practice. Such borrowing by the Strategic Income Fund and the Portfolio creates
the opportunity for increased net income and appreciation but, at the same time,
involves special risk considerations. For example, leveraging might exaggerate
changes in the net asset value of Fund shares and in the yield realized by the
Fund or the Portfolio. Although the principal amount of such borrowings will be
fixed, the Fund's and the Portfolio's assets may change in value during the time
the borrowing is outstanding. By leveraging the Fund or the Portfolio, changes
in net asset values, higher or lower, may be greater in degree than if leverage
was not employed. To the extent the income derived from the assets obtained with
borrowed funds exceeds the interest and other expenses that the Fund or the
Portfolio will have to pay, the Fund's or the Portfolio's net income will be
greater than if borrowing was not used. Conversely, if the income from the
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<PAGE>
GT GLOBAL INCOME FUNDS
assets obtained with borrowed funds is not sufficient to cover the cost of
borrowing, the net income of the Fund or the Portfolio will be less than if
borrowing were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. The Strategic Income Fund and the
Portfolio each expects that some of its borrowings may be made on a secured
basis.
In addition to the foregoing borrowings, the Strategic Income Fund and the
Portfolio each may borrow money for temporary or emergency purposes or payments
in an amount not exceeding 5% of the value of its total assets (not including
the amount borrowed) provided that the total amount borrowed by the Strategic
Income Fund or the Portfolio for any purpose does not exceed 33 1/3% of its
total assets.
The Funds and the Portfolio may also enter into reverse repurchase agreements
with a bank or recognized securities dealer, although the Strategic Income Fund
currently has no intention of doing so with respect to more than 5% of its total
assets. Under a reverse repurchase agreement, the Funds or the Portfolio would
sell securities and agree to repurchase them at a particular price at a future
date. At the time a Fund or the Portfolio enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with an approved
custodian containing cash or liquid securities having a value not less than the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by a Fund or the Portfolio may decline below the price of the securities a
Fund or the Portfolio has sold but is obligated to repurchase. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce a Fund's or the Portfolio's
obligation to repurchase the securities, and a Fund's or the Portfolio's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such decision.
The Strategic Income Fund and the Portfolio also may enter into "dollar rolls,"
in which the Fund or the Portfolio sells fixed income securities for delivery in
the current month and simultaneously contracts to repurchase substantially
similar (same type, coupon and maturity) securities on a specified future date.
During the roll period, the Fund or the Portfolio would forego principal and
interest paid on such securities. The Fund or the Portfolio would be compensated
by the difference between the current sales price and the forward price for the
future purchase, as well as by the interest earned on the cash proceeds of the
initial sale. See "Investment Objectives and Policies" in the Statement of
Additional Information.
Reverse repurchase agreements and dollar rolls will be treated as borrowings and
will be deducted from the Strategic Income Fund's or the Portfolio's assets for
purposes of calculating compliance with the Fund's or the Portfolio's borrowing
limitation. See "Investment Limitations" in the Statement of Additional
Information.
SECURITIES LENDING. The Government Income Fund, the Strategic Income Fund and
the Portfolio may lend their respective portfolio securities to broker/dealers
or to other institutional investors. Securities lending allows a Fund to retain
ownership of the securities loaned and, at the same time, earn additional income
that may be used to offset the Fund's custody fees. At all times a loan is
outstanding, each Fund and the Portfolio requires the borrower to maintain with
the Fund's or the Portfolio's custodian, collateral consisting of cash, U.S.
government securities, or certain irrevocable letters of credit equal to at
least the value of the borrowed securities, plus any accrued interest. Each Fund
and the Portfolio limits its loans of portfolio securities to an aggregate of
30% of the value of its total assets, measured at the time any such loan is
made. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delays in receiving additional collateral or
in recovery of the loaned securities and possible loss of rights in the
collateral should the borrower fail financially.
ZERO COUPON SECURITIES. The Strategic Income Fund and the Portfolio may invest
in certain zero coupon securities that are "stripped" U.S. Treasury notes and
bonds. They also may invest in zero coupon and other deep discount securities
issued by foreign governments and domestic and foreign corporations, including
certain Brady Bonds and other foreign debt and in payment-in-kind securities.
Zero coupon securities pay no interest to holders prior to maturity, and
payment-in-kind securities pay interest in the form of additional securities.
However, a portion of the original issue discount on zero coupon securities and
the "interest" on payment-in-kind securities will be included in the investing
Fund's or Portfolio's income. Accordingly, for a Fund to continue to qualify for
tax treatment as a regulated investment company and to avoid a certain excise
tax (see
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<PAGE>
GT GLOBAL INCOME FUNDS
"Taxes" in the Statement of Additional Information), it may be required to
distribute an amount that is greater than the total amount of cash it actually
receives (or, in the case of the High Income Fund, its share of the total amount
of cash the Portfolio actually receives). These distributions must be made from
the Fund's (or, in the case of the High Income Fund, its, or its share of, the
Portfolio's) cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The Fund or the Portfolio will not be able to purchase
additional income-producing securities with cash used to make such
distributions, and its current income ultimately may be reduced as a result.
Zero coupon and payment-in-kind securities usually trade at a deep discount from
their face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
SYNTHETIC SECURITY POSITIONS. The Government Income Fund, the Strategic Income
Fund and the Portfolio may utilize combinations of futures on bonds and forward
currency contracts to create investment positions that have substantially the
same characteristics as bonds of the same type as those on which the futures
contracts are written. Investment positions of this type are generally referred
to as "synthetic securities."
For example, in order to establish a synthetic security position for a Fund or
the Portfolio that is comparable to owning a Japanese government bond, the
Manager might purchase futures contracts on Japanese government bonds in the
desired principal amount and purchase forward currency contracts for Japanese
Yen in an amount equal to the then current purchase price for such bonds in the
Japanese cash market, with each contract having approximately the same delivery
date.
The Manager might roll over the futures and forward currency contract positions
before taking delivery in order to continue the Fund's or the Portfolio's
investment position, or the Manager might close out those positions, thus
effectively selling the synthetic security. Further, the amount of each contract
might be adjusted in response to market conditions and the forward currency
contract might be changed in amount or eliminated in order to hedge against
currency fluctuations.
The Manager would create synthetic security positions for a Fund or the
Portfolio when it believes that it can obtain a better yield or achieve cost
savings in comparison to purchasing actual bonds or when comparable bonds are
not readily available in the market. Synthetic security positions are subject to
the risk that changes in the value of purchased futures contracts may differ
from changes in the value of the bonds that might otherwise have been purchased
in the cash market. Also, while the Manager believes that the cost of creating
synthetic security positions generally will be materially lower than the cost of
acquiring comparable bonds in the cash market, a Fund or the Portfolio will
incur transaction costs in connection with each purchase of a futures or forward
currency contract. The use of futures contracts and forward currency contracts
to create synthetic security positions also is subject to substantially the same
risks as those that exist when these instruments are used in connection with
hedging strategies. See "Options, Futures and Forward Currency Transactions"
below and "Options, Futures and Currency Strategies" in the Statement of
Additional Information.
OPTIONS, FUTURES AND FORWARD CURRENCY TRANSACTIONS. The Government Income Fund,
the Strategic Income Fund and the Portfolio may use forward currency contracts,
futures contracts, options on securities, options on indices, options on
currencies, and options on futures contracts to attempt to hedge against the
overall level of investment and currency risk normally associated with the
Funds' or Portfolio's investment. The Strategic Income Fund and the Portfolio
also may enter into interest rate, currency and index swaps and purchase or sell
related caps, floors and collars and other similar instruments. See "Swaps,
Caps, Floors and Collars" below. These instruments are often referred to as
"derivatives," which may be defined as financial instruments whose performance
is derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). The Government Income Fund, the
Strategic Income Fund and the Portfolio may enter into such instruments up to
the full value of their portfolio assets. See "Risk Factors -- Options, Futures
and Forward Currency Transactions" herein and "Options, Futures and Currency
Strategies" in the Statement of Additional Information.
To attempt to hedge against adverse movements in exchange rates between
currencies, the Government Income Fund, the Strategic Income Fund and the
Portfolio may enter into forward currency contracts for the purchase or sale of
a specified currency at a specified future date. Such contracts
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GT GLOBAL INCOME FUNDS
may involve the purchase or sale of a foreign currency against the U.S. dollar
or may involve two foreign currencies. The Government Income Fund, the Strategic
Income Fund and the Portfolio may enter into forward currency contracts either
with respect to specific transactions or with respect to the respective Fund's
or the Portfolio's portfolio positions. Each Fund and the Portfolio also may
purchase and sell put and call options on currencies, futures contracts on
currencies and options on such futures contracts to hedge against movements in
exchange rates.
In addition, each Fund and the Portfolio may purchase and sell put and call
options on securities to hedge against the risk of fluctuations in the prices of
securities held by the Fund or the Portfolio or that the Manager intends to
include in the Fund's or the Portfolio's portfolio. The Funds and the Portfolio
also may purchase and sell put and call options on indices to hedge against
overall fluctuations in the securities markets generally or in a specific market
sector.
Further, the Funds and the Portfolio may sell index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general market or market sector decline that could adversely affect
the Fund's or the Portfolio's portfolio. The Funds and the Portfolio also may
purchase index futures contracts and purchase call options or write put options
on such contracts to hedge against a general market or market sector advance and
thereby attempt to lessen the cost of future securities acquisitions. A Fund or
the Portfolio may use interest rate futures contracts and options thereon to
hedge its portfolio against changes in the general level of interest rates.
SWAPS, CAPS, FLOORS AND COLLARS. The Strategic Income Fund and the Portfolio may
enter into interest rate, currency and index swaps, and purchase or sell related
caps, floors and collars and other derivative instruments. The Fund and the
Portfolio expect to enter into these transactions primarily to preserve a return
or spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a technique for managing the portfolio's
duration (I.E., the price sensitivity to changes in interest rates) or to
protect against any increase in the price of securities the Fund or the
Portfolio anticipates purchasing at a later date. The Fund and the Portfolio
intend to use these transactions as hedges, and neither will sell interest rate
caps or floors if it does not own securities or other instruments providing an
income stream roughly equivalent to what the Fund or the Portfolio may be
obligated to pay.
Interest rate swaps involve the exchange by the Fund or the Portfolio with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating rate payments for fixed rate payments) with
respect to a notional amount of principal. A currency swap is an agreement to
exchange cash flows on a notional amount based on changes in the values of the
reference indices.
The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling the cap to the extent that a specified
index exceeds a predetermined interest rate. The purchase of an interest rate
floor entitles the purchaser to receive payments on a notional principal amount
from the party selling the floor to the extent that a specified index falls
below a predetermined interest rate or amount. A collar is a combination of a
cap and a floor that preserves a certain return within a predetermined range of
interest rates or values.
INDEXED COMMERCIAL PAPER. The Strategic Income Fund and the Portfolio may invest
without limitation in commercial paper which is indexed to certain specific
foreign currency exchange rates. The terms of such commercial paper provide that
its principal amount is adjusted upwards or downwards (but not below zero) at
maturity to reflect changes in the exchange rate between two currencies while
the obligation is outstanding. The Strategic Income Fund and the Portfolio will
purchase such commercial paper with the currency in which it is denominated and,
at maturity, will receive interest and principal payments thereon in that
currency, but the amount of principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables the Fund and the Portfolio to hedge against a
decline in the U.S. dollar value of investments denominated in foreign
currencies while seeking to provide an attractive money market rate of return.
The Fund and the Portfolio will not purchase such commercial paper for
speculation.
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GT GLOBAL INCOME FUNDS
OTHER INDEXED SECURITIES. The Government Income Fund, Strategic Income Fund and
the Portfolio may invest in certain other indexed securities, which are
securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the United States and abroad. At the same
time, indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments. New forms of indexed securities continue to be
developed. Each Fund and Portfolio may invest in such securities to the extent
consistent with its investment objectives.
OTHER INFORMATION. Each Fund's investment objectives may not be changed without
the approval of a majority of the respective Fund's outstanding voting
securities. A "majority of the Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented, or (ii) more than 50% of the
outstanding shares. In addition, each Fund has adopted certain investment
limitations which also may not be changed without shareholder approval. A
complete description of these limitations is included in the Statement of
Additional Information. Each Fund's other investment policies described herein
and in the Statement of Additional Information may be changed by a vote of a
majority of the Company's Board of Directors without shareholder approval.
The approval of the High Income Fund and of other investors in the Portfolio, if
any, is not required to change the investment objectives, policies or
limitations of the Portfolio, unless otherwise specified. Written notice shall
be provided to shareholders of the High Income Fund thirty days prior to any
changes in the Portfolio's investment objectives.
Prospectus Page 23
<PAGE>
GT GLOBAL INCOME FUNDS
RISK FACTORS
- --------------------------------------------------------------------------------
GENERAL. There is no assurance that any Fund or the Portfolio will achieve its
investment objectives. The Funds' net asset value will fluctuate, reflecting
fluctuations in the market value of its portfolio positions and its net currency
exposure. The value of fixed income securities held by the Government Income
Fund, the Strategic Income Fund and the Portfolio generally fluctuates inversely
with interest rate movements. Longer term bonds held by the Government Income
Fund, the Strategic Income Fund or the Portfolio are subject to greater interest
rate risk.
Each Fund and the Portfolio is classified under the Investment Company Act of
1940 (the "1940 Act") as a "non-diversified" fund. As a result, the Government
Income Fund, the Strategic Income Fund and the Portfolio each will be able to
invest in a fewer number of issuers than if it were classified under the
Investment Company Act of 1940 (the "1940 Act") as a "diversified" fund. To the
extent that a Fund or the Portfolio invests in a smaller number of issuers, the
value of each Fund's shares may fluctuate more widely and the Funds and the
Portfolio may be subject to greater investment and credit risk with respect to
their portfolios.
FOREIGN INVESTING. Investing in foreign securities entails certain risks. The
securities of non-U.S. issuers generally are not registered with the SEC, nor
are the issuers thereof usually subject to the SEC's reporting requirements.
Accordingly, there may be less publicly available information about foreign
securities and issuers than is available with respect to U.S. securities and
issuers. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies. In addition, certain costs
attributable to foreign investing, such as custody charges, are higher than
those attributable to domestic investing. Securities of some foreign companies
are less liquid and their prices may be more volatile than securities of
comparable domestic companies. The Government Income and Strategic Income Funds'
and the Portfolio's interest and dividends from foreign issuers may be subject
to non-U.S. withholding taxes, thereby reducing their net investment income.
With respect to some foreign countries, there is the increased possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Government Income Fund, the Strategic Income Fund and the
Portfolio, political or social instability, or diplomatic developments which
could affect the investments of the Government Income Fund, the Strategic Income
Fund and the Portfolio in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, rate of savings
and capital reinvestment, resource self-sufficiency and balance of payments
positions.
CURRENCY RISK. Since the Government Income Fund, the Strategic Income Fund and
the Portfolio normally invest substantially in securities denominated in
currencies other than the U.S. dollar, and because they may hold foreign
currencies, they will be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rates between such currencies and the
U.S. dollar. Changes in currency exchange rates will influence the value of the
Funds' shares, and also may affect the value of dividends and interest earned by
the Funds and gains and losses realized by the Funds. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
The exchange rates between the U.S. dollar and other currencies are determined
by supply and demand in the currency exchange markets, the international balance
of payments, governmental intervention, speculation and other economic and
political conditions. If the currency in which a security is denominated
appreciates against the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate of the currency would
adversely affect the value of the security expressed in U.S. dollars.
Prospectus Page 24
<PAGE>
GT GLOBAL INCOME FUNDS
In addition, many of the currencies in emerging market countries have
experienced steady devaluations relative to the U.S. dollar and major
devaluations have historically occurred in certain countries.
INVESTING IN EMERGING MARKETS. Because of the special risks associated with
investing in emerging markets, an investment in the Strategic Income Fund and
the Portfolio should be considered speculative. Investors are strongly advised
to consider carefully the special risks involved in emerging markets, which are
in addition to the usual risks of investing in developed foreign markets around
the world.
Investing in emerging markets involves risks relating to potential political and
economic instability within such markets and the risks of expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation in any
emerging market, the Strategic Income Fund or the Portfolio could lose its
entire investment in that market.
Many emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries.
Economies in emerging markets generally are dependent heavily upon international
trade and, accordingly, have been and may continue to be affected adversely by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
affected adversely by economic conditions in the countries in which they trade.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States and
other major markets. There also may be a lower level of monitoring and
regulation of emerging securities markets and the activities of investors in
such markets, and enforcement of existing regulations has been extremely
limited.
In addition, brokerage commissions, custodial services and other costs relating
to investment in foreign markets generally are more expensive than in the United
States, particularly with respect to emerging markets. Such markets have
different settlement and clearance procedures. In certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Strategic Income Fund or the Portfolio to make intended
securities purchases due to settlement problems could cause the Strategic Income
Fund or the Portfolio to forego attractive investment opportunities. Inability
to dispose of a portfolio security caused by settlement problems could result
either in losses to the Strategic Income Fund or the Portfolio due to subsequent
declines in value of the portfolio security or, if the Strategic Income Fund or
the Portfolio has entered into a contract to sell the security, could result in
possible liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Strategic Income Fund's or the
Portfolio's portfolio securities in such markets may not be readily available.
Section 22(e) of the 1940 Act permits a registered investment company to suspend
redemption of its shares for any period during which an emergency exists, as
determined by the SEC. Accordingly, when the Strategic Income Fund or the
Portfolio believes that appropriate circumstances warrant, it will promptly
apply to the SEC for a determination that an emergency exists within the meaning
of Section 22(e) of the 1940 Act. During the period commencing from the
Strategic Income Fund's or the Portfolio's identification of such conditions
until the date of SEC action, the portfolio securities of the Strategic Income
Fund or the Portfolio in the affected markets will be valued at fair value as
determined in good faith by or under the direction of the Company's Board of
Directors or the Portfolio's Board of Trustees.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Strategic Income Fund and the Portfolio
may have difficulty disposing of Assignments and Participations. The liquidity
of such securities is limited and, the Fund and the Portfolio anticipate that
such securities could be sold only to a limited number of institutional
investors. The lack of a liquid secondary market could have an adverse impact on
the value of such securities and on the Fund's and
Prospectus Page 25
<PAGE>
GT GLOBAL INCOME FUNDS
the Portfolio's ability to dispose of particular Assignments or Participations
when necessary to meet the Fund's and/or the Portfolio's liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Fund
and/or the Portfolio to assign a value to those securities for purposes of
valuing the Fund's or the Portfolio's portfolio and calculating its net asset
value.
SOVEREIGN DEBT. The Strategic Income Fund and the Portfolio may invest in
sovereign debt securities of emerging market governments, including Brady Bonds.
Investments in such securities involve special risks. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of such debt. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt obligations and in turn a Fund's
net asset value, to a greater extent than the volatility inherent in domestic
fixed income securities.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Emerging market governments could default on
their sovereign debt. Such sovereign debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
abroad to reduce principal and interest arrearages on their debt. The commitment
on the part of these governments, agencies and others to make such disbursements
may be conditioned on a sovereign debtor's implementation of economic reforms
and/or economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third parties' commitments to lend funds to the sovereign debtor, which may
further impair such debtor's ability or willingness to timely service its debts.
The occurrence of political, social or diplomatic changes in one or more of the
countries issuing sovereign debt could adversely affect the Fund's or the
Portfolio's investments. Emerging markets are faced with social and political
issues and some of them have experienced high rates of inflation in recent years
and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance governmental
programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. Although the Manager intends to manage the Strategic
Income Fund and the Portfolio in a manner that will minimize the exposure to
such risks, there can be no assurance that adverse political changes will not
cause the Fund or the Portfolio to suffer a loss of interest or principal on any
of its holdings.
In recent years, some of the emerging market countries in which the Strategic
Income Fund and the Portfolio expect to invest have encountered difficulties in
servicing their sovereign debt obligations. Some of these countries have
withheld payments of interest and/or principal of sovereign debt. These
difficulties have also led to agreements to restructure external debt
obligations -- in particular, commercial bank loans, typically by rescheduling
principal payments, reducing interest rates and extending new credits to finance
interest payments on existing debt. In the future, holders of emerging market
sovereign debt securities may be requested to participate in similar
rescheduling of such debt. Certain emerging market countries are among the
largest debtors to commercial banks and foreign governments. Currently, Brazil,
Mexico and Argentina are the largest debtors among developing countries. At
times certain emerging market countries have declared moratoria on the payment
of principal and interest on external debt; such a moratorium is currently in
effect in certain emerging market countries. There is no bankruptcy proceeding
by which a creditor may collect in whole or in part sovereign debt on which an
emerging market government has defaulted.
The ability of emerging market governments to make timely payments on their
sovereign debt securities is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities
Prospectus Page 26
<PAGE>
GT GLOBAL INCOME FUNDS
could be vulnerable to a decline in the international prices of one or more of
such commodities. Increased protectionism on the part of a country's trading
partners could also adversely affect its exports. Such events could diminish a
country's trade account surplus, if any. To the extent that a country receives
payment for its exports in currencies other than hard currencies, its ability to
make hard currency payments could be affected.
Investors should also be aware that certain sovereign debt instruments in which
the Strategic Income Fund and the Portfolio may invest involve great risk. As
noted above, sovereign debt obligations issued by emerging market governments
generally are deemed to be the equivalent in terms of quality to securities
rated below investment grade by Moody's and S&P. Such securities are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations and involve
major risk exposure to adverse conditions. Some of such securities, with respect
to which the issuer currently may not be paying interest or may be in payment
default, may be comparable to securities rated D by S&P or C by Moody's. The
Strategic Income Fund and the Portfolio may have difficulty disposing of and
valuing certain sovereign debt obligations because there may be a limited
trading market for such securities. Because there is no liquid secondary market
for many of these securities, the Strategic Income Fund and the Portfolio
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors.
LOWER QUALITY DEBT SECURITIES. Under normal market conditions the Strategic
Income Fund may invest up to 50% of its total assets in debt securities rated
below investment grade, and up to 100% of the Portfolio's total assets will be
so invested. Such investments involve a high degree of risk.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such lower quality debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Debt rated C
by Moody's or S&P is the lowest quality debt that is not in default as to
principal or interest and such issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing. Lower
quality debt securities are also generally considered to be subject to greater
risk than higher quality securities with regard to a deterioration of general
economic conditions. These securities are the equivalent of high yield, high
risk bonds, commonly known as "junk bonds." As noted above, the Strategic Income
Fund and the Portfolio may invest in debt securities rated below C, which are in
default as to principal and/ or interest.
Ratings of debt securities represent the rating agency's opinion regarding their
quality and are not a guarantee of quality. Rating agencies attempt to evaluate
the safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit quality in response to subsequent events, so that an issuer's
current financial condition may be better or worse than a rating indicates. See
"Appendix A" for a discussion of Moody's and S&P's ratings.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase the
security from the Strategic Income Fund or the Portfolio. If an issuer exercises
these provisions in a
Prospectus Page 27
<PAGE>
GT GLOBAL INCOME FUNDS
declining interest rate market, the Strategic Income Fund or the Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. In addition, the Strategic Income Fund and the
Portfolio may have difficulty disposing of lower quality securities because
there may be a thin trading market for such securities. There may be no
established retail secondary market for many of these securities, and the
Strategic Income Fund and the Portfolio anticipate that such securities could be
sold only to a limited number of dealers or institutional investors. The lack of
a liquid secondary market also may have an adverse impact on market prices of
such instruments and may make it more difficult for the Strategic Income Fund
and the Portfolio to obtain accurate market quotations for purposes of valuing
the securities in the portfolios of the Strategic Income Fund and the Portfolio.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower quality
securities, especially in a thinly traded market. The Strategic Income Fund and
the Portfolio also may acquire lower quality debt securities during an initial
underwriting or may acquire lower quality debt securities which are sold without
registration under applicable securities laws. Such securities involve special
considerations and risks.
Factors having an adverse effect on the market value of lower rated securities
or their equivalents purchased by the Strategic Income Fund and the Portfolio
will adversely impact net asset value of the Strategic Income Fund and the High
Income Fund. See "Risk Factors" in the Statement of Additional Information. In
addition to the foregoing, such factors may include: (i) potential adverse
publicity; (ii) heightened sensitivity to general economic or political
conditions; and (iii) the likely adverse impact of a major economic recession.
The Strategic Income Fund and the Portfolio each also may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings, and the Fund and the
Portfolio may have limited legal recourse in the event of a default. Debt
securities issued by governments in emerging markets can differ from debt
obligations issued by private entities in that remedies from defaults generally
must be pursued in the courts of the defaulting government, and legal recourse
is therefore somewhat diminished. Political conditions, in terms of a
government's willingness to meet the terms of its debt obligations, also are of
considerable significance. There can be no assurance that the holders of
commercial bank debt may not contest payments to the holders of debt securities
issued by governments in emerging markets in the event of default by the
governments under commercial bank loan agreements.
As of October 31, 1996, the Strategic Income Fund and the Portfolio had 78.8%
and 58.7%, respectively, of their total net assets in debt securities that
received a rating from Moody's and 19.6% and 39.7%, respectively, of their total
net assets in debt securities that were not so rated. In addition, the Strategic
Income Fund and the Portfolio had 1.6% and 1.6%, respectively, of their total
net assets in cash and net receivables. The Strategic Income Fund had the
following percentages of its total net assets invested in rated securities: Aaa
- -- 36.6%, Aa -- 15.6%, A -- 1.0%, Baa -- 1.5%, Ba -- 11.5%, B -- 12.6%, Caa --
0%, Ca -- 0%, C -- 0%. Included under the unrated category are securities
composing 26.2% of the Strategic Income Fund's total net assets which, while
unrated, have been determined by the Manager to be of comparable quality to
securities in the following rating categories: Baa -- 0%; Ba -- 10%; and B --
9.6%. The Portfolio had the following percentages of its total net assets
invested in rated securities: Aaa -- 2.7%, Aa -- .7%, A -- 3.6%, Baa -- 3.0%, Ba
- -- 20.2%, B -- 28.5%, Caa -- 0%, Ca -- 0%, C -- 0%. Included under the unrated
category are securities composing 39.7% of the Portfolio's total net assets
which have been determined by the Manager to be of comparable quality to
securities in the following rating categories: Baa -- 1.3%; Ba -- 18.0%; and B
- -- 20.4%. It should be noted that the allocation of the investments of the
Strategic Income Fund and the Portfolio by rating on any given date will vary
and should not be considered representative of the future portfolio composition
of the Strategic Income Fund or the Portfolio.
OPTIONS, FUTURES AND FORWARD CURRENCY TRANSACTIONS. Although each Fund and the
Portfolio is authorized to enter into options, futures and forward currency
transactions, the Funds and the Portfolio might not enter into any such
transactions. In addition, issuers in emerging markets typically are subject to
a greater degree of change in earnings and business prospects than issuers in
developed countries. Options, futures and foreign currency transactions involve
certain risks, which include: (1) dependence on the Manager's ability to predict
movements in the prices of individual securities, fluctuations in the general
securities markets or in the appropriate market sector and movements in interest
rates and currency markets;
Prospectus Page 28
<PAGE>
GT GLOBAL INCOME FUNDS
(2) imperfect correlation, or even no correlation, between movements in the
price of options, forward contracts, futures contracts or options thereon and
movements in the price of the currency or security hedged or used for cover; (3)
the fact that skills and techniques needed to trade options, futures contracts
and options thereon or to use forward currency contracts are different from
those needed to select the securities in which a Fund or Portfolio invests; (4)
lack of assurance that a liquid secondary market will exist for any particular
option, futures contract or option thereon at any particular time; (5) the
possible loss of principal under certain conditions; (6) the possible inability
of a Fund or Portfolio to purchase or sell a portfolio security at a time when
it would otherwise be favorable for it to do so, or the possible need for a Fund
or Portfolio to sell a security at a disadvantageous time, due to the need for
the Fund or Portfolio to maintain "cover" or to set aside securities in
connection with hedging transactions; and (7) the possible need to defer closing
out of certain options, futures contracts, forward currency contracts and/or
foreign currency positions in order to continue to qualify for the beneficial
tax treatment afforded regulated investment companies under the Code. See
"Dividends, Other Distributions and Federal Income Taxation" herein and "Taxes"
in the Statement of Additional Information.
ILLIQUID SECURITIES. The Government Income Fund may invest up to 10% of its
total assets, and the Strategic Income Fund and the Portfolio up to 15% of their
net assets, in securities for which no readily available market exists,
so-called "illiquid securities." Illiquid securities may be more difficult to
value than liquid securities and the sale of illiquid securities generally will
require more time and result in higher brokerage charges or dealer discounts and
other selling expenses than the sale of liquid securities. Moreover, illiquid
restricted securities often sell at a price lower than similar securities that
are not subject to restrictions on resale.
- --------------------------------------------------------------------------------
HOW TO INVEST
- --------------------------------------------------------------------------------
GENERAL. All purchase orders will be executed at the public offering price next
determined after the purchase order is received, which includes any applicable
sales charge for Class A shares. Orders received before the close of regular
trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern
time, unless weather, equipment failure or other factors contribute to an
earlier closing time) on any Business Day will be executed at the public
offering price for the applicable class of shares determined that day. A
"Business Day" is any day Monday through Friday on which the NYSE is open for
business. The minimum initial investment is $500 ($100 for IRAs and $25 for
custodial accounts under Code Section 403(b)(7) and other tax-qualified
employer-sponsored retirement accounts, if made under a systematic investment
plan providing for monthly or quarterly payments of at least that amount), and
the minimum for additional purchases is $100 (with a $25 minimum for IRAs, Code
Section 403(b)(7) custodial accounts and other tax-qualified employer-sponsored
retirement accounts, as mentioned above). THE FUNDS AND GT GLOBAL RESERVE THE
RIGHT TO REJECT ANY PURCHASE ORDER. In particular, the Funds and GT Global may
reject purchase orders or exchanges by investors who appear to follow, in the
Manager's judgment, a market-timing strategy or otherwise engage in excessive
trading. See "How to Make Exchanges -- Limitations on Purchase Orders and
Exchanges."
WHEN PLACING PURCHASE ORDERS, INVESTORS SHOULD SPECIFY WHETHER THE ORDER IS FOR
CLASS A OR CLASS B SHARES OF A FUND. ALL PURCHASE ORDERS THAT FAIL TO SPECIFY A
CLASS WILL AUTOMATICALLY BE INVESTED IN CLASS A SHARES. PURCHASES OF $500,000 OR
MORE MUST BE FOR CLASS A SHARES.
PURCHASES THROUGH BROKER/DEALERS. Shares of the Funds may be purchased through
broker/dealers with which GT Global has entered into dealer agreements. Orders
received by such broker/dealers before the close of regular trading on the NYSE
on a Business Day will be effected that day, provided that such order is
transmitted to the Transfer Agent prior to its close of business on such day.
The broker/dealer will be responsible for forwarding the investor's order to the
Transfer Agent so that it
Prospectus Page 29
<PAGE>
GT GLOBAL INCOME FUNDS
will be received prior to such time. After an initial investment is made and a
shareholder account is established through a broker/dealer, at the investor's
option, subsequent purchases may be made directly through GT Global. See
"Shareholder Account Manual."
Broker/dealers that do not have dealer agreements with GT Global also may offer
to place orders for the purchase of shares. Purchases made through such
broker/dealers will be effected at the public offering price next determined
after the order is received by the Transfer Agent. Such a broker/ dealer may
charge the investor a transaction fee as determined by the broker/dealer. That
fee will be in addition to the sales charge payable by the investor with respect
to Class A shares, and may be avoided if shares are purchased through a broker/
dealer that has a dealer agreement with GT Global or directly through GT Global.
PURCHASES THROUGH THE DISTRIBUTOR. Investors may purchase shares and open an
account directly through GT Global, the Fund's distributor by completing and
signing an Account Application accompanying this Prospectus. Investors should
mail to the Transfer Agent the completed Account Application indicating the
class of shares together with a check to cover the purchase in accordance with
the instructions provided in the Shareholder Account Manual. Purchases will be
executed at the public offering price next determined after the Transfer Agent
has received the Account Application and check. Subsequent investments do not
need to be accompanied by an application.
Investors also may purchase shares of the Funds through GT Global by bank wire.
Bank wire purchases will be effected at the next determined public offering
price after the bank wire is received. A wire investment is considered received
when the Transfer Agent is notified that the bank wire has been credited to the
Funds. The investor is responsible for providing prior telephone or facsimile
notice to the Transfer Agent that a bank wire is being sent. An investor's bank
may charge a service fee for wiring money to the Funds. The Transfer Agent
currently does not charge a service fee for facilitating wire purchases, but
reserves the right to do so in the future. Investors desiring to open an account
by bank wire should call the Transfer Agent at the appropriate toll free number
provided in the Shareholder Account Manual to obtain an account number and
detailed instructions.
CERTIFICATES. Physical certificates representing a Fund's shares will not be
issued unless a written request is submitted to the Transfer Agent. Shares of a
Fund are recorded on a register by the Transfer Agent, and shareholders who do
not elect to receive certificates have the same rights of ownership as if
certificates had been issued to them. Redemptions and exchanges by shareholders
who hold certificates may take longer to effect than similar transactions
involving non-certificated shares because the physical delivery and processing
of properly executed certificates is required. ACCORDINGLY, THE FUNDS AND GT
GLOBAL RECOMMEND THAT SHAREHOLDERS DO NOT REQUEST ISSUANCE OF CERTIFICATES.
PURCHASING CLASS A SHARES
Each Fund's public offering price for Class A shares is the next determined net
asset value per share (see "Calculation of Net Asset Value") plus a sales charge
determined in accordance with the following schedule.
<TABLE>
<CAPTION>
SALES CHARGE AS PERCENTAGE OF
AMOUNT OF DEALER
PURCHASE ------------------------------ REALLOWANCE AS
AT THE PUBLIC OFFERING NET PERCENTAGE OF THE
OFFERING PRICE PRICE INVESTMENT OFFERING PRICE
- ---------------- ------------- --------------- -------------------
<S> <C> <C> <C>
Less than
$50,000....... 4.75% 4.99% 4.25%
$50,000 but less
than
$100,000...... 4.00% 4.17% 3.50%
$100,000 but
less than
$250,000...... 3.00% 3.09% 2.75%
$250,000 but
less than
$500,000...... 2.00% 2.04% 1.75%
$500,000 or
more.......... 0.00% 0.00% *
<FN>
- ------------------
* GT Global will pay the following commissions to broker/ dealers that
initiate and are responsible for purchases by any single purchaser of Class
A shares of $500,000 or more in the aggregate: 1.00% of the purchase amount
up to $3 million, plus 0.50% on the excess over $3 million. For purposes of
determining the appropriate commission to be paid in connection with the
transaction, GT Global will combine purchases made by a broker/dealer on
behalf of a single client so that the broker/dealer's commission, as
outlined above, will be based on the aggregate amount of such client's
share purchases over a rolling twelve month period from the date of the
transaction.
</TABLE>
All shares purchased without a sales charge based on the purchase equalling at
least $500,000 will be subject to a contingent deferred sales charge for the
first year after their purchase equal to 1% of the lower of the original
purchase price or the net asset value of such shares at the time of redemption.
See "Contingent Deferred Sales Charge -- Class A Shares."
Prospectus Page 30
<PAGE>
GT GLOBAL INCOME FUNDS
From time to time, GT Global may reallow to broker/ dealers the full amount of
the sales charge on Class A shares or may pay out additional amounts to
broker/dealers who sell Class A shares. In some instances, GT Global may offer
these reallowances or additional payments only to broker/dealers that have sold
or may sell significant amounts of Class A shares. To the extent that GT Global
reallows the full amount of the sales charge to broker/dealers, such
broker/dealers may be deemed to be underwriters under the Securities Act of
1933, as amended. Commissions also may be paid to broker/ dealers and other
financial institutions that initiate purchases of at least $500,000 made
pursuant to sales charge waivers (i) and (vii), described below under "Sales
Charge Waivers -- Class A Shares."
The following purchases may be aggregated for purposes of determining the
"Amount of Purchase":
(a) Individual purchases on behalf of a single purchaser, the purchaser's spouse
and their children under the age of 21, including purchases in connection with
an employee benefit plan or plans exclusively for the benefit of such
individual(s), such as an IRA, individual plans under Code Section 403(b) or a
self-employed individual retirement plan ("Keogh Plan") and purchases made by a
company controlled by such individual(s).
(b) Individual purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account, including an employee benefit
plan (such as employer-sponsored pension, profit-sharing and stock bonus plans,
including plans under Code Section 401(k), and medical, life and disability
insurance trusts) other than a plan described in "(a)" above; and
(c) Individual purchases by a trustee or other fiduciary purchasing shares
concurrently for two or more employee benefit plans of a single employer or of
employers affiliated with each other (again excluding an employee benefit plan
described in "(a)" above).
SALES CHARGE WAIVERS -- CLASS A SHARES. Class A shares are sold at net asset
value without imposition of sales charges when investments are made by the
following classes of investors:
(i) Trustees or other fiduciaries purchasing shares for employee benefit plans
which are sponsored by organizations that have at least 100 but less than 1,000
employees, and trustees or other fiduciaries purchasing shares for employee
benefit plans which are sponsored by organizations with collective retirement
plan assets of $500,000 or more and have less than 100 employees, and purchases
of at least $500,000 by trustees or other fiduciaries of employee benefit plans
with collective retirement plan assets of $100 million or more.
(ii) Current or retired Trustees, Directors and officers of the investment
companies for which the Manager serves as investment manager and/or
administrator; employees or retired employees of the companies composing
Liechtenstein Global Trust or affiliated companies of Liechtenstein Global
Trust; the children, siblings and parents of the persons in the foregoing
categories; and trusts primarily for the benefit of such persons.
(iii) Registered representatives or full-time employees of broker/dealers that
have entered into dealer agreements with GT Global, and the children, siblings
and parents of such persons, and employees of financial institutions that
directly, or through their affiliates, have entered into dealer agreements with
GT Global (or that otherwise have an arrangement with respect to sales of Fund
shares with a broker/dealer that has entered into a dealer agreement with GT
Global) and the children, siblings and parents of such employees.
(iv) Companies exchanging shares with or selling assets to one or more of the GT
Global Mutual Funds pursuant to a merger, acquisition or exchange offer.
(v) Shareholders of any of the GT Global Mutual Funds as of April 30, 1987 who
since that date continually have owned shares of one or more of the GT Global
Mutual Funds.
(vi) Purchases made through the automatic investment of dividends and other
distributions paid by any of the other GT Global Mutual Funds.
(vii) Registered investment advisers, trust companies and bank trust departments
exercising DISCRETIONARY investment authority with respect to the money to be
invested in the GT Global Mutual Funds provided that the aggregate amount
invested pursuant to this sales charge waiver is at least $500,000, and further
provided that such money is not eligible to be invested in the Advisor Class.
(viii) Clients of administrators of tax-qualified employee benefit plans which
have entered into agreements with GT Global.
(ix) Retirement plan participants who borrow from their retirement accounts by
redeeming GT Global Mutual Fund shares and subsequently repay such loans via a
purchase of Fund shares.
Prospectus Page 31
<PAGE>
GT GLOBAL INCOME FUNDS
(x) Retirement plan participants who receive distributions from a tax-qualified
employer-sponsored retirement plan which is invested in GT Global Mutual Funds,
the proceeds of which are reinvested in Fund shares.
(xi) Accounts not eligible for the Advisor Class as to which a financial
institution or broker/dealer charges an account management fee, provided the
financial institution or broker/dealer has entered into an agreement with GT
Global regarding such accounts.
(xii) Certain former AMA Investment Advisers' shareholders who became
shareholders of the GT Global Health Care Fund in October 1989, and who have
continuously held shares in the GT Global Mutual Funds since that time.
(xiii) An investor purchasing shares of a Fund with redemption proceeds from a
registered management investment company that is not one of the GT Global Mutual
Funds, on which the investor was subject to a front-end sales charge or a
contingent deferred sales charge.
REINSTATEMENT PRIVILEGE. Shareholders who redeem their Class A shares in a Fund
have a one-time privilege of reinstating their investment by investing the
proceeds of the redemption at net asset value without a sales charge in Class A
shares of the Fund and/or one or more of the other GT Global Mutual Funds. The
Transfer Agent must receive from the investor or the investor's broker within
180 days after the date of the redemption both a written request for
reinvestment and a check not exceeding the amount of the redemption proceeds.
The reinstatement purchase will be effected at the net asset value per share
next determined after such receipt. Gain on the redemption is taxable
notwithstanding exercise of the reinvestment privilege. See "Dividends, Other
Distributions and Federal Income Taxation -- Taxes."
REDUCED SALES CHARGE PLANS -- CLASS A SHARES. Class A shares may be purchased at
reduced sales charges either through the Right of Accumulation or under a Letter
of Intent. For more details on these plans, investors should contact their
brokers or the Transfer Agent.
RIGHT OF ACCUMULATION. Pursuant to the Right of Accumulation, investors are
permitted to purchase shares of the Funds at the sales charge applicable to the
total of (a) the dollar amount then being purchased plus (b) the dollar amount
of the investor's concurrent purchases of the other GT Global Mutual Funds
(other than GT Global Dollar Fund) plus (c) the price of all shares of GT Global
Mutual Funds (other than shares of GT Global Dollar Fund not acquired by
exchange) already held by the investor. To receive the Right of Accumulation, at
the time of purchase investors must give their brokers, the Transfer Agent or GT
Global sufficient information to permit confirmation of qualification. THE
FOREGOING RIGHT OF ACCUMULATION APPLIES ONLY TO CLASS A SHARES OF THE FUNDS AND
OTHER GT GLOBAL MUTUAL FUND (OTHER THAN GT GLOBAL DOLLAR FUND).
LETTER OF INTENT. In executing a Letter of Intent ("LOI") an investor indicates
an aggregate investment amount he or she intends to invest in the Class A shares
of the Funds and the Class A shares of other GT Global Mutual Funds (other than
GT Global Dollar Fund) in the following thirteen months. The LOI is included as
part of the Account Application located at the end of this Prospectus. The sales
charge applicable to that aggregate amount then becomes the applicable sales
charge on all purchases made concurrently with the execution of the LOI and in
the thirteen months following that execution. If an investor executes an LOI
within 90 days of a prior purchase of GT Global Mutual Fund Class A shares
(other than shares of GT Global Dollar Fund), the prior purchase may be included
under the LOI and an appropriate adjustment, if any, with respect to the sales
charges paid by the investor in connection with the prior purchase will be made,
based on the then-current net asset value(s) of the pertinent Fund(s).
If at the end of the thirteen month period covered by the LOI the total amount
of purchases does not equal the amount indicated, the investor will be required
to pay the difference between the sales charges paid at the reduced rate and the
sales charges applicable to the purchases actually made. Shares having a value
equal to 5% of the amount specified in the LOI will be held in escrow during the
thirteen month period (while remaining registered in the investor's name) and
are subject to redemption to assure any necessary payment to GT Global of a
higher applicable sales charge.
For purposes of an LOI, any registered investment adviser, trust company or bank
trust department which exercises investment discretion and which intends within
thirteen months to invest $500,000 or more, can be treated as a single
purchaser, provided further that such entity places all purchase and redemption
orders. Such entities should be prepared to establish their qualification
Prospectus Page 32
<PAGE>
GT GLOBAL INCOME FUNDS
for such treatment. THE FOREGOING LOI WILL APPLY ONLY TO CLASS A SHARES OF THE
FUNDS AND SHARES OF ANY GT GLOBAL MUTUAL FUND THAT OFFERS A SINGLE CLASS OF
SHARES (OTHER THAN GT GLOBAL DOLLAR FUND).
CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES. Purchases of Class A shares
of $500,000 or more may be made without a sales charge. If a shareholder within
one year after the date of purchase redeems any Class A shares that were
purchased without a sales charge by reason of a purchase of $500,000 or more, a
contingent deferred sales charge of 1% of the lower of the original purchase
price or the net asset value of such shares at the time of redemption will be
charged. Class A shares will not be subject to the contingent deferred sales
charge to the extent that the value of such shares represents: (1) reinvestment
of dividends or other distributions or (2) shares redeemed more than one year
after their purchase. Such shares purchased without a sales charge may be
exchanged for Class A shares of another GT Global Mutual Fund (other than GT
Global Dollar Fund) without the imposition of a contingent deferred sales
charge, although the contingent deferred sales charge described above will apply
to the redemption of the shares acquired through an exchange. For federal income
tax purposes, the amount of the contingent deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any contingent deferred sales charge will be paid to
GT Global. The waivers set forth under "Contingent Deferred Sales Charge
Waivers" apply to redemptions of Class A shares upon which a contingent deferred
sales charge would otherwise be imposed.
PURCHASING CLASS B SHARES
Each Fund's public offering price for Class B shares is the next determined net
asset value per share. See "Calculation of Net Asset Value." No initial sales
charge is imposed. A contingent deferred sales charge, however, is imposed on
certain redemptions of Class B shares. Because Class B shares are sold without
an initial sales charge, the Fund receives the full amount of the investor's
purchase payment.
