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CHANCELLOR LGT
ASSET MANAGEMENT
OVER 25 YEARS
OF INVESTING
WORLDWIDE
G.T. GLOBAL
EASTERN EUROPE
FUND
ANNUAL REPORT
OCTOBER 31, 1996
[LOGO]
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TABLE
OF CONTENTS
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Message from the
Chairman............. 1
Report from the Fund
Managers and Key
Portfolio Holdings... 2
Report of Independent
Accountants.......... F1
Financial
Statements........... F2
The views of the Fund's manage-
ment and portfolio holdings
described in this report are as
of October 31, 1996; these views
and portfolio holdings may have
changed.
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[GRAPHIC]
RESTRUCTURING SUMMARY FOR G.T. GLOBAL EASTERN EUROPE FUND
Investors in the G.T. Greater Europe Fund voted to restructure the Fund on
February 9, 1996. The Fund offered to repurchase up to 55 % of the issued and
outstanding shares of beneficial interest in the Fund. The repurchase price of
the shares was the net asset value (NAV) at the close of regular trading on the
New York Stock Exchange on May 10, 1996, less a repurchase fee equal to 1.20% of
NAV per share.
As an interval fund, the Fund is required to make annual offers to repurchase a
percentage of its outstanding shares, with redemption proceeds to be paid to
participating shareholders in cash. The percentage of outstanding shares that
the Fund will offer to repurchase in each annual offer will be established by
the Board of Trustees shortly before the commencement of the offer, but it will
not be less than 5% or more than 25% of the Fund's outstanding shares at that
time. The Board currently expects the first two periodic offers in 1997 and 1998
to each be for 5% of outstanding shares.
G.T. GLOBAL EASTERN EUROPE FUND
MESSAGE FROM THE CHAIRMAN
Dear Investor,
Fiscal 1996 has been a year of economic strengthening, and the Fund has
benefited from declining inflation and interest rates throughout the region.
We're proud of its performance over the past year and remain enthusiastic about
its long-term potential.
Consistent, above-average performance of GT Global Funds is our priority. To
that end, we enhanced the breadth and depth of our investment capabilities this
fall when Liechtenstein Global Trust (LGT), the parent company of GT Global,
acquired a premier institutional money manager, Chancellor Capital Management.
On October 31, Chancellor merged with LGT Asset Management, the Funds' advisor,
and the combined entities are now known as Chancellor LGT Asset Management. This
acquisition increased assets entrusted to LGT to over $80 billion.
We are confident about the partnership's success because both firms share a
commitment to providing investors around the world with solutions to their
investment needs through combined, top-notch expertise. Individual investors
will now have access to the same high-quality management services enjoyed by
over 320 institutional investors, including some of the country's largest
organizations.
Chancellor's strengths--disciplined U.S. equity and fixed income processes and
professionals, coupled with proven fundamental and quantitative investment
capabilities-represent an ideal complement to LGT's advantages as an experienced
global investment manager with an extensive global infrastructure. Chancellor
LGT Asset Management's global investment team includes 12 economists, 98
portfolio managers, 72 analysts and 19 traders located in nine regional offices.
Warren Shaw, LGT's new Chief Investment Officer, has been the principal
architect of Chancellor's investment policies, with excellent results. The
disciplined, repeatable process he created leverages the effectiveness of a
strong investment team approach.
As always, we appreciate your continued confidence. Should you and your adviser
have any questions regarding GT Global Funds, please call us at 800-824-1580.
One of our registered representatives will be happy to assist you.
Sincerely,
/s/ David A. Minella
David A. Minella
CHAIRMAN
GT GLOBAL MUTUAL FUNDS
1
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INTERVIEW WITH THE MANAGEMENT TEAM
Q HOW HAS THE FUND PERFORMED?
A Over the 12 months to October 31, 1996, the Fund's total return based on net
asset value was 15.83%. The share price of the Fund, as traded on the New York
Stock Exchange, rose by 7.84% over the same period. There is no stated
performance benchmark, as few benchmarks are available in this relatively new
market and no benchmark has gained widespread acceptance. We anticipate the
launch of eastern European indices by major providers in 1997 and the emergence
of an industry standard.
As the Fund has continued to build its position in eastern Europe since its
mandate change in May, it has benefited from overall strength in the region. In
particular, the Fund's largest three geographical allocations-Hungary, Russia
and Poland-have done exceptionally well.
Q PLEASE DESCRIBE YOUR INVESTMENT PHILOSOPHY AND STYLE.
A We believe superior investment returns are obtained by the early
identification of undiscounted changes, either top-down or bottom-up, in
companies or in the environment in which they operate. Our two-stage investment
process is designed to seek to capture these two types of undiscounted change.
The top-down approach, or country selection process, is largely driven by the
regular country visits that we and our global economics team make. Bull markets
often have common characteristics: rising liquidity, falling interest rates and
inflation, falling political risk, corporate earnings that are likely to exceed
consensus, reform and deregulation, and an appreciating real exchange rate. We
consider a country a sell when the economy starts to overheat, political risk
rises or the consensus on earnings exceeds our expectations.
The bottom-up approach, or stock selection process, is driven by regular company
visits and internal research. We favor companies with strong management,
comparative advantages, strong sales and earnings growth, leading market share,
technological and low-cost dominance, innovative products and a favorable debt
ratio. Company characteristics we consider unfavorable are family ownership
structures and companies vulnerable to risk and competition from reform,
deregulation of tariff protection, removal of monopoly powers, low liquidity and
weak accounting standards.
Q HOW DO YOU VIEW THE REGION OVERALL?
A Economic reform is well entrenched and has not been reversed anywhere, even
when left-wing parties have returned to power. The private sector now accounts
for over 70% of the region's output, and we believe that the economies' strong
growth is not reflected in current market multiples. Low labor costs, a high
literacy rate and a stable political environment in many countries have
generated strong growth in trade. German exports to eastern Europe now exceed
exports to the United States. Eastern Europe provides the West with new, rapidly
growing markets and a low-cost production base. In addition, many countries in
the region have applied for membership in the European Union.
ECONOMIC GROWTH
Russia Poland Hungary
1990 -2.91 -11.58 -3.47
1991 -4.97 -7.14 -11.92
1992 -14.54 1.92 -3.08
1993 -8.6 3.77 -0.62
1994 -12.76 5.45 2.91
1995 -3.84 6.9 2.5
1996 -2.49 6.45 0.99
Annual change year-on-year
INFLATION
Russia Poland Hungary
1989 2 251 17
1990 5.6 585.5 28.9
1991 92.7 70.3 35
1992 1354 43 23
1993 896 35.3 22.5
1994 302 32.2 18.8
1995 205 27 28.2
1996 20 20 24.1
Note: logarithmic scale, annual change in CPI
Source: EBRD, IIF, 1996
Russia and Poland are different examples of economic development in the region.
While inflation has come down considerably in Russia, Russia continues to lag
the region in economic growth. Meanwhile, Poland is estimated to enjoy over 6%
growth in GDP this year.
