<PAGE>
CHANCELLOR LGT
ASSET MANAGEMENT
OVER 25 YEARS
OF INVESTING
WORLDWIDE
/ /
G.T. GLOBAL
EASTERN EUROPE
FUND
/ /
ANNUAL REPORT
OCTOBER 31, 1997
[LOGO]
<PAGE>
TABLE
OF CONTENTS
<TABLE>
<S> <C>
Message from the
Chairman............. 1
Report from the Fund
Managers and Key
Portfolio Holdings... 2
Report of Independent
Accountants.......... F1
Financial
Statements........... F2
Views of the Fund's management
described in this report are as
of the date written. Portfolio
holdings and allocations are as
of October 31, 1997, unless
otherwise noted. These views,
portfolio holdings and
allocations may have changed
subsequently.
</TABLE>
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
MESSAGE FROM THE CHAIRMAN
Dear Shareholder,
Fiscal 1997 has been a challenging and exciting year. The volatility of the
market--and the resulting record highs and lows--has made investing a
sometimes awe-inspiring endeavor for investors and investment professionals
alike.
Across the GT Global family, our Funds have continued to seek their
investment goals and objectives regardless of world events. Whether it be the
recent turmoil in the Asian markets, the privatization and reform underway
across eastern Europe, deregulation occurring in Latin America or the ups and
downs of the U.S. market, our Funds have maintained their focus. In fact, we
believe these changes are yielding new investment opportunities in both
established economies and dynamic new markets around the world. Looking
forward to 1998, our commitment is to continue to monitor world markets and
seek additional ways to capitalize on events as they unfold for the benefit
of our shareholders.
In an effort to provide our customers easier access to information about the
GT Global Funds, we launched our website, www.gtglobal.com, during the latter
part of this year. We hope to continually enhance the information it
contains, from our worldwide economic outlook, to fund price and performance
reporting, to the Millennium Minute message of the day. Used in conjunction
with annual and semiannual reports and your quarterly statement on our Funds,
we hope it helps you monitor your investments and achieve your financial
goals.
Be assured that we will continue to strive to offer you the quality
investment products you need to build a well-diversified portfolio. As
always, we appreciate your continued confidence in our Funds. Should you or
your financial adviser have any questions regarding GT Global Funds, please
call us at 800-824-1580. One of our representatives will be happy to assist
you.
Sincerely,
/s/ William J. Guilfoyle
William J. Guilfoyle
Chairman of the Board and President
GT Global Mutual Funds
SHARE REPURCHASE SUMMARY FOR G.T. GLOBAL EASTERN EUROPE FUND
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. The Board currently expects the periodic offers in 1998
to be for 5% of outstanding shares.
1
<PAGE>
INTERVIEW WITH PORTFOLIO MANAGER
SERGE SELFSLAGH
Q HOW HAS THE FUND PERFORMED?
A Over the 12-month period to October 31, 1997, the G.T. Global Eastern
Europe Fund returned a total of 23.74%, based on net asset value. The share
price of the Fund, as traded on the New York Stock Exchange, rose by 19.13%.
There is no stated performance benchmark, as few benchmarks are available in
this relatively new market and none have gained widespread acceptance. We
anticipate that eastern European indices will be launched by major providers
in the future and that an industry standard will emerge.
Performance varied significantly throughout the region's main markets. Russia
and Hungary enjoyed impressive gains for the 12-month period, while Polish
and Czech markets underperformed considerably. All markets experienced
significant volatility in October as turbulence in Asia continued to exert
itself on global markets.
IMPROVING FUNDAMENTALS
REAL GDP GROWTH
[EDGAR REPRESENTATION OF GRAPH]
1997e 1992
Poland 7% 2.6%
Hungary 4% -3.1%
Russia* 0.7% -14.5%
Czech 0.2% -6.4%
Source: GT Global, Inc., November 1997.
* Break in bar reflects changes in scale.
Q SPECIFICALLY, WHAT COMPANIES PERFORMED WELL?
A A number of the Fund's holdings performed exceptionally well over the
period, including LUKoil and Tatneft in Russia, and Graboplast and Magyar
Olaj es Gazipari (MOL) in Hungary.
LUKoil is the largest Russian oil company and the world's third-largest oil
producer. The company has more oil reserves than any other listed oil company
in the world. We believe LUKoil should benefit from higher production based
on a strengthening of the domestic economy, the narrowing between domestic
and world price levels, higher exports, its joint venture with a major
western oil company,(1) the acquisition of new cheap oil reserves and the
consolidation of the Russian oil industry.
Tatneft is the fourth largest Russian oil company in terms of production and
the sixth largest in terms of reserves. In our opinion, the company has good
technology and a highly qualified workforce. Tatneft has also been able to
maintain stable output due to favorable tax credits granted by the government
of Tatarstan.
Graboplast is a Hungarian producer of home improvement materials, including
floor coverings, wallpaper and insulation products. The company is a major
beneficiary of the consolidation of the building materials industry. Demand
for its products is strong in the recovering Hungarian economy.
MOL(1) is an integrated oil and gas company operating in Hungary. The company
has embarked upon a program to improve the efficiency of its operations. But,
by far the largest profit driver has been the gradual deregulation of natural
gas prices.