Class B shares will not be subject to a contingent deferred sales charge to the
extent that the value of such shares represents: (1) reinvestment of dividends
or other distributions or (2) shares redeemed more than six years after their
purchase. Redemptions of most other Class B shares will be subject to a
contingent deferred sales charge. See "Contingent Deferred Sales Charge
Waivers." The amount of any applicable contingent deferred sales charge will be
calculated by multiplying the lesser of the original purchase price or the net
asset value of such shares at the time of redemption by the applicable
percentage shown in the table below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF THE
LESSER OF NET ASSET VALUE AT
REDEMPTION OR THE ORIGINAL
REDEMPTION DURING PURCHASE PRICE
- ------------------------------ -----------------------------
<S> <C>
1st Year Since Purchase....... 5%
2nd Year Since Purchase....... 4%
3rd Year Since Purchase....... 3%
4th Year Since Purchase....... 3%
5th Year Since Purchase....... 2%
6th year Since Purchase....... 1%
Thereafter.................... 0%
</TABLE>
In determining whether a contingent deferred sales charge is applicable, it will
be assumed that the redemption is made first of shares acquired pursuant to the
reinvestment of dividends and distributions; then of shares purchased seven
years or more prior to the redemption; and finally, of shares held for the
longest period of time within the applicable six-year period. For shares
acquired in an exchange, the length of the holding period will be measured from
the date of original purchase.
For example, assume an investor purchased 100 shares at $10 per share for a cost
of $1,000. Subsequently, the shareholder acquired 15 additional shares through
dividend reinvestment. During the second year after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of the
redemption a net asset value of $11 per share, the value of the investor's
shares would be $1,265 (115 shares at $11 per share). The contingent deferred
sales charge would not be applied to the value of the reinvested dividend
shares. Therefore, the 15 shares currently valued at $165.00 would be redeemed
without a contingent deferred sales charge. The number of shares needed to fund
the remaining $335.00 of the redemption would equal 30.455. Using the lower of
cost or market price to determine the contingent deferred sales charge the
original purchase price of $10.00 per share would be used. The contingent
deferred sales charge calculation would therefore be 30.455 shares times $10.00
per share at a contingent deferred sales charge rate of 4% (the applicable rate
in the second year after purchase) for a total contingent deferred sales charge
of $12.18.
Prospectus Page 33
<PAGE>
GT GLOBAL INCOME FUNDS
For federal income tax purposes, the amount of the contingent deferred sales
charge will reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any contingent deferred sales
charge will be paid to GT Global.
CONTINGENT DEFERRED
SALES CHARGE WAIVERS
The contingent deferred sales charge will be waived for: (1) exchanges, as
described below; (2) redemptions in connection with each Fund's systematic
withdrawal plan not in excess of 12% of the value of the account annually; (3)
total or partial redemptions made within one year following the death or
disability of a shareholder; (4) minimum required distributions made in
connection with a GT Global IRA, Keogh Plan or custodial account under Section
403(b) of the Code or other retirement plan following attainment of age 70 1/2;
(5) total or partial redemptions resulting from a distribution following
retirement in the case of a tax-qualified employer-sponsored retirement plan;
(6) when a redemption results from a tax-free return of an excess contribution
pursuant to Section 408(d)(4) or (5) of the Code or from the death or disability
of the employee; (7) a one-time reinvestment in Class B shares of a Fund within
180 days of a prior redemption; (8) redemptions pursuant to a Fund's right to
liquidate a shareholder's account involuntarily; (9) redemptions pursuant to
distributions from a tax-qualified employer-sponsored retirement plan, which is
invested in GT Global Mutual Funds, which are permitted to be made without
penalty pursuant to the Code (other than tax-free rollovers or transfers of
asset) and the proceeds of which are reinvested in GT Global Mutual Funds; (10)
redemptions made in connection with participant-directed exchanges between
options in an employer-sponsored benefit plan; (11) redemptions made for the
purpose of providing cash to fund a loan to a participant in a tax-qualified
retirement plan; (12) redemptions made in connection with a distribution from
any retirement plan or account that is permitted in accordance with the
provisions of Section 72(t)(2) of the Code, and the regulations promulgated
thereunder; (13) redemptions made in connection with a distribution from any
retirement plan or account that involves the return of an excess deferral amount
pursuant to Section 401(k)(8) or Section 402(g)(2) of the Code or the return of
excess aggregate contributions pursuant to Section 401(m)(6) of the Code; (14)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (15) redemptions made by or for the benefit of
certain states, counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or limited by applicable
law from paying a sales charge or commission.
PROGRAMS APPLICABLE TO
CLASS A SHARES AND CLASS B SHARES
AUTOMATIC INVESTMENT PLAN. Investors may purchase either Class A or Class B
shares of a Fund through the GT Global Automatic Investment Plan. Under this
Plan, an amount specified by the shareholder of $100 or more (or $25 for IRAs,
Code Section 403(b)(7) custodial accounts and other tax-qualified
employer-sponsored retirement accounts) on a monthly or quarterly basis will be
sent to the Transfer Agent from the investor's bank for investment in the Fund.
Participants in the Automatic Investment Plan should not elect to receive
dividends or other distributions from a Fund in cash. A sales charge will be
applied to each automatic monthly purchase of Class A Fund shares in an amount
determined in accordance with the Right of Accumulation privilege described
above. To participate in the Automatic Investment Plan, investors should
complete the appropriate portion of the Supplemental Application provided at the
end of this Prospectus. Investors should contact their brokers or GT Global for
more information.
DOLLAR COST AVERAGING PROGRAM. Investors may purchase either Class A or Class B
shares of a Fund through the GT Global Dollar Cost Averaging Program whereby a
shareholder invests the same dollar amount each month. Accordingly, the investor
purchases more shares when a Fund's net asset value is relatively low and fewer
shares when a Fund's net asset value is relatively high. This can result in a
lower average cost-per-share than if the shareholder followed a less systematic
approach. Dollar cost averaging does not assure a profit and does not protect
against loss in declining markets. Because such a program involves continuous
investment in securities regardless of fluctuating price levels of such
securities, investors should consider their financial ability to continue
purchases when prices are declining.
Prospectus Page 34
<PAGE>
GT GLOBAL INCOME FUNDS
A participant in the GT Global Dollar Cost Averaging Program first designates
the size of his or her monthly investment in a Fund ("Monthly Investment") after
participation in the Program begins. The Monthly Investment must be at least
$1,000. The investor then will make an initial investment of at least $10,000 in
the GT Global Dollar Fund. Thereafter, each month an amount equal to the
specified Monthly Investment automatically will be redeemed from the GT Global
Dollar Fund and invested in Fund shares. A sales charge will be applied to each
automatic monthly purchase of Class A Fund shares in an amount determined in
accordance with the Right of Accumulation privilege described above. Investors
should contact their brokers or GT Global for more information.
PORTFOLIO REBALANCING PROGRAM. The GT Global Portfolio Rebalancing Program
("Program") permits eligible shareholders to establish and maintain an
allocation across a range of GT Global Mutual Funds. The Program automatically
rebalances holdings of GT Global Mutual Funds to the established allocation on a
periodic basis. Under the Program, a shareholder may predesignate, on a
percentage basis, how the total value of his or her holdings in a minimum of
two, and a maximum of ten, GT Global Mutual Funds ("Personal Portfolio") is to
be rebalanced on a monthly, quarterly, semiannual, or annual basis.
Rebalancing under the Program will be effected through the exchange of shares of
one or more GT Global Mutual Funds in the shareholder's Personal Portfolio for
shares of the same class(es) of one or more other GT Global Mutual Funds in the
shareholder's Personal Portfolio. See "How to Make Exchanges." If shares of the
Funds in a shareholder's Personal Portfolio have appreciated during a
rebalancing period, the Program will result in shares of Fund(s) that have
appreciated most during the period being exchanged for shares of Fund(s) that
have appreciated least. SUCH EXCHANGES ARE NOT TAX-FREE AND MAY RESULT IN A
SHAREHOLDER'S REALIZING A GAIN OR LOSS, AS THE CASE MAY BE, FOR TAX PURPOSES.
See "Dividends, Other Distributions and Federal Income Taxation." Participation
in the Program does not assure that a shareholder will profit from purchases
under the Program nor does it prevent or lessen losses in a declining market.
The Program will automatically rebalance the shareholder's Personal Portfolio on
the 28th day of the last month of the period chosen (or the immediately
preceding business day if the 28th is not a business day), subject to any
limitations below. The Program will not execute an exchange if the variance in a
shareholder's Personal Portfolio for a particular Fund would be 2% or less. In
predesignating percentages, shareholders must use whole percentages and totals
must equal 100%. Shareholders participating in the Program may not request
issuance of physical certificates representing a Fund's shares. Exchanges made
under the Program are not subject to the four free exchanges per year
limitation. The Funds and GT Global reserve the right to modify, suspend, or
terminate the Program at any time on 60 days' prior written notice to
shareholders. A request to participate in the Program must be received in good
order at least five business days prior to the next rebalancing date. Once a
shareholder establishes the Program for his or her Personal Portfolio, a
shareholder cannot cancel or change which rebalancing frequency, which Funds or
what allocation percentages are assigned to the Program, unless canceled or
changed in writing and received by the Transfer Agent in good order at least
five business days prior to the rebalancing date. Shareholders participating in
the Program may also participate in the Right of Accumulation, Letter of Intent
and Dollar Cost Averaging programs. Certain broker/dealers may charge a fee for
establishing accounts relating to the Program. Investors should contact their
broker/dealers or GT Global for more information.
Prospectus Page 35
<PAGE>
GT GLOBAL INCOME FUNDS
HOW TO MAKE EXCHANGES
- --------------------------------------------------------------------------------
Shares of each Fund may be exchanged for shares of the same class of other GT
Global Mutual Funds, based on their respective net asset values without
imposition of any sales charges, provided that the registration remains
identical. EXCHANGES ARE NOT TAX-FREE AND MAY RESULT IN A SHAREHOLDER REALIZING
A GAIN OR LOSS, AS THE CASE MAY BE, FOR TAX PURPOSES. See "Dividends, Other
Distributions and Federal Income Taxation -- Taxes." In addition to the Funds,
the GT Global Mutual Funds currently include:
-- GT GLOBAL WORLDWIDE GROWTH FUND
-- GT GLOBAL INTERNATIONAL GROWTH FUND
-- GT GLOBAL EMERGING MARKETS FUND
-- GT GLOBAL HEALTH CARE FUND
-- GT GLOBAL TELECOMMUNICATIONS FUND
-- GT GLOBAL FINANCIAL SERVICES FUND
-- GT GLOBAL INFRASTRUCTURE FUND
-- GT GLOBAL NATURAL RESOURCES FUND
-- GT GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
-- GT GLOBAL NEW PACIFIC GROWTH FUND
-- GT GLOBAL EUROPE GROWTH FUND
-- GT GLOBAL LATIN AMERICA GROWTH FUND
-- GT GLOBAL AMERICA SMALL CAP GROWTH FUND
-- GT GLOBAL AMERICA MID CAP GROWTH FUND
-- GT GLOBAL AMERICA VALUE FUND
-- GT GLOBAL JAPAN GROWTH FUND
-- GT GLOBAL GROWTH & INCOME FUND
-- GT GLOBAL DOLLAR FUND
Up to four exchanges each year per Fund may be made without charge. A $7.50
service charge will be imposed on each subsequent exchange. If a shareholder
does not surrender all of his or her shares in an exchange, the remaining
balance in the shareholder's account after the exchange must be at least $500.
Exchange requests received in good order by the Transfer Agent before the close
of regular trading on the NYSE on any Business Day will be processed at the net
asset value calculated on that day. The terms of the exchange offer may be
modified at any time, on 60 days' prior written notice.
An investor interested in making an exchange should contact his broker/dealer or
the Transfer Agent to request the prospectus of the other GT Global Mutual
Fund(s) being considered. Certain brokers may charge a fee for handling
exchanges.
EXCHANGES BY TELEPHONE. A shareholder may give exchange instructions to his or
her broker/dealer or to the Transfer Agent by telephone at the appropriate toll
free number provided in the Shareholder Account Manual. Exchange orders will be
accepted by telephone provided that the exchange involves only uncertificated
shares on deposit in the shareholder's account or for which certificates have
previously been deposited.
Shareholders automatically have telephone privileges to authorize exchanges. The
Funds, GT Global and the Transfer Agent will not be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
reasonably believed to be genuine. The Funds employ reasonable procedures to
confirm that instructions communicated by telephone are genuine prior to acting
upon instructions received by telephone, including requiring some form of
personal identification, providing written confirmation of such transactions,
and/or tape recording of telephone instructions.
EXCHANGES BY MAIL. Exchange orders should be sent by mail to the investor's
broker/dealer or to the Transfer Agent at the address set forth in the
Shareholder Account Manual.
LIMITATIONS ON PURCHASE ORDERS AND EXCHANGES. The GT Global Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market-timing
investment strategies and excessive trading can have on efficient portfolio
management, each GT Global Mutual Fund and GT Global reserves the right to
refuse purchase orders and exchanges by any person or group, if, in the
Manager's judgment, such person or group was following a market-timing strategy
or was otherwise engaging in excessive trading.
In addition, each GT Global Mutual Fund and GT Global reserves the right to
refuse purchase orders and exchanges by any person or group if, in the Manager's
judgment, the Fund would not be able to invest the money effectively in
accordance with that Fund's investment objective and policies or would otherwise
potentially be adversely affected. Although a GT Global Mutual Fund will attempt
to give investors prior notice whenever it is reasonably able to do so, it may
impose the above restrictions at any time.
Finally, as described above, each GT Global Mutual Fund and GT Global reserve
the right to reject any purchase order.
Prospectus Page 36
<PAGE>
GT GLOBAL INCOME FUNDS
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares of each Fund may be redeemed at their net asset value (subject to any
applicable contingent deferred sales charge for Class B shares or, in limited
circumstances, Class A shares) and redemption proceeds will be sent within seven
days of the execution of a redemption request. If a redeeming shareholder owns
both Class A and Class B shares of a Fund, the Class A shares will be redeemed
first unless the shareholder specifically requests otherwise.
REDEMPTIONS THROUGH BROKER/DEALERS. Shareholders with accounts at broker/dealers
that sell shares of a Fund may submit redemption requests to such
broker/dealers. If the shares are held in the broker/dealer's "street name," the
redemption must be made through the broker/dealer. Broker/ dealers may honor a
redemption request either by repurchasing shares from a redeeming shareholder at
the net asset value next determined after the broker/dealer receives the request
or by forwarding such requests to the Transfer Agent (see "How to Redeem Shares
- -- Redemptions Through the Transfer Agent"). Redemption proceeds normally will
be paid by check or, if offered by the broker/dealer, credited to the
shareholder's brokerage account at the election of the shareholder.
Broker/Dealers may impose a service charge for handling redemption transactions
placed through them and may have other requirements concerning redemptions.
Accordingly, shareholders should contact their broker/dealers for more details.
REDEMPTIONS THROUGH THE TRANSFER AGENT. Redemption requests may be transmitted
to the Transfer Agent by telephone or by mail, in accordance with the
instructions provided in the Shareholder Account Manual. Redemptions will be
effected at the net asset value next determined after the Transfer Agent has
received the request in good order and any required supporting documentation
(less any applicable contingent deferred sales charge for Class B shares or, in
limited circumstances, Class A shares). Redemption requests will not require a
signature guarantee if the redemption proceeds are to be sent either: (i) to the
redeeming shareholder at the shareholder's address of record as maintained by
the Transfer Agent, provided the shareholder's address of record has not been
changed within the preceding thirty days; or (ii) directly to a pre-designated
bank, savings and loan or credit union account ("Pre-Designated Account"). ALL
OTHER REDEMPTION REQUESTS MUST BE ACCOMPANIED BY A SIGNATURE GUARANTEE OF THE
REDEEMING SHAREHOLDER'S SIGNATURE. A signature guarantee can be obtained from
any bank, U.S. trust company, a member firm of a U.S. stock exchange or a
foreign branch of any of the foregoing or other eligible guarantor institution.
A notary public is not an acceptable guarantor. A shareholder with questions
concerning a Fund's signature guarantee requirement should contact the Transfer
Agent.
Shareholders may qualify to have redemption proceeds sent to a Pre-Designated
Account by completing the appropriate section of the Account Application at the
end of this Prospectus. Shareholders with Pre-Designated Accounts should request
that redemption proceeds be sent either by bank wire or by check. The minimum
redemption amount for a bank wire is $1,000. Shareholders requesting a bank wire
should allow two business days from the time the redemption request is effected
for the proceeds to be deposited in the shareholder's Pre-Designated Account.
See "How to Redeem Shares -- Other Important Redemption Information."
Shareholders may change their Pre-Designated Accounts only by a letter of
instruction to the Transfer Agent containing all account signatures, each of
which must be guaranteed. The Transfer Agent currently does not charge a bank
wire service fee for each wire redemption sent, but reserves the right to do so
in the future. The shareholder's bank may charge a bank wire service fee.
REDEMPTIONS BY TELEPHONE. Redemption requests may be made by telephone by
calling the Transfer Agent at the appropriate toll free number provided in the
Shareholder Account Manual. Shareholders who hold certificates for shares may
not redeem by telephone. REDEMPTION REQUESTS MAY NOT BE MADE BY TELEPHONE FOR
THIRTY DAYS FOLLOWING ANY CHANGE OF THE SHAREHOLDER'S ADDRESS OF RECORD.
Prospectus Page 37
<PAGE>
GT GLOBAL INCOME FUNDS
Shareholders automatically have telephone privileges to authorize redemptions.
The Funds, GT Global and the Transfer Agent will not be liable for any loss or
damage for acting in good faith upon instructions received by telephone and
reasonably believed to be genuine. The Fund employs reasonable procedures to
confirm that instructions communicated by telephone are genuine prior to acting
upon instructions received by telephone, including requiring some form of
personal identification, providing written confirmation of such transactions,
and/or tape recording of telephone instructions.
REDEMPTIONS BY MAIL. Redemption requests should be mailed directly to the
Transfer Agent at the appropriate address provided in the Shareholder Account
Manual. As discussed above, requests for payment of redemption proceeds to a
party other than the shareholder of record and/or requests that redemption
proceeds be mailed to an address other than the shareholder's address of record
require a signature guarantee. In addition, if the shareholder's address of
record has been changed within the preceding thirty days, a signature guarantee
is required. Redemptions of shares for which certificates have been issued must
be accompanied by properly endorsed share certificates.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders owning shares with a value of $10,000
or more may participate in the GT Global Systematic Withdrawal Plan. A
participating shareholder will receive proceeds from monthly, quarterly or
annual redemptions of Fund shares with respect to either Class A or Class B
shares. No contingent deferred sales charge will be imposed on redemptions made
under the Systematic Withdrawal Plan. The minimum withdrawal amount is $100. The
amount or percentage a participating shareholder specifies to be redeemed may
not, on an annualized basis, exceed 12% of the value of the account, as of the
time the shareholder elects to participate in the Systematic Withdrawal Plan. To
participate in the Systematic Withdrawal Plan, investors should complete the
appropriate portion of the Supplemental Application provided at the end of this
Prospectus. Investors should contact their broker/ dealers or the Transfer Agent
for more information. With respect to Class A shares, participation in the
Systematic Withdrawal Plan concurrent with purchases of Class A shares of the
Fund may be disadvantageous to investors because of the sales charges involved
and possible tax implications, and therefore is discouraged. In addition,
shareholders who participate in the Systematic Withdrawal Plan should not elect
to reinvest dividends or other distributions in additional Fund shares.
CHECKWRITING -- GOVERNMENT INCOME FUND -- CLASS A SHARES. Class A shareholders
of Government Income Fund may redeem their Government Income Fund shares by
writing checks, a supply of which may be obtained through the Transfer Agent,
against their Government Income Fund accounts. The minimum check amount is $300.
When the check is presented to the Transfer Agent for payment, the Transfer
Agent will cause the Government Income Fund to redeem a sufficient number of
Class A shares to cover the amount of the check. This procedure enables the
shareholder to continue receiving dividends on those shares until such time as
the check is presented to the Transfer Agent for payment. Cancelled checks are
not returned. However, such shareholders may obtain photocopies of their
cancelled checks upon request. If a shareholder does not own sufficient Class A
shares to cover a check, the check will be returned to the payee marked
"nonsufficient funds." Checks written in amounts less than $300 also will be
returned. The Government Income Fund and the Transfer Agent reserve the right to
terminate or modify the checkwriting service at any time or to impose a service
charge in connection with it.
Because the aggregate amount of Government Income Fund Class A shares owned by a
shareholder is likely to change each day, shareholders should not attempt to
redeem all of their Government Income Fund shares held in their accounts by
using the check redemption procedure. Charges may be imposed for specially
imprinted checks, business checks, copies of cancelled checks, stop payment
orders, checks returned "nonsufficient funds" and checks returned because they
are written for less than $300. These charges will be paid by redeeming
automatically an appropriate number of Government Income Fund Class A shares.
Shareholders of Government Income Fund Class A shares who are interested in
checkwriting should obtain the necessary forms by calling the Transfer Agent at
the number provided in the Shareholder Account Manual. Checkwriting generally is
not available to persons who hold Government Income Fund Class A shares in tax-
deferred retirement plan accounts.
Prospectus Page 38
<PAGE>
GT GLOBAL INCOME FUNDS
OTHER IMPORTANT REDEMPTION INFORMATION. A request for redemption will not be
processed until all of the necessary documentation has been received in good
order. A shareholder in doubt as to what documents are required should contact
his broker/dealer or the Transfer Agent.
Except in extraordinary circumstances and as permitted under the 1940 Act,
payment for shares redeemed by telephone, or by mail will be made promptly after
receipt of a redemption request, if in good order, but not later than seven days
after the date the request is executed. Requests for redemption which are
subject to any special conditions or which specify a future or past effective
date cannot be accepted.
If the Transfer Agent is requested to redeem shares for which a Fund has not yet
received good payment, the Fund may delay payment of redemption proceeds until
it has assured itself that good payment has been collected for the purchase of
the shares. In the case of purchases by check it can take up to 10 business days
to confirm that the check has cleared and good payment has been received.
Redemption proceeds will not be delayed when shares have been paid for by wire
or when the investor's account holds a sufficient number of shares for which
funds already have been collected.
A Fund may redeem the shares of any shareholder whose account is reduced to less
than $500 in net asset value through redemptions or other action by the
shareholder. Written notice will be given to the shareholder at least 60 days
prior to the date fixed for such redemption, during which time the shareholder
may increase his or her holdings to an aggregate amount of $500 or more (with a
minimum purchase of $100).
For additional information on how to redeem shares, see the Shareholder Account
Manual in this Prospectus.
Prospectus Page 39
<PAGE>
GT GLOBAL INCOME FUNDS
SHAREHOLDER ACCOUNT MANUAL
- --------------------------------------------------------------------------------
Shareholders are encouraged to place purchase, exchange and redemption orders
through their brokers. Shareholders also may place such orders directly through
the Transfer Agent in accordance with this Manual. See "How to Invest;" "How to
Make Exchanges;" "How to Redeem Shares;" and "Dividends, Other Distributions,
and Federal Income Taxation -- Taxes" for more information.
Each Fund's Transfer Agent is GT GLOBAL INVESTOR SERVICES, INC.
INVESTMENTS BY MAIL
Send the completed Account Application (if initial purchase) or letter stating
Fund name, class of shares, shareholder's registered name and account number (if
subsequent purchase) with a check to:
GT Global
P.O. Box 7345
San Francisco, California 94120-7345
INVESTMENTS BY BANK WIRE
An investor opening a new account should call 1-800-223-2138 to obtain an
account number. WITHIN SEVEN DAYS OF PURCHASE SUCH AN INVESTOR MUST SEND A
COMPLETED ACCOUNT APPLICATION CONTAINING THE INVESTOR'S CERTIFIED TAXPAYER
IDENTIFICATION NUMBER TO GT GLOBAL AT THE ADDRESS PROVIDED ABOVE UNDER
"INVESTMENTS BY MAIL." Wire instructions must state Fund name, class of shares,
shareholder's registered name and account number. Bank wires should be sent
through the Federal Reserve Bank Wire System to:
WELLS FARGO BANK, N.A.
ABA 121000248
Attn: GT GLOBAL
ACCOUNT NO. 4023-050701
EXCHANGES BY TELEPHONE
Call GT Global at 1-800-223-2138
EXCHANGES BY MAIL
Send complete instructions, including name of Fund exchanging from, amount of
exchange, name of the GT Global Mutual Fund exchanging into, shareholder's
registered name and account number, to:
GT Global
P.O. Box 7893
San Francisco, California 94120-7893
REDEMPTIONS BY TELEPHONE
Call GT Global at 1-800-223-2138
REDEMPTIONS BY MAIL
Send complete instructions, including name of Fund, class of shares, amount of
redemption, shareholder's registered name and account number, to:
GT Global
P.O. Box 7893
San Francisco, California 94120-7893
OVERNIGHT MAIL
Overnight mail services do not deliver to post office boxes. To send purchase,
exchange or redemption orders by overnight mail, comply with the above
instructions but send to the following address:
GT Global Investor Services
California Plaza
2121 N. California Boulevard
Suite 450
Walnut Creek, California 94596
ADDITIONAL QUESTIONS
Shareholders with additional questions regarding purchase, exchange and
redemption procedures should call GT Global at 1-800-223-2138.
Prospectus Page 40
<PAGE>
GT GLOBAL INCOME FUNDS
CALCULATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The Funds calculate net asset value as of the close of normal trading on the
NYSE (currently 4:00 p.m., Eastern time, unless weather, equipment failure or
other factors contribute to an earlier closing time) each Business Day. Each
Fund's net asset value per share is computed by determining the value of its
total assets (which, in the case of the High Income Fund, is the value of its
proportionate share of the total assets of the Portfolio) subtracting all of its
liabilities, and dividing the result by the total number of shares outstanding
at such time. Net asset value is determined separately for each class of shares
of each Fund.
Long-term debt obligations held by a Fund or the Portfolio are valued at the
mean of representative quoted bid and asked prices for such securities or, if
such prices are not available, at prices for securities of comparable maturity,
quality and type; however, when the Manager deems it appropriate, prices
obtained from a bond pricing service will be used. Short-term debt investments
are amortized to maturity based on their cost, adjusted for foreign exchange
translation and market fluctuations. Equity securities are valued at the last
sale price on the exchange or in the OTC market in which such securities are
primarily 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. When
market quotations for futures and options positions held by a Fund or the
Portfolio are readily available, those positions are valued based upon such
quotations.
Securities and other assets for which market quotations are not readily
available are valued at fair value determined in good faith by or under the
direction of the Company's Board of Directors or the Portfolio's Board of
Trustees. Securities and other assets quoted in foreign currencies are valued in
U.S. dollars based on the prevailing exchange rates on that day.
Each Fund's or the Portfolio's portfolio securities, from time to time, may be
listed primarily on foreign exchanges or OTC dealer markets that may trade on
days when the NYSE is closed (such as Saturday). As a result, the net asset
values of a Fund's shares may be significantly affected by such trading on days
when shareholders have no access to that Fund.
The different service and distribution fees borne by each class of shares will
result in different net asset values and dividends. The per share net asset
value of the Class B shares of a Fund generally will be lower than that of the
Class A shares of that Fund because of the higher service and distribution fees
borne by the Class B shares. The per share net asset value of the Advisor Class
shares of a Fund generally will be higher than that of the Class A and Class B
shares of that Fund because of the absence of any service and distribution fees
applicable to the Advisor Class shares. It is expected, however, that the net
asset value per share of the classes of a Fund will tend to converge immediately
after the payment of dividends, which will differ by approximately the amount of
the service and distribution fee accrual differential between the classes.
- --------------------------------------------------------------------------------
DIVIDENDS, OTHER DISTRIBUTIONS
AND FEDERAL INCOME TAXATION
- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS. Each Fund declares and pays monthly dividends
from its net investment income, if any, which includes accrued interest, earned
discount (including both original issue and market discounts) and dividends less
applicable expenses. Each Fund also annually distributes substantially all of
its realized net short-term capital gain (the excess of short-term capital gains
over short-term capital losses), net capital gain (the excess of net long-term
capital gain over
Prospectus Page 41
<PAGE>
GT GLOBAL INCOME FUNDS
net short-term capital loss) and net gains from foreign currency transactions,
if any. Each Fund may make an additional dividend or other distribution if
necessary to avoid a 4% excise tax on certain undistributed income and gain.
Dividends and other distributions paid by each Fund with respect to all classes
of its shares are calculated in the same manner and at the same time. The per
share income dividends on Class B shares of a Fund will be lower than the per
share income dividends on Class A shares of that Fund as a result of the higher
service and distribution fees applicable to Class B shares; and the per share
income dividends on both such classes of shares of a Fund will be lower than the
per share income dividends on the Advisor Class shares of that Fund as a result
of the absence of any service and distribution fees applicable to Advisor Class
shares. SHAREHOLDERS MAY ELECT:
/ / to have all dividends and other distributions automatically reinvested in
additional Fund shares of the distributing class (or in shares of the
corresponding class of other GT Global Mutual Funds); or
/ / to receive dividends in cash and have other distributions automatically
reinvested in additional Fund shares of the distributing class (or in shares
of the corresponding class of other GT Global Mutual Funds); or
/ / to receive other distributions in cash and have dividends automatically
reinvested in additional Fund shares of the distributing class (or in shares
of the corresponding class of other GT Global Mutual Funds); or
/ / to receive dividends and other distributions in cash.
Automatic reinvestments in additional shares are made at net asset value without
imposition of a sales charge. IF NO ELECTION IS MADE BY A SHAREHOLDER, ALL
DIVIDENDS AND OTHER DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN ADDITIONAL
FUND SHARES OF THE DISTRIBUTING CLASS. Reinvestments in another GT Global Mutual
Fund may only be directed to an account with the identical shareholder
registration and account number. These elections may be changed by a shareholder
at any time; to be effective with respect to a distribution, the shareholder or
the shareholder's broker must contact the Transfer Agent by mail or telephone at
least 15 Business Days prior to the payment date. THE FEDERAL INCOME TAX
CONSEQUENCES OF DIVIDENDS AND OTHER DISTRIBUTIONS ARE THE SAME WHETHER THEY ARE
RECEIVED IN CASH OR REINVESTED IN ADDITIONAL SHARES.
Any dividend or other distribution paid by a Fund has the effect of reducing the
net asset value per share on the ex-dividend date by the amount thereof.
Therefore, a dividend or other distribution paid shortly after a purchase of
shares would represent, in substance, a return of capital to the shareholder (to
the extent the distribution is paid on the shares so purchased), even though
subject to income tax, as discussed below.
TAXES. Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code. In each taxable year that a Fund so
qualifies, the Fund (but not its shareholders) will be relieved of federal
income tax on that part of its investment company taxable income (consisting
generally of net investment income, net gains from certain foreign currency
transactions and net short-term capital gain) and net capital gain that is
distributed to its shareholders. The Portfolio expects that it also will not be
liable for any federal income tax.
Dividends from a Fund's investment company taxable income (whether paid in cash
or reinvested in additional shares) are taxable to its shareholders as ordinary
income to the extent of the Fund's earnings and profits. Distributions of a
Fund's net capital gain, when designated as such, are taxable to its
shareholders as long-term capital gains, regardless of how long they have held
their Fund shares and whether paid in cash or reinvested in additional shares.
Each Fund provides federal tax information to its shareholders annually,
including information about dividends and other distributions paid during the
preceding year and, under certain circumstances, the shareholders' respective
shares of any foreign taxes treated as paid by the Fund, in which event each
shareholder would be required to include in his or her gross income his or her
pro rata share of those taxes but might be entitled to claim a credit or
deduction for them.
Each Fund must withhold 31% from dividends, capital gain distributions and
redemption proceeds payable to any individuals and certain other noncorporate
shareholders who have not furnished to the Fund a correct taxpayer
identification number or a properly completed claim for exemption on Form W-8 or
W-9. Withholding at that rate also is required from dividends and capital gain
distributions payable to such shareholders who otherwise are subject to backup
withholding. Fund accounts opened via a bank wire purchase (see
Prospectus Page 42
<PAGE>
GT GLOBAL INCOME FUNDS
"How to Invest -- Purchases Through the Distributor") are considered to have
uncertified taxpayer identification numbers unless a completed Form W-8 or W-9
or Account Application is received by the Transfer Agent within seven days after
the purchase. A shareholder should contact the Transfer Agent if the shareholder
is uncertain whether a proper taxpayer identification number is on file with a
Fund.
A redemption of Fund shares may result in taxable gain or loss to the redeeming
shareholder, depending upon whether the redemption proceeds are more or less
than the shareholder's adjusted basis for the redeemed shares (which normally
includes any initial sales charge paid on Class A shares). An exchange of Fund
shares for shares of another GT Global Mutual Fund (including another Fund)
generally will have similar tax consequences. However, special tax rules apply
when a shareholder (1) disposes of Class A shares of a Fund through a redemption
or exchange within 90 days after purchase and (2) subsequently acquires Class A
shares of that Fund or any other GT Global Mutual Fund on which an initial sales
charge normally is imposed without paying that sales charge due to the
reinstatement privilege or exchange privilege. In these cases, any gain on the
disposition of the original Class A shares will be increased, or loss decreased,
by the amount of the sales charge paid when the shares were acquired, and that
amount will increase the adjusted basis of the shares subsequently acquired. In
addition, if shares of a Fund are purchased within 30 days before or after
redeeming other shares of that Fund (regardless of class) at a loss, all or a
part of the loss will not be deductible and instead will increase the basis of
the newly purchased shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders. See "Taxes"
in the Statement of Additional Information for a further discussion. There may
be other federal, state, local or foreign tax considerations applicable to a
particular investor. Prospective investors are therefore urged to consult their
tax advisers.
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
The Company's Board of Directors and the Portfolio's Board of Trustees have
overall responsibility for the operation of the Funds and the Portfolio,
respectively, and have approved contracts with various financial organizations
to provide, among other things, day to day management services required by the
Funds and the Portfolio. See "Directors, Trustees, and Executive Officers" in
the Statement of Additional Information for a complete description of the
Directors of each of the Funds and the Trustees of the Portfolio.
INVESTMENT MANAGEMENT AND ADMINISTRATION. Services provided by Chancellor LGT
Asset Management, Inc. (the "Manager") as the Government Income Fund's, the
Strategic Income Fund's and the Portfolio's investment manager and administrator
include, but are not limited to, determining the composition of the investment
portfolio of the Government Income Fund, the Strategic Income Fund and the
Portfolio and placing orders to buy, sell or hold particular securities. In
addition, the Manager provides the following administration services to the
Funds and the Portfolio: furnishing corporate officers and clerical staff;
providing office space, services and equipment; and supervising all matters
relating to the Government Income Fund's, the Strategic Income Fund's and the
Portfolio's operation.
The Government Income Fund and the Strategic Income Fund each pays the Manager
administration fees computed daily and payable monthly, based on their
respective average daily net assets, for such services at the annualized rate of
.725% on the first $500 million, .70% on the next $1 billion, .675% on the next
$1 billion, and .65% on amounts thereafter. The High Income Fund pays
administration fees, directly to the Manager at the annualized rate of 0.25% of
the Fund's average daily net assets. In addition, the Fund bears its pro rata
portion of the investment management and administration fees paid by the
Portfolio to the Manager. The Portfolio pays such fees, based on the average
daily net assets of the Portfolio, directly to the Manager at the annualized
rate of .475% on the first $500 million, .45% on the next $1 billion, .425% on
Prospectus Page 43
<PAGE>
GT GLOBAL INCOME FUNDS
the next $1 billion and .40% on amounts thereafter, plus 2% of the Portfolio's
total investment income as stated in the Portfolio's Statement of Operations,
calculated in accordance with generally accepted accounting principles, adjusted
daily for currency revaluations, on a marked to market basis, of the Portfolio's
assets; provided, however, that during any fiscal year this amount shall not
exceed 2% of the Portfolio's total investment income calculated in accordance
with generally accepted accounting principles. These rates are higher than those
paid by most mutual funds. Each Fund pays all expenses not assumed by the
Manager, GT Global or any other agents. The Manager and GT Global have
undertaken to limit the expenses of the Class A and Class B shares of the
Government Income Fund and the Strategic Income Fund (exclusive of brokerage
commissions, taxes, interest and extraordinary expenses) to the maximum annual
level of 1.85% and 2.50% of the average daily net assets of such Funds' Class A
and Class B shares, respectively. The Manager and GT Global have undertaken to
limit the expenses of the Class A and Class B shares of the High Income Fund
(and such Fund's pro-rata portion of the Portfolio's expenses) to the maximum
annual level of 2.20% and 2.85% of the average daily net assets of such Fund's
Class A and Class B shares, respectively. This undertaking may be changed or
eliminated in the future.
The Manager also serves as each Fund's pricing and accounting agent. For these
services the Manager receives a fee at an annual rate derived by applying 0.03%
to the first $5 billion of assets of GT Global Mutual Funds and 0.02% to the
assets in excess of $5 billion and allocating the result according to each
Fund's average daily net assets.
The Manager provides investment management and/or administration services to the
GT Global Mutual Funds. The Manager and its worldwide asset management
affiliates have provided investment management and/or administration services to
institutional, corporate and individual clients around the world since 1969. The
U.S. offices of the Manager are located at 50 California Street, 27th Floor, San
Francisco, CA 94111 and 1166 Avenue of the Americas, New York, NY 10036.
The Manager and its worldwide affiliates, including LGT Bank in Liechtenstein,
formerly Bank in Liechtenstein, compose Liechtenstein Global Trust, formerly BIL
GT Group Limited. Liechtenstein Global Trust is a provider of global asset
management and private banking products and services to individual and
institutional investors. Liechtenstein Global Trust is controlled by the Prince
of Liechtenstein Foundation, which serves as a parent organization for the
various business enterprises of the Princely Family of Liechtenstein. The
principal business address of the Prince of Liechtenstein Foundation is
Herrengasse 12, FL-9490, Vaduz, Liechtenstein.
As of December 31, 1996, the Manager and its worldwide asset management
affiliates manage approximately $62 billion. In the United States, as of
December 31, 1996, the Manager manages or administers approximately $10 billion
of GT Global Mutual Funds. As of December 31, 1996, assets entrusted to
Liechtenstein Global Trust total approximately $84 billion.
On October 31, 1996, Chancellor Capital Management, Inc. ("Chancellor Capital")
merged with LGT Asset Management, Inc., and the resulting entity was named
Chancellor LGT Asset Management, Inc. As of September 30, 1996, Chancellor
Capital and its affiliates, based in New York, were the 15th largest independent
investment manager in the United States with approximately $33 billion in assets
under management. Chancellor Capital specialized in public and private U.S.
equity and bond portfolio management for over 300 U.S. institutional clients.
In addition to the investment resources of its San Francisco and New York
offices, the Manager draws upon the expertise, personnel, data and systems of
other offices of Liechtenstein Global Trust, including investment offices in
Frankfurt, Hong Kong, London, Singapore, Sydney, Tokyo, and Toronto. In managing
the GT Global Mutual Funds, the Manager employs a team approach, taking
advantage of its investment resources around the world in seeking to achieve
each Fund's investment objective. Many of the GT Global Mutual Funds' portfolio
managers are natives of the countries in which they invest, speak local
languages and/or live or work in the markets they follow.
Prospectus Page 44
<PAGE>
GT GLOBAL INCOME FUNDS
The investment professionals primarily responsible for the portfolio management
of the Government Income Fund, the Strategic Income Fund and the Portfolio are
as follows:
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
RESPONSIBILITIES FOR BUSINESS EXPERIENCE
NAME/OFFICE THE FUND LAST FIVE YEARS
- ------------------------ ------------------------ --------------------------------------------------------------------
<S> <C> <C>
Cheng-Hock Lau* Portfolio Manager since Mr. Lau has been Chief Investment Officer for Developed Market Debt
New York 1996 for the Manager since November 1996, and was a Senior Portfolio
Manager for global/international fixed income for the Manager from
July 1995 to November 1996. Prior thereto, Mr. Lau was a Senior
Vice President and Senior Portfolio Manager for Fiduciary Trust
Company International from 1993 to 1995, and Vice President at
Bankers Trust Company from 1991 to 1993.
Simon Nocera Portfolio Manager since Chief Investment Officer for Emerging Market Debt for the Manager
San Francisco 1996 since January 1996. Mr. Nocera has been a Portfolio Manager and
Economist for the Manager since 1992. From 1991 to 1992, Mr. Nocera
was Senior Vice President and Director for Global Fixed Income
Research at the Putnam Companies.
STRATEGIC INCOME FUND
<CAPTION>
RESPONSIBILITIES FOR BUSINESS EXPERIENCE
NAME/OFFICE THE FUND LAST FIVE YEARS
- ------------------------ ------------------------ --------------------------------------------------------------------
<S> <C> <C>
Simon Nocera Portfolio Manager since Chief Investment Officer for Emerging Market Debt for the Manager
San Francisco 1992 since January 1996. Mr. Nocera has been a Portfolio Manager and
Economist for the Manager since 1992. From 1991 to 1992, Mr. Nocera
was Senior Vice President and Director for Global Fixed Income
Research at the Putnam Companies.
Cheng-Hock Lau* Portfolio Manager since Mr. Lau has been Chief Investment Officer for Developed Market Debt
New York 1996 for the Manager since November 1996, and was a Senior Portfolio
Manager for global/international fixed income for the Manager from
July 1995 to November 1996. Prior thereto, Mr. Lau was a Senior
Vice President and Senior Portfolio Manager for Fiduciary Trust
Company International from 1993 to 1995, and Vice President at
Bankers Trust Company from 1991 to 1993.
HIGH INCOME PORTFOLIO
<CAPTION>
RESPONSIBILITIES FOR BUSINESS EXPERIENCE
NAME/OFFICE THE PORTFOLIO LAST FIVE YEARS
- ------------------------ ------------------------ --------------------------------------------------------------------
<S> <C> <C>
Simon Nocera Portfolio Manager since Chief Investment Officer for Emerging Market Debt for the Manager
San Francisco Portfolio inception in since January 1996. Mr. Nocera has been a Portfolio Manager and
1992 Economist for the Manager since 1992. From 1991 to 1992, Mr. Nocera
was Senior Vice President and Director for Global Fixed Income
Research at the Putnam Companies.
</TABLE>
*Employee of Chancellor Capital prior to October 31, 1996.
Prospectus Page 45
<PAGE>
GT GLOBAL INCOME FUNDS
In placing orders for the Government Income Fund's, Strategic Income Fund's and
the Portfolio's securities transactions, the Manager seeks to obtain the best
net results. Consistent with its obligation to obtain the best net results, the
Manager may consider a broker/dealer's sale of shares of the GT Global Mutual
Funds as a factor in considering through whom portfolio transactions will be
effected. Brokerage transactions for the Fund may be executed through affiliates
of Liechtenstein Global Trust. High portfolio turnover (over 100%) involves
correspondingly greater brokerage commissions and other transaction costs that
the Funds or the Portfolio will bear directly and could result in the
realization of net capital gains which would be taxable when distributed to
shareholders.
DISTRIBUTION OF FUND SHARES. GT Global is the distributor of each Fund's Class A
and Class B shares. Like the Manager, GT Global is a subsidiary of Liechtenstein
Global Trust with offices at 50 California Street, 27th Floor, San Francisco,
California 94111. As distributor, GT Global collects the sales charges imposed
on purchases of Class A shares and any contingent deferred sales charges that
may be imposed on certain redemptions of Class A and Class B shares. GT Global
reallows a portion of the sales charge on Class A shares to broker/dealers that
have sold such shares in accordance with the schedule set forth above under "How
to Invest." In addition, GT Global pays a commission equal to 4.00% of the
amount invested to broker/dealers who sell Class B shares. A commission with
respect to Class B shares is not paid on exchanges or certain investments in
Class B shares.
GT Global, at its own expense, may provide additional promotional incentives to
brokers that sell shares of the Funds and/or shares of the other GT Global
Mutual Funds. In some instances additional compensation or promotional
incentives may be offered to brokers that have sold or may sell significant
amounts of shares during specified periods of time. Such compensation and
incentives may include, but are not limited to, cash, merchandise, trips and
financial assistance to brokers in connection with preapproved conferences or
seminars, sales or training programs for invited sales personnel, payment for
travel expenses (including meals and lodging) incurred by sales personnel and
members of their families or other invited guests to various locations for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more of the GT Global Mutual Funds, and/or other
events sponsored by the broker. In addition, GT Global makes ongoing payments to
brokerage firms, financial institutions (including banks) and others that
facilitate the administration and servicing of shareholder accounts.
Under a plan of distribution adopted by the Company's Board of Directors
pursuant to Rule 12b-1 under the 1940 Act, with respect to each Fund's Class A
shares ("Class A Plan"), each Fund may 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 its expenditures incurred in servicing and maintaining
shareholder accounts, and may 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
its expenditures incurred in providing services as distributor. All expenses for
which GT Global is reimbursed under the Class A Plan will have been incurred
within one year of such reimbursement.
Pursuant to a separate plan of distribution adopted with respect to each Fund's
Class B shares ("Class B Plan"), each Fund may 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 its expenditures incurred in servicing and maintaining
shareholder accounts, and may 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 its expenditures incurred in providing services as distributor. Expenses
incurred by GT Global in excess of 1.00% annually may be carried forward for
reimbursement in subsequent years as long as that Plan continues in effect.