Q COULD YOU DESCRIBE THE ECONOMIC ENVIRONMENT IN RUSSIA?
A Inflation in Russia has been squashed from 2,526% in 1992 to an annual rate
of 20% in the last few months of 1996. Success in combating inflation has
enabled Russia to return to the Eurobond market for the first time since the
1917 Bolshevik revolution.
Continued p.3
2
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G.T. GLOBAL EASTERN EUROPE FUND
INTERVIEW WITH THE MANAGEMENT TEAM CONTINUED
Their recent $1 billion Eurobond issue was twice the size expected and the low
345-basis point (100 bps equal 1%) premium to U.S. Treasury notes exceeded the
initial expectations of the Russian government.
Output has dropped 40% according to official figures, and 1996 will be the
seventh consecutive year of negative growth. Official figures, in our opinion,
are not truly reflective of actual conditions, however, and do not capture a
whole range of new activities. If there had been a true drop of 40%, there would
most likely be a depression and very high unemployment as well, which is not the
case. The fall in Russia's gas and electricity output by, respectively, 8% and
21% since 1991 is a more accurate indicator of national output.
So, Russia is still clearly lagging most other countries in eastern Europe in
terms of growth. Russian output is still falling, whereas Poland has achieved
positive growth since 1992. Why this lag? Growth has been hampered by slow
progress on some structural reforms and the need to bring hyper-inflation under
control.
The disinflation strategy has restricted money supply to around 13% of national
output, a ratio much lower than in other countries. The large unsatisfied demand
for money has resulted in high real interest rates, scarce credit and the
widespread use of barter and alternative forms of payment, which currently
account for up to 60% to 70% of payments to industrial companies. Tight
liquidity conditions have also fueled the non-payments crisis, which was further
compounded by a timid application of relatively new bankruptcy laws as well as
tax collection problems. While inflation has been greatly reduced, further
progress on tax collection, better control over budget expenditures and a more
strict enforcement of bankruptcy laws are needed to resolve the non-payments
crisis and give companies access to cheap credit needed for economic expansion.
Other factors hindering growth in the short term include over-regulation, crime,
a weak legal framework and the lack of a broad consensus on economic reform. In
most of eastern Europe, with the notable exception of the Czech Republic, left-
wing parties descended from former communist parties have succeeded the first
reformist governments. That reform has not been reversed anywhere is testimony
to the development of a broad consensus on the need for radical economic
changes. In Russia the consensus on economic reform is obviously weaker and
Parliament often opposes government initiatives, thereby slowing down the
process. While further setbacks cannot be ruled out, we believe a reversal of
the reform program is unlikely as communism is widely perceived as discredited.
Having an unusually long tradition of autocracy spanning from Peter the Great to
the collapse of the Soviet Union in 1991, Russia does not have the benefit of a
strong, independent legal system. Enforcement of contracts through the courts is
difficult, though progress has been made, albeit slowly. The weakness of the
legal system has proved to be fertile ground for criminal activities. Extortion
and racketeering are believed to be widespread, skimming off profits from
companies and reducing the scope for the government to collect taxes. The
establishment of law and order is viewed as the priority by the Russian business
community.
Over-regulation is also an impediment to economic growth, often preventing the
creation of small businesses, which provide the backbone of successful
economies. Although Poland has a much smaller population than Russia, it has
four times as many small businesses.
Russia has followed the Polish model and so far the outcome has been worse:
political constraints have delayed and slowed reform and financial discipline
has been weaker. Further progress in Russia critically hinges on the
authorities' resolve to continue to refuse to print money. If tight monetary
policies are pursued further, Russia could enter a virtuous cycle with a new
wave of foreign institutional money financing the government through further
Eurobond issues, and inflation and interest rates falling further. The expected
inclusion of Russia in indices produced by Morgan Stanley Capital International
and the IFC in 1997 is likely to generate further interest in the market.
Additional progress is needed for real interest rates to come down and growth to
emerge, and recent experience shows that short-term setbacks cannot be excluded.
Yet we believe the investment risk in Russia is attractively priced, especially
in light of the country's long-term growth potential, which we feel is
substantial, for the following reasons:
First, with communists gaining power in 1917, rather than after 1945, Russia was
more deeply influenced by communism than any other country in the world.
Starting from further behind, then, Russia may be expected to grow faster by the
simple process of technological catch-up. Second, Russia has greater natural
resources than any other country in the world. On a per-head basis, Russia
produces more than the United States of natural gas, oil, steel, aluminum,
nickel, platinum, diamonds
Continued p.4
3
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INTERVIEW WITH THE MANAGEMENT TEAM CONTINUED
and many other minerals. The export of these resources provides the finances for
development through the import of new machinery, technology and know-how.
Third, Russia has, like many other countries in eastern Europe, an unusually
well-educated population relative to income. Literacy in Russia is more
universal than in Britain or the U.S., as more young people go into higher
education than in Britain. Fourth, military spending has been cut from an
estimated 25% of national output to 5%, freeing massive resources that can now
be put to more productive use.
Q WHAT IS YOUR ASSESSMENT OF POLAND?
A Poland is often and rightly viewed as the prototype of economic reform in
eastern Europe. A relatively favorable starting position, coupled with an early,
quick shock therapy, initially produced the sharpest contraction in output of
the major economies in the region. Poland was also the first economy to emerge
from its restructuring efforts, showing positive growth as early as 1992. It is
the only major economy of the region with current output exceeding the level
recorded in 1989, the year the Berlin wall came down.
Polish prices jumped 80% when they were freed, as early as January 1990. But the
use of a fixed exchange rate enabled a rapid move to low inflation, and the
resulting stability has been a major incentive to investment in Poland. Poland
was also much faster at dismantling state controls and benefited from less
excessive money and shorter queues than Russia. Not being viewed as the arch
enemy, Poland was also quicker in obtaining the West's support in the form of an
IMF loan and a stabilization fund. Further, Poland benefits from a better-
established legal framework. The commercial code introduced in the 1930s is
based on the Swiss code. As in Hungary, some property rights were retained under
communism, making the transition to a market economy easier. The country has a
very strong entrepreneurial culture.
Although Poland represents the best that has been achieved, the price of success
is the increasing probability of some overheating. The country's proximity to
Germany and European companies' growing emphasis on shareholder value have
boosted foreign direct investment into a low-cost production base. Domestic
demand is accelerating, with new car sales rising by 36% in the first eight
months of 1996. The fiscal deficit has deteriorated slightly, creating a risk
that real interest rates will have to rise. The Polish market could also suffer
from a rather heavy program of new issues in 1997.
Q WHAT IS YOUR OUTLOOK FOR EASTERN EUROPE?
A The past five years have been a period of transition and transformation for
eastern Europe as these countries progress from communism to capitalism. It has
not been an easy time with major upheaval being forced upon companies,
politicians and the general population. The next five years and beyond has the
potential to be a period of strong growth as investment and demand accelerate.