Q COULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT IN HUNGARY?
A Hungary's three-year commitment to economic austerity has nurtured a
positive investment climate, with local investment and healthy foreign
capital inflows resulting in another strong year for its stock market
overall. Inflation has begun to fall and is
CONTINUED P3
(1) MOL was sold off prior to October 31, 1997.
2
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
INTERVIEW WITH THE PORTFOLIO MANAGER CONTINUED
estimated to drop from 20% at the beginning of this year to 16% by year-end.
Meanwhile, the current account deficit continues to improve, and we forecast
that Hungary's large output gap should support above-trend GDP growth of 6%
to 7% over the next several years.
However, despite improved inflation figures and positive earnings results for
many companies, the Hungarian market was not immune to the turmoil in world
equity markets that became entrenched in October as the crisis in Asia took
root.
We believe valuations are looking more attractive following October's
selloff, and feel Hungary may stand to benefit as a regional safe haven
because of its solid representation of blue-chip companies. Looking ahead,
November will bring the long-awaited initial public offering (IPO) of the
country's largest telecommunications company.(2) The largest-ever IPO in the
region, it is expected to boost market capitalization of the Budapest stock
exchange by about 30%. The key challenge for Hungary next year will be to
keep its current account deficit under control if the economy rebounds as we
expect.
Q WHAT ARE YOUR EXPECTATIONS FOR POLAND?
A We have been cautious about the Polish market for some time and see little
hope of a quick recovery. After last year's positive market performance, the
12-month period to the end of October 1997 has been disappointing for
investors. While some economic data continues to be encouraging, weak
corporate earnings have cast a long shadow, and investors are likely to
remain bearish in the near term.
Q HOW HAS THE CZECH MARKET FARED?
A The Czech market, beleaguered by negative investor sentiment throughout
much of the year, was the region's laggard. It has suffered under a host of
factors, including fallout from the Asian crisis, downgrading of Czech
Republic sovereign debt from A- to BBB+ by the IBCA, and an unstable
political environment. Third-quarter corporate results reflected poor
performance once again. Additionally, excessive wage growth and poor
corporate governance have fueled problems in the current account. Although we
anticipate some relief for the trade deficit, as import growth slows with
declining domestic demand and strengthening exports to Germany, favorable
trade data are unlikely to pave the way for interest rate cuts.
MARKETS AT A GLANCE
STOCK MARKET CAPITALIZATION (US $ BILLION)
OCTOBER 31, 1997
[EDGAR REPRESENTATION OF GRAPH]
Russia* 31.3
Poland 4.5
Hungary 5.5
Czech 2.4
Source: IFCI, November 1997.
* Break in bar reflects changes in scale.
On a positive note, the government seems to be making some progress in
supporting much-needed foreign direct investment, and advances in
privatization could cheer sentiment. On the privatization menu for next year
are stakes in three of the largest banks.(2) This could eventually turn into
good news if the quality of banking services and assets were to improve.
Nevertheless, we continue to see little upside to this market for the time
being.
Q WHAT HAS DRIVEN THE DOWNTURN IN THE RUSSIAN MARKET, THE FUND'S LARGEST
ALLOCATION?
A The Russian market is subject to strong swings between euphoria and gloom.
Having first risen 185% from the beginning of the year to its peak on
October 6, the Russian market then receded by 37% to December 4. Even so, the
market still shows a respectable gain of 80% in the year-to-December 15 (all
figures are based on the RTS Index and are quoted in U.S. dollars).
CONTINUED P4
(2) There is no assurance the Fund will invest in the securities of these
companies.
3
<PAGE>
INTERVIEW WITH THE PORTFOLIO MANAGER CONTINUED
The current selloff was triggered by the Asian crisis. In Asia, excessive
money and credit growth, as well as large capital inflows, degenerated into
over-investment, reducing investment returns and producing lower asset
prices. Russia suffers from exactly the opposite problem. Money growth has
been tight, to squeeze inflation out of the system, and capital expenditure
is still declining after seven years of negative growth. Even so, the Russian
market has followed the downward path of Asian markets as the appetite for
risk has declined and some investors have panicked.
As in Asia, the Russian correction was amplified by rumors of potential
bankruptcies, increasing the perception of counter-party risk. Many brokers
seriously cut their list of approved counterparties, thereby limiting the
liquidity of the market. It should be noted, however, that, unlike Asia, no
bankruptcies have yet been declared in Russia, and payment failures in equity
and bond markets are extremely rare.
We believe both the euphoria and the gloom are misplaced. For the first time
since the Soviet economy began to melt down, positive growth was recorded in
the year to October, even if it was only a modest 0.3%. Growth is the natural
consequence of stabilization policies. Foreign direct investment is picking
up strongly from a low base: $3 billion was recorded in the first nine months
of this year, versus $1 billion last year.
Q WHAT ARE THE RESULTS OF FOREIGN DIRECT INVESTMENT IN RUSSIA?