GT Global's service and distribution expenses covered by the Plans include the
payment of commissions; the cost of any additional compensation paid by GT
Global to broker/dealers; the costs of printing and mailing to prospective
investors prospectuses and other materials relating to the Funds; the costs of
developing, printing, distributing and publishing advertisements and other sales
literature; and allocated costs relating to GT Global's distribution activities,
including, among other things, employee salaries, bonuses and other overhead
expenses. In addition, its expenses under the Class B Plan include payment of
initial sales commissions to broker/dealers and interest on any unreimbursed
amounts carried forward thereunder.
Prospectus Page 46
<PAGE>
GT GLOBAL INCOME FUNDS
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting or distributing securities. Accordingly, GT Global intends to
engage banks (if at all) only to perform administrative and shareholder
servicing functions. Banks and broker/ dealer affiliates of banks also may
execute dealer agreements with GT Global for the purpose of selling shares of
the Fund. If a bank were prohibited from so acting, its shareholder clients
would be permitted to remain shareholders, and alternative means for continuing
the servicing of such shareholders would be sought. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
CONFIRMATIONS AND REPORTS TO SHAREHOLDERS. Each time a transaction is made that
affects a shareholder's account in a Fund, the shareholder will receive from the
Transfer Agent a confirmation statement reflecting the transaction.
Confirmations for transactions effected pursuant to a Fund's Automatic
Investment Plan, Systematic Withdrawal Plan, and automatic dividend reinvestment
program may be provided quarterly. Shortly after the end of each Fund's fiscal
year on October 31 and fiscal half-year on April 30 of each year, shareholders
receive an annual and a semiannual report, respectively. In addition, the
federal income status of distributions made by the Fund to shareholders are
reported after the end of each calendar year on Form 1099-DIV. Under certain
circumstances, duplicate mailings of the foregoing reports to the same household
may be consolidated.
ORGANIZATION OF THE COMPANY. The Company was organized as a Maryland corporation
on October 29, 1987. From time to time, the Company has established and may
continue to establish other funds, each corresponding to a distinct investment
portfolio and a distinct series of the Company's common stock. Shares of each
Fund are entitled to one vote per share (with proportional voting for fractional
shares) and are freely transferable. Shareholders have no preemptive or
conversion rights.
On any matter submitted to a vote of shareholders, shares of a Fund will be
voted by the Fund's shareholders individually when the matter affects the
specific interest of the Fund only, such as approval of its investment
management arrangements. In addition, each class of shares of a Fund has
exclusive voting rights with respect to its distribution plan. The shares of the
Company's funds will be voted in the aggregate on all other matters, such as the
election of Directors and ratification of the Board of Directors' selection of
the Company's independent accountants.
Normally there will be no annual meeting of shareholders of the Company in any
year, except as required under the 1940 Act. The Company would be required to
hold a shareholders' meeting in the event that at any time less than a majority
of the Directors holding office had been elected by shareholders. Directors
shall continue to hold office until their successors are elected and have
qualified. Shares of the Company's funds do not have cumulative voting rights,
which means that the holders of a majority of the shares voting for the election
of Directors can elect all the Directors. A Director may be removed upon a
majority vote of the shareholders qualified to vote in the election.
Shareholders holding 10% of the Company's outstanding voting shares may call a
meeting of shareholders for the purpose of voting upon the question of removal
of any Director or for any other purpose. The 1940 Act requires the Company to
assist shareholders in calling such a meeting.
Pursuant to the Company's Articles of Incorporation, it may issue six billion
shares. Of this number, 300 million shares have been classified as shares of the
Strategic Income Fund and the High Income Fund; 100 million shares of each Fund
have been classified as Class A and Class B shares, respectively. In addition,
500 million shares have been classified as shares of Government Income Fund; 200
million shares have each been classified as Class A and Class B shares,
respectively. Moreover, 100 million shares have been classified as Advisor Class
shares of each Fund. This amount may be increased from time to time in the
discretion of
Prospectus Page 47
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GT GLOBAL INCOME FUNDS
the Board of Directors. Each share of a Fund represents an interest in that Fund
only, has a par value of $0.0001 per share, represents an equal proportionate
interest in the Fund with other shares of the Fund and is entitled to such
dividends and other distributions out of the income earned and gain realized on
the assets belonging to the Fund as may be declared at the discretion of the
Board of Directors. Each Class A, Class B and Advisor Class share of a Fund is
equal as to earnings, assets and voting privileges, except as noted above, and
each class bears the expenses, if any, related to the distribution of its
shares. Shares of each Fund when issued are fully paid and nonassessable.
ORGANIZATION OF THE PORTFOLIO. The Portfolio is organized as a trust under the
laws of the state of New York. The Portfolio's Declaration of Trust provides
that the High Income Fund and other entities investing in the Portfolio (E.G.,
other investment companies, insurance company separate accounts and common and
commingled trust funds), if any, will each be liable for all obligations of the
Portfolio. However, the Directors of the Company believe that the risk of the
High Income Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations, and that neither the High
Income Fund nor its shareholders will be exposed to a material risk of liability
by reason of the High Income Fund's investing in the Portfolio. Any information
received from the Portfolio in the Portfolio shareholder report will be provided
to the High Income Fund's shareholders.
Whenever the High Income Fund is requested to vote on any proposal of the
Portfolio, the High Income Fund will hold a meeting of Fund shareholders and
will cast its vote as instructed by Fund shareholders. Shares for which no
voting instructions are received will be voted in the same proportion as the
shares for which voting instructions are received.
SHAREHOLDER INQUIRIES. Shareholder inquiries may be made by calling the Funds
toll free at (800) 223-2138 or by writing to the Funds at 50 California Street,
27th Floor, San Francisco, California 94111.
PERFORMANCE INFORMATION. The Funds, from time to time, may include information
on their investment results and/or comparisons of their investment results to
various unmanaged indices or results of other mutual funds or groups of mutual
funds in advertisements, sales literature or reports furnished to present or
prospective shareholders. Investors should be aware that as of October 22, 1992,
the investment objectives of the Strategic Income Fund were changed from
long-term high capital appreciation, primarily and moderate income, secondarily,
to primarily high current income and secondarily capital appreciation. In
addition, the investment policies and limitations of the Strategic Income Fund
were modified.
In such materials, each Fund may quote its average annual total return
("Standardized Return"). Standardized Return is calculated separately for each
class of shares of each Fund. Standardized Return shows percentage rates
reflecting the average annual change in the value of an assumed investment in
the Fund at the end of one-, five- and ten-year periods, reduced by the maximum
applicable sales charge imposed on sales of Fund shares. If a one-, five- and/or
ten-year period has not yet elapsed, data will be provided as of the end of a
shorter period corresponding to the life of the Fund. Standardized Return
assumes reinvestment of all dividends and other distributions.
In addition, in order to more completely represent each Fund's performance or
more accurately compare such performance to other measures of investment return,
each Fund also may include in advertisements, sales literature and shareholder
reports other total return performance data ("Non-Standardized Return").
Non-Standardized Return reflects percentage rates of return encompassing all
elements of return (i.e., income and capital appreciation or depreciation); it
assumes reinvestment of all dividends and other distributions. Non-Standardized
Return may be quoted for the same or different periods as those for which
Standardized Return is quoted; it may consist of an aggregate or average annual
percentage rate of return, actual year-by-year rates or any combination thereof.
Non-Standardized Return may or may not take sales charges into account;
performance data calculated without taking the effect of sales charges into
account will be higher than data including the effect of such charges.
Each Fund also may refer in advertising and promotional materials to its yield,
which will fluctuate over time. A Fund's yield shows the rate of income that it
earns on its investments, expressed as a percentage of the public offering price
of its shares. A Fund calculates yield by determining the interest income it
earned from its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of
Prospectus Page 48
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GT GLOBAL INCOME FUNDS
shares outstanding, and expressing the result as an annualized percentage based
on the public offering price at the end of that thirty-day period. Yield
accounting methods differ from the methods used for other accounting purposes.
Accordingly, a Fund's yield may not equal the dividend income actually paid to
investors or the income reported in its financial statements. Yield is
calculated separately for each class of shares of each Fund.
Each Fund's performance data will reflect past performance and will not
necessarily be indicative of future results. A Fund's investment results will
vary from time to time depending upon market conditions, the composition of its
portfolio and its operating expenses. These factors and possible differences in
calculation methods should be considered when comparing a Fund's investment
results with those published for other investment companies, other investment
vehicles and unmanaged indices. Each Fund's results also should be considered
relative to the risks associated with its investment objectives and policies.
See "Investment Results" in the Statement of Additional Information.
Each Fund's annual report contains additional information with respect to its
performance. The annual report is available to investors upon request and free
of charge.
TRANSFER AGENT. Shareholder servicing, reporting and general transfer agent
functions for the Funds are performed by GT Global Investor Services, Inc. The
Transfer Agent is an affiliate of the Manager and GT Global, a subsidiary of
Liechtenstein Global Trust, and maintains its offices at California Plaza, 2121
N. California Boulevard, Suite 450, Walnut Creek, California 94596.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of each Fund's and the Portfolio's assets.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue,
N.W., Washington, D.C. 20036-1800, acts as counsel to the Company, the Funds and
the Portfolio. Kirkpatrick & Lockhart LLP also acts as counsel to the Manager,
GT Global and the Transfer Agent in connection with other matters.
INDEPENDENT ACCOUNTANTS. The Company's and each Fund's and the Portfolio's
independent accountants are Coopers & Lybrand L.L.P., One Post Office Square,
Boston, Massachusetts 02109. Coopers & Lybrand L.L.P. conducts an annual audit
of each Fund and the Portfolio, assist in the preparation of each Fund's and the
Portfolio's federal and state income tax returns and consult with the Company,
each Fund and the Portfolio as to matters of accounting, regulatory filings, and
federal and state income taxation.
MULTIPLE TRANSLATIONS OF THE PROSPECTUS. This prospectus may be translated into
other languages. In the event of any inconsistency or ambiguity as to the
meaning of any word or phrase contained in a translation, the English text shall
prevail.
Prospectus Page 49
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GT GLOBAL INCOME FUNDS
APPENDIX A
DESCRIPTION OF DEBT RATINGS
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("Moody's") rates the debt securities issued by
various entities from "Aaa" to "C". Investment grade ratings are the first four
categories:
Aaa -- Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt edged." Interest
payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- High quality by all standards. They are rated lower than the best
bond because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear somewhat
larger.
A -- Upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Medium-grade obligations. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba -- Have speculative elements and their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B -- Generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa -- Poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca -- Speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C -- Lowest rated class of bonds. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
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GT GLOBAL INCOME FUNDS
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the Company ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS GROUP ("S&P") rates the securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
Investment grade ratings are the first four categories:
AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong.
AA -- High grade. Very strong capacity to pay interest and repay
principal. Generally, these bonds differ from AAA issues only in a small
degree.
A -- Have a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal than for
debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated "BB," "B," "CCC," "CC," and "C" are
regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of this
obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
BB -- Has less near-term vulnerability to default than other speculative
issues; however, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied "BBB-" rating.
B -- Has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC -- Has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual
or implied "B" or "B-" rating.
CC -- Typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
C -- Typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C1 -- Reserved for income bonds on which no interest is being paid.
D -- In payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S employs the designation "Prime-1" to indicate commercial paper having a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the
Prospectus Page 51
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GT GLOBAL INCOME FUNDS
following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging from
"A1" for the highest quality obligations to "D" for the lowest. Issues in the
"A" category are delineated with numbers 1, 2, and 3 to indicate the relative
degree of safety. A-1 -- This highest category indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus sign (+)
designation. A-2 -- Capacity for timely payments on issues with this designation
is satisfactory; however, the relative degree of safety is not as high as for
issues designated "A-1."
Prospectus Page 52
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 53
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 54
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 55
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 56
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 57
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 58
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 59
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 60
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 61
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
Prospectus Page 62
<PAGE>
<TABLE>
<S> <C>
[LOGO]
GT GLOBAL MUTUAL FUNDS
P.O. Box 7345 ACCOUNT APPLICATION
SAN FRANCISCO, CA 94120-7345
800/223-2138
</TABLE>
<TABLE>
<S> <C> <C>
/ / INDIVIDUAL / / JOINT TENANT / / GIFT/TRANSFER FOR MINOR / / TRUST / / CORP.
ACCOUNT REGISTRATION / / NEW ACCOUNT / / ACCOUNT REVISION (Account No.: --------------------------------------)
</TABLE>
NOTE: Trust registrations should specify name of trustee(s), beneficiary(ies)
and date of trust instrument. Registration for Uniform Gifts/Transfers to
Minors accounts should be in the name of one custodian and one minor and
include the state under which the custodianship is created.
<TABLE>
<S> <C> <C> <C>
------------------------------------ --------------------------------------------------------------------------------
Owner Social Security Number / / or Tax I.D. Number / / (Check applicable box)
------------------------------------ If more than one owner, social security number or taxpayer identification number
Co-owner 1 should be provided for first owner listed. If a purchase is made under Uniform Gift/
------------------------------------ Transfer to Minors Act, social security number of the minor must be provided.
Co-owner 2 Resident of / / U.S. / / Other (specify)-----------------------------------------
( )
---------------------------------------------------------------------- ---------------------------
Street Address Home Telephone
( )
---------------------------------------------------------------------- ---------------------------
City, State, Zip Code Business Telephone
</TABLE>
FUND SELECTION $500 minimum initial investment required for each Fund
selected. Checks should be made payable to "GT GLOBAL."
TO PURCHASE THE FUNDS LISTED BELOW PLEASE SELECT EITHER / / Class A Shares or
/ /Class B Shares (Not available for purchases of $500,000 or more or, except
for investors participating in the Portfolio Rebalancing Program, for the
GT Global Dollar Fund).
If a class share box is not checked, your investment will be made in Class A
shares.
<TABLE>
<S> <C> <C> <C> <C>
INITIAL INITIAL
INVESTMENT INVESTMENT
07 / / GT GLOBAL WORLDWIDE GROWTH FUND $ 13 / / GT GLOBAL LATIN AMERICA GROWTH FUND $
---------- ----------
05 / / GT GLOBAL INTERNATIONAL GROWTH FUND $ 24 / / GT GLOBAL AMERICA SMALL CAP GROWTH $
---------- FUND ----------
16 / / GT GLOBAL EMERGING MARKETS FUND $ 06 / / GT GLOBAL AMERICA MID CAP GROWTH FUND $
---------- ----------
11 / / GT GLOBAL HEALTH CARE FUND $ 23 / / GT GLOBAL AMERICA VALUE FUND $
---------- ----------
15 / / GT GLOBAL TELECOMMUNICATIONS FUND $ 04 / / GT GLOBAL JAPAN GROWTH FUND $
---------- ----------
19 / / GT GLOBAL INFRASTRUCTURE FUND $ 10 / / GT GLOBAL GROWTH & INCOME FUND $
---------- ----------
17 / / GT GLOBAL FINANCIAL SERVICES FUND $ 09 / / GT GLOBAL GOVERNMENT INCOME FUND $
---------- ----------
21 / / GT GLOBAL NATURAL RESOURCES FUND $ 08 / / GT GLOBAL STRATEGIC INCOME FUND $
---------- ----------
22 / / GT GLOBAL CONSUMER PRODUCTS AND SERVICES FUND $ 18 / / GT GLOBAL HIGH INCOME FUND $
---------- ----------
02 / / GT GLOBAL NEW PACIFIC GROWTH FUND $ 01 / / GT GLOBAL DOLLAR FUND $
---------- ----------
03 / / GT GLOBAL EUROPE GROWTH FUND $
----------
CHECKWRITING PRIVILEGE
Checkwriting privilege available on Class A shares of GT Global Dollar Fund and GT Global Government Income Fund.
/ / Check here if desired. You will be sent a book of checks.
CAPITAL GAINS AND DIVIDEND DISTRIBUTIONS TOTAL INITIAL INVESTMENT: $
----------
All capital gains and dividend distributions will be reinvested in additional shares of the same class unless appropriate
boxes below are checked:
/ / Pay capital gain distributions only in cash / / Pay dividends only in cash / / Pay capital gain distributions AND
dividends in cash.
SPECIAL CAPITAL GAINS AND DIVIDEND DISTRIBUTIONS OPTION
Pay distributions noted above to another GT Global Mutual Fund: Fund Name ------------------------------------------
</TABLE>
AGREEMENTS & SIGNATURES
By the execution of this Account Application, I/we represent and warrant that
I/we have full right, power and authority and am/are of legal age in my/our
state of residence to make the investment applied for pursuant to this
Application. The person(s), if any, signing on behalf of the investor
represent and warrant that they are duly authorized to sign this Application
and to purchase, redeem or exchange shares of the Fund(s) on behalf of the
investor. I/WE HEREBY AFFIRM THAT I/WE HAVE RECEIVED A CURRENT PROSPECTUS OF
THE GT GLOBAL MUTUAL FUND(S) IN WHICH I/WE AM/ARE INVESTING AND I/WE AGREE TO
ITS TERMS AND CONDITIONS.
I/WE AND MY/OUR ASSIGNS AND SUCCESSORS UNDERSTAND AND AGREE THAT THE ACCOUNT
WILL BE SUBJECT TO THE TELEPHONE EXCHANGE AND TELEPHONE REDEMPTION PRIVILEGES
DESCRIBED IN THE CURRENT PROSPECTUS TO WHICH THIS APPLICATION IS ATTACHED AND
AGREE THAT GT GLOBAL, INC., G.T. GLOBAL GROWTH SERIES, G.T. INVESTMENT FUNDS,
INC., G.T. INVESTMENT PORTFOLIOS, INC. AND THE FUNDS' TRANSFER AGENT, THEIR
OFFICERS AND EMPLOYEES, WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGES ARISING OUT
OF ANY SUCH TELEPHONE, TELEX OR TELEGRAPHIC INSTRUCTIONS REASONABLY BELIEVED
TO BE GENUINE, INCLUDING ANY SUCH LOSS OR DAMAGES DUE TO NEGLIGENCE ON THE
PART OF SUCH ENTITIES. THE INVESTOR(S) CERTIFIES(Y) AND AGREE(S) THAT THE
CERTIFICATIONS, AUTHORIZATIONS, DIRECTIONS AND RESTRICTIONS CONTAINED HEREIN
WILL CONTINUE UNTIL GT GLOBAL, INC., G.T. GLOBAL GROWTH SERIES, G.T.
INVESTMENT FUNDS, INC., G.T. INVESTMENT PORTFOLIOS, INC. OR THE FUNDS'
TRANSFER AGENT RECEIVES WRITTEN NOTICE OF ANY CHANGE OR REVOCATION. ANY CHANGE
IN THESE INSTRUCTIONS MUST BE IN WRITING AND IN SOME CASES, AS DESCRIBED IN
THE PROSPECTUS, REQUIRES THAT ALL SIGNATURES BE GUARANTEED.
PLEASE INDICATE THE NUMBER OF SIGNATURES REQUIRED TO PROCESS CHECKS OR
WRITTEN REDEMPTION REQUESTS: / / ONE / / TWO / / THREE / / FOUR.
(If you do not indicate the number of required signatures, ALL account
owners must sign checks and/or written redemption requests.)
UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE TAXPAYER IDENTIFICATION
NUMBER ("NUMBER") PROVIDED ON THIS FORM IS MY (OR MY EMPLOYER'S, TRUST'S,
MINOR'S OR OTHER PAYEE'S) TRUE, CORRECT AND COMPLETE NUMBER AND MAY BE
ASSIGNED TO ANY NEW ACCOUNT OPENED UNDER THE EXCHANGE PRIVILEGE. I FURTHER
CERTIFY THAT I AM (OR THE PAYEE WHOSE NUMBER IS GIVEN IS) NOT SUBJECT TO
BACKUP WITHHOLDING BECAUSE: (A) I AM (OR THE PAYEE IS) EXEMPT FROM BACKUP
WITHHOLDING; (B) THE INTERNAL REVENUE SERVICE (THE "I.R.S.") HAS NOT NOTIFIED
ME THAT I AM (OR THE PAYEE IS) SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A
FAILURE TO REPORT ALL INTEREST OR DIVIDENDS; OR (C) THE I.R.S. HAS NOTIFIED ME
THAT I AM (THE PAYEE IS) NO LONGER SUBJECT TO BACKUP WITHHOLDING;
OR, / / I AM (THE PAYEE IS) SUBJECT TO BACKUP WITHHOLDING.
ALL ACCOUNT OWNERS MUST SIGN BELOW (Minors are not authorized signers)
Account revisions may require that signatures be guaranteed. Please see the
Prospectus.
THE I.R.S. DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT
OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
<TABLE>
<S> <C>
-----------------------------------------------------------
Date
X X
--------------------------------------------------------- ----------------------------------------------------------
X X
--------------------------------------------------------- ----------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ACCOUNT PRIVILEGES
TELEPHONE EXCHANGE AND REDEMPTION AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO
PRE-DESIGNATED ACCOUNT
I/We, either directly or through the Authorized By completing the following section, redemptions
Agent, if any, named below, hereby authorize the which exceed $1,000 may be wired or mailed to a
Transfer Agent of the GT Global Mutual Funds, to Pre-Designated Account at your bank. (Wiring
honor any telephone, telex or telegraphic instructions may be obtained from your bank.) A
instructions reasonably believed to be authentic bank wire service fee may be charged.
for redemption and/or exchange between a similar
class of shares of any of the Funds distributed --------------------------------------------------
by GT Global, Inc. Name of Bank
SPECIAL PURCHASE AND REDEMPTION PLANS --------------------------------------------------
/ / I have completed and attached the Bank Address
Supplemental Application for:
/ / AUTOMATIC INVESTMENT PLAN --------------------------------------------------
/ / SYSTEMATIC WITHDRAWAL PLAN Bank A.B.A Number Account Number
OTHER
/ / I/We owned shares of one or more Funds --------------------------------------------------
distributed by GT Global, Inc. as of April Names(s) in which Bank Account is Established
30, 1987 and since that date continuously A corporation (or partnership) must also submit a
have owned shares of such Funds. Attached is "Corporate Resolution" (or "Certificate of
a schedule showing the numbers of each of Partnership") indicating the names and titles of
my/our Shareholder Accounts. Officers authorized to act on its behalf.
</TABLE>
RIGHT OF ACCUMULATION -- CLASS A SHARES
/ / I/We qualify for the Right of Accumulation sales charge discount
described in the Prospectus and Statement of Additional Information of
the Fund purchased.
/ / I/We own shares of more than one Fund distributed by GT Global. Listed
below are the numbers of each of my/our Shareholder Accounts.
/ / The registration of some of my/our shares differs from that shown on this
Application. Below are the account number(s) and registration(s) in each
case.
LIST OF OTHER GT GLOBAL MUTUAL FUND ACCOUNTS:
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------- --------------------------------------------------
------------------------------------------- --------------------------------------------------
------------------------------------------- --------------------------------------------------
Account Numbers Account Registrations
</TABLE>
LETTER OF INTENT -- CLASS A SHARES
/ / I agree to the terms of the Letter of Intent set forth below. Although I
am not obligated to do so, it is my intention to invest over a
thirteen-month period in Class A shares of one or more of the GT Global
Mutual Funds in an aggregate amount at least equal to:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000
When a shareholder signs a Letter of Intent in order to qualify for a reduced
sales charge, Class A shares equal to 5% (in no case in excess of 1/2 of 1%
after an aggregate of $500,000 has been purchased under the Letter) of the
dollar amount specified in this Letter will be held in escrow in the
Shareholder's Account out of the initial purchase (or subsequent purchases, if
necessary) by GT Global, Inc. All dividends and other distributions will be
credited to the Shareholder's Account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
thirteen-month period, the purchaser will remit to GT Global, Inc. the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If this difference is not paid within twenty days after written request
by GT Global, Inc. or the shareholder's Authorized Agent, the appropriate
number of escrowed shares will be redeemed to pay such difference. If the
proceeds from this redemption are inadequate, the purchaser will be liable to
GT Global, Inc. for the balance still outstanding. The Letter of Intent may be
revised upward at any time during the thirteen-month period, and such a
revision will be treated as a new Letter, except that the thirteen-month
period during which the purchase must be made will remain unchanged. Exchange
requests involving escrowed shares must specifically reference those shares.
Exchanges of escrowed shares may be delayed to allow for the extra processing
required.
Any questions relating to this Letter of Intent should be directed to GT
Global, 50 California Street, 27th Floor, San Francisco, CA 94111.
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
We hereby submit this Account Application for the purchase of Class A shares
including such shares purchased under a Right of Accumulation or Letter of
Intent or for the purchase of Class B shares in accordance with the terms of
our Dealer Agreement with GT Global, Inc. and with the Prospectus and
Statement of Additional Information of each Fund purchased. We agree to notify
GT Global, Inc. of any purchases properly made under a Letter of Intent or
Right of Accumulation.
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Investment Dealer Name
---------------------------------------------------------------------------------------------------------------------------------
Main Office Address Branch Number Representative's Number Representative's Name
( )
- -----------------------------------------------------------------------------------------------------------------------
Branch Address Telephone
X
- -----------------------------------------------------------------------------------------------------------------------
Investment Dealer's Authorized Signature Title
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GT GLOBAL MUTUAL FUNDS SUPPLEMENTAL APPLICATION
P.O. Box 7345 SPECIAL INVESTMENT AND
SAN FRANCISCO, CA 94120-7345 WITHDRAWAL OPTIONS
800/223-2138
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ACCOUNT REGISTRATION
Please supply the following information exactly as it appears on the Fund's records.
- --------------------------------------------------------- ---------------------------------------------------------
Fund Name Account Number
- ---------------------------------------------------------- ----------------------------------------------------------
Owner's Name Co-Owner 1
- ---------------------------------------------------------- ----------------------------------------------------------
Co-Owner 2 Telephone Number
- ---------------------------------------------------------- ----------------------------------------------------------
Street Address Social Security or Tax I.D. Number
- ----------------------------------------------------------
City, State, Zip Code
Resident of / / U.S. / / Other ------------------
AUTOMATIC INVESTMENT PLAN / / YES / / NO
I/We hereby authorize the Transfer Agent of the GT Global Mutual Funds to debit my/our personal checking account on
the designated dates in order to purchase / / Class A shares or / / Class B shares of the Fund indicated at the top of
this Supplemental Application at the applicable public offering price determined on that day.
/ / Monthly on the 25th day / / Quarterly beginning on the 25th day of the month you first select
(The request for participation in the Plan must be received by the 1st day of the month in which you wish investments
to begin.)
Amount of each debit (minimum $100) $
-------------------------------------------------
NOTE: A Bank Authorization Form (below) and a voided personal check must accompany the Automatic Investment Plan
Application.
</TABLE>
- --------------------------------------------------------------------------------
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GT GLOBAL MUTUAL FUNDS AUTOMATIC INVESTMENT PLAN
</TABLE>
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BANK AUTHORIZATION
- ------------------------- ------------------------------ ------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our account for amounts drawn by the Transfer Agent of the GT
Global Mutual Funds, acting as my agent. I/We agree that your rights in respect to each withdrawal shall be the same as
if it were a check drawn upon you and signed by me/us. This authority shall remain in effect until I/we revoke it in
writing and you receive it. I/We agree that you shall incur no liability when honoring any such debit.
I/We further agree that you will incur no liability to me if you dishonor any such withdrawal. This will be so even
though such dishonor results in the forfeiture of investment.
- --------------------------------------------------------- ---------------------------------------------------------
Account Holder's Name Joint Account Holder's Name
X X
- ------------------------------------ -------------- ------------------------------------ --------------
Account Holder's Signature Date Joint Account Holder's Signature Date
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(OVER)
<PAGE>
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SYSTEMATIC WITHDRAWAL PLAN / / YES / / NO
MINIMUM REQUIREMENTS: $10,000 INITIAL ACCOUNT BALANCE AND $100 MINIMUM PERIODIC PAYMENT.
I/We hereby authorize the Transfer Agent of the GT Global Mutual Funds to redeem the necessary number of / / Class A
or / / Class B shares from my/our GT Global Account on the designated dates in order to make the following periodic
payments:
/ / Monthly on the 25th day / / Quarterly beginning on the 25th day of the month you first select
(The request for participation in the Plan must be received by the 18th day of the month in which you wish withdrawals
to begin.)
Maximum annual withdrawal of 12% of initial account balance for shares subject to a contingent deferred sales charge.
Withdrawals in excess of 12% of the initial account balance annually may result in assessment of a contingent deferred
sales charge, as described in the applicable Fund's prospectus.
Amount of each check ($100 minimum): $ -----------------
Please make checks payable to: --------------------------------------------------------------------------------------
(TO BE COMPLETED ONLY IF Recipient
REDEMPTION PROCEEDS TO BE PAID --------------------------------------------------------------------------------------
TO OTHER THAN ACCOUNT HOLDER Street Address
OF RECORD OR MAILED TO ADDRESS --------------------------------------------------------------------------------------
OTHER THAN ADDRESS OF RECORD) City, State, Zip Code
NOTE: If recipient of checks is not the registered shareholder, signature(s) below must be guaranteed. A corporation
(or partnership) must also submit a "Corporate Resolution" (or "Certification of Partnership") indicating the names
and titles of Officers authorized to act on its behalf.
AGREEMENT AND SIGNATURES
The investor(s) certifies(y) and agree(s) that the certifications, authorizations, directions and restrictions
contained herein will continue until the Transfer Agent of the GT Global Mutual Funds receives written notice of any
change or revocation. Any change in these instructions must be in writing with all signatures guaranteed (if
applicable).
- ----------------------------------------------------------
Date
X X
- ----------------------------------------------------- ---------------------------------------------------
Signature Signature
- ----------------------------------------------------------- ---------------------------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
- ----------------------------------------------------- ---------------------------------------------------
Signature Signature
- ----------------------------------------------------------- ---------------------------------------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*Acceptable signature guarantors: (1) a commercial bank; (2) a U.S. trust company; (3) a member firm of a U.S. stock
exchange; (4) a foreign branch of any of the foregoing; or (5) any other eligible guarantor institution. A notary
public is NOT an acceptable guarantor. An investor with questions concerning the GT Global Mutual Funds signature
guarantee requirement should contact the Transfer Agent.
</TABLE>
- --------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
To: Bank Named on the Reverse
In consideration of your compliance with the request and authorization of the
depositor(s) named on the reverse, the Transfer Agent of the GT Global Mutual
Funds hereby agrees:
1. To indemnify and hold you harmless from any loss you may incur because of the
payment by you and of any debit by the Transfer Agent to its own order on the
account of such depositor(s) and received by you in the regular course of
business for payment, or arising out of the dishonor by you of any debit,
provided there are sufficient funds in such account to pay the same upon
presentation.
2. To defend at its own expense any action which might be brought by any
depositor or any other persons because of your actions taken pursuant to the
above mentioned request or in any manner arising by reason of your participation
in connection with such request.
<PAGE>
GT GLOBAL INCOME FUNDS
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 GT GLOBAL MUTUAL
FUND, INCLUDING FEES, EXPENSES AND THE RISKS OF GLOBAL AND EMERGING MARKET
INVESTING AND THE RISKS OF INVESTING IN RELATED INDUSTRIES, PLEASE CONTACT
YOUR FINANCIAL ADVISER OR CALL GT GLOBAL DIRECTLY AT 1-800-824-1580.
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 CONSUMER PRODUCTS AND
SERVICES FUND
Invests in companies that manufacture, market, retail, or distribute consumer
products or services
GT GLOBAL FINANCIAL SERVICES FUND
Focuses on the worldwide opportunities from the demand for financial services
and products
GT GLOBAL HEALTH CARE FUND
Invests in growing health care industries worldwide
GT GLOBAL INFRASTRUCTURE FUND
Seeks companies that build, improve or maintain a country's infrastructure
GT GLOBAL NATURAL RESOURCES FUND
Concentrates on companies that own, explore or develop natural resources
GT GLOBAL TELECOMMUNICATIONS FUND
Invests in companies worldwide that develop, manufacture or sell
telecommunications services or equipment
/ / REGIONALLY DIVERSIFIED FUNDS
GT GLOBAL NEW PACIFIC GROWTH FUND
Offers access to the emerging and established markets of the Pacific Rim,
excluding Japan
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 SMALL CAP GROWTH FUND
Invests in equity securities of small U.S. companies
GT GLOBAL AMERICA MID CAP GROWTH FUND
Concentrates on medium-sized companies in the U.S.
GT GLOBAL AMERICA VALUE FUND
Concentrates on equity securities of large cap 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
[LOGO]
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CHANCELLOR LGT ASSET
MANAGEMENT, INC., G.T. INVESTMENT FUNDS, INC., GT GLOBAL GOVERNMENT INCOME
FUND, GT GLOBAL STRATEGIC INCOME FUND, GT GLOBAL HIGH INCOME FUND, GLOBAL
HIGH INCOME PORTFOLIO, OR GT GLOBAL, INC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
INCPR703 MC
<PAGE>
GT GLOBAL INCOME FUNDS
50 California Street, 27th Floor
San Francisco, California 94111-4624
(415) 392-6181
Toll Free: (800) 824-1580
Statement of Additional Information
March 1, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information relates to the Class A and Class B
shares of GT Global Government Income Fund ("Government Income Fund"), GT Global
Strategic Income Fund ("Strategic Income Fund") and GT Global High Income Fund
("High Income Fund") (each, a "Fund," and collectively, the "Funds"). Each Fund
is a non-diversified series of G.T. Investment Funds, Inc. (the "Company"), a
registered open-end management investment company. This Statement of Additional
Information, which is not a Prospectus, supplements and should be read in
conjunction with the Funds' current Class A and B Prospectus dated March 1,
1997, a copy of which is available without charge by writing to the above
address or by calling the Funds at the toll-free telephone number listed above.
Chancellor LGT Asset Management, Inc. (the "Manager") serves as the investment
manager and administrator for the Government Income Fund, the Strategic Income
Fund and the Global High Income Portfolio (the "Portfolio") and also serves as
the administrator of the High Income Fund. The distributor of the shares of each
Fund is GT Global, Inc. ("GT Global"). The Funds' transfer agent is GT Global
Investor Services, Inc. ("GT Services" or the "Transfer Agent").
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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Investment Objectives and Policies............................................................... 2
Options, Futures and Currency Strategies......................................................... 6
Risk Factors..................................................................................... 15
Investment Limitations........................................................................... 20
Execution of Portfolio Transactions.............................................................. 24
Directors, Trustees and Executive Officers....................................................... 26
Management....................................................................................... 28
Valuation of Fund Shares......................................................................... 31
Information Relating to Sales and Redemptions.................................................... 32
Taxes............................................................................................ 34
Additional Information........................................................................... 37
Investment Results............................................................................... 38
Description of Debt Ratings...................................................................... 46
Financial Statements............................................................................. 48
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Statement of Additional Information Page 1
<PAGE>
GT GLOBAL INCOME FUNDS
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
The Government Income Fund primarily seeks high current income and secondarily
seeks capital appreciation and protection of principal through active management
of the maturity structure and currency exposure of its portfolio. The Strategic
Income Fund and the High Income Fund primarily seek high current income and
secondarily seek capital appreciation. The High Income Fund seeks to achieve its
investment objectives by investing all of its investable assets in the
Portfolio, which is a non-diversified open-end management investment company
with investment objectives identical to those of the Fund. Whenever the phrase
"all of the High Income Fund's investable assets" is used herein and in the
Prospectus, it means that the only investment securities held by the High Income
Fund will be its interest in the Portfolio. The High Income Fund may withdraw
its investment in the Portfolio at any time, if the Board of Directors of the
Company determines that it is in the best interests of the Fund and its
shareholders to do so. Upon any such withdrawal, the High Income Fund's assets
would be invested in accordance with the investment policies of the Portfolio
described below and in the Prospectus.
INVESTMENT IN EMERGING MARKETS
The Portfolio seeks its objectives by investing, under normal circumstances, at
least 65% of its total assets in debt securities of issuers in emerging markets.
The Strategic Income Fund may invest up to 50% of its assets in debt securities
of issuers in emerging markets. The Strategic Income Fund and the Portfolio do
not consider the following countries to be emerging markets: Australia, Austria,
Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United Kingdom,
and United States.
In addition to the factors set forth in the Prospectus, the Manager will also
consider, when determining what countries constitute emerging markets, data,
analysis, and classification of countries published or disseminated by the
International Bank for Reconstruction and Development (commonly known as the
World Bank) and the International Finance Corporation.
SELECTION OF DEBT INVESTMENTS
In determining the appropriate distribution of investments among various
countries and geographic regions for the Government Income Fund, the Strategic
Income Fund and the Portfolio, the Manager ordinarily considers the following
factors: prospects for relative economic growth among the different countries in
which the Government Income Fund, the Strategic Income Fund and the Portfolio
may invest; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
the individual investment opportunities available to international investors.
The Government Income Fund, the Strategic Income Fund and the Portfolio may
invest in the following types of money market instruments (i.e., debt
instruments with less than 12 months remaining until maturity) denominated in
U.S. dollars or other currencies: (a) obligations issued or guaranteed by the
U.S. or foreign governments, their agencies, instrumentalities or
municipalities; (b) obligations of international organizations designed or
supported by multiple foreign governmental entities to promote economic
reconstruction or development; (c) finance company obligations, corporate
commercial paper and other short-term commercial obligations: (d) bank
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances), subject to the restriction that the Government Income
Fund, the Strategic Income Fund and the Portfolio may not invest more than 25%
of their respective total assets in bank securities; (e) repurchase agreements
with respect to the foregoing; and (f) other substantially similar short-term
debt securities with comparable characteristics.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
With respect to certain countries, investments by the Government Income Fund,
the Strategic Income Fund and the Portfolio presently may be made only by
acquiring shares of other investment companies with local governmental approval
to invest in those countries. At such time as direct investment in these
countries is allowed, the Government Income Fund, the Strategic Income Fund and
the Portfolio anticipate investing directly in these markets. The Government
Income Fund, the Strategic Income Fund and the Portfolio may also invest in the
securities of closed-end investment
Statement of Additional Information Page 2
<PAGE>
GT GLOBAL INCOME FUNDS
companies within the limits of the Investment Company Act of 1940, as amended
("1940 Act"). These limitations currently provide that, in part, a Fund or the
Portfolio may purchase shares of another investment company unless (a) such a
purchase would cause the Government Income Fund, the Strategic Income Fund or
the Portfolio to own in the aggregate more than 3% of the total outstanding
voting securities of the investment company or (b) such a purchase would cause
the Government Income Fund, the Strategic Income Fund or the Portfolio to have
more than 5% of its total assets invested in the investment company or more than
10% of its aggregate assets invested in an aggregate of all such investment
companies. The foregoing limitations do not apply to the investment by the High
Income Fund in the Portfolio. Investment in investment companies may involve the
payment of substantial premiums above the value of such companies' portfolio
securities. The Government Income Fund, the Strategic Income Fund and the
Portfolio do not intend to invest in such investment companies unless, in the
judgment of the Manager, the potential benefits of such investments justify the
payment of any applicable premiums. The return on such securities will be
reduced by operating expenses of such companies including payments to the
investment managers of those investment companies.
SAMURAI AND YANKEE BONDS
The Government Income Fund, the Strategic Income Fund and the Portfolio may
invest in yen-denominated bonds sold in Japan by non-Japanese issuers ("Samurai
bonds"), and may invest in dollar-denominated bonds sold in the United States by
non-U.S. issuers ("Yankee bonds"). It is the policy of the Government Income
Fund, the Strategic Income Fund and the Portfolio to invest in Samurai or Yankee
bond issues only after taking into account considerations of quality and
liquidity, as well as yield.
WARRANTS OR RIGHTS
Warrants or rights may be acquired by the Government Income Fund, the Strategic
Income Fund or the Portfolio in connection with other securities or separately
and provide a Fund or the Portfolio with the right to purchase at a later date
other securities of the issuer.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Strategic Income Fund or the
Portfolio may make secured loans of portfolio securities amounting to not more
than 30% of its total assets. Securities loans are made to broker/dealers or
institutional investors pursuant to agreements requiring that the loans
continuously be secured by collateral at least equal at all times to the value
of the securities lent plus any accrued interest, "marked to market" on a daily
basis. The Fund may pay reasonable administrative and custodial fees in
connection with loans of its securities. While the securities loan is
outstanding, the Strategic Income Fund and the Portfolio will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Strategic Income Fund and the Portfolio each will have a
right to call each loan and obtain the securities on five business days' notice.
The Government Income Fund, the Strategic Income Fund and the Portfolio will not
have the right to vote equity securities while they are lent, but each may call
in a loan in anticipation of any important vote. Loans will be made only to
firms deemed by the Manager to be of good standing and will not be made unless,
in the judgment of the Manager, the consideration to be earned from such loans
would justify the risk.
COMMERCIAL BANK OBLIGATIONS
For the purposes of the Strategic Income Fund's and the Portfolio's investment
policies with respect to bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks are obligations of the issuing bank and may be
general obligations of the parent bank. Such obligations, however, may be
limited by the terms of a specific obligation and by government regulation. As
with investment in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks may subject
the the Strategic Income Fund and the Portfolio to investment risks that are
different in some respects from those of investments in obligations of domestic
issuers. Although the Strategic Income Fund and the Portfolio typically will
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase in excess of $1 billion, this $1
billion figure is not an investment policy or restriction of either Fund or the
Portfolio. For the purposes of calculation with respect to the $1 billion
figure, the assets of a bank will be deemed to include the assets of its U.S.
and non-U.S. branches.
REPURCHASE AGREEMENTS
A repurchase agreement is a transaction in which the Fund or Portfolio buys a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed upon price, date and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, including possible decline in
the market value of the underlying securities and delays and costs to the Funds
or Portfolio if the other party to the repurchase agreement becomes bankrupt,
the Government Income Fund, the Strategic Income Fund and the Portfolio intend
to enter into
Statement of Additional Information Page 3
<PAGE>
GT GLOBAL INCOME FUNDS
repurchase agreements only with banks and broker/dealers believed by the Manager
to present minimal credit risks in accordance with guidelines approved by the
Company's Board of Directors. The Manager reviews and monitors the
creditworthiness of such institutions under the Board's general supervision.
The Government Income Fund, the Strategic Income Fund and the Portfolio will
invest only in repurchase agreements collateralized at all times in an amount at
least equal to the repurchase price plus accrued interest. To the extent that
the proceeds from any sale of such collateral upon a default in the obligation
to repurchase were less than the repurchase price, the Government Income Fund,
the Strategic Income Fund or the Portfolio would suffer a loss. If the financial
institution which is party to the repurchase agreement petitions for bankruptcy
or otherwise becomes subject to bankruptcy or other liquidation proceedings
there may be restrictions on the Government Income Fund, the Strategic Income
Fund's or the Portfolio's ability to sell the collateral and the Government
Income Fund, the Strategic Income Fund or the Portfolio could suffer a loss.
However, with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Government Income Fund,
the Strategic Income Fund and the Portfolio intend to comply with provisions
under such Code that would allow the immediate resale of such collateral. The
Government Income Fund will not enter into a repurchase agreement with a
maturity of more than seven days if, as a result, more than 10% of the value of
its total assets would be invested in such repurchase agreements and other
illiquid investments and securities for which no readily available market
exists.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
The Government Income Fund's borrowings will not exceed 30% of the Fund's total
assets, i.e., the Fund's total assets at all times will equal at least 300% of
the amount of outstanding borrowings. If market fluctuations in the value of the
Fund's portfolio holdings or other factors cause the ratio of the Fund's total
assets to outstanding borrowings to fall below 300%, within three days
(excluding Sundays and holidays) of such event the Fund may be required to sell
portfolio securities to restore the 300% asset coverage, even though from an
investment standpoint such sales might be disadvantageous. The Strategic Income
Fund's and the Portfolio's borrowings will not exceed 33 1/3% of the Strategic
Income Fund's or the Portfolio's, respective total assets. The Government Income
Fund, the Strategic Income Fund and the Portfolio each may borrow up to 5% of
its respective total assets for temporary or emergency purposes other than to
meet redemptions. Any borrowing by a Fund or the Portfolio may cause greater
fluctuation in the value of its shares than would be the case if the Fund or the
Portfolio did not borrow.
The Government Income Fund's, the Strategic Income Fund's and the Portfolio's
fundamental investment limitations permit it to borrow money for leveraging
purposes. The Government Income Fund, however, currently is prohibited, pursuant
to a non-fundamental investment policy, from borrowing money in order to
purchase securities. Nevertheless, this policy may be changed in the future by a
vote of a majority of the Company's Board of Directors. The Strategic Income
Fund and Portfolio may borrow for leveraging purposes. In the event that the
Strategic Income Fund or the Portfolio employs leverage, it would be subject to
certain additional risks. Use of leverage creates an opportunity for greater
growth of capital but would exaggerate any increases or decreases in the Fund's
or the Portfolio's net asset value. When the income and gains on securities
purchased with the proceeds of borrowings exceed the costs of such borrowings,
the Government Income Fund's, the Strategic Income Fund's or the Portfolio's
earnings or net asset value will increase faster than otherwise would be the
case; conversely, if such income and gains fail to exceed such costs, the Fund's
or the Portfolio's earnings or net asset value would decline faster than would
otherwise be the case.