Equity markets continue to be established throughout the region and government
privatization programs continue to be introduced. In our opinion, the
opportunities for investors in this region have never looked more promising.
GEOGRAPHIC ALLOCATION OF NET ASSETS%(1)
October 31, 1996
Hungary 18.4
Russia 18.3
Poland 13.5
Germany 11.7
Czech Republic 6.7
Greece 4.8
Slovakia 3.9
Bulgaria 2.3
UK 1.6
Croatia 1.4
Ireland 1.0
France 0.7
U.S., Short-term & Other 15.7
(1) Geographic allocations may change as market conditions change.
ABOUT THE PORTFOLIO MANAGERS
NOTE: THE FOLLOWING PORTFOLIO MANAGERS HAVE ASSUMED RESPONSIBILITY FOR THE FUND
SINCE THE RESTRUCTURING
JONATHAN CHEW - Portfolio Manager for Chancellor LGT Asset Management since
1990; Portfolio Manager for LGT Asset Management (Hong Kong) since 1988.
Previously, Mr. Chew was an Investment Analyst at T.C. Coombs from 1979-1988. He
received his B.Sc. from Loughborough University.
JONATHAN R. LEGAT - Portfolio Manager for Chancellor LGT Asset Management since
1983. Mr. Legat received his B.A. from Portsmouth Polytechnic.
SERGE SELFSLAGH - Portfolio Manager for Chancellor LGT Asset Management and LGT
Asset Management PLC (London) since 1993. Previously, Mr. Selfslagh was a
Portfolio Manager for Schroder Investment Management from 1986-92, and an
economics lecturer at the Catholic University of Brussels. He received his M.A.
from the Catholic University of Louvain and his M.Sc. from Imperial College.
4
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G.T. GLOBAL EASTERN EUROPE FUND
G.T. GLOBAL EASTERN EUROPE FUND
<TABLE>
<CAPTION>
% of
10 LARGEST HOLDINGS AS OF OCTOBER 31, 1996(2) Country Net Assets
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GRABOPLAST RT Produces artificial leather, home improvement materials Hungary 5.7
and book binding. The home improvement product group is comprised of floor
coverings, wallpaper and insulation products. The company exports to Germany,
Austria, England and the Netherlands.
ERGO BANK SA A commercial bank that operates through approximately 99 Greece 4.8
branches in Greece and one overseas.
GAZPROM Owns and operates Russia's Unified Gas Supply System. The state owns Russia 3.5
40% of the company, while Gazprom has a monopoly in supplying gas to the former
Soviet Union. The company also supplies 21% of western European natural gas
consumption.
EGIS RT Develops and manufactures pharmaceutical products such as medicine for Hungary 2.8
the treatment of cardiovascular ailments and nutrition supplements. It distributes
most of its products through the wholesale company MEDIMPEX. Majority owned by
Servier SA of France, which holds 51%.
SPT TELECOM AS The main provider of telephone and telecommunications networks in the Czech Rep 2.6
Czech Republic.The company is owned by the Czech Republic (15%), and by a joint
venture between the Dutch and Swiss phone companies (27%).
MAGYAR OLAJ ES GAZIPARI An integrated domestic oil and gas company. Magyar owns and Hungary 2.5
operates three refineries, oil and gas pipelines, service stations, and natural gas
storage facilities. Along with its subsidiaries, the company produces crude oil,
petroleum products, bitumens, lubricants, and natural gas.
VYCHODOSLOVENSKE ZELEZIARNE AS Slovakia's largest steelmaker. Slovakia 2.4
TATNEFT A vertically integrated oil company, which explores, drills, produces and Russia 2.4
refines oil and gas in Tatarstan. The company is currently developing 58 fields with
more than 20,000 wells.
PICK SZEGED RT Raises livestock, processes and distributes meat products. Operates Hungary 2.2
eight retail outlets in Hungary in addition to supplying other retail stores and
wholesalers.
CESKA SPORITELNA A bank with more than 2000 branch offices in the Czech Republic. Czech Republic 2.2
</TABLE>
(2)There is no assurance the Fund will continue to hold these or any other
securities mentioned in this report.
5
<PAGE>
APPENDIX A
SPECIAL RISK CONSIDERATIONS
INVESTMENTS IN EASTERN EUROPEAN ISSUERS
Investments in issuers located in eastern Europe (except Germany) involves risks
that may differ in kind or degree from risks normally associated with investment
in issuers located elsewhere in Europe, including the following:
Securities Markets. The securities markets of eastern European countries, to the
extent they exist, have substantially less trading volume than the securities
markets of the United States, Japan and many countries elsewhere in Europe.
Further, securities of eastern European issuers are generally less liquid and
more volatile than securities of comparable issuers elsewhere in Europe.
Accordingly, these securities markets may be subject to greater influence by
adverse events generally affecting the market, and by large investors trading
significant blocks of securities, than is the case elsewhere in Europe.
Political and Legal Risks. Chancellor LGT Asset Management believes that long-
term political stability is a critical prerequisite to the development of stable
market economies and institutions for the protection of private investment and
ownership and, accordingly, opportunities for capital appreciation.
Historically, many of the eastern European countries in which the Fund expects
to invest have been governed by totalitarian communist governments with single-
party systems. There can be no assurance that eastern European countries will
not experience political instability in the future which could adversely affect
the market values of the Fund's portfolio securities and of the Fund's shares.
In addition, the legal systems of property rights are newly established and
untested, and the rights of an investor vis-a-vis his broker, bankruptcy law and
other laws applicable to commercial transactions are not well developed.
Economic Considerations. Many eastern European countries have experienced or are
experiencing recessionary conditions, high unemployment or hyper-inflation, and
the danger of such conditions developing still exists in others. Such conditions
could directly affect the market value of the Fund's portfolio securities and
the market value of its shares. Foreign Investment and Repatriation
Restrictions; Exchange Controls. Some eastern European countries prohibit
certain kinds of investment or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as the Fund, and may require governmental registration or approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. The Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on
investments or withholding taxes imposed by eastern European countries on
interest or dividends paid on securities held by the Fund or gains from the
disposition of such securities.
Regulatory Oversight and Corporate Disclosure Standards. Eastern European
issuers of securities in which the Fund may invest are not subject to the same
degree of regulation as are issuers elsewhere in Europe with respect to such
matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information.
Consequently, prices which the Fund pays for investment securities may be
affected by trading on material non-public information, market manipulation and
similar activities. The financial disclosure, accounting and auditing standards
of eastern European countries may differ from standards of other European
countries in important respects and less information may be available to
investors in issuers located in eastern Europe than elsewhere in Europe.
Custody and Settlement Mechanisms. The stock markets in some eastern Europe
countries have settlement mechanisms that are less developed and reliable and
more costly than those in more mature economies. Such circumstances may increase
the risk of share registration and delivery delays. In addition, securities
traded in certain eastern European countries may be subject to risks due to the
inexperience of financial intermediaries, the lack of modern technology, the
lack of a sufficient capital base to expand business operations and the
possibility of permanent or temporary termination of trading and greater spreads
between bid and asked prices for securities in such markets.