A Recent alliances between major western oil companies and Russia's (and
indeed the world's) largest gas company and second-largest oil company(2) are
particularly noteworthy and of considerable significance. Western oil
companies that are left with plenty of cash after their restructuring
efforts--and that see little or no potential in refining and marketing--want
to secure growth by gaining access to huge Russian oil reserves.
Their confidence in Russia has been bolstered by Yeltsin's reelection, signs
of a turnaround in the economy and greater emphasis on shareholders' rights.
These deals have also forced other Western oil companies to review their
options. We expect further alliances between Western and Russian companies,
along with consolidation of the fragmented Russian oil industry.
Q IS RUSSIA MAKING PROGRESS IN TAX COLLECTION?
A Tax collection remains a concern. In the long term, inflation can only be
kept under control if the budget deficit is contained. At 30%, the
debt-to-GNP ratio remains low, but we feel it is growing at an unsustainable
rate. The budget deficit is checked by arbitrary non-disbursement of budget
items approved by the Duma (lower house of Parliament), which we also believe
cannot be sustained. Consequently, raising tax revenues is the only
alternative. The International Monetary Fund's (IMF) decision to delay
further loan disbursements to Russia will, in our opinion, strengthen the
hand of the reformist government in seeking tax code reform.
PROGRESS ON PRICES
INFLATION (CONSUMER PRICE INDEX)
[EDGAR REPRESENTATION OF GRAPH]
1997e 1992
Hungary 16% 21.8%
Poland 14% 44%
Russia* 12% 2,526%
Czech 8.5% 12.4%
Source: GT Global, Inc. November 1997.
* Break in bar reflects changes in scale.
Q WHAT IS YOUR VIEW ON RUSSIA'S CURRENCY SITUATION?
A The ruble came under pressure following devaluations in Asia and the
selloff in the bond market, which is dominated by foreign players. While it
is possible, we think economic fundamentals in no way
CONTINUED P5
4
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
INTERVIEW WITH THE PORTFOLIO MANAGER CONTINUED
justify a devaluation of the rouble. After some hesitation, the central bank
raised interest rates sharply to defend the currency, and we believe the
currency problem is compact and containable, but crucial. The exchange rate
is the anchor of monetary policy; money supply targets would not be credible
given the difficulty of estimating money demand in an economy that is being
remonetized. Since the economy is still heavily dollarized, any depreciation
of the rouble would have an immediate impact on inflation. In addition, a
devaluation would seriously harm authorities' credibility.
In any event, we believe that once a risk is widely perceived, as is the case
in Russia today, it can become an opportunity for long-term investment.
Q WITH ALL THE GROWTH IN THESE MARKETS, IS LIQUIDITY STILL A PROBLEM?
A On one hand, many countries continue to privatize, bring new issues to the
market and adopt newer and better technology. On the other, they lack proper
domestic institutional investors, who would impose corporate governance and
introduce much-needed breadth to the market. We believe things may soon begin
to change as pension reform becomes a priority. In Hungary and Poland, for
example, a new system is due to start next year, under which mandatory
payments will be made by younger workers.
However, despite solid growth in some of these markets, many exchanges remain
tiny several have as few as 17 stocks listed on their exchanges. Even the
region's giant, Russia, struggled with liquidity issues as the existence of a
two-tier market became evident during October's correction. While Russian
blue-chip ADRs proved their liquidity during the selloff, the market in small
cap stocks virtually dried up, and spreads widened significantly.
ABOUT THE PORTFOLIO MANAGERS
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, London.
ALLAN CONWAY - Head of Global Emerging Markets. Prior to joining Chancellor
LGTAsset Management in 1997, Mr. Conway spent 23 years in the financial
services industry. Most recently, from 1992-97 he was the Director,
International Equities at Hermes Investment Management. He received a B.A.
from the University of York, England.
5
<PAGE>
GEOGRAPHIC ALLOCATION OF NET ASSETS %
OCTOBER 31, 1997
Russia 57.8
Hungary 21.3
Poland 8.3
Czech Republic 2.7
Ireland 1.9
Romania 1.7
Ukraine 1.1
Short-Term & Other 5.2
A complete listing of holdings and allocations may be found in the Financial
Statements section of this report.
<TABLE>
<CAPTION>
% of
G.T. GLOBAL EASTERN EUROPE FUND Country Net Assets
<S> <C> <C>
KEY PORTFOLIO HOLDINGS(3)
LUKOIL HOLDING Russia's largest private oil and gas company, LUKoil holds Russia 17.6
18% of Russia's oil and gas extracting market and 11% of its refining market.
The company's oil reserves are estimated to be the second largest in the
world.
MOSENERGO Produces and distributes electric and thermal energy. The company owns Russia 10.7
sufficient capacity to accommodate pickup in demand over the next two years.
RICHTER GEDEON RT Manufactures pharmaceutical products exported to the Hungary 7.3
Commonwealth of Independent States (CIS), the Baltic States, Poland, the U.S.
and Japan.
UNIFIED ENERGY SYSTEMS A state monopoly in the power utility sector. The Russia 6.8
company fully owns 35 of the largest power stations and all high-voltage
networks--controlling over 85% of the domestic energy supply. Export markets
include Kazakhstan, Finland and Mongolia.