The Government Income Fund, the Strategic Income Fund and the Portfolio may
enter into reverse repurchase agreements. A reverse repurchase agreement is a
borrowing transaction in which a Fund or the Portfolio transfers possession of a
security to another party, such as a bank or broker/dealer, in return for cash,
and agrees to repurchase the security in the future at an agreed upon price,
which includes an interest component. The Government Income Fund, the Strategic
Income Fund and the Portfolio also may engage in "roll" borrowing transactions
which involve a Fund's or the Portfolio's sale of Government National Mortgage
Association certificates or other securities together with a commitment (for
which a Fund or the Portfolio may receive a fee) to purchase similar, but not
identical, securities at a future date. The Government Income Fund, the
Strategic Income Fund and the Portfolio will maintain, in a segregated account
with a custodian, cash or liquid securities in an amount sufficient to cover its
obligations under "roll" transactions and reverse repurchase agreements with
broker/dealers. No segregation is required for reverse repurchase agreements
with banks.
SHORT SALES
The Government Income Fund, the Strategic Income Fund and the Portfolio are
authorized to make short sales of securities, although they have no current
intention of doing so. A short sale is a transaction in which a Fund or the
Portfolio sells a security in anticipation that the market price of that
security will decline. The Government Income Fund, the Strategic Income Fund and
the Portfolio may make short sales as a form of hedging to offset potential
declines in long
Statement of Additional Information Page 4
<PAGE>
GT GLOBAL INCOME FUNDS
positions in securities it owns, or anticipates acquiring, and in order to
maintain portfolio flexibility. The Government Income Fund, the Strategic Income
Fund and the Portfolio only may make short sales "against the box." In this type
of short sale, at the time of the sale, the Fund or the Portfolio owns the
security it has sold short or has the immediate and unconditional right to
acquire the identical security at no additional cost.
In a short sale, the seller does not immediately deliver the securities sold and
does not receive the proceeds from the sale. To make delivery to the purchaser,
the executing broker borrows the securities being sold short on behalf of the
seller. The seller is said to have a short position in the securities sold until
it delivers the securities sold, at which time it receives the proceeds of the
sale. To secure its obligation to deliver securities sold short, the Government
Income Fund, the Strategic Income Fund or the Portfolio will deposit in a
separate account with its custodian an equal amount of the securities sold short
or securities convertible into or exchangeable for such securities at no cost.
The Government Income Fund, the Strategic Income Fund or the Portfolio could
close out a short position by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities already held by the
Fund or the Portfolio, because the Fund or the Portfolio might want to continue
to receive interest and dividend payments on securities in its portfolio that
are convertible into the securities sold short.
The Government Income Fund, the Strategic Income Fund and the Portfolio might
make a short sale "against the box" in order to hedge against market risks when
the Manager believes that the price of a security may decline, causing a decline
in the value of a security owned by the Government Income Fund, the Strategic
Income Fund or the Portfolio or a security convertible into or exchangeable for
such security, or when the Manager wants to sell the security the Fund or the
Portfolio owns at a current attractive price, but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). In such case, any future
losses in the Government Income Fund's, the Strategic Income Fund's Fund or the
Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses in the long position
are reduced will depend upon the amount of the securities sold short relative to
the amount of the securities the Fund or the Portfolio owns, either directly or
indirectly, and, in the case where a Fund or the Portfolio owns convertible
securities, changes in the investment values or conversion premiums of such
securities. There will be certain additional transaction costs associated with
short sales "against the box," but a Fund or the Portfolio will endeavor to
offset these costs with income from the investment of the cash proceeds of short
sales.
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OPTIONS, FUTURES AND CURRENCY
STRATEGIES
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SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use of options, futures contracts and forward currency contracts ("Forward
Contracts") involves special considerations and risks, as described below. Risks
pertaining to particular instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the
Manager's ability to predict movements of the overall securities and
currency markets, which requires different skills than predicting changes in
the prices of individual securities. While the Manager is experienced in the
use of these instruments, there can be no assurance that any particular
strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used in
a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which the hedging instrument is traded. The effectiveness of
hedges using hedging instruments on indices will depend on the degree of
correlation between price movements in the index and price movements in the
investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements
in the investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund or the Portfolio
entered into a short hedge because the Manager projected a decline in the
price of a security in the Fund's or the Portfolio's portfolio, and the
price of that security increased instead, the gain from that increase might
by wholly or partially offset by a decline in the price of the hedging
instrument. Moreover, if the price of the hedging instrument declined by
more than the increase in the price of the security, the Fund or the
Portfolio could suffer a loss. In either such case, the Fund or the
Portfolio would have been in a better position had it not hedged at all.
(4) As described below, a Fund or the Portfolio might be required to
maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in instruments involving obligations to
third parties (I.E., instruments other than purchased options). If a Fund or
the Portfolio were unable to close out its positions in such instruments, it
might be required to continue to maintain such assets or accounts or make
such payments until the position expired or matured. The requirements might
impair the Fund's ability or the Portfolio's ability to sell a portfolio
security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund or the Portfolio sell a
portfolio security at a disadvantageous time. The Fund's or the Portfolio's
ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of the other party to
the transaction ("contra party") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed
out at a time and price that is favorable to the Fund or the Portfolio.
WRITING CALL OPTIONS
The Government Income Fund, the Strategic Income Fund and the Portfolio may
write (sell) call options on securities, indices and currencies. Call options
generally will be written on securities and currencies that, in the opinion of
the Manager are not expected to make any major price moves in the near future
but that, over the long term, are deemed to be attractive investments for the
Government Income Fund, the Strategic Income Fund and the Portfolio.
A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until (American
Style) or on (European Style) a certain date (the expiration date). So long as
the obligation of the writer of a call option continues, he may be assigned an
exercise notice, requiring him to deliver the underlying security or currency
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by purchasing an option identical to that
previously sold.
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Portfolio securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with a
Fund's or the Portfolio's investment objectives. When writing a call option, the
Government Income Fund, the Strategic Income Fund or the Portfolio, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security or currency above the exercise price, and retains the
risk of loss should the price of the security or currency decline. Unlike one
who owns securities or currencies not subject to an option, a Fund or the
Portfolio has no control over when it may be required to sell the underlying
securities or currencies, since most options may be exercised at any time prior
to the option's expiration. If a call option that a Fund or the Portfolio has
written expires, the Fund or the Portfolio will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the market value
of the underlying security or currency during the option period. If the call
option is exercised, the Fund or the Portfolio will realize a gain or loss from
the sale of the underlying security or currency, which will be increased or
offset by the premium received. The Government Income Fund, the Strategic Income
Fund and the Portfolio do not consider a security or currency covered by a call
option to be "pledged" as that term is used in the Government Income Fund's, the
Strategic Income Fund's and the Portfolio's fundamental investment policy that
limits the pledging or mortgaging of its assets.
Writing call options can serve as a limited short hedge because declines in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and a Fund or the Portfolio will
be obligated to sell the security or currency at less than its market value.
The premium that the Government Income Fund, the Strategic Income Fund or the
Portfolio receives for writing a call option is deemed to constitute the market
value of an option. The premium a Fund or the Portfolio will receive from
writing a call option will reflect, among other things, the current market price
of the underlying investment, the relationship of the exercise price to such
market price, the historical price volatility of the underlying investment, and
the length of the option period. In determining whether a particular call option
should be written, the Manager will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Government Income
Fund, the Strategic Income Fund or the Portfolio to write another call option on
the underlying security or currency with either a different exercise price,
expiration date or both.
The Government Income Fund, the Strategic Income Fund and the Portfolio will pay
transaction costs in connection with the writing of options and in entering into
closing purchase contracts. Transaction costs relating to options activity
normally are higher than those applicable to purchases and sales of portfolio
securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities or currencies at the time the options
are written. From time to time, a Fund or the Portfolio may purchase an
underlying security or currency for delivery in accordance with the exercise of
an option, rather than delivering such security or currency from its portfolio.
In such cases, additional costs will be incurred.
A Fund or the Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by a Fund or the Portfolio.
WRITING PUT OPTIONS
The Government Income Fund, the Strategic Income Fund and the Portfolio may
write put options on securities, indices and currencies. A put option gives the
purchaser of the option the right to sell, and the writer (seller) the
obligation to buy, the underlying security or currency at the exercise price at
anytime until (American Style) or on (European Style) the expiration date. The
operation of put options in other respects, including their related risks and
rewards, is substantially identical to that of call options.
A Fund or the Portfolio generally would write put options in circumstances where
the Manager wishes to purchase the underlying security or currency for the
Fund's or the Portfolio's portfolio at a price lower than the current market
price of the security or currency. In such event, the Fund or the Portfolio
would write a put option at an exercise price that, reduced by the premium
received on the option, reflects the lower price it is willing to pay. Since the
Fund or the Portfolio also would receive interest on debt securities or
currencies maintained to cover the exercise price of the option, this technique
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GT GLOBAL INCOME FUNDS
could be used to enhance current return during periods of market uncertainty.
The risk in such a transaction would be that the market price of the underlying
security or currency would decline below the exercise price less the premium
received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund or the Portfolio
will be obligated to purchase the security or currency at greater than its
market value.
PURCHASING PUT OPTIONS
The Government Income Fund, the Strategic Income Fund and the Portfolio may
purchase put options on securities, indices and currencies. As the holder of a
put option, the Government Income Fund, the Strategic Income Fund or the
Portfolio would have the right to sell the underlying security or currency at
the exercise price at any time until (American Style or on (European Style) the
expiration date. The Government Income Fund, the Strategic Income Fund or the
Portfolio may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire.
A Fund or the Portfolio may purchase a put option on an underlying security or
currency ("protective put") owned by the Fund or the Portfolio as a hedging
technique in order to protect against an anticipated decline in the value of the
security or currency. Such hedge protection is provided only during the life of
the put option when the Fund or the Portfolio, as the holder of the put option,
is able to sell the underlying security or currency at the put exercise price
regardless of any decline in the underlying security's market price or
currency's exchange value. For example, a put option may be purchased in order
to protect unrealized appreciation of a security or currency when the Manager
deems it desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put option and any transaction costs
would reduce any profit otherwise available for distribution when the security
or currency eventually is sold.
The Government Income Fund, the Strategic Income Fund and the Portfolio also may
purchase put options at a time when that Fund or the Portfolio does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, a Fund or the Portfolio seeks to benefit from a
decline in the market price of the underlying security or currency. If the put
option is not sold when it has remaining value, and if the market price of the
underlying security or currency remains equal to or greater than the exercise
price during the life of the put option, the Fund or the Portfolio will lose its
entire investment in the put option. In order for the purchase of a put option
to be profitable, the market price of the underlying security or currency must
decline sufficiently below the exercise price to cover the premium and
transaction costs, unless the put option is sold in a closing sale transaction.
PURCHASING CALL OPTIONS
The Government Income Fund, the Strategic Income Fund or the Portfolio may
purchase call options on securities, indices and currencies. As the holder of a
call option, a Fund or the Portfolio would have the right to purchase the
underlying security or currency at the exercise price at any time until
(American Style) or on (European Style) the expiration date. A Fund or the
Portfolio may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire.
Call options may be purchased by a Fund or the Portfolio for the purpose of
acquiring the underlying security or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable the Fund or the
Portfolio to acquire the security or currency at the exercise price of the call
option plus the premium paid. At times, the net cost of acquiring the security
or currency in this manner may be less than the cost of acquiring the security
or currency directly. This technique also may be useful to a Fund or the
Portfolio in purchasing a large block of securities that would be more difficult
to acquire by direct market purchases. So long as it holds such a call option,
rather than the underlying security or currency itself, a Fund or the Portfolio
is partially protected from any unexpected decline in the market price of the
underlying security or currency and, in such event, could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option.
The Government Income Fund, the Strategic Income Fund and the Portfolio also may
purchase call options on underlying securities or currencies it owns in order to
protect unrealized gains on call options previously written by it. A call option
could be purchased for this purpose where tax considerations make it inadvisable
to realize such gains through a closing purchase transaction. Call options also
may be purchased at times to avoid realizing losses that would result in a
reduction of a Fund's or the Portfolio's current return. For example, where a
Fund or the Portfolio has written a call option on an underlying security or
currency having a current market value below the price at which such security or
currency was purchased by the Fund or the Portfolio, an increase in the market
price could result in the exercise of the call option written by the Fund or the
Portfolio and the realization of a loss on the underlying security or currency.
Accordingly, the
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GT GLOBAL INCOME FUNDS
Fund or the Portfolio could purchase a call option on the same underlying
security or currency, which could be exercised to fulfill the Fund's or the
Portfolio's delivery obligations under its written call (if it is exercised).
This strategy could allow the Fund or the Portfolio to avoid selling the
portfolio security or currency at a time when it has an unrealized loss;
however, the Fund or the Portfolio would have to pay a premium to purchase the
call option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of a Fund's
or the Portfolio's total assets at the time of purchase.
The Government Income Fund, the Strategic Income Fund or the Portfolio may
attempt to accomplish objectives similar to those involved in using Forward
Contracts by purchasing put or call options on currencies. A put option gives a
Fund or the Portfolio as purchaser the right (but not the obligation) to sell a
specified amount of currency at the exercise price at any time until (American
Style) or on (European Style) the expiration of the option. A call option gives
a Fund or the Portfolio as purchaser the right (but not the obligation) to
purchase a specified amount of currency at the exercise price at any time until
(American Style) or on (European Style) the expiration of the option. A Fund or
the Portfolio might purchase a currency put option, for example, to protect
itself against a decline in the dollar value of a currency in which it holds or
anticipates holding securities. If the currency's value should decline against
the dollar, the loss in currency value should be offset, in whole or in part, by
an increase in the value of the put. If the value of the currency instead should
rise against the dollar, any gain to the Fund or the Portfolio would be reduced
by the premium it had paid for the put option. A currency call option might be
purchased, for example, in anticipation of, or to protect against, a rise in the
value against the dollar of a currency in which the Fund or the Portfolio
anticipates purchasing securities.
Options may be either listed on an exchange or traded in over-the-counter
("OTC") markets. Listed options are third-party contracts (I.E., performance of
the obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation), and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. The Funds and the Portfolio will not purchase an OTC option unless the
Fund or the Portfolio believes that daily valuations for such options are
readily obtainable. OTC options differ from exchange-traded options in that OTC
options are transacted with dealers directly and not through a clearing
corporation (which guarantees performance). Consequently, there is a risk of
non-performance by the dealer. Since no exchange is involved, OTC options are
valued on the basis of the average of the last bid prices obtained from dealers,
unless a quotation from only one dealer is available, in which case only that
dealer's price will be used. In the case of OTC options, there can be no
assurance that a liquid secondary market will exist for any particular option at
any specific time.
The staff of the Securities and Exchange Commission ("SEC") considers purchased
OTC options to be illiquid securities. A Fund or the Portfolio may also sell OTC
options and, in connection therewith, segregate assets or cover its obligations
with respect to OTC options written by the Fund or the Porfolio. The assets used
as cover for OTC options written by a Fund or the Portfolio will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that the
Fund or the Portfolio may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
A Fund's or the Portfolio's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each Fund
and the Portfolio intends to purchase or write only those exchange-traded
options for which there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the contra party or by a transaction in the secondary market if any such
market exists. Although each Fund and the Portfolio will enter into OTC options
only with contra parties that are expected to be capable of entering into
closing transactions with the Fund or the Portfolio, there is no assurance that
the Fund or the Portfolio will in fact be able to close out an OTC option
position at a favorable price prior to expiration. In the extent of insolvency
of the contra party, the Fund or the Portfolio might be unable to close out an
OTC option position at any time prior to its expiration.
INDEX OPTIONS
Puts and calls on indices are similar to puts and calls on securities or futures
contracts except that all settlements are in cash and gain or loss depends on
changes in the index in question (and thus on price movements in the securities
market or a particular market sector generally) rather than on price movements
in individual securities or futures contracts. When a Fund or the Portfolio
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund or the Portfolio an amount of cash if the closing level of
the index upon which the call is based is greater than the exercise price of the
call. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When a Fund or the Portfolio buys
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GT GLOBAL INCOME FUNDS
a call on an index, it pays a premium and has the same rights as to such call as
are indicated above. When a Fund or the Portfolio buys a put on an index, it
pays a premium and has the right, prior to the expiration date, to require the
seller of the put, upon the Fund's or the Portfolio's exercise of the put, to
deliver to the Fund or the Portfolio an amount of cash if the closing level of
the index upon which the put is based is less than the exercise price of the
put, which amount of cash is determined by the multiplier, as described above
for calls. When a Fund or the Portfolio writes a put on an index, it receives a
premium and the purchaser has the right, prior to the expiration date, to
require the Fund or the Portfolio to deliver to it an amount of cash equal to
the difference between the closing level of the index and the exercise price
times the multiplier, if the closing level is less than the exercise price.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund or the
Portfolio writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund or the Portfolio can offset some of the risk of writing a
call index option position by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund or the
Portfolio cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same securities as underlie the index and, as a result, bears a risk
that the value of the securities held will vary from the value of the index.
Even if a Fund or the Portfolio could assemble a securities portfolio that
exactly reproduced the composition of the underlying index, it still would not
be fully covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference between
the exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund or the Portfolio, as the
call writer, will not know that it has been assigned until the next business day
at the earliest. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In contrast,
even if the writer of an index call holds securities that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those securities against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decline in
the value of its securities portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk exposure by
holding securities positions.
If a Fund or the Portfolio has purchased an index option and exercises it before
the closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change causes
the exercised option to fall out-of-the-money, the Fund or the Portfolio will be
required to pay the difference between the closing index value and the exercise
price of the option (times the applicable multiplier) to the assigned writer.
INTEREST RATE AND CURRENCY FUTURES CONTRACTS
The Government Income Fund, the Strategic Income Fund or the Portfolio may enter
into interest rate or currency futures contracts, including futures contracts on
indices of debt securities, ("Futures" or "Futures Contracts"), as a hedge
against changes in prevailing levels of interest rates or currency exchange
rates in order to establish more definitely the effective return on securities
or currencies held or intended to be acquired by the Fund or the Portfolio. The
Government Income Fund, the Strategic Income Fund's or the Portfolio's hedging
may include sales of Futures as an offset against the effect of expected
increases in interest rates or decreases in currency exchange rates, and
purchases of Futures as an offset against the effect of expected declines in
interest rates or increases in currency exchange rates.
The Government Income Fund's, the Strategic Income Fund and the Portfolio only
will enter into Futures Contracts that are traded on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are exchanged in London at the London International Financial Futures
Exchange.
Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's or the Portfolio's exposure to interest rate and
currency exchange rate fluctuations, a Fund or the Portfolio may be able to
hedge exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (debt
security or currency) for a specified price at a designated date, time and
place. An index
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GT GLOBAL INCOME FUNDS
Futures Contract provides for the delivery, at a designated date, time and
place, of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of trading on the contract and
the price at which the Futures Contract is originally struck; no physical
delivery of the securities comprising the index is made. Brokerage fees are
incurred when a Futures Contract is bought or sold, and margin deposits must be
maintained at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment for
financial instruments or currencies, Futures Contracts usually are closed out
before the delivery date. Closing out an open Futures Contract sale or purchase
is effected by entering into an offsetting Futures Contract purchase or sale,
respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, the Government Income Fund, the
Strategic Income Fund or the Portfolio realizes a gain; if it is more, the
Government Income Fund, the Strategic Income Fund or the Portfolio realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Government Income Fund, the Strategic Income Fund or the
Portfolio realizes a gain; if it is less, the Government Income Fund, the
Strategic Income Fund or the Portfolio realizes a loss. The transaction costs
also must be included in these calculations. There can be no assurance, however,
that a Fund or the Portfolio will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund or the Portfolio is not able to enter into an offsetting transaction,
the Fund or the Portfolio will continue to be required to maintain the margin
deposits on the Futures Contract.
As an example of an offsetting transaction, the contractual obligations arising
from the sale of one Futures Contract of September Deutschemarks on an exchange
may be fulfilled at any time before delivery under the Futures Contract is
required (I.E., on a specified date in September, the "delivery month") by the
purchase of another Futures Contract of September Deutschemarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Government
Income Fund, the Strategic Income Fund or the Portfolio.
The Government Income Fund, the Strategic Income Fund's and the Portfolio's
Futures transactions will be entered into for hedging purposes; that is, Futures
Contracts will be sold to protect against a decline in the price of securities
or currencies that the Fund or the Portfolio owns, or Futures Contracts will be
purchased to protect the Fund or the Portfolio against an increase in the price
of securities or currencies it has committed to purchase or expects to purchase.
"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by the Government Income Fund, the Strategic Income Fund or the
Portfolio in order to initiate Futures trading and to maintain the Fund's or the
Portfolio's open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered into ("initial margin") is intended to assure a
Fund's or the Portfolio's performance under the Futures Contract. The margin
required for a particular Futures Contract is set by the exchange on which the
Futures Contract is traded, and may be modified significantly from time to time
by the exchange during the term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund or the Portfolio entered into the
Futures Contract will be made on a daily basis as the price of the underlying
security, currency or index fluctuates making the Futures Contract more or less
valuable, a process known as marking-to-market.
RISKS OF USING FUTURES CONTRACTS. The prices of Futures Contracts are
volatile and are influenced, among other things, by actual and anticipated
changes in interest and currency rates, which in turn are affected by fiscal and
monetary policies and national and international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in a Fund's or the
Portfolio's portfolio being hedged. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
Futures and for securities or currencies, including technical influences in
Futures trading; and differences between the financial instruments being hedged
and the instruments underlying the standard Futures Contracts available for
trading. A decision of whether, when, and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
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150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in Futures
Contract and option on Futures Contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a Futures Contract
or option may vary either up or down from the previous day's settlement price at
the end of a trading session. Once the daily limit has been reached in a
particular type of Futures Contract or option, no trades may be made on that day
at a price beyond that limit. The daily limit governs only price movement during
a particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. Futures Contract
and option prices occasionally have moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some traders to substantial losses.
If a Fund or the Portfolio were unable to liquidate a Futures or option on
Futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund or the
Portfolio would continue to be subject to market risk with respect to the
position. In addition, except in the case of purchased options, the Fund or the
Portfolio would continue to be required to make daily variation margin payments
and might be required to maintain the position being hedged by the Future or
option or to maintain cash or securities in a segregated account.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
OPTIONS ON FUTURES CONTRACTS
Options on Futures Contracts are similar to options on securities or currencies
except that options on Futures Contracts give the purchaser the right, in return
for the premium paid, to assume a position in a Futures Contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's Futures margin account, which represents the
amount by which the market price of the Futures Contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the Futures Contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing level of the securities, currencies or index upon
which the Futures Contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If a Fund or the Portfolio writes an option on a Futures Contract, it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to Futures Contracts. Premiums received from the
writing of an option on a Futures Contract are included in the initial margin
deposit.
A Fund or the Portfolio may seek to close out an option position by selling an
option covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
LIMITATIONS ON USE OF FUTURES, OPTIONS ON FUTURES AND CERTAIN OPTIONS ON
CURRENCIES
To the extent that a Fund or the Portfolio enters into Futures Contracts,
options on Futures Contracts and options on foreign currencies traded on a
CFTC-regulated exchange, in each case other than for BONA FIDE hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the liquidation value of a Fund's or the
Portfolio's
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GT GLOBAL INCOME FUNDS
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund or the Portfolio has entered into. In general, a call
option on a Futures Contract is "in-the-money" if the value of the underlying
Futures Contract exceeds the strike, I.E., exercise, price of the call; a put
option on a Futures Contract is "in-the-money" if the value of the underlying
Futures Contract is exceeded by the strike price of the put. This guideline may
be modified by the Company's Board of Directors or the Portfolio's Board of
Trustees, as applicable, without a shareholder vote. This limitation does not
limit the percentage of a Fund's or the Portfolio's assets at risk to 5%.
FORWARD CURRENCY CONTRACTS
A Forward Contract is an obligation, generally arranged with a commercial bank
or other currency dealer, to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. The
Government Income Fund, the Strategic Income Fund and the Portfolio either may
accept or make delivery of the currency at the maturity of the Forward Contract.
A Fund or the Portfolio may also, if its contra party agrees, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract.
A Fund or the Portfolio engages in forward currency transactions in anticipation
of, or to protect itself against, fluctuations in exchange rates. A Fund or the
Portfolio might sell a particular foreign currency forward, for example, when it
holds bonds denominated in a foreign currency but anticipates, and seeks to be
protected against, a decline in the currency against the U.S. dollar. Similarly,
a Fund or the Portfolio might sell the U.S. dollar forward when it holds bonds
denominated in U.S. dollars but anticipates, and seeks to be protected against,
a decline in the U.S. dollar relative to other currencies. Further, the Funds or
the Portfolio might purchase a currency forward to "lock in" the price of
securities denominated in that currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A Forward
Contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. The Government Income Fund, the Strategic Income Fund or
the Portfolio will enter into such Forward Contracts with major U.S. or foreign
banks and securities or currency dealers in accordance with guidelines approved
by the Company's Board of Directors or the Portfolio's Board of Trustees, as
applicable.
The Government Income Fund, the Strategic Income Fund or the Portfolio may enter
into Forward Contracts either with respect to specific transactions or with
respect to the overall investment of the Fund or the Portfolio. The precise
matching of the Forward Contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the Forward Contract is entered into and
the date it matures. Accordingly, it may be necessary for the Fund or the
Portfolio to purchase additional foreign currency on the spot (I.E., cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund or the Portfolio
is obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on the
spot market some of the foreign currency the Fund or the Portfolio is obligated
to deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward Contracts involve the risk that anticipated currency
movements will not be predicted accurately, causing the Fund or the Portfolio to
sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring the Fund or the
Portfolio to sell a currency, the Fund or the Portfolio either may sell a
portfolio security and use the sale proceeds to make delivery of the currency or
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the Fund or the
Portfolio will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. Similarly, the Fund or the Portfolio
may close out a Forward Contract requiring it to purchase a specified currency
by, if its contra party agrees, entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund or the Portfolio would realize a gain or loss as a result of
entering into such an offsetting Forward Contract under either circumstance to
the extent the exchange rate or rates between the currencies involved moved
between the execution dates of the first contract and the offsetting contract.
The cost to a Fund or the Portfolio of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts usually are
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities the Fund or the Portfolio owns or intends to acquire, but
it does establish a rate of exchange in advance. In addition, while Forward
Contracts limit the risk of loss due to a decline in the value of the hedged
currencies, they also limit any potential gain that might result should the
value of the currencies increase.
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GT GLOBAL INCOME FUNDS
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
A Fund or the Portfolio may use options on foreign currencies, Futures on
foreign currencies, options on Futures on foreign currencies and Forward
Contracts to hedge against movements in the values of the foreign currencies in
which the Fund's or the Portfolio's securities are denominated. Such currency
hedges can protect against price movements in a security that a Fund or the
Portfolio owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
A Fund or the Portfolio might seek to hedge against changes in the value of a
particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Fund or the Portfolio may hedge
against price movements in that currency by entering into a contract on another
currency or basket of currencies, the values of which the Manager believes will
have a positive correlation to the value of the currency being hedged. The risk
that movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward Contracts
and options on foreign currencies depends on the value of the underlying
currency relative to the U.S. dollar. Because foreign currency transactions
occurring in the interbank market might involve substantially larger amounts
than those involved in the use of Futures Contracts, Forward Contracts or
options, a Fund or the Portfolio could be disadvantaged by dealing in the odd
lot market (generally consisting of transactions of less than $1 million) for
the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirements that quotations available through dealers or
other market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Futures contracts or options until they
reopen.
Settlement of Futures Contracts, Forward Contracts and options involving foreign
currencies might be required to take place within the country issuing the
underlying currency. Thus, a Fund or the Portfolio might be required to accept
or make delivery of the underlying foreign currency in accordance with any U.S.
or foreign regulations regarding the maintenance of foreign banking arrangements
by U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
COVER
Transactions using Forward Contracts, Futures Contracts and options (other than
options that a Fund or the Portfolio has purchased) expose the Fund or the
Portfolio to an obligation to another party. A Fund or the Portfolio will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies, or other options, Forward
Contracts or Futures Contracts, or (2) cash, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. Each Fund and the Portfolio
will comply with SEC guidelines regarding cover for these instruments and, if
the guidelines so require, set aside cash or liquid securities.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Forward Contract, Futures Contract or option is
open, unless they are replaced with other appropriate assets. If a large portion
of a Fund's or the Portfolio's assets are used for cover or segregated accounts,
it could affect portfolio management or the Fund's or the Portfolio's ability to
meet redemption requests or other current obligations.
INTEREST RATE AND CURRENCY SWAPS
The Strategic Income Fund and the Portfolio usually will enter into interest
rate swaps on a net basis, that is, the two payment streams are netted out in a
cash settlement on the payment date or dates specified in the instrument, with
the Strategic Income Fund or the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments. The net amount of the excess, if
any, of each of the Strategic Income Fund's and the Portfolio's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
an amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in an account by a
custodian that satisfies the requirements of the 1940 Act. The Strategic Income
Fund and the Portfolio will also establish and maintain such segregated accounts
with respect to its total obligations under any swaps that are not entered into
on a net basis and with respect to any caps or floors that are written by that
Fund or the Portfolio. The Manager, the Strategic Income Fund and
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GT GLOBAL INCOME FUNDS
the Portfolio believe that swaps, caps and floors do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's and the Portfolio's borrowing restrictions. The Strategic
Income Fund and the Portfolio will not enter into any swap, cap, floor, collar
or other derivative transaction unless, at the time of entering into the
transaction, the unsecured long-term debt rating of the counterparty combined
with any credit enhancements is rated at least A by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"), or has an
equivalent rating from a nationally recognized statistical rating organization
or is determined to be of equivalent credit quality by the Manager. If a
counterparty defaults, the Strategic Income Fund or the Portfolio may have
contractual remedies pursuant to the agreements related to the transactions. The
swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and, for
that reason, they are less liquid than swaps.
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RISK FACTORS
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ILLIQUID SECURITIES
The Government Income Fund may invest up to 10% of its total assets in
securities the disposition of which may be subject to legal or contractual
restrictions or the markets for which may be illiquid. The Strategic Income Fund
and the Portfolio each may invest up to 15% of net assets in illiquid
securities. Securities may be considered illiquid if a Fund or the Portfolio
cannot reasonably expect within seven days to receive approximately the amount
at which the Fund or the Portfolio values such securities. The sale of illiquid
securities, if they can be sold at all, generally will require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than will the sale of liquid securities, such as securities eligible
for trading on U.S. securities exchanges or in the over-the-counter markets.
Moreover, restricted securities, which may be illiquid for purposes of this
limitation often sell, if at all, at a price lower than similar securities that
are not subject to restrictions on resale.
Illiquid securities include those that are subject to restrictions contained in
the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, each Fund and the Portfolio may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time a Fund or the Portfolio
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund or
the Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended ("1933 Act"), including
private placements, repurchase agreements, commercial paper, foreign securities
and corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
a Fund or the Portfolio, however, could affect adversely the marketability of
such portfolio securities and a Fund or the Portfolio might be unable to dispose
of such securities promptly or at favorable prices.
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With respect to liquidity determinations generally, the Company's Board of
Directors has the ultimate responsibility for determining whether specific
securities, including restricted securities eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the 1933 Act, are liquid or
illiquid. The Board has delegated the function of making day-to-day
determinations of liquidity to the Manager in accordance with procedures
approved by the Board. The Manager takes into account a number of factors in
reaching liquidity decisions, including: (i) the frequency of trading in the
security; (ii) the number of dealers that make quotes for the security; (iii)
the number of dealers that have undertaken to make a market in the security;
(iv) the number of other potential purchasers; and (v) the nature of the
security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). The Manager
will monitor the liquidity of securities held by each Fund and the Portfolio and
report periodically on such decisions to the Company's Board of Directors.
Moreover, as noted in the Prospectus, certain securities, such as those subject
to repatriation restrictions of more than seven days, will generally be treated
as illiquid.
FOREIGN SECURITIES
POLITICAL, SOCIAL AND ECONOMIC RISKS. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political, social and
economic instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, either a Fund or the Portfolio could lose its
entire investment in any such country.
RELIGIOUS, POLITICAL AND ETHNIC INSTABILITY. Certain countries in which a
Fund or the Portfolio may invest may have groups that advocate radical religious
or revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for widespread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of a Fund's or the Portfolio's
investment in those countries. Instability may also result from, among other
things: (i) authoritarian governments or military involvement in political and
economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved political, economic and social conditions; and (iii) hostile relations
with neighboring or other countries. Such political, social and economic
instability could disrupt the principal financial markets in which a Fund or the
Portfolio invests and adversely affect the value of the Fund's or the
Portfolio's assets.
FOREIGN INVESTMENT RESTRICTIONS. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Government Income Fund,
the Strategic Income Fund or the Portfolio. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase the
cost and expenses of a Fund or the Portfolio. For example, certain countries
require prior governmental approval before investments by foreign persons may be
made, or may limit the amount of investment by foreign persons in a particular
company, or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. In addition, if there
is a deterioration in a country's balance of payments or for other reasons, a
country may impose restrictions on foreign capital remittances abroad. The
Government Income Fund, the Strategic Income Fund or the Portfolio could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL
REGULATION. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most of the securities held by the Government
Income Fund, the Strategic Income Fund or the Portfolio will not be registered
with the SEC or regulators of any foreign country, nor will the issuers thereof
be subject to the SEC's reporting requirements. Thus, there will be less
available information concerning most foreign issuers of securities held by the
Government Income Fund, the Strategic Income Fund and the Portfolio than is
available concerning U.S. issuers. In instances where the financial statements
of an issuer are not deemed to reflect accurately the financial situation of the
issuer, the Manager will take appropriate steps to evaluate the proposed
investment, which may include on-site inspection of the issuer, interviews with
its management and consultations with accountants, bankers and other
specialists. There is substantially less publicly available information about
foreign companies than there are reports and ratings published about U.S.
companies and the U.S. Government. In
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GT GLOBAL INCOME FUNDS
addition, where public information is available, it may be less reliable than
such information regarding U.S. issuers. Issuers of securities in foreign
jurisdictions are generally not subject to the same degree of regulation as are
U.S. issuers with respect to such matters as restrictions on market
manipulation, insider trading rules, shareholder proxy requirements and timely
disclosure of information.
CURRENCY FLUCTUATIONS. Because the Funds and the Portfolio, under normal
circumstances, will invest substantial portions of their total assets in the
securities of foreign issuers which are denominated in foreign currencies, the
strength or weakness of the U.S. dollar against such foreign currencies will
account for part of each Fund's and the Portfolio's investment performance. A
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of each Fund's and the Portfolio's
holdings of securities and cash denominated in such currency and, therefore,
will cause an overall decline in their respective net asset values and any net
investment income and capital gains derived from such securities to be
distributed in U.S. dollars to shareholders of the Funds. Moreover, if the value
of the foreign currencies in which a Fund or the Portfolio receives its income
declines relative to the U.S. dollar between the receipt of the income and the
making of Fund distributions, the Fund or the Portfolio may be required to
liquidate securities in order to make distributions if the Fund or the Portfolio
has insufficient cash in U.S. dollars to meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the relative movement of
interest rates, and pace of business activity in the other countries, and the
United States, and other economic and financial conditions affecting the world
economy.
Although the Funds and the Portfolio value their assets daily in terms of U.S.
dollars, they do not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds and the Portfolio will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to sell that currency to the dealer.
ADVERSE MARKET CHARACTERISTICS. Securities of many foreign issuers may be
less liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the U.S., and
foreign securities transactions usually are subject to fixed commissions, which
generally are higher than negotiated commissions on U.S. transactions. In
addition, foreign securities transactions may be subject to difficulties
associated with the settlement of such transactions. Delays in settlement could
result in temporary periods when assets of a Fund or the Portfolio are
uninvested and no return is earned thereon. The inability of a Fund or the
Portfolio to make intended security purchases due to settlement problems could
cause it to miss attractive opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund or
the Portfolio due to subsequent declines in value of the portfolio security or,
if the Fund or the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser. The Manager will consider
such difficulties when determining the allocation of each Fund's or the
Portfolio's assets, although the Manager does not believe that such difficulties
will have a material adverse effect on the Funds' or the Portfolio's portfolio
trading activities.
The Funds and the Portfolio may use foreign custodians, which may involve risks
in addition to those related to the use of U.S. custodians. Such risks include
uncertainties relating to: (i) determining and monitoring the financial
strength, reputation and standing of the foreign custodian; (ii) maintaining
appropriate safeguards to protect the Funds' and the Portfolio's investments and
(iii) possible difficulties in obtaining and enforcing judgments against such
custodians.
WITHHOLDING TAXES. Each Fund's and the Portfolio's net investment income
from foreign issuers may be subject to withholding taxes by the foreign issuer's
country, thereby reducing the Fund's and the Portfolio's net investment income
or delaying the receipt of income where those taxes may be recaptured. See
"Taxes."
CONCENTRATION. To the extent a Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, such Portfolio may be subject to greater risks and may experience greater
volatility than a fund that is more broadly diversified geographically.
SPECIAL CONSIDERATIONS AFFECTING WESTERN EUROPEAN COUNTRIES. The countries
that are members of the European Economic Community ("Common Market") (Belgium,
Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain, and the United Kingdom) eliminated certain import tariffs and
quotas and other trade barriers with respect to one another over the past
several years. The Manager believes that this deregulation should improve the
prospects for economic growth in many Western European countries. Among other
things, the deregulation could enable
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GT GLOBAL INCOME FUNDS
companies domiciled in one country to avail themselves of lower labor costs
existing in other countries. In addition, this deregulation could benefit
companies domiciled in one country by opening additional markets for their goods
and services in other countries. Since, however, it is not clear what the exact
form or effect of these Common Market reforms will be on business in Western
Europe, it is impossible to predict the long-term impact of the implementation
of these programs on the securities owned by a Fund.
SPECIAL CONSIDERATIONS AFFECTING RUSSIA AND EASTERN EUROPEAN COUNTRIES.
Investing in Russia and Eastern European countries involves a high degree of
risk and special considerations not typically associated with investing in the
United States securities markets, and should be considered highly speculative.
Such risks include: (1) delays in settling portfolio transactions and risk of
loss arising out of the system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgement; (3) pervasiveness of corruption and crime in the
economic system; (4) currency exchange rate volatility and the lack of available
currency hedging instruments; (5) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation) and high
unemployment; (6) controls on foreign investment and local practices disfavoring
foreign investors and limitations on repatriation of invested capital, profits
and dividends, and on a fund's ability to exchange local currencies for U.S.
dollars; (7) political instability and social unrest and violence; (8) the risk
that the governments of Russia and Eastern European countries may decide not to
continue to support the economic reform programs implemented recently and could
follow radically different political and/or economic policies to the detriment
of investors, including non-market-oriented policies such as the support of
certain industries at the expense of other sectors or investors, or a return to
the centrally planned economy that existed when such countries had a communist
form of government; (9) the financial condition of companies in these countries,
including large amounts of inter-company debt which may create a payments crisis
on a national scale; (10) dependency on exports and the corresponding importance
of international trade; (11) the risk that the tax system in these countries
will not be reformed to prevent inconsistent, retroactive and/or exorbitant
taxation; and (12) the underdeveloped nature of the securities markets.
SPECIAL CONSIDERATIONS AFFECTING JAPAN. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
international trade, so its economy is especially sensitive to trade barriers
and disputes. Japan has had difficult relations with its trading partners,
particularly the United States, where the trade imbalance is the greatest. It is
possible that trade sanctions and other protectionist measures could impact
Japan adversely in both the short and the long term.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially in the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason why
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those for U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies and
Japanese interest rates have generally been lower than in the U.S., both of
which factors tend to result in lower discount rates and higher price-earnings
ratios in Japan than in the U.S.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are not always equally
enforced. In addition, Japan's banking industry is undergoing problems related
to bad loans and declining values in real estate.
SPECIAL CONSIDERATIONS AFFECTING PACIFIC REGION COUNTRIES. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Jurisdictional disputes also exist between South Korea and North Korea. In
addition, the Funds intend to invest in Hong Kong, which will revert to Chinese
Administration on July 1, 1997. Investments in Hong Kong may be subject to
expropriation, national, nationalization or confiscation, in which case a Fund
could lose its entire investment in Hong Kong. In addition, the reversion of
Hong Kong also presents a risk that the Hong Kong dollar will be devalued and a
risk of possible loss of investor confidence in Hong Kong's currency, stock
market and assets.
SPECIAL CONSIDERATIONS AFFECTING LATIN AMERICAN COUNTRIES. Most Latin
American countries have experienced substantial, and in some periods extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have very negative effects on the
economies and securities markets of certain Latin
Statement of Additional Information Page 18
<PAGE>
GT GLOBAL INCOME FUNDS
American countries. Certain Latin American countries are also among the largest
debtors to commercial banks and foreign governments. At times certain Latin
American countries have declared moratoria on the payment of principal and/or
interest on external debt. In addition, certain Latin American securities
markets have experienced high volatility in recent years.
Latin American countries may also close certain sectors of their economies to
equity investments by foreigners. Further due to the absence of securities
markets and publicly owned corporations and due to restrictions on direct
investment by foreign entities, investments may only be made in certain Latin
American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that are maintained
at artificial levels to the U.S. dollar rather than at levels determined by the
market. This type of system can lead to sudden and large adjustments in the
currency which, in turn, can have a disruptive and negative effect on foreign
investors. For example, in late 1994, the value of the Mexican peso lost more
than one-third of its value relative to the U.S. dollar.
SPECIAL CONSIDERATIONS AFFECTING EMERGING MARKETS. The Strategic Income Fund
and the Portfolio may invest in debt securities in emerging markets. Investing
in securities in emerging countries may entail greater risks than investing in
debt securities in developed countries. These risks include (i) less social,
political and economic stability; (ii) the small current size of the markets for
such securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict the Strategic Income Fund's and the
Portfolio's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; and (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities markets
there may be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
Statement of Additional Information Page 19
<PAGE>
GT GLOBAL INCOME FUNDS
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
Each Fund and the Portfolio has adopted the following investment limitations as
fundamental policies which may not be changed without approval by the holders of
the lesser of (i) 67% of that Fund's shares or the total beneficial interests of
the Portfolio represented at a meeting at which more than 50% of the outstanding
shares of the Fund or the total beneficial interests of the Portfolio are
represented, or (ii) more than 50% of the outstanding shares of the Fund or the
total beneficial interests of the Portfolio. Whenever the High Income Fund is
requested to vote on a change in the investment limitations of the Portfolio,
the Fund will hold a meeting of its shareholders and will cast its votes as
instructed by its shareholders.
GOVERNMENT INCOME FUND
The Government Income Fund may not:
(1) Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the
same industry, except that this limitation shall not apply to securities
issued or guaranteed as to principal and interest by the U.S. Government or
any of its agencies or instrumentalities;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Fund may invest in debt
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein, including real
estate investment trusts, and may purchase or sell currencies (including
forward currency exchange contracts), futures contracts and related options
generally as described in the Prospectus and this Statement of Additional
Information and subject to (14) below;
(4) Acquire securities subject to restrictions on disposition or
securities for which there is no readily available market, or enter into
repurchase agreements or purchase time deposits maturing in more than seven
days, or purchase OTC options or hold assets set aside to cover OTC options
written by a Fund, if, immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the Fund's total assets;
(5) Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the 1933 Act;
(6) Make loans, except that the Fund may purchase debt securities and
enter into repurchase agreements and make loans of portfolio securities;
(7) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(8) Purchase securities on margin, provided that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities; except that it may make margin deposits in
connection with futures contracts subject to (14) below;
(9) Borrow money, except from banks for temporary or emergency purposes
not in excess of 30% of the value of the Fund's total assets. The Fund will
not purchase securities while such borrowings are outstanding. This
restriction shall not prevent the Fund from entering into reverse repurchase
agreements and engaging in "roll" transactions, provided that reverse
repurchase agreements, "roll" transactions and any other transactions
constituting borrowing by the Fund may not exceed one-third of the Fund's
total assets. In the event that the asset coverage for the Fund's borrowings
falls below 300%, the Fund will reduce, within three days (excluding Sundays
and holidays), the amount of its borrowings in order to provide for the 300%
asset coverage;
(10) Mortgage, pledge, or hypothecate any of its assets, provided that
this restriction shall not apply to the transfer of securities in connection
with any permissible borrowing;
(11) Invest in interests in oil, gas, or other mineral exploration or
development programs;
Statement of Additional Information Page 20
<PAGE>
GT GLOBAL INCOME FUNDS
(12) Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three years
of continuous operation;
(13) Purchase or retain the securities of any issuer, if those individual
officers and Directors of the Company, the Fund's investment adviser, or
distributor, each owning beneficially more than 1/2 of 1% of the securities
of such issuer, together own more than 5% of the securities of such issuer;
or
(14) Enter into a futures contract, if, as a result thereof, more than 5%
of the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to margin on such futures contracts.