Currency Considerations. Because substantially all of the Fund's assets may be
invested in securities quoted or denominated in currencies other than the U.S.
dollar (and revenues may be received in such currencies), the U.S. dollar
equivalent of the Fund's net assets and distributions will be adversely affected
by reductions in the value of these currencies relative to U.S. dollar.
Hedging Strategies. In general, instruments to hedge many of the securities in
which the Fund expects to invest, as well as the currencies in which they are
quoted or denominated, are not available. Accordingly, the Fund fully expects to
be substantially exposed to the risks outlined above at least in the near term.
Continued p. 7
6
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SPECIAL RISK CONSIDERATIONS CONTINUED
Should appropriate instruments become available, however, the Fund's hedging
strategies and use of options strategies entail risk and may not successfully or
completely hedge the risk intended or otherwise achieve the result desired.
INVESTMENTS IN ILLIQUID SECURITIES
The Fund may invest without limitation in illiquid securities. Such securities
may include securities in smaller, less-seasoned companies that may not be
publicly traded. Investment in smaller companies involves greater risk than is
customarily associated with the securities of more established companies. The
Fund may have difficulty disposing of illiquid securities because they may have
a thin trading market. There may be no established retail secondary market, and
such securities may be able to 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 securities and may make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolio.
INVESTMENTS IN LOWER-GRADE DEBT SECURITIES
The Fund may invest without limitation in lower-grade debt securities, including
securities having the lowest ratings assigned by nationally recognized
statistical ratings organizations or no rating but judged by Chancellor LGT
Asset Management to be of comparable quality. Such investments involve a high
degree of risk and are predominantly speculative. Debt issued by issuers
(including government issuers) located in eastern Europe generally is 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.
Investments in debt securities of eastern European governments 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 such debt. A
government's ability or unwillingness 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 government's policy toward principal
international lenders and the political constraints to which a government may be
subject. Eastern European governments may default on their debt.
The Fund may also purchase and sell 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. At
the time the Fund 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 the
Fund may incur a loss.
In addition, the Fund may invest in indexed securities, which are securities
whose prices are indexed to the prices of other securities, securities indices,
currencies, commodities or other financial indicators. Indexed securities
typically, though not always, are debt securities 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 also be more volatile than the underlying instruments.
7
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DIVIDEND REINVESTMENT PLAN
The G.T. Global Eastern Europe Fund ("Fund") Dividend Reinvestment Plan offers
you a way to automatically reinvest income from dividends and capital gain
distributions (collectively referred to as "dividends") in shares of the Fund.
State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 01166 ("State
Street"), acts as your Plan Agent in administering the Plan. All reinvestments
are in full and fractional shares. The complete terms and conditions of the
Dividend Reinvestment Plan may be obtained from the Fund at the address on the
cover of this report. Please Note: If shares are not held in your name, you
should contact your brokerage firm, bank or other nominee for more information.
You are automatically enrolled in the Plan unless you specifically elect to
receive dividends in cash. If you own shares in your own name, you should notify
State Street, the Plan Agent, in writing if you wish to receive dividends in
cash.
If the Fund declares a dividend, you, as a participant in the Plan, will
automatically receive shares of the Fund. If the Fund's net asset value per
share on the payment date equals or is less than the market price per share plus
estimated brokerage commissions ("market premium"), the Plan Agent will invest
the dividend amount in newly issued Fund shares on your behalf. The number of
newly issued shares to be credited to your account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued; provided that the discount from the then current
market price may not exceed 5%. If the net asset value is greater than the
market price plus estimated brokerage commissions ("market discount"), the Plan
Agent will invest the dividend amount in shares purchased on the New York Stock
Exchange (NYSE) or otherwise on the open market to the extent available. If,
before the Plan Agent has completed its open-market purchases, the market price
exceeds the net asset value per share, the average per share purchase price paid
by the Plan Agent may exceed the net asset value of the shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period or if the
market discount shifts to a market premium during the purchase period, the Plan
Agent will cease making open-market purchases and, with respect to the
uninvested portion of the dividend amount, participants in the Plan will receive
newly issued shares.
There is no direct charge to participants for reinvesting dividends, since the
Plan Agent's fees are paid by the Fund. Whenever shares are purchased on the
NYSE or otherwise on the open market, each participant will pay a pro rata
portion of the brokerage commissions incurred by the Plan Agent. Please Note:
The automatic reinvestment of dividends does not relieve you of any income tax
which may be payable or required to be withheld on dividends.
You will receive an account statement from the Plan Agent after the distribution
is paid, showing total dividends, date of investment, shares acquired and price
per share, and total shares of record held by you and by the Plan Agent for you.
You are entitled to vote all shares of record, including shares purchased for
you by the Plan Agent according to the Plan. If you vote by proxy, your proxy
will include all such shares.
As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in non-certificated form.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
dividend paid subsequent to the date of written notice of the change sent to the
participants of the Plan at least 90 days before the record date for such
dividend. The Plan may also be amended or terminated by the Plan Agent, with the
Fund's prior written consent on at least 90 days prior written notice to
participants in the Plan.
You may withdraw from the Plan without penalty at any time. Withdrawal requests
should be directed to the Plan Agent and should include the name of the Fund and
shareholder's name and address as they appear on the share certificate. An
election to withdraw from the Plan will, until such election is changed, be
deemed to be an election by shareholder to take all subsequent dividends in
cash. Elections will only be effective for dividends declared after, and with a
record date of at least ten days after, such elections are received by the Plan
Agent. If you do withdraw from the Plan, you will receive, without charge, a
certificate issued in your name for all full shares; or if you wish, the Plan
Agent will sell your shares and send you the proceeds, less a service fee of
$2.50 and less brokerage commissions. The Plan Agent will convert to cash, at
the then-current market price, any fractional shares you hold at the time of
withdrawal and send you a check for the proceeds.
Continued p.9
8
<PAGE>
DIVIDEND REINVESTMENT PLAN Continued
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communication regarding the Plan to the Plan Agent at the
address noted above. If shares are not held in your name, you should contact
your brokerage firm, bank or other nominee for more information.
FUNDAMENTAL PERIODIC REPURCHASE POLICY.
THE FUND HAS ADOPTED THE FOLLOWING FUNDAMENTAL POLICY REGARDING PERIODIC
REPURCHASES:
A The Fund will make offers to repurchase its shares at annual intervals
pursuant to Rule 23c-3 under the Investment Company Act of 1940, as amended from
time to time ("Offers"). The Board may place such conditions and limitations on
Offers as may be permitted pursuant to Rule 23c-3 or SEC order.
B The third Friday in April of each year, or the immediately preceding
business day if such day is not a business day, will be the deadline (the
"Repurchase Request Deadline") by which the Fund must receive repurchase
requests submitted by shareholders in response to the most recent Offer.