GAZPROM Operates in the extraction, transportation, storage and sale of Russia 4.5
natural gas. The company is the successor organization of the state-owned gas
company. It owns and operates Russia's Unified Gas Supply System. The state
owns 40% of the company, while Gazprom has a monopoly in supplying gas to the
former Soviet Union. Gazprom also supplies 21% of western European natural
gas consumption.
ELEKTRIM SPOLKA AKCYJNA, S.A. Operates through five main divisions: power Poland 3.1
equipment, electrical machinery and apparatus, telecommunications, the cable
industry and lighting technology. The company has export/import activities
throughout Europe, the U.S., Korea and Russia.
TATNEFT A vertically integrated oil company that explores, drills, produces Russia 2.8
and refines oil and gas in Tatarstan. The company is currently developing 58
fields with more than 20,000 wells. Tatneft has established several
successful joint ventures with major French, German and U.S. companies.
BORSODCHEM RT Manufactures and supplies a diversified line of chemical Hungary 2.8
products and produces and processes raw materials. BorsodChem mainly supplies
western European markets with its products.
ROSTELECOM Provides long-distance and international telecommunications Russia 2.8
services. The company offers direct-dial telephone service in Russia and
international telecommunication services. Rostelecom controls approximately
95% market share in outgoing international phone calls.
SPT TELECOM AS Operates a telephone and telecommunications network Czech 2.7
throughout the Czech Republic. SPT Telecom also operates a wireless telephone
network and provides international communication services.
</TABLE>
Source: Bloomberg, November 1997.
(3) There is no assurance the Fund will continue to hold these or any other
securities mentioned in this report.
6
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
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
CONTINUED P8
7
<PAGE>
DIVIDEND REINVESTMENT PLAN CONTINUED
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.
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.
8
<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, 1997, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
the financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997 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 as of October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
DECEMBER 15, 1997
F1
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
PORTFOLIO OF INVESTMENTS
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Energy (47.3%)
LUKoil Holding - Sponsored ADR (b) ....................... RUS 263,600 $ 22,422,475 17.6
OIL
Mosenergo ................................................ RUS -- -- 10.7
ELECTRICAL & GAS UTILITIES
Sponsored ADR 144A (b)(d) .............................. -- 64,800 2,754,000 --
Sponsored ADR Reg. S Shares (b)(g) ..................... -- 33,500 1,423,750 --
Sponsored ADR (b)(g) ................................... -- 222,000 9,435,000 --
Unified Energy Systems (b)(h) ............................ RUS 26,120,000 8,697,960 6.8
ELECTRICAL & GAS UTILITIES
Gazprom ADR 144A (b)(d) .................................. RUS 259,300 5,801,838 4.5
OIL
Elektrim Spolka Akcyjna SA (b) ........................... POL 424,745 4,003,344 3.1
ENERGY SOURCES
Tatneft (b)(c)(e) ........................................ RUS 25,000 3,587,500 2.8
OIL
Surgutneftegaz Sponsored ADR (b) ......................... RUS 255,000 2,295,000 1.8
OIL
------------
60,420,867
------------
Services (11.1%)
Rostelecom (b)(e) ........................................ RUS 1,130,000 3,503,000 2.8
TELEPHONE - LONG DISTANCE
SPT Telecom AS (e) ....................................... CZCH 30,000 3,454,022 2.7
TELECOM - OTHER
Vimpel Communications Sponsored ADR (b)(e) ............... RUS 71,550 2,343,263 1.8
TELECOM - OTHER
Nizhny Novgorod Sviazinform (b)(e) ....................... RUS 320,000 1,216,000 1.0
TELECOM - OTHER
Kuban Electrosvyaz Preferred (b)(e) ...................... RUS 66,100 991,500 0.8
TELECOM - OTHER
Samara Svyazinform ....................................... RUS -- -- 0.8
TELEPHONE - REGIONAL/LOCAL
Preferred (b)(e) ....................................... -- 8,900 534,000 --
Common (b)(e) .......................................... -- 4,600 517,500 --
Chelyabinsk Svyazinform (b)(e) ........................... RUS 16,900 878,800 0.7
TELECOM - OTHER
Russian Telecommunication Development Corp. .............. RUS -- -- 0.5
TELEPHONE NETWORKS
Non-voting (b)(c)(e)(f) ................................ -- 52,600 394,500 --
Voting (b)(c)(e)(f) .................................... -- 38,400 288,000 --
Technoimpex (b)(c)(e)(f) ................................. HGRY 1,400 -- --
WHOLESALE & INTERNATIONAL TRADE
------------
14,120,585
------------
Health Care (9.4%)
Richter Gedeon RT ........................................ HGRY 101,160 9,297,412 7.3
PHARMACEUTICALS
Egis RT .................................................. HGRY 56,022 2,629,087 2.1