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff positions that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following investment policies of the Government Income Fund are not
fundamental policies and may be changed by vote of a majority of the Company's
Board of Directors without shareholder approval. The Fund may not: (1) borrow
money to purchase securities; and (2) invest in securities of an issuer if the
investment would cause the Fund to own more than 10% of any class of securities
of any one issuer.
STRATEGIC INCOME FUND
The Strategic Income Fund may not:
(1) Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the
same industry, (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives, policies and limitations as
the Fund) except that this limitation shall not apply to securities issued
or guaranteed as to principal and interest by the U.S. Government or any of
its agencies or instrumentalities;
(2) Invest in companies for the purpose of exercising control or
management (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives, policies and limitations as
the Fund);
(3) Buy or sell real estate (including real estate limited partnerships)
or commodities or commodity contracts; however, the Fund may invest in debt
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein, including real
estate investment trusts, and may purchase or sell currencies (including
forward currency exchange contracts), futures contracts and related options
generally as described in the Prospectus and this Statement of Additional
Information and subject to (13) below;
(4) Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the 1933 Act;
(5) Make loans, except that the Fund may invest in loans and
participations, purchase debt securities and enter into repurchase
agreements and make loans of portfolio securities;
(6) Sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(7) Purchase securities on margin, provided that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities; except that it may make margin deposits in
connection with futures contracts subject to (13) below;
(8) Borrow money in excess of 33 1/3% of the Fund's total assets
(including the amount borrowed), less all liabilities and indebtedness
(other than borrowing). This restriction shall not prevent the Fund from
entering into reverse repurchase agreements and engaging in "roll"
transactions, provided that reverse repurchase agreements, "roll"
transactions and any other transactions constituting borrowing by the Fund
may not exceed one-third of the Fund's total assets. In the event that the
asset coverage for the Fund's borrowings falls below 300%, the Fund will
reduce, within three days (excluding Sundays and holidays), the amount of
its borrowings in order to provide for 300% asset coverage. Transactions
involving options, futures contracts, options on futures contracts and
forward currency contracts, and collateral arrangements relating thereto
will not be deemed to be borrowings;
Statement of Additional Information Page 21
<PAGE>
GT GLOBAL INCOME FUNDS
(9) Mortgage, pledge, or hypothecate any of its assets, provided that
this restriction shall not apply to the transfer of securities in connection
with any permissible borrowing;
(10) Invest in interests in oil, gas, or other mineral exploration or
development programs;
(11) Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three years
of continuous operation (provided, however, that the Fund may invest all of
its investable assets in an open-end management investment company with
substantially the same investment objectives, policies, and limitations as
the Fund);
(12) Purchase or retain the securities of any issuer, if those individual
officers and Directors of the Company, the Fund's investment adviser, or
distributor, each owning beneficially more than 1/2 of 1% of the securities
of such issuer, together own more than 5% of the securities of such issuer;
or
(13) Enter into a futures contract, if, as a result thereof, more than 5%
of the Fund's total assets (taken at market value at the time of entering
into the contract) would be committed to margin on such futures contracts.
For purposes of the Fund's concentration policy contained in limitation (1)
above, the Fund intends to comply with the SEC staff positions that securities
issued or guaranteed as to principal and interest by any single foreign
government or any supranational organizations in the aggregate are considered to
be securities of issuers in the same industry.
The following investment policies of the Strategic Income Fund are not
fundamental policies and may be changed by vote of a majority of the Company's
Board of Directors without shareholder approval. The Fund may not:
(1) Invest more than 15% of its total assets in illiquid securities;
(2) Borrow money to purchase securities and will not invest in
securities of an issuer if the investment would cause the Fund to own more
than 10% of any class of securities of any one issuer (provided, however,
that the Fund may invest all of its investable assets in an open-end
management investment company with substantially the same investment
objectives, policies, and limitations as the Fund.); and
(3) Invest more than 10% of its total assets in shares of other
investment companies and invest more than 5% of its total assets in any one
investment company or acquire more than 3% of the outstanding voting
securities of any one investment company (provided, however, that the Fund
may invest all of its investable assets in an open-end management investment
company with substantially the same investment objectives, policies, and
limitations as the Fund).
HIGH INCOME FUND AND THE PORTFOLIO
The High Income Fund and the Portfolio each may not:
(1) Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the
same industry, (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund) except that this
limitation shall not apply to securities issued or guaranteed as to
principal and interest by the U.S. Government or any of its agencies or
instrumentalities;
(2) Purchase or sell real estate, including real estate limited
partnerships, provided that the Fund and the Portfolio may invest in
securities secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein;
(3) Purchase or sell commodities or commodity contracts, except that the
Fund and the Portfolio may purchase and sell financial and currency futures
contracts and options thereon, and may purchase and sell currency forward
contracts, options on foreign currencies and may otherwise engage in
transactions in foreign currencies;
(4) Underwrite securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund and the
Portfolio may be deemed an underwriter under federal or state securities
laws;
(5) Make loans, except that the Fund and the Portfolio may invest in
loans and participations, purchase debt securities and enter into repurchase
agreements and make loans of portfolio securities;
(6) Purchase securities on margin, provided that the Fund and the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; except that it may make
margin deposits in
Statement of Additional Information Page 22
<PAGE>
GT GLOBAL INCOME FUNDS
connection with the use of options, futures contracts, options thereon or
forward currency contracts. The Fund and the Portfolio may make deposits of
margin in connection with futures and forward contracts and options thereon;
(7) Borrow money in excess of 33 1/3% of the Fund's or the Portfolio's
total assets (including the amount borrowed), less all liabilities and
indebtedness (other than borrowing). This restriction shall not prevent the
Fund or the Portfolio from entering into reverse repurchase agreements and
engaging in "roll" transactions, provided that reverse repurchase
agreements, "roll" transactions and any other transactions constituting
borrowing by the Fund or the Portfolio may not exceed one-third of the
Fund's or the Portfolio's respective total assets. In the event that the
asset coverage for the Fund's or the Portfolio's borrowings falls below
300%, the Fund or the Portfolio will reduce, within three days (excluding
Sundays and holidays), the amount of its borrowings in order to provide for
300% asset coverage. Transactions involving options, futures contracts,
options on futures contracts and forward currency contracts, and collateral
arrangements relating thereto will not be deemed to be borrowings;
(8) Mortgage, pledge, or in any other manner transfer as security for
any indebtedness any of its assets, except to secure permitted borrowings.
Collateral arrangements with respect to initial or variation margin for
futures contracts will not be deemed to be a pledge of the Fund's or the
Portfolio's assets;
(9) Invest in direct interests or leases in oil, gas, or other mineral
exploration or development programs, however, the Fund or the Portfolio may
invest in securities of companies that engage in these activities; or
(10) With respect to 50% of its total assets, invest more than 5% of its
assets in the securities of any one issuer or purchase more than 10% of the
outstanding voting securities of any one issuer (provided, however, that the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objectives as the
Fund).
For purposes of the Fund's and the Portfolio's concentration policy contained in
limitation (1) above, they intend to comply with the SEC staff positions that
securities issued or guaranteed as to principal and interest by any single
foreign government or any supranational organizations in the aggregate are
considered to be securities of issuers in the same industry.
The following investment policies of the High Income Fund and the Portfolio are
not fundamental policies and may be changed by vote of a majority of the
Company's Board of Directors or the Portfolio's Board of Trustees without
shareholder approval. The Fund and the Portfolio each may not:
(1) Invest in securities of an issuer if the investment would cause the
Fund or the Portfolio to own more than 10% of any class of securities of any
one issuer (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund);
(2) Invest in companies for the purpose of exercising control or
management (provided, however, that the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund);
(3) Purchase or retain the securities of any issuer, if, to the Fund's
or the Portfolio's knowledge, one or more of the officers or Directors of
the Company, the Fund's or the Portfolio's investment adviser, or
distributor, each own beneficially more than 1/2 of 1% of the securities of
such issuer and together own beneficially more than 5% of the securities of
such issuer;
(4) Enter into a futures contract, an option on a futures contract or an
option on foreign currency traded on a CFTC-regulated exchange, in each case
other than for BONA FIDE hedging purposes (as defined by the CFTC), if the
aggregate initial margin and premiums required to establish all of those
positions (excluding the amount by which options are "in-the-money") exceeds
5% of the liquidation value of the Fund's or the Portfolio's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund or the Portfolio has entered into;
(5) Invest more than 5% of its total assets in securities of companies
having, together with their predecessors, a record of less than three years
of continuous operation (provided, however, that the Fund may invest all of
its investable assets in an open-end management investment company with
substantially the same investment objectives as the Fund); or
(6) Invest more than 10% of its total assets in shares of other
investment companies and invest more than 5% of its total assets in any one
investment company or acquire more than 3% of the outstanding voting
securities of any one investment company (provided, however, that the Fund
may invest all of its investable assets in an open-end management investment
company with substantially the same investment objectives as the Fund).
Statement of Additional Information Page 23
<PAGE>
GT GLOBAL INCOME FUNDS
Investors should refer to the Prospectus for further information with respect to
each Fund's investment objectives, which may not be changed without the approval
of shareholders and the Portfolio's investment objectives, which may be changed
without the approval of investors in the Portfolio, and other investment
policies and techniques, which may be changed without shareholder approval.
- --------------------------------------------------------------------------------
EXECUTION OF PORTFOLIO
TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to policies established by the Company's Board of Directors, the Manager
is responsible for the execution of the Government Income and Strategic Income
Funds' and the Portfolio's portfolio transactions and the selection of broker/
dealers that execute such transactions on behalf of these Funds and the
Portfolio. In executing portfolio transactions, the Manager seeks the best net
results for the Government Income and Strategic Income Funds and the Portfolio,
taking into account such factors as the price (including the applicable
brokerage commission or dealer spread), size of the order, difficulty of
execution and operational facilities of the firm involved. Although the Manager
generally seeks reasonably competitive commission rates and spreads, payment of
the lowest commission or spread is not necessarily consistent with the best net
results. While the Funds and the Portfolio may engage in soft dollar
arrangements for research services, as described below, neither the Funds nor
the Portfolio has any obligation to deal with any broker/dealer or group of
broker/ dealers in the execution of portfolio transactions.
Debt securities generally are traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price of
the security usually includes a profit to the dealer. U.S. and foreign
government securities and money market instruments generally are traded in the
OTC markets. In underwritten offerings, securities usually are purchased at a
fixed price which includes an amount of compensation to the underwriter. On
occasion, securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. Broker/dealers may receive commissions on
futures, currency and options transactions.
Consistent with the interests of the Funds and the Portfolio, the Manager may
select brokers to execute the Funds' and the Portfolio's portfolio transactions
on the basis of the research and brokerage services they provide to the Manager
for its use in managing the Funds and the Portfolio and its other advisory
accounts. Such services may include furnishing analyses, reports and information
concerning issuers, industries, securities, geographic regions, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement). Research and brokerage services received from such
brokers are in addition to, and not in lieu of, the services required to be
performed by the Manager under the Management Contract (defined below). A
commission paid to such brokers may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that the
Manager determines in good faith that such commission is reasonable in terms
either of that particular transaction or the overall responsibility of the
Manager to the Funds and the Portfolio and its other clients and that the total
commissions paid by the Funds and the Portfolio will be reasonable in relation
to the benefits received by the Funds and the Portfolio over the long term.
Research services may also be received from dealers who execute Fund
transactions in OTC markets.
The Manager may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by the Funds or the Portfolio toward payment of the Funds'
or the Portfolio's expenses, such as transfer agent and custodian fees.
Investment decisions for each Fund and the Portfolio and for other investment
accounts managed by the Manager are made independently of each other in light of
differing conditions. However, the same investment decision occasionally may be
made for two or more of such accounts, including one or both Funds and the
Portfolio. In such cases, simultaneous transactions may occur. Purchases or
sales are then allocated as to price or amount in a manner deemed fair and
equitable to all accounts involved. While in some cases this practice could have
a detrimental effect upon the price or value of the security as far as the Funds
and the Portfolio are concerned, in other cases the Manager believes that
coordination and the ability to participate in volume transactions will be
beneficial to the Funds and the Portfolio.
Under a policy adopted by the Company's Board of Directors and the Portfolio's
Board of Trustees, and subject to the policy of obtaining the best net results,
the Manager may consider a broker/dealer's sale of the shares of the Funds and
the
Statement of Additional Information Page 24
<PAGE>
GT GLOBAL INCOME FUNDS
other funds for which the Manager serves as investment manager in selecting
brokers and dealers for the execution of portfolio transactions. This policy
does not imply a commitment to execute portfolio transactions through all
broker/ dealers that sell shares of the Funds and such other funds.
Each Fund and the Portfolio contemplates purchasing most foreign equity
securities in over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less government supervision and regulation of foreign stock
exchanges and brokers than in the United States. Foreign security settlements
may in some instances be subject to delays and related administrative
uncertainties.
Foreign equity securities may be held by a Fund and the Portfolio in the form of
American Depository Receipts ("ADRs"), American Depository Shares ("ADSs"),
Continental Depository Receipts ("CDRs") or European Depository Receipts
("EDRs") or securities convertible into foreign equity securities. ADRs, ADSs,
CDRs and EDRs may be listed on stock exchanges, or traded in the OTC markets in
the United States or Europe, as the case may be. ADRs, like other securities
traded in the United States, will be subject to negotiated commission rates. The
foreign and domestic debt securities and money market instruments in which the
Funds and the Portfolio may invest generally are traded in the OTC markets.
The Funds and the Portfolio contemplate that, consistent with the policy of
obtaining the best net results, brokerage transactions may be conducted through
certain companies that are members of the Liechtenstein Global Trust. The
Company's Board of Directors has adopted procedures in conformity with Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to such
affiliates are reasonable and fair in the context of the market in which they
are operating. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations. For the fiscal years
ended October 31, 1996, 1995 and 1994, the Portfolio paid aggregate brokerage
commissions of $86,600, $0 and $24,000, respectively. For the fiscal years ended
October 31, 1996, 1995 and 1994, the Government Income Fund paid aggregate
brokerage commissions of $24,663, $0 and $92,397, respectively. For the fiscal
years ended October 31, 1996, 1995 and 1994, the Strategic Income Fund paid
aggregate brokerage commissions of $85,404, $0 and $134,876, respectively.
PORTFOLIO TRADING AND TURNOVER
Each Fund and the Portfolio engages in portfolio trading when the Manager
concludes that the sale of a security owned by a Fund and the Portfolio and/or
the purchase of another security of better value can enhance principal and/or
increase income. A security may be sold to avoid any prospective decline in
market value, or a security may be purchased in anticipation of a market rise.
Consistent with each Fund's and the Portfolio's investment objectives, a
security also may be sold and a comparable security purchased coincidentally in
order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities. Although the Funds and
the Portfolio generally do not intend to trade for short-term profits, the
securities in each Fund's and the Portfolio's portfolio will be sold whenever
the Manager believes it is appropriate to do so, without regard to the length of
time a particular security may have been held. Portfolio turnover is calculated
by dividing the lesser of sales or purchases of portfolio securities by each
Fund's or the Portfolio's average month-end portfolio value, excluding
short-term investments. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs that a Fund or the
Portfolio will bear directly, and could result in the realization of net capital
gains that would be taxable when distributed to shareholders. The portfolio
turnover rates for the Government Income Fund, Strategic Income Fund and the
Portfolio the last two fiscal years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------- -----------------
<S> <C> <C>
Government Income Fund............................................................... 268% 385%
Strategic Income Fund................................................................ 177% 238%
High Income Portfolio................................................................ 290% 213%
</TABLE>
Statement of Additional Information Page 25
<PAGE>
GT GLOBAL INCOME FUNDS
DIRECTORS, TRUSTEES AND
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The term "Directors" as used below refers to the Company's Directors and the
Portfolio's Trustees collectively. The Company's Directors and executive
officers and the Portfolio's Trustees and executive officers are listed below.
<TABLE>
<CAPTION>
NAMES, POSITION(S) WITH THE PRINCIPAL OCCUPATIONS AND BUSINESS
COMPANY/PORTFOLIO AND ADDRESS EXPERIENCE FOR PAST 5 YEARS
- --------------------------------------- ------------------------------------------------------------------------------------------
<S> <C>
William J. Guilfoyle*, 38 Director, LGT Asset Management, Inc. since 1996; Director, G.T. Insurance Agency ("G.T.
Director, Chairman of the Board and Insurance") since 1996; Director, Liechtenstein Global Trust AG (holding company of the
President various international LGT companies) Advisory Board since January 1996; President, GT
50 California Street Global since 1995; President and Chief Executive Officer, G.T. Insurance since 1995;
San Francisco, CA 94111 Director, Liechtenstein Global Trust AG from 1995 to January 1996; Senior Vice President
and Director, Sales and Marketing, G.T. Insurance from April 1995 to November 1995; Vice
President and Director of Marketing, GT Global from 1987 to 1995; Senior Vice President,
Retail Marketing, G.T. Insurance from 1993 to 1995; Vice President, G.T. Insurance from
1992 to 1993; and Director, Mutual Fund Forum (an industry group of mutual fund and
broker/dealer firms). Mr. Guilfoyle also is a director or trustee of each of the other
investment companies registered under the 1940 Act that is managed or administered by the
Manager.
C. Derek Anderson, 55 Chief Executive Officer, Anderson Capital Management, Inc.; Chairman and Chief Executive
Director Officer, Plantagenet Holdings, Ltd. from 1991 to present; Director, Munsingwear, Inc.; and
220 Sansome Street Director, American Heritage Group Inc. and various other companies. Mr. Anderson also is a
Suite 400 director or trustee of each of the other investment companies registered under the 1940
San Francisco, CA 94104 Act that is managed or administered by the Manager.
Frank S. Bayley, 57 Partner with Baker & McKenzie (a law firm); Director and Chairman, C.D. Stimson Company (a
Director private investment company). Mr. Bayley also is a director or trustee of each of the other
Two Embarcadero Center investment companies registered under the 1940 Act that is managed or administered by the
Suite 2400 Manager.
San Francisco, CA 94111
Arthur C. Patterson, 53 Managing Partner, Accel Partners (a venture capital firm). He also serves as a director of
Director various computing and software companies. Mr. Patterson also is a director or trustee of
One Embarcadero Center each of the other investment companies registered under the 1940 Act that is managed or
Suite 3820 administered by the Manager.
San Francisco, CA 94111
Ruth H. Quigley, 61 Private investor; and President, Quigley Friedlander & Co., Inc. (a financial advisory
Director services firm) from 1984 to 1986. Ms. Quigley also is a director or trustee of each of the
1055 California Street other investment companies registered under the 1940 Act that is managed or administered
San Francisco, CA 94108 by the Manager.
Robert G. Wade, Jr.*, 69 Consultant to the Manager; Chairman of the Board of Chancellor Capital Management, Inc.
Director from January 1995 to October 1996; President, Chief Executive Officer and Chairman of the
1166 Avenue of the Americas Board of Chancellor Capital Management, Inc. from 1988 to January 1995.
New York, NY 10036
</TABLE>
- --------------
* Mr. Guilfoyle and Mr. Wade are "interested persons" of the Company as
defined by the 1940 Act due to their affiliation with the LGT companies.
Statement of Additional Information Page 26
<PAGE>
GT GLOBAL INCOME FUNDS
<TABLE>
<CAPTION>
NAMES, POSITION(S) WITH THE PRINCIPAL OCCUPATIONS AND BUSINESS
COMPANY/PORTFOLIO AND ADDRESS EXPERIENCE FOR PAST 5 YEARS
- --------------------------------------- ------------------------------------------------------------------------------------------
<S> <C>
James R. Tufts, 38 Chief Information Officer for the Manager since October 1996; President,
Vice President and Chief GT Services since 1995; Senior Vice President -- Finance and
Financial Officer Administration, GT Global, GT Services and G.T. Insurance from 1994 to
50 California Street 1995; Senior Vice President -- Finance and Administration, LGT Asset
San Francisco, CA 94111 Management from 1994 to October 1996; Vice President -- Finance, LGT
Asset Management, GT Global and GT Services from 1990 to 1994; Vice
President -- Finance, G.T. Insurance from 1992 to 1994; and Director of
LGT Asset Management, GT Global and GT Services since 1991.
Kenneth W. Chancey, 51 Vice President -- Mutual Fund Accounting, the Manager since 1992; and
Vice President and Principal Vice President, Putnam Fiduciary Trust Company from 1989 to 1992.
Accounting Officer
50 California Street
San Francisco, CA 94111
Helge K. Lee, 50 Executive Vice President, Asset Management Division, Liechtenstein
Vice President and Secretary Global Trust since October 1996; Senior Vice President, LGT Asset
1166 Avenue of the Americas Management, GT Global, GT Services and G.T. Insurance from February 1996
New York, NY 10036 to October 1996; Vice President, the Manager, LGT Asset Management, GT
Global, GT Services and G.T. Insurance from May 1994 to February 1996;
General Counsel, the Manager, LGT Asset Management, GT Global, GT
Services and G.T. Insurance from May 1994 to October 1996; Secretary,
the Manager, LGT Asset Management, GT Global, GT Services and G.T.
Insurance from May 1994 to October 1996; Senior Vice President, General
Counsel and Secretary, Strong/ Corneliuson Management, Inc.; and
Secretary, each of the Strong Funds from October 1991 to May 1994.
</TABLE>
------------------------
The Board has a Nominating and Audit Committee, composed of Miss Quigley and
Messrs. Anderson, Bayley and Patterson, which is responsible for nominating
persons to serve as Directors, reviewing audits of the Company and its funds and
recommending firms to serve as independent auditors of the Company. Each of the
Directors and officers of the Company is also a Director and officer of G.T.
Investment Portfolios, Inc., G.T. Global Developing Markets Fund, Inc. and GT
Global Floating Rate Fund, Inc., and a Trustee and officer of G.T. Global Growth
Series, G.T. Global Eastern Europe Fund, G.T. Global Variable Investment Trust,
G.T. Global Variable Investment Series, Global Investment Portfolio and Growth
Portfolio, which also are registered investment companies managed by the
Manager. Each of the individuals listed above serves as a Director or officer of
the Company as well as a Trustee or officer of the Portfolio. Each Director and
Officer serves in total as a Director and or Trustee and Officer, respectively,
of 11 registered investment companies with 41 series managed or administered by
the Manager. Each Director or Trustee who is not a director, officer or employee
of the Manager or any affiliated company is paid aggregate fees of $5,000 per
annum, plus $300 per Fund for each meeting of the Board attended, and reimburses
travel and other expenses incurred in connection with attendance at such
meetings. Other Directors and Officers receive no compensation or expense
reimbursement from the Company. For the fiscal year ended October 31, 1996, Mr.
Anderson, Mr. Bayley, Mr. Patterson and Ms. Quigley, who are not directors,
officers, or employees of the Manager or any affiliated company, received total
compensation of $30,200, $30,200, $26,600 and $30,200, respectively, from the
Company for their services as Directors. For the fiscal year ended October 31,
1996, Mr. Anderson, Mr. Bayley, Mr. Patterson and Ms. Quigley received total
compensation of $80,100, $80,100, $72,600 and $80,100, respectively, from the
investment companies managed or administered by the Manager for which he or she
serves as a Director or Trustee. Fees and expenses disbursed to the Directors
contained no accrued or payable pension or retirement benefits. As of February
1, 1997, the Officers and Directors and their families as a group owned in the
aggregate beneficially or of record less than 1% of the outstanding shares of
the Funds or of all the Company's Funds in the aggregate.
Statement of Additional Information Page 27
<PAGE>
GT GLOBAL INCOME FUNDS
MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT AND ADMINISTRATION SERVICES
The Manager serves as the Government Income Fund's and the Strategic Income
Fund's investment manager and administrator under an Investment Management and
Administration Contract between the Company and the Manager ("Company Management
Contract") and as the Portfolio's investment manager and administrator under an
Investment Management and Administration Contract between the Portfolio and the
Manager ("Portfolio Management Contract") (collectively, "Management
Contracts"). The Manager serves as the High Income Fund's administrator under an
Administration Contract ("Administration Contract") between the Company and the
Manager. The Administration Contract will not be deemed an advisory contract, as
defined under the 1940 Act. As investment manager and administrator, the Manager
makes all investment decisions for the Government Income Fund, the Strategic
Income Fund and the Portfolio and as administrator, the Manager administers each
Fund's and the Portfolio's affairs. Among other things, the Manager furnishes
the services and pays the compensation and travel expenses of persons who
perform the executive, administrative, clerical and bookkeeping functions of the
Company, the Funds, and the Portfolio and provides suitable office space,
necessary small office equipment and utilities. For these services, the
Government Income Fund and the Strategic Income Fund each pay the Manager
investment management and administration fees, based on the Funds' average daily
net assets computed daily and paid monthly, at the annualized rate of .725% on
the first $500 million, .70% on the next 1 billion, .675% on the next $1
billion, and .65% on amounts thereafter. The High Income Fund pays
administration fees, computed daily and paid monthly, to the Manager at the
annualized rate of 0.25% of the Fund's average daily net assets. In addition,
the High Income Fund bears a pro rata portion of the investment management and
administration fee paid by the Portfolio to the Manager. The Portfolio pays such
fees, also computed daily and paid monthly at the annualized rate of .475% on
the first $500 million, .45% on the next $1 billion, .425% on the next $1
billion, and .40% on amounts thereafter of its average daily net assets, plus 2%
of the Portfolio's total investment income as stated in the Portfolio's
Statement of Operations, calculated in accordance with generally accepted
accounting principles, adjusted daily for currency revaluations, on a marked to
market basis, of the Portfolio's assets; provided, however, that during any
fiscal year this amount shall not exceed 2% of the Portfolio's total investment
income calculated in accordance with generally accepted accounting principles.
The Management Contracts may be renewed for one-year terms, provided that any
such renewal has been specifically approved at least annually by: (i) the
Company's Board of Directors or the Portfolio's Board of Trustees, as
applicable, or by the vote of a majority of the Fund's or the Portfolio's
outstanding voting securities (as defined in the 1940 Act), and (ii) a majority
of Directors or Trustees who are not parties to the Management Contract or the
Administration Contract, as applicable, or "interested persons" of any such
party (as defined in the 1940 Act), cast in person at a meeting called for the
specific purpose of voting on such approval. The Management Contracts provide
that with respect to the Government Income Fund, the Strategic Income Fund and
the Portfolio, and the Administration Contract provides that with respect to the
High Income Fund, either the Company, the Portfolio or the Manager may terminate
the Contract without penalty upon sixty days' written notice to the other party.
The Management Contracts and the Administration Contract terminate automatically
in the event of their assignment (as defined in the 1940 Act).
In each of the last three fiscal years the Government Income Fund paid
investment management and administration fees to the Manager in the following
amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ----------------------------------------------------------------------------------------------------------- -------------
<S> <C>
1996....................................................................................................... $ 3,672,503
1995....................................................................................................... 4,946,971
1994....................................................................................................... 6,390,750
</TABLE>
Statement of Additional Information Page 28
<PAGE>
GT GLOBAL INCOME FUNDS
In each of the last three fiscal years the Strategic Income Fund paid investment
management and administration fees to the Manager in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ----------------------------------------------------------------------------------------------------------- -------------
<S> <C>
1996....................................................................................................... $ 3,807,689
1995....................................................................................................... 4,293,053
1994....................................................................................................... 5,392,542
</TABLE>
In each of the last three fiscal years the Portfolio paid investment management
and administration fees to the Manager in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ----------------------------------------------------------------------------------------------------------- -------------
<S> <C>
1996....................................................................................................... $ 3,014,924
1995....................................................................................................... 2,411,786
1994....................................................................................................... 2,266,420
</TABLE>
In each of the last three fiscal years the High Income Fund paid administration
fees to the Manager in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, AMOUNT PAID
- ----------------------------------------------------------------------------------------------------------- -------------
<S> <C>
1996....................................................................................................... $ 1,015,220
1995....................................................................................................... 860,884
1994....................................................................................................... 886,795
</TABLE>
DISTRIBUTION SERVICES
Each Fund's Class A and Class B shares are offered continuously through each
Fund's principal underwriter and distributor, GT Global, on a "best efforts"
basis pursuant to separate Distribution Contracts between the Company and GT
Global.
As described in the Prospectus, the Company has adopted a separate Distribution
Plan for each class of each Fund in accordance with Rule 12b-1 under the 1940
Act (each a"Class A Plan" and "Class B Plan," respectively, and collectively,
"Plans"). The rate of payments by each Fund under the Plans, as described in the
Prospectus, may not be increased without the approval of the majority of the
outstanding voting securities of the affected class. All expenses for which GT
Global is reimbursed under a Class A Plan will have been incurred within one
year of such reimbursement. The following table discloses payments made by each
Fund to GT Global under the Class A Plan and the Class B Plan for the fiscal
year ended October 31, 1996.
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------- ----------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1996
---------------- ----------------
<S> <C> <C>
Government Income Fund............................................................... $1,074,110 $2,006,881
Strategic Income Fund................................................................ $ 625,247 $3,468,104
High Income Fund..................................................................... $ 560,451 $2,405,007
</TABLE>
In approving the Plans, the Directors determined that the adoption of the Class
B Plan or continuation of the Class A Plan, as applicable, was in the best
interests of the shareholders of the Funds. Agreements related to the Plans also
must be approved by such vote of the Directors, including a majority of the
Directors who are not "interested persons" of the Company (as defined in the
1940 Act) and who have no direct or indirect financial interests in the
operation of the Plans, or in any agreement related thereto.
Each Plan requires that, at least quarterly, the Directors will review the
amounts expended thereunder and the purposes for which such expenditures were
made. Each Plan requires that so long as it is in effect the selection and
nomination of Directors who are not "interested persons" of the Company will be
committed to the discretion of the Directors who are not "interested persons" of
the Company, as defined in the 1940 Act.
As discussed in the Prospectus, GT Global collects sales charges on sales of
Class A shares of the Funds, retains certain amounts of such charges and
reallows other amounts of such charges to broker/dealers who sell shares.
Statement of Additional Information Page 29
<PAGE>
GT GLOBAL INCOME FUNDS
The following tables review the extent of such activity during the last three
fiscal years:
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
SALES CHARGES AMOUNTS AMOUNTS
COLLECTED RETAINED REALLOWED
------------- ----------- -------------
<S> <C> <C> <C>
Government Income Fund...................................................... $ 88,272 $ 15,917 $ 72,355
Strategic Income Fund.......................................................
High Income Fund............................................................
</TABLE>
YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
SALES CHARGES AMOUNTS AMOUNTS
COLLECTED RETAINED REALLOWED
------------- ----------- -------------
<S> <C> <C> <C>
Government Income Fund...................................................... $ 305,067 $ 58,490 $ 246,577
Strategic Income Fund....................................................... 399,242 68,458 330,784
High Income Fund............................................................ 537,880 67,403 470,477
</TABLE>
YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
SALES CHARGES AMOUNTS AMOUNTS
COLLECTED RETAINED REALLOWED
------------- ----------- -------------
<S> <C> <C> <C>
Government Income Fund...................................................... $ 2,518,304 $ 169,742 $ 2,348,562
Strategic Income Fund....................................................... 3,565,247 732,755 2,832,492
High Income Fund............................................................ 1,888,649 330,237 1,558,412
</TABLE>
GT Global receives any contingent deferred sales charges payable with respect to
redemptions of Class B shares and certain Class A shares. The following table
discloses the amount of CDSCs collected by GT Global with regard to the GT
Global Income Funds for the periods shown.
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
CDSCS
YEAR ENDED OCTOBER 31, COLLECTED
- ----------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 1,467,051
1995........................................................................... 1,596,085
1994........................................................................... 809,221
</TABLE>
STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
CDSCS
YEAR ENDED OCTOBER 31, COLLECTED
- ----------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 1,925,586
1995........................................................................... 1,337,974
1994........................................................................... 1,084,779
</TABLE>
HIGH INCOME FUND
<TABLE>
<CAPTION>
CDSCS
YEAR ENDED OCTOBER 31, COLLECTED
- ----------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 1,739,271
1995........................................................................... 2,443,970
1994........................................................................... 990,675
</TABLE>
TRANSFER AGENCY AND ACCOUNTING AGENCY SERVICES
The Transfer Agent has been retained by the Funds to perform shareholder
servicing, reporting and general transfer agent functions for them. For these
services, the Transfer Agent receives 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. The
Transfer Agent also is reimbursed by each Fund, for its out-of-pocket expenses
for such items as postage, forms, telephone charges, stationery and office
supplies. The Manager also serves as each Fund's pricing and accounting agent.
As of October 31, 1996 and October 31, 1995, the Fund paid accounting services
fees to the Manager of Government Income Fund, Strategic Income Fund and High
Income Fund $127,205 and $40,218; $131,517 and $34,980; and $101,697 and
$22,563, respectively.
EXPENSES OF THE FUNDS AND THE PORTFOLIO
Each Fund and the Portfolio pays all expenses not assumed by the Manager, GT
Global and other agents. These expenses include, in addition to the advisory,
distribution, transfer agency, pricing and accounting agent and brokerage fees
Statement of Additional Information Page 30
<PAGE>
GT GLOBAL INCOME FUNDS
discussed above, legal and audit expenses, custodian fees, directors' fees,
organizational fees, fidelity bond and other insurance premiums, taxes,
extraordinary expenses and the expenses of reports and prospectuses sent to
existing investors. The allocation of general Company expenses and expenses
shared by the Funds and other funds organized as series of the Company are
allocated on a basis deemed fair and equitable, which may be based on the
relative net assets of the Funds or the nature of the services performed and
relative applicability to each Fund. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses. The ratio of each Fund's and the Portfolio's expenses to its
relative net assets can be expected to be higher than the expense ratios of
funds investing solely in domestic securities, since the cost of maintaining the
custody of foreign securities and the rate of investment management fees paid by
each Fund and the Portfolio generally are higher than the comparable expenses of
such other funds.
- --------------------------------------------------------------------------------
VALUATION OF FUND SHARES
- --------------------------------------------------------------------------------
As described in the Prospectus, each Fund's net asset value per share for each
class of shares is determined at the close of regular trading on the New York
Stock Exchange ("NYSE") (currently, 4:00 P.M. Eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing business
time) on each business day the NYSE is open for business. Currently, the NYSE is
closed on weekends and on certain days relating to the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day,
Thanksgiving Day and Christmas Day.
Each Fund's and the Portfolio's portfolio securities and other assets are valued
as follows:
Equity securities, including ADRs, ADSs and EDRs, which are traded on stock
exchanges are valued at the last sale price on the exchange or in the principal
over-the-counter market in which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price. In cases where securities are traded on more than
one exchange, the securities are valued on the exchange determined by the
Manager to be the primary market.
Long-term debt obligations are valued at the mean of representative quoted bid
or asked prices for such securities or, if such prices are not available, at
prices for securities of comparable 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 debt investments are amortized
to maturity based on their cost, adjusted for foreign exchange translation,
provided such valuations represent fair value.
Options on indices, securities and currencies purchased by a Fund or the
Portfolio are valued at their last bid price in the case of listed options or,
in the case of OTC options, at the average of the last bid prices obtained from
dealers, unless a quotation from only one dealer is available, in which case
only that dealer's price will be used. When market quotations for futures and
options on futures held by a Fund or the Portfolio are readily available, those
positions will be valued based upon such quotations.
Securities and other assets for which market quotations are not readily
available (including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by or under
the direction of the Company's Board of Directors. The valuation procedures
applied in any specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the issuer and
other fundamental analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Fund in connection with such disposition).
In addition, specific factors also are generally considered, such as the cost of
the investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the size of
the holding, the prices of any recent transactions or offers with respect to
such securities and any available analysts' reports regarding the issuer.
The fair value of any other assets is added to the value of all securities
positions to arrive at the value of a Fund's or the Portfolio's total assets.
The Fund's or the Portfolio's liabilities, including accruals for expenses, are
deducted from its total assets. Once the total value of a Fund's or the
Portfolio's net assets is so determined, that value is then divided by the total
Statement of Additional Information Page 31
<PAGE>
GT GLOBAL INCOME FUNDS
number of shares outstanding (excluding treasury shares), and the result,
rounded to the nearer cent, is the net asset value per share.
Any assets or liabilities initially denominated in terms of foreign currencies
are translated into U.S. dollars at the official exchange rate or at the mean of
the current bid and asked prices of such currencies against the U.S. dollar last
quoted by a major bank that is a regular participant in the foreign exchange
market or on the basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If none of these alternatives are
available or none are deemed to provide a suitable methodology for converting a
foreign currency into U.S. dollars, the Board of Directors, in good faith, will
establish a conversion rate for such currency.
European, Far Eastern or Latin American securities trading may not take place on
all days on which the NYSE is open. Further, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days on which the
NYSE is not open. Consequently, the calculation of the Funds' respective net
asset values therefore may not take place contemporaneously with the
determination of the prices of securities held by the Funds. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of regular trading on the NYSE will not be reflected in
the Funds' net asset values unless the Manager, under the supervision of the
Company's Board of Directors, determines that the particular event would
materially affect net asset value. As a result, a Fund's net asset value may be
significantly affected by such trading on days when a shareholder cannot
purchase or redeem shares of the Fund.
- --------------------------------------------------------------------------------
INFORMATION RELATING TO SALES AND
REDEMPTIONS
- --------------------------------------------------------------------------------
PAYMENT AND TERMS OF OFFERING
Payment for Class A or Class B shares purchased should accompany the purchase
order, or funds should be wired to the Transfer Agent as described in the
Prospectus. Payment, other than by wire transfer, must be made by check or money
order drawn on a U.S. bank. Checks or money orders must be payable in U.S.
dollars.
As a condition of this offering, if an order to purchase either class of shares
is cancelled due to nonpayment (for example, on account of a check returned for
"not sufficient funds"), the person who made the order will be responsible for
any loss incurred by a Fund by reason of such cancellation, and if such
purchaser is a shareholder, that Fund shall have the authority as agent of the
shareholder to redeem shares in his or her account at their then-current net
asset value per share to reimburse that Fund for the loss incurred. Investors
whose purchase orders have been cancelled due to nonpayment may be prohibited
from placing future orders.
The Funds reserve the right at any time to waive or increase the minimum
requirements applicable to initial or subsequent investments with respect to any
person or class of persons. An order to purchase shares is not binding on a Fund
until it has been confirmed in writing by the Transfer Agent (or other
arrangements made with the Fund, in the case of orders utilizing wire transfer
of funds, as described above) and payment has been received. To protect existing
shareholders, the Funds reserve the right to reject any offer for a purchase of
shares by any individual.
SALES OUTSIDE THE UNITED STATES
Sales of Fund shares made through brokers outside the United States will be at
net asset value plus a sales commission, if any, established by that broker or
by local law. Such a commission, if any, may be more or less than the sales
charges listed in the sales charge table included in the Prospectuses.
LETTER OF INTENT -- CLASS A SHARES
The Letter of Intent ("LOI") is not a binding obligation to purchase the
indicated amount. During such time as Class A shares are held in escrow under an
LOI to assure payment of applicable sales charges if the indicated amount is not
met, all dividends and capital gain distributions on escrowed shares will be
reinvested in additional Class A shares or paid in cash, as specified by the
shareholder. If the intended investment is not completed within the specified
13-month period, the purchaser must remit to GT Global the difference between
the sales charge actually paid and the sales charge which would have been
applicable if the total Class A purchases had been made at a single time. If
this amount is not paid to GT Global within 20 business days after written
request, the appropriate number of escrowed shares will be redeemed and the
proceeds paid to GT Global.
Statement of Additional Information Page 32
<PAGE>
GT GLOBAL INCOME FUNDS
A registered investment adviser, trust company or trust department seeking to
execute an LOI as a single purchaser with respect to accounts over which it
exercises investment discretion is required to provide the Transfer Agent with
information establishing that it has discretionary authority with respect to the
money invested (e.g., by providing a copy of the pertinent investment advisory
agreement). Class A shares purchased in this manner must be restrictively
registered with the Transfer Agent so that only the investment adviser, trust
company or trust department, and not the beneficial owner, will be able to place
purchase, redemption and exchange orders.
AUTOMATIC INVESTMENT PLAN -- CLASS A SHARES AND CLASS B SHARES
To establish participation in the Funds' Automatic Investment Plan ("AIP"),
investors or their brokers should specify whether the investment will be in
Class A shares or Class B shares and send the following documents to the
Transfer Agent: (1) an AIP Application; (2) a Bank Authorization Form; and (3) a
voided personal check from the pertinent bank account. The necessary forms are
provided at the back of the prospectus. Provided that an investor's bank accepts
the Bank Authorization Form, investment amounts will be drawn on the designated
dates (monthly on the 25th day or beginning quarterly on the 25th day of the
month the investor first selects) in order to purchase full and fractional
shares of a Fund at the public offering price determined on that day. In the
event that the 25th day falls on a Saturday, Sunday or holiday, shares will be
purchased on the next business day. If an investor's check is returned because
of insufficient funds, a stop payment order or the account is closed, the AIP
may be discontinued, and any share purchase made upon deposit of such check may
be cancelled. Furthermore, the shareholder will be liable for any loss incurred
by a Fund by reason of such cancellation. Investors should allow one month for
the establishment of an AIP. An AIP may be terminated by the Transfer Agent or
the Funds upon 30 days' written notice or by the participant, at any time,
without penalty, upon written notice to the pertinent Fund or the Transfer
Agent.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
Class A or Class B shares of a Fund may be purchased as the underlying
investment for an IRA meeting the requirements of section 408(a) of the Code.
IRA applications are available from brokers or GT Global.
EXCHANGES BETWEEN FUNDS
Shares of each Fund may be exchanged for shares of other GT Global Mutual Funds,
based on their respective net asset values without imposition of any sales
charges provided that the registration remains identical. Class A shares may be
exchanged only for Class A shares of other GT Global Mutual Funds. Class B
shares may be exchanged only for Class B shares of other GT Global Mutual Funds.
The exchange privilege is not an option or right to purchase shares but is
permitted under the current policies of the respective GT Global Mutual Funds.
The privilege may be discontinued or changed at any time by any of the funds
upon 60 days' prior notice to the shareholders of such fund and is available
only in states where the exchange may be made legally. Before purchasing shares
through the exercise of the exchange privilege, a shareholder should obtain and
read a copy of the prospectus of the fund to be purchased and should consider
the investment objective(s) of the fund.
TELEPHONE REDEMPTIONS
A corporation or partnership wishing to utilize telephone, telex or telegram
redemption services must submit a "Corporate Resolution" or "Certificate of
Partnership" indicating the names, titles and the required number of signatures
of persons authorized to act on its behalf. The certificate must be signed by a
duly authorized officer(s) and, in the case of a corporation, the corporate seal
affixed. All shareholders may request that redemption proceeds be transmitted by
bank wire directly to the shareholder's predesignated account at a domestic bank
or savings institution, if the proceeds are at least $1,000. Costs in connection
with the administration of this service, including wire charges, currently are
borne by the appropriate Fund. Proceeds of less than $1,000 will be mailed to
the shareholder's registered address of record. The Funds and the Transfer Agent
reserve the right to refuse any telephone instructions and may discontinue the
aforementioned redemption options upon 30 days written notice.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders of a Fund owning Class A or Class B shares with a value of $10,000
or more, may establish a Systematic Withdrawal Plan ("SWP"). Under a SWP, a
shareholder will receive monthly or quarterly payments, in amounts of not less
than $100 per payment, through the automatic redemption of the necessary number
of shares on the designated dates (monthly on the 25th day or beginning
quarterly on the 25th day of the month the investor first selects). In the event
that the 25th day falls on a Saturday, Sunday or holiday, the redemption will
take place on the prior business day. Certificates, if any, for the shares being
redeemed must be held by the Transfer Agent. Checks will be made payable to the
designated recipient and mailed within seven days. If the recipient is other
than the registered shareholder, the signature of each shareholder must be
guaranteed on the SWP application (see "How to Redeem Shares" in the
Prospectuses). A corporation (or partnership) also must submit a "Corporation
Resolution" or "Certificate of Partnership" indicating the names,
Statement of Additional Information Page 33
<PAGE>
GT GLOBAL INCOME FUNDS
titles, and signatures of the individuals authorized to act on its behalf, and
the SWP application must be signed by a duly authorized officer(s) and the
corporate seal affixed.
With respect to a SWP, the maximum annual SWP withdrawal is 12% of the initial
account value. Withdrawals in excess of 12% of the initial account value
annually may result in assessment of a contingent deferred sales charge. See
"How to Invest" in the Prospectus.
Shareholders should be aware that such systematic withdrawals may deplete or use
up entirely the initial investment and result in realized long-term or
short-term capital gains or losses. The SWP may be terminated at any time by the
Transfer Agent or a Fund upon 30 days' written notice or by a shareholder upon
written notice to a Fund or its Transfer Agent. Applications and further details
regarding establishment of a SWP are provided at the back of the Funds'
Prospectus.