C The date on which the repurchase price for shares is to be determined (the
"Repurchase Pricing Date") shall occur no later than the fourteenth day after a
Repurchase Request Deadline, or the next business day if such day is not a
business day.
D Offers may be suspended or postponed under certain circumstances, as
provided for in Rule 23c-3.
9
<PAGE>
G.T. GLOBAL
EASTERN EUROPE
FUND
FINANCIAL
STATEMENTS
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
ANNUAL REPORT
To the Shareholders and Board of Trustees of G.T. Global
Eastern Europe Fund:
We have audited the accompanying statement of assets and liabilities of G.T.
Global Eastern Europe Fund (previously G.T. Greater Europe Fund), including the
portfolio of investments, as of October 31, 1996, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and 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 position of
G.T. Global Eastern Europe Fund (previously G.T. Greater Europe Fund) as of
October 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
DECEMBER 17, 1996
F1
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (15.7%)
Graboplast RT ............................................ HGRY 225,665 $ 6,916,267 5.7
HOUSEHOLD PRODUCTS
Egis RT .................................................. HGRY 56,022 3,457,413 2.8
HEALTH CARE
Pick Szeged RT 144A GDR (b)(d) ........................... HGRY 60,000 2,704,269 2.2
FOOD MANUFACTURER
Schering AG .............................................. GER 30,600 2,463,731 2.0
HEALTH CARE
Sun Brewing Ltd. GDR (b)(e) .............................. RUS 226,000 2,147,000 1.7
BEVERAGES - ALCOHOL
Moebel Walther AG - Preferred ............................ GER 25,000 1,548,665 1.3
HOUSEHOLD PRODUCTS
------------
19,237,345
------------
Finance (11.8%)
Ergo Bank SA ............................................. GK 100,000 5,871,347 4.8
BANKS - MONEY CENTER
Ceska Sporitelna GDR (b)(e) .............................. CZCH 212,000 2,650,000 2.2
BANKS - MONEY CENTER
Invesco PLC .............................................. UK 525,800 1,989,074 1.6
INVESTMENT MANAGEMENT
Deutsche Bank AG ......................................... GER 40,300 1,867,743 1.5
BANKS - MONEY CENTER
Bank Rozwoju Eksportu SA (b) ............................. POL 35,000 1,039,962 0.9
BANKS - MONEY CENTER
Zagrebacka Banka GDR (b)(e) .............................. HGRY 48,940 948,212 0.8
BANKS - MONEY CENTER
------------
14,366,338
------------
Energy (10.8%)
Gazprom ADR Reg. S Shares (b)(e) ......................... RUS 225,000 4,218,750 3.5
OIL & GAS
Magyar Olaj-es Gazipari RT GDR (b) ....................... HGRY 303,000 3,060,300 2.5
OIL & GAS
Tatneft .................................................. RUS -- -- 2.4
OIL & GAS
Common (b)(e) .......................................... -- 50,000 1,875,000 --
Sponsored ADR (b)(e) ................................... -- 30,000 1,080,000 --
Nafta Gbely AS (e) ....................................... SLVK 30,000 1,870,743 1.5
OIL & GAS
Lukoil Oil Co. Sponsored ADR (b) ......................... RUS 28,200 1,106,850 0.9
OIL & GAS
------------
13,211,643
------------
Materials/Basic Industry (9.9%)
Vychodoslovenske Zeleziarne AS (e) ....................... SLVK 150,000 2,882,863 2.4
METALS - STEEL
BASF AG .................................................. GER 80,000 2,558,478 2.1
CHEMICALS
</TABLE>
The accompanying notes are an integral part of the financial statements.
F2
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Materials/Basic Industry (Continued)
BorsodChem RT Sponsored GDR (b) .......................... HGRY 99,000 $ 2,004,750 1.6
CHEMICALS
Tisza Vegyi Kombinat RT GDR (b)(e) ....................... HGRY 153,000 1,323,450 1.1
CHEMICALS
SGL Carbon AG ............................................ GER 10,125 1,140,685 0.9
CHEMICALS
Gorazdze SA (b) .......................................... POL 39,197 1,039,135 0.8
BUILDING MATERIALS & COMMODITIES
TKI "B" Shares (b) ....................................... POL 975 585,000 0.5
MISC. MATERIALS & COMMODITIES
Nitzhnetagilsky Ferrous Metal Factory (b)(e) ............. RUS 15,000,000 566,250 0.5
METALS - IRON
Catalyst Energy Services (c)(e)(g) ....................... US 19,600 -- --
MISC. MATERIALS & COMMODITIES
------------
12,100,611
------------
Capital Goods (8.1%)
Mosenergo Sponsored ADR 144A (b)(d) ...................... RUS 90,800 2,633,200 2.2
ENERGY
Fried, Krupp AG Hoesch ................................... GER 15,000 2,363,883 1.9
MACHINERY & ENGINEERING
Ceske Energeticke Zavody AS (e) .......................... CZCH 63,600 2,270,499 1.9
ENERGY
Bydgoska Fabryka Kabli SA (b)(e) ......................... POL 175,000 1,220,554 1.0
ENERGY
Stomil Olsztyn SA (b)(e) ................................. POL 105,000 1,113,444 0.9
PLASTICS & RUBBER
Elektrim Spolka Akcyjna SA (b) ........................... POL 35,445 296,405 0.2
ENERGY
------------
9,897,985
------------
Services (5.5%)
SPT Telecom AS (e) ....................................... CZCH 30,000 3,211,855 2.6
TELECOM - OTHER
Rostelecom (b)(e) ........................................ RUS 610,000 1,573,800 1.3
TELEPHONE - LONG DISTANCE
PLD Telekom, Inc. (e) .................................... US 140,000 927,500 0.8
TELEPHONE - LONG DISTANCE
Russian Telecommunication Development Corp. .............. RUS -- -- 0.7
TELEPHONE NETWORKS
Non-voting (b)(c)(e)(g) ................................ -- 52,600 526,000 --
Voting (b)(c)(e)(g) .................................... -- 38,400 384,000 --
Fotex (e) ................................................ HGRY 145,700 95,774 0.1
RETAILERS - OTHER
Technoimpex (b)(c)(e)(g) ................................. HGRY 1,400 -- --
WHOLESALE & INTERNATIONAL TRADE
------------
6,718,929
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F3
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Multi-Industry/Miscellaneous (2.1%)