PHARMACEUTICALS
------------
11,926,499
------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Consumer Non-Durables (7.6%)
Pick Szeged RT 144A GDR (b)(d) ........................... HGRY 40,000 $ 3,300,000 2.6
FOOD
Graboplast RT ............................................ HGRY 56,000 3,019,100 2.4
HOUSEHOLD PRODUCTS
Russkie Samotsvety (b)(e) ................................ RUS 50,000 2,412,500 1.9
OTHER CONSUMER GOODS
Agros Holdings SA "C" Series (b)(e) ...................... POL 45,630 957,181 0.7
FOOD
------------
9,688,781
------------
Materials/Basic Industry (7.5%)
BorsodChem RT Sponsored GDR (b) .......................... HGRY 99,000 3,539,250 2.8
CHEMICALS
Pannonplast RT ........................................... HGRY 60,662 3,332,423 2.6
MISC. MATERIALS & COMMODITIES
Izhorskie Zavody (b)(e) .................................. RUS 20,000 1,775,000 1.4
METALS - STEEL
Mezogazdasagi Gepgyarto RT (b)(c) ........................ HGRY 25,000 692,519 0.5
CHEMICALS
Stomil Olsztyn SA (b) .................................... POL 39,024 308,379 0.2
PLASTICS & RUBBER
------------
9,647,571
------------
Investment Funds (4.7%)
Baltic Republics Fund LTD (b)(c)(e) ...................... IRE 9,000 2,385,000 1.9
COUNTRY FUND
Romania Fund LTD (b)(e) .................................. ROM 15,000 1,537,500 1.2
COUNTRY FUND
Ladenburg Thalmann Ukraine Fund LTD (b)(e) ............... UKR 15,000 1,477,500 1.1
COUNTRY FUND
Romanian Growth Fund PLC (b)(e) .......................... ROM 75,000 591,000 0.5
COUNTRY FUND
------------
5,991,000
------------
Finance (3.0%)
Bank Slaski SA (b) ....................................... POL 26,059 1,520,108 1.2
BANKS - MONEY CENTER
Bank Rozwoju Eksportu SA (b) ............................. POL 77,600 1,404,828 1.1
BANKS - MONEY CENTER
Bank Handlowy W. Warszawie (b)(e) ........................ POL 70,000 941,379 0.7
BANKS - MONEY CENTER
Ergo Bank SA ............................................. GK 1 60 --
BANKS - MONEY CENTER
------------
3,866,375
------------
Capital Goods (2.4%)
Exbud SA (b)(e) .......................................... POL 183,719 $ 1,662,974 1.3
CONSTRUCTION
Uralmash Zavody (b)(e) ................................... RUS 150,000 1,410,000 1.1
MACHINERY & ENGINEERING
------------
3,072,974
------------
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE % OF NET
EQUITY INVESTMENTS COUNTRY SHARES (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Consumer Durables (1.8%)
North American Business Industries (b)(e) ................ HGRY 50,000 $ 1,355,515 1.0
AUTO PARTS
Nizhnekamskshina (b)(e) .................................. RUS 10,000 1,000,000 0.8
AUTO PARTS
------------
2,355,515
------------ -----
TOTAL EQUITY INVESTMENTS (cost $113,617,352) ............... 121,090,167 94.8
------------ -----
<CAPTION>
VALUE % OF NET
REPURCHASE AGREEMENT (0.3%) (NOTE 1) ASSETS(A)
- ------------------------------------------------------------ ------------ -------------
<S> <C> <C> <C> <C>
Dated October 31, 1997, with State Street Bank & Trust
Company, due November 3, 1997, for an effective yield of
5.57% collateralized by $330,000 U.S. Treasury Bonds,
8.875% due 8/15/17 (market value of collateral is
$432,939 including accrued interest). (cost $423,000) ... 423,000 0.3
------------ -----
TOTAL INVESTMENTS (cost $114,040,352) * .................... 121,513,167 95.1
Other Assets and Liabilities ............................... 6,209,400 4.9
------------ -----
NET ASSETS ................................................. $127,722,567 100.0
------------ -----
------------ -----
</TABLE>
- --------------
(a) Percentages indicated are based on net assets of $127,722,567.
(b) U.S. currency denominated.
(c) At October 31, 1997, the Fund owned the following restricted
securities constituting 5.8% of net assets which may not be
publicly sold without registration under the Securities Act of 1933
(Note 1). Additional information on restricted securities is as
follows:
<TABLE>
<CAPTION>
ACQUISITION VALUE
DATE SHARES COST PER SHARE
----------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Baltic Republic Fund.................... 09/02/94 9,000 $ 900,000 $265.00
Mezogazdasagi Gepgyarto RT.............. 02/26/97 25,000 270,250 27.70
Russian Telecommunication Development
Corp.:
Non-voting............................ 12/20/93 52,600 526,000 7.50
Voting................................ 12/20/93 38,400 384,000 7.50
Tatneft................................. 08/15/96 25,000 675,000 143.50
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) Valued in good faith at fair value using procedures approved by the
Board of Trustees (see Note 1 of Notes to Financial Statements).
(g) Security issued under Regulation S. Rule 144A and additional
restrictions may apply in the resale of such securities.
(h) All or part of the Fund's holdings in this security is segregated
as collateral for when-issued securities or forward currency
contracts (see Note 1 of Notes to Financial Statements).
