-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S7dTQi4EDW+y2b7fi+zFeThU48LWKCVMFLu4FtQFlzAsSUBYRR/TrbB/0orjIrHW 0YzqQmROkHQJMbLYN0vh1Q== 0000950109-97-006637.txt : 19971107 0000950109-97-006637.hdr.sgml : 19971107 ACCESSION NUMBER: 0000950109-97-006637 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971106 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GMO TRUST CENTRAL INDEX KEY: 0000772129 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04347 FILM NUMBER: 97709421 BUSINESS ADDRESS: STREET 1: 40 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173307500 MAIL ADDRESS: STREET 1: 40 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: GMO CORE TRUST DATE OF NAME CHANGE: 19900927 N-30D 1 SEMI-ANNUAL REPORTS November 6, 1997 VIA EDGAR Securities and Exchange Commission Office of Filings, Information and Consumer Services 450 Fifth Street, NW Washington, D.C. 20549 RE: GMO Trust (the "Trust") File No. 011-4347 Ladies and Gentlemen: Pursuant to Rule 30(b)(2)-1 under the Investment Company Act of 1940. As Amended, we are transmitting via EDGAR the GMO Trust Semi-Annual Reports for the period ended August 31, 1997. Please be advised that the above-referenced Fund's financials for the aforementioned period are included in this document. If you have any questions, please telephone the undersigned at (617) 330-6027. Thank you for your assistance with this matter. Very truly yours, Donna M. McCarthy Account Manager GMO Emerging Markets Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- STOCK AND EQUIVALENTS - 87.8% Argentina - 4.0% 256,520 Alpargatas SA * 212,954 825,616 Atanor SA D Shares 1,197,383 305,440 Capex SA Class A (Voting) 2,612,034 2,179,454 Central Costanera Class B (Voting) 7,411,626 2,183,500 Central Puerto B Shares 6,224,220 1,952,414 Cia Celulosa Argentina SA Class B * 976,402 1,034,415 Ciadea SA (Bearer) 2,658,978 186,122 Fiplasto Class B 753,945 1,589,939 Garovaglio Y Zorraquin * 6,440,541 93,000 Inversiones SA 409,282 1,080,459 Ledesma SA 1,296,810 459,598 Nobelza Piccardo 2,919,031 155,500 Perez Companc SA Class B 1,241,138 67,983 Pirelli Cables Industria * 142,793 79,358 Polledo * 119,061 264,950 Quimica Estrella Class B 357,754 45,970 Quimica Estrella Preferred 10% (d) 45,979 379,043 Rigolleau Christalerias Preferred * 439,778 1,839,928 Siderca 5,769,328 78,800 Telecom Argentina SA ADR 2,176,850 2,925,000 Transportadora De Gas Del Sur Class B 6,962,893 736,453 YPF SA ADR 23,980,751 ------------------ 74,349,531 ------------------ Brazil - 11.1% 6,531,000 Acos Villares SA Preferred 1,465,288 2,300,000 Alpargatas de Sao Paulo 104,237 35,870,000 Alpargatas de Sao Paulo Preferred 1,609,223 1,557,000 Aracruz Cellulose Class B Preferred 3,165,330 148,940,000 Banco Nacional Preferred (c) 1,364 25,040,000 Belgo Mineira Preferred (Registered) 1,699,143 4,400,000 Belgo Mineira (Registered) 330,403 511,700,003 Bombril SA Preferred 4,592,180 6,800,000 Brasmotor Preferred (Registered) 1,282,784 21,500,000 Caemi Mineracao e Metalurgica SA Preferred 1,201,007 555,100,000 Cemig Preferred 24,908,333 143,400,000 Ceva Ceval Alimentos SA Preferred 1,483,901 34,000,000 Cia Energentica Perna Class A Preferred * 435,897 162,100,000 Cia Energetica de Sao Paulo SA Preferred (Registered) * 11,059,020 18,500,000 Cia Energetica de Sao Paulo SA * 1,153,201 246,500,000 Cia Hering Preferred (Registered) 3,724,588 14,900,000 Copel PNA 259,249 12,689,000 Copene-Petroquimica do Nordeste SA Class A Preferred 4,961,724 1,637,000 Cosipa PN Class B * 929,432 67,233,771 Electrobras Class B Preferred (Registered) 30,599,986 17,900,000 Electrobras Common 7,622,253 49,000,000 Energetica Ceara Class A Preferred * 228,846 113,950,000 Ericsson Telecomunicacoes Perferred 5,614,020
See accompanying notes to the financial statements. 1 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Brazil - continued 2,000,000 Ericsson Telecomunicacoes Common 84,249 660,000,000 Fertilizantes Fosfatados Preferred 3,324,176 511,732,118 Gerdau SA Preferred 10,028,450 1,336,261 Iochpe Maxion Preferred 116,250 262,400,000 Iparanga Brasil De Petroleo Preferred 4,205,128 42,420,000 Mesbla Preferred (Registered) (d) * 194,231 223,302,674 Metalurgica Gerdau Preferred 10,019,992 12,598,589 Metalurgica Gerdau SA 346,115 335,746,000 Olvebra Preferred * 33,821 205,500,000 Petrobras Distrib Preferred 5,271,113 66,580,000 Petroleo Brasileiro SA Preferred 16,279,176 583,800,000 Siderurgica de Tubarao Preferred Class B 9,783,462 271,810,000 Telecomunicacoes Brasileiras SA ORD 29,122,500 5,830,152 Unipar Preferred 2,082,197 600,740 Usiminas Preferred 6,106,423 673,000 Varig Preferred (Registered) * 1,355,861 ------------------ 206,784,553 ------------------ Chile - 2.6% 103,200 Banco Santiago Sponsored ADR 2,586,450 22,000 Chile Fund Inc 534,875 88,600 Chilectra SA Sponsored ADR 2,835,200 286,508 Chilgener ADR 7,807,343 47,000 Chilquinta Sponsored ADR 752,000 94,200 Chilquinta Sponsored ADR 144A 1,507,200 181,000 Compania de Telefones de Chile ADR 5,441,313 14,200 Cristalerias de Chile SA ADR 275,125 46,900 Embotelladora Andina ADR Class A 1,151,981 46,900 Embotelladora Andina Class B ADR 1,084,563 368,700 Empresa Natl de Electricidad ADR 8,203,575 143,500 Enersis SA ADR 5,103,219 1,330,000 Five Arrows Chile Investment Trust Ltd 4,295,900 156,100 Maderas Y Sinteticos Soc ADR 2,263,450 45,500 Soc Quinica Y Minera de Chile Sponsored ADR 2,747,063 71,400 Vina Concha Y Torosa Sponsored ADR 1,936,725 ------------------ 48,525,982 ------------------ China - 0.8% 6,466,000 Dongfang Electrical Machinery Class H 3,045,670 930,000 Guangdong Kelon Elec Holding H 1,158,149 7,034,000 Harbin Power Equipment Class H 2,337,405 59,650 Huaneng Power International ADR * 1,409,231 1,465,800 Nanjing Posts & Telephone Class B * 750,965 4,140,000 Northeast Electrical Transmission & Transformation Machinery Manufacturing Co Ltd Class H 1,389,082 5,004,000 Qingling Motor Co Ltd Class H 2,825,203 81,498 Shanghai Haixing Class B Rights * 163 797,832 Shanghai Haixing Shipping Co Ltd Class B 588,800 760,000 Tianjin Bohai Chemical Industry (Group) Co Ltd Class H * 240,289 2,190,000 Yizheng Chemical Fibre Co 1,596,787 ------------------ 15,341,744 ------------------
2 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Colombia - 0.1% 26,200 Banco Ganadero SA Sponsored ADR 949,750 ------------------ Czech Republic - 1.7% 20,983 AGB Podilovy Fond * 503,152 34,000 Alpha Effect 784,904 50,000 Cez 2 1,194,483 19,000 CKD Praha Holding AS * 585,773 60,934 Czech Republic Fund Inc 830,226 9,300 IF Bohatstvi * 252,647 38,397 IF Zivnobanka 543,284 212,249 IPS Praha 1,517,374 197,800 Komercni Bank AS GDR 144A 4,005,450 8,600 Komercni Banka AS GDR 174,150 9,800 Komercni Banka IF * 190,331 2,870 Leciva AS * 208,255 7,092 Metrostav AS 529,824 64,000 PF IKS KB Plus 371,273 31,000 PIF (Privat Inv Fond) 421,078 62,300 Restitucni IF 1,659,057 16,624 Sepap AS * 616,016 111,231 Skoda Koncernplzen * 2,919,023 367,188 SP Vseobecny * 929,701 27,366 Spif Cesky 322,807 212,476 Spif Vynosovy 1,193,045 17,000 Sporitelni Privatizacni * 395,490 64,470 SPT Telecom AS * 8,102,199 1,926 Stavby Silnic A Zeleznic SA 50,716 28,350 Synthesia * 193,386 441,700 Unipetrol (d) * 1,435,318 74,433 Zivnobanka Preferred 911,262 ------------------ 30,840,224 ------------------ Egypt - 1.0% 84,000 Al Ahram Beverages Co GDR * 2,142,000 23,000 Alexandria Cement 441,048 98,000 Ameriyah Cement Co 2,422,602 83,000 Commercial International Bank GDR 2,079,150 43,990 Eastern Tobacco Co 1,113,343 14,800 Egyptian International Pharm Investment 958,211 117,800 Helwan Portland Cement Co 2,446,135 41,750 Middle Egypt Flour Mills 485,322 104,500 Misr International Bank Sae GDR 144A * 1,645,875 18,000 Suez Cement Co 376,633 122,881 Suez Cement Co GDR 144A 2,562,069 60,250 Torrah Portland Cement 1,595,792 28,935 Upper Egypt Flour Mills 666,323 ------------------ 18,934,503 ------------------
See accompanying notes to the financial statements. 3 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Greece - 2.7% 374,170 Aegek 1,876,731 99,445 Alpha Credit Bank (Registered) 6,505,321 149,480 Alpha Leasing (Registered) 3,590,350 32,730 Aluminum of Greece Common (Registered) 2,080,958 35,900 Aluminum of Greece Preferred 10.41% 2,211,494 673,470 Balkan Export * 442,462 236,900 Boutaris and Son Holdings * 214,215 378,446 Commercial Bank of Greece (Registered) 15,091,856 75,740 Delta Dairy SA Common 1,043,361 530 Delta Dairy SA Preferred 5,008 8,940 Econ Viomihanies (d) * 7,200 41,267 Ergo Bank SA (Registered) 2,412,380 105,144 Etba Leasing (Registered) 958,184 87,500 Etma Rayon Manufacturing 148,661 330,820 Hellenic Sugar Industry 1,875,476 59,365 Ionian Bank (Registered) * 1,164,821 15,020 Klonatex SA GDR 232,375 390,432 Michaniki SA Common (Registered) 2,413,394 18,072 Michaniki SA Preferred (Registered) 82,346 103,000 Naoussa Spinning Mills SA GDR 360,178 33,432 National Bank of Greece (Registered) * 3,910,497 6,875 National Investment Bank for Industrial Development (Registered) 369,115 33,900 National Mortgage Bank of Greece 1,997,287 14,500 Petzetakis SA Common * 66,582 26,750 Petzetakis SA Preferred * 63,211 41,000 Strintzis Lines SA 128,021 ------------------ 49,251,484 ------------------ Hungary - 0.9% 3,280 Cofinec Sponsored GDR 144A * 74,620 38,972 Danubus Hotel (Registered) * 1,075,227 21,414 Egis Gyogysergyar 1,044,852 1,865,951 Fotex (Registered) * 2,278,515 27,046 Graboplast (Registered) 1,803,297 8,293 Matav (Registered) * 3,516,766 100,000 Mol Magyar Olaj GDR 144A 1,995,000 20,661 Pannonplast Muanyagipari 1,013,389 24,226 Pick Szeged (Bearer) 1,763,804 7,316 Richter Gedeon Vegyeszeti Gyar 723,283 15,000 Tiszai Vegyi Kombinat GDR (Registered) 292,500 22,751 Zalakeramia AG 947,353 52,000 Zalakeramia Reszveny GDR 144A 436,800 ------------------ 16,965,406 ------------------ India - 7.9% 13,980 Arvind Mills Ltd 43,175 439,600 Ashok Leyland Ltd GDR 2,406,810 25,000 Ashok Leyland Ltd GDR 144A 136,875 50,000 Bajaj Auto GDR 144A 1,237,500
See accompanying notes to the financial statements. 4 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- India - continued 379,100 Ballarpur Industries 491,484 295,000 Bank of India * 496,539 460,300 Bombay Dyeing & Manufacturing Co Ltd GDR * 1,472,960 905,000 BSES Ltd 4,817,699 697,000 Cesc Ltd GDR 836,400 591,804 Core Healthcare Ltd GDR 147,951 45,000 DCW Ltd GDR 112,500 1,002,000 Escorts 2,675,310 20,600 Excel Industries 123,413 255,520 Garden Silk Mills Ltd GDR 319,400 373,000 Glaxo India Ltd 4,240,270 76,500 Grasim Industries 764,474 2,757,785 Great Eastern Shipping Co 3,203,373 45,000 Great Eastern Shipping Co GDR 144A 282,375 131,000 Great Eastern Shipping Co Ltd GDR 822,025 114,300 Hindalco Industry GDR 3,383,280 4,480 Hindustan Ciba Geigy 450,096 100,000 Hindustan Development Corp GDR 20,000 494,000 Hindustan Development Corp GDR 144A 98,800 513,000 Hindustan Petroleum 6,827,291 6,000 Housing Development Finance 571,594 469,770 India Cements GDR 1,526,753 600,000 India Fund Class B 963,349 186,300 India Fund Inc 1,548,619 17,900 Indian Hotels 304,000 270,100 Indian Petrochemical Co Ltd GDR 2,836,050 135,000 Indian Rayon & Industries GDR 1,451,250 250,000 Indo Gulf Fertilizer 340,628 1,265,000 Indo Gulf Fertilizers GDR 1,834,250 90,000 Indo Gulf Fertilizers GDR 144A 130,500 211,130 Industrial Credit & Investment GDR 144A 2,955,820 803,600 Industrial Development Bank of India 2,210,840 593,000 Industrial Finance Corp of India 509,265 1,976,600 Industry Credit & Investment Corp 4,842,208 699,912 ITC Ltd 9,588,390 100,000 Jain Irrigation Systems Ltd EDR 10,000 2,630,900 Jaiprakash Industries Ltd 1,079,009 201,000 JCT Ltd GDR Class S 301,500 325,000 JK Corp GDR (Registered) 81,250 350,000 Kirloskar Cummins Ltd 4,951,830 401,000 Larsen & Toubro 2,510,527 314,200 Larsen & Toubro GDR 3,927,500 1,870 Madras Cement Ltd 417,572 283,000 Mahanagar Telephone 1,912,373 227,000 Mahindra & Mahindra 2,511,808 2,162,000 National Aluminum 2,588,687 50,000 NEPC Micon Ltd GDR 144A 5,000
See accompanying notes to the financial statements. 5 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- India - continued 262,500 NIIT 3,612,355 1,634,000 Oriental Bank of Commerce 3,098,888 14,000 Parke Davis & Co Ltd 71,619 27,600 Raymond Woolens GDR 129,030 1,929,000 Reliance Industries 17,564,360 680,800 Reliance Industries GDR (Registered) 13,360,700 83,000 Sanghi Polyesters GDR 144A (Registered) * 41,500 50,000 Sanghi Polyesters GDS 144A 25,000 120,000 Siemens India 983,485 572,500 Siv Industries GDR 429,375 88,000 Smithkline Beecham Plc 763,248 225,000 Southern Petrochem GDR 144A 781,875 346,000 Southern Petrochem Industry Corp 246,191 762,450 State Bank of India 6,108,205 63,932 State Bank of India GDR 144A 1,262,657 75,000 Steel Authority of India GDR 540,000 54,000 Steel Authority of India GDR 144A 388,800 313,000 Sterlite Industries Ltd 2,071,159 46,000 Sterlite Industries Ltd GDR 230,000 789,545 Tata Iron & Steel 3,933,599 1,359,500 Uti Masterplus 1991 Unit * 690,415 736,600 Videocon International 786,680 205,000 Videocon International Ltd GDR 358,750 13,350 Videsh Sanchar Nigam GDR 144A 197,246 25,000 Videsh Sanchar Nigam Ltd 656,482 7,500 Videsh Sanchar Nigam Ltd GDR (Registered) * 110,813 95,150 Zuari Agrochemicals Rights 8/13/97 298,571 95,150 Zuari Argochemicals Ltd 324,762 ------------------ 146,386,337 ------------------ Indonesia - 0.0% 171,000 Ciputra Development New (Foreign Registered) 47,822 226,076 Indah Kiat Pulp & Paper (Foreign Registered) Warrants Exp 4/13/01 * 17,243 1,834,000 Pakuwon Jati (Foreign Registered) 512,898 200,000 Tambang Timah Persero (Foreign Registered) 264,407 50 Ungul Indah Corp (Foreign Registered) 51 ------------------ 842,421 ------------------ Israel - 1.1% 1,046,161 Bank Hapoalim 2,260,290 358,355 Clal Industries Ltd 1,986,075 37,718 Elbit Medical Imaging Ltd 293,684 33,200 Elbit Medical Imaging Ltd * 259,375 90,998 Formula Systems Ltd * 2,017,006 1,400,000 Israel Chemical Ltd 1,730,605 24,950 Koor Industries 2,687,439 31,100 Koor Industries Ltd ADR 666,706 3,568,650 Leumi Bank Le Israel 5,628,306 59,300 Tadiran Ltd Sponsored ADR * 2,049,556 ------------------ 19,579,042 ------------------
See accompanying notes to the financial statements 6 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Korea - 7.3% 3,224 ANAM Industrial Co 56,201 89,570 ANAM Industrial Co Preferred 5.15 565,705 13,435 ANAM Industrial Ltd Preferred 93,189 286,730 Cheil Industries 3,170,710 47,431 Cheil Jedang Corp 1,960,294 84,300 Choongnam Spinning * 1,008,798 70,280 Chosun Brewery Co Ltd 1,534,090 19,520 Chosun Brewery Co Ltd Preferred 131,936 82,300 Coryo Securities Preferred * 255,335 43,000 Dae Chang Industrial Co * 948,144 5,760 Daelim Industrial Co Ltd 50,420 675,970 Daewoo Corp 5,317,880 190,400 Daewoo Heavy Ind Ltd Preferred 727,845 159,250 Daewoo Securities Ltd Preferred * 1,146,953 24,600 Daihan Investment and Finance Preferred 98,127 140,900 Daishin Securities Preferred * 494,906 268,000 Dong Shin Construction 504,820 55,900 Dongbu Construction Co Preferred 306,598 59,700 Dongbu Steel Co 965,784 102,340 Dongbu Steel Preferred 644,090 210,600 Dongsuh Securities Preferred 784,062 12,000 Dongwon Securities Co 146,260 33,500 Dongwon Securities Co Preferred 167,036 24,800 Doosan Beverage Co Ltd 769,418 175,000 Hanil Synthetic Fiber Industry Co Preferred * 298,615 360,690 Hanil Synthetic Fiber Industry Co * 1,438,763 61,500 Hanshin Construction Preferred * 33,391 231,000 Hanshin Construction * 273,873 984 Hansol Paper Manufacturing Ltd 24,205 32,800 Hansol Paper Manufacturing Ltd Preferred 297,290 75,700 Hanwha Chemical Corp Preferred * 201,308 39,050 Hanwha Chemical Corp * 279,083 232,406 Hanwha Corp 2,400,027 10,840 Hanwha Corp Preferred 49,726 198,200 Housing & Commercial Bank Korea 3,960,925 247,800 Housing & Commercial Bank Korea GDR 4,355,085 1,436 Hyosung T+C Co Ltd 40,574 5,029 Hyundai Engineering & Construction GDR 144A 21,373 328,745 Hyundai Engineering & Construction GDR (Registered) 1,397,166 110 Hyundai Engineering & Construction * 2,316 363,325 Hyundai Motor Service Co GDR 144A 2,770,353 53,123 Hyundai Motor Service Co Ltd 1,035,972 63,700 Hyundai Motor Service Co Preferred 465,839 1,400 Jindo Corp 10,828 70,000 Jindo Corp Preferred 162,105 50 Jinro Ltd Preferred 111 19,000 Kang Won Industrial Co 218,947
See accompanying notes to the financial statements. 7 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Korea - continued 71,930 Kang Won Industrial Preferred (Non Voting) 294,893 61,746 Kolon Construction 523,387 39,500 Kolon Construction Co Ltd Preferred 126,925 59,400 Kolon Industries Preferred 355,413 7,861 Kolon International Corp 50,432 21,200 Kolon International Corp Preferred 81,981 11,751 Kookmin Bank 183,179 183,152 Kookmin Bank GDR 2,655,704 9,670 Korea Container Terminal 621,452 64,000 Korea Electric Power Corp 1,673,573 20,000 Korea Electric Power Sponsored ADR 326,250 32,175 Korea Long Term Credit Bank 361,134 13,170 Korean Air Lines Preferred * 82,908 213,840 Korean Air Lines * 3,222,409 168,700 Kumho Construction & Engineering Co Ltd Preferred 401,889 177,500 Kumho Petrochemical Preferred 727,701 69,600 Kumho & Co Inc Preferred * 184,315 600 Kun Sul Chemical Industry 44,809 100,590 Kun Young Construction * 120,374 8,008 Kyungbang Co Ltd 496,895 11,910 Kyungnam Wool Textile Preferred * 49,883 122,400 LG Chemical Ltd Preferred 840,864 17,746 LG Merchant Banking Corp 186,800 306,000 LG Metals Corp 5,492,742 65,000 LG Securities Co Preferred 374,515 12,130 Lotte Chilsung Beverage 1,417,967 25,000 Mando Machinery Preferred 332,410 6,440 Miwon Petrochemical Preferred * 16,484 16,500 Monami Co Ltd * 486,316 37,400 Oriental Brewing Co Ltd Preferred * 239,940 67,728 Oriental Chemical Preferred 525,314 34,520 Ottogi Foods 1,407,575 26,840 Pang Rim Spinning 1,026,017 118,834 Pohang Iron & Steel 10,254,025 3,480 Pusan Bank 20,244 7,440 Sam Whan Corp 98,925 31,000 Sam Whan Corp Preferred 140,144 143 Sam Yang 3,201 7,170 Sam Yang Preferred 50,051 194,100 Samho International * 726,934 65,800 Sammi Corp Preferred * 22,602 778 Samsung Display Devices 41,078 49,310 Samsung Display Devices Preferred 1,202,017 24,700 Samsung Electro Mechanics Co Preferred 287,368 180,658 Samsung Electronics GDS (Non Voting) 4,651,944 51,094 Samsung Electronics Ltd 5,431,193 490,323 Samsung Electronics Preferred (Non Voting) 20,748,405
8 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Korea - continued 55,407 Seah Steel Corp 1,258,552 41,922 Shin Sung Corp 250,835 4,785 Shin Wha Engineering & Construction Co 21,102 13,380 Shin Wha Engineering & Construction Co Preferred 44,328 86,161 Shinhan Bank 857,218 54,552 Shinsegae Department Store 1,910,076 49,340 Shinwon Preferred 262,418 101,300 Shinyoung Securities Preferred 583,668 20,846 SK Telecom 15,567,631 9,700 SK Telecom Ltd Sponsored ADR 87,300 156,540 Ssangyong Cement 1,453,524 28,940 Ssangyong Investment Securities Co Preferred * 96,199 27,100 STC Corp Preferred (Non Voting) * 126,116 15,140 Sung Chang Enterprise Co * 654,249 26,460 Sungwon Construction Preferred 103,788 39,000 Sunkyong Industries Ltd Preferred * 211,745 1,170 Sunkyong Industries * 20,483 86 Sunkyong Ltd 1,201 70,700 Sunkyong Securities Preferred 13.11% (Non Voting) * 235,014 1,100 Taihan Textile Co Ltd * 162,105 160,810 Tong Kook Spinning Co Ltd * 734,113 59,060 Tong Yang Cement Corp Preferred 365,812 22,700 Tong Yang Investment & Financial Preferred 100,609 42,000 Tong Yang Securities Co Preferred 77.36% * 130,305 ----------------- 135,435,448 ----------------- Lebanon - 0.2% 121,508 Banq Libanaise GDR Class B * 2,867,589 90,000 Solidere GDR (Registered) * 1,518,750 ----------------- 4,386,339 ----------------- Malaysia - 3.7% 198,000 Affin Holdings Berhad 228,187 383,000 AMMB Holdings Berhad 1,366,215 243,666 Amsteel Corp Warrants Expires 5/19/00 * 71,040 3,132,000 Amsteel Corporation Berhad 1,396,536 120,000 Arab Malaysia Finance Berhad 28,400 429,000 Arab Malaysian Corp 585,635 120,000 Arab Malaysian Finance (Foreign Registered) 113,188 255,000 Bandar Raya Development 181,924 1,348,000 Berjaya Group 781,382 340,000 Berjaya Sports Toto 932,945 841,000 Cement Industries of Malaysia Berhad 1,199,986 788,000 Cold Storage 708,132 125,000 Diversified Resources Berhad 168,925 741,000 Edaran Otomobil Berhad 2,668,667 536,000 Esso Malaysia Berhad 955,994 3,382,000 Golden Hope Plantations Berhad 4,454,426 895,000 Hicom Holdings Berhad 1,215,641