Pliva D.D. - Reg. S GDR (b)(e) ........................... CRT 34,000 $ 1,674,500 1.4
MULTI-INDUSTRY
Albatros Investissement (e) .............................. FR 45,560 891,498 0.7
MULTI-INDUSTRY
------------
2,565,998
------------
Investment Funds (1.0%)
Baltic Republic Fund (b)(c)(e)(g) ........................ IRE 9,000 1,228,500 1.0
COUNTRY FUND
Harvardsky Dividendov Investment Fund (e) ................ CZCH 8,520 45,760 --
COUNTRY FUND
------------
1,274,260
------------
Consumer Durables (2.0%)
Volkswagen AG ............................................ GER 6,100 2,403,281 2.0
AUTOMOBILES
------------ -----
TOTAL EQUITY INVESTMENTS (cost $74,322,242) ................ 81,776,390 66.9
------------ -----
<CAPTION>
PRINCIPAL VALUE % OF NET
EQUITY INVESTMENTS COUNTRY AMOUNT (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Fixed Income Investments (18.2%)
Republic of Poland, PDI Bonds, 4.00%, due 10/27/2014
(b)(f) .................................................. POL $ 10,100,000 8,345,125 6.8
Russia When Issued, MYRA FRN, due 01/15/2021 (b)(e) ...... RUS 11,000,000 5,967,500 4.9
Bulgaria Discount Brady Bond, Series A, 6.6875%, due
07/28/2024 (b)(f) ....................................... BUL 5,500,000 2,787,813 2.3
Hungarian Government Bond, Series 97Z2, 30.00%, due
7/5/1997 ................................................ HGRY 289,000,000 1,942,208 1.6
Poland Treasury Bills .................................... POL -- -- 2.4
18.75%, due 11/27/96 ................................... -- 4,500,000 1,581,048 --
18.75%, due 11/13/96 ................................... -- 4,000,000 1,414,577 --
Vneshekonombank Loan Assignment .......................... RUS 330,000 242,344 0.2
------------ -----
TOTAL FIXED INCOME INVESTMENTS (cost $20,241,726) .......... 22,280,615 18.2
------------ -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
F4
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
(NOTE 1) ASSETS(A)
------------ -------------
<S> <C> <C> <C> <C>
Repurchase Agreement (17.4%)
Dated October 31, 1996, with State Street Bank & Trust
Company, due November 1, 1996, for an effective yield of
5.55% collateralized by $19,425,000 U.S. Treasury Bonds,
7.875% due 11/15/07 (market value of collateral is
$22,391,201 including accrued interest). (cost
$21,259,000) ............................................ $ 21,259,000 17.4
------------ -----
TOTAL INVESTMENTS (cost $115,822,968) * .................... 125,316,005 102.5
Other Assets and Liabilities ............................... (3,112,232) (2.5)
------------ -----
NET ASSETS ................................................. $122,203,773 100.0
------------ -----
------------ -----
</TABLE>
- --------------
(a) Percentages indicated are based on net assets of $122,203,773.
(b) U.S. currency denominated.
(c) At October 31, 1996, the Fund owned the following restricted
securities constituting 1.8% of net assets which may not be
publicly sold without registration under the Securites Act of 1933
(Note 1). Additional information on restricted securities is as
follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION MARKET VALUE
DATE SHARES COST PER SHARE
----------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Baltic Republic Fund.................... 09/02/94 9,000 $ 900,000 $136.50
Catalyst Energy Services................ 09/18/91 19,600 420,000 0.00
Russian Telecommunication Development
Corp.:
Non-voting............................ 12/20/93 52,600 526,000 10.00
Voting................................ 12/20/93 38,400 384,000 10.00
Technoimpex............................. 11/22/90 1,400 2,989,406 0.00
</TABLE>
(d) 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.
(e) Non-income producing security.
(f) Coupon will increase periodically based upon a predetermined
schedule. Stated interest rate in effect at October 31, 1996.
(g) Valued in good faith at fair value using procedures approved by the
Board of Directors (See Note 1 of Notes to Financial Statements).
* For Federal income tax purposes, cost is $116,151,468 and
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 15,981,522
Unrealized depreciation: (6,816,985)
-------------
Net unrealized appreciation: $ 9,164,537
-------------
-------------
</TABLE>
Abbreviations:
GDR--Global Depository Receipt
ADR--American Depository Receipt
PDI--Past Due Interest
The accompanying notes are an integral part of the financial statements.
F5
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
PORTFOLIO OF INVESTMENTS (cont'd)
October 31, 1996
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1996, was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS(A)
-------------------------------------------
FIXED SHORT-TERM
COUNTRY (COUNTRY CODE) EQUITY INCOME & OTHER TOTAL
- -------------------------------------- ------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Bulgaria (BUL) ....................... 0.0 2.3 2.3
Croatia (CRT) ........................ 1.4 1.4
Czech Republic (CZCH) ................ 6.7 6.7
France (FR) .......................... 0.7 0.7
Germany (GER) ........................ 11.7 11.7
Greece (GK) .......................... 4.8 4.8
Hungary (HGRY) ....................... 16.8 1.6 18.4
Ireland (IRE) ........................ 1.0 1.0
Poland (POL) ......................... 4.3 9.2 13.5
Russia (RUS) ......................... 13.2 5.1 18.3
Slovakia (SLVK) ...................... 3.9 3.9
United Kingdom (UK) .................. 1.6 1.6
United States (US) ................... 0.8 14.9 15.7
------ ----- ----- -----
Total ............................... 66.9 18.2 14.9 100.0
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
- --------------
(a) Percentages indicated are based on Net Assets of $122,203,773.
The accompanying notes are an integral part of the financial statements.