* For Federal income tax purposes, cost is $115,535,852 and
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 18,893,471
Unrealized depreciation: (12,916,156)
-------------
Net unrealized appreciation: $ 5,977,315
-------------
-------------
</TABLE>
Abbreviations:
ADR--American Depository Receipt
GDR--Global Depository Receipt
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, 1997
- --------------------------------------------------------------------------------
The Fund's Portfolio of Investments at October 31, 1997 was concentrated in the
following countries:
<TABLE>
<CAPTION>
PERCENTAGE OF NET ASSETS(A)
-----------------------------------
COUNTRY (COUNTRY CODE/CURRENCY CODE) EQUITY OTHER TOTAL
- -------------------------------------- ------ ------------- ----------
<S> <C> <C> <C>
Czech Republic (CZCH/CZK) ............ 2.7 2.7
Hungary (HGRY/HUF) ................... 21.3 21.3
Ireland (IRE/IEP) .................... 1.9 1.9
Poland (POL/PLN) ..................... 8.3 8.3
Romania (ROM/ROL) .................... 1.7 1.7
Russia (RUS/RUR) ..................... 57.8 57.8
Ukraine (UKR/UKR) .................... 1.1 1.1
Short-term & Other ................... 0.0 5.2 5.2
------ ----- ----------
Total ............................... 94.8 5.2 100.0
------ ----- ----------
------ ----- ----------
</TABLE>
- --------------
(a) Percentages indicated are based on Net Assets of $127,722,567.
The accompanying notes are an integral part of the financial statements.
F5
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
STATEMENT OF ASSETS
AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments in securities, at value (cost $114,040,352) (Note 1)............................... $121,513,167
U.S. currency....................................................................... $ 373
Foreign currencies (cost $452)...................................................... 447 820
---------
Receivable for securities sold................................................................. 15,574,329
Dividends and foreign withholding taxes receivable............................................. 127,903
Prepaid expenses............................................................................... 4,315
-----------
Total assets................................................................................. 137,220,534
-----------
Liabilities:
Payable for loan outstanding (Note 6).......................................................... 5,000,000
Payable for securities purchased............................................................... 4,042,500
Payable for investment management fees (Note 2)................................................ 157,571
Payable for printing and postage expenses...................................................... 127,900
Payable for professional fees.................................................................. 76,000
Payable for administration fees (Note 2)....................................................... 31,514
Payable for loan outstanding interest (Note 6)................................................. 27,022
Payable for custodian fees..................................................................... 7,000
Payable for Trustees' fees and expenses (Note 2)............................................... 6,800
Other liabilities.............................................................................. 21,660
-----------
Total liabilities............................................................................ 9,497,967
-----------
Net assets....................................................................................... $127,722,567
-----------
-----------
Net asset value per share ($127,722,567 DIVIDED BY 6,859,397 capital shares outstanding)......... $ 18.62
-----------
-----------
Net assets consist of:
Paid-in capital (Note 4)....................................................................... $93,238,784
Accumulated net realized gain on investments and foreign currency transactions (Note 1)........ 27,018,692
Net unrealized depreciation on translation of assets and liabilities in foreign currencies..... (7,724)
Net unrealized appreciation of investments..................................................... 7,472,815
-----------
Total -- representing net assets applicable to capital shares outstanding........................ $127,722,567
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F6
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Interest and other......................................................................... $1,580,394
Dividends (net of foreign withholding tax of $95,989)...................................... 872,563
----------
Total investment income.................................................................. 2,452,957
----------
Expenses:
Investment management fees (Note 2)........................................................ 1,650,255
Administration fees (Note 2)............................................................... 330,051
Professional fees.......................................................................... 162,795
Printing and postage expenses.............................................................. 135,407
Custodian fees............................................................................. 90,291
Trustees' fees and expenses (Note 2)....................................................... 30,151
Transfer agent fees........................................................................ 24,807
Other expenses............................................................................. 61,421
----------
Total expenses........................................................................... 2,485,178
----------
Net investment loss.......................................................................... (32,221)
----------
Net realized and unrealized gain (loss) on investments and foreign currencies:
(Note 1)
Net realized gain on investments............................................... $28,441,374
Net realized loss on foreign currency transactions............................. (1,062,463)
----------
Net realized gain during the period...................................................... 27,378,911
Net change in unrealized depreciation on translation of assets and liabilities
in foreign currencies......................................................... 15,419
Net change in unrealized appreciation of investments........................... (2,020,222)
----------
Net unrealized depreciation during the period............................................ (2,004,803)
----------
Net realized and unrealized gain on investments and foreign currencies....................... 25,374,108
----------
Net increase in net assets resulting from operations......................................... $25,341,887
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F7
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income (loss)............................................... $ (32,221) $ 2,032,527
Net realized gain on investments and foreign currency transactions......... 27,378,911 37,161,643
Net change in unrealized depreciation on translation of assets and
liabilities in foreign currencies......................................... 15,419 73,029
Net change in unrealized appreciation of investments....................... (2,020,222) (14,682,286)
------------- ------------
Net increase in net assets resulting from operations....................... 25,341,887 24,584,913
Distributions to shareholders: (Note 1)
From net investment income................................................. (486,813) (1,912,552)
From net realized gain on investments...................................... (12,964,260) (981,975)
------------- ------------
Total distributions...................................................... (13,451,073) (2,894,527)
Capital share transactions: (Note 4)
Cost of shares redeemed pursuant to tender offer (Note 5).................. (6,372,020) (136,185,045)
------------- ------------
Total increase (decrease) in net assets.................................. 5,518,794 (114,494,659)
Net assets:
Beginning of period........................................................ 122,203,773 236,698,432
------------- ------------
End of period.............................................................. $127,722,567* $122,203,773**
------------- ------------
------------- ------------
<FN>
- --------------
* Including undistributed net investment income of $0.