See accompanying notes to the financial statements. 9 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Malaysia - continued 1,277,000 Highlands and Lowlands Berhad 1,265,831 188,000 Hong Leong Industries Berhad 415,915 3,996,000 IGB Corp Berhad 2,741,211 1,807,000 Kuala Lumpur Kepong Berhad 3,687,755 2,164,000 Kumpulan Guthrie Berhad 2,286,098 194,000 Landmark Berhad 125,097 2,543,000 Lion Land Berhad 1,447,909 1,407,000 Malayan Cement Berhad 1,718,031 5,159,000 Malayan United Industries Berhad 2,654,262 976,600 Malaysia Mining Corp Berhad 837,421 242,000 Malaysian Airline Systems 460,676 1,088,000 Malaysian International Ship (Alien Market) 2,239,067 897,000 Malaysian Tobacco Co Berhad 839,928 13,000 MBF Capital Berhad 12,217 2,154,000 Metroplex Berhad Warrants 11/04/98 * 531,943 270,000 Nestle Malaysia 1,713,257 298,200 Oriental Holdings Berhad 1,073,950 849,000 Perlis Plantations 2,096,656 464,000 Perusahaan Otomobil 1,352,770 116,000 Petronas Gas Berhad 320,288 429,000 Public Bank Berhad (Alien Market) 403,176 686,000 Rothmans of Pall Mall Malaysia Berhad 5,529,412 362,000 Shell Refinery Co 819,482 3,201,200 Sime Darby Berhad 7,576,155 1,281,100 Sime UEP Properties Berhad 1,713,699 5,620,000 TA Enterprise Berhad 3,739,599 419,000 Tan Chong Motor Holdings Berhad 442,641 926,000 Tractors Malaysia Holdings Berhad 740,038 133,600 UMW Holding Berhad Warrants 1/26/00 * 109,978 411,000 UMW Holdings Berhad 1,106,620 3,818,000 Westmont Industries Berhad 2,160,761 ----------------- 69,219,066 ----------------- Mexico - 14.6% 1,116,175 Alfa SA Class A 8,551,746 3,992,000 Altos Hornos De Mexico * 10,725,389 167,000 Cementos Mexicanos (Cemex) Class A (Registered) 815,786 3,475,000 Cemex SA Class B 19,164,096 5,847,000 Cemex SA CPO 28,562,283 430,273 Cintra SA CPO Class A (Registered) * 439,178 1,291,000 Controladora Coml Mexicana Class B 1,324,358 3,331,480 Cydsa SA Class A 10,064,247 622,000 Dina (Consorcio Grupo Dina) 724,427 324,100 Empresas ICA Soc Controladora ADR 5,185,600 83,000 Grupo Celanese Mexicana Class B 224,598 4,323,600 Grupo Financiero Banamex Class B 11,588,515 103,529 Grupo Financiero Banamex Class L 268,837 57,326,000 Grupo Financiero Bancomer SA Class B 35,004,306
See accompanying notes to the financial statements. 10 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Mexico - continued 328,963 Grupo Financiero Bancomer SA Class L 169,154 95,181 Grupo Financiero Invermexico Class B * 121,133 700 Grupo Financiero Serfin SA de CV Class B * 297 25,693,320 Grupo Gigante SA Class B * 9,578,433 70,600 Grupo Iusacell Sponsored ADR * 1,085,475 3,067,000 Grupo Mexico Class B 11,985,705 38,886 Grupo Mexico Class B Warrants 8/9/01 * 124,721 280,200 Grupo Mexico Desarollo Class B ADR * 175,125 584,800 Grupo Mexico Desarollo Class L ADR * 584,800 10,000 Grupo Posadas SA 144A GDR * 143,977 679,000 Grupo Posadas SA Class L * 471,346 660,000 Grupo Simec SA Class B * 117,085 6,310,000 Grupo Situr SA de CV Class B 251,459 2,282,900 Grupo Tribasa SA ADR * 12,698,631 74,000 Grupo Tribasa SA * 214,038 6,275,000 Herdez Class B 4,517,290 904,000 Hylsamex SA 6,531,019 973,340 International de Ceramic * 1,864,348 10,000 Ispat International NV Class A (Registered) * 268,125 693,300 Telefonos de Mexico ADR Class L 31,805,138 39,000 Tolmex SA de Con Class B 266,718 437,000 Transportation Maritima Mexicana SA Class A 2,370,665 25,000 Transportation Maritima Mexicana SA Class L 189,613 962,100 Tubos de Acero de Mexico SA * 17,463,494 8,000 TV Azteca SA ADR * 144,000 2,680,280 Vitro SA 11,818,178 1,765,400 Vitro SA ADR 22,729,525 ----------------- 270,332,858 ----------------- Pakistan - 2.4% 1,452,000 Fauji Fertilizer 3,228,301 697,910 Hub Power Co Ltd GDR 20,064,913 4,983,000 Hub Power Co Ltd * 5,921,079 910,000 Japan Power Generation Ltd * 219,185 961,000 Karachi Electric Supply * 528,224 720,000 Pakistan State Oil 6,314,307 1,229,000 Pakistan Telcom Corp Ltd Class A 1,115,768 5,000 Pakistan Telecommnction GDR 440,000 1,395,000 Southern Electric Power Co * 465,236 5,139,500 Sui Northern Gas Pipelines * 4,062,896 2,277,400 Sui Southern Gas Pipelines Ltd * 1,519,036 ----------------- 43,878,945 ----------------- Peru - 0.0% 100,218 Cervecerias 85,011 58 Milpo Minera T Shares 569 ----------------- 85,580 -----------------
See accompanying notes to the financial statements. 11 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Poland - 2.0% 65,791 Agros Holdings Class C * 1,874,468 1,513,000 Bank Inicjatyw Gospodarczych 1,763,479 44,900 Bank Slaski SA 3,320,901 20,313 Budimex SA * 102,888 12,556 Debica Class A 348,703 63,240 Drosed * 1,219,391 433,540 Elektrim SA (Bearer) 3,992,598 96,200 Elektrobudowa SA * 1,522,699 145,345 Exbud SA * 1,731,717 141,078 Gorazdze 5,765,329 2,076,718 International UNP Holdings * 299,151 12,100 Izolacja SA * 800,921 95,890 Jelfa * 2,042,121 84,060 Jutrzenka (Prezedsib Cukiernicze) 1,935,333 109,000 Kghm Polska Miedez SA GDR 144A * 1,330,890 275,200 Mostostal Export (Bearer) 894,959 12,500 Mostostal Zabrze-Holding SA 74,106 45,950 Polfa Kunto Class A * 1,560,429 149,610 Polifarb Cieszyn (Bearer) 835,293 226,170 Polifarb Wroclaw 904,745 2 Rafako SA (Raciborska Fabryka) * 6 16,500 Relpol SA 560,328 5,230 Rolimpex SA 20,319 390,000 Sokolow 471,401 122,679 Stomil-Olsztyn SA 1,232,174 50,900 Vistula 139,161 101,636 Wielkopolski 555,748 13,145 Wolczanka SA 66,581 20,200 Zaklady Piwowarski (Bearer) 1,569,609 ----------------- 36,935,448 ----------------- Portugal - 3.1% 18,999 Atlantis Cristais de Alcobaca 323,894 122,853 Banco Commercial Portugues (Registered) 2,283,995 311,540 Banco Espirito Santo e Commercial de Lisboa (Registered) 7,672,559 343,800 Banco Totta & Acores (Registered) 6,190,357 338,400 BPI Sgps SA (Registered) 6,665,398 15,400 Cel-Cat Fabrica Nacional de Condutores Electricos SA 257,060 60,900 Cimpor Cimentos De Portugal SA (Registered) 1,466,506 6,600 CIN (Corp Ind Norte) 384,687 36,800 Electricidade De Portugal * 574,523 285,000 Empresa Fabril de Maquinas Electricas 2,269,456 40,000 Engil Sociedade Gestora 480,955 15,900 Est Jeronimo Martins Filho Admin 982,438 44,500 Fisipe Fibra Sint 281,535 77,500 Inparsa Industrias Participacoes * 1,552,375 177,000 Lisnave Navais De Lisboa * 390,384 61,300 Modelo Continente 2,432,273
See accompanying notes to the financial statements. 12 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Portugal - continued 25,000 Mundial Confianca * 437,144 403,600 Portucel Industrial Empresa 3,034,952 277,200 Portugal Telecom SA 10,316,112 77,500 Portugal Telecom Sponsored ADR 2,848,125 4,400 Salvador Caetano Industrias 103,667 117,000 Semapa Society Investment 2,638,775 80,750 Soares Da Costa 627,545 16,200 Soja De Portugal Sociedada Gest 117,475 81,381 Somague 934,866 14,848 Sonae Industria 182,350 13,000 Sonae Industria Sociedade * 159,654 62,000 Sonae Investimentos 2,314,142 18,000 Unicer-Uniao Cervjeira SA (Registered) 262,533 ----------------- 58,185,735 ----------------- Romania - 0.3% 4,500 Romanian Investment Fund (e) 4,725,000 ----------------- Russia - 11.1% 8,189 Chelabinsky Tube Work * 1,080,948 17,100 Dalmoreproduct * 153,900 64,000 Electrocila * 902,400 28,221 Elisb * 400,738 672,700 Irkutskelectrosviaz * 1,096,501 303,100 Irkutskenergo Ao Sponsored ADR * 4,622,275 580 Irkutskenergo RDC * 35,960,000 4,931,400 Irkutskenergo (Registered) 1,518,871 2,000 Izhorskie Zavody Preferred * 69,000 58,456 Izhorskie Zavody * 4,851,848 119,730 Kirovsky Plant * 1,544,517 110,000 Komineft * 580,800 100,800 Krasny Red Oct Preferred 144A * 1,612,800 501,900 Lukoil Holding Preferred 7,653,975 121 Lukoil Holding RDC 144A * 13,461,250 102,675 Lukoil Holding Sponsored ADR ORD 9,240,750 169,500 Lukoil Holding Sponsored ADR Preferred (Foreign Registered) 5,254,500 4,500 Morgan Stanley Russia & New Europe Fund 139,500 2,339 Moscow City Telephone Network Preferred 2,806,800 600 Moscow City Telephone Network * 1,500,000 10,000 Mosenergo AO Sponsored ADR 144A * 450,000 10,000,000 New Century Holdings LP (e) 23,035,000 1,832,525 Norilsk Nickel * 22,081,926 220,000 Norlisk Nickel Preferred 1,760,000 30 Rostelekom Preferred 2.5 77 135,000 Russia Petroleum * 1,080,000 19,700 Seversky Tube Works ADR * 667,556 4,085,000 St Petersburg Telephone 9,068,700 1,834,100 St Petersburg Telephone Preferred 2,017,510
See accompanying notes to the financial statements. 13 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Russia - continued 85,000 Surgutneftegaz ADR 4,250,000 36,811 Tatneft Sponsored ADR 144A 4,656,592 67,000 Torgoviy Dom Gum Sp ADR 536,000 68,714,250 Unified Energy System 27,279,557 17,200,000 Unified Energy Systems Preferred 5,142,800 1,577,500 Uralmash Zavody (d) * 10,096,000 6,000 Uralmash * 132,000 ----------------- 206,705,091 ----------------- South Africa - 3.6% 363,281 AECI Ltd 1,955,205 37 Amalgamated Bank of South Africa 240 7,900 Anglo American Coal Corp 459,704 73,103 Anglo American Industrial Ltd 3,073,551 329,420 Avgold Ltd * 300,526 56,725,000 Consolidated Mining Corp * 5,199,137 383,400 De Beers Centenary Link Units 12,217,478 9,000 De Beers Consolidated Mines Ltd ADR 288,563 335,300 Del Monte Royal Foods Ltd 192,968 235,475 Driefontein Consolidated Ltd 1,719,070 35,000 Driefontein Ltd Sponsored ADR 262,500 379,592 Engen Ltd 2,022,765 211,100 Free State Cons Gold Mines 1,068,661 120,000 Goldfields South Africa 2,455,505 71,617 Impala Platinum Holdings Ltd 793,794 11,132,896 ISCOR 6,857,949 1,973,100 Joel HJ Mining Co Ltd 1,745,362 71,300 Kloof Gold Mining Co 376,143 564,700 Malbak Ltd 775,161 434,400 Murray & Roberts Holdings Ltd 1,162,042 1,561,400 Oryx Gold Holdings Ltd * 1,447,744 78,637 Polifin Ltd 150,519 164,000 Randgold Resources Ltd GDR 144A * 2,255,000 323,500 Randgold & Exploration Co * 1,137,749 811,228 Sappi Ltd 7,504,486 640,000 Sasol Ltd 8,526,058 75,000 St Helena Gold Mines 303,741 873,900 Sun International Ltd 558,819 9,500 Vaal Reefs Exploration & Mining 473,836 163,935 Western Areas Gold Mining Co Ltd 1,371,512 14,500 Western Deep Levels 347,703 ----------------- 67,003,491 ----------------- Sri Lanka - 0.2% 131,500 Aitken Spence & Co 399,258 4,269,926 Blue Diamonds Jewelry Ltd 648,213 46,500 Development Finance Corp 227,461 115,599 Hayleys Ltd 458,223 228,244 John Keells Holdings Ltd 1,289,732 333,600 Lanka Walltile Ltd 149,117 304,000 National Development Bank 1,415,265 ----------------- 4,587,269 -----------------
14 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Taiwan - 0.7% 801,800 Ambassador Hotel 798,450 122,000 Cheng Loong Co * 79,861 3,089,022 Chia Hsin Flour * 1,457,390 684,000 Chia Hsin Livestock * 414,401 675 China Steel Corp 703 214,675 China Steel Corp GDR 144A 4,336,435 252,740 Chung Hwa Pulp Corp 230,564 1,078,000 Chung Shing Textile * 465,432 348,390 Feng An Metal Industrial Co Ltd 224,416 304,662 Formosa Chemicals and Fiber Co 399,922 341,600 Formosan Rubber Group * 472,198 941,000 International Commercial Bank of China 1,883,966 759 Li Peng * 869 564,620 Taipei Business Bank 965,280 343,000 Taiwan Pulp and Paper Co * 269,910 85,860 Universal Cement 51,719 616,000 Wan Yu Paper * 255,237 346,000 Yieh Loong Co * 169,868 ----------------- 12,476,621 ----------------- Thailand - 1.3% 2,851,500 Bangchak Petro (Foreign Registered) 834,016 822,000 Bangkok Expressway Plc (Foreign Registered) * 697,221 74,800 Bangkok Insurance (Foreign Registered) 1,142,018 5,633,400 Bangkok Rubber Public Co Ltd (Foreign Registered) * 626,116 437,000 Bec World Public Co (Foreign Registered) 2,786,370 393,700 CP Feedmill Public Co Ltd (Foreign Registered) 898,175 227,600 GFPT Public Co Ltd (Foreign Registered) 36,613 372,500 Hana Microelectronic Plc (Foreign Registered) 1,830,360 1,324,850 International Broadcasting Plc (Foreign Registered) * 387,496 23,000 International Cosmetics Public Co Ltd (Foreign Registered) 66,262 1,100 Karat Sanitaryware Plc (Foreign Registered) * 394 421,000 KR Precision Plc (Foreign Registered) 3,053,758 1,559,100 Krisda Mahanakorn Public Co Ltd (Foreign Registered) * 132,243 2,675,400 National Petrochemical (Foreign Registered) 1,604,144 512,700 NTS Steel Group Pcl (Foreign Registered) * 19,494 5,985,750 Padaeng Industry Plc (Foreign Registered) * 1,505,629 75,000 Pranda Jewelry (Foreign Registered) * 38,937 87,200 Prasit Development Public Co Ltd (Foreign Registered) 22,189 1,500,000 Ruam Pattana Fund (Registered) 324,656 1,859,000 Ruang Khao Fund (Foreign Registered) * 315,361 32,400 Saha Pathana International Holdings Plc (Foreign Registered) 59,702 70,000 Saha Pathanapibul (Foreign Registered) 110,559 2,511,300 Saha Union Public Co Ltd (Foreign Registered) 1,469,026 513,000 Siam Pulp & Paper (Foreign Registered) 705,206 201,512 Singer Thailand Plc (Foreign Registered) 341,846 3,108,050 Star Block Co Ltd (Foreign Registered) (d) * 45,453 24,000 Swedish Motor (Foreign Registered) 8,775
See accompanying notes to the financial statements. 15 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Thailand - continued 1,581,150 Thai German Ceramics Industry (Foreign Registered) * 601,198 8,336,880 Thai Petrochemical (Foreign Registered) 2,621,277 112,700 Thai Plastic & Chemical (Foreign Registered) 270,295 378,600 Thai Telephone & Telecommunications (Foreign Registered) * 119,039 70 Thailand International (Foreign Registered) 822,500 ----------------- 23,496,328 ----------------- Turkey - 2.1% 17,500,000 Akal Tekstil 772,627 95,700,000 Aksigorta SA 5,852,425 12,912,000 Alcatel Teletas Telekomunikasyon 3,042,921 26,713,000 Eczacibasi Ilac * 1,306,883 47,323,000 Eregli Demir ve Celik Fabrikalari 7,764,349 2,519,000 Goodyear Lastikleri 931,794 46,100,000 Izmir Demir Celik * 536,334 30,307,870 Mardin Cimento 795,625 12,774,000 Netas Telekomunik * 3,391,462 4,015,000 Petkim 1,604,946 22,924,668 Petrol Ofisi 4,103,216 5,124,000 Raks Elektronik SA 1,192,268 125,300 Sabanci Holding GDR (Registered) * 1,033,725 43,500,000 Tofas Otomobil Fab 2,413,639 35,320,000 Tupras Turkiye Petrol * 2,950,182 288,000 Usas Ucak Servisi A.S. 773,224 ----------------- 38,465,620 ----------------- Ukraine - 0.1% 25,000 Societe Generale Thalmann Ukrania Fund (e) * 2,525,000 ----------------- Venezuela - 1.2% 1,257,051 Banco Provincial 2,453,399 564,370 Ceramica Carabobo Class A ADR 620,807 1,987,332 Ceramica Carabobo Class B ADR 2,345,052 85,300 Cia Anonima Tel De Ven Sponsored ADR 3,518,625 1,922,332 Electricidad De Caracas 3,252,880 35,181 Mantex SA Class A Sponsored ADR 1,407,240 1,203,000 Siderurgica Venezolana ADR 6,231,540 349,950 Siderurgica Venezolana Sivensa Class A 186,593 112,545 Siderurgica Venezolana Sivensa Registered ADR B 573,980 75,490 Vencemos 177,713 1,159,454 Venepal SA Class A GDR 144A 2,029,045 162,122 Venezolana de Cementos 386,548 2,333 Venprcar CA GDS 14,278 ----------------- 23,197,700 ----------------- TOTAL STOCK AND EQUIVALENTS (Cost $1,532,457,490) 1,630,392,516 -----------------
16 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares/ Par Value ($) Description Value ($) - ---------------------------------------------------------------------------------------------------------------- EQUITY LINKED SECURITIES - 1.7% Chile - 1.4% 2,630,074 Chilean Equity Time Deposit due 4/15/98 (e)(f) 2,971,195 2,168,200 Chilean Equity Time Deposit due 4/16/98 (e)(f) 2,427,300 4,043,627 Chilean Equity Time Deposit due 4/17/98 (e)(f) 4,318,998 1,158,098 Chilean Equity Time Deposit due 4/17/98 (e)(f) 1,260,010 5,000,000 Chilean Equity Time Deposit due 5/8/98 (e)(f) 5,298,000 10,000,000 Chilean Equity Time Deposit due 6/19/98 (e)(f) 9,570,000 ----------------- 25,845,503 ----------------- Russia - 0.3% 1 Renaissance Sber Note (e)(g) * 5,579,636 ----------------- TOTAL EQUITY LINKED SECURITIES (Cost $30,854,166) 31,425,139 ----------------- CONVERTIBLE SECURITIES - 2.1% India - 0.3% 3,092,000 Mahindra & Mahindra CV, 5.00% due 7/9/01 144A 3,184,760 1,500,000 Reliance Industries Convertible, 3.50% due 11/03/99 1,717,500 ----------------- 4,902,260 ----------------- Korea - 0.1% 2,000,000 Daewoo Corp Convertible, 0.00% due 12/31/07 2,308,890 108,350 Hanbo Steel & General Construction Convertible, 3.375% due 01/31/99 254,517 ----------------- 2,563,407 ----------------- Pakistan - 0.0% 500,000 Pakistan Telecom Convertible, 6.00% due 2/26/02 485,000 ----------------- Portugal - 0.5% 125,700 Banco Commercial Portugues Preferred Class A 8,704,725 ----------------- Russia - 0.7% 10,800,000 Lukinter Fin Convertible, 3.50% due 5/6/02 144A 15,336,000 ----------------- South Africa - 0.1% 1,100,000 Rangold Finance Convertible, 7.00% due 10/03/01 1,001,000 ----------------- Thailand - 0.3% 5,730,000 Bangkok Bank Public Co Convertible, 3.25% due 3/3/04 3,079,875 358,000 Bangkok Land Ltd Convertible, 4.50% due 10/13/03 125,300 1,814,000 MDX Public Co Ltd Convertible, 4.75% due 9/17/03 163,260 2,800,000 NTS Steel Group Convertible, 1.00% due 12/16/03 339,611 534,000 NTS Steel Group Convertible, 4.00% due 12/16/08 80,100 2,724,000 Sahaviriya Steel Convertible, 3.50% due 7/26/05 1,089,600 630,000 Somprasong Land Co Convertible, 3.88% due 1/21/04 63,000 ----------------- 4,940,746 ----------------- Venezuela - 0.1% 1,460,000 Global Investment Financial Corp, 11.00% due 3/19/01 1,460,000 ----------------- TOTAL CONVERTIBLE SECURITIES (Cost $45,022,094) 39,393,138 -----------------
See accompanying notes to the financial statements. 17 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares/ Par Value Description Value ($) - -------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 8.4% Cash Equivalents - 5.0% 48,624,600 The Boston Global Investment Trust (b) 48,624,600 $ 45,400,000 Wachovia Bank Time Deposit, 5.43% due 9/2/97 45,400,000 ------------------ 94,024,600 ------------------ U.S. Government - 3.4% $ 63,600,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 62,437,674 ------------------ TOTAL SHORT-TERM INVESTMENTS (Cost $156,406,766) 156,462,274 ------------------ TOTAL INVESTMENTS - 100.0% (Cost $1,764,740,516) 1,857,673,067 Other Assets and Liabilities (net) - (0.0%) (574,486) ------------------ TOTAL NET ASSETS - 100.0% $ 1,857,098,581 ==================
Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt GDS Global Depository Shares (a) This security is held as collateral for open futures contracts. (b) Represents investment of security lending collateral (Note 1). (c) Bankrupt issuer. (d) Valued by management (Note 1). (e) Security is restricted as to public resale. The aggregate market value of restricted securities is $56,130,503 or 3.02% of net assets. (f) A derivative security whose price is linked to the return on a basket of Chilean asset investments. (g) A derivative security whose price is linked to the return on a Russian basket of securities. 144A Securities 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. * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997. 18 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1997, industry sector diversification of the Fund's investments (excluding short-term investments) was as follows:
Industry Sector Utilities 12.2% Metals and Mining 11.2 Oil and Gas 10.0 Banking 9.8 Miscellaneous 9.6 Construction 9.1 Telecommunications 8.1 Conglomerates 6.4 Textiles 3.4 Electronic Equipment 3.2 Consumer Goods 2.7 Machinery 2.3 Chemicals 2.1 Financial Services 1.9 Automotive 1.8 Food and Beverage 1.8 Paper and Allied Products 1.1 Transportation 1.0 Real Estate 0.7 Health Care 0.4 Communications 0.4 Services 0.3 Retail Trade 0.2 Computers 0.2 Insurance 0.1 -------- 100.0% ========