SUSPENSION OF REDEMPTION PRIVILEGES
The Funds may suspend redemption privileges or postpone the date of payment for
more than seven days after a redemption order is received during any period (1)
when the NYSE is closed other than customary weekend and holiday closings, or
trading on the NYSE is restricted as directed by the SEC, (2) when an emergency
exists, as defined by the SEC, which would prohibit the Funds from disposing of
their portfolio securities or in fairly determining the value of their assets,
or (3) as the SEC may otherwise permit.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which would, in the
opinion of the Company's Board of Directors, make it undesirable for a Fund to
pay for all redemptions in cash. In such cases, the Board may authorize payment
to be made in portfolio securities or other property of a Fund, so called
"redemption in kind." Payments of redemption in kind will be made in readily
marketable securities. Such securities would be valued at the same value
assigned to them in computing the net asset value per share. Shareholders
receiving such securities would incur brokerage costs in selling any such
securities so received. However, despite the foregoing, the Company has filed
with the SEC an election pursuant to Rule 18f-1 under the 1940 Act. This means
that each Fund will pay in cash all requests for redemption made by any
shareholder of record, limited in amount with respect to each shareholder during
any ninety-day period to the lesser of $250,000 or 1% of the value of the net
assets of the Fund at the beginning of such period. This election is irrevocable
so long as Rule 18f-1 remains in effect, unless the SEC by order upon
application permits the withdrawal of such election.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
TAXATION OF THE FUNDS
Each Fund is treated as a separate corporation for federal income tax purposes.
In order to continue to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net gains
from certain foreign currency transactions) ("Distribution Requirement") and
must meet several additional requirements. With respect to each Fund, these
requirements include the following: (1) the Fund must derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of securities
or foreign currencies, or other income (including gains from options, Futures or
Forward Contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less than
three months -- options or Futures (other than those on foreign currencies), or
foreign currencies (or options, Futures or Forward Contracts thereon) that are
not directly related to the Fund's principal business of investing in securities
(or options and Futures with respect to securities) ("Short-Short Limitation");
(3) at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
government securities, securities of other RICs and other securities, with these
other securities limited, in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities, and (4)
at the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its total assets may be invested in securities (other than U.S.
government securities or the securities of other RICs) of any one issuer. The
High
Statement of Additional Information Page 34
<PAGE>
GT GLOBAL INCOME FUNDS
Income Fund, as an investor in the Portfolio, is deemed to own a proportionate
share of the Portfolio's assets, and to earn a proportionate share of the
Portfolio's income, for purposes of determining whether that Fund satisfies all
the requirements described above to qualify as a RIC.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
See "Taxation of Certain Investment Activities" below for a discussion of the
tax consequences to the High Income Fund of hedging transactions engaged in, and
investments in passive foreign investment companies ("PFICs") and other foreign
securities by, the Portfolio.
TAXATION OF THE PORTFOLIO -- GENERAL
The Portfolio is treated as a partnership for federal income tax purposes and is
not a "publicly traded partnership." As a result, the Portfolio is not subject
to federal income tax; instead, the High Income Fund, as an investor in the
Portfolio, is required to take into account in determining its federal income
tax liability its share of the Portfolio's income, gains, losses, deductions and
credits, without regard to whether it has received any cash distributions from
the Portfolio. The Portfolio also is not subject to New York income or franchise
tax.
Because, as noted above, the High Income Fund is deemed to own a proportionate
share of the Portfolio's assets, and to earn a proportionate share of the
Portfolio's income, for purposes of determining whether that Fund satisfies the
requirements to qualify as a RIC, the Portfolio intends to continue to conduct
its operations so that the High Income Fund will be able to continue to satisfy
all those requirements.
Distributions to the High Income Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) will not result in that Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds that
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of that
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (3) loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. The High Income Fund's basis for its interest in the
Portfolio generally will equal the amount of cash and the basis of any property
that Fund invests in the Portfolio, increased by that Fund's share of the
Portfolio's net income and gains and decreased by (1) the amount of cash and the
basis of any property the Portfolio distributes to that Fund and (2) that Fund's
share of the Portfolio's losses.
TAXATION OF CERTAIN INVESTMENT ACTIVITIES
For purposes of the following discussion, "Investor Fund" means the Government
Income Fund, the Strategic Income Fund or the Portfolio.
FOREIGN TAXES. Interest and dividends received by an Investor Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield on its
securities. Tax conventions between certain countries and the United States may
reduce or eliminate foreign taxes, however, and many foreign countries do not
impose taxes on capital gains in respect of investments by foreign investors. If
more than 50% of the value of a Fund's total assets (taking into account, in the
case of the High Income Fund, its proportionate share of the Portfolio's assets)
at the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to, and may, file an election with the Internal
Revenue Service that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by it
(taking into account, in the case of the High Income Fund, its proportionate
share of any foreign taxes paid by the Portfolio) (a "Fund's foreign taxes").
Pursuant to the election, a Fund would treat those taxes as dividends paid to
its shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his proportionate share of the Fund's foreign
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents its income from foreign and U.S. possessions sources (taking
into account, in the case of the High Income Fund, its proportionate share of
the Portfolio's income from those sources) as his own income from those sources,
and (3) either deduct the taxes deemed paid by him in computing his taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit against his federal income tax. Each Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's foreign taxes and income (taking into account, in the case of the High
Income Fund, its proportionate share of the Portfolio's income) from sources
within foreign countries and U.S. possessions if it makes this election.
PASSIVE FOREIGN INVESTMENT COMPANIES. Each Investor Fund may invest in the
stock of PFICs. A PFIC is a foreign corporation that, in general, meets either
of the following tests: (1) at least 75% of its gross income is passive or (2)
an
Statement of Additional Information Page 35
<PAGE>
GT GLOBAL INCOME FUNDS
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, a Fund will be subject to
federal income tax on a part (or, in the case of the High Income Fund, its
proportionate share of a part) of any "excess distribution" received by it (or,
in the case of the High Income Fund, by the Portfolio) on the stock of a PFIC or
of any gain on the Fund's (or, in the case of the High Income Fund, the
Portfolio's) disposition of that stock (collectively "PFIC income"), plus
interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to the Fund to the extent that income is distributed to its
shareholders.
If an Investor Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Investor Fund (or, in the case of the Portfolio, the
High Income Fund) would be required to include in income each taxable year its
pro rata share (taking into account, the case of the High Income Fund, its
proportionate share of the Portfolio's pro rata share) of the QEF's ordinary
earnings and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) -- which most likely would have to be distributed by
the Investor Fund (or, in the case of the Portfolio, the High Income Fund) to
satisfy the Distribution Requirement and avoid imposition of the Excise Tax --
even if those earnings and gain were not received thereby from the QEF. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.
Pursuant to proposed regulations, open-end RICs such as the Funds, would be
entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of each
such PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
OPTIONS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS. The Investors Funds' use
of hedging transactions, such as selling (writing) and purchasing options and
Futures Contracts and entering into Forward Contracts, involves complex rules
that will determine, for federal income tax purposes, the character and timing
of recognition of the gains and losses an Investor Fund realizes in connection
therewith. Gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations), and gains from options,
Futures and Forward Contracts derived by an Investor Fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement for that Investor Fund (or, in
the case of the Portfolio, the High Income Fund). However, income from the
disposition by an Investor Fund of options and Futures (other than those on
foreign currencies) will be subject to the Short-Short Limitation for that
Investor Fund (or, in the case of the Portfolio, the High Income Fund) if they
are held for less than three months. Income from the disposition by an Investor
Fund of foreign currencies, and options, Futures and Forward Contracts on
foreign currencies, that are not directly related to its principal business of
investing in securities (or options and Futures with respect thereto) also will
be subject to the Short-Short Limitation for that Investor Fund, (or, in the
case of the Portfolio, the High Income Fund) if they are held for less than
three months.
If an Investor Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether that Investor Fund (or,
in the case of the Portfolio, the High Income Fund) satisfies the Short-Short
Limitation. Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. Each Investor Fund
intends that, when it engages in hedging transactions, it will qualify for this
treatment, but at the present time it is not clear whether this treatment will
be available for all those transactions. To the extent this treatment is not
available, an Investor Fund may be forced to defer the closing out of certain
options, Futures, Forward Contracts and/or foreign currency positions beyond the
time when it otherwise would be advantageous to do so, in order for that
Investor Fund (or, in the case of the Portfolio, the High Income Fund) to
continue to qualify as a RIC.
Futures and Forward Contracts that are subject to Section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by an Investor Fund at the end of its taxable year
generally will be deemed to have been sold at market value for federal income
tax purposes. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. Section 988 of the
Code also may apply to gains and losses from transactions in foreign currencies,
foreign-currency-denominated debt securities and options, Futures and Forward
Contracts on foreign currencies ("Section 988" gains and losses). Each Section
988 gain or loss generally is computed separately and treated as ordinary income
or loss. In the case of overlap between sections 1256 and 988, special
provisions determine the character and timing of any income, gain or loss. Each
Investor Fund attempts to monitor section 988 transactions to minimize any
adverse tax impact.
Statement of Additional Information Page 36
<PAGE>
GT GLOBAL INCOME FUNDS
The Strategic Income Fund and the Portfolio each may acquire zero coupon or
other securities issued with original issue discount ("OID"). As a holder of
those securities, that Fund and the Portfolio (and, through it, the High Income
Fund) each must include in its income the portion of the OID that accrues on the
securities during the taxable year, even if no corresponding payment on them is
received during the year. Similarly, the Strategic Income Fund and the Portfolio
each must include in its gross income securities it receives as "interest" on
payment-in-kind securities. Because each Fund annually must distribute
substantially all of its investment company taxable income, including any OID
and other non-cash income, to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax, either of them may be required in a particular
year to distribute as a dividend an amount that is greater than the total amount
of cash it actually receives (or, in the case of the High Income Fund, its
shares of the total amount of cash the Portfolio actually receives). Those
distributions will be made from the Fund's (or, in the case of the High Income
Fund, its, or its share of the Portfolio's) cash assets or, if necessary, from
the proceeds of sales of portfolio securities. A Fund may (directly or through
the Portfolio) realize capital gains or losses from those sales, which would
increase or decrease its investment company taxable income and/or net capital
gain. In addition, any such gains may be realized on the disposition of
securities held for less than three months. Because of the Short-Short
Limitation, any such gains would reduce the ability of the Strategic Income Fund
or the Portfolio, as the case may be, to sell other securities, or certain
options, Futures, Forward Contracts or foreign currency positions, held for less
than three months that it might wish to sell in the ordinary course of its
portfolio management.
TAXATION OF THE FUNDS' SHAREHOLDERS
Dividends and other distributions declared by a Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
A portion of the dividends from a Fund's investment company taxable income
(whether paid in cash or reinvested in additional shares) may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by a Fund (directly or through
the Portfolio) from U.S. corporations. However, dividends received by a
corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Dividends paid by a Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") will be
subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply if a dividend paid by a Fund to a foreign shareholder
is "effectively connected with the conduct of a U.S. trade or business," in
which case the reporting and withholding requirements applicable to domestic
shareholders will apply. Distributions of net capital gain are not subject to
withholding, but in the case of a foreign shareholder who is a nonresident alien
individual, those distributions ordinarily will be subject to U.S. income tax at
a rate of 30% (or lower treaty rate) if the individual is physically present in
the United States for more than 182 days during the taxable year and the
distributions are attributable to a fixed place of business maintained by the
individual in the United States.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Funds, their shareholders and the Portfolio.
Investors are urged to consult their own tax advisers for more detailed
information and for information regarding any foreign, state and local taxes
applicable to distributions received from a Fund.
Statement of Additional Information Page 37
<PAGE>
GT GLOBAL INCOME FUNDS
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
LIECHTENSTEIN GLOBAL TRUST
Liechtenstein Global Trust AG, formerly BIL GT Group, is composed of the Manager
and its worldwide affiliates. Other worldwide affiliates of Liechtenstein Global
Trust include LGT Bank in Liechtenstein, formerly Bank in Liechtenstein, an
international financial services institution founded in 1920. LGT Bank in
Liechtenstein has principal offices in Vaduz, Liechtenstein. Its subsidiaries
currently include LGT Bank in Liechtenstein (Deutschland) GmbH, formerly Bank in
Liechtenstein (Frankfurt) GmbH, and LGT Asset Management AG, formerly Bilfinanz
and Verwaltung AG, in Zurich, Switzerland.
Worldwide asset management affiliates also currently include LGT Asset
Management PLC, formerly G.T. Management PLC, in London, England; LGT Asset
Management Ltd., formerly G.T. Management (Asia) Ltd., in Hong Kong; LGT Asset
Management Ltd., formerly G.T. Management (Japan), in Tokyo; LGT Asset
Management Pte. Ltd., formerly G.T. Management (Singapore) PTE Ltd., in
Singapore; LGT Asset Management Ltd., formerly G.T. Management (Australia) Ltd.,
in Sydney; and LGT Asset Management GmbH, formerly BIL Asset Management GmbH, in
Frankfurt.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian of each Fund's and the
Portfolio's assets. State Street is authorized to establish and has established
separate accounts in foreign currencies and to cause securities of the Funds and
the Portfolio to be held in separate accounts outside the United States in the
custody of non-U.S. banks.
INDEPENDENT ACCOUNTANTS
The Funds' and the Portfolio's independent accountants are Coopers & Lybrand
L.L.P., One Post Office Square, Boston Massachusetts 02109. Coopers & Lybrand
L.L.P. conducts audits of each Fund's and the Portfolio's financial statements,
assists in the preparation of the Funds' and the Portfolio's federal and state
income tax returns and consults with the Company, the Funds and the Portfolio as
to matters of accounting, regulatory filings, and federal and state income
taxation.
The audited financial statements of the Funds and the Portfolio included in this
Statement of Additional Information have been examined by Coopers & Lybrand
L.L.P., as stated in their opinion appearing herein and are included in reliance
upon such opinion given upon the authority of that firm as experts in accounting
and auditing.
USE OF NAME
The Manager has granted the Funds and the Portfolio the right to use the "GT"
name and "GT Global" and has reserved the right to withdraw its consent to the
use of such names by the Company, the Funds and/or the Portfolio at any time, or
to grant the use of such names to any other company.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS
- --------------------------------------------------------------------------------
STANDARDIZED RETURNS
Each Fund's "Standardized Returns," as referred to in the Prospectus (see "Other
Information -- Performance Information" in the Prospectus), are calculated
separately for Class A and Class B shares of the Fund, as follows: Standardized
Return (average annual total return ("T")) is computed by using the ending
redeeming value ("ERV") of a hypothetical initial investment of $1,000 ("P")
over a period of years ("n") according to the following formula as required by
the SEC: P(1+T) to the (n)th power = ERV. The following assumptions will be
reflected in computations made in accordance with this formula: (1) for Class A
shares, deduction of the maximum sales charge of 4.75% from the $1,000 initial
investment; (2) for Class B shares,
Statement of Additional Information Page 38
<PAGE>
GT GLOBAL INCOME FUNDS
deduction of the applicable contingent deferred sales charge imposed on a
redemption of Class B shares held for the period; (3) reinvestment of dividends
and other distributions at net asset value on the reinvestment date determined
by the Company's Board of Directors; and (4) a complete redemption at the end of
any period illustrated.
The Standardized Returns for the Class A and Class B shares of the Strategic
Income Fund, Government Income Fund and High Income Fund, stated as average
annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT HIGH
INCOME INCOME INCOME INCOME INCOME
FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A)
- ------------------------------------------------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended October 31, 1996............... 17.15% 17.15% 2.03% 1.57% 32.44%
October 31, 1991 through October 31, 1996........ 10.48% n/a 5.64% n/a n/a
October 22, 1992 (commencement of operations)
through October 31, 1996........................ n/a 10.27 % n/a 5.57 % 16.20 %
March 29, 1988 (commencement of operations)
through October 31, 1996........................ 8.96 % n/a 6.73 % n/a n/a
<CAPTION>
HIGH
INCOME
FUND
PERIOD (CLASS B)
- ------------------------------------------------- ------------
<S> <C>
Fiscal year ended October 31, 1996............... 33.16%
October 31, 1991 through October 31, 1996........ n/a
October 22, 1992 (commencement of operations)
through October 31, 1996........................ 16.52 %
March 29, 1988 (commencement of operations)
through October 31, 1996........................ n/a
</TABLE>
NON-STANDARDIZED RETURNS
In addition to Standardized Returns, each Fund also may also include in
advertisements, sales literature and shareholder reports other total return
performance data ("Non-Standardized Return"). Non-Standardized Return is
calculated separately for Class A and Class B shares of each Fund and may be
calculated according to several different formulas. Non-Standardized Returns may
be quoted for the same or different time periods for which Standardized Returns
are quoted. Non-Standardized Returns may or may not take sales charges into
account; performance data calculated without taking the effect of sales charges
into account will be higher than data including the effect of such charges.
Average annual Non-Standardized Return ("T") is computed by using the ending
redeeming value ("ERV") of a hypothetical initial investment of $1,000 ("P")
over a period of years ("n") according to the following formula as required by
the SEC: P(1+T) to the (n)th power = ERV. The following assumptions will be
reflected in computations made in accordance with this formula: (1) no deduction
of sales charges; (2) reinvestment of dividends and other distributions at net
asset value on the reinvestment date determined by the Board; and (3) a complete
redemption at the end of any period illustrated.
The average annual Non-Standardized Returns for the Class A and Class B shares
of the Strategic Income Fund, Government Income Fund and High Income Fund,
stated as average annualized total returns for the periods shown, were:
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT HIGH
INCOME INCOME INCOME INCOME INCOME
FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A)
- ------------------------------------------------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended October 31, 1996............... 23.00% 22.15% 7.11% 6.54% 39.05%
October 31, 1991 through October 31, 1996........ 11.56% n/a 6.68% n/a n/a
October 22, 1992 (commencement of operations)
through October 31, 1996........................ n/a 10.64 % n/a 5.94 % 17.61 %
March 29, 1988 (commencement of operations)
through October 31, 1996........................ 9.58 % n/a 7.34 % n/a n/a
<CAPTION>
HIGH
INCOME
FUND
PERIOD (CLASS B)
- ------------------------------------------------- ------------
<S> <C>
Fiscal year ended October 31, 1996............... 38.16%
October 31, 1991 through October 31, 1996........ n/a
October 22, 1992 (commencement of operations)
through October 31, 1996........................ 16.83 %
March 29, 1988 (commencement of operations)
through October 31, 1996........................ n/a
</TABLE>
Aggregate Non-Standardized Return ("T") is computed by using the ending value of
the account ("VOA") of a hypothetical initial investment of $1,000 ("P")
according to the following formula: T = (VOA/P)-1. Aggregate Non-Standardized
Return assumes reinvestment of dividends and other distributions and, as set
forth below, may or may not take sales charges into account.
The aggregate Non-Standardized Returns (not taking sales charges into account)
for the Class A and Class B shares of the Strategic Income Fund, Government
Income Fund and High Income Fund, stated as aggregate total returns for the
periods shown, were:
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT HIGH HIGH
INCOME INCOME INCOME INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- -------------------------------------------------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
October 22, 1992 (commencement of operations)
through October 31, 1996......................... n/a 50.21% n/a 26.14% 92.10% 87.02%
March 29, 1988 (commencement of operations)
through October 31, 1996......................... 119.43% n/a 83.72% n/a n/a n/a
</TABLE>
Statement of Additional Information Page 39
<PAGE>
GT GLOBAL INCOME FUNDS
The aggregate Non-Standardized Returns (taking sales charges into account) for
the Class A and Class B shares of the Strategic Income Fund, Government Income
Fund and High Income Fund, stated as aggregate total returns for the periods
shown, were:
<TABLE>
<CAPTION>
STRATEGIC STRATEGIC GOVERNMENT GOVERNMENT HIGH HIGH
INCOME INCOME INCOME INCOME INCOME INCOME
FUND FUND FUND FUND FUND FUND
PERIOD (CLASS A) (CLASS B) (CLASS A) (CLASS B) (CLASS A) (CLASS B)
- -------------------------------------------------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
October 22, 1992 (commencement of operations)
through October 31, 1996......................... n/a 48.21% n/a 24.37% 82.97% 85.02%
March 29, 1988 (commencement of operations)
through October 31, 1996......................... 109.01% n/a 74.99% n/a n/a n/a
</TABLE>
YIELD
Each Fund may also include its current yield ("Yield") in advertisements, sales
literature and shareholder reports. Yield, which is calculated separately for
Class A and Class B shares of each Fund, is computed by dividing the difference
between dividends and interest earned during a one-month period ("a") and
expenses accrued for the period (net of reimbursements) ("b") by the product of
the average daily number of shares outstanding during the period that were
entitled to receive dividends ("c") and the maximum offering price per share on
the last day of the period ("d") according to the following formula as required
by the Securities and Exchange Commission:
<TABLE>
<S> <C> <C> <C> <C> <C>
a-b
YIELD = 2 [( -- + 1 ) (6)-1]
cd
</TABLE>
The Yields of the Class A shares of the Strategic Income Fund, Government Income
Fund and the High Income Fund for the one-month period ended October 31, 1996
were 6.58%, 6.23% and 7.29%, respectively. The current yields of the Class B
shares of Strategic Income Fund, Government Income Fund and High Income Fund for
the one-month period ended October 31, 1996 were 6.23%, 5.87% and 7.00%,
respectively.
IMPORTANT POINTS TO NOTE ABOUT DATA RELATING TO WORLD EQUITY AND BOND MARKETS
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable, but which may be
subject to revision and which has not been independently verified by the Company
or GT Global. The authors and publishers of such material are not to be
considered as "experts" under the Securities Act of 1933, as amended, on account
of the inclusion of such information herein.
GT Global believes that this information may be useful to investors considering
whether and to what extent to diversify their investments through the purchase
of mutual funds investing in securities on a global basis. However, this data is
not a representation of the past performance of any of these Funds, nor is it a
prediction of such performance. The performance of the Funds will differ from
the historical performance of relevant indices. The performance of indices does
not take expenses into account, while each Fund incurs expenses in its
operations, which will reduce performance. Each Fund is actively managed, I.E.,
the Manager, as each Fund's investment manager, actively purchases and sells
securities in seeking each Fund's investment objective. Moreover, each Fund may
invest a portion of its assets in corporate bonds, while certain indices relate
only to government bonds. Each of these factors will cause the performance of
each Fund to differ from relevant indices.
Each Fund and GT Global, from time to time, may compare the Funds with, but not
limited to, the following:
(1) Various Salomon Brothers World Bond Indices, which measure the total
return performance of high quality non-U.S. dollar denominated securities in
major sectors of the worldwide bond markets including the Salomon Brothers
World Government Bond Index, which is a widely used index of ten year
government bonds with remaining maturities greater than one year.
(2) The Lehman Brothers Government/Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury
(excluding flower bonds and foreign targeted issues), all publicly issued
debt of agencies of the U.S. Government (excluding mortgage backed
securities), and all public, fixed rate, non-convertible investment grade
domestic corporate debt rated at least Baa by Moody's or BBB by S&P, or, in
the case of nonrated bonds, BBB by Fitch Investors Service, Inc. ("Fitch")
(excluding Collateralized Mortgage Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates. Savings accounts offer
a guaranteed rate of return on principal, but no opportunity for capital
growth. During a portion of the period, the maximum rates paid on some
savings deposits were fixed by law.
Statement of Additional Information Page 40
<PAGE>
GT GLOBAL INCOME FUNDS
(4) The Consumer Price Index, which is a measure of the average change
in prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, fuels, transportation fares, charges for doctors'
and dentists' services, prescription medicines, and other goods and services
that people buy for day-to-day living).
(5) Data and mutual fund rankings and comparisons published or prepared
by Lipper Analytical Data Services, Inc. ("Lipper"), CDA/Wiesenberger
Investment Company Services ("CDA/Wiesenberger"), Morningstar, Inc.
("Morningstar") and/or other companies that rank or compare mutual funds by
overall performance, investment objectives, assets, expense levels, periods
of existence and/or other factors. In this regard, each Fund may be compared
to the Fund's "peer group" as defined by Lipper, CDA/Wiesenberger,
Morningstar and/or other firms, as applicable or to specific funds or groups
of funds within or without such peer group. Morningstar is a mutual fund
rating service that also rates mutual funds on the basis of risk-adjusted
performance. Morningstar ratings are calculated from a fund's three, five
and ten year average annual returns with appropriate fee adjustments and a
risk factor that reflects fund performance relative to the three-month U.S.
Treasury bill monthly returns. Ten percent of the funds in an investment
category receive five stars and 22.5% receive four stars. The ratings are
subject to change each month.
(6) Bear Stearns Foreign Bond Index, which provides simple average
returns for individual countries and Gross National Product ("GNP") weighted
index, beginning in 1975. The returns are broken down by local market and
currency.
(7) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(8) Standard & Poor's 500 Composite Stock Price Index which is a widely
recognized index composed of the capitalization-weighted average of the
price of 500 of the largest publicly traded stocks in the U.S.
(9) Salomon Brothers Broad Investment Grade Index which is a widely used
index composed of U.S. domestic government, corporate and mortgage-backed
fixed income securities and the Salomon Brothers Brady Bond Index which
measures the total return performance of Brady Bonds issued since March,
1990, and are issued in U.S. dollar denominated instruments.
(10) Dow Jones Industrial Average.
(11) CNBC/Financial News Composite Index.
(12) Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index"). The EAFE index is an unmanaged index of more than
1,000 companies in Europe, Australia and the Far East.
(13) International Finance Corporation ("IFC") Emerging Markets Data Base
which provides detailed statistics on bond and stock markets in developing
countries
(14) J.P. Morgan & Co. Bond Indices, including, among others, the J.P.
Morgan Traded Government Bond Index which is an index composed of liquid
non-U.S. fixed income securities based on market weightings and currency
since 1986.
(15) Salomon Brothers World Government Bond Index and Salomon Brothers
World Government Bond Index-Non-U.S. are each a widely used index composed
of world government bonds.
(16) The World Bank Publication of Trends in Developing Countries
("TIDE") provides brief reports on most of the World Bank's borrowing
members. The World Development Report is published annually and looks at
global and regional economic trends and their implications for the
developing economies.
(17) Salomon Brothers Global Telecommunications Index is composed of
telecommunications companies in the developing and emerging countries.
(18) Datastream and Worldscope, each is an on-line database retrieval
service for information including but not limited to international financial
and economic data.
(19) International Financial Statistics, which is produced by the
International Monetary Fund.
(20) Various publications and reports produced by the World Bank and its
affiliates.
(21) Various publications from the International Bank for Reconstruction
and Development/The World Bank.
Statement of Additional Information Page 41
<PAGE>
GT GLOBAL INCOME FUNDS
(22) Various publications including but not limited to ratings agencies
such as Moody's, S&P and Fitch.
(23) Wilshire Associates which is an on-line database for international
financial and economic data including performance measure for a wide range
of securities.
(24) Various publications from the Organization for Economic Cooperation
and Development ("OECD").
Indices, economic and financial data prepared by the research departments of
various financial organizations, such as Salomon Brothers, Inc., Lehman
Brothers, Merrill Lynch, Pierce, Fenner & Smith, Inc. J. P. Morgan, Morgan
Stanley, Smith Barney, S.G. Warburg, Jardine Flemming, The Bank for
International Settlements, Asian Development Bank, Bloomberg, L.P. and Ibbottson
Associates may be used as well as information reported by the Federal Reserve
and the respective Central Banks of various nations. In addition, GT Global may
use performance rankings, ratings and commentary reported periodically in
national financial publications, included but not limited to, Money Magazine,
Smart Money, Global Finance, EuroMoney, Financial World, Forbes, Fortune,
Business Week, Latin Finance, the Wall Street Journal, Emerging Markets Weekly,
Kiplinger's Guide To Personal Finance, Barron's, The Financial Times, USA Today,
The New York Times, Far Eastern Economic Review, Mutual Funds Magazine, The
Economist and Investors Business Digest. Each Fund may compare its performance
to that of other compilations or indices of comparable quality to those listed
above and other indices which may be developed and made available.
From time to time, each Fund and GT Global may refer to the number of
shareholders in the Fund or the aggregate number of shareholders in all GT
Global Mutual Funds or the dollar amount of Fund assets under management or
rankings by DALBAR Surveys, Inc. in advertising materials.
GT Global believes the GT Global Income Funds can be an appropriate investment
for long-term investment goals including but not limited to funding retirement,
paying for education or purchasing a house. The GT Global Income Funds do not
represent a complete investment program and the investors should consider the
Funds as appropriate for a portion of their overall investment portfolio with
regard to their long-term investment goals.
GT Global believes that a growing number of consumer products, including but not
limited to home appliances, automobiles and clothing, purchased by Americans are
manufactured abroad. GT Global believes that investing globally in the companies
that produce products for U.S. consumers can help U.S. investors seek protection
of the value of their assets against the potentially increasing costs of foreign
manufactured goods. Of course, there can be no assurance that there will be any
correlation between global investing and the costs of such foreign goods unless
there is a corresponding change in value of the U.S. dollar to foreign
currencies. From time to time, GT Global may refer to or advertise the names of
such companies although there can be no assurance that any GT Global Mutual Fund
may own the securities of these companies.
Each Fund may compare its performance to that of other compilations or indices
of comparable quality to those listed above which may be developed and made
available in the future. Each Fund may be compared in advertising to
Certificates of Deposit (CDs), the Bank Rate Monitor National Index, an average
of the quoted rates for 100 leading banks and thrifts in ten U.S. cities chosen
to represent the ten largest Consumer Metropolitan statistical areas, or other
investments issued by banks. Each Fund differs from bank investments in several
respects. Each Fund may offer greater liquidity or higher potential returns than
CDs; but unlike CDs, the Fund will have a fluctuating share price and return and
is not FDIC insured.
Each Fund's performance may be compared to the performance of other mutual funds
in general, or to the performance of particular types of mutual funds. These
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. ("Lipper"), an independent service which monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of total
return, assuming reinvestment of distributions, but does not take sales charges
or redemption fees into consideration, and is prepared without regard to tax
consequences. In addition to the mutual fund rankings, each Fund's performance
may be compared to mutual fund performance indices prepared by Lipper.
GT Global may provide information designed to help individuals understand their
investment goals and explore various financial strategies. For example, GT
Global may describe general principles of investing, such as asset allocation,
diversification and risk tolerance.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the CPI), and combinations of various capital markets. The
performance of these capital markets is based on the returns of different
indices.
Statement of Additional Information Page 42
<PAGE>
GT GLOBAL INCOME FUNDS
GT Global Funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in any
capital market may or may not correspond directly to those of the Funds.
Ibbotson calculates total returns in the same method as the Funds. Each Fund may
also compare performance to that of other compilations or indices that may be
developed and made available in the future.
In advertising materials, GT Global may reference or discuss its products and
services, which may include: retirement investing; the effects of dollar-cost
averaging and saving for college or a home. In addition, GT Global may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques.
Each Fund may discuss its Quotron number, CUSIP number, and its current
portfolio management team.
From time to time, each Fund's performance also may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, each Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. In addition, each Fund may quote financial
or business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of GT Global Funds to one another in appropriate categories over
specific periods of time may also be quoted in advertising.
Each Fund may quote various measures of volatility and benchmark correlation,
such as beta, standard deviation and R(2), in advertising. In addition, each
Fund may compare these measures to those of other funds. Measures of volatility
seek to compare each Fund's historical share price fluctuations or total returns
compared to those of a benchmark. All measures of volatility and correlation are
calculated using averages of historical data.
Each Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
through periods of low price levels.
Each Fund may be available for purchase through retirement plans or other
programs offering deferral of or exemption from income taxes, which may produce
superior after-tax returns over time. For example, a $10,000 investment earning
a taxable return of 10% annually would have an after-tax value of $17,976 after
ten years, assuming tax was deducted from the return each year at a 39.6% rate.
An equivalent tax-deferred investment would have an after-tax value of $19,626
after ten years, assuming tax was deducted at a 39.6% rate from the deferred
earnings at the end of the ten-year period.
Each Fund may describe in its sales material and advertisements how an investor
may invest in the GT Global Mutual Funds through various retirement accounts and
plans that offer deferral of income taxes on investment earnings and may also
enable an investor to make pre-tax contributions. Because of their advantages,
these retirement accounts and plans may produce returns superior to comparable
non-retirement investments. The Funds may also discuss these accounts and plans,
which include:
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): If you have earned income from employment
(including self-employment), you can contribute each year to an IRA up to the
lesser of (1) $2,000 for yourself or $4,000 for you and your spouse, regardless
of whether your spouse is employed, or (2) 100% of compensation. Some
individuals may be able to take an income tax deduction for the contribution.
Regular contributions may not be made for the year you become 70 1/2 or
thereafter. Please consult your tax advisor for more information.
ROLLOVER IRAS: Individuals who receive distributions from qualified retirement
plans (other than required distributions) and who wish to keep their savings
growing tax-deferred can rollover (or make a direct transfer of) their
distribution to a Rollover IRA. These accounts can also receive rollovers or
transfers from an existing IRA. These accounts can also receive rollovers or
transfers from an existing IRA. If an "eligible rollover distribution" from a
qualified employer-sponsored retirement plan is not directly rolled over to an
IRA (or certain qualified plans), withholding at the rate of 20% will be
required for federal income tax purposes. A distribution from a qualified plan
that is not an "eligible rollover distribution," including a distribution that
is one of a series of substantially equal periodic payments, generally is
subject to regular wage withholding or withholding at the rate of 10% (depending
on the type and amount of the distribution), unless you elect not to have any
withholding apply. Please consult your tax advisor for more information.
Statement of Additional Information Page 43
<PAGE>
GT GLOBAL INCOME FUNDS
SEP-IRAS: Simplified employee pension plans "SEPs" or "SEP-IRAs" provide
self-employed individuals (and any eligible employees) with benefits similar to
Keogh-type plans or 401(k) plans, but with fewer administrative requirements and
therefore potentially lower annual administration expenses.
CODE SECTION 403(b)(7) CUSTODIAL ACCOUNTS: Employees of public schools and most
other not-for-profit corporations can make pre-tax salary reduction
contributions to these accounts.
PROFIT-SHARING (INCLUDING SECTION 401(k)) AND MONEY PURCHASE PENSION
PLANS: Corporations can sponsor these qualified defined contribution plans for
their employees. A Section 401(k) plan, a type of profit-sharing plan,
additionally permits the eligible, participating employees to make pre-tax
salary reduction contributions to the plan (up to certain limitations).
SIMPLE RETIREMENT PLANS: Employers with no more than 100 employees who do not
maintain another retirement plan may establish a Savings Incentive Match Plan
for Employees ("SIMPLE") either as separate IRAs or as part of a Code Section
401(k) plan. SIMPLEs are not subject to the complicated nondiscrimination rules
that generally apply to qualified retirement plans.
GT Global may from time to time in its sales methods and advertising discuss the
risks inherent in investing. Risk represents the possibility that you may lose
some or all of your investment over a period of time. A basic tenet of investing
is the greater the potential reward, the greater the risk.
The major types of investment risk are market risk, industry risk, credit risk,
interest rate risk and inflation risk. Market risk entails a change in value of
a security due to market uncertainty. Industry risk can be described as the
market risk associated with companies engaged in a similar business.
The next two risks, credit and interest rate risk, more often are associated
with fixed income investing. Credit risk refers to the creditworthiness of an
issuer of debt securities and its ability to pay interest and repay the
principal value of the bond. Interest rate risk has two components. When
interest rates rise or fall the value of the security generally will move
correspondingly in the opposite direction. Further, the longer the maturity the
greater the impact on the bond's value.
Finally, there is inflation risk which does not affect a security's value but
its purchasing power, i.e. the risk of changing price levels in the economy that
affects security prices or the price of goods and services.
From time to time, the Funds and GT Global will quote data regarding industries,
individual countries, regions, world stock exchanges, and economic and
demographic statistics from sources GT Global deems reliable, including the
economic and financial data of such financial organizations as:
1) Stock market capitalization: Morgan Stanley Capital International World
Indices, IFC and Datastream.
2) Stock market trading volume: Morgan Stanley Capital International Industry
Indices and IFC.
3) The number of listed companies: IFC, GT Guide to World Equity Markets,
Salomon Brothers, Inc., and S.G. Warburg.
4) Wage rates: U.S. Department of Labor Statistics and Morgan Stanley Capital
International World.
5) International industry performance: Morgan Stanley Capital International
World Indices, Wilshire Associates and Salomon Brothers, Inc.
6) Stock market performance: Morgan Stanley Capital International World
Indices, IFC and Datastream.
7) The Consumer Price Index and inflation rate: The World Bank, Datastream and
IFC.
8) Gross Domestic Product ("GDP"): Datastream and The World Bank.
9) GDP growth rate: IFC, The World Bank and Datastream.
10) Population: The World Bank, Datastream and United Nations.
11) Average annual growth rate (%) of population: The World Bank, Datastream and
United Nations.
12) Age distribution within populations: OECD and United Nations.
13) Total exports and imports by year: IFC, The World Bank and Datastream.
14) Top three companies by country, industry or market: IFC, GT Guide to World
Equity Markets, Salomon Brothers Inc. and S.G. Warburg.
15) Foreign direct investments to developing countries: The World Bank and
Datastream.
Statement of Additional Information Page 44
<PAGE>
GT GLOBAL INCOME FUNDS
16) Supply, consumption, demand and growth in demand of certain products,
services and industries, including, but not limited to electricity, water,
transportation, construction materials, natural resources, technology, other
basic infrastructure, financial services, health care services and supplies,
consumer products and services and telecommunications equipment and services
(sources of such information may include, but would not be limited to, The
World Bank, OECD, IMF, Bloomberg and Datastream).
17) Standard deviation and performance returns for U.S. and non-U.S. equity and
bond markets: Morgan Stanley Capital International.
18) Countries restructuring their debt, including those under the Brady Plan:
the Manager.
19) Political and economic structure of countries: Economist Intelligence Unit.
20) Government and corporate bonds -- credit ratings, yield to maturity and
performance returns: Salomon Brothers, Inc.
21) Dividend yields for U.S. and non-U.S. companies: Bloomberg.
From time to time, GT Global may include in its advertisement and sales
material, information about privatization which is an economic process involving
the sale of state-owned companies to the private sector.
In advertising and sales materials, GT Global may make reference to or discuss
its products, services and accomplishments. Among these accomplishments are that
in 1983 the Manager provided assistance to the government of Hong Kong in
linking its currency to the U.S. dollar, and that in 1987 Japan's Ministry of
Finance licensed LGT Asset Management Ltd. as one of the first foreign
discretionary investment managers for Japanese investors. Such accomplishments,
however, should not be viewed as an endorsement of the Manager by the government
of Hong Kong, Japan's Ministry of Finance or any other government or government
agency. Nor do any such accomplishments of the Manager provide any assurance
that the GT Global Mutual Funds' investment objectives will be achieved.
GT GLOBAL ADVANTAGE
As part of Liechtenstein Global Trust, GT Global continues a 75-year tradition
of service to individuals and institutions. Today we bring investors a
combination of experience, worldwide resources, a global perspective, investment
talent and a time tested investment discipline. With investment professionals in
nine offices worldwide, we witness world events and economic developments
firsthand.
The key to achieving consistent results is following a disciplined investment
process. Our approach to asset allocation takes advantage of GT Global's
worldwide presence and global perspective. Our "macroeconomic" worldview
determines our overall strategy of regional, country and sector allocations. Our
bottom up process of security selection combines fundamental research with
quantitative analysis through our proprietary models.
Built in checks and balances strengthen the process, enhancing professional
experience and judgment with an objective assessment of risk. Ultimately, each
security we select has passed a ranking system that helps our portfolio teams
determine when to buy and when to sell.
In addition, the GT Global Strategic Income Fund and the GT Global High Income
Fund, from time to time, may quote yields and total returns of representative
debt instruments from emerging market countries in its advertising and sales
literature.
ECONOMIC DEVELOPMENT IN EMERGING MARKETS
The Manager has identified six phases to track the progress of developing
economies.
In addition, the Manager focuses on the transitions between each phase:
BETWEEN PHASES 1 & 2, STABILIZATION: Developing nations recognize the need
for economic reform and launch initiatives to stabilize their economies. Typical
measures might include initiating monetary reforms to contain inflation,
controlling government spending, and addressing external trade imbalances.
BETWEEN PHASES 2 & 3, RENOVATION: Economic development gathers momentum as
the governments of developing nations take further steps to increase
productivity and external competitiveness. Typical reforms include easing market
regulations, privatizing state-owned industries, lowering trade barriers and
reforming the national tax structure.
BETWEEN PHASES 3 & 4, NEW CONSTRUCTION: As economic reforms take hold,
infrastructure improvements are needed to facilitate and support long-term
growth. The construction and upgrading of highways and airports, communications
and utility systems generally require financing in the form of public debt.
Similarly, as the private sector develops, bolstered by new privatizations,
corporate debt securities typically are issued to finance business expansion.
Statement of Additional Information Page 45
<PAGE>
GT GLOBAL INCOME FUNDS
EMERGING MARKET TRADING VOLUME
The annual trading volume of debt securities from developing economies according
to Salomon Brothers, Inc. has grown from $90 billion in 1990 to $150 billion in
1991, to $400 billion in 1992 and was estimated to be $1,200 billion at the end
of 1993 and $1.5 trillion at the end of 1994, respectively.
- --------------------------------------------------------------------------------
DESCRIPTION OF DEBT RATINGS
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS
Moody's rates the debt securities issued by various entities from "Aaa" to "C".
Investment grade ratings are the first four categories:
Aaa -- Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- High quality by all standards. They are rated lower than the best
bond because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear somewhat
greater.
A -- Upper-medium-grade-obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Medium-grade obligations. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Ba -- Have speculative elements and their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B -- Generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.
Caa -- Poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
Ca -- Speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C -- Lowest rated class of bonds. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Statement of Additional Information Page 46
<PAGE>
GT GLOBAL INCOME FUNDS
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic ratings
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
S&P rates the securities debt of various entities in categories ranging from
"AAA" to "D" according to quality. Investment grade ratings are the first four
categories:
AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong.
AA -- High grade. Very strong capacity to pay interest and repay
principal and differ from AAA issues only in a small degree.
A -- Have a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal than for
debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated "BB," "B," "CCC," "CC," and "C" are
regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of this
obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
BB -- Has less near-term vulnerability to default than other speculative
issues; however, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied "BBB-" rating.
B -- Has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC -- Has a currently indefinable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual
or implied "B" or "B-" rating.
CC -- Typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
C -- Typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
C -- Reserved for income bonds on which no interest is being paid.
D -- In payment default. The "D" rating is used when interest payments
are not made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made during such
grace period. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's employs the designations "Prime-1" and "Prime-2" to indicate commercial
paper having the highest capacity for timely repayment. Issuers (or supporting
institutions) rated Prime-1 have a superior ability to repay senior short-term
debt obligations. Prime-1 repayment capacity generally will be evidenced by many
of the following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
Statement of Additional Information Page 47
<PAGE>
GT GLOBAL INCOME FUNDS
structures with moderate reliance on debt and ample asset protections; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This normally will be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
S&P ratings of commercial paper are graded into several categories ranging from
A-1 for the highest quality obligations to "D" for the lowest. A-1 -- This
highest rating indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics will be denoted with a plus sign (+) designation. A-2 --
Capacity for timely payments on issues with this designation is satisfactory;
however, the relative degree of safety is not as high as for issues designated
"A-1." A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. B -- Issues
rated "B" are regarded as having only speculative capacity for timely payment. C
- -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment. D -- Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Funds as of October 31, 1996 and for the
year then ended appear on the following pages.
Statement of Additional Information Page 48
<PAGE>
GT GLOBAL INCOME FUNDS
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
ANNUAL REPORT
To the Shareholders and Board of Directors of
G.T. Investment Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of GT
Global Government Income Fund, GT Global High Income Fund - Consolidated, and GT
Global Strategic Income Fund, including the portfolios of investments, as of
October 31, 1996, the related statements 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 periods indicated
herein. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and 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, 1996 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 positions of GT
Global Government Income Fund, GT Global High Income Fund - Consolidated, and GT
Global Strategic Income Fund as of October 31, 1996, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
periods indicated herein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
DECEMBER 13, 1996
F1
<PAGE>
GT GLOBAL GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (89.0%)
Australia (4.8%)
Commonwealth of Australia, 9.5% due 8/15/03 .......... AUD 21,800,000 $ 19,335,562 4.8
Canada (11.8%)
Canadian Government:
7% due 12/1/06 ..................................... CAD 40,000,000 31,138,957 7.6
8.75% due 12/1/05 .................................. CAD 19,600,000 17,046,021 4.2
Colombia (1.1%)
Republic of Colombia, 7.25% due 2/23/04 .............. USD 4,875,000 4,635,638 1.1
Denmark (2.9%)
Kingdom of Denmark, 7% due 12/15/04 .................. DKK 67,000,000 11,834,313 2.9
Finland (2.0%)
Finnish Government, 9.5% due 3/15/04 ................. FIM 31,000,000 8,182,127 2.0
Germany (17.6%)
Deutschland Republic, 6% due 1/5/06 .................. DEM 108,650,000 71,726,974 17.6
Ireland (1.9%)
Irish Gilts, 8% due 8/18/06 .......................... IEP 4,500,000 7,859,990 1.9
Italy (9.0%)
Italian Buoni Poliennali del Tesoro (BTPS):
9.5% due 2/1/99 .................................... ITL 22,600,000,000 15,650,408 3.8
10.5% due 11/1/00 .................................. ITL 17,000,000,000 12,393,065 3.1
9.5% due 2/1/01 .................................... ITL 12,110,000,000 8,593,403 2.1
Mexico (1.1%)
United Mexican States, 7.6875% due 8/6/01 - 144A+
{.} ................................................. USD 4,490,000 4,491,347 1.1
New Zealand (2.6%)
New Zealand Government, 8% due 11/15/06 .............. NZD 14,200,000 10,554,326 2.6
Poland (1.1%)
Republic of Poland, Past Due Interest, 4% due 10/27/14
- Registered++ ...................................... USD 5,605,000 4,631,131 1.1
South Africa (1.1%)
Republic of South Africa, 9.625% due 12/15/99 ........ USD 4,240,000 4,515,600 1.1
Spain (2.0%)
Kingdom of Spain, 10.1% due 2/28/01 .................. ESP 950,000,000 8,292,480 2.0
Sweden (4.8%)
Swedish Government, 13% due 6/15/01 .................. SEK 101,000,000 19,323,805 4.8
United Kingdom (10.5%)
United Kingdom Treasury:
7.5% due 12/7/06 ................................... GBP 16,000,000 25,821,527 6.3
7% due 11/6/01 ..................................... GBP 10,500,000 16,923,202 4.2
United States (14.7%)
United States Treasury Note:
7.875% due 11/15/04 ................................ USD 27,225,000 29,916,660 7.3
6.25% due 10/31/01 ................................. USD 20,000,000 20,150,000 5.0
</TABLE>
The accompanying notes are an integral part of the financial statements.