** Including undistributed net investment income of $486,639.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F8
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding,
total investment return, ratios and supplemental data. This information has been
derived from information provided in the financial statements and market price
<TABLE>
<S> <C> <C> <C> <C> <C>
data for the shares.
<CAPTION>
<S> <C> <C> <C> <C> <C>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 16.92 $ 14.75 $ 15.37 $ 14.07 $ 10.37
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).......... 0.00 0.24 0.11 0.02 0.12
Net realized and unrealized gain
(loss) on investments................ 3.57 2.11 (0.38) 1.52 3.58
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations.............. 3.57 2.35 (0.27) 1.54 3.70
---------- ---------- ---------- ---------- ----------
Distributions to shareholders from:
Net investment income................. (0.07) (0.12) (0.02) (0.12) 0.00
Net realized gain on investments...... (1.80) (0.06) (0.33) (0.12) 0.00
---------- ---------- ---------- ---------- ----------
Total distributions................. (1.87) (0.18) (0.35) (0.24) 0.00
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.......... $ 18.62 $ 16.92 $ 14.75 $ 15.37 $ 14.07
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Market value, end of period............. $ 16.38 $ 13.75 $ 12.75 $ 13.00 $ 14.25
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total investment return (based on market
value)................................. 35.81% 9.35% 0.73% (7.25)% 52.0%
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 127,723 $ 122,204 $ 236,698 $ 246,610 $ 225,231
Ratio of net investment income (loss) to
average net assets..................... (0.02)% 1.09% 0.80% 0.15% 1.04%
Ratio of expenses to average net
assets................................. 1.88% 1.87% 1.79% 1.87% 1.88%
Portfolio turnover rate................. 95% 69% 57% 65% 87%
Average commission rate paid on
portfolio transactions (a)............ $ 0.1374 $ 0.0420 N/A N/A N/A
</TABLE>
- ----------------
(a) For fiscal years beginning after September 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
N/A Not Applicable.
The accompanying notes are an integral part of the financial statements.
F9
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
NOTES TO
FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
G.T. Global Eastern Europe Fund ("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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
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 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.
F10
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
(E) OPTION ACCOUNTING PRINCIPLES
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as an
asset and an equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. The current
market value of an option listed on a traded exchange is valued at its last bid
price, or, in the case of an over-the-counter option, is valued at the average
of the last bid prices obtained from brokers, unless a quotation from only one
broker is available, in which case only that broker's price will be used. If an
option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction, a gain or loss is realized without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a written call option is exercised, a gain or
loss is realized from the sale of the underlying security and the proceeds of
the sale are increased by the premium originally received. If a written put
option is exercised, the cost of the underlying security purchased would be
decreased by the premium originally received. The Fund can write options only on
a covered basis, which, for a call, requires that the Fund hold the underlying
security and, for a put, requires the Fund to set aside cash, U.S. government
securities, or other liquid securities, in an amount not less than the exercise
price or otherwise provide adequate cover at all times while the put option is
outstanding. The Fund may use options to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of Assets and Liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the Fund exercises a call
option, the cost of the securities acquired by exercising the call is increased
by the premium paid to buy the call. If the Fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market value of the underlying security or index
increases and the option is exercised. The risk in writing a put option is that
the Fund may incur a loss if the market value of the underlying security or
index decreases and the option is exercised. In addition, there is the risk the
Fund may not be able to enter into a closing transaction because of an illiquid
secondary market.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. Upon entering into such a contract the
Fund is required to pledge to the broker an amount of cash or securities equal
to the minimum "initial margin" requirements of the exchange on which the
contract is traded. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the Fund as unrealized gains or losses. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. The potential risk to the Fund is that the change in value of the
underlying securities may not correlate to the change in value of the contracts.
The Fund may use futures contracts to manage its exposure to the stock market
and to fluctuations in currency values or interest rates.
(G) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed). The cost of securities sold is determined on a first-in,
first-out basis, unless otherwise specified. Dividend income is recorded on the
ex-dividend date, or as soon as the Fund is informed of the dividend. 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) DISTRIBUTION 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.
F11
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
(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
held by the Fund (excluding 144A issues) are shown at the end of the Portfolio
of Investments.
(L) INDEXED SECURITIES
The Fund may invest in indexed securities whose value is linked either directly
or indirectly to changes in foreign currencies, interest rates, equities,
indices, or other reference instruments. Indexed securities may be more volatile
than the reference instrument itself, but any loss is limited to the amount of
the original investment.