See accompanying notes to the financial statements. 19 GMO Emerging Markets Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $1,764,740,516) (Note 1) $ 1,857,673,067 Foreign currency, at value (cost $20,331,338) (Note 1) 20,301,930 Cash 5,349,629 Receivable for investments sold 43,183,486 Receivable for Fund shares sold 8,500,000 Dividends and interest receivable 5,755,811 Receivable for open forward foreign currency contracts (Notes 1 and 5) 3,764,387 Receivable for open swap contracts (Notes 1 and 5) 5,267,459 Receivable for expenses waived or borne by Manager (Note 2) 339,619 ----------------- Total assets 1,950,135,388 ----------------- Liabilities: Payable for investments purchased 34,780,514 Payable for Fund shares repurchased 1,518,861 Payable for open forward foreign currency contracts (Notes 1 and 5) 3,343,992 Written options outstanding, at value (premiums $1,479,681) (Note 5) 1,138,596 Accrued capital gain taxes payable 892,743 Payable upon return of securities loaned 48,624,600 Payable to affiliate for (Note 2): Management fee 1,685,821 Shareholder service fee 253,458 Accrued expenses 798,222 ----------------- Total liabilities 93,036,807 ----------------- Net assets $ 1,857,098,581 ================= Net assets consist of: Paid-in capital $ 1,610,877,014 Accumulated undistributed net investment income 8,738,768 Accumulated net realized gain 138,645,144 Net unrealized appreciation 98,837,655 ----------------- $ 1,857,098,581 ================= Net assets attributable to: Class I Shares $ 4,937,233 ================= Class III Shares $ 1,852,161,348 ================= Shares outstanding: Class I 380,176 ================= Class III 142,323,805 ================= Net asset value per share: Class I $ 12.99 ================= Class III $ 13.01 =================
20 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) --------------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $1,504,941) $ 22,460,903 Interest (including security lending income of $594,994) 3,513,832 --------------- Total income 25,974,735 --------------- Expenses: Management fee (Note 2) 9,162,184 Custodian fees 1,712,212 Stamp duties and transfer taxes 426,144 Legal fees 38,180 Audit fees 35,972 Transfer agent fees 23,828 Trustees fee (Note 2) 8,004 Miscellaneous 131,300 Fees waived or borne by Manager (Note 2) (1,849,559) --------------- 9,688,265 Shareholder service fee (Note 2) Class I 3,916 Class III 1,372,230 --------------- Net expenses 11,064,411 --------------- Net investment income 14,910,324 --------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 135,211,249 Closed swap contracts 2,528,864 Foreign currency, forward contracts and foreign currency related transactions 4,715,310 --------------- Net realized gain 142,455,423 --------------- Change in net unrealized appreciation (depreciation) on: Investments (45,356,227) Open swap contracts 2,881,519 Written options 341,085 Foreign currency, forward contracts and foreign currency related transactions (5,495,406) --------------- Net unrealized loss (47,629,029) --------------- Net realized and unrealized gain 94,826,394 --------------- Net increase in net assets resulting from operations $ 109,736,718 ===============
See accompanying notes to the financial statements. 21 GMO Emerging Markets Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ----------------------- ----------------------- Increase (decrease) in net assets: Operations: Net investment income $ 14,910,324 $ 17,549,883 Net realized gain 142,455,423 47,250,695 Change in net unrealized appreciation (depreciation) (47,629,029) 173,776,577 ---------------------- ---------------------- Net increase in net assets resulting from operations 109,736,718 238,577,155 ---------------------- ---------------------- Distributions to shareholders from: Net investment income Class I (27,559) -- Class II -- (178,659) Class III (17,697,960) (15,814,130) ----------------------- ---------------------- Total distributions from net investment income (17,725,519) (15,992,789) ----------------------- ---------------------- Net realized gains Class I (32,080) -- Class III (20,601,532) -- ----------------------- --------------------- Total distributions from net realized gains (20,633,612) -- ----------------------- --------------------- (38,359,131) (15,992,789) ----------------------- --------------------- Net share transactions: (Note 4) Class I 3,249,799 1,542,386 Class II -- (2,994,394) Class III 55,072,204 599,087,113 ----------------------- --------------------- Increase in net assets resulting from net share transactions 58,322,003 597,635,105 ----------------------- --------------------- Total increase in net assets 129,699,590 820,219,471 Net assets: Beginning of period 1,727,398,991 907,179,520 ----------------------- --------------------- End of period (including accumulated undistributed net investment income of $8,738,768 and $11,553,963, respectively) $ 1,857,098,581 $ 1,727,398,991 ======================= =====================
See accompanying notes to the financial statements 22 GMO Emerging Markets Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Period Ended (Unaudited) February 28, 1997 * -------------------- -------------------- Net asset value, beginning of period $ 12.48 $ 10.86 -------------------- -------------------- Income (loss) from investment operations: Net investment income 0.10 0.01 Net realized and unrealized gain (loss) 0.69 1.61 -------------------- -------------------- Total from investment operations 0.79 1.62 -------------------- -------------------- Less distributions to shareholders from: Net investment income (0.13) -- Net realized gains (0.15) -- -------------------- -------------------- Total distributions (0.28) -- -------------------- -------------------- Net asset value, end of period $ 12.99 $ 12.48 ==================== ==================== Total Return (a) 6.15% 14.92% Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,937 $ 1,748 Net expenses to average daily net assets 1.36% **(c) 1.45% **(c) Net investment income to average daily net assets 1.41% ** 0.77% ** Portfolio turnover rate 36% 41% Average broker commission rate per equity share (d) $ 0.0021 $ 0.0004 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01 (b)
* Period from January 2, 1997 (commencement of operations) to February 28, 1997. ** Annualized (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Fees and expenses voluntarily waived or borne by the manager were less than $0.01 per share. (c) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .20% of average daily net assets for the period ended February 28, 1997, and .05% of average daily net assets for the six months ended August 31, 1997. (d) The average broker commission rate will vary depending on the markets in which trades are executed. See accompanying notes to the financial statements. 23 GMO Emerging Markets Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from November 29, 1996 (commencement of operations) to February 4, 1997 (e) -------------- Net asset value, beginning of period $ 10.77 -------------- Income (loss) from investment operations: Net investment income 0.05 Net realized and unrealized gain (loss) on investments 1.07 -------------- Total from investment operations 1.12 -------------- Less distributions to shareholders: From net investment income (0.07) -------------- Net asset value, end of period $ 11.82 ============== Total Return (a) 10.42% Ratios/Supplemental Data: Net assets, end of period (000's) $ - Net expenses to average daily net assets 1.33%*(b) Net investment income to average daily net assets 6.14%* Portfolio turnover rate 41% Average broker commission rate (d) $ 0.0004 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: (c)
* Annualized (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the period shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .07% of average daily net assets. (c) Fees and expenses voluntarily waived or borne by the Manager were less than $.01 per share. (d) The average broker commission rate will vary depending on the markets in which trades are executed. (e) All Class II shares of the Fund were exchanged for Class III shares on February 4, 1997. 24 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29 August 31, 1997 ------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 * ---------------- ------------ ----------- ----------- ------------ Net asset value, beginning of period $ 12.49 $ 10.54 $ 9.52 $ 12.13 $ 10.00 ------------ ------------ ----------- ----------- ------------ Income (loss) from investment operations: Net investment income 0.11 0.13 0.10 0.05 0.02 Net realized and unrealized gain (loss) 0.69 1.96 1.06 (2.37) 2.11 ------------ ------------ ----------- ----------- ------------ Total from investment operations 0.80 2.09 1.16 (2.32) 2.13 ------------ ------------ ----------- ----------- ------------ Less distributions to shareholders from: Net investment income (0.13) (0.14) (0.01) (0.07) (0.00)(c) Net realized gains (0.15) -- (0.13) (0.22) -- ------------ ------------ ----------- ----------- ------------ Total distributions (0.28) (0.14) (0.14) (0.29) (0.00) ------------ ------------ ----------- ----------- ------------ Net asset value, end of period $ 13.01 $ 12.49 $ 10.54 $ 9.52 $ 12.13 ============ ============ =========== =========== =========== Total Return (a) 6.31% 19.98% 12.24% (19.51%) 21.35% Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,852,161 $ 1,725,651 $ 907,180 $ 384,259 $ 114,409 Net expenses to average daily net assets 1.21%**(e) 1.24%(e) 1.35% 1.58% 1.64%* Net investment income to average daily net assets 1.63%** 1.40% 1.31% 0.85% 0.87%** Portfolio turnover rate 36% 41% 35% 50% 2% Average broker commission rate per equity share (b) $ 0.0021 0.0004 N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 0.02 (d) -- (d)
* Period from December 9, 1993 (commencement of operations) to February 28, 1994. ** Annualized. (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. The average broker commission rate will vary depending on the markets in which trades are executed. (c) The per share income distribution was $ 0.004. (d) Fees and expenses voluntarily waived or borne by the Manager were less than $.01 per share. (e) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .06% of average daily net assets for the year ended February 28, 1997 and .05% for the six months ended August 31, 1997. See accompanying notes to the financial statements. 25 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Emerging Markets Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks long-term capital appreciation consistent with a prudent level of risk through investment in equity and equity-related securities traded in the securities markets of newly industrializing countries in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and Africa. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully described in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class I and Class III are the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 26 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Forward currency contracts The Fund may enter into forward currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward currency contract is extinguished through delivery or offset by entering into another forward currency contract, 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 of the contract at the time it was extinguished or offset. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to sell is shown under Note 5, and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to the equity markets. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets 27 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or that there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 5 for a summary of all open swap agreements as of August 31, 1997. Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. See Note 5 for a summary of open written option contracts as of August 31, 1997. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $43,386,900 collateralized by cash in the amount of $48,624,600, which was invested in a short-term instrument. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. 28 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over- distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex- dividend date, if later. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is 1.60% of the amount invested. In the case of cash redemptions, the fee is .40% of the amount redeemed. Effective June 1, 1996, the Manager will reduce such premium or fee only when any portion of a purchase is offset by a corresponding redemption occurring on the same day. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $1,987,611 in purchase premiums and $287,896 in redemption fees. There is no premium for reinvested distributions. 29 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Investment risk Investments in emerging countries present certain risks that are not inherent in many other securities. Many emerging countries present elements of political and/or economic instability. Further, countries may impose various types of foreign currency regulations or controls which may impede the fund's ability to repatriate amounts it receives. The fund may acquire interests in securities in anticipation of improving conditions in the related countries. These factors may result in significant volatility in the values of its holdings. The markets for emerging countries are relatively illiquid. Accordingly, the fund may not be able to realize in an actual sale amounts approximating those used to value its holdings. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of 1.00% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding custody fees, brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed .81% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding 1.20%. The Manager has entered into a Consulting Agreement with Dancing Elephant, Ltd. (the "Consultant") with respect to the management of the portfolio. Payments made by the Manager to the Consultant will not affect the amounts payable by the Fund to the Manager or the Fund's expense ratio. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $8,004. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 30 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $609,432,897 and $709,556,192, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follow:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - --------------------- -------------------- ------------------ --------------- $1,764,740,516 $329,931,776 $236,999,225 $92,932,551
4. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from January 2, 1997 Six Months Ended (commencement of operations) August 31, 1997 to February 28, 1997 ---------------------- ------------------------------- Class I: Shares Amount Shares Amount ---------- ---------- ------------ -------------- Shares sold 235,688 $ 3,190,477 140,068 $ 1,542,386 Shares issued to shareholders in reinvestment of distributions 4,420 59,322 - - Shares repurchased - - - - --------- ---------- ---------- ------------- Net increase 240,108 $ 3,249,799 140,068 $ 1,542,386 ========= ========== ========== =============
31 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Share Transactions - continued
Period from November 29, 1996 (commencement of operations) to February 28, 1997 Class II: Shares Amount ------------ ------------- Shares sold 5,586,262 $ 63,054,064 Shares issued to shareholders in reinvestment of distributions 16,729 178,659 Shares repurchased (5,602,991) (66,227,117) ------------- ------------- Net decrease - $ (2,994,394) ============= =============
Six Months Ended Year Ended August 31, 1997 February 28, 1997 ------------------------------ -------------------------------- Class III: Shares Amount Shares Amount -------------- ------------- ------------- ------------- Shares sold 12,026,360 $ 155,432,291 54,549,584 $ 626,535,006 Shares issued to shareholders in reinvestment of distributions 2,242,086 30,156,055 759,519 8,422,271 Shares repurchased (10,059,786) (130,516,142) (3,248,382) (35,870,164) ------------ ------------- ------------ ------------ Net increase 4,208,660 $ 55,072,204 52,060,721 $ 599,087,113 ============ ============= ============ ============
32 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 5. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) -------------- ------------------- ------------ ------------- ------------------ Buy 01/07/98 DEM 82,105,000 $ 45,981,228 $ (3,343,992) =============== Sale 01/07/98 DEM 82,105,000 $ 45,996,219 $ 3,764,387 ===============
Swap agreements
Unrealized Notional Expiration Appreciation Amount Date Description (Depreciation) ------------ ------------- ----------------------------------------------- --------------- $ 7,000,000 10/29/97 Agreement with Barclays Bank PLC dated $ 519,468 4/28/97 to receive (pay) the notional amount multiplied by the return on the Chile IPSA Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 2,000,000 10/30/97 Agreement with Barclays Bank PLC dated 5/1/97 121,111 to receive (pay) the notional amount multiplied by the return on the Colombia IFC Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread.
33 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Swap agreements - continued
Unrealized Notional Expiration Appreciation Amount Date Description (Depreciation) ------------ ------------- ----------------------------------------------- --------------- $ 10,000,002 01/09/98 Agreement with Union Bank of Switzerland $ (315,343) dated January 14, 1997 to receive (pay) the notional amount multiplied by the change in market value (including dividends) of Telecomunicacoes Brasileiras ("Telebras") Ordinary Shares and to pay (receive) the notional amount multiplied by the change in market value (including dividends) of Telecomunicacoes Brasileiras ("Telebras") ADR adjusted by a specified amount. 1,600,053 01/16/98 Agreement with Robert Fleming & Co. Limited (57,207) dated January 24, 1997 to receive (pay) the notional amount multiplied by the change in market value of State Bank of India common stock and to pay the notional amount multiplied by a fixed rate. 10,000,000 03/09/98 Agreement with Barclays Bank PLC dated 1,509,812 3/13/97 to receive (pay) the notional amount multiplied by the return on the Taiwan Weighted Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 10,000,000 03/11/98 Agreement with Goldman Sachs dated 3/11/97 to 1,463,079 receive (pay) the notional amount multiplied by the return on the Taiwan Weighted Index and to pay the notional amount multiplied by 12 month LIBOR adjusted by a specified spread.
34 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Swap agreements - continued
Unrealized Notional Expiration Appreciation Amount Date Description (Depreciation) ------------ ------------- ----------------------------------------------- --------------- $ 5,000,000 04/01/98 Agreement with Barclays Bank PLC dated 4/2/97 $ 785,478 to receive (pay) the notional amount multiplied by the return on the Taiwan Weighted Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 10,000,001 04/06/98 Agreement with Goldman Sachs dated 4/2/97 to 1,576,809 receive (pay) the notional amount multiplied by the return on the Taiwan Weighted Index and to pay the notional amount multiplied by 12 month LIBOR adjusted by a specified spread. 5,184,028 04/28/98 Agreement with Robert Fleming & Co. Limited 87,798 dated 4/28/97 to receive (pay) the notional amount multiplied by the return on a basket of selected Indian securities (including dividends) and to pay the notional amount multiplied by a fixed rate. 4,004,212 06/27/98 Agreement with W.I. Carr dated 6/27/97 to (500,189) receive the notional amount multiplied by the change in market value of Pohang Iron and Steel common stock and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread.