F6
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $94,563,968) (Note 1)............................. $104,057,005
Repurchase agreement, at value and cost (Note 1)............................................ 21,259,000
U.S. currency.................................................................... $ 430
Foreign currencies (cost $120,940)............................................... 120,587 121,017
---------
Receivable for securities sold.............................................................. 2,458,660
Dividends and interest receivable........................................................... 562,860
Receivable from Manager..................................................................... 315,142
Dividend withholding tax reclaims receivable................................................ 227,161
Prepaid expenses............................................................................ 4,934
-----------
Total assets.............................................................................. 129,005,779
-----------
Liabilities:
Payable for securities purchased............................................................ 6,453,796
Payable for investment management fees (Note 2)............................................. 126,696
Payable for printing and postage expenses................................................... 79,000
Payable for professional fees............................................................... 73,900
Payable for administration fees (Note 2).................................................... 25,339
Payable for Trustees' fees and expenses (Note 2)............................................ 6,350
Payable for custodian fees.................................................................. 5,600
Other liabilities........................................................................... 31,325
-----------
Total liabilities......................................................................... 6,802,006
-----------
Net assets.................................................................................... $122,203,773
-----------
-----------
Net asset value per share
($122,203,773 DIVIDED BY 7,220,418 shares outstanding)....................................... $ 16.92
-----------
-----------
Net assets consist of:
Par value (Note 4).......................................................................... $ 72,204
Paid in capital (Note 4).................................................................... 98,921,114
Undistributed net investment income......................................................... 1,104,736
Accumulated net realized gain on investments and foreign currency transactions (Note 1)..... 12,635,825
Net unrealized depreciation on translation of assets and liabilities in foreign
currencies................................................................................. (23,143)
Net unrealized appreciation of investments.................................................. 9,493,037
-----------
Total -- representing net assets applicable to capital shares outstanding..................... $122,203,773
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F7
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest and other......................................................................... $ 3,524,997
Dividends (net of foreign withholding tax of $217,821)..................................... 1,975,196
-----------
Total investment income.................................................................. 5,500,193
-----------
Expenses:
Investment management fees (Note 2)........................................................ 2,310,763
Administration fees (Note 2)............................................................... 462,152
Professional fees.......................................................................... 321,894
Printing and postage expenses.............................................................. 139,593
Custodian fees............................................................................. 88,151
Transfer agent fees........................................................................ 70,348
Trustees' fees and expenses (Note 2)....................................................... 30,073
Other expenses............................................................................. 44,692
-----------
Total expenses........................................................................... 3,467,666
-----------
Net investment income........................................................................ 2,032,527
-----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments.............................................. $37,607,515
Net realized loss on foreign currency transactions............................ (445,872)
-----------
Net realized gain during the period...................................................... 37,161,643
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies........................................................ 73,029
Net change in unrealized appreciation of investments.......................... (14,682,286)
-----------
Net unrealized depreciation during the period............................................ (14,609,257)
-----------
Net realized and unrealized gain on investments and foreign currencies....................... 22,552,386
-----------
Net increase in net assets resulting from operations......................................... $24,584,913
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F8
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1996 1995
------------ ------------
Increase (decrease) in net assets
Operations:
Net investment income...................................................... $ 2,032,527 $ 1,832,586
Net realized gain on investments and foreign currency transactions......... 37,161,643 6,614,420
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies......................................... 73,029 (181,924)
Net change in unrealized depreciation of investments....................... (14,682,286) (12,593,055)
------------ ------------
Net increase (decrease) in net assets resulting from operations............ 24,584,913 (4,327,973)
Distributions to shareholders: (Note 1)
From net investment income................................................. (1,912,552) (352,937)
From net realized gain on investments...................................... (981,975) (5,230,782)
------------ ------------
Total distributions...................................................... (2,894,527) (5,583,719)
Capital share transactions (Note 4)
Cost of shares redeemed pursuant to tender offer (Note 5).................. (136,185,045) --
------------ ------------
Total decrease in net assets............................................. (114,494,659) (9,911,692)
Net assets:
Beginning of period........................................................ 236,698,432 246,610,124
------------ ------------
End of period.............................................................. $122,203,773* $236,698,432**
------------ ------------
------------ ------------
<FN>
- --------------
* Including undistributed net investment income of $1,104,736.
** Including undistributed net investment income of $1,912,647.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F9
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
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 and market price data for the shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Per Share Operating Performance:
Net asset value, beginning of period.... $ 14.75 $ 15.37 $ 14.07 $ 10.37 $ 10.94
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income................. 0.24 0.11 0.02 0.12 0.13
Net realized and unrealized gain
(loss) on investments................ 2.11 (0.38) 1.52 3.58 (0.59)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 2.35 (0.27) 1.54 3.70 (0.46)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income................. (0.12) (0.02) (0.12) 0.00 (0.02)
Net realized gain on investments...... (0.06) (0.33) (0.12) 0.00 (0.09)
---------- ---------- ---------- ---------- ----------
Total distributions................. (0.18) (0.35) (0.24) 0.00 (0.11)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 16.92 $ 14.75 $ 15.37 $ 14.07 $ 10.37
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Market value, end of period............. $ 13.75 $ 12.75 $ 13.00 $ 14.25 $ 9.38
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (based on market
value)................................. 9.35% 0.73% (7.25)% 52.0% (0.2)%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 122,204 $ 236,698 $ 246,610 $ 225,231 $ 166,042
Ratio of net investment income to
average net assets..................... 1.09% 0.80% 0.15% 1.04% 1.20%
Ratio of expenses to average net
assets................................. 1.87% 1.79% 1.87% 1.88% 1.92%
Portfolio turnover rate................. 69% 57% 65% 87% 109%
Average commission rate paid on
portfolio transactions................. $ 0.0420 N/A N/A N/A N/A
</TABLE>
The accompanying notes are an integral part of the financial statements.
F10
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
NOTES TO
FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
G.T. Global Eastern Europe Fund ("Fund") (formerly the G.T. Greater Europe Fund)
is organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as a non-diversified,
closed-end management investment company. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of the financial statements. The policies are in conformity with
generally accepted accounting principles and the financial statements may
include certain estimates made by management.
(A) PORTFOLIO VALUATION
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, are valued at the mean
between closing bid and asked prices. In cases where securities are traded on
more than one exchange, or traded both on an exchange and over the counter, the
securities are valued on the exchange or in the market determined by Chancellor
LGT Asset Management, Inc. (the "Manager") to be the primary market.
Fixed income investments are valued at the mean of representative quoted bid and
asked 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
Fund'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 Fund's Board of Trustees.
(B) FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The market
values of foreign securities, currency holdings, and other assets and
liabilities are recorded in the books and records of the Fund after translation
to U.S. dollars based on the exchange rates on that day. The cost of each
security is determined using historical exchange rates. Income and withholding
taxes are translated at prevailing exchange rates when earned or incurred.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, forward foreign currency contracts, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at year
end, resulting from changes in exchange rates.
(C) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(D) FORWARD FOREIGN CURRENCY CONTRACTS
A forward foreign currency contract ("Forward Contract") is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market value of the Forward Contract fluctuates with changes in currency
exchange rates. The Forward Contract is marked-to-market daily and the change in
market value is recorded by the Fund as an unrealized gain or loss. When the
Forward Contract is closed, the Fund records a realized gain or loss equal to
the difference between the value at the time it was opened and the value at the
time it was closed. Forward Contracts involve market risk in excess of the
amount shown in the Fund's "Statement of Assets and Liabilities". The Fund could
be exposed to risk if a counterparty is unable to meet the terms of the contract
or if the value of the currency changes unfavorably. The Fund may enter into
Forward Contracts in connection with planned purchases or sales of securities,
or to hedge against adverse fluctuations in exchange rates between currencies.
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last
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G.T. GLOBAL EASTERN EUROPE FUND
bid prices obtained from brokers, unless a quotation from only one broker is
available, in which case only that broker's price will be used. If an option
expires on its stipulated expiration date or if the Fund enters into a closing
purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities, or other liquid, securities in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividends are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Where a high
level of uncertainty exists as to its collection, income is recorded net of all
withholding tax with any rebate recorded when received. The Fund may trade
securities on other than normal settlement terms. This may increase the risk if
the counterparty fails to deliver and causes the Fund to subsequently invest at
less advantageous prices.
(H) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income and capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains.
(I) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
(J) FOREIGN SECURITIES
There are certain additional considerations and risks associated with investing
in foreign securities and currency transactions that are not inherent in
investments of domestic origin. The Fund's investments in emerging market
countries may involve greater risks than investments in more developed markets
and the price of such investments may be volatile. These risks of investing in
foreign and emerging markets may include foreign currency exchange rate
fluctuations, perceived credit risk, adverse political and economic developments
and possible adverse foreign government intervention.