(M) SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS
The Fund may trade securities on a when-issued or forward commitment basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of acquiring such
securities, it may sell such securities before the settlement date. These
securities, if any, are identified on the accompanying Portfolio of Investments.
The Fund has set aside sufficient cash or liquid securities as collateral for
these purchase commitments.
2. RELATED PARTIES
Chancellor LGT Asset Management, Inc. is 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") 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 Manager or any of it's 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, 1997, purchases and sales of investment
securities by the Fund, other than short-term investments, aggregated
$119,407,301 and $128,626,466, respectively. There were no purchases or sales of
U.S. government obligations by the Fund for the year ended October 31, 1997.
4. CAPITAL SHARES
At October 31, 1997, 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 6,859,397 shares remained outstanding.
5. ANNUAL REPURCHASE OFFER
Pursuant to the Fund's policy of conducting annual repurchase offers, on March
26, 1997, the Fund offered to repurchase up to 5% of the issued and outstanding
shares of beneficial interest in the Fund. The repurchase offer expired on April
18, 1997 and the shares were repurchased at the Net Asset Value at the close of
regular trading on the New York Stock Exchange on May 2, 1997, less a repurchase
fee equal to 1.473% of the NAV per share.
The Fund's agent, Boston Equiserve, indicated that 3,248,692 shares were validly
tendered and not withdrawn prior to the expiration of the Fund's repurchase
offer. The shares accepted for tender (361,021 shares representing 5%) received
cash at a repurchase offer price of $17.39, which was equal to the Fund's net
asset value of $17.65 as of May 2, 1997, less the repurchase fee. After the
repurchase offer, the Fund has approximately 6.9 million shares outstanding;
361,021 shares were returned to the Fund's Treasury.
6. LINE OF CREDIT
The Fund, along with certain other funds ("GT Funds") advised or administered by
the Manager, has a line of credit with each of BankBoston and State Street Bank
& Trust Company. The arrangements with the banks allow the Fund and the GT Funds
to borrow an aggregate maximum amount of $200,000,000. The Fund is limited to
borrowing up to 33 1/3% of the value of each Fund's total assets. On October 31,
1997, the Fund had $5,000,000 in loans outstanding.
For the year ended October 31, 1997, the weighted average outstanding daily
balance of bank loans (based on the number of days the loans were outstanding)
for the Fund was $4,161,162, with a weighted average interest rate of 6.32%.
Interest expense for the Fund for the year ended October 31, 1997 was $27,022,
and is included in "Other Expenses" on the Statement of Operations.
F12
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
7. PROXY RESULTS (UNAUDITED)
During the year ended October 31, 1997, G.T. Global Eastern Europe Fund
shareholders voted on the following proposals at a shareholders' meeting held on
October 20, 1997. 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 Trustees: C. Derek Anderson.............. 4,398,152 94,372
Frank S. Bayley................ 4,405,458 87,066
</TABLE>
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES VOTED
FOR AGAINST ABSTAIN
------------ ------------ ------------
<S> <C> <C> <C>
2. Proposal to ratify the selection of Coopers & Lybrand, L.L.P. as
Independent Public Accountants
for the fiscal year ended October 31, 1997........................... 4,351,214 45,882 95,428
</TABLE>
- --------------
FEDERAL TAX INFORMATION (UNAUDITED):
For its fiscal year ended October 31, 1997, the total amount of income received
by the Fund from sources within foreign countries and possessions of the United
States was approximately $.3096 per share (representing an approximate total of
$2,123,435). The total amount of taxes paid by the Fund to such countries was
approximately $.0140 per share (representing an approximate total of $95,989).
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$12,964,260 as a capital gain dividend for the fiscal year ended October 31,
1997.
F13
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
NOTES
- --------------------------------------------------------------------------------
<PAGE>
G.T. GLOBAL EASTERN EUROPE FUND
GT GLOBAL FUNDS
GT GLOBAL OFFERS A BROAD RANGE OF FUNDS TO COMPLEMENT MANY INVESTORS'
PORTFOLIOS. FOR MORE INFORMATION AND A PROSPECTUS ON ANY OF THE GT GLOBAL
FUNDS, PLEASE CONTACT YOUR INVESTMENT ADVISOR OR CALL GT GLOBAL DIRECTLY AT
1-800-824-1580. THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING
CHARGES, EXPENSES AND THE RISKS OF GLOBAL AND EMERGING MARKET INVESTING.
INVESTORS SHOULD READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
GROWTH FUNDS
/ / GLOBALLY DIVERSIFIED FUNDS
GT GLOBAL NEW DIMENSION FUND
Captures global growth opportunities by investing directly in the six GT Global
Theme 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
GT GLOBAL DEVELOPING MARKETS FUND
Invests in debt and equity securities of developing market issuers
/ / GLOBAL THEME FUNDS
GT GLOBAL CONSUMER PRODUCTS AND SERVICES FUND
Focuses on worldwide opportunities from the demand for consumer products and
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 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
Focuses 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 securities
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
GT GLOBAL FLOATING RATE FUND
Invests primarily in senior secured floating rate loans with the potential to
achieve a high level of current income
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
G.T. Global Eastern Europe Fund
GTFAR712XXXMER.673
December, 1997