35 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Swap agreements - continued
Unrealized Notional Expiration Appreciation Amount Date Description (Depreciation) ------------ ------------- ----------------------------------------------- --------------- $ 4,004,599 06/27/98 Agreement with W.I. Carr dated 6/27/97 to $ 76,643 receive the notional amount multiplied by the change in market value of SK Telecom common stock and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. -------------- Net unrealized appreciation $ 5,267,459 ==============
Written call option transactions
Number of Contracts Premiums ----------------- --------------- Outstanding, beginning of period - $ - Options written 348,065 1,479,681 Options exercised - - Options expired - - ----------------- --------------- Outstanding, end of period 348,065 1,479,681 ================= ===============
Summary of written call options outstanding
Number of Exercise Expiration Contracts Price Date Value ----------------- ------------- -------------- ----------- Unified Energy Systems ADR 243,161 $ 50.00 02/27/98 $ 646,617 Lukoil ADR 104,904 $120.00 02/27/98 491,979 ----------- $ 1,138,596 ===========
36 GMO International Small Companies Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- STOCK AND EQUIVALENTS - 91.2% Austria - 1.8% 777 Allgemeine Baugesellschaft AG 60,720 888 Allgemeine Baugesellschaft AG Preferred 7.00% 27,758 8,000 Austrian Airlines * 188,816 11,700 Bank Austria AG (Participating Certificate) 331,556 700 Bau Holding AG Preferred 2.42% (Non Voting) 34,037 1,150 Brau Union AG 64,560 200 BWT AG 33,895 2,800 Creditanstalt-Bankverein 171,955 1,200 Creditanstalt-Bankverein Preferred 1.65% 58,719 100 EA-Generali AG 23,562 1,100 EA-Generali AG Preferred 6.00% 114,615 600 EVN Energie-Versorgung Niederoesterreich AG 71,753 2,300 Flughafen Wien AG 88,961 5,500 Jenbacher Werke AG 138,928 200 Lenzing AG * 12,535 300 Leykam-Muerztaler Papier und Zellstoff AG * 7,057 800 Miba Holding AG Class B Preferred 1.34% 42,184 7,000 OEMV AG 924,975 1,100 Oesterreichische Brau Beteiligungs AG 58,176 3,000 Oesterreichische Elektrizitaetswirtschafts AG 204,082 7,200 Oesterreichische Laenderbank AG 358,055 700 Oesterreichische Laenderbank AG Preferred (Non Voting) 26,799 110 Perlmooser Zementwerke AG 6,512 18,658 Radex-Heraklith AG 720,196 300 RAS Versicherungs AG 35,877 2,400 Steyr-Daimler-Puch AG 71,232 1,942 Strabag Oesterreich AG 113,438 3,662 Universale Bau AG 118,517 1,700 VA Technologie AG (Bearer) 311,929 200 Wiener Allianz Versicherungs AG 21,313 ---------------- 4,442,712 ---------------- Canada - 7.3% 6,000 Abitibi Consolidated Inc 105,009 1,000 Agnico Eagle Mines Ltd 8,751 57,200 Air Canada Inc 449,048 36,000 Anderson Exploration Ltd 448,558 5,000 Avenor Inc 93,630 26,800 BCE Mobile Communications 972,826 1,300 Biochem Pharma Inc 33,707 700 Bombardier Inc Class A 13,814 10,600 CAE Industries Inc 81,306 1,400 Cambior Inc 14,974 18,900 Cameco Corp 655,432 6,600 Canadian Airlines Corp 13,310 14,700 Canadian Hotel Inc 726,821 3,100 Canadian Marconi Co 45,212 39,800 Canadian Tire Corp Ltd Class A 746,725
See accompanying notes to the financial statements. 1 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------- Canada - continued 1,200 Canfor Corp 12,964 3,400 CCL Industries Class B 41,629 31,900 Cominco Ltd 827,109 92,400 Corel Corp 539,047 15,700 Co-Steel Inc 266,293 2,000 Cott Corp 19,086 10,800 Dofasco Inc 220,130 18,100 Dominion Textile Inc 97,771 43,400 Domtar Inc 359,466 6,700 Donohue Inc Class A 152,487 126,000 Echo Bay Mines Ltd * 635,241 4,200 Edperbrascan Corp Class A Ltd (Voting Shares) 71,389 8,600 Elan Energy Inc 55,746 400 Extendicare (Voting Shares) 6,338 5,700 Fletcher Challenge Canada Class A 97,501 45,400 Gulf Canada Resources Ltd * 371,126 6,400 Hudsons Bay Co 161,331 100 Inco Ltd Class VBN Shares 1,851 13,000 Inmet Mining Ltd 73,031 13,900 International Comfort Products Corp 110,123 5,500 International Forest Products A 37,236 6,000 IPL Energy Inc 214,340 21,100 Ipsco Inc 881,415 1,265 Laidlaw Inc 18,495 18,300 Macmillan Bloedel Ltd 229,335 8,900 MDS Inc Class B 185,891 33,400 Methanex Corp 280,248 10,100 Mitel Corp 70,197 15,300 Molson Co Ltd, Class A 280,997 2,900 Molson Co Ltd, Class B 52,739 14,500 Moore Corporation Ltd 291,368 800 Noma Industries Ltd Class A 2,881 92,500 Noranda Forest Inc 626,238 8,500 Noranda Inc 166,211 1,700 Norcen Energy Resource 40,956 39,800 Nova Scotia Power Inc 412,777 141,600 Numac Energy Inc 673,096 15,800 Oshawa Group Ltd Class A 243,523 1,100 Pegasus Gold Inc * 4,674 10,600 Power Corp of Canada Ltd 291,253 9,600 Provigo Inc 52,548 7,100 Quebecor Inc Class B 132,443 7,600 Ranger Oil Ltd 73,074 5,900 Repap Enterprises Inc * 1,020 21,200 Rio Algom Ltd 492,420 10,000 Rogers Cantel MBL Class B (Registered) 199,863 12,800 Rogers Communications Inc Class B 88,963 167,100 Royal Oak Mines 304,486
2 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------- Canada - continued 10,200 Sears Canada Inc 147,661 10,700 Semi-Tech Class A * 26,818 4,880 Slocan Forest Products Ltd 41,649 1,400 Southam Inc 25,712 700 Spar Aerospace Ltd 5,521 29,700 Stelco Inc Class A 252,411 12,400 Suncor Energy Inc 388,937 2,100 Teck Corp Class B 39,324 100 Tele Metropole Inc Class B 1,675 27,400 Telus Corp 544,665 6,700 Torstar Corp Class B 214,495 6,600 Total Petroleum North America 65,361 48,200 Transalta Corp 600,569 25,600 TVX Gold Inc * 134,596 8,300 United Dominion Industries Ltd 225,665 11,400 Westcoast Energy Inc 217,991 1,000 Weston (George) Ltd 67,593 ------------- 17,878,112 ------------- Denmark - 0.0% 800 Hafnia Holdings Class A (c)* 1 ------------- Finland - 0.4% 29,200 Kesko OY 377,129 37,400 Partek OY 683,149 ------------- 1,060,278 ------------- France - 0.4% 120 Accor SA 18,003 300 Bertrand Faure SA 14,640 360 BIC SA 26,056 25 Bongrain 8,862 360 Bouygues 28,845 400 Cap Gemini SA 24,400 750 Casino Guichard-Perrachon 37,342 190 Castorama Dubois Investment 22,335 80 CGIP 22,422 70 Clarins 8,413 220 Club Mediterranee SA * 17,646 70 Comptoirs Modernes 31,495 140 Eridania Beghin-Say SA 18,234 130 Essilor International 32,192 7,600 Euro Disney SCA (Bearer) * 10,776 10,400 Eurotunnel SA Units (Bearer) * 12,088 15 Fromageries Bel La Vache 10,154 31 Gaz Et Eaux 13,263 30 Guyenne Et Gascogne 10,016 250 Havas 15,287 210 Hermes International 17,553 170 Imetal 23,767
See accompanying notes to the financial statements. 3 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------- France - continued 1,675 Lagardere Groupe 44,875 150 Pathe SA 28,044 830 Pechiney SA Class A 35,907 700 Pernod-Ricard 32,718 230 Primagaz 19,528 30 Sagem Applic Gen D Electric 14,675 190 Salomon SA 13,313 130 Seb SA 20,361 1,030 Seita 31,755 220 Sidel (Bearer) 15,959 70 Sodexho Alliance 31,679 120 Sylea (Bearer) 10,683 180 Technip SA (Compagnie Francaise) 21,782 700 Thomson CSF 18,823 280 TV Francaise 22,851 3,500 Usinor Sacilor 60,762 760 Worms et Compagnie SA 41,436 ----------- 888,940 ----------- Germany - 2.8% 2,100 AGIV AG * 48,996 200 Ava Allgemeine Handelsgesellschaft der Verbraucher AG * 54,218 550 Bayerische Motorenwerke AG 391,079 2,500 Berliner Kraft & Licht Class A 52,426 2,400 Bilfinger & Berger 99,858 150 Brau und Brunnen * 11,916 7,600 Continental AG 184,918 3,000 Degussa AG 146,655 550 Deutsche Babcock & Wilcox * 34,983 150 Didier-Werke AG 11,082 900 Douglas Holdings AG 31,447 100 Draegerwerk AG Preferred 2,111 50 Dyckerhoff AG 17,499 50 Dyckerhoff AG (Non Voting) 17,221 2,000 FAG Kugelfischer 36,441 150 Friedrich Grohe AG Preferred (Non Voting) 41,663 1,800 Friedrich Krupp AG 385,968 150 GEA AG Preferred 3.13% 49,538 3,355 Heidelberg Port-Zement 250,672 1,100 Henkel KGAA Preferred 55,668 850 Henkel KGAA (Bearer) 39,286 100 Herlitz AG 8,099 150 Herlitz AG Preferred 11,374 2,450 Hochtief AG 115,685 100 Holsten-Brauerei 22,220 200 Holzmann (Philipp) * 60,551 250 Ind-Werke Karl-Aug 61,106 450 Karstadt AG 155,737 250 Kaufhalle AG * 24,304
4 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Germany - continued 2,900 Klockner Humboldt Deutz * 23,923 300 Klockner-Werke AG * 19,498 1,450 Kolbenschmidt * 22,151 50 Krones Preferred 19,471 250 Leirheit AG 8,846 550 Linde AG 371,219 150 Linotype Hell AG * 7,499 14,250 Lufthansa AG 286,560 800 MAN AG 219,982 300 MAN AG Preferred 67,744 3,360 Metro AG 153,987 600 Metro AG Preferred 21,298 300 Papierwerke Waldhof 55,329 1,350 Phoenix AG 23,623 750 Preussag AG 211,024 150 Reutgerswerke AG * 23,748 6,100 Schering AG 595,378 300 Schmalbach-Lubeca 62,328 200 Strabag Bau AG * 15,688 100 TH Goldschmidt AG 32,608 1,850 Thyssen AG 426,492 100 Varta AG * 16,110 1,500 Viag AG 624,531 250 Villeroy and Boch AG * 40,136 1,000 Volkswagen AG 719,385 550 Volkswagen AG Preferred .79% 296,364 ---------------- 6,787,643 ---------------- Hong Kong - 7.3% 2,856,000 Allied Properties Ltd 685,529 571,200 Allied Properties Warrants 7/3/00 62,656 102,000 Amoy Properties Ltd 102,671 129,000 Asia Financial Holdings 72,000 245,000 Asia Standard International Group Ltd 118,564 102,000 ASM Pacific Technology 73,713 250,000 Associated International Hotels 174,216 256,000 Chinese Estates Holdings Ltd 227,952 143,000 Cross Harbour Tunnel Co Ltd 293,419 258,666 Dickson Concept International Ltd 981,389 11,214 Evergo China Holdings 1,910 118,580 Furama Hotel Enterprises Ltd 494,275 218,000 Grand Hotel Holdings Ltd Class A 84,398 270,000 Great Eagle Holdings Ltd 789,199 624,000 Hang Lung Development Co Ltd 1,127,371 265,000 Henderson Investment Ltd 280,423 126,300 Hongkong Aircraft Engineering Co Ltd 415,621 245,000 Hysan Development Co Ltd 711,382 13,000 IMC Holdings 6,207 84,000 Jardine International Motor Holdings Ltd 95,393
See accompanying notes to the financial statements. 5 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ Hong Kong - continued 113,937 Jardine Strategic Warrants 5/02/98 50,132 26,400 Johnson Electric Holdings Ltd 59,280 106,800 Kowloon Motor Bus Co Ltd 289,431 353,000 Kumagai Gumi Hong Kong Ltd 662,815 283,000 Kwong Sang Hong International Ltd 136,953 944,400 Lai Sun Development 938,404 278,000 Lai Sun Garment International Ltd 335,437 189,544 Lai Sun Hotel International Warrants 4/30/99 13,698 292,000 Liu Chong Hing Investment Ltd 408,853 80,620 Mandarin Oriental 90,294 1,134,000 Mingly Corp 362,195 146,000 New Asia Realty & Trust A Shares 535,088 340,000 Oriental Press Group 117,370 12,800 Oriental Press Group Warrants 10/2/98 496 667,000 Pacific Concord Holdings Ltd 406,707 35,100 Realty Development Corp Ltd Class A 134,983 4,087,810 Regal Hotels International Ltd 1,120,996 1,062,000 Ryoden Development 599,594 9,200 Semi Tech Global Warrants 7/31/98 2,232 92,000 Semi Tech (Global) Co Ltd 138,315 132,000 Shell Electric Co Ltd 74,100 112,000 Shun Tak Holdings Ltd 63,234 1,770,000 South China Morning Post Ltd 1,416,183 21,595 Stelux Holdings International 5,267 4,319 Stelux Holdings International Warrants 2/28/98 206 460,000 Swire Pacific Ltd Class B 667,828 343,101 Tsim Sha Tsui Properties Ltd 717,284 162,000 Wing On Co 186,063 20,000 Wing On International Holdings Ltd 36,134 163,500 Winsor Properties Holdings Ltd 261,634 1,464,000 World Trade Centre Group Ltd 689,586 637,000 Yizheng Chemical Fibre Co 464,454 --------------- 17,783,534 --------------- Italy - 6.3% 192,300 Alitalia Linee Aeree Italiane Class A * 116,317 118,000 Alitalia Linee Aeree Italiane Class B Preferred * 55,961 31,400 Ansaldo Transporti SPA * 33,438 355,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 844,804 36,500 Banca Nazionale dell'Agricoltura SPA Preferred 12,749 1,064,200 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 366,881 3,120 Benetton Group SPA 45,275 8,000 Bulgari SPA 47,481 75,000 Caffaro SPA 63,043 33,500 Cartiere Burgo SPA 190,645 200,000 Cementir Cementerie del Tirreno SPA 137,445 172,900 Cia Italiana del Grandi Alberghi Cigahotels SPA * 80,818 42,100 COFIDE SPA (Non Convertible) * 9,564 129,600 COFIDE SPA * 43,207
6 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------------- Italy - continued 9,000 Cogefar Impresit Costruzioni Generali SPA * 5,960 167,500 Comau Finanziaria SPA 522,277 5,000 Compart SA * 2,025 37,500 Compart SPA * 17,848 8,800 Danieli and Co SPA 64,474 38,000 Danieli and Co SPA (Non Convertible) 134,889 5,100 Edison SPA 23,868 250 Ericsson SPA 4,309 22,000 Falck Acciaierie and Ferriere Lombarde 86,215 240,900 Fiat SPA Preferred 374,203 337,700 Fiat SPA (Non Convertible) 564,846 700 Fila Holding SPA ADR 21,394 439,500 Finmeccanica SPA (Non Convertible) * 230,645 2,500 Finmeccanica SPA * 1,761 102,000 Fornara SPA (c)* 4,171 51,780 Gemina SPA 18,233 23,000 Gemina SPA Di Risp Convertible 13,246 75,833 Gilardini SPA 125,333 213,400 Grassetto SPA (c)* 1 207,000 Holding Di Partecipazione 78,299 466,020 HPI SPA 211,478 29,300 IFI Istituto Finanziario Preferred 2.46% 333,653 96,300 IFIL Finanziaria di Partecipazioni SPA 299,723 108,400 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 183,467 100,400 Industriali Riunite SPA (Non Convertible) * 37,350 170,200 Industriali Riunite SPA * 120,156 800 Industrie Natuzzi SPA ADR 22,000 33,500 Italcementi Fabbriche Riunite Cemento SPA 220,327 53,000 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 128,383 117,400 Italgas SPA 361,394 400 Italmobiliare SPA 6,350 4,400 Luxottica Group Sponsored ADR 256,850 4,000 Marzotto and Figli SPA 38,905 35,300 Mondadori Editore 208,507 190,000 Montedison SPA 115,465 165,000 Montedison SPA (Non Convertible) 81,530 139,433 Montefibre SPA 81,567 60,000 Montefibre SPA (Non Convertible) 29,647 24,320 Olivetti and Co SPA Preferred * 20,747 166,000 Olivetti and Co SPA (Non Convertible) * 57,040 460,000 Olivetti SPA * 186,800 319,560 Parmalat Finanziaria SPA 496,390 9,000 Permafin Finanziaria * 2,515 74,750 Pirelli and Co 109,108 77,000 Pirelli and Co (Non Convertible) 87,334 110,000 Pirelli SPA 277,701 31,000 Pirelli SPA (Non Convertible) 43,312 16,000 Recordati Industria Chimica e Farmaceutica SPA 119,861
See accompanying notes to the financial statements. 7 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------ Italy - continued 75,500 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 291,588 30,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 183,336 220,000 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 477,934 140,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 397,568 19,500 Rinascente Warrants 12/31/99 14,331 167,000 SAFFA SPA * 280,751 3,200 SAFILO SPA 71,971 7,500 Saipem SPA 35,994 11,700 Sasib SPA 34,421 72,500 Seat SPA di Risp 17,788 44,000 Sirti SPA 236,155 355,200 SMI (Societa Metallurgica Italy) * 143,637 115,000 Snia BPD SPA 109,990 605,000 Snia BPD SPA (Non Convertible) 418,864 42,000 Sorin Biomedica SPA 143,125 39,000 Stefanel SPA * 59,584 45,000 Telecom Italia Mobile SPA (Non Convertible) 75,396 641,104 Telecom Italia SPA (Non Convertible) 2,268,454 1,000 Unione Cementi Marchino Emiliane e di Augusta-Casale 7,114 584,774 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 1,511,168 ------------- 15,258,354 ------------- Japan - 16.9% 3,000 Aida Engineering Ltd 16,510 27,000 Aisin Seiki Co Ltd 368,110 7,000 Ajinomoto Co Inc 64,012 20,000 Alps Electric Co Ltd 237,759 35,000 Amada Co Ltd 237,426 2,000 Amano Corp 17,790 3,000 Anritsu Corp 44,393 253,000 Aoki Corp * 151,434 2,000 Aoki International 26,436 5,000 Aoyama Trading 134,675 31,000 Asahi Breweries Ltd 461,302 6,000 Asahi Denka Kogyo 32,422 6,000 Asahi Optical Co 18,206 1,000 Asatsu Inc 26,187 8,000 Asics Corp * 12,836 11,000 Atsugi Nylon Industrial 25,971 4,000 Bandai Co 86,458 3,000 Bank of Kyoto Ltd 16,710 19,000 Bank of Yokohama Ltd 80,871 6,000 Banyu Pharmaceutical Co Ltd 100,757 2,000 Best Denki Co Ltd 15,429 6,000 Brother Industries Ltd 20,949 11,000 Canon Sales Co Inc 223,127 13,000 Casio Computer Co 113,476 14,000 Chiba Bank Ltd 73,323 9,000 Chiyoda Corp * 24,990
8 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 2,000 Chudenko Corp 45,889 23,000 Chugai Pharmaceutical Co Ltd 193,117 3,000 Chugoku Bank Ltd 44,393 23,000 Citizen Watch Co 177,629 68,000 Cosmo Oil Co Ltd 220,467 28,800 CSK Corp 979,234 46,000 Daicel Chemical Industries Ltd 130,784 8,000 Daido Steel Co Ltd 19,553 17,000 Daiichi Seiyaku Co Ltd 289,717 7,000 Daikin Industries Ltd 50,744 33,000 Dainippon Ink & Chemicals Inc 121,806 5,000 Dainippon Pharmaceutical Co Ltd 28,681 4,000 Dainippon Screen Manufacturing Co Ltd 37,576 3,000 Daio Paper Corp 18,455 14,800 Daito Trust Construction Co Ltd 163,638 23,000 Daiwa Bank Ltd 121,415 8,000 Denki Kagaku Kogyo 15,629 1,000 Denny's Japan Co Ltd 26,769 2,000 Descente Ltd 7,648 8,000 Eisai Co Ltd 152,299 4,000 Ezaki Glico Co Ltd 30,094 4,000 Fuji Electric Co 13,733 37,000 Fuji Heavy Industries Ltd 163,330 8,000 Fujikara Ltd 67,171 105,000 Fujisawa Pharmaceutical Co Ltd 1,021,282 34,000 Fujita Corp 29,113 3,000 Fujitec Co 35,165 60,000 Fujiya Co Ltd * 162,607 1,000 Fukuoka City Bank Ltd 3,982 24,000 Fukuyama Transporting Co Ltd 119,711 11,000 Furukawa Co Ltd 27,982 41,000 Furukawa Electric Co Ltd 231,773 167,000 Gakken Co Ltd * 713,592 40,000 General Sekiyu (KK) 232,771 39,000 Godo Shusei Co Ltd 105,370 30,000 Green Cross Corp 107,241 7,000 Gunze Ltd 27,001 5,000 Hankyu Department Stores Inc 40,943 207,000 Hanwa Co Ltd * 357,935 175,000 Haseko Corp * 164,394 19,000 Hazama-Gumi Ltd 24,640 1,000 Heiwa Corp 17,957 4,000 Higo Bank Ltd 28,265 8,000 Hiroshima Bank Ltd 27,799 8,000 Hitachi Cable Ltd 58,525 50,600 Hitachi Ltd 466,922 22,000 Hitachi Maxell Ltd 497,465 10,000 Hitachi Metals Ltd 52,789
See accompanying notes to the fiancial statements. 9 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 7,000 Hokuetsu Paper Mills 35,963 8,000 Hokuriku Bank Ltd 24,740 6,000 Honen Corp 16,061 3,000 House Foods Corp 50,877 25,000 Hyogo Bank Ltd (c)* 2 8,000 INAX Corp 39,239 46,000 Intec Inc 523,901 7,000 Isetan Co Ltd 68,667 11,000 Ishihara Sangyo Kaisha * 28,440 13,000 Itoham Foods Inc 54,468 7,000 Izumiya Co Ltd 67,504 25,000 Japan Airport Terminal Co Ltd 263,946 3,000 Japan Radio Co 26,935 119,000 Japan Synthetic Rubber Co Ltd 910,134 3,000 Japan Wool Textile 17,957 11,000 JGC Corp 46,637 35,000 Joshin Denki Co Ltd 249,938 2,000 Kaken Pharmaceutical Co Ltd 8,330 23,000 Kamigumi Co Ltd 106,119 3,000 Kandenko Co 20,575 7,000 Kaneka Corp 43,528 4,000 Kansai Paint Co Ltd 13,002 7,000 Kao Corp 103,583 3,000 Katokichi Co Ltd 48,632 38,000 Keihin Electric Express Railway Co Ltd 157,320 49,000 Keio Teito Electric Railway Co Ltd 211,821 7,000 Kikkoman Corp 39,571 9,000 Kinden Corp 124,948 2,000 Kissei Pharmaceutical Co Ltd 36,578 16,000 Koito Manufacturing Co Ltd 117,051 59,000 Kokusai Kogyo Co Ltd 350,694 5,000 Kokuyo Co Ltd 119,295 34,000 Komatsu Ltd 211,140 4,000 Komori Corp 84,130 23,000 Konica Corp 132,696 58,000 Koyo Seiko Co Ltd 398,753 44,000 Kumagai Gumi Co Ltd 48,649 123,000 Kurabo Industries Ltd 260,745 14,000 Kuraray Co 124,532 268,000 Kureha Chemical Industry Co Ltd 893,408 4,000 Kyodo Printing Co Ltd 28,598 15,000 Kyowa Hakko Kogyo Co Ltd 87,913 1,000 Kyudenko Corp 6,667 3,000 Kyushu Matsushita Electric 36,412 28,000 Lion Corp 108,006