F2
<PAGE>
GT GLOBAL GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
United States Treasury Bond, 6.875% due 8/15/25 ...... USD 9,500,000 $ 9,726,738 2.4
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $351,306,081) ....... 362,743,274 89.0
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Treasury Bills (4.4%)
New Zealand (2.2%)
New Zealand Treasury Bill, 9.23% due 1/15/97 ......... NZD 13,160,000 9,133,580 2.2
Philippines (2.2%)
Philippine Treasury Bill, 9.94% due 11/27/96 ......... PHP 233,300,000 8,832,945 2.2
------------
Total Treasury Bills (cost $17,878,115) .................. 17,966,525
------------
Commercial Paper - Discounted (3.1%)
Indonesia (1.2%)
PT Bank Tabungan Negara, effective yield 16.02%, due
9/12/97 ............................................. IDR 12,000,000,000 4,552,243 1.1
PT Bank Degang Negara, effective yield 16.02%, due
9/12/97 ............................................. IDR 750,000,000 284,515 0.1
Thailand (1.9%)
Bank of Ayudhya, 10.25% due 9/24/97 .................. THB 100,000,000 3,914,304 1.0
Siam City Bank Co., Ltd., 10.58% due 11/25/96 ........ THB 100,000,000 3,898,078 0.9
------------
Total Commercial Paper - Discounted (cost $12,670,668) ... 12,649,140
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $30,548,783) .......... 30,615,665 7.5
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ---------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 31, 1996 with State Street Bank & Trust
Co., due November 1, 1996, for an effective yield of
5.55%, collateralized by $2,365,000 U.S. Treasury
Bonds, 7.125% due 2/15/23 (market value of collateral
is $2,497,903, including accrued interest). (cost
$2,446,377) ........................................... 2,446,377 0.6
------------ -----
TOTAL INVESTMENTS (cost $384,301,241) * .................. 395,805,316 97.1
Other Assets and Liabilities ............................. 11,803,202 2.9
------------ -----
NET ASSETS ............................................... $407,608,518 100.0
------------ -----
------------ -----
</TABLE>
- --------------
{.} 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.
+ 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.
* For Federal income tax purposes, cost is $384,541,135 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 13,757,185
Unrealized depreciation: (2,493,004)
-------------
Net unrealized appreciation: $ 11,264,181
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F3
<PAGE>
GT GLOBAL GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO BUY: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- -------- -------- --------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 3,628,300 1.26651 11/12/96 $ 12,069
Canadian Dollars........................ 4,631,930 1.3427 11/29/96 14,368
Canadian Dollars........................ 3,436,593 1.34525 11/29/96 17,154
Canadian Dollars........................ 1,165,453 1.366 11/29/96 23,433
Canadian Dollars........................ 3,346,943 1.35055 11/29/96 29,776
Canadian Dollars........................ 3,735,427 1.3503 11/29/96 32,546
Danish Kroner........................... 8,920,056 5.7816 01/17/97 (9,227)
Deutsche Marks.......................... 14,902,129 1.51102 01/30/97 64,470
Deutsche Marks.......................... 21,428,571 1.45885 11/04/96 (801,268)
Deutsche Marks.......................... 4,661,689 1.5052 11/04/96 (25,396)
Deutsche Marks.......................... 198,229 1.5073 11/04/96 (802)
Deutsche Marks.......................... 7,433,593 1.5066 11/04/96 (33,552)
Irish Punts............................. 4,794,643 0.6252 01/02/97 76,118
Irish Punts............................. 13,246,732 0.62509 01/02/97 208,108
Italian Liras........................... 8,379,070 1,531.31 01/21/97 41,111
Italian Liras........................... 4,560,976 1,545.30 01/21/97 63,467
Japanese Yen............................ 12,352,371 109.85 01/13/97 (301,248)
Japanese Yen............................ 12,605,919 111.845 02/05/97 (36,577)
Japanese Yen............................ 13,804,625 105.3 11/05/96 (1,105,157)
Japanese Yen............................ 11,472,720 107.55 11/29/96 (614,681)
Japanese Yen............................ 6,001,115 109.3 11/29/96 (220,294)
-------------- --------------
Total Contracts to Buy (Payable amount
$167,272,666)........................ 164,707,084 (2,565,582)
-------------- --------------
THE VALUE OF CONTRACTS TO BUY AS
PERCENTAGE OF NET ASSETS IS 40.41%.
<CAPTION>
CONTRACTS TO SELL:
- ----------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars...................... 4,115,507 1.29149 11/12/96 (93,019)
Australian Dollars...................... 1,485,385 1.27251 11/12/96 (11,916)
Australian Dollars...................... 582,271 1.26871 11/12/96 (2,944)
Canadian Dollars........................ 22,337,854 1.368 11/29/96 (481,129)
Canadian Dollars........................ 4,736,522 1.3644 11/29/96 (89,791)
Canadian Dollars........................ 7,172,020 1.3522 11/29/96 (72,479)
Canadian Dollars........................ 1,270,045 1.3574 11/29/96 (17,651)
Canadian Dollars........................ 687,319 1.35016 11/29/96 (5,918)
Canadian Dollars........................ 164,359 1.34715 11/29/96 (1,051)
Danish Kroner........................... 6,565,784 5.8727 01/17/97 (95,166)
Danish Kroner........................... 14,863,819 5.81074 01/17/97 (59,243)
Deutsche Marks.......................... 7,092,137 1.50452 01/30/97 (174)
Deutsche Marks.......................... 7,809,992 1.4983 01/30/97 32,229
Deutsche Marks.......................... 3,733,316 1.50859 11/04/96 11,903
Deutsche Marks.......................... 1,982,292 1.4746 11/04/96 52,158
Deutsche Marks.......................... 6,862,033 1.48714 11/04/96 121,170
Deutsche Marks.......................... 21,144,443 1.49762 11/04/96 222,793
Finnish Markkaa......................... 8,536,304 4.53 01/02/97 (35,200)
Irish Punts............................. 8,382,003 0.61708 01/02/97 (24,529)
Irish Punts............................. 764,407 0.52481 01/02/97 (11,665)
Irish Punts............................. 8,894,965 0.61081 01/02/97 65,027
Italian Liras........................... 19,326,725 1,546.70 01/21/97 (286,187)
Japanese Yen............................ 12,352,371 112.755 01/13/97 (24,758)
Japanese Yen............................ 1,846,479 107.883 11/05/96 100,074
Japanese Yen............................ 3,165,392 108.307 11/05/96 158,493
Japanese Yen............................ 8,792,755 105.3 11/05/96 703,921
Japanese Yen............................ 3,388,865 109.304 11/29/96 124,273
Japanese Yen............................ 4,377,284 109.354 11/29/96 158,444
Japanese Yen............................ 9,707,686 107.88 11/29/96 488,829
New Zealand Dollars..................... 19,930,083 1.42847 01/31/97 (118,668)
Swedish Kronor.......................... 13,732,602 6.6109 01/21/97 (118,722)
Swiss Francs............................ 6,300,745 1.24608 01/03/97 39,137
Swiss Francs............................ 4,346,716 1.24171 01/03/97 42,393
Swiss Francs............................ 6,157,184 1.24205 01/03/97 58,347
-------------- --------------
Total Contracts to Sell (Receivable
amount $253,436,645)................. 252,607,664 828,981
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 61.97%.
Total Open Forward Foreign Currency
Contracts, Net....................... $(1,736,601)
--------------
--------------
</TABLE>
- ----------------
See Note 1 to the financial statements.
The accompanying notes are an integral part of the financial statements.
F4
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO - CONSOLIDATED
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<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%)
Argentina (10.9%)
Republic of Argentina:
Discount Bond, 6.4375% due 3/31/23+ ................. USD 26,305,000 $ 19,087,566 4.3
BOCON Pre 4, 5.4453% due 9/1/02[.] + ................ USD 15,293,000 15,346,526 3.5
Par Bond, 5.25% due 3/31/23++ ....................... USD 20,381,000 12,152,171 2.7
Floating Rate Bond, 6.625% due 3/31/05+ ............. USD 2,203,040 1,816,131 0.4
Brazil (9.6%)
Federal Republic of Brazil:
C Bond, 4.5% due 4/15/14 (Effective rate at period
end is 6.92813%, including "payment-in-kind"
bonds.)[.] ++ ...................................... USD 55,360,363 38,404,647 8.6
MYDFA Floating Rate Note, 6.6875% due 9/15/07 -
144A{.} + .......................................... USD 5,191,000 4,350,707 1.0
Bulgaria (2.9%)
Bulgaria, Discount Bond Series A, 6.6875% due 7/28/24 -
EURO+ ................................................ USD 25,780,000 13,067,238 2.9
Costa Rica (1.7%)
Banco Central de Costa Rica:
Interest Bond Series A, 6.34375% due 5/21/05
(Effective maturity date 8/23/03)+ ................. USD 6,036,880 5,825,589 1.3
Principal Bond Series A, 6.25% due 5/21/10 .......... USD 1,900,000 1,539,000 0.4
Ecuador (4.9%)
Ecuador:
Past Due Interest Bond, 3% due 2/27/15 - Euro
(Effective rate at period end is 4.96%, including
"payment-in-kind" bonds.)[.] + ..................... USD 28,818,107 16,138,140 3.6
Past Due Interest Bond, 3% due 2/27/15 - Registered
(Effective rate at period end is 4.96%, including
"payment-in-kind" bonds.)[.] + ..................... USD 6,079,992 3,404,796 0.8
Discount Bond, 6.5% due 2/28/25 - EURO+ ............. USD 3,210,000 2,104,556 0.5
Mexico (8.3%)
United Mexican States:
Global Bond, 11.5% due 5/15/26 ...................... USD 12,700,000 12,684,125 2.9
11.375% due 9/15/16 - 144A{.} ....................... USD 5,640,000 5,625,900 1.3
7.6875% due 8/6/01 - 144A+ {.} {j} .................. USD 4,619,000 4,620,386 1.0
Discount Bond Series C, 6.35156% due 12/31/19+
+/+ ................................................ USD 4,956,000 4,082,505 0.9
Banco Nacional de Comercio Exterior, S.N.C. (BNCE)
Trust Division, 11.25% due 5/30/06 - 144A{.} ......... USD 9,440,000 9,746,800 2.2
Nigeria (4.8%)
Central Bank of Nigeria, Par Bond, 6.25% due
11/15/20++ ........................................... USD 34,500,000 21,390,000 4.8
Panama (3.1%)
Panama, Interest Reduction Bond, 3.5% due 7/17/14 -
144A++ {.} ........................................... USD 21,105,000 13,955,681 3.1
Philippines (2.7%)
Republic of Philippines, 8.75% due 10/7/16 -
144A{.} .............................................. USD 7,000,000 6,855,625 1.5
Central Bank of the Philippines, Debt Conversion Bond
Series B, 6.4375% due 12/1/09+ ....................... USD 5,663,000 5,422,323 1.2
United States (2.7%)
United States Treasury Note, 7% due 7/15/06{j} ........ USD 11,660,000 12,194,037 2.7
</TABLE>
The accompanying notes are an integral part of the financial statements.
F5
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO - CONSOLIDATED
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Uruguay (1.5%)
Banco Central del Uruguay:
New Money Bond, 6.875% due 2/18/06+ ................. USD 3,750,000 $ 3,628,125 0.8
Par Bond Series A, 6.75% due 2/19/21+/+ ............. USD 2,290,000 1,889,250 0.4
Par Bond Series B, 6.75% due 2/19/21+/+ ............. USD 1,500,000 1,237,500 0.3
Venezuela (9.3%)
Republic of Venezuela:
Debt Conversion Bond, 6.625% due 12/18/07+ .......... USD 20,750,000 17,066,875 3.8
Front Loaded Interest Reduction Bond Series A, 6.625%
due 3/31/07+ ....................................... USD 13,000,000 10,814,375 2.4
Par Bond Series A, 6.75% due 3/31/20+/+ ............. USD 13,500,000 9,610,313 2.2
Front Loaded Interest Reduction Bond Series B, 6.5%
due 3/31/07+ ....................................... USD 5,000,000 4,159,375 0.9
------------
Total Government & Government Agency Obligations (cost
$259,273,931) ............................................ 278,220,262
------------
Sovereign Debt (17.3%)
Morocco (4.5%)
Kingdom of Morocco, Tranche A Loan Agreement, 6.4375%
due 1/1/09+ .......................................... USD 25,000,000 19,843,750 4.5
Peru (1.5%)
Peru Loan Agreement ** -/- ............................ USD 4,600,000 5,384,875 1.2
Peru Loan Agreement (Citibank Issued) ** -/- .......... USD 1,000,000 1,170,625 0.3
Russia (11.3%)
Bank for Foreign Economic Affairs (Vnesheconombank)
Loan Agreement:
Assignment ** -/- ................................... USD 46,757,000 34,337,172 7.7
Participation ** -/- ................................ DEM 12,466,000 6,321,960 1.4
Assignment ** -/- ................................... DEM 9,819,000 4,979,571 1.1
Participation ** -/- ................................ USD 6,600,000 4,846,875 1.1
------------
Total Sovereign Debt (cost $54,521,525) ................... 76,884,828
------------
Corporate Bonds (10.8%)
Argentina (0.5%)
Industrias Metallurgicas Pescarmona S.A. (IMPSA),
11.75% due 3/27/98 - 144A{.} ......................... USD 1,950,000 1,989,000 0.5
Brazil (0.3%)
Net Sat Servicos LTDA, 12.75% due 8/5/04 - 144A{.} .... USD 1,134,000 1,190,700 0.3
Indonesia (5.1%)
Asia Pulp & Paper International Finance Co., Ltd.,
11.75% due 10/1/05 ................................... USD 6,077,000 6,335,273 1.4
Dharmala Sakti Sejahtera Promissory Note, effective
yield 20.00%, due 6/9/97 ............................. IDR 9,000,000,000 3,449,610 0.8
PT Polysindo EKA Perkasa:
effective yield 20.05%, due 7/27/97 ................. IDR 6,000,000,000 2,246,285 0.5
13% due 6/15/01 - DTC ............................... USD 613,000 680,430 0.2
13% due 6/15/01 - EURO .............................. USD 395,000 438,450 0.1
</TABLE>
The accompanying notes are an integral part of the financial statements.
F6
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO - CONSOLIDATED
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
PT Tjiwi Kimia, 13.25% due 8/1/01 ..................... USD 2,500,000 $ 2,812,500 0.6
Rapp International Finance, 13.25% due 12/15/05 -
Euro ................................................. USD 2,430,000 2,642,625 0.6
FSW International Finance Co., 12.5% due 11/1/06 -
144A{.} .............................................. USD 2,007,000 2,025,816 0.5
PT Indah Kiat International Finance Series B, 11.875%
due 6/15/02 .......................................... USD 1,510,000 1,615,700 0.4
Luxembourg (0.5%)
Millicom International Cellular, effective yield
13.07%, due 6/1/06 - 144A{.} ......................... USD 3,800,000 2,170,750 0.5
Malaysia (0.1%)
Aokam Perdana Bhd., Convertible Bond, 3.5% due
6/13/04 .............................................. USD 650,000 453,375 0.1
Mexico (2.8%)
Grupo Industrial Durango, S.A., 12.625% due 8/1/03 .... USD 4,758,000 4,960,215 1.1
Grupo Irsa, S.A. de C.V., 8.375% due 7/15/98 .......... USD 3,300,000 3,295,875 0.7
Cemex, S.A. de C.V. "B", 12.75% due 7/15/06 -
144A{.} .............................................. USD 2,420,000 2,622,675 0.6
Grupo Elektra, S.A. de C.V., 12.75% due 5/15/01 -
144A{.} .............................................. USD 1,500,000 1,573,125 0.4
People's Republic of China (0.7%)
Zhuhai Highway Co., Ltd., 11.5% due 7/1/08 -
144A{.} .............................................. USD 2,900,000 3,124,750 0.7
Philippines (0.8%)
Filinvest Capital, Convertible Bond, 3.75% due 2/1/02 -
Reg. S++ ............................................. USD 1,892,000 1,863,620 0.4
CE Casecnan Water & Energy, 11.45% due 11/15/05 - Reg.
S .................................................... USD 1,030,000 1,138,150 0.3
Subic Power Corp., 9.5% due 12/28/08 - 144A{.} ........ USD 448,276 463,966 0.1
------------
Total Corporate Bonds (cost $46,398,969) .................. 47,092,890
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $360,194,425) ........ 402,197,980 90.5
------------ -----
<CAPTION>
UNDERLYING VALUE % OF NET
OPTIONS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Republic of Argentina: .................................. USD -- -- 0.3
GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
Floating Rate Bond 3/31/05, Call Option, strike 77.875,
expires 11/29/96 ..................................... -- 19,800,000 890,050 --
Floating Rate Bond 3/31/05, Call Option, strike 80.625,
expires 12/9/96 ...................................... -- 19,800,000 512,365 --
Republic of Brazil C Bond 4/15/14, Call Option, strike
71.8125, expires 12/26/96 .............................. USD 99,670,154 1,108,531 0.3
GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
Republic of Venezuela: .................................. USD -- -- --
GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
Debt Conversion Bond 12/18/07, Call Option, strike
84.15, expires 1/2/97 ................................ -- 9,857,000 94,637 --
Debt Conversion Bond 12/18/07, Call Option, strike
84.44, expires 1/2/97 ................................ -- 9,857,000 85,894 --
------------ -----
TOTAL OPTIONS (cost $3,779,230) ........................... 2,691,477 0.6
------------ -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
F7
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO - CONSOLIDATED
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ----------------------------------------------------------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial Paper - Discounted (3.8%)
Thailand (0.2%)
TPI Polene Public Co., Ltd., current yield 10.36% due
1/6/97 ............................................... THB 25,000,000 $ 962,735 0.2
United States (3.6%)
Merrill Lynch & Co., current yield 5.38% due
11/5/96 .............................................. USD 16,000,000 15,990,436 3.6
------------
Total Commercial Paper - Discounted (cost $16,958,338) .... 16,953,171
------------
Government & Government Agency Obligations (2.0%)
Mexico (2.0%)
Mexican Cetes, current yield 29.66% due 1/23/97 ....... MXN 4,567,238 5,351,413 1.2
Mexican Cetes, current yield 29.61% due 1/16/97 ....... MXN 1,340,951 1,578,527 0.4
Mexican Cetes, current yield 26.88% due 1/30/97 ....... MXN 1,225,706 1,436,292 0.3
Mexican Cetes, current yield 29.66% due 2/20/97 ....... MXN 325,125 372,690 0.1
Mexican Cetes, current yield 29.66% due 2/6/97 ........ MXN 135,468 156,927 --
------------
Total Government & Government Agency Obligations (cost
$8,891,671) .............................................. 8,895,849
------------
Commercial Paper - Indexed (1.4%)
Philippines (1.4%)
National Westminster Bank PLC, Currency-Linked CD,
12.3798% due 2/28/97 (cost $6,500,000) ............... USD 6,500,000 6,418,711 1.4
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $32,350,009) ........... 32,267,731 7.2
------------ -----
<CAPTION>
% OF NET
REPURCHASE AGREEMENT ASSETS
- ----------------------------------------------------------- -------------
<S> <C> <C> <C> <C>
Dated October 31, 1996, with State Street Bank & Trust
Co., due November 1, 1996, for an effective yield of
5.55% collateralized by $3,010,000 U.S. Treasury Bonds,
7.125% due 2/15/23 (market value of collateral is
$3,179,150, including accrued interest).
(cost $3,112,480) ..................................... 3,112,480 0.7
------------ -----
TOTAL INVESTMENTS (cost $399,436,144) * ................... 440,269,668 99.0
Other Assets and Liabilities .............................. 4,348,817 1.0
------------ -----
NET ASSETS ................................................ $444,618,485 100.0
------------ -----
------------ -----
</TABLE>
- --------------
-/- Non-income producing security.
** Underlying loan agreement currently in default.
{.} 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.
+ 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.
[.] Bond pays stated or additional interest with "payment-in-kind"
(PIK) bonds.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
{j} Security is segregated as collateral for when-issued securities
held by the Fund. See Note 1 of Notes to Financial Statements.
* For Federal income tax purposes, cost is $401,018,014 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 42,322,854
Unrealized depreciation: (3,071,200)
-------------
Net unrealized appreciation: $ 39,251,654
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F8
<PAGE>
GLOBAL HIGH INCOME PORTFOLIO - CONSOLIDATED
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
MARKET VALUE CONTRACT DELIVERY APPRECIATION
CONTRACTS TO SELL: (U.S. DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- -------------- -------- -------- --------------
<S> <C> <C> <C> <C>
Deutsche Marks.......................... 6,587,811 1.47060 11/13/96 $ 191,735
-------------- --------------
Total Contracts to Sell (Receivable
amount $6,779,546)................... 6,587,811 191,735
-------------- --------------
THE VALUE OF CONTRACTS TO SELL AS
PERCENTAGE OF NET ASSETS IS 1.48%.
Total Open Forward Foreign Currency
Contracts............................ $ 191,735
--------------
--------------
</TABLE>
- ----------------
See Note 1 to the financial statements.
The accompanying notes are an integral part of the financial statements.
F9
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (82.1%)
Argentina (6.4%)
Republic of Argentina:
Discount Bond, 6.4375% due 3/31/23+ ................ USD 16,365,000 $ 11,874,853 2.3
BOCON Pre 4, 5.4453% due 9/1/02[.] + ............... USD 9,290,000 9,322,515 1.8
Par Bond, 5.25% due 3/31/23++ ...................... USD 11,350,000 6,767,438 1.3
Floating Rate Bond, 6.625% due 3/31/05+ ............ USD 6,224,960 5,131,701 1.0
Australia (2.2%)
Commonwealth of Australia, 9.5% due 8/15/03 .......... AUD 13,000,000 11,530,381 2.2
Brazil (4.2%)
Federal Republic of Brazil:
C Bond, 4.5% due 4/15/14 (Effective rate at period
end is 6.928125%, including "payment-in-kind"
bonds.)[.] ++ ..................................... USD 27,866,864 19,332,637 3.7
MYDFA Floating Rate Note, 6.6875% due 9/15/07 -
144A+ {.} ......................................... USD 3,326,000 2,787,604 0.5
Bulgaria (1.6%)
Bulgaria, Discount Bond Series A, 6.6875% due 7/28/24
- EURO+ ............................................. USD 15,872,000 8,045,120 1.6
Canada (2.7%)
Canadian Government:
8.75% due 12/1/05 .................................. CAD 10,500,000 9,131,797 1.8
8% due 11/1/98 ..................................... CAD 6,000,000 4,785,187 0.9
Costa Rica (0.8%)
Banco Central de Costa Rica:
Interest Bond Series A, 6.34375% due 5/21/05
(Effective maturity date 8/23/03)+ ................ USD 2,711,480 2,616,578 0.5
Principal Bond Series A, 6.25% due 5/21/10 ......... USD 1,900,000 1,539,000 0.3
Denmark (2.8%)
Kingdom of Denmark, 7% due 12/15/04 .................. DKK 81,000,000 14,307,236 2.8
Ecuador (2.6%)
Ecuador:
Past Due Interest Bond, 3% due 2/27/15 - Euro
(Effective rate at period end is 4.96%, including
"payment-in-kind" bonds.)[.] + .................... USD 16,652,835 9,325,588 1.8
Discount Bond, 6.5% due 2/28/25 - Euro+ ............ USD 6,520,000 4,274,675 0.8
Past Due Interest Bond, 3% due 2/27/15 - 144A
(Effective rate at period end is 4.96%, including
"payment-in-kind" bonds.)[.] + {.} ................ USD 1,058 592 --
France (1.7%)
France O.A.T., 7.25% due 4/25/06 ..................... FRF 40,000,000 8,576,852 1.7
Germany (9.9%)
Deutschland Republic:
6% due 1/5/06 ...................................... DEM 45,000,000 29,707,608 5.7
8.25% due 9/20/01 .................................. DEM 14,500,000 10,885,060 2.1
Treuhandanstalt, 7.125% due 1/29/03 .................. DEM 15,000,000 10,746,994 2.1
Italy (3.9%)
Italian Buoni Poliennali del Tesoro (BTPS):
10.5% due 11/1/00 .................................. ITL 11,200,000,000 8,164,843 1.6
9.5% due 2/1/99 .................................... ITL 8,000,000,000 5,539,967 1.1
</TABLE>
The accompanying notes are an integral part of the financial statements.
F10
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Republic of Italy Series Y, .5625% due 7/26/99+ ...... JPY 700,000,000 $ 6,216,478 1.2
Mexico (7.0%)
United Mexican States:
Discount Bond Series C, 6.35156% due 12/31/19+
+/+ ............................................... USD 18,634,000 15,349,758 3.0
Global Bond, 11.5% due 5/15/26 ..................... USD 8,272,000 8,261,660 1.6
11.375% due 9/15/16 - 144A{.} ...................... USD 3,000,000 2,992,500 0.6
7.6875% due 8/6/01 - 144A+ {.} ..................... USD 2,953,000 2,953,886 0.6
Banco Nacional de Comercio Exterior, S.N.C. (BNCE)
Trust Division, 11.25% due 5/30/06 - 144A{.} ........ USD 6,152,000 6,351,940 1.2
New Zealand (1.1%)
New Zealand Government, 8% due 2/15/01 ............... NZD 8,000,000 5,822,342 1.1
Nigeria (2.0%)
Central Bank of Nigeria, Par Bond, 6.25% due
11/15/20++ .......................................... USD 16,500,000 10,230,000 2.0
Panama (2.0%)
Panama, Interest Reduction Bond, 3.5% due 7/17/14 -
144A++ {.} .......................................... USD 15,805,000 10,451,056 2.0
Philippines (0.2%)
Republic of Philippines, 8.75% due 10/7/16 -
144A{.} ............................................. USD 1,000,000 979,375 0.2
Spain (3.5%)
Kingdom of Spain, 10.1% due 2/28/01 .................. ESP 2,100,000,000 18,330,746 3.5
Supranational (1.6%)
International Bank of Reconstruction & Development,
4.75% due 12/20/04 .................................. JPY 800,000,000 8,227,205 1.6
Sweden (2.3%)
Swedish Government, 13% due 6/15/01 .................. SEK 63,000,000 12,053,463 2.3
Turkey (0.8%)
Sultan Ltd., 8.49874% due 6/11/99+ ................... USD 4,400,000 4,327,928 0.8
United Kingdom (6.6%)
United Kingdom Treasury:
7% due 11/6/01 ..................................... GBP 14,100,000 22,725,571 4.4
7.5% due 12/7/06 ................................... GBP 7,000,000 11,296,982 2.2
United States (10.7%)
United States Treasury Note, 6.875% due 3/31/00{j} ... USD 43,000,000 44,211,056 8.5
United States Treasury Bond, 6.875% due 8/15/25 ...... USD 11,000,000 11,262,539 2.2
Uruguay (0.2%)
Banco Central del Uruguay, Par Bond Series A, 6.75%
due 2/19/21+/ + ..................................... USD 1,370,000 1,130,250 0.2
</TABLE>
The accompanying notes are an integral part of the financial statements.
F11
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (Continued)
Venezuela (5.3%)
Republic of Venezuela:
Debt Conversion Bond, 6.625% due 12/18/07+ ......... USD 13,750,000 $ 11,309,375 2.2
Front Loaded Interest Reduction Bond Series B, 6.5%
due 3/31/07+ ...................................... USD 9,000,000 7,486,875 1.4
Par Bond Series A, 6.75% due 3/31/20+/+ ............ USD 7,500,000 5,339,063 1.0
Front Loaded Interest Reduction Bond Series A,
6.625% due 3/31/07+ ............................... USD 4,500,000 3,743,438 0.7
------------
Total Government & Government Agency Obligations (cost
$406,608,996) ........................................... 425,447,712
------------
Sovereign Debt (8.1%)
Morocco (1.8%)
Kingdom of Morocco, Tranche A Loan Agreement, 6.4375%
due 1/1/09+ ......................................... USD 11,460,000 9,096,375 1.8
Russia (6.3%)
Bank for Foreign Economic Affairs (Vnesheconombank)
Loan Agreement:
Assignment ** -/- .................................. USD 31,585,000 23,195,234 4.5
Participation ** -/- ............................... DEM 8,786,000 4,455,699 0.9
Participation ** -/- ............................... USD 3,440,000 2,526,250 0.5
Assignment ** -/- .................................. DEM 4,566,000 2,315,584 0.4
------------
Total Sovereign Debt (cost $27,803,682) .................. 41,589,142
------------
Corporate Bonds (3.4%)
Brazil (0.2%)
Net Sat Servicos LTDA, 12.75% due 8/5/04 - 144A{.} ... USD 738,000 774,900 0.2
Indonesia (0.9%)
PT Polysindo EKA Perkasa, 13% due 6/15/01:
EURO ............................................... USD 1,955,000 2,170,050 0.4
DTC ................................................ USD 395,000 438,450 0.1
FSW International Finance Co., 12.5% due 11/1/06 -
144A{.} ............................................. USD 1,090,000 1,100,219 0.2
Rapp International Finance, 13.25% due 12/15/05 -
Euro ................................................ USD 664,000 722,100 0.1
PT Indah Kiat International Finance Series B, 11.875%
due 6/15/02 ......................................... USD 664,000 710,480 0.1
Luxembourg (0.3%)
Millicom International Cellular, effective yield
13.07% due 6/1/06 - 144A{.} ......................... USD 2,300,000 1,313,875 0.3
Mexico (0.7%)
Grupo Industrial Durango, S.A., 12.625% due 8/1/03 ... USD 2,653,000 2,765,753 0.5
Grupo Elektra, S.A. de C.V., 12.75% due 5/15/01 -
144A{.} ............................................. USD 1,000,000 1,048,750 0.2
Philippines (0.3%)
Filinvest Capital, Convertible Bond, 3.75% due 2/1/02
- 144A{.} ........................................... USD 1,260,000 1,241,100 0.2
CE Casecnan Water & Energy, 11.45% due 11/15/05 - Reg.
S ................................................... USD 670,000 740,350 0.1
United States (1.0%)
Chase Manhattan Corp., 6.25% due 1/15/06 ............. USD 2,835,000 2,700,839 0.5
</TABLE>
The accompanying notes are an integral part of the financial statements.
F12
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE % OF NET
FIXED INCOME INVESTMENTS CURRENCY AMOUNT (NOTE 1) ASSETS
- ---------------------------------------------------------- -------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
General Motors Acceptance Corp., 6.625% due
10/15/05 ............................................ USD 2,700,000 $ 2,641,580 0.5
------------
Total Corporate Bonds (cost $17,787,296) ................. 18,368,446
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $452,199,974) ....... 485,405,300 93.6
------------ -----
<CAPTION>
UNDERLYING % OF NET
OPTIONS CURRENCY AMOUNT ASSETS
- ---------------------------------------------------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
Republic of Brazil C Bond 4/15/14, Call Option, strike
71.8125, expires 12/26/96 ............................. USD 59,364,791 660,255 0.2
GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
Republic of Venezuela: ................................. USD -- -- --
GOVERNMENT & GOVERNMENT AGENCY OBLIGATIONS
Debt Conversion Bond 12/18/07, Call Option, strike
84.15, expires 1/2/97 ............................... -- 5,500,000 52,806 --
Debt Conversion Bond 12/18/07, Call Option, strike
84.44, expires 1/2/97 ............................... -- 5,500,000 47,927 --
------------ -----
TOTAL OPTIONS (cost $1,727,048) .......................... 760,988 0.2
------------ -----
<CAPTION>
PRINCIPAL % OF NET
SHORT-TERM INVESTMENTS CURRENCY AMOUNT ASSETS
- ---------------------------------------------------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
Government & Government Agency Obligations (0.9%)
Mexico (0.9%)
Mexican Cetes, current yield 29.66% due 1/23/97 ...... MXN 2,552,332 2,990,557 0.6
Mexican Cetes, current yield 29.61% due 1/16/97 ...... MXN 749,370 882,136 0.2
Mexican Cetes, current yield 26.88% due 1/30/97 ...... MXN 684,968 802,651 0.1
Mexican Cetes, current yield 29.66% due 2/20/97 ...... MXN 181,691 208,272 --
Mexican Cetes, current yield 29.66% due 2/6/97 ....... MXN 75,705 87,697 --
------------
Total Government & Government Agency Obligations (cost
$4,968,978) ............................................. 4,971,313
------------
Commercial Paper - Indexed (0.5%)
Philippines (0.5%)
National Westminster Bank PLC, Currency-Linked CD,
12.3798% due 2/28/97 (cost $2,500,000) .............. USD 2,500,000 2,468,735 0.5
------------
Commercial Paper - Discounted (0.2%)
Thailand (0.2%)
TPI Polene Public Co., Ltd., current yield 10.36% due
1/6/97
(cost $967,902) ..................................... THB 25,000,000 962,735 0.2
------------ -----
TOTAL SHORT-TERM INVESTMENTS (cost $8,436,880) ........... 8,402,783 1.6
------------ -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
F13
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (NOTE 1) ASSETS
- ---------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Dated October 31, 1996, with State Street Bank & Trust
Co., due November 1, 1996, for an effective yield of
5.55% collateralized by $16,135,000 U.S. Treasury
Bonds, 7.125% due 2/15/23 (market value of collateral
is $17,041,721, including accrued interest). (cost
$16,705,575) ......................................... $ 16,705,575 3.2
------------ -----
TOTAL INVESTMENTS (cost $479,069,477) * .................. 511,274,646 98.6
Other Assets and Liabilities ............................. 7,508,600 1.4
------------ -----
NET ASSETS ............................................... $518,783,246 100.0
------------ -----
------------ -----
</TABLE>
- --------------
+ The coupon rate shown on floating rate note represents the rate at
period end.
** Underlying loan agreement currently in default.
+/+ Issued with detachable warrants or value recovery rights. The
current market value of each warrant or right is zero.
-/- Non-income producing security.
{.} 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.
++ The coupon rate shown on step-up coupon bond represents the rate at
period end.
[.] Bond pays stated or additional interest with "payment-in-kind"
(PIK) bonds.
{j} Security is segregated as collateral for when-issued securities
held by the Fund. See Note 1 of Notes to Financial Statements.
* For Federal income tax purposes, cost is $480,138,813 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 34,211,689
Unrealized depreciation: (3,075,856)
-------------
Net unrealized appreciation: $ 31,135,833
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F14
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
OCTOBER 31, 1996
<TABLE>
<CAPTION>
MARKET VALUE UNREALIZED
(U.S. CONTRACT DELIVERY APPRECIATION
CONTRACTS TO BUY: DOLLARS) PRICE DATE (DEPRECIATION)
- ---------------------------------------- ------------ ----------- -------- --------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 418,368 1.35055 11/29/96 $ 3,722
Deutsche Marks.......................... 330,382 1.48683 11/05/96 (5,905)
Deutsche Marks.......................... 175,102 1.52412 11/05/96 1,231
Deutsche Marks.......................... 35,067,522 1.47631 11/27/96 (832,700)
------------ --------------
Total Contracts to Buy (Payable amount
$36,825,026)......................... 35,991,374 (833,652)
------------ --------------
THE VALUE OF CONTRACTS TO BUY AS PERCENTAGE OF NET ASSETS IS 6.94%.
<CAPTION>
CONTRACTS TO SELL:
- ----------------------------------------
<S> <C> <C> <C> <C>
Canadian Dollars........................ 14,000,381 1.35715 11/29/96 (192,033)
Canadian Dollars........................ 537,902 1.35220 11/29/96 (5,436)
Deutsche Marks.......................... 8,259,548 1.47358 11/05/96 223,195
Deutsche Marks.......................... 5,011,894 1.46463 11/05/96 166,888
Deutsche Marks.......................... 22,849,488 1.50483 11/12/96 70,044
Deutsche Marks.......................... 12,928,667 1.50920 11/27/96 18,590
Deutsche Marks.......................... 10,748,606 1.52824 11/27/96 (118,653)
Deutsche Marks.......................... 3,969,908 1.50676 11/27/96 12,146
Deutsche Marks.......................... 717,812 1.52558 11/27/96 (6,686)
Deutsche Marks.......................... 635,185 1.52100 11/27/96 (4,021)
Deutsche Marks.......................... 330,826 1.47100 11/27/96 9,079
Italian Liras........................... 14,175,119 1546.70000 01/21/97 (209,903)
Swedish Kronor.......................... 9,887,474 6.61090 01/21/97 (85,480)
------------ --------------
Total Contracts to Sell (Receivable
amount $103,930,540)................. 104,052,810 (122,270)
------------ --------------
THE VALUE OF CONTRACTS TO SELL AS PERCENTAGE OF NET ASSETS IS 20.06%.
Total Open Forward Foreign Currency
Contracts, Net....................... $(955,922)
--------------
--------------
</TABLE>
- --------------
See Note 1 to the financial statements.
The accompanying notes are an integral part of the financial statements.
F15
<PAGE>
GT GLOBAL INCOME FUNDS
STATEMENTS OF ASSETS
AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GT GLOBAL
------------------------------------------
GOVERNMENT HIGH INCOME- STRATEGIC
INCOME CONSOLIDATED INCOME
------------- ------------ -------------
<S> <C> <C> <C>
Assets:
Investments in securities, at value
(cost $384,301,241, $399,436,144, and
$479,069,477, respectively) (Note
1)................................... $ 395,805,316 $440,269,668 $ 511,274,646
U.S. currency......................... 688 747 764
Foreign currencies (cost $163,
$375,538, and $6,038,
respectively)........................ 165 363,584 5,983
Receivable for securities sold........ 25,721,936 19,276,936 7,533,831
Interest receivable................... 12,649,427 8,384,949 13,463,776
Receivable for Fund shares sold....... 288,358 5,276,241 2,864,788
Receivable for open forward foreign
currency contracts, net (Note 1)..... -- 191,735 --
Receivable for forward foreign
currency contracts -- closed (Note
1)................................... 674,249 -- --
Miscellaneous receivable.............. -- -- 90,538
Cash held as collateral for securities
loaned (Note 1)...................... 92,153,670 -- 47,372,677
Unamortized organizational costs...... -- 35,371 --
------------- ------------ -------------
Total assets........................ 527,293,809 473,799,231 582,607,003
------------- ------------ -------------
Liabilities:
Payable for securities purchased...... 16,533,723 21,061,541 12,311,147
Payable for Fund shares repurchased... 8,524,914 7,137,124 1,807,865
Payable for open forward foreign
currency contracts, net (Note 1)..... 1,736,601 -- 955,922
Payable for forward foreign currency
contracts -- closed.................. -- -- 404,268
Payable for investment management and
administration fees (Note 2)......... 256,521 381,409 324,636
Payable for service and distribution
expenses (Note 2).................... 216,795 283,839 344,647
Payable for printing and postage
expenses............................. 95,659 116,749 84,559
Payable for transfer agent fees (Note
2)................................... 63,830 62,864 85,559
Payable for professional fees......... 51,757 58,593 57,257
Payable for registration and filing
fees................................. 22,078 8,320 28,364
Payable for custodian fees (Note 1)... 9,679 23,927 29,251
Payable for fund accounting fees (Note
2)................................... 8,364 9,624 10,417
Payable for Directors' and Trustees'
fees and expenses (Note 2)........... 4,832 10,497 2,999
Other accrued expenses................ 6,868 26,159 4,189
Collateral for securities loaned (Note
1)................................... 92,153,670 -- 47,372,677
------------- ------------ -------------
Total liabilities................... 119,685,291 29,180,646 63,823,757
Minority interest (Notes 1 & 2)..... -- 100 --
------------- ------------ -------------
Net assets.............................. $ 407,608,518 $444,618,485 $ 518,783,246
------------- ------------ -------------
------------- ------------ -------------
Class A:
Net asset value and redemption price per
share ($240,944,963 DIVIDED BY
27,559,672, $178,317,938 DIVIDED BY
12,011,654, and $185,125,741 DIVIDED BY
15,748,198 shares outstanding,
respectively).......................... $ 8.74 $ 14.85 $ 11.76
------------- ------------ -------------
------------- ------------ -------------
Maximum offering price per share
(100/95.25 of $8.74, 100/95.25 of
$14.85, and 100/95.25 of $11.76,
respectively) *........................ $ 9.18 $ 15.59 $ 12.35
------------- ------------ -------------
------------- ------------ -------------
Class B:+
Net asset value and offering price per
share ($166,577,127 DIVIDED BY
19,059,341, $251,002,484 DIVIDED BY
16,920,131, and $333,178,201 DIVIDED BY
28,314,377 shares outstanding,
respectively).......................... $ 8.74 $ 14.83 $ 11.77
------------- ------------ -------------
------------- ------------ -------------
Advisor Class:
Net asset value, offering price per
share, and redemption price per share
($86,428 DIVIDED BY 9,897, $15,298,063
DIVIDED BY 1,031,529, and $479,304
DIVIDED BY 40,725 shares outstanding,
respectively).......................... $ 8.73 $ 14.83 $ 11.77
------------- ------------ -------------
------------- ------------ -------------
Net assets consist of:
Paid in capital (Note 4).............. $ 552,445,325 $398,450,836 $ 598,321,655
Undistributed net investment income... 364,918 -- --
Accumulated net realized gain (loss)
on investments and foreign currency
transactions......................... (155,061,909) 5,153,808 (110,861,534)
Net unrealized appreciation
(depreciation) on translation of
assets and liabilities in foreign
currencies........................... (1,643,891) 180,317 (882,044)
Net unrealized appreciation of
investments.......................... 11,504,075 40,833,524 32,205,169
------------- ------------ -------------
Total -- representing net assets
applicable to capital shares
outstanding............................ $ 407,608,518 $444,618,485 $ 518,783,246
------------- ------------ -------------
------------- ------------ -------------
<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.