(K) RESTRICTED SECURITIES
The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult. At the end of the year, restricted securities
(excluding 144A issues) are shown at the end of the Portfolio of Investments.
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G.T. GLOBAL EASTERN EUROPE FUND
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
2. RELATED PARTIES
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. (previously defined as the "Manager") which acts as the Fund's
investment manager. The Fund pays the Manager management fees, which are
calculated and paid monthly, at the annualized rate of 1.25% of the Fund's
average weekly adjusted net assets (which, for this purpose, means the average
weekly value of the total assets of the Fund, minus the sum of the accrued
liabilities of the Fund, other than borrowings used for investment purposes).
Princeton Administrators, L.P. ("Princeton") (formerly Middlesex Administrators
L.P.) acts as administrator of the Fund. The Fund pays administration fees to
Princeton, calculated and paid monthly, at the annualized rate of 0.25% of the
Fund's average weekly adjusted net assets.
The Fund pays each of its Trustees who is not an employee, officer or director
of the Manager or any of its affiliated companies $5,000 per year plus $300 for
each meeting of the board or any committee thereof attended by the Trustee.
3. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1996, purchases and sales of investment
securities by the Fund, other than short-term investments, aggregated
$87,330,148 and $233,836,333, respectively. There were no purchases or sales of
U.S. government obligations by the Fund for the year ended October 31, 1996.
4. CAPITAL SHARES
At October 31, 1996, there were an unlimited number of shares of beneficial
interest authorized, at $0.01 par value per share. 16,045,345 shares were issued
and 7,220,418 shares remained outstanding.
5. REORGANIZATION
At the Reconvened Special Meeting of the Shareholders held on February 9, 1996
(the "Special Meeting"), shareholders of the Fund voted on a proposal to approve
an Amended and Restated Declaration of Trust providing for the restructuring of
the Fund (the "Restructuring Proposal"). The Restructuring Proposal included (a)
changing the name of the Fund to "G.T. Global Eastern Europe Fund" so as to
reflect that, under normal circumstances, at least 65% of the Fund's total
assets be invested in equity and debt securities of issuers located in Eastern
Europe, and (b) converting the Fund to an interval structure, pursuant to which
the Fund would make annual offers to repurchase at least 5%, but not more than
25%, of its outstanding shares.
In connection with the above, two separate lawsuits were filed by plaintiff
shareholders seeking to, among other things, enjoin the vote at the Special
Meeting and to force the Fund to adopt open-end status. The U.S. District Court
denied the plaintiffs' requests to enjoin the vote at the Special Meeting. The
Fund, G.T. Capital Management, Inc., the predecessor to Chancellor LGT Asset
Management, Inc., and the Board of Trustees of the Fund reached an agreement
with the plantiffs, such agreement being at no cost to the Fund, to settle the
claims made in the two lawsuits, and to permit the Fund to implement the
Restructuring Proposal. On October 21, 1996, the U.S. District Court entered an
order approving such settlement and dismissing the case.
In connection with the Restructuring Proposal, on April 3, 1996, the Fund
offered to repurchase up to 55% of the issued and outstanding shares of
beneficial interest in the Fund as of May 3, 1996. The repurchase price of the
shares was the Net Asset Value per share at the close of regular trading on the
New York Stock Exchange on May 10, 1996, less a repurchase fee equal to 1.20% of
NAV per share.
The Fund's agent, Boston Equiserve, indicated that 11,240,421 shares were
validly tendered and not withdrawn prior to the expiration of the Fund's
repurchase offer. The shares accepted for tender (8,824,927 shares representing
55%) received cash at a repurchase offer price of $15.36, which was equal to the
Fund's net asset value of $15.54 as of May 10, 1996, less the repurchase fee. On
May 11, 1996, the Fund completed its repurchase offer. After the repurchase
offer, the Fund has approximately 7.2 million shares outstanding; 8,824,927
shares were returned to the Fund's Treasury.
Effective June 3, 1996, the Fund changed its name to G.T. Global Eastern Europe
Fund.
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G.T. GLOBAL EASTERN EUROPE FUND
6. PROXY RESULTS
During the year ended October 31, 1996, G.T. Global Eastern Europe Fund
shareholders voted on the following proposals at a shareholders' meeting held on
August 14, 1996. The description of each proposal and number of shares voted are
as follows:
<TABLE>
<CAPTION>
SHARES VOTED SHARES WITHHELD
FOR AUTHORITY
------------ ---------------
<S><C> <C> <C> <C>
1. Election of Trustee: David A. Minella....................... 4,536,420 279,186
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
------------ ------------ ---------------
<S><C> <C> <C> <C>
2. Proposal to ratify the selection of Coopers & Lybrand L.L.P. 4,548,227 223,467 43,912
as Independent Public Accountants
for the fiscal year ended October 31, 1996..................
</TABLE>
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
For its fiscal year ended October 31, 1996, the total amount of income received
by the Fund from sources within foreign countries and possessions of the United
States was approximately $.39 per share (representing an approximate total of
$2,850,727). The total amount of taxes paid by the Fund to such countries was
approximately $.03 per share (representing an approximate total of $217,821).
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$14,955,000 as a capital gain dividend for the fiscal year ended October 31,
1996.
F14
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
NOTES
- --------------------------------------------------------------------------------
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
NOTES
- --------------------------------------------------------------------------------
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
NOTES
- --------------------------------------------------------------------------------
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
GT GLOBAL MUTUAL FUNDS
GT GLOBAL OFFERS A BROAD RANGE OF MUTUAL FUNDS TO COMPLEMENT MANY INVESTORS'
PORTFOLIOS. FOR MORE INFORMATION AND A PROSPECTUS ON ANY OF THE GT GLOBAL
MUTUAL FUNDS, PLEASE CONTACT YOUR INVESTMENT COUNSELOR OR CALL GT GLOBAL
DIRECTLY AT 1-800-824-1580. THE PROSPECTUS CONTAINS MORE COMPLETE
INFORMATION, INCLUDING CHARGES, EXPENSES AND RISKS. INVESTORS SHOULD READ
THE PROSPECTUS CAREFULLY BEFORE INVESTING.
GROWTH FUNDS
/ / GLOBALLY DIVERSIFIED FUNDS
GT GLOBAL WORLDWIDE GROWTH FUND
Invests around the world, including the U.S.
GT GLOBAL INTERNATIONAL GROWTH FUND
Provides portfolio diversity by investing outside the U.S.
GT GLOBAL EMERGING MARKETS FUND
Gives access to the growth potential of developing economies
/ / GLOBAL THEME FUNDS
GT GLOBAL 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 GROWTH FUND
Concentrates on small and 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]
<PAGE>
[LOGO]
GT Global, Inc.
Fifty California Street
27th Floor
San Francisco, California
94111-4624
DATED MATERIAL
PLEASE EXPEDITE
GT GLOBAL EASTERN EUROPE FUND
GREAR612017M.584