10 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 1,900 Mabuchi Motor Co 101,405 66,000 Maeda Corp 288,054 23,000 Maeda Road Construction 149,713 61,000 Makino Milling Machine Co Ltd 424,449 9,000 Makita Corp 123,452 50,000 Marubeni Corp 181,644 3,000 Marudai Food Co Ltd 10,200 2,000 Maruichi Steel Tube 29,096 15,000 Matsushita Electric Works Ltd 162,108 29,000 Matsushita Refrigeration Co 150,437 7,000 Matsuzakaya Co Ltd 41,317 206,000 Mazda Motor Corp * 702,137 7,000 Meiji Seika Kaisha Ltd 31,831 9,000 Mercian Corp 42,048 3,000 Misawa Homes 14,166 32,000 Mitsubishi Gas Chemical Co Inc 121,307 200 Mitsubishi Kasei Corp 524 37,000 Mitsubishi Materials Corp 117,807 80,000 Mitsubishi Oil Co Ltd * 279,325 10,000 Mitsubishi Paper Mills Ltd 26,187 20,000 Mitsubishi Rayon Co Ltd 76,149 6,000 Mitsubishi Steel Manufacturing * 12,021 8,000 Mitsubishi Warehouse & Transportation Co Ltd 93,108 54,000 Mitsuboshi Belting Ltd 172,832 13,000 Mitsui Mining Co Ltd * 19,669 15,000 Mitsui Petrochemical Industries Ltd 51,750 25,000 Mitsui Toatsu Chemicals Inc 48,009 22,000 Mitsui Trust & Banking Co Ltd 126,744 6,000 Mitsui-Soko Co Ltd 27,234 3,000 Mizuno Corp 15,014 5,000 Mori Seiki Co Ltd 61,934 2,000 MOS Food Services 30,094 3,000 Nagase & Co 18,854 60,000 Nagoya Railroad Co Ltd 221,964 2,000 Namco Ltd 67,670 36,000 Nankai Electric Railway Co Ltd 173,581 3,000 National House Industrial 39,155 6,000 NCR Japan Ltd 39,305 23,000 NGK Spark Plug Co 196,941 11,000 NHK Spring Co Ltd 37,859 3,000 Nichicon Corp 37,160 155,000 Nichiei Co Ltd 253,845 16,000 Nichii Co Ltd 182,226 17,000 Nihon Cement Co Ltd 50,594 8,000 Nippon Beet Sugar Manufacturing Co Ltd 18,888 121,000 Nippon Chemi-Con Corp 563,305 5,000 Nippon Comsys 71,078 6,000 Nippon Denko Co Ltd 10,774
See accompanying to the financial statements. 11 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 8,000 Nippon Flour Mills Co Ltd 22,479 3,000 Nippon Hodo Co 20,426 13,000 Nippon Kayaku Co Ltd 62,141 12,000 Nippon Light Metal 32,122 8,000 Nippon Meat Packers Inc 96,434 12,000 Nippon Metal Industry Co Ltd 22,446 174,000 Nippon Oil Co Ltd 779,666 7,000 Nippon Paint Co 18,913 13,000 Nippon Piston Ring Co Ltd 27,775 23,000 Nippon Sheet Glass Co Ltd 59,082 7,000 Nippon Shokubai Corp 51,210 17,000 Nippon Suisan Kaisha Ltd * 38,158 9,000 Nippon Synthetic Chemical 19,079 14,000 Nippon Yakin Kogyo Co Ltd * 19,786 27,000 Nishimatsu Construction 159,365 52,000 Nissan Fire & Marine Insurance Co Ltd 229,113 7,000 Nisshin Flour Milling Co Ltd 51,850 7,000 Nisshin Oil Mills Ltd 27,409 28,000 Nisshin Steel Co Ltd 58,193 48,000 Nisshinbo Industries Inc 311,248 66,000 Nissho Iwai Corp 248,549 4,000 Nissin Food Products Co Ltd 93,108 19,000 Nitto Boseki Co Ltd 56,073 59,000 Nitto Denko Corp 1,025,106 35,000 NSK Ltd 181,270 13,000 NTN Corp 60,520 17,000 Okamoto Industries Inc 53,704 17,000 Oki Electric Industry 60,770 8,000 Okumura Corp 44,892 16,000 Olympus Optical Co Ltd 114,124 3,000 Ono Pharmaceutical Co Ltd 93,524 25,000 Onoda Cement Co Ltd 74,611 15,000 Onward Kashiyama Co Ltd 230,693 44,000 Pioneer Electronics Corp 877,879 3,000 Q.P. Corp 24,940 385,000 Renown Inc * 662,524 2,000 Rinnai Corp 37,243 62,000 Royal Co Ltd 1,061,767 10,000 Ryobi Ltd 30,260 2,000 Ryosan Co 40,402 25,000 Sanden Corp 171,461 10,000 Sankyo Aluminum Industry Co Ltd 20,783 35,000 Sanrio Co Ltd * 264,777 11,000 Sanwa Shutter Corp 85,044 145,000 Sanyo Securities Co Ltd * 144,650 13,000 Sapporo Breweries Ltd 92,510 16,000 Seino Transportation Co Ltd 159,614 72,000 Sekisui Chemical Co Ltd 610,525
12 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------- Japan - continued 6,000 Settsu Corp * 5,088 2,000 Shimachu Co 45,224 4,000 Shimano Inc 86,125 10,000 Shimazu Corp 43,478 44,000 Shionogi and Co Ltd 296,650 14,000 Shiseido Co Ltd 229,279 13,000 Shokusan Jutaku Sogo Co Ltd * 12,536 134,000 Showa Denko 260,670 8,000 Showa Electric Wire & Cable 20,151 40,000 Showa Shell Sekiyu 277,662 5,000 Skylark Co Ltd 69,416 10,000 Snow Brand Milk Products Co Ltd 41,317 17,000 Stanley Electric Co Ltd 73,065 3,000 Sumitomo Bakelite Co Ltd 20,151 7,000 Sumitomo Coal Mining Co Ltd 15,188 3,000 Sumitomo Forestry Co Ltd 28,930 39,000 Sumitomo Osaka Cement Co Ltd 75,867 22,000 Sumitomo Trust & Banking Co Ltd 213,983 9,000 Sumitomo Warehouse Co Ltd 43,919 6,000 SXL Corp Ltd 25,738 34,000 Taisei Corp 133,976 37,000 Taiyo Yuden Co Ltd 433,702 7,000 Takara Shuzo Co Ltd 40,677 6,000 Takara Standard Co 46,188 4,000 Tanabe Seiyaku Co Ltd 30,127 45,000 Teikoku Oil Co Ltd 172,458 16,000 The Japan Steel Works Ltd * 22,213 9,000 Toagosei Chemical Industry Co Ltd 23,718 64,000 Tobu Railway Co Ltd 260,171 18,000 Toda Corp 100,258 7,000 Toei Co Ltd 37,302 880 Toho Co Ltd 121,440 7,000 Toho Gas Co 14,257 13,000 Tokai Carbon Co Ltd 43,769 7,000 Tokuyama Corp 27,700 18,000 Tokyo Broadcasting System Inc 303,766 113,000 Tokyo Construction Co Ltd 147,485 90,000 Tokyo Electric Co Ltd 323,967 17,000 Tokyo Ink Manufacturing Co Ltd 52,008 43,000 Tokyo Rope Manufacturing Co Ltd 94,729 8,000 Tokyo Sowa Bank Ltd * 26,602 8,000 Tokyo Steel Manufacturing Co 65,242 5,000 Tokyo Style Co Ltd 59,024 13,000 Tokyotokeiba Co Ltd 30,260 84,000 Tokyu Corp 443,428 16,000 Tokyu Department Store Co Ltd 39,904 35,000 Toppan Printing Co Ltd 503,367 28,000 Toshiba Tungaloy Co Ltd 105,911
See accompanying notes to the financial statements. 13 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------- Japan - continued 4,000 Tostem Corp 83,465 7,000 Toto Ltd 73,905 19,000 Toyo Engineering Corp 66,340 1,000 Toyo Exterior Co Ltd 9,893 5,000 Toyo Kanetsu (KK) 7,316 9,000 Toyo Seikan Kaisha Ltd 155,624 6,000 Toyo Suisan Kaisha 59,855 10,000 Toyo Trust & Banking Co Ltd 81,470 3,000 Tsubakimoto Chain 16,086 3,000 Tsugami Corp * 6,135 4,000 Tsumura and Co 30,892 4,000 Uniden Corp 56,198 4,000 UNY Co Ltd 73,489 193,000 Victor Co of Japan Ltd 2,342,506 10,000 Wacoal Corp 115,554 4,000 Yakult Honsha Co Ltd 39,239 3,000 Yamaguchi Bank Ltd 42,148 9,000 Yamaha Corp 139,164 10,000 Yamanouchi Pharmaceutical Co Ltd 239,421 5,000 Yamatake Honeywell 86,873 27,000 Yamato Transport Co Ltd 325,464 6,000 Yamazaki Baking Co Ltd 82,800 19,000 Yasuda Trust and Banking Co Ltd 71,078 8,000 Yodogawa Steel Works 43,162 3,000 Yokogawa Bridge Corp 16,086 19,000 Yokogawa Electric Corp 125,414 13,000 Yokohama Rubber Co 37,285 4,000 Yoshitomi Pharmaceutical Industries Lt 26,104 -------------------- 41,138,893 -------------------- Malaysia - 1.1% 18,000 Aluminum Co Malaysia 16,052 87,000 Amalgamated Steel Mills Berhad 38,793 28,000 Aokam Perdana Berhad * 15,654 8,000 Ayer Hitam Tin Dredging * 8,506 116,000 Berjaya Group 67,241 69,000 Berjaya Industrial Berhad 32,897 73,000 Berjaya Leisure Berhad (d) 136,460 6,000 Boustead Holdings Berhad 9,600 21,000 Carlsberg Brew Malaysia 79,232 18,000 Cement Industries of Malaysia Berhad 25,683 23,000 DMIB Berhad 12,859 32,000 Ekran Berhad 37,537 37,000 Esso Malaysia Berhad 65,992 20,000 Golden Plus Holdings 20,580 41,000 Guinness Anchor Berhad 70,314 15,000 Hong Leong Industries Berhad 33,185 4,000 Hume Industries Berhad 8,506 42,000 IJM Corp Berhad Class A 45,810
14 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------- Malaysia - continued 31,000 Innovest Berhad 77,620 67,000 IOI Corporation Berhad 60,209 4,000 Jaya Tiasa Holdings Berhad 10,701 42,000 Johan Holdings Berhad 23,481 57,000 Kedah Cement Berhad 56,697 16,000 Kelanamas Industries 14,378 50,000 Kemayan Corporation Berhad 36,700 16,000 Kian Joo Can Factory 47,745 30,000 Kulim Berhad 35,901 45,000 Land & General Berhad 33,802 57,000 Landmark Berhad 36,755 35,000 Leader Universal Holdings 33,733 56,250 Malayan Cement Berhad 68,685 114,000 Malayan United Industries Berhad 58,652 18,000 Malayawata Steel 17,843 76,000 Malaysian Helicopter Berhad 37,798 38,000 Malaysian Mosaics 28,283 19,000 Malaysian Oxygen Berhad 72,989 29,000 Malaysian Pacific Industries 79,077 44,000 Malaysian Plantations 26,561 4,000 Matsushita Electric 23,324 157,000 MBF Holdings Berhad 53,312 104,000 Mulpha International 44,589 23,000 Multi Purpose Holdings 17,908 24,000 New Straits Times 107,014 22,000 Oriental Holdings Berhad 79,232 3,000 OYL Industries Berhad 13,788 101,000 Pan Malaysia Cement 86,953 24,000 Perlis Plantations 59,269 92,000 Pernas International Hotel & Property 47,649 45,000 Petronas Dagangan Berhad 63,282 28,000 Pilecon Engineering Berhad 25,066 35,000 PJ Development Holdings 17,767 73,000 Promet Berhad * 37,307 36,000 RJ Reynolds Berhad 59,269 24,000 Sarawak Enterprises Corp 17,781 33,000 Shell Refinery Co 74,704 36,000 Sime Darby 39,024 23,000 Sistem Television Malaysia 36,920 24,000 Sungei Way Holdings 28,318 70,000 Tan Chong Motor Holdings Berhad 73,950 64,000 Time Engineering Berhad 46,977 16,000 Tractors Malaysia Holdings Berhad 12,787 28,000 UMW Holdings Berhad 75,390 19,000 Uniphone Telecommunications 10,753 32,000 Westmont Industries Berhad 18,110 -------------------- 2,752,954 --------------------
See accompanying notes to the financial statements. 15 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- New Zealand - 0.2% 36,700 Air New Zealand Ltd Class B 99,238 4,500 Ceramco Corp Ltd 4,603 164,500 DB Group Ltd 229,241 15,510 Fernz Corp Ltd 49,078 42,500 Fletcher Challenge Ltd 49,989 14,500 Independent Newspapers Ltd 75,543 25,300 Lion Nathan Ltd 63,883 2,500 Steel and Tube Holdings Ltd 11,507 -------------------- 583,082 -------------------- Norway - 0.0% 842 Bona Shipholding Ltd * 10,619 1 SAS Norge ASA Class B 14 -------------------- 10,633 -------------------- Singapore - 2.4% 4,200 Asia Food & Properties Ltd Warrants 7/12/02 * 1,365 2,391,000 Chuan Hup Holdings Ltd 1,383,223 25,200 Fraser and Neave Ltd 133,289 494,000 Hai Sun Hup Group Ltd 316,813 16,500 Haw Paw Brothers International Ltd 31,636 1,650 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 1,222 145,000 Hotel Properties Ltd 202,281 122,000 Inchcape Berhad 407,339 226,437 Jardine Strategic Holdings Ltd 837,817 24,000 Natsteel Ltd 65,375 170,000 Neptune Orient Lines Ltd 128,132 94,000 Parkway Holdings Ltd 354,248 97,000 Prima Ltd 287,312 223,000 Robinson and Co Ltd 1,039,438 34,000 Straits Trading Co Ltd 62,942 245,000 Times Publishing Ltd 518,347 46,000 Wearne Brothers Ltd 115,570 -------------------- 5,886,349 -------------------- Spain - 4.2% 12,155 Acerinox SA 2,004,380 36,403 Asturiana del Zinc SA * 793,764 9,300 Azucarera de Espana SA 484,483 27,600 Banco Zaragozano SA 713,465 1,125 Bodegas Y Bebidas SA 45,213 15,650 Cristaleria Espanola SA 1,219,841 22,000 Empresa Nacional de Celulosa SA 392,159 40,400 Ercros SA * 43,049 138,100 Espanola de Tubos por Extrusion SA * 400,593 3,500 Fabricacion de Automoviles Renault de Espana SA 72,519 3,783 Grupo Anaya SA 72,161 27,400 Grupo Duro Felguera SA * 342,432 1,010 Koipe SA 67,829 275,820 Sarrio SA 1,023,235 55,799 Tableros Defibras Class B 833,150 167,515 Uralita SA 1,680,329 -------------------- 10,188,602 --------------------
16 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------- Sweden - 5.6% 4,057 Assi Doman 123,504 8,400 Avesta Sheffield AB 79,710 37,400 Bilspedition AB Class B * 153,393 40,700 Celsius Industrier AB Class B 762,061 1,000 Custos AB Series Class B 21,271 11,742 Diligentia AB * 147,318 3,800 Electrolux AB Class B 271,050 40,700 Enator AB 668,747 1,600 Esselte AB Class A 39,740 1,600 Esselte AB Class B 41,371 21,400 Euroc Industri AB Class A 746,865 1,900 Granges AB 28,557 593 Incentive AB Class A 54,836 897 Industrivarden AB Class A 52,557 952 Industrivarden AB Class C (Bearer) 55,173 2,100 Kinnevik Investment Class B 63,394 57,860 Marieberg Tidnings AB Class A 1,496,071 21,000 Mo Och Domsjo AB Class B 695,457 1,200 Perstorp AB Class B 21,552 2,200 PLM AB 33,907 117,420 Skandinaviska Enskilda Banken Class A 1,263,795 12,600 SKF AB Class B 341,844 6,200 Ssab Swedish Steel Class A 128,723 2,000 Ssab Swedish Steel Class B 41,778 295,400 Stena Line AB Class B * 1,245,421 14,950 Stora Kopparberg Bergslags Class A 238,029 7,150 Stora Kopparberg Bergslags Class B 112,018 3,353 Svedala Industries 72,604 5,600 Svenska Cellulosa Class B 124,469 40,600 Svenska Handelsbanken Class B 1,168,725 4,400 Svenska Kullagerfabriken AB 112,369 64,300 Sydkraft AB Class A 1,556,117 55,600 Sydkraft AB Class C 1,211,013 31,900 Trelleborg AB Class B 491,648 2,650 Volvo AB Class A 67,677 -------------------- 13,732,764 -------------------- Switzerland - 7.3% 900 Adia SA (Bearer) 307,469 30,100 Alberta Energy Ltd 669,877 500 Ascom Holding AG (Registered) * 128,365 2,840 Bobst SA (Registered) 2,200,734 500 Danzas Holding AG 98,379 350 Elektrowatt AG (Bearer) 126,647 500 Hero Lenzburg (Registered) 62,329 1,050 Hilti AG, Schaan (Participating Certificate) 721,674 550 Holderbank Financiere Glarus AG (Bearer) 461,406 2,400 Holderbank Financiere Glarus AG (Registered) 426,940 1,160 Kuoni Reisen Holdings AG (Registered) 4,787,575
See accompanying notes to the financial statements. 17 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Switzerland - continued 830 Magazine zum Globus (Participating Certificate) * 595,634 300 Magazine zum Globus (Registered) * 235,504 586 Novartis AG (Bearer) 837,115 4,260 Saurer Group Holdings (Registered) * 3,134,611 190 Schindler Holding AG (Participating Certificate) 240,693 270 Schindler Holding AG (Registered) 345,676 1,216 Sika Finanz AG (Bearer) 389,205 3,300 SMH AG (Registered) 434,723 250 Societe Generale de Surveillance Holdings Ltd (Bearer) 453,152 750 Societe Generale de Surveillance Holdings Ltd (Registered) 262,289 175 Sulzer Gebrueder AG (Registered) 122,991 950 Swiss Bank Corp (Registered) * 229,490 2,150 Swissair AG (Participating Certificate) * 478,084 90 Union Bank of Switzerland (Registered) 17,890 ------------------- 17,768,452 ------------------- United Kingdom - 27.2% 119,600 Allied Colloids 221,123 165,700 AMEC 381,600 30,000 Anglian Water Plc 378,285 63,280 Argos Plc 637,830 134,800 Arjo Wiggins Appleton Plc 384,769 1,187,000 ASDA Group 2,772,110 79,100 Associated British Foods 664,513 80,900 Astec (BSR) 167,941 132,790 Barratt Development 552,395 22,060 Bass 295,160 63,500 Beazer Holmes Plc 173,271 102,212 Berisford International 250,309 42,566 Betacomm Plc 31,065 165,000 Blue Circle Industries 1,027,572 28,620 Boots Co 370,631 212,700 British Steel 596,775 102,135 Bunzl Co 389,260 595,125 Burton Group 1,194,402 26,375 Carlton Communications 210,025 332,600 Centrica Plc 477,379 27,700 Charter Plc (Registered) 345,465 89,100 Coats Viyella 171,235 55,848 Cobham Group Plc 692,440 89,502 Costain Group (d) 65,319 41,081 Dawson International 49,303 220,459 English China Clays Plc 833,069 6,200 First Leisure Plc 30,568 77,177 Grand Metropolitan 709,064 133,420 Greenalls Group Plc 1,021,316 16,609 Greycoat Plc 49,294 8,536 Hammerson 64,373 109,620 Hazlewood Foods 238,228
18 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------- United Kingdom - continued 449,176 Hillsdown Holdings 1,180,127 25,083 Hyder Plc 339,675 12,618 Hyder Plc Cumulative Redem Preferred Shares 22,101 207,644 Inchcape 915,979 1,702,067 Ladbroke Group 7,149,468 35,334 Laing (John) 214,893 9,309 Laing (John) A (Non Voting) 56,766 1,395,817 Lasmo 5,800,824 88,060 Lex Service 632,674 210,687 London International 563,792 1,146,681 Lonrho 2,296,714 52,634 Marley 94,752 49,948 Meyer International 346,299 131,200 Mirror Group Plc 431,944 175,023 National Grid Holdings Plc 753,912 200,497 Norcros Plc 224,365 114,085 Northern Foods Plc * 403,350 44,480 Ocean Group 405,774 211,300 Peninsular & Oriental Steam Navigation Co 2,227,461 293,800 Pilkington * 693,285 19,600 Powergen 247,941 127,000 Racal Electronics 462,400 24,400 Rank Group Plc 140,085 92,634 Reckitt & Colman 1,430,226 38,300 Redland 180,133 221,800 Rexam Plc 1,062,959 666,902 Rolls-Royce 2,530,901 61,150 Safeway Plc 371,899 59,526 Sainsbury (J) 416,084 54,000 Scottish Hydro-Electric Plc 390,594 5,074 Scottish & Newcastle Plc 59,578 354,500 Sears 362,205 85,597 Securicor Plc 365,100 33,440 Severn Trent Plc 474,539 64,900 Siebe Plc 1,131,489 7,828,760 Signet Group (e) - 412,040 Signet Group Plc 210,498 110,825 Simon Engineering 68,300 45,716 Southwest Water 599,069 37,242 Storehouse Plc 138,314 302,606 T & N 787,680 1,399,864 Tarmac 2,690,305 831,680 Taylor Woodrow Plc 2,508,803 65,300 Thames Water 836,109 251,500 Tomkins Plc 1,219,569 117,600 Transport Development Group 317,555 261,263 United Biscuits 874,974 132,900 United Utilities 1,485,051 900 Vendome Luxury Group Plc Units 6,711
See accompanying notes to the financial statements. 19 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited)
Par Value/ Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ United Kingdom - continued 96,926 Viglen Technology 102,177 84,800 Waste Management International 341,071 96,400 Wessex Water Plc 742,622 109,410 Whitbread Plc Class A 1,431,063 128,180 Wilson (Connolly) Holdings 359,636 622,535 Wimpey (George) 1,342,804 5,368 Wolseley 38,741 45,900 Yorkshire Water Plc 326,050 ------------------- 66,253,479 ------------------- TOTAL STOCK AND EQUIVALENTS (Cost $211,610,064) 222,414,782 ------------------- DEBT OBLIGATION - 0.1% United Kingdom - 0.1% GBP 157,989 Viglen Tech Floating Rate Notes, 6.75% due 9/1/2000 299,273 ------------------- TOTAL DEBT OBLIGATION (Cost $178,828) 299,273 ------------------- SHORT-TERM INVESTMENTS - 15.1% Cash Equivalents - 12.9% $ 8,500,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 8,500,000 13,827,112 The Boston Global Investment Trust (b) 13,827,112 $ 9,000,000 Wachovia Bank Time Deposit, 5.43% due 9/2/97 9,000,000 ------------------- 31,327,112 ------------------- U.S. Government - 2.2% $ 5,550,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 5,448,571 ------------------- TOTAL SHORT-TERM INVESTMENTS (Cost $36,773,122) 36,775,683 ------------------- TOTAL INVESTMENTS - 106.4% (Cost $248,562,014) 259,489,738 Other Assets and Liabilities (net) - (6.4%) (15,604,241) ------------------- TOTAL NET ASSETS - 100.0% $ 243,885,497 ===================
Notes to the Schedule of Investments: ADR American Depositary Receipt (a) This security is held as collateral for open futures contracts (Note 5). (b) Represents investment of security lending collateral (Note 1). (c) Bankrupt issuer. (d) Valued by management (Note 1). (e) Pending corporate action, quantification of rate per share to be determined. * Non-income producing security. 20 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 - (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1997, industry sector diversification of the Fund's equity investments was as follows:
Industry Sector Services 13.0 % Construction 9.9 Machinery 8.0 Retail Trade 5.8 Consumer Goods 5.8 Conglomerates 5.5 Oil and Gas 5.3 Transportation 4.0 Metals and Mining 4.0 Paper and Allied Products 3.4 Real Estate 3.2 Utilities 3.1 Communications 2.9 Chemicals 2.5 Banking 2.4 Health Care 2.4 Food and Beverage 2.4 Electronic Equipment 2.0 Aerospace 2.0 Telecommunications 2.0 Automotive 1.6 Textiles 1.4 Computers 0.5 Financial Services 0.4 Insurance 0.2 Miscellaneous 6.3 -------------- 100.0 % ==============