F16
<PAGE>
GT GLOBAL INCOME FUNDS
STATEMENTS OF OPERATIONS
Year ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GT GLOBAL
----------------------------------------
GOVERNMENT HIGH INCOME- STRATEGIC
INCOME CONSOLIDATED INCOME
------------ ------------ ------------
<S> <C> <C> <C>
Investment income: (Note 1)
Interest income....................... $ 39,935,517 $ 45,539,611 $ 49,794,868
------------ ------------ ------------
Total investment income............. 39,935,517 45,539,611 49,794,868
------------ ------------ ------------
Expenses:
Investment management and
administration fees (Note 2)......... 3,672,503 4,030,144 3,807,689
Transfer agent fees (Note 2).......... 899,178 644,652 1,027,713
Service and distribution expenses:
(Note 2)
Class A............................. 1,074,110 560,451 625,247
Class B............................. 2,006,881 2,405,007 3,468,104
Custodian fees (Note 1)............... 305,430 181,559 290,730
Fund accounting fees (Note 2)......... 127,205 101,697 131,517
Printing and postage expenses......... 88,931 101,142 94,439
Audit fees............................ 71,998 74,353 73,189
Legal fees............................ 26,352 39,821 25,230
Registration and filing fees.......... 52,704 51,240 47,004
Amortization of Organization Costs.... -- 34,894 --
Directors' and Trustees' fees and
expenses (Note 2).................... 17,712 24,607 11,712
Insurance Expenses.................... -- 2,987 --
Other expenses........................ 39,783 6,221 13,540
------------ ------------ ------------
Total expenses before reductions and
interest expense................... 8,382,787 8,258,775 9,616,114
Interest expense (Note 1)......... -- 163,819 --
Expense reductions (Note 1)....... (250,204) -- (108,002)
------------ ------------ ------------
Total net expenses.................. 8,132,583 8,422,594 9,508,112
------------ ------------ ------------
Net investment income................... 31,802,934 37,117,017 40,286,756
------------ ------------ ------------
Net realized and unrealized gain (loss)
on investments and foreign currencies:
(Note 1)
Net realized gain on investments...... 8,737,745 62,643,262 43,672,673
Net realized loss on foreign currency
transactions......................... (10,634,640) (125,790) (6,996,692)
------------ ------------ ------------
Net realized gain (loss) during the
year............................... (1,896,895) 62,517,472 36,675,981
Net change in unrealized appreciation
on translation of assets and
liabilities in foreign currencies.... 2,319,205 174,082 1,913,734
Net change in unrealized appreciation
(depreciation) of investments........ (1,121,083) 31,730,913 27,794,834
------------ ------------ ------------
Net unrealized appreciation during
the year........................... 1,198,122 31,904,995 29,708,568
------------ ------------ ------------
Net realized and unrealized gain (loss)
on investments and foreign
currencies............................. (698,773) 94,422,467 66,384,549
------------ ------------ ------------
Net increase in net assets resulting
from operations........................ $ 31,104,161 $131,539,484 $106,671,305
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F17
<PAGE>
GT GLOBAL INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GT GLOBAL
----------------------------------------------------------
GOVERNMENT INCOME HIGH INCOME-CONSOLIDATED
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income................. $ 31,802,934 $ 46,493,014 $ 37,117,017 $ 39,491,435
Net realized gain (loss) on
investments and foreign currency
transactions......................... (1,896,895) (4,465,423) 62,517,472 (62,112,954)
Net change in unrealized appreciation
on translation of assets and
liabilities in foreign currencies.... 2,319,205 3,260,081 174,082 (302)
Net change in unrealized appreciation
(depreciation) of investments........ (1,121,083) 12,089,374 31,730,913 24,969,833
------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations.................... 31,104,161 57,377,046 131,539,484 2,348,012
------------- ------------- ------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............ (15,504,590) (29,604,447) (13,418,057) (12,528,224)
From net realized gain on
investments.......................... (8,183,323) -- (1,230,117) (474,126)
In excess of net investment income.... -- -- -- --
Return of capital..................... -- -- -- (737,846)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............ (9,165,193) (15,123,091) (18,753,394) (17,274,071)
From net realized gain on
investments.......................... (5,303,358) -- (1,719,241) (622,059)
In excess of net investment income.... -- -- -- --
Return of capital..................... -- -- -- (1,015,555)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............ (7,915) (3,476) (505,715) (54,186)
From net realized gain on
investments.......................... (2,893) -- (46,362) --
In excess of net investment income.... -- -- -- --
Return of capital..................... -- -- -- (3,075)
------------- ------------- ------------- -------------
Total distributions................. (38,167,272) (44,731,014) (35,672,886) (32,709,142)
------------- ------------- ------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and
reinvested........................... 386,482,407 359,717,885 583,133,415 418,666,106
Decrease from capital shares
repurchased.......................... (592,826,606) (515,847,692) (592,743,855) (430,339,278)
------------- ------------- ------------- -------------
Net decrease from capital share
transactions....................... (206,344,199) (156,129,807) (9,610,440) (11,673,172)
------------- ------------- ------------- -------------
Total increase (decrease) in net
assets................................. (213,407,310) (143,483,775) 86,256,158 (42,034,302)
Net assets:
Beginning of year..................... 621,015,828 764,499,603 358,362,327 400,396,629
------------- ------------- ------------- -------------
End of year........................... $ 407,608,518* $ 621,015,828** $ 444,618,485* $ 358,362,327**
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
STRATEGIC INCOME
----------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income................. $ 40,286,756 $ 54,919,073
Net realized gain (loss) on
investments and foreign currency
transactions......................... 36,675,981 (82,675,607)
Net change in unrealized appreciation
on translation of assets and
liabilities in foreign currencies.... 1,913,734 (3,747,114)
Net change in unrealized appreciation
(depreciation) of investments........ 27,794,834 35,939,954
------------- -------------
Net increase in net assets resulting
from operations.................... 106,671,305 4,436,306
------------- -------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............ (12,520,881) (16,844,112)
From net realized gain on
investments.......................... -- --
In excess of net investment income.... (1,097,884) --
Return of capital..................... -- (852,171)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............ (22,200,673) (27,777,018)
From net realized gain on
investments.......................... -- --
In excess of net investment income.... (1,946,649) --
Return of capital..................... -- (1,405,284)
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............ (46,547) (14,952)
From net realized gain on
investments.......................... -- --
In excess of net investment income.... (4,081) --
Return of capital..................... -- (756)
------------- -------------
Total distributions................. (37,816,715) (46,894,293)
------------- -------------
Capital share transactions: (Note 4)
Increase from capital shares sold and
reinvested........................... 335,665,174 194,343,201
Decrease from capital shares
repurchased.......................... (432,196,117) (339,216,716)
------------- -------------
Net decrease from capital share
transactions....................... (96,530,943) (144,873,515)
------------- -------------
Total increase (decrease) in net
assets................................. (27,676,353) (187,331,502)
Net assets:
Beginning of year..................... 546,459,599 733,791,101
------------- -------------
End of year........................... $ 518,783,246* $ 546,459,599**
------------- -------------
------------- -------------
<FN>
- ----------------
* Includes undistributed net investment income of $364,918, $0, and $0,
respectively.
** Includes undistributed net investment income (loss) of $1,761,999,
$78,582,766, and $(68,169), respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F18
<PAGE>
GT GLOBAL GOVERNMENT INCOME FUND
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.
<TABLE>
<CAPTION>
CLASS A+
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1996 (D) 1995 (D) 1994 (D) 1993 (D) 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 8.81 $ 8.63 $ 11.07 $ 9.83 $ 10.29
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.57 0.62 0.65 0.74 0.92
Net realized and unrealized gain
(loss) on investments................ 0.03 0.15 (1.52) 1.34 (0.31)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 0.60 0.77 (0.87) 2.08 0.61
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income............ (0.57) (0.59) (0.65) (0.74) (0.83)
From net realized gain on
investments.......................... (0.10) -- (0.27) -- (0.13)
In excess of net realized gain on
investments.......................... -- -- (0.55) -- --
Return of capital..................... -- -- (0.10) -- --
From sources other than net investment
income............................... -- -- -- (0.10) (0.11)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.67) (0.59) (1.57) (0.84) (1.07)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 8.74 $ 8.81 $ 8.63 $ 11.07 $ 9.83
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (c)............. 7.11% 9.22% (8.87)% 21.9% 6.3%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 240,945 $ 385,404 $ 502,094 $ 708,301 $ 623,387
Ratio of net investment income to
average net assets..................... 6.52% 6.98% 6.87% 7.1% 9.0%
Ratio of expenses to average net assets:
(Note 1)
With expense reductions............... 1.34% 1.35% 1.33% 1.4% 1.6%
Without expense reductions............ 1.39% 1.38% --%* --%* --%*
Portfolio turnover rate++++............. 268% 385% 625% 495% 351%
</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 oustanding 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 among 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.
F19
<PAGE>
GT GLOBAL GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
CLASS B++
-----------------------------------------------------------
OCTOBER 22,
1992
YEAR ENDED OCTOBER 31, TO
--------------------------------------------- OCTOBER 31,
1996 (D) 1995 (D) 1994 (D) 1993 (D) 1992
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period....................... $ 8.80 $ 8.64 $ 11.07 $ 9.83 $ 9.87
--------- --------- --------- --------- -----------
Income from investment
operations:
Net investment income....... 0.51 0.55 0.59 0.67 0.02
Net realized and unrealized
gain (loss) on
investments................ 0.04 0.14 (1.52) 1.34 (0.06)
--------- --------- --------- --------- -----------
Net increase (decrease)
from investment
operations............... 0.55 0.69 (0.93) 2.01 (0.04)
--------- --------- --------- --------- -----------
Distributions to shareholders:
From net investment
income..................... (0.51) (0.53) (0.59) (0.67) --
From net realized gain on
investments................ (0.10) -- (0.27) -- --
In excess of net realized
gain on investments........ -- -- (0.54) -- --
Return of capital........... -- -- (0.10) -- --
From sources other than net
investment income.......... -- -- -- (0.10) --
--------- --------- --------- --------- -----------
Total distributions....... (0.61) (0.53) (1.50) (0.77) --
--------- --------- --------- --------- -----------
Net asset value, end of
period....................... $ 8.74 $ 8.80 $ 8.64 $ 11.07 $ 9.83
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Total investment return (c)... 6.54% 8.22% (9.39)% 21.1% (0.4)% (a)
Ratios and supplemental data:
Net assets, end of period (in
000's)....................... $166,577 $235,481 $262,405 $182,972 $2,624
Ratio of net investment income
to average net assets........ 5.87% 6.33% 6.22% 6.5% 8.0% (b)
Ratio of expenses to average
net assets: (Note 1)
With expense reductions..... 1.99% 2.00% 1.98% 2.0% 1.9% (b)
Without expense
reductions................. 2.04% 2.03% --%* --%* --% *
Portfolio turnover rate++++... 268% 385% 625% 495% 351%
<CAPTION>
ADVISOR CLASS+++
--------------------------
YEAR JUNE 1, 1995
ENDED TO
OCTOBER 31, OCTOBER 31,
1996 (D) 1995 (D)
----------- ------------
<S> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period....................... $ 8.80 $ 8.98
----------- ------------
Income from investment
operations:
Net investment income....... 0.60 0.26
Net realized and unrealized
gain (loss) on
investments................ 0.03 (0.19)
----------- ------------
Net increase (decrease)
from investment
operations............... 0.63 0.07
----------- ------------
Distributions to shareholders:
From net investment
income..................... (0.60) (0.25)
From net realized gain on
investments................ (0.10) --
In excess of net realized
gain on investments........ -- --
Return of capital........... -- --
From sources other than net
investment income.......... -- --
----------- ------------
Total distributions....... (0.70) (0.25)
----------- ------------
Net asset value, end of
period....................... $ 8.73 $ 8.80
----------- ------------
----------- ------------
Total investment return (c)... 7.49% 0.83% (a)
Ratios and supplemental data:
Net assets, end of period (in
000's)....................... $ 86 $ 131
Ratio of net investment income
to average net assets........ 6.87% 7.33% (b)
Ratio of expenses to average
net assets: (Note 1)
With expense reductions..... 0.99% 1.00% (b)
Without expense
reductions................. 1.04% 1.03% (b)
Portfolio turnover rate++++... 268% 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 oustanding 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 among 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.
F20
<PAGE>
GT GLOBAL HIGH INCOME FUND - CONSOLIDATED
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
OCTOBER 22,
1992
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO
--------------------------------------------- OCTOBER 31,
1996 (E) 1995 1994 (E) 1993 (E) 1992
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period....................... $ 11.70 $ 12.56 $ 14.92 $ 11.43 $ 11.43
--------- --------- --------- --------- -----------------
Income from investment
operations:
Net investment income....... 1.27 1.35 0.94 0.78 --
Net realized and unrealized
gain (loss) on
investments................ 3.09 (1.09) (1.87) 3.92 --
--------- --------- --------- --------- -----------------
Net increase (decrease)
from investment
operations............... 4.36 0.26 (0.93) 4.70 --
--------- --------- --------- --------- -----------------
Distributions to shareholders:
From net investment
income..................... (1.11) (1.03) (0.94) (0.78) --
From net realized gain on
investments................ (0.10) (0.03) (0.27) -- --
In excess of net realized
gain on investments........ -- -- (0.22) -- --
Return of capital........... -- (0.06) -- -- --
From sources other than net
investment income.......... -- -- -- (0.43) --
--------- --------- --------- --------- -----------------
Total distributions....... (1.21) (1.12) (1.43) (1.21) --
--------- --------- --------- --------- -----------------
Net asset value, end of
period....................... $ 14.85 $ 11.70 $ 12.56 $ 14.92 $ 11.43
--------- --------- --------- --------- -----------------
--------- --------- --------- --------- -----------------
Total investment return (d)... 39.05% 2.81% (6.45)% 43.6% --% (a)
Ratios and supplemental data:
Net assets, end of period (in
000's)....................... $178,318 $142,002 $167,974 $143,171 $ 207
Ratio of net investment income
to average net assets........ 9.52% 11.85% 7.00% 6.40% N/A(c)
Ratio of operating expenses to
average net assets........... 1.69% 1.75% 1.57% 2.20% N/A(c)
Ratio of interest expense to
average net assets........... 0.04% N/A 0.22% N/A N/A
Portfolio turnover rate++..... 290% --% --% --% --%
</TABLE>
- ----------------
+ 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 among the classes of shares issued.
(a) Not annualized
(b) Annualized
(c) Ratios are not meaningful due to short period of operation.
(d) Total investment return does not include sales charges.
(e) These selected per share operating data were calculated based upon
weighted average shares outstanding during the year.
N/A Not applicable
The accompanying notes are an integral part of the financial statements.
F21
<PAGE>
GT GLOBAL HIGH INCOME FUND - CONSOLIDATED
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding
throughout the period, total investment return, ratios and supplemental data.
This information has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------------
OCTOBER 22, ADVISOR CLASS+
1992 --------------------------
(COMMENCEMENT YEAR JUNE 1, 1995
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO ENDED TO
--------------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 (E) 1995 1994 (E) 1993 (E) 1992 1996 (E) 1995
--------- --------- --------- --------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period....................... $ 11.69 $ 12.56 $ 14.90 $ 11.43 $ 11.43 $ 11.71 $ 11.44
--------- --------- --------- --------- ----------------- ----------- ------------
Income from investment
operations:
Net investment income....... 1.17 1.27 0.86 0.70 -- 1.34 0.57
Net realized and unrealized
gain (loss) on
investments................ 3.09 (1.09) (1.85) 3.90 -- 3.05 0.17
--------- --------- --------- --------- ----------------- ----------- ------------
Net increase (decrease)
from investment
operations............... 4.26 0.18 (0.99) 4.60 -- 4.39 0.74
--------- --------- --------- --------- ----------------- ----------- ------------
Distributions to shareholders:
From net investment
income..................... (1.03) (0.96) (0.86) (0.70) -- (1.16) (0.44)
From net realized gain on
investments................ (0.09) (0.03) (0.27) -- -- (0.11) --
In excess of net realized
gain on investments........ -- -- (0.22) -- -- -- --
Return of capital........... -- (0.06) -- -- -- -- (0.03)
From sources other than net
investment income.......... -- -- -- (0.43) -- -- --
--------- --------- --------- --------- ----------------- ----------- ------------
Total distributions....... (1.12) (1.05) (1.35) (1.13) -- (1.27) (0.47)
--------- --------- --------- --------- ----------------- ----------- ------------
Net asset value, end of
period....................... $ 14.83 $ 11.69 $ 12.56 $ 14.90 $ 11.43 $ 14.83 $ 11.71
--------- --------- --------- --------- ----------------- ----------- ------------
--------- --------- --------- --------- ----------------- ----------- ------------
Total investment return (d)... 38.16% 2.07% (6.99)% 42.6% --% (a) 39.38% 6.54% (a)
Ratios and supplemental data:
Net assets, end of period (in
000's)....................... $251,002 $214,897 $232,423 $127,035 $ 53 $15,298 $ 1,463
Ratio of net investment income
to average net assets........ 8.87% 11.20% 6.35% 5.8% N/A(c) 9.87% 12.20% (b)
Ratio of operating expenses to
average net assets........... 2.34% 2.40% 2.22% 2.8% N/A(c) 1.34% 1.40% (b)
Ratio of interest expense to
average net assets........... 0.04% N/A 0.22% N/A N/A 0.04% N/A
Portfolio turnover rate++..... 290% --% --% --% --% 290% --% (b)
</TABLE>
- ----------------
+ 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 among the classes of shares issued.
(a) Not annualized
(b) Annualized
(c) Ratios are not meaningful due to short period of operation.
(d) Total investment return does not include sales charges.
(e) These selected per share operating data were calculated based upon
weighted average shares outstanding during the year.
N/A Not applicable
The accompanying notes are an integral part of the financial statements.
F22
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
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.
<TABLE>
<CAPTION>
CLASS A+
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
1996 (E) 1995 (E) 1994 1993 (E) 1992
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period....................... $ 10.32 $ 10.88 $ 13.61 $ 11.25 $ 10.91
--------- --------- --------- --------- --------
Income from investment
operations:
Net investment income....... 0.89 0.97 0.79 0.96 0.86
Net realized and unrealized
gain (loss) on
investments................ 1.44 (0.69) (2.14) 2.85 0.31
--------- --------- --------- --------- --------
Net increase (decrease)
from investment
operations............... 2.33 0.28 (1.35) 3.81 1.17
--------- --------- --------- --------- --------
Distributions to shareholders:
From net investment
income..................... (0.82) (0.80) (0.79) (0.96) (0.83)
From net realized gain on
investments................ -- -- (0.38) (0.37) --
In excess of net investment
income..................... (0.07) -- -- -- --
Return of capital........... -- (0.04) (0.21) -- --
From sources other than net
investment income.......... -- -- -- (0.12) --
--------- --------- --------- --------- --------
Total distributions....... (0.89) (0.84) (1.38) (1.45) (0.83)
--------- --------- --------- --------- --------
Net asset value, end of
period....................... $ 11.76 $ 10.32 $ 10.88 $ 13.61 $ 11.25
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
Total investment return (c)... 23.00% 3.06% (10.44)% 37.0% 11.1%
Ratios and supplemental data:
Net assets, end of period (in
000's)....................... $185,126 $188,165 $275,241 $287,870 $83,849
Ratio of net investment income
to average net assets........ 8.09% 9.64% 6.74% 7.2% 7.6%
Ratio of expenses to average
net assets:
With expense reductions
(Note 1)................... 1.38% 1.42% 1.40% 1.7% 1.8%
Without expense
reductions................. 1.40% 1.45% --%* --%* --%*
Ratio of interest expenses to
average net assets........... N/A N/A 0.10% N/A N/A
Portfolio turnover rate++++... 177% 238% 583% 310% 418%
</TABLE>
- ----------------
+ 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 among the classes of shares issued.
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) Ratios are not meaningful due to the short period of operation of
Class B shares.
(e) These selected per share data were calculated based upon weighted
average shares outstanding during the period.
* 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.
F23
<PAGE>
GT GLOBAL STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
CLASS B++
---------------------------------------------------------------- ADVISOR CLASS+++
OCTOBER 22, --------------------------
1992 YEAR JUNE 1, 1995
YEAR ENDED OCTOBER 31, TO ENDED TO
--------------------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 (E) 1995 (E) 1994 1993 (E) 1992 1996 (E) 1995 (E)
--------- --------- --------- --------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period....................... $ 10.33 $ 10.88 $ 13.60 $ 11.24 $ 11.36 $ 10.33 $10.32
--------- --------- --------- --------- ---------------- ----------- ------------
Income from investment
operations:
Net investment income....... 0.82 0.91 0.73 0.89 0.01 0.93 0.41
Net realized and unrealized
gain (loss) on
investments................ 1.44 (0.69) (2.14) 2.85 (0.13) 1.44 (0.04)
--------- --------- --------- --------- ---------------- ----------- ------------
Net increase (decrease)
from investment
operations............... 2.26 0.22 (1.41) 3.74 (0.12) 2.37 0.37
--------- --------- --------- --------- ---------------- ----------- ------------
Distributions to shareholders:
From net investment
income..................... (0.75) (0.73) (0.72) (0.89) -- (0.86) (0.34)
From net realized gain on
investments................ -- -- (0.38) (0.37) -- -- --
In excess of net investment
income..................... (0.07) -- -- -- -- (0.07) --
Return of capital........... -- (0.04) (0.21) -- -- -- (0.02)
From sources other than net
investment income.......... -- -- -- (0.12) -- -- --
--------- --------- --------- --------- ---------------- ----------- ------------
Total distributions....... (0.82) (0.77) (1.31) (1.38) -- (0.93) (0.36)
--------- --------- --------- --------- ---------------- ----------- ------------
Net asset value, end of
period....................... $ 11.77 $ 10.33 $ 10.88 $ 13.60 $ 11.24 $ 11.77 $10.33
--------- --------- --------- --------- ---------------- ----------- ------------
--------- --------- --------- --------- ---------------- ----------- ------------
Total investment return (c)... 22.15% 2.48% (11.02)% 36.2% (1.1)% (b) 23.39% 3.72% (b)
Ratios and supplemental data:
Net assets, end of period (in
000's)....................... $333,178 $357,852 $458,550 $310,431 $ 533 $ 479 $ 443
Ratio of net investment income
to average net assets........ 7.44% 8.99% 6.09% 6.5% N/A(d) 8.44% 9.99% (a)
Ratio of expenses to average
net assets:
With expense reductions
(Note 1)................... 2.03% 2.07% 2.05% 2.4% N/A(d) 1.03% 1.07% (a)
Without expense
reductions................. 2.05% 2.10% --%* --%* --% * 1.05% 1.10% (a)
Ratio of interest expenses to
average net assets........... N/A N/A 0.10% N/A N/A N/A N/A
Portfolio turnover rate++++... 177% 238% 583% 310% 418% 177% 238%
</TABLE>
- ----------------
+ 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 among the classes of shares issued.
(a) Annualized
(b) Not Annualized
(c) Total investment return does not include sales charges.
(d) Ratios are not meaningful due to the short period of operation of
Class B shares.
(e) These selected per share data were calculated based upon weighted
average shares outstanding during the period.
* 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.
F24
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES TO
FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
GT Global Government Income Fund, GT Global High Income Fund, and GT Global
Strategic Income Fund ("Funds") are separate series of G.T. Investment Funds,
Inc. ("Company"). Collectively, these Funds are known as the "GT Global Income
Funds." The Company is organized as a Maryland corporation and is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end management investment company. The Company has twelve series of shares
in operation, each series corresponding to a distinct portfolio of investments.
The GT Global High Income Fund invests substantially all of its investable
assets in the Global High Income Portfolio ("Portfolio"). The Portfolio is
organized as a New York Trust and is registered under the 1940 Act as a
non-diversified, open-end management investment company.
The Portfolio has investment objectives, policies, and limitations substantially
identical to those of its corresponding Fund. Therefore, the financial
statements of the Fund and its respective Portfolio have been presented on a
consolidated basis, and represent all activities of both the Fund and Portfolio.
Through October 31, 1996, all of the shares of beneficial interest of the
Portfolio were owned by either its Fund or Chancellor LGT Asset Management, Inc.
(the "Manager"), which has a nominal ($100) investment in the Portfolio.
The Funds offer 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 each 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 Funds and Portfolio in the preparation of the financial
statements. The policies are in conformity with generally accepted accounting
principles, and the financial statements may include certain estimates made by
management.
(A) PORTFOLIO VALUATION
The Funds and the Portfolio calculate 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 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
Company's Board of Directors or the Portfolio'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 Company's Board of Directors or
the Portfolio's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of each Fund and Portfolio are maintained in U.S.
dollars. The market values of foreign securities, currency holdings, and other
assets and liabilities are recorded in the books and records of the Funds or
Portfolio (the phrase "Funds or Portfolio" hereinafter refers to the GT Global
Government Income Fund, the GT Global Strategic Income Fund, and the Global High
Income Portfolio) after translation to U.S. dollars based on the exchange rates
on that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange rates
when earned or incurred.
A Fund or Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on a
Fund's or
F25
<PAGE>
GT GLOBAL INCOME FUNDS
Portfolio's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains or losses arise from
changes in the value of assets and liabilities other than investments in
securities at period end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by a Fund or Portfolio, it is
the Fund's or Portfolio's policy to always receive, as collateral, United States
government securities or other high quality debt securities of which the value,
including accrued interest, is at least equal to the amount to be repaid to the
Fund or Portfolio under each agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by a Fund or Portfolio as an unrealized gain or loss.
When the Forward Contract is closed, the Fund or Portfolio records a realized
gain or loss equal to the difference between the value at the time it was opened
and the value at the time it was closed. Forward Contracts involve market risk
in excess of the amount shown in the Fund's or Portfolio's "Statement of Assets
and Liabilities". A Fund or Portfolio could be exposed to risk if a counterparty
is unable to meet the terms of the contract or if the value of the currency
changes unfavorably. A Fund or Portfolio may enter into Forward Contracts in
connection with planned purchases or sales of securities, or to hedge against
adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When a Fund or Portfolio writes a call or put option, an amount equal to the
premium received is included in the Fund's or Portfolio's "Statement of Assets
and Liabilities" as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market value
of the option. The current market value of an option listed on a traded exchange
is valued at its last bid price, or, in the case of an over-the-counter option,
is valued at the average of the last bid prices obtained from brokers, unless a
quotation from only one broker is available, in which case only that broker's
price will be used. If an option expires on its stipulated expiration date or if
the Fund or Portfolio enters into a closing purchase transaction, a gain or loss
is realized without regard to any unrealized gain or loss on the underlying
security and the liability related to such option is extinguished. If a written
call option is exercised, a gain or loss is realized from the sale of the
underlying security and the proceeds of the sale are increased by the premium
originally received. If a written put option is exercised, the cost of the
underlying security purchased would be decreased by the premium originally
received. The Fund or Portfolio can write options only on a covered basis,
which, for a call, requires that the Fund or Portfolio hold the underlying
security and, for a put, requires the Fund or Portfolio to set aside cash, U.S.
government securities or other liquid securities in an amount not less than the
exercise price or otherwise provide adequate cover at all times while the put
option is outstanding. The Fund or Portfolio may use options to manage its
exposure to the stock market and to fluctuations in currency values or interest
rates.
The premium paid by the Fund or Portfolio for the purchase of a call or put
option is included in the Fund's or Portfolio's "Statement of Assets and
Liabilities" as an investment and subsequently "marked-to-market" to reflect the
current market value of the option. If an option which the Fund or Portfolio has
purchased expires on the stipulated expiration date, the Fund or Portfolio
realizes a loss in the amount of the cost of the option. If the Fund or
Portfolio enters into a closing sale transaction, the Fund or Portfolio realizes
a gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund or Portfolio
exercises a call option, the cost of the securities acquired by exercising the
call is increased by the premium paid to buy the call. If the Fund or Portfolio
exercises a put option, it realizes a gain or loss from the sale of the
underlying security, and the proceeds from such sale are decreased by the
premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund or Portfolio may forego
the opportunity of profit if the market value of the underlying security or
index increases and the option is exercised. The risk in writing a put option is
that the Fund or Portfolio may incur a loss if the market value of the
underlying security or index decreases and the option is exercised. In addition,
there is the risk the Fund or Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract a
Fund or Portfolio is required to pledge to the broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the exchange on
which the contract is traded. Pursuant to the contract, the Fund or Portfolio
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Fund or Portfolio as unrealized gains
or losses. When the contract is closed, the Fund or Portfolio records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The potential risk
to the Fund or Portfolio is that the change in value of the underlying
securities may not correlate to the change in value of the contracts. A Fund or
Portfolio may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is
F26
<PAGE>
GT GLOBAL INCOME FUNDS
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. A Fund or Portfolio may trade securities on other than
normal settlement terms. This may increase the risk if the other party to the
transaction fails to deliver and causes the Fund or Portfolio to subsequently
invest at less advantageous prices.
(H) PORTFOLIO SECURITIES LOANED
At October 31, 1996, stocks with an aggregate value listed below were on loan to
brokers. The loans were secured by cash collateral received by the Funds:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31,
-------------------------------- 1996
AGGREGATE VALUE CASH --------------
GT GLOBAL ON LOAN COLLATERAL FEES RECEIVED
- ---------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Government Income Fund.................. $ 85,475,086 $ 92,153,670 $250,204
Strategic Income Fund................... 44,548,682 47,372,677 108,002
</TABLE>
For international securities, cash collateral is received by a Fund or Portfolio
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 a Fund or Portfolio against loaned securities in an
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.
Fees received from securities loaned were used to reduce the Funds' or
Portfolios' custodian fees.
(I) TAXES
It is the intended policy of the Funds and Portfolios 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 Funds 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 GT Global Government Income Fund has a
capital loss carryforward of $156,095,393 of which $140,349,807 expires in 2002,
and $15,745,586 expires in 2003. The GT Global Strategic Income Fund has a
capital loss carryforward of $110,439,537 of which $33,635,683 expires in 2002,
and $76,803,854 expires in 2003.
(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 Funds or Portfolios and timing
differences.
(K) DEFERRED ORGANIZATIONAL EXPENSES
Expenses incurred by the GT Global High Income Fund and the Portfolio in
connection with their organization, their initial registration with the
Securities and Exchange Commission and with various states and the initial
public offering of its shares aggregated $149,100 and $25,000, respectively.
These expenses are being amortized on a straightline basis over a five-year
period.
(L) 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 or Portfolio'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.
(M) INDEXED SECURITIES
A Fund or Portfolio may invest in indexed securities whose value is linked
either directly or indirectly to changes in foreign currencies, interest rates,
equities, indices, or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
(N) RESTRICTED SECURITIES
A Fund or Portfolio is permitted to invest in privately placed restricted
securities. These securities may be resold in transactions exempt from
registration or to the public if the securities are registered. Disposal of
these securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) are shown at the end of the Fund's
Portfolio of Investments.
(O) LINE OF CREDIT
For the year ended October 31, 1996, the Global High Income Portfolio
periodically borrowed amounts from a bank at a base or Eurodollar rate. The
arrangement with the bank allows the Portfolio to borrow a maximum amount of
$25,000,000. On February 28 & 29, 1996, the Portfolio borrowed $24,000,000, all
of which was repaid on April 18, 1996.
For the year ended October 31, 1996, the weighted average outstanding daily
balance of bank loans (based on the number of
F27
<PAGE>
GT GLOBAL INCOME FUNDS
days the loans were outstanding) was $17,800,000 with a weighted average
interest rate of 6.63%. Interest expense for the year ended October 31, 1996 was
$163,819.
(P) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
A Fund or Portfolio may trade securities on a when-issued or forward commitment
basis, with payment and delivery scheduled for a future date. These transactions
are subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Fund or Portfolio will generally purchase these securities with the intention of
acquiring such securities, they may sell such securities before the settlement
date. These securities are identified on the accompanying Portfolio of
Investments. The Fund or Portfolio has set aside sufficient cash or liquid high
grade debt securities as collateral for these purchase commitments.
2. RELATED PARTIES
Chancellor LGT Asset Management, Inc. is the Funds' and Portfolio's investment
manager and administrator. On October 31, 1996, Chancellor Capital Management,
Inc. merged with LGT Asset Management, Inc., and the surviving entity was
renamed Chancellor LGT Asset Management, Inc. The GT Global Government Income
Fund and GT Global Strategic Income Fund each 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. The GT
Global High Income Fund pays administration fees to the Manager at the
annualized rate of 0.25% of its average daily net assets. These fees are
computed daily and paid monthly, and are subject to reduction in any year to the
extent that a 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.
The Global High Income Portfolio pays investment management and administration
fees to the Manager at the annualized rate of 0.475% on the first $500 million
of average daily net assets of the Portfolio; 0.45% on the next $1 billion;
0.425% on the next $1 billion; and 0.40% on amounts thereafter, plus 2% of the
Portfolio's total investment income calculated in accordance with generally
accepted accounting principles, adjusted daily for currency revaluations, on a
mark to market basis, of the Portfolio's assets; provided, however, that during
any fiscal year this amount shall not exceed 2% of the Portfolio's total
investment income calculated in accordance with generally accepted accounting
principles. These fees are computed daily and paid monthly.
GT Global, Inc. ("GT Global"), an affiliate of the Manager, serves as the Funds'
distributor. The Funds offer 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 Funds' current
prospectus. GT 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 period ended October 31, 1996, GT Global retained the
following sales charges: $55,131 for the GT Global Government Income Fund,
$69,243 for the Global High Income Fund, and $23,580 for the GT Global Strategic
Income Fund. Purchases of Class A shares exceeding $500,000 may be subject to a
contingent deferred sales charge ("CDSC") upon redemption, in accordance with
the Funds' current prospectus. GT Global collected CDSCs for the year ended
October 31, 1996, as follows: $17,709 for the GT Global Government Income Fund,
$0 for the GT Global High Income Fund and $10,099 for the GT Global Strategic
Income Fund. GT 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, GT 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 Funds' current
prospectus. For the year ended October 31, 1996, GT Global collected CDSCs in
the amount of: $1,449,342 for the GT Global Government Income Fund, $1,739,271
for the Global High Income Fund, and $1,915,487 for the GT Global Strategic
Income Fund. In addition, GT 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 Funds' Class A shares
("Class A Plan") and Class B shares ("Class B Plan"), pursuant to which a Fund
reimburses GT Global for a portion of its shareholder servicing and distribution
expenses. Under the Class A Plan, a Fund may 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 may 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 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, a Fund may 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 may 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%
F28
<PAGE>
GT GLOBAL INCOME FUNDS
annually may be carried forward for reimbursement in subsequent years as long as
that Plan continues in effect.
The Manager and GT Global voluntarily have undertaken to limit GT Global
Government Income Fund and GT Global Strategic Income Fund's expenses (exclusive
of brokerage commissions, taxes, interest, and extraordinary expense) to the
maximum annual rate of 1.85%, 2.50%, and 1.50% of the average daily net assets
of each Fund's Class A, Class B, and Advisor Class shares, respectively.
Similarly, they voluntarily have undertaken to limit GT Global High Income
Fund's expenses to the maximum annual rate of 2.20%, 2.85%, and 1.85% of the
average daily net assets of the Fund's Class A, Class B, and Advisor Class
shares, respectively. If necessary, these limitations will be effected by
waivers by the Manager of investment management and administration fees, waivers
by GT Global of payments under the Class A Plan and/or Class B Plan and/or
reimbursements by the Manager or GT Global of portions of each Fund's other
operating expenses.
GT Global Investor Services, Inc. ("GT Services"), an affiliate of LGT and GT
Global, is the transfer agent of the Funds. For performing shareholder
servicing, reporting, and general transfer agent services, GT Services receives
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 is 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 Funds and Portfolio. The
monthly fee for these services to the Manager is a percentage, not to exceed
0.03% annually, of a Fund or Portfolio'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 the Manager and 0.02% to the assets in excess
of $5 billion and allocating the result according to each Fund's average daily
net assets.
The Company pays each of its Directors who is not an employee, officer or
director of the Manager, GT Global or GT Services $5,000 per year plus $300 for
each meeting of the board or any committee thereof attended by the Director. The
Portfolio pays each of its Trustees who is not an employee, officer or director
of the Manager, GT Global or GT Services $500 per year plus $150 for each
meeting of the board or any committee thereof attended by the Trustees.
At October 31, 1996, all of the shares of beneficial interest of the Portfolio
were owned either by its Fund or the Manager.
3. PURCHASES AND SALES OF SECURITIES
The following summarizes purchases and sales of investment securities, other
than short-term investments, by each Fund or Portfolio for the year ended
October 31, 1996:
PURCHASES AND SALES OF SECURITIES
<TABLE>
<CAPTION>
PURCHASES
------------------------------
U.S. GOVERNMENT OTHER ISSUES
--------------- ------------
<S> <C> <C>
GT Global Government Income Fund................................................ $352,752,344 $921,279,705
Global High Income Portfolio.................................................... 96,288,547 983,932,679
GT Global Strategic Income Fund................................................. 71,587,672 816,104,575
</TABLE>
<TABLE>
<CAPTION>
SALES
------------------------------
U.S. GOVERNMENT OTHER ISSUES
--------------- ------------
<S> <C> <C>
GT Global Government Income Fund................................................ $441,687,203 $1,075,693,915
Global High Income Portfolio.................................................... 84,315,986 1,020,907,620
GT Global Strategic Income Fund................................................. 109,353,125 896,578,545
</TABLE>
4. CAPITAL SHARES
At October 31, 1996, 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 GT Global Telecommunications Fund; 400,000,000 were
classified as shares of GT Global Government Income Fund; 200,000,000 were
classified as shares of GT Global Health Care Fund; 200,000,000 were classified
as shares of GT Global Strategic Income Fund; 300,000,000 were classified as
shares of GT Global Currency Fund (inactive); 200,000,000 were classified as
shares of GT 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 GT Global Latin America Growth Fund; 200,000,000 were classified as
shares of GT Global Emerging Markets Fund; 200,000,000 were classified as shares
of GT Global High Income Fund; 200,000,000 were classified as shares of GT
Global Financial Services Fund; 200,000,000 were classified as shares of GT
Global Natural Resources Fund; 200,000,000 were classified as shares of GT
Global Infrastructure Fund; and 200,000,000 were classified as shares of GT
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 Funds were as
follows:
F29
<PAGE>
GT GLOBAL INCOME FUNDS
CAPITAL SHARE TRANSACTIONS
GT GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 19,126,586 $ 164,293,090 17,764,859 $ 154,603,577
Shares issued in connection with
reinvestment of distributions......... 1,643,833 14,228,931 2,042,839 17,630,697
--------------- ------------------ --------------- ------------------
20,770,419 178,522,021 19,807,698 172,234,274
Share repurchased....................... (36,969,597) (318,856,283) (34,203,619) (297,666,599)
--------------- ------------------ --------------- ------------------
Net decrease............................ (16,199,178) $ (140,334,262) (14,395,921) $ (125,432,325)
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 23,047,364 $ 198,774,141 20,700,346 $ 178,801,868
Shares issued in connection with
reinvestment of distributions......... 956,866 8,282,950 1,005,589 8,536,817
--------------- ------------------ --------------- ------------------
24,004,230 207,057,091 21,705,935 187,338,685
Share repurchased....................... (31,688,935) (273,022,079) (25,343,381) (218,171,165)
--------------- ------------------ --------------- ------------------
Net decrease............................ (7,684,705) $ (65,964,988) (3,637,446) $ (30,832,480)
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
<CAPTION>
JUNE 1, 1995
YEARS ENDED (COMMENCEMENT OF SALE OF SHARES) TO
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 105,543 $ 891,754 15,659 $ 141,450
Shares issued in connection with
reinvestment of distributions......... 1,345 11,541 397 3,476
--------------- ------------------ --------------- ------------------
106,888 903,295 16,056 144,926
Shares repurchased...................... (111,905) (948,244) (1,142) (9,928)
--------------- ------------------ --------------- ------------------
Net increase (decrease)................. (5,017) $ (44,949) 14,914 $ 134,998
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
</TABLE>
F30
<PAGE>
GT GLOBAL INCOME FUNDS
GT GLOBAL HIGH INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 25,694,335 $ 346,426,450 25,003,318 $ 280,486,242
Shares issued in connection with
reinvestment of distributions......... 607,445 8,023,249 682,971 7,764,542
--------------- ------------------ --------------- ------------------
26,301,780 354,449,699 25,686,289 288,250,784
Share repurchased....................... (26,422,858) (355,715,247) (26,927,729) (301,862,112)
--------------- ------------------ --------------- ------------------
Net decrease............................ (121,078) $ (1,265,548) (1,241,440) $ (13,611,328)
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 14,568,804 $ 194,636,619 10,582,935 $ 119,426,735
Shares issued in connection with
reinvestment of distributions......... 765,798 10,086,445 826,797 9,372,626
--------------- ------------------ --------------- ------------------
15,334,602 204,723,064 11,409,732 128,799,361
Share repurchased....................... (16,793,522) (225,719,415) (11,542,431) (128,317,008)
--------------- ------------------ --------------- ------------------
Net increase (decrease)................. (1,458,920) $ (20,996,351) (132,699) $ 482,353
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
<CAPTION>
JUNE 1, 1995
YEAR ENDED (COMMENCEMENT OF SALE OF
OCTOBER 31, 1996 SHARES) TO OCTOBER 31, 1995
----------------------------------- -----------------------------------
ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 1,706,101 $ 23,413,749 133,919 $ 1,558,699
Shares issued in connection with
reinvestment of distributions......... 40,101 546,903 4,923 57,262
--------------- ------------------ --------------- ------------------
1,746,202 23,960,652 138,842 1,615,961
Share repurchased....................... (839,670) (11,309,193) (13,845) (160,158)
--------------- ------------------ --------------- ------------------
Net increase............................ 906,532 $ 12,651,459 124,997 $ 1,455,803
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
</TABLE>
F31
<PAGE>
GT GLOBAL INCOME FUNDS
GT GLOBAL STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 15,025,486 $ 168,473,834 10,413,395 $ 105,118,727
Shares issued in connection with
reinvestment of distributions......... 829,046 9,085,802 1,180,205 11,913,775
--------------- ------------------ --------------- ------------------
15,854,532 177,559,636 11,593,600 117,032,502
Shares repurchased...................... (18,331,797) (204,237,090) (18,672,585) (187,700,412)
--------------- ------------------ --------------- ------------------
Net decrease............................ (2,477,265) $ (26,677,454) (7,078,985) $ (70,667,910)
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 12,778,909 $ 141,835,937 5,950,544 $ 60,333,373
Shares issued in connection with
reinvestment of distributions......... 1,206,362 13,216,165 1,633,228 16,496,489
--------------- ------------------ --------------- ------------------
13,985,271 155,052,102 7,583,772 76,829,862
Shares repurchased...................... (20,318,197) (224,904,917) (15,079,063) (151,484,130)
--------------- ------------------ --------------- ------------------
Net decrease............................ (6,332,926) $ (69,852,815) (7,495,291) $ (74,654,268)
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
<CAPTION>
JUNE 1, 1995
YEAR ENDED (COMMENCEMENT OF SALE OF SHARES) TO
OCTOBER 31, 1996 OCTOBER 31, 1995
----------------------------------- -----------------------------------
ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Shares sold............................. 278,551 $ 3,010,280 44,461 $ 465,129
Shares issued in connection with
reinvestment of distributions......... 3,931 43,156 1,535 15,708
--------------- ------------------ --------------- ------------------
282,482 3,053,436 45,996 480,837
Shares repurchased...................... (284,638) (3,054,110) (3,115) (32,174)
--------------- ------------------ --------------- ------------------
Net increase (decrease)................. (2,156) $ (674) 42,881 $ 448,663
--------------- ------------------ --------------- ------------------
--------------- ------------------ --------------- ------------------
</TABLE>
5. WRITTEN OPTIONS:
The Global High Income Portfolio's written options contract activity for the
year ended October 31, 1996 was as follows:
COVERED CALL AND PUT OPTIONS WRITTEN
<TABLE>
<CAPTION>
UNDERLYING
NOMINAL
AMOUNT PREMIUMS
----------- ---------
<S> <C> <C>
Options outstanding at October 31, 1995.................................................................... 0 $ 0
Options written............................................................................................ 7,000,000 101,500
Options cancelled in closing purchase transactions......................................................... 0 0
Options expired prior to exercise.......................................................................... (7,000,000) (101,500)
Options exercised.......................................................................................... 0 0
----------- ---------
Options outstanding at October 31, 1996.................................................................... 0 $ 0
----------- ---------
----------- ---------
</TABLE>
- --------------
FEDERAL TAX INFORMATION:
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the
following amounts as capital gain dividends for the fiscal year ended October
31, 1996:
<TABLE>
<CAPTION>
CAPITAL GAIN
FUND DIVIDEND
- ---------------------------------------------------------------------------------------------------------- ------------
<S> <C>
Government Income......................................................................................... --
High Income............................................................................................... $1,206,836
Strategic Income.......................................................................................... --
</TABLE>
F32
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
<PAGE>
GT GLOBAL INCOME FUNDS
NOTES
- --------------------------------------------------------------------------------
<PAGE>
GT GLOBAL INCOME FUNDS
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, INCLUDING FEES, EXPENSES AND THE RISKS OF GLOBAL AND EMERGING
MARKET INVESTING AND THE RISKS OF INVESTING IN RELATED INDUSTRIES, PLEASE
CONTACT YOUR FINANCIAL ADVISER OR CALL GT GLOBAL DIRECTLY AT 1-800-824-1580.
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 for U.S. investors 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 CONSUMER PRODUCTS AND
SERVICES FUND
Invests in companies that manufacture, market, retail, or distribute consumer
products or services
GT GLOBAL FINANCIAL SERVICES FUND
Focuses on the worldwide opportunities from the demand for financial services
and products
GT GLOBAL HEALTH CARE FUND
Invests in the growing health care industries worldwide
GT GLOBAL INFRASTRUCTURE FUND
Seeks companies that build, improve or maintain a country's infrastructure
GT GLOBAL NATURAL RESOURCES FUND
Concentrates on companies that own, explore or develop natural resources
GT GLOBAL TELECOMMUNICATIONS FUND
Invests in companies worldwide that develop, manufacture or sell
telecommunications services or equipment
/ / 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 SMALL CAP GROWTH FUND
Invests in equity securities of small U.S. companies
GT GLOBAL AMERICA MID CAP GROWTH FUND
Concentrates on medium-sized companies in the U.S.
GT GLOBAL AMERICA VALUE FUND
Concentrates on large cap equity securities of U.S. companies believed to be
undervalued
GT 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
Invests in 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 a portfolio of emerging market debt securities
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
[LOGO]
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
STATEMENT OF ADDITIONAL INFORMATION AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY G.T.
INVESTMENT FUNDS, INC., GT GLOBAL GOVERNMENT INCOME FUND, GT GLOBAL
STRATEGIC INCOME FUND, GT GLOBAL HIGH INCOME FUND, GLOBAL HIGH INCOME
PORTFOLIO, CHANCELLOR LGT ASSET MANAGEMENT, INC. OR GT GLOBAL, INC. THIS
STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
INCSA703MC