See accompanying notes to the financial statements. 21 GMO International Small Companies Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------- Assets: Investments, at value (cost $248,562,014) (Note 1) $ 259,489,738 Foreign currency, at value (cost $1,554,398) (Note 1) 1,541,228 Cash 83,825 Receivable for investments sold 324,360 Dividends and interest receivable 279,562 Receivable for open forward foreign currency contracts (Notes 1 and 5) 895,617 Receivable for variation margin on open futures contracts (Notes 1 and 5) 445,590 Foreign withholding taxes receivable 93,963 Receivable for expenses waived or borne by Manager (Note 2) 169,401 -------------- Total assets 263,323,284 -------------- Liabilities: Payable for open forward foreign currency contracts (Notes 1 and 5) 2,659,231 Payable upon return of securities loaned (Note 1) 13,827,112 Payable for fund shares repurchased 1,072,232 Payable for investments purchased 1,429,542 Payable to affiliate for (Note 2): Management fee 262,754 Shareholder service fee 31,530 Accrued expenses 155,386 -------------- Total liabilities 19,437,787 -------------- Net assets $ 243,885,497 =============== Net assets consist of: Paid-in capital $ 218,976,717 Accumulated undistributed net investment income 2,451,312 Accumulated net realized gain 12,217,970 Net unrealized appreciation 10,239,498 -------------- $ 243,885,497 ============== Net assets attributable to Class III Shares $ 243,885,497 ============== Shares outstanding - Class III 17,418,562 ============== Net asset value per share - Class III $ 14.00 ==============
22 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $420,358) $ 3,340,334 Interest (including securities lending income of $59,745) 662,844 --------------- Total income 4,003,178 --------------- Expenses: Management fee (Note 2) 1,481,188 Custodian fees 145,176 Audit fees 33,120 Transfer agent fees 15,180 Stamp duties and transfer taxes 7,728 Legal fees 5,246 Registration fees 1,932 Trustees fee (Note 2) 1,104 Miscellaneous 1,380 Fees waived or borne by Manager (Note 2) (973,354) --------------- 718,700 Shareholder service fee - Class III (Note 2) 177,748 --------------- Net expenses 896,448 --------------- Net investment income 3,106,730 --------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 12,765,161 Closed futures contracts 2,530,067 Foreign currency, forward contracts and foreign currency related transactions (941,705) --------------- Net realized gain 14,353,523 --------------- Change in net unrealized appreciation (depreciation) on: Investments (6,686,748) Open futures contracts (945,517) Foreign currency, forward contracts and foreign currency related transactions (1,555,434) --------------- Net unrealized loss (9,187,699) --------------- Net realized and unrealized gain 5,165,824 --------------- Net increase in net assets resulting from operations $ 8,272,554 ===============
See accompanying notes to the financial statements. 23 GMO International Small Companies Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 --------------------- ------------------- Increase (decrease) in net assets: Operations: Net investment income $ 3,106,730 $ 4,054,564 Net realized gain (loss) 14,353,523 (6,729,282) Change in net unrealized appreciation (depreciation) (9,187,699) 15,655,726 ------------------ ---------------- Net increase in net assets resulting from operations 8,272,554 12,981,008 ------------------ ---------------- Distributions to shareholders from: Net investment income - Class III - (1,160,606) Net realized gains - Class III - (3,372,778) In excess of net realized gains - Class III - (30,591) ------------------ ---------------- - (4,563,975) ------------------ ---------------- Net share transactions - Class III (Note 4) (39,861) 8,272,041 ------------------ ---------------- Total increase in net assets 8,232,693 16,689,074 Net assets: Beginning of period 235,652,804 218,963,730 ------------------ ---------------- End of period (including accumulated undistributed net investment income of $2,451,312 and distributions in excess of net investment income of $655,418, respectively) $ 243,885,497 $ 235,652,804 ================== ================
24 See accompanying notes to the financial statements. GMO International Small Companies Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------ (Unaudited) 1997 1996 ----------- ----------- -------------- Net asset value, beginning of period $ 13.46 $ 12.95 $ 11.95 ----------- ----------- -------------- Income (loss) from investment operations: Net investment income 0.18 0.23 0.18 Net realized and unrealized gain (loss) 0.36 0.55 1.16 ----------- ----------- -------------- Total from investment operations 0.54 0.78 1.34 ----------- ----------- -------------- Less distributions to shareholders from: Net investment income - (0.07) (0.17) In excess of net investment income - (0.02) Net realized gains - (0.20) (0.15) In excess of net realized gains - (0.00) - ----------- ----------- -------------- Total distributions - (0.27) (0.34) ----------- ----------- -------------- Net asset value, end of period $ 14.00 $ 13.46 $ 12.95 =========== =========== ============== Total Return (a) 4.01% 5.99% 11.43% Ratios/Supplemental Data: Net assets, end of period (000's) $ 243,885 $ 235,653 $ 218,964 Net expenses to average daily net assets 0.76%*(c) 0.76%(c) 0.76%(c) Net investment income to average daily net assets 2.62%* 1.75% 1.84% Portfolio turnover rate 18% 13% 13% Average broker commission rate per equity share (b) $ 0.0075 $ 0.0015 N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.06 $ 0.10 $ 0.07 Year Ended February 28/29, ------------------------------------------------- 1995 1994 1993 ----------- ------------- -------------- Net asset value, beginning of period $ 14.45 $ 8.91 $ 9.62 ----------- ------------- -------------- Income (loss) from investment operations: Net investment income 0.18 0.15 0.35 Net realized and unrealized gain (loss) (1.52) 5.59 (0.68) ----------- ------------- -------------- Total from investment operations (1.34) 5.74 (0.33) ----------- ------------- -------------- Less distributions to shareholders from: Net investment income (0.20) (0.12) (0.38) In excess of net investment income - - - Net realized gains (0.96) (0.08) - In excess of net realized gains - - - ----------- ------------- -------------- Total distributions (1.16) (0.20) (0.38) ----------- ------------- -------------- Net asset value, end of period $ 11.95 $ 14.45 $ 8.91 =========== ============= ============== Total Return (a) (9.66%) 64.67% (3.30%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 186,185 $ 132,645 $ 35,802 Net expenses to average daily net assets 0.76%(c) 0.75% 0.75% Net investment income to average daily net assets 1.45% 1.50% 4.02% Portfolio turnover rate 58% 38% 20% Average broker commission rate per equity share (b) N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.08 $ 0.09 $ 0.09
* Annualized (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. The average broker commission rate will vary depending on the markets in which trades are executed. (c) Includes stamp duties and taxes not waived or borne by the Manager, which approximate .01% of average daily net assets. See accompanying notes to the financial statements. 25 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO International Small Companies Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks maximum total return through investment primarily in equity securities of small capitalization foreign companies traded on a major stock exchange of a foreign country. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully described in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 26 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Forward currency contracts The Fund may enter into forward currency contracts in connection with planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy and sell is shown under Note 5, and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. 27 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Futures contracts The Fund may purchase or sell index futures contracts. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is subsequently settled. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 5 for all open futures contracts held as of August 31, 1997. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to the equity markets. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or that there may be unfavorable changes in the price of the security or index underlying these transactions. There were no open swap agreements as of August 31, 1997. 28 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $13,484,347 collateralized by cash in the amount of $13,827,112, which was invested in a short-term instrument. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex-dividend date, if later. Interest income is recorded on the accrual basis, and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 29 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is 1.00% of the amount invested. In the case of cash redemptions, the fee is .60% of the amount redeemed. Prior to June 1, 1996, the premium on cash purchases and fee on cash redemptions was 1.25% and .75% of the amount invested or redeemed, respectively. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $229,673 in purchase premiums and $158,655 in redemption fees. There is no premium for reinvested distributions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of 1.25% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees, and extraordinary expenses) exceed .60% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .75%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. 30 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $1,104. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $38,429,740 and $40,412,803, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation -------------- ---------------- ---------------- -------------- $248,562,014 $38,893,850 $27,966,126 $10,927,724
4. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended Class III: August 31, 1997 February 28, 1997 ---------------------------------------- ----------------------------------------- Shares Amount Shares Amount ----------------- ------------------ ------------------ ------------------ Shares sold 1,918,864 $ 27,683,118 1,509,544 $ 20,156,083 Shares issued to shareholders in reinvestment of distributions - - 302,311 4,040,065 Shares repurchased (2,009,194) (27,722,979) (1,205,784) (15,924,107) ----------------- ------------------ ------------------ ------------------ Net increase/(decrease) (90,330) $ (39,861) 606,071 $ 8,272,041 ================= ================== ================== ==================
31 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 5. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) ---------------- --------------------- ----------------- ------------------- ------------------------- Buys 9/12/97 ATS 39,491,490 $ 3,118,454 $ (208,546) 11/07/97 ATS 8,240,994 653,019 (28,981) 12/05/97 AUD 8,789,859 6,467,871 (46,373) 11/07/97 BEF 301,061,320 8,128,152 (294,324) 12/05/97 CAD 2,579,424 1,867,440 (18,560) 11/07/97 DEM 4,729,813 2,638,766 (140,860) 11/07/97 ESP 1,504,580,628 9,898,720 (460,623) 11/07/97 FRF 83,337,501 13,796,419 (534,280) 12/05/97 HKD 17,659,468 2,262,903 (12,268) 9/12/97 IEP 1,595,930 2,370,860 (60,140) 11/07/97 NLG 2,842,678 1,408,434 (55,566) 9/12/97 NOK 18,927,026 2,539,453 (167,547) 11/07/97 NOK 52,216,563 7,024,965 (269,690) 11/07/97 SEK 105,016,001 13,401,508 (192,612) ------------------ $ (2,490,370) ================== Sales 9/12/97 AUD 2,320,727 $ 1,705,378 $ 94,622 12/05/97 AUD 6,344,405 4,672,077 97,168 11/07/97 CAD 7,763,351 5,614,574 (19,568)
32 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts - continued
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) --------------- --------------------- ---------------- ---------------- ------------------ Sales - continued 11/07/97 CHF 7,888,786 $ 5,360,091 $ 204,405 11/07/97 FRF 31,621,093 5,236,364 164,335 9/12/97 GBP 5,156,051 8,360,595 70,405 11/07/97 GBP 5,119,475 8,281,264 (149,293) 11/07/97 HKD 10,820,117 1,389,927 6,073 12/05/97 HKD 134,784,236 17,287,196 73,259 11/07/97 NOK 14,841,173 1,998,677 35,475 9/12/97 NZD 877,561 560,881 45,119 11/07/97 SEK 68,950,680 8,808,437 104,756 ------------------ $ 726,756 ==================
Currency Abbreviations ATS Austrian Schilling GBP British Pound AUD Australian Dollar HKD Hong Kong Dollar BEF Belgian Franc IEP Irish Punt CAD Canadian Dollar NLG Netherlands Guilder CHF Swiss Franc NOK Norwegian Kroner DEM German Mark NZD New Zealand Dollar ESP Spanish Peseta SEK Swedish Krona FRF French Franc 33 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Futures Contracts
Net Unrealized Appreciation Number of Contracts Type Expiration Date Contract Value (Depreciation) ---------------------- ------------ --------------------- ----------------- ------------------- Buys 14 All-Ords September 1997 $ 659,867 $ (23,007) 128 CAC- 40 September 1997 11,695,320 (276,515) 90 GXU7 September 1997 19,623,364 98,797 19 MIB 30 September 1997 2,300,238 (107,889) 4 TOPIX September 1997 473,522 (28,265) 39 TXM 7 September 1997 4,866,398 (159,444) ------------------- $ (496,323) =================== Sells 68 Hang Seng September 1997 $ 6,098,851 $ 770,819 80 IBEX September 1997 3,439,847 132,198 214 OMX INDEX September 1997 6,599,125 492,132 30 FTSE 100 September 1997 5,867,680 196,645 ------------------- $ 1,591,794 ===================
At August 31, 1997 the Fund had cash and/or securities to cover any margin requirements on open futures contracts. 34 GMO International Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- STOCK AND EQUIVALENTS - 95.1% Australia - 5.0% 178,341 Adelaide Brighton Ltd 248,212 421,300 Advance Property Fund 467,230 75,400 Amalgamated Holdings Ltd 384,874 83,000 Amcor Ltd 502,305 3,114,275 Australia and New Zealand Banking Group Ltd 22,369,591 110,000 Australian Gas & Light 692,366 1,175,334 Australian National Industries Ltd 1,346,630 3,467,667 Boral Ltd 10,110,907 113,100 Broken Hill Proprietary Ltd 1,418,772 1,131,740 Burns Philp & Co Ltd 1,986,583 263,569 Caltex Australia Ltd 768,506 86,050 Capcount Property Trust 58,775 239,800 Capital Property Trust 394,511 421,800 Capral Aluminum Ltd 1,347,591 133,900 Coca-Cola Amatil Ltd 1,364,999 3,573,987 Coles Myer Ltd 16,639,335 112,700 Comalco Ltd 562,853 207,187 Commonwealth Bank of Australia 2,288,614 528,162 Consolidated Rutile Ltd * 271,536 118,789 Cortecs International Ltd * 392,601 19,400 Coventry Group Ltd 79,078 89,300 CRA Ltd 1,318,942 97,100 CSL Ltd 606,178 3,545,496 CSR Ltd 12,551,230 751,600 Cultus Petroleum * 1,854,762 326,191 Email Ltd 1,003,802 99,253 Emperor Mines Ltd * 70,709 54,382 Energy Resources of Australia Class A 213,684 3,900 Faulding (FH) & Co Ltd 21,769 304,631 Foodland Associated 2,171,360 3,213,772 Fosters Brewing Group Ltd 6,066,112 56,990 G E Crane Holdings Ltd 596,452 1,036,428 General Property Trust Units 1,864,951 3,703,131 Goodman Fielder Ltd 5,303,541 672,307 Hardie (James) Industries Ltd 2,286,182 138,151 HIH Winterthur International Holdings 330,776 81,300 Incitec Ltd 355,279 176,000 Jupiters Ltd 411,057 92,500 KLZ Ltd 197,016 6,200 Mayne Nickless Ltd 35,427 120,780 Metal Manufactures Ltd 248,379 2,349,679 MIM Holdings Ltd 2,812,926 250,588 Mirvac Ltd 530,048 59,994 Mount Leyshon Gold Mines 72,703
See accompanying notes to the financial statements. 1 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Australia - continued 482,870 National Australia Bank Ltd 6,702,769 260,800 National Mutual Property Trust 210,699 6,983,807 News Corp Ltd 31,452,604 2,981,736 News Corp Ltd Preferred 1.19% 11,365,768 153,411 Normandy Mining Ltd 185,910 303,639 North Broken Hill Peko Ltd 1,022,044 1,615,360 Pacific Dunlop Ltd 4,152,404 126,600 Pasminco Ltd 229,013 4,842,670 Pioneer International Ltd 16,289,681 400,221 PMP Communications Ltd 961,191 121,600 Portman Mining Ltd 283,110 903,679 Qantas Airways Ltd 1,977,847 3,300 QBE Insurance Group Ltd 17,887 535,682 QCT Resources Ltd 625,556 22,692 QNI Ltd 34,166 147,607 Rothmans Holdings Ltd 779,142 1,444,092 Santos Ltd 6,862,169 1,513,239 Schroders Property 2,489,532 228,069 Sea World Property Trust 234,507 11,300 Seven Network Ltd 45,646 145,640 Simsmetal Ltd 1,069,653 3,400 Smith (Howard) Ltd 31,092 381,800 Southcorp Holdings Ltd 1,317,941 239,892 Stockland Trust Group 599,042 115,600 Sydney Harbour Casinos Preferred * 157,070 155,484 Ticor Ltd * 91,356 18,199 W H Soul Pattison & Co Ltd 588,115 296,148 Walker Corp 252,307 37,500 Western Mining Corp Holdings Ltd 190,039 79,500 Westfarmers Ltd 772,484 1,330,708 Westfield Trust Units 2,492,213 671,691 Westpac Banking Corp 3,892,322 173,200 Westpac Property Trust 218,796 82,700 Woodside Petroleum Ltd 662,055 ------------------ 202,875,284 ------------------ Austria - 1.2% 78,980 Austrian Airlines * 1,864,081 47,014 Bank Austria AG (Participating Certificate) 1,332,288 44,265 Bau Holding AG Preferred 2.42% (Non Voting) 2,152,374 54,007 Brau Union AG 3,031,924 80,638 Creditanstalt-Bankverein 4,952,174 60,861 Creditanstalt-Bankverein Preferred 1.65% 2,978,086 6,426 EA-Generali AG 1,514,124 33,029 EVN Energie-Versorgung Niederoesterreich AG 3,949,886 59,556 OEMV AG 7,869,688
2 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------- Austria - continued 20,516 Oesterreichische Brau Beteiligungs AG 1,085,036 101,814 Oesterreichische Elektrizitaetswirtschafts AG 6,926,128 114,581 Oesterreichische Laenderbank AG 5,698,095 38,638 Oesterreichische Laenderbank AG Preferred (Non Voting) 1,479,220 59,382 Radex-Heraklith AG 2,292,135 11,248 RAS Versicherungs AG 1,345,131 10,948 Wienerberger Baustoffindustrie AG 2,125,918 ------------------ 50,596,288 ------------------ Canada - 2.8% 115,319 Abitibi-Price Inc 2,018,259 91,300 Anderson Exploration Ltd * 1,137,592 46,400 Avenor Inc 868,883 51,500 BC Telecom Inc 1,238,863 254,604 BCE Inc 7,215,721 42,400 Biochem Pharma Inc * 1,099,355 3,100 Bombardier Inc Class A 61,176 192,400 Bombardier Inc Class B 3,734,510 37,500 Canadian Hotel Inc 1,854,136 8,012 Canadian Imperial Bank of Commerce 207,448 18,900 Canadian Natural Resources * 486,640 147,200 Canadian Tire Corp Ltd Class A 2,761,756 53,000 Canfor Corp 572,581 149,011 Cominco Ltd 3,863,586 16,500 Cott Corp 157,460 227,600 Dofasco Inc 4,639,044 396,418 Domtar Inc 3,283,379 88,700 Donohue Inc Class A 2,018,740 83,400 Edperbrascan Corp Class A Ltd (Voting Shares) 1,417,581 5,500 Extendicare (Voting Shares) * 87,148 157,307 Fletcher Challenge Canada Ltd Class A 2,690,800 190,402 Gulf Canada Resources Ltd * 1,556,457 17,900 Hollinger Inc 164,374 59,010 Hudsons Bay Co 1,487,522 136,400 Imasco Ltd 3,875,530 110,107 Imperial Oil Ltd 6,066,611 100,000 Inco Ltd 2,704,455 149,500 Inmet Mining Ltd * 839,857 110,735 Laidlaw Inc 1,619,014 339,919 Macmillan Bloedel Ltd 4,259,851 19,300 Magna International Class A 1,278,836 49,400 MDS Inc Class B 1,031,798 297,000 Methanex Corp * 2,492,023 82,100 Molson Co Ltd, Class A 1,507,832 118,000 Moore Corporation Ltd 2,371,133 121,500 Newbridge Networks Corp * 5,534,859
See accompanying notes to the financial statements. 3 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------ Canada - continued 98,202 Norcen Energy Resource 2,365,845 420,100 Nova Corp of Alberta 3,555,169 129,100 Nova Scotia Power Inc 1,338,932 19,100 Pegasus Gold Inc * 81,162 11,400 Potash Corp of Saskatchewan 844,460 57,000 Provigo Inc * 312,003 39,800 Quebecor Inc Class B 742,425 59,500 Ranger Oil Ltd 572,095 66,100 Rogers Cantel Mobile Communications Class B * 1,321,095 135,600 Seagram Ltd 4,736,649 6,900 Slocan Forest Products Ltd 58,889 3,600 Southam Inc 66,117 3,600 Spar Aerospace Ltd 28,391 45,100 Suncor Energy Inc 1,414,603 93,106 Teck Corp Class B 1,743,495 119,500 Telus Corp 2,375,455 42,900 Thomson Corp 977,914 47,600 Total Petroleum North America 471,389 251,700 Transalta Corp 3,136,166 184,100 Transcanada Pipelines Ltd 3,447,441 73,401 United Dominion Inds Ltd 1,995,670 1 Westaim Corp * 5 181,100 Westcoast Energy Inc 3,463,002 14,300 Weston George Ltd 966,585 ------------------ 114,219,767 ------------------ Finland - 0.3% 13,000 Cultor OY Class 1 659,606 341,000 Enso OY Class A 2,988,524 22,638 Instrumentarium OY, Class A 760,183 7,891 Instrumentarium OY, Class B 232,949 41,100 Kesko OY 530,822 37,100 Metra AB Class A 1,115,759 16,800 Metra AB Class B 468,053 76,000 Partek OY 1,388,217 187,494 Rautaruukki OY 1,857,678 2,000 Stockmann AB Class A 110,703 700 Stockmann AB Class B 36,938 90,100 Valmet OY 1,306,640 ------------------ 11,456,072 ------------------ France - 8.8% 37,749 Accor SA 5,663,439 11,947 Air Liquide L Shares 1,829,818 58,431 Alcatel Alsthom Cie Generale d'Electricite SA 7,167,202 300,591 Assurances Generales De France (Bearer) 10,753,977 443,293 Banque Nationale de Paris 18,928,841
4 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------- France - continued 36,642 Bertrand Faure SA 1,788,151 41,560 Bouygues 3,330,007 14,554 Canal Plus 2,349,084 2,085 Carrefour 1,258,459 73,878 Casino Guichard-Perrachon 3,678,370 58,929 Cerus * 340,040 17,628 CGIP 4,940,664 173,541 Cie Bancaire SA 19,140,867 26,888 Ciments Francais 1,006,277 18,016 Club Mediterranee SA * 1,445,023 136,499 Credit Commercial de France 6,767,002 53,837 Credit Local de France SA 4,650,991 159,043 Credit Lyonnais * 8,600,462 33,582 Credit National 1,993,161 287,130 Elf Aquitaine SA 31,953,301 241 Elf Gabon 55,308 13,772 Elf Sanofi SA 1,323,729 50,158 Eridania Beghin-Say SA 6,532,820 660,500 Euro Disney SCA (Bearer) * 936,493 1,497,128 Eurotunnel SA Units (Bearer) * 1,740,129 159,353 Financiere de Paribas SA 10,992,217 113,942 FINEXTEL 1,927,368 143,199 GAN (Group Assurances National) * 3,305,228 2,305 Gaz Et Eaux 986,147 60,617 Generale Des Eaux 6,775,752 24,647 Generale Des Eaux Warrants 5/2/2001 * 13,816 49,500 Groupe Danone 7,377,463 5,158 Labinal SA 1,233,056 324,474 Lafarge Coppee SA 20,970,045 33,240 Lagardere Groupe 890,528 70,478 Lyonnaise Des Eaux 7,099,507 174,420 Michelin SA Class B 9,805,823 53,266 Nord-Est 1,049,425 140,507 Peugeot SA 15,775,330 6,690 Pinault Printemps Redoute 2,858,871 128,430 Renault SA * 3,260,773 542,468 Rhone Poulenc SA Class A 19,926,118 104,856 Saint-Gobain 14,417,592 66,730 Seita 2,057,293 79,180 SGS Thomson Microelectronics * 7,323,383 21,630 Societe Eurafrance 8,201,962 212,770 Societe Generale Paris 26,449,358 85,516 Sommer Allibert 3,038,282 138,511 SPIE Batignolles 7,382,838 12,360 Synthelabo 1,493,674
See accompanying notes to the financial statements. 5 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- France - continued 13,180 Technip SA (Compagnie Francaise) 1,594,942 110,983 Thomson CSF 2,984,309 131,520 Total SA 12,337,792 182,820 Usinor Sacilor 3,173,843 21,622 Vallourec 1,290,440 95,605 Worms et Compagnie SA 5,212,526 ------------------ 359,379,316 ------------------ Germany - 8.0% 52,750 Adidas AG 6,373,427 218,445 AGIV AG * 5,096,625 376,250 Bankgesellschaft Berlin AG 9,238,258 581,600 BASF AG 19,998,911 422,950 Bayer AG 15,603,205 196,550 Bayerische Hypotheken und Wechsel - Bank AG 7,206,233 850 Bayerische Motorenwerke AG 604,394 153,140 Berliner Kraft & Licht Class A 3,211,418 321,895 BHF Bank AG 8,985,487 4,650 Brau und Brunnen * 369,386 817,166 Continental AG 19,882,716 34,936 Deutsche Babcock & Wilcox * 2,222,133 1,750 DLW AG * 179,749 365,900 Douglas Holdings AG 12,785,107 38,440 Draegerwerk AG Preferred 811,444 303,828 FAG Kugelfischer 5,535,960 34,050 Fresenius AG Preferred .82 (Non Voting) 6,620,282 11,550 Friedrich Krupp AG 2,476,627 28,750 Gerresheimer Glas AG 367,331 6,537 Hamburgische Electricitaets-Werke AG 1,597,800 46,655 Heidelberg Port-Zement 3,485,875 165,350 Henkel KGAA Preferred 8,367,850 28,250 Hochtief AG 1,333,917 394,563 Klockner Humboldt Deutz * 3,254,874 21,714 Klockner-Werke AG * 1,411,292 17,000 Kolbenschmidt * 259,701 2,464,550 Lufthansa AG 49,560,709 23,400 MAN AG 6,434,464 435,172 Metallgesellschaft * 9,790,554 97,800 Phoenix AG 1,711,357 7,066 Porsche AG Preferred (Non Voting) .12% 10,205,594 11,050 Preussag AG 3,109,088 69,550 Puma AG Preferred 1,734,742 164,000 RWE Preferred 6,331,695 172,609 Schering AG 16,847,152 61,550 Schwarz Pharma AG 4,523,548 274,950 Siemens AG 16,908,016
6 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Germany - continued 291,642 SKW Trostberg AG 9,720,590 5,450 Strabag Bau AG * 427,487 1,100 Suedzucker AG 504,125 10,700 Thyssen AG 2,466,739 240,200 Veba AG 13,076,466 52,850 Viag AG 22,004,319 5,274 Villeroy and Boch AG * 846,699 ------------------ 323,483,346 ------------------ Hong Kong - 9.3% 1,990,000 Allied Group Ltd * 558,556 18,490,000 Allied Properties Ltd 4,438,173 3,617,200 Allied Properties Ltd Warrants 7/3/00 * 396,776 10,851,500 Amoy Properties Ltd 10,922,919 418,000 ASM Pacific Technology 302,078 13,322,000 Cathay Pacific Airways Ltd 21,661,789 3,470,500 Century City International 1,074,874 224,000 Champion Technology Holdings 63,595 1,241,600 Champion Technology Holdings Warrants 6/30/98 * 201,886 2,287,000 Cheung Kong Holdings 24,274,842 2,944,500 China Light & Power Co 13,641,444 7,770,000 China Overseas Land & Investment Ltd 5,715,447 1,394,122 Chinese Estates Holdings Ltd 1,241,378 3,470,000 CP Pokphand Co 1,130,694 4,000 Dah Sing Financial Services 16,725 1,193,800 Dao Heng Bank 5,083,933 1,129 Denway Investments * 299 769,766 Dickson Concept International Ltd 2,920,521 3,341,300 Elec & Eltek International Holdings Ltd 1,142,656 276,100 Furama Hotel Enterprises Ltd 1,150,862 1,094,000 Gold Peak Industry 656,485 293,200 Gold Peak Industry Warrants 12/31/25 * * 28,378 4,124,509 Great Eagle Holdings Ltd 12,055,766 1,452,700 Guoco Group 5,642,827 9,756,700 Hang Lung Development Co Ltd 17,627,281 176,000 Harbour Centre Development Ltd 272,551 14,630,000 Henderson Investment Ltd 15,481,481 3,362,000 Henderson Land Development Co Ltd 27,875,661 2,263,280 HKR International Ltd 2,891,531 648,700 Hong Kong Ferry Co Ltd 1,268,268 65,186 Hong Kong Land Holdings 188,388 1,299,600 Hongkong Aircraft Engineering Co Ltd 4,276,655 7,412,800 Hongkong Electric Holdings Ltd 25,972,063 1,223,000 Hysan Development Co Ltd 3,551,103 26,000 Innovative International 8,556 403,324 Jardine Strategic Warrants 5/02/98 * 177,463
See accompanying notes to the financial statements. 7 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Hong Kong - continued 25,740 Johnson Electric Holdings Ltd 57,798 4,310,622 Kumagai Gumi Hong Kong Ltd 8,093,890 2,468,800 Lai Sun Development 2,453,189 828,700 Lai Sun Garment International Ltd 999,916 585,855 Lai Sun Hotel International Warrants 4/30/99 * 42,338 71,887 Leading Spirit Warrants 12/31/99 * 32,933 826,000 Liu Chong Hing Bank Ltd 2,201,174 1,386,000 Liu Chong Hing Investment Ltd 1,940,650 1,422,462 Mandarin Oriental 1,593,157 1,589,800 New Asia Realty & Trust A Shares 5,826,600 3,738,467 New World Development Co Ltd 23,350,342 1,263,000 Oriental Press Group 435,995 729,000 Oriental Press Group Warrants 10/2/98 * 28,223 18,000 Pacific Concord Holdings Ltd 10,976 4,120,000 Paul Y- ITC Construction Holdings Ltd 1,222,867 112,000 Realty Development Corp Ltd Class A 430,714 49,650,371 Regal Hotels International Ltd 13,615,568 1,172,000 Shanghai Petrochemical Co Class H 487,766 368,000 Shangri LA Asia 377,546 1,219,000 Shaw Brothers Ltd 1,211,292 449,000 Shell Electric Co Ltd 252,052 7,983,000 Shun Tak Holdings Ltd 4,507,114 9,975,000 South China Morning Post Ltd 7,981,030 2,791,000 Sun Hung Kai Properties Ltd 31,695,445 1,185,600 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 325,126 595,000 Swire Pacific Ltd Class A 4,549,458 4,297,500 Swire Pacific Ltd Class B 6,239,112 1,235,907 Tai Cheung Holdings Ltd 917,082 24,000 Texwinca Holdings Ltd 17,499 3,936,000 Wharf Holdings Ltd 14,247,619 11,974,800 Wheelock & Co Ltd 24,879,892 165,804 Wing Lung Bank 1,016,349 279,900 Winsor Industrial Corp Ltd 79,466 183,550 Winsor Properties Holdings Ltd 293,718 68,000 World Trade Centre Group Ltd 32,030 2,667,000 Yizheng Chemical Fibre Co 1,944,580 1,099,200 Yue Yuen Industrial Holdings 2,475,292 ------------------ 379,779,702 ------------------ Italy - 4.6% 2,363,166 Alitalia Linee Aeree Italiane Class A * 1,429,411 197,000 Alleanza Assicurazioni SPA 1,644,739 886,500 Assicurazioni Generali SPA 18,729,884 2,349,222 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 5,590,511 955,000 Banca Commerciale Italiana SPA 2,386,544 151,000 Banca Commerciale Italiana SPA (Non Convertible) 301,022
8 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------- Italy - continued 6,466,357 Banca di Roma * 5,765,975 1,189,263 Banca Fideuram SPA 4,120,227 80,400 Banca Popolare di Bergamo Credit 1,079,942 462,000 Banca Popolare di Milano 2,471,760 199,200 Banca Toscana 442,364 1,934,650 Banco di Napoli di Risp * 928,480 206,000 Bulgari SPA 1,222,635 461,300 Cartiere Burgo SPA 2,625,213 715,500 Cementir SPA 491,709 1,348,343 COFIDE SPA * 449,523 154,250 Comau Finanziaria SPA 480,962 1,552,500 Credito Italiano 3,218,384 1,991,000 Credito Italiano (Non Convertible) 2,295,518 1,976,700 Dalmine SPA * 471,524 21,300 Edison SPA 99,683 44,150 Ericsson SPA 761,032 399,600 Falck Acciaierie and Ferriere Lombarde 1,565,986 1,965,200 Fiat SPA 6,049,499 3,072,700 Fiat SPA Preferred 4,772,994 5,259,720 Fiat SPA (Non Convertible) 8,797,542 310,000 Finmeccanica SPA * 218,322 1,109,940 Gilardini SPA 1,834,450 588,000 Grassetto SPA (c) * 3 3,691,570 HPI SPA * 1,675,218 754,900 IFI Istituto Finanziario Preferred 2.46% 8,596,412 1,999,850 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 3,384,754 1,327,000 Industriali Riunite SPA (Non Convertible) * 493,657 1,876,100 Industriali Riunite SPA * 1,324,465 815,500 Istituto Bancario San Paolo 5,696,951 589,000 Istituto Mobilaire Italiano 5,484,539 5,058,792 Istituto Nazionale Delle Assicurazioni 7,398,394 477,650 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 1,157,024 46,400 Italmobiliare SPA 736,569 12,200 Luxottica Group Sponsored ADR 712,175 441,500 Mediobanco SPA 2,881,139 11,909,798 Montedison SPA 7,237,717 2,706,400 Montedison SPA (Non Convertible) 1,337,287 987,067 Montefibre SPA 577,427 3,923,593 Parmalat Finanziaria SPA 6,094,733 508,975 Pirelli and Co 742,922 195,500 RAS SPA 1,663,861 60,800 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 132,084 23,300 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 66,167 214,700 SAFFA SPA * 360,942 3,208,072 SMI (Societa Metallurgica Italy) * 1,297,291
See accompanying notes to the financial statements. 9 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------- Italy - continued 234,336 Stefanel SPA * 358,018 6,327,500 Telecom Italia Mobile SPA 21,921,759 816,269 Telecom Italia Mobile SPA (Non Convertible) 1,367,630 2,598,220 Telecom Italia SPA di Risp 15,465,024 1,896,266 Telecom Italia SPA di Risp (Non Convertible) 6,709,663 33,500 Toro Assicurazioni 417,631 -------------------- 185,537,291 -------------------- Japan - 15.7% 48,300 Advantest Corp 4,416,826 42,000 Aiwa Co 813,534 98,000 Alps Electric Co Ltd 1,165,018 400,000 Amada Co Ltd 2,713,443 1,418,000 Aoki Corp * 848,749 157,300 Aoyama Trading 4,236,861 303,000 Asahi Breweries Ltd 4,508,854 112,000 Asics Corp * 179,699 92,000 Bandai Co 1,988,528 320,000 Bank of Tokyo-Mitsubishi 5,825,921 226,000 Banyu Pharmaceutical Co Ltd 3,795,162 176,000 Canon Sales Co Inc 3,570,039 155,000 Casio Computer Co 1,352,980 106,100 Chubu Electric Power Co Inc 1,781,711 10,000 Chudenko Corp 229,446 330,000 Chugai Pharmaceutical Co Ltd 2,770,804 99,400 Chugoku Electric Power Co Inc 1,611,356 318,000 Citizen Watch Co 2,455,915 939,000 Cosmo Oil Co Ltd 3,044,393 43,700 Credit Saison Co 1,129,828 220,300 CSK Corp 7,490,456 715,000 Dai Ichi Kangyo Bank 8,321,556 1,115,000 Daicel Chemical Industries Ltd 3,170,089 285,000 Daiichi Seiyaku Co Ltd 4,857,012 116,000 Dainippon Pharmaceutical Co Ltd 665,392 271,000 Dainippon Printing Co Ltd 5,677,280 334,000 Dainippon Screen Manufacturing Co Ltd 3,137,584 288,800 Daito Trust Construction Co Ltd 3,193,150 90,000 Daiwa House Industry Co Ltd 1,039,987 519,000 Daiwa Securities Co Ltd 3,279,076 133,000 Denso Corp 2,874,719 913 East Japan Railway Co 4,174,495 116,000 Eisai Co Ltd 2,208,330 89,000 Ezaki Glico Co Ltd 669,590 112,400 Fanuc Co 4,316,967 196,000 Fuji Bank 2,395,212 936,000 Fuji Heavy Industries Ltd 4,131,815
10 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------- Japan - continued 286,900 Fuji Photo Film Co Ltd 11,066,722 344,000 Fujikara Ltd 2,888,353 542,000 Fujisawa Pharmaceutical Co Ltd 5,271,760 1,374,000 Fujitsu Ltd 16,448,250 29,000 Fukuyama Transporting Co Ltd 144,650 193,000 Furukawa Electric Co Ltd 1,091,030 84,000 Gakken Co Ltd * 358,933 105,000 General Sekiyu (KK) 611,023 374,000 Green Cross Corp 1,336,936 579,000 Hankyu Corp 2,878,394 1,011,000 Haseko Corp * 949,730 100,000 Heiwa Corp 1,795,660 300 Hirose Electric 21,074 2,268,300 Hitachi Ltd 20,931,191 106,000 Hitachi Maxell Ltd 2,396,874 252,000 Hitachi Metals Ltd 1,330,285 102,000 Hokkaido Electric Power 1,712,861 303,000 Hokuriku Bank Ltd 937,036 151,000 House Foods Corp 2,560,811 21,000 Hoya Corp 892,094 6,000 Hyogo Bank Ltd (c) * 1 225,000 INAX Corp 1,103,583 332,000 Industrial Bank of Japan 4,581,594 97,000 Intec Inc 1,104,747 95,000 Isuzu Motors Ltd 268,518 115,000 Ito-Yokado 6,214,149 18,000 Japan Airport Terminal Co Ltd 190,041 366,000 Japan Energy Co Ltd 648,084 597,000 Japan Synthetic Rubber Co Ltd 4,565,966 1,269 Japan Tobacco Inc 10,222,471 276,000 JGC Corp 1,170,172 157,000 Joshin Denki Co Ltd 1,121,149 155,000 Joyo Bank 876,216 379,000 Kamigumi Co Ltd 1,748,649 101,000 Kandenko Co 692,701 213,000 Kaneka Corp 1,324,499 179,200 Kansai Electric Power 3,351,900 42,000 Kansai Paint Co Ltd 136,520 465,000 Kao Corp 6,880,871 86,000 Keihin Electric Express Railway Co Ltd 356,040 135,000 Kenwood Corp 553,288 129,000 Kikkoman Corp 729,238 56,000 Kinden Corp 777,455 417,000 Kinki Nippon Railway Co Ltd 2,353,837 489,000 Kirin Brewery Co Ltd 3,971,677
See accompanying notes to the financial statements. 11 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------ Japan - continued 83,000 Kissei Pharmaceutical Co Ltd 1,517,998 25,000 Kokusai Denshin Denwa 1,598,221 96,000 Kokusai Electric 1,691,911 97,000 Kokusai Kogyo Co Ltd 576,565 79,000 Kokuyo Co Ltd 1,884,862 62,000 Komori Corp 1,304,015 414,000 Konica Corp 2,388,528 208,000 Koyo Seiko Co Ltd 1,430,011 442,000 Kubota Corp 1,785,784 628,000 Kumagai Gumi Co Ltd 694,355 465,000 Kurabo Industries Ltd 985,743 25,000 Kurita Water Industries Ltd 660,903 105,000 Kyocera Corp 6,633,968 90,000 Kyowa Exeo Corp 867,903 331,000 Kyowa Hakko Kogyo Co Ltd 1,939,937 182,300 Kyushu Electric Power Co Inc 2,970,388 500 Long Term Credit Bank of Japan 2,482 36,400 Mabuchi Motor Co 1,942,705 114,000 Makino Milling Machine Co Ltd 793,233 130,000 Makita Corp 1,783,172 101,000 Matsushita Communications 3,299,776 914,000 Matsushita Electric Industrial Co Ltd 16,868,235 30,000 Matsushita Electric Works Ltd 324,217 67,000 Matsushita Kotubuki 2,188,960 235,000 Mazda Motor Corp * 800,981 140,000 Meiji Seika Kaisha Ltd 636,628 225,000 Minolta Co Ltd 1,290,631 883,000 Mitsubishi Electric Corp 4,059,348 640,000 Mitsubishi Gas Chemical Co Inc 2,426,137 674,000 Mitsubishi Oil Co Ltd * 2,353,313 395,000 Mitsubishi Paper Mills Ltd 1,034,375 219,000 Mitsubishi Rayon Co Ltd 833,835 344,000 Mitsubishi Steel Manufacturing * 689,201 459,000 Mitsui Engineering & Shipbuilding * 755,524 463,000 Mitsui Fudosan Co Ltd * 5,388,644 318,000 Mitsui Mining & Smelting Co Ltd 1,292,726 989,000 Mitsui OSK Lines * 1,743,021 8,000 Mochida Pharmaceutical Co Ltd 59,855 38,000 Murata Manufacturing Co Ltd 1,551,085 100,000 Nagoya Railroad Co Ltd 369,939 27,900 Namco Ltd 943,994 131,000 National House Industrial 1,709,785 937,000 NEC Corp 10,515,837 470,000 New Japan Securities Co Ltd * 898,662 405,000 New Oji Paper Co Ltd 2,053,787
12 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 143,000 NGK Spark Plug Co 1,224,458 107,000 Nichicon Corp 1,325,380 231,000 Nichii Co Ltd 2,630,892 179,000 Nichirei 611,597 390,000 Nihon Cement Co Ltd 1,160,695 941,000 Nikko Securities 4,451,151 45,000 Nikon Corp 744,451 128,000 Nintendo Co Ltd 10,577,105 362,000 Nippon Carbon Co Ltd * 827,583 143,000 Nippon Chemical 677,612 74,000 Nippon Comsys 1,051,958 1,384,000 Nippon Credit Bank 2,370,139 264,000 Nippon Light Metal 706,692 199,000 Nippon Meat Packers Inc 2,398,786 3,891,000 Nippon Oil Co Ltd 17,434,941 359,000 Nippon Paper Industries 2,083,149 185,000 Nippon Shokubai Corp 1,353,396 175,000 Nippon Soda Co Ltd 1,498,462 4,725 Nippon Telegraph & Telephone 44,386,483 3,400 Nippon Television Network 1,195,611 221,000 Nishimatsu Construction 1,304,431 1,417,000 Nissan Motor Co Ltd 9,164,735 383,000 Nisshinbo Industries Inc 2,483,498 937,000 Nissho Iwai Corp 3,528,647 63,000 Nissin Food Products Co Ltd 1,466,456 349,000 Nitto Denko Corp 6,063,763 301,000 Nomura Securities Co Ltd 4,003,658 171,000 Odakyu Electric Railway Co Ltd 865,733 631,000 Oki Electric Industry 2,255,632 112,000 Okuma Corp 689,002 254,000 Okumura Corp 1,425,306 206,000 Olympus Optical Co Ltd 1,469,349 249,000 Omron Corp 4,636,794 67,000 Ono Pharmaceutical Co Ltd 2,088,702 172,000 Onward Kashiyama Co Ltd 2,645,274 245,000 Pioneer Electronics Corp 4,888,187 24,000 Q.P. Corp 199,518 942,000 Renown Inc * 1,621,033 321,000 Ricoh Co Ltd 4,349,738 6,000 Rohm Co Ltd 623,493 164,000 Royal Co Ltd 2,808,546 86,000 Sagami Railway Co Ltd 275,252 284,000 Sakura Bank Ltd 1,676,282 144,000 Sanden Corp 987,613 100,000 Sankyo Co Ltd 3,042,647
See accompanying notes to the financial statements. 13 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 143,000 Sanwa Bank Ltd 1,783,191 163,000 Sapporo Breweries Ltd 1,159,930 50,500 Secom Co Ltd 3,597,847 10,400 Sega Enterprises 297,415 61,000 Seino Transportation Co Ltd 608,529 146,000 Sekisui Chemical Co Ltd 1,238,008 398,000 Sharp Corp 4,003,492 169,000 Shikoku Electric Power 2,739,629 108,000 Shin-Etsu Chemical Co Ltd 2,765,317 350,000 Shionogi and Co Ltd 2,359,714 544,000 Shiseido Co Ltd 8,909,136 1,633,000 Showa Denko 3,176,673 372,000 Showa Shell Sekiyu 2,582,260 121,000 Skylark Co Ltd 1,679,857 97,000 Snow Brand Milk Products Co Ltd 400,773 187,000 Stanley Electric Co Ltd 803,716 285,000 Sumitomo Bank 4,217,308 1,000,000 Sumitomo Corp 8,313,243 8,000 Sumitomo Forestry Co Ltd 77,147 314,000 Sumitomo Heavy Industries Ltd 991,936 118,000 Taisho Pharmaceutical Co Ltd 2,893,840 147,000 Taiyo Yuden Co Ltd 1,723,086 35,000 Takashimaya Co 389,891 243,000 Takeda Chemical Industries Ltd 6,484,579 101,000 Takuma Corp 1,225,871 240,000 Tanabe Seiyaku Co Ltd 1,807,632 200 TDK Corp 15,396 189,000 Teijin Ltd 768,318 220,000 Teikoku Oil Co Ltd 843,129 191,000 Terumo Corp 3,493,225 1,420 Toho Co Ltd 195,960 191,600 Tohoku Electric Power Co Inc 3,121,922 51,000 Tokyo Broadcasting System Inc 860,670 481,000 Tokyo Construction Co Ltd 627,791 159,000 Tokyo Electric Co Ltd 572,342 9,400 Tokyo Electric Power 179,732 287,000 Tokyo Electron 15,627,650 135,000 Tokyo Steel Manufacturing Co 1,100,964 100,000 Tokyo Style Co Ltd 1,180,481 318,000 Tokyu Department Store Co Ltd 793,083 333,000 Toppan Printing Co Ltd 4,789,176 1,054,000 Toshiba Corp 5,835,597 62,000 Tostem Corp 1,293,707 48,000 Toyo Suisan Kaisha 478,843 441,000 Toyo Trust & Banking Co Ltd 3,592,817
14 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Japan - continued 210,000 Toyobo Co Ltd 415,496 133,000 Uniden Corp 1,868,568 124,000 Victor Co of Japan Ltd 1,505,030 174,000 Wacoal Corp 2,010,641 63,000 Yakult Honsha Co Ltd 618,007 148,000 Yamaha Corp 2,288,470 170,000 Yamaha Motor Co 1,540,444 526,000 Yamaichi Securities Co Ltd 1,031,973 305,000 Yamanouchi Pharmaceutical Co Ltd 7,302,353 209,000 Yamato Transport Co Ltd 2,519,328 115,000 Yamazaki Baking Co Ltd 1,586,998 182,000 Yokogawa Electric Corp 1,201,330 67,000 Yoshitomi Pharmaceutical Industries Lt 437,235 ------------------- 637,350,516 ------------------- Malaysia - 2.3% 284,000 Aluminum Co of Malaysia 253,267 1,156,000 Amalgamated Steel Mills Berhad 515,452 319,000 AMMB Holdings Berhad 1,137,918 949,000 Arab Malaysian Finance (Foreign Registered) 895,130 27,000 Ayer Hitam Tin Dredging * 28,709 138,000 Berjaya Group 79,993 961,000 Berjaya Leisure Berhad (d) 1,796,416 1,537,300 Berjaya Sports Toto 4,218,282 324,000 Cement Industries of Malaysia Berhad 462,302 201,000 DMIB Berhad 112,375 901,800 Edaran Otomobil Berhad 3,247,779 888,000 Ekran Berhad 1,041,660 317,200 Esso Malaysia Berhad 565,749 143,400 Faber Group Berhad * 76,729 204,000 Golden Hope Plantations Berhad 268,688 118,000 Guinness Anchor Berhad 202,367 115,000 Highlands and Lowlands Berhad 113,994 314,400 Hong Leong Industries Berhad 695,551 2,504,000 Hong Leong Properties Berhad 1,820,779 429,600 IGB Corp Berhad 294,701 1,611,000 IOI Corporation Berhad 1,447,717 342,000 Johan Holdings Berhad 191,206 999,000 Kedah Cement Berhad 993,689 1,418,058 Kuala Lumpur Kepong Berhad (Singapore) 2,587,663 659,000 Kumpulan Guthrie Berhad 696,183 11,000 Magnum Corp Berhad 10,225 996,750 Malayan Cement Berhad 1,217,091 1,219,000 Malayan United Industries Berhad 627,165 307,000 Malayawata Steel 304,315 976,000 Malaysia Mining Corp Berhad 716,271
See accompanying notes to the financial statements. 15 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------- Malaysia - continued 1,662,000 Malaysian Airline Systems 3,163,814 692,000 Malaysian Helicopter Berhad 344,161 1,513,600 Malaysian International Ship (Alien Market) 3,114,937 44,000 Malaysian Mosaics 32,749 187,000 Malaysian Oxygen Berhad 718,367 493,000 Malaysian Pacific Industries 1,344,315 19,000 Malaysian Plantations 11,470 1,937,333 Malaysian Resources Corp 1,561,562 66,100 Matsushita Electric 385,423 4,733,000 MBF Capital Berhad 4,448,095 1,222,000 MBF Holdings Berhad 414,948 339,000 Mulpha International 145,344 839,000 Multi Purpose Holdings 653,243 79,000 Nestle Malaysia 501,286 431,000 New Straits Times 1,921,797 1,239,500 Oriental Holdings Berhad 4,463,986 66,000 OYL Industries Berhad 303,344 1,489,600 Pan Malaysia Cement 1,282,420 858,500 Perlis Plantations 2,120,117 2,731,000 Perusahaan Otomobil 7,962,099 609,600 Petronas Dagangan Berhad 857,266 1,046,000 Petronas Gas Berhad 2,888,115 3,828,866 Public Bank Berhad (Alien Market) 3,598,385 1,051,000 Rashid Hussain Berhad 2,541,434 3,450,000 Renong Berhad 3,549,991 1,809,000 RHB Capital Berhad 3,102,384 312,000 RJ Reynolds Berhad 513,668 171,000 Rothmans of Pall Mall Malaysia Berhad 1,378,323 1,619,000 Sarawak Enterprises Corp 1,199,465 504,400 Shell Refinery Co 1,141,842 228,000 Sime Darby 247,155 1,691,000 TA Enterprise Berhad 1,125,207 4,308,000 Tan Chong Motor Holdings Berhad 4,551,068 240,000 Time Engineering Berhad 176,162 1,438,000 UMW Holdings Berhad 3,871,823 117,000 Uniphone Telecommunications 66,215 517,000 YTL Corp 826,349 -------------------- 93,147,695 -------------------- Netherlands - 0.0% 53 Fortis Amev NV 2,168 29,600 Schroders International Property Fund 53,262 -------------------- 55,430 -------------------- New Zealand - 0.0% 182,791 Trans Tasman Properties * 101,659 --------------------
See accompanying notes to the financial statements. 16 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------- Norway - 1.2% 89,805 Bergesen D Y AS Class A 2,409,676 9,765 Bona Shipholding Ltd * 123,148 131,074 Leif Hoegh and Co AS 2,796,030 718,140 Norsk Hydro AS 39,020,446 50,540 Orkla-Borregaard AS Class A 3,586,898 100,634 SAS Norge ASA Class B 1,444,630 -------------------- 49,380,828 -------------------- Singapore - 2.6% 101,959 Asia Food & Properties Ltd Warrants 7/12/02 * 33,137 1,359,461 Asia Food & Properties Ltd * 666,136 1,060,000 City Developments 6,692,893 130,000 Creative Technology Ltd * 2,612,893 1,602,096 DBS Land Ltd 4,109,840 721,000 Development Bank of Singapore (Foreign Registered) 7,627,107 1,144,309 First Capital Corp Ltd 2,557,200 565,577 Fraser and Neave Ltd 2,991,482 3,156,037 Hai Sun Hup Group Ltd 2,024,037 1,209,203 Haw Paw Brothers International Ltd 2,318,472 139,475 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 103,281 781,000 Highlands and Lowlands Berhad 795,200 1,372,104 Hotel Properties Ltd 1,914,142 3,227,421 Jardine Matheson Holdings Ltd 22,591,947 5,703,911 Jardine Strategic Holdings Ltd 21,104,471 358,712 Jurong Shipyard Ltd 1,589,005 1,126,000 Lum Chang Holdings Ltd 714,684 118,000 Marco Polo Developments Ltd 187,240 477,600 Metro Holdings Ltd 1,357,805 1,350,000 Natsteel Ltd 3,677,355 3,224,556 Neptune Orient Lines Ltd 2,430,409 476,000 Parkway Holdings Ltd 1,793,851 345,508 Prima Ltd 1,023,389 388,424 Robinson and Co Ltd 1,810,505 246,699 Shangri-La Hotel Ltd 603,495 369,000 Singapore Tech Industrial Corp 566,003 77,900 Singapore Technologies Aero (Foreign Registered) 118,460 2,303,168 Straits Trading Co Ltd 4,263,716 416,000 Times Publishing Ltd 880,132 240,000 United Engineers 277,686 6,592,960 United Industrial Corp Ltd 4,489,751 592,900 Wearne Brothers Ltd 1,489,600 -------------------- 105,415,324 -------------------- Spain - 2.8% 344,378 Argentaria Corporacion Bancaria de Espana SA 17,147,546 3,500 Azucarera de Espana SA 182,332 2,031,237 Banco Bilbao Vizcaya SA 53,509,861
See accompanying notes to the financial statements. 17 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Spain - continued 537,804 Banco Central Hispanoamericano SA 19,951,421 1,500 Dragados & Construcciones SA 28,169 2,115,856 FENOSA SA 16,422,483 16,780 Iberdrola SA 188,738 4,030 Repsol SA 159,578 233,043 Telefonica de Espana SA 6,054,857 ------------------- 113,644,985 ------------------- Sweden - 5.0% 157,779 Assi Doman 4,803,136 471,200 Avesta Sheffield AB 4,471,357 463,200 Bilspedition AB Class B * 1,899,775 146,031 Celsius Industrier AB Class B 2,734,262 353,720 Electrolux AB Class B 25,230,475 448,500 Ericsson LM Class B 18,737,605 94,388 Esselte AB Class A 2,344,386 47,200 Esselte AB Class B 1,220,438 76,217 Euroc Industri AB Class A 2,659,991 95,669 Fastighets AB (Hufvudstaden) Class A * 438,684 158,510 Granges AB * 2,382,410 102,200 Hennes and Mauritz AB Class B 3,866,207 84,449 Hufvudstaden International * 81,750 2,700 Kinnevik Investment Class B 81,506 143,770 Marieberg Tidnings AB Class A 3,717,424 746,000 Mo Och Domsjo AB Class B 24,705,290 144,200 Nordbanken 4,591,801 260 Scancem AB Class B 8,958 365,508 Skandinaviska Enskilda Banken Class A 3,933,973 613,846 Skanska AB Class B 24,433,588 224,600 Sparbanken Sverige AB Class A 4,891,968 274,300 Ssab Swedish Steel Class A 5,694,967 439,873 Stena Line AB Class B * 1,854,527 1,233,550 Stora Kopparberg Bergslags Class A 19,640,139 298,350 Stora Kopparberg Bergslags Class B 4,674,218 827,872 Svenska Cellulosa Class B 18,400,788 291,489 Svenska Handelsbanken Class A 8,984,943 421,800 Trelleborg AB Class B 6,500,844 ------------------- 202,985,410 ------------------- Switzerland - 1.6% 99,105 Alberta Energy Ltd 2,205,585 120 Ascom Holding AG (Bearer) * 162,447 383 Bobst SA (Registered) 296,789 30,300 CS Holdings (Registered) 3,649,557 1,360 Elektrowatt AG (Bearer) 492,113 450 Financiere Richemont AG Class A 606,449 2,260 Hilti AG, Schaan (Participating Certificate) 1,553,317
18 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Switzerland - continued 1,894 Holderbank Financiere Glarus AG (Bearer) 1,588,915 8,460 Holderbank Financiere Glarus AG (Registered) 1,504,963 225 Magazine zum Globus (Registered) * 176,628 27,470 Nestle AG (Registered) 32,022,573 7,317 Novartis AG (Registered) 10,393,340 970 Rieter Holdings AG (Registered) 434,002 123 Roche Holdings (Participating Certificate) 1,040,160 640 Sairgroup Namen AKT * 760,298 2,270 Schweizerische Rueckversicherungsgesellschaft (Bearer) 3,022,486 220 Sig Schweiz Industrie (Registered) 318,722 460 Sulzer Gebrueder AG (Registered) 323,291 12,000 Swiss Bank Corp (Registered) * 2,898,824 5,320 Zuerich Versicherungs Namen (Registered) 1,935,784 -------------------- 65,386,243 -------------------- United Kingdom - 23.9% 1,232,700 Abbey National 16,553,317 1,407,350 Allied Domecq Plc 10,636,171 874,580 AMEC 2,014,119 536,400 Anglian Water Plc 6,763,733 1,248,500 Arjo Wiggins Appleton Plc 3,563,678 8,292,062 ASDA Group 19,365,215 267,740 Ashley (Laura) Holdings 247,506 608,446 Associated British Foods 5,111,509 427,100 Bank of Scotland 2,874,584 1,102,190 Barclays Bank Plc 25,204,198 1,058,230 Barratt Development 4,402,149 2,021,360 Bass * 27,045,494 2,786,500 BAT Industries 23,341,388 987,300 Beazer Holmes Plc 2,694,024 317,656 Betacomm Plc * 231,829 15,427,398 BG Plc 67,304,215 326,800 Blue Circle Industries 2,035,216 218,356 British Aerospace 5,113,634 1,924,103 British Airways 20,064,881 3,803,800 British Steel 10,672,375 1,452,400 British Telecom Plc 9,374,899 1,480,869 BTR 5,235,648 2,742,240 Burton Group 5,503,614 3,344,593 Coats Viyella 6,427,749 128,700 Commercial Union Plc 1,544,570 595,497 Cookson Group * 2,472,389 181,500 Costain Group (d) * 132,461 1,352,553 Dawson International 1,623,242 99,500 Electrocomponents Plc 743,912 1,680,382 English China Clays Plc 6,349,817
See accompanying notes to the financial statements. 19 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- United Kingdom - continued 1,058,000 Enterprise Oil 11,856,623 2,395,400 Eurotunnel SA Units (Registered) * 2,641,705 64,840 Glaxo Wellcome Plc 1,298,695 784,735 Greenalls Group Plc 6,007,065 1,508,890 Harrisons & Crosfield 2,704,065 1,494,123 Hillsdown Holdings 3,925,533 291,680 HSBC Holdings 8,741,902 272,985 Hyder Plc 3,696,771 865,200 Imperial Chemical Industries Plc 14,003,750 610,320 Kingfisher 7,176,173 134,473 Kwik Save Group 697,883 7,262,850 Ladbroke Group 30,507,325 75,546 Laing (John) 459,452 477,100 Land Securities 6,925,159 4,917,050 Lasmo 20,434,584 1,063,725 Legal & General Group 7,806,300 5,059,148 Lloyds TSB Group 59,239,567 660,392 London International 1,767,189 4,877,642 Lonrho 9,769,541 241,740 Lucas Variety Plc 772,346 383,260 Meggitt 770,748 428,100 Meyer International 2,968,101 1,944,180 Mirror Group Plc 6,400,734 4,220,590 National Power 38,947,782 444,800 Next 5,352,615 868,700 Northern Foods Plc * 3,071,310 1,762,400 Orange Plc * 6,373,921 2,283,500 Peninsular & Oriental Steam Navigation Co 24,071,972 5,693,932 Pilkington * 13,436,080 1,648,274 Powergen 20,850,732 765,800 Prudential Corp 7,576,044 1,147,400 Railtrack Group Plc 14,375,092 45,989 Reckitt & Colman 710,049 722,479 Redland 3,397,978 3,626,100 Rentokil Plc 12,702,547 2,918,000 Reuters Holdings 29,624,902 159,060 RMC Group 2,589,954 844,036 Rolls-Royce 3,203,127 741,000 Sainsbury (J) 5,179,559 78,360 Schroders 2,405,069 1,353,500 Scottish Hydro-Electric Plc 9,790,174 3,575,598 Scottish Power Plc 25,196,242 7,112,700 Sears 7,267,287 762,182 Severn Trent Plc 10,815,934 553,650 Shell Transport & Trading (Registered) 3,753,262 1,787,824 Signet Group Plc * 913,341 41,903,056 Signet Group * (e) -
20 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value/ Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------ United Kingdom - continued 1,013,867 Simon Engineering 624,830 5,705,038 Smithkline Beecham Plc 49,407,980 1,301,945 Southern Electric Plc 9,755,104 1,513,547 Storehouse Plc 5,621,196 3,662,575 T & N 9,533,642 8,092,180 Tarmac 15,551,819 2,466,200 Taylor Woodrow Plc 7,439,411 7,557 Tesco 50,127 785,600 Thames Water 10,058,910 592,900 TI Group Plc 5,663,619 206,770 Tomkins Plc 1,002,665 623,690 Unilever Plc 17,286,543 2,057,475 United Biscuits 6,890,519 2,129,450 United Utilities 23,794,904 723,310 Viglen Technology * 762,492 1,899,470 Vodafone Group Plc 9,765,377 734,100 Waste Management International * 2,952,597 865,279 Wessex Water Plc 6,665,720 1,215,500 Whitbread Plc Class A 15,898,518 2,710,000 Wimpey (George) 5,845,454 1,136,032 Yorkshire Water 8,069,785 ------------------ 969,464,932 ------------------ TOTAL STOCK AND EQUIVALENTS (Cost $3,723,403,747) 3,864,260,088 ------------------ DEBT OBLIGATION - 0.1% United Kingdom - 0.1% GBP 1,178,995 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (d) 2,233,326 ------------------ TOTAL DEBT OBLIGATION (Cost $1,334,817) 2,233,326 ------------------ SHORT-TERM INVESTMENTS - 11.6% Cash Equivalents - 10.0% $ 162,900,000 Republic Bank of New York Time Deposit, 5.56% due 9/2/97 162,900,000 243,948,417 The Boston Global Investment Trust (b) 243,948,417 ------------------ 406,848,417 ------------------ U.S. Government - 1.6% $ 64,500,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 63,321,226 ------------------ TOTAL SHORT-TERM INVESTMENTS (Cost $470,128,875) 470,169,643 ------------------ TOTAL INVESTMENTS - 106.8% (Cost $4,194,867,439) 4,336,663,057 Other Assets and Liabilities (net) - (6.8%) (274,610,315) ------------------ TOTAL NET ASSETS - 100.0% $ 4,062,052,742 ==================
See accompanying notes to the financial statements. 21 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments: ADR American Depositary Receipt (a) All or a portion of this security is held as collateral for open futures contracts. (b) Represents investment of security lending collateral (Note 1). (c) Bankrupt issuer. (d) Valued by management (Note 1). (e) Pending corporate action, quantification of rate per share to be determined. * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997. 22 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1997, industry sector diversification of the Fund's equity investments was as follows:
Industry Sector Banking 12.4% Utilities 7.6 Conglomerates 6.6 Services 6.6 Consumer Goods 5.9 Real Estate 5.4 Construction 5.0 Oil and Gas 4.7 Transportation 4.6 Electronic Equipment 4.1 Health Care 3.9 Chemicals 3.4 Telecommunications 3.4 Retail Trade 3.2 Machinery 2.9 Food and Beverage 2.8 Paper and Allied Products 2.6 Automotive 2.3 Metals and Mining 1.9 Communications 1.8 Insurance 1.8 Financial Services 1.5 Computers 0.6 Textiles 0.6 Aerospace 0.6 Miscellaneous 3.8 ========== 100.0% ==========
See accompanying notes to the financial statements. 23 GMO International Core Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $4,194,867,439) (Note 1) $ 4,336,663,057 Foreign currency, at value (cost $13,025,393) (Note 1) 13,041,199 Cash 21,864 Receivable for Fund shares sold 240,975 Receivable for investments sold 126,804,212 Dividends and interest receivable 10,572,242 Foreign withholding taxes receivable 5,423,232 Receivable for variation margin on open futures contracts (Notes 1 and 5) 18,228,093 Receivable for open forward foreign currency contracts (Notes 1 and 5) 28,841,965 Receivable for expenses waived or borne by Manager (Note 2) 1,051,188 ----------------- Total assets 4,540,888,027 ----------------- Liabilities: Payable upon return of securities loaned (Note 1) 243,948,417 Payable for investments purchased 124,151,508 Payable for open swap contracts (Note 1) 16,735,992 Payable for open forward foreign currency contracts (Notes 1 and 5) 63,606,630 Payable for Fund shares repurchased 25,703,957 Payable to affiliate for (Note 2): Management fee 2,697,649 Shareholder service fee 542,414 Accrued expenses 1,448,718 ----------------- Total liabilities 478,835,285 ----------------- Net assets $ 4,062,052,742 ================= Net assets consist of: Paid-in capital $ 3,665,441,907 Accumulated undistributed net investment income 41,323,670 Accumulated undistributed net realized gain 222,536,269 Net unrealized appreciation 132,750,896 ----------------- $ 4,062,052,742 ================= Net assets attributable to: Class I Shares $ 3,466,361 ================= Class II Shares $ 40,429,382 ================= Class III Shares $ 4,018,156,999 ================= Shares outstanding: Class I 141,965 ================= Class II 1,655,271 ================= Class III 164,337,155 ================= Net asset value per share: Class I $ 24.42 ================= Class II $ 24.42 ================= Class III $ 24.45 =================
See accompanying notes to the financial statements. 24 GMO International Core Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $7,619,569) $ 72,836,835 Interest (including securities lending income of $1,308,291) 6,092,944 ----------------- Total income 78,929,779 ----------------- Expenses: Management fee (Note 2) 16,233,860 Custodian fees 1,586,080 Stamp duties and transfer taxes 340,952 Legal fees 96,876 Audit fees 39,928 Transfer agent fees 29,164 Trustees fee (Note 2) 19,688 Miscellaneous 15,916 Fees waived or borne by Manager (Note 2) (6,333,133) ----------------- 12,029,331 Shareholder service fee (Note 2) Class I 4,084 Class II 39,221 Class III 3,217,843 ----------------- Net expenses 15,290,479 ----------------- Net investment income 63,639,300 ----------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 249,312,819 Closed futures contracts (32,853,672) Closed swap contracts 56,831,896 Foreign currency, forward contracts and foreign currency related transactions (40,323,188) ----------------- Net realized gain 232,967,855 ----------------- Change in net unrealized appreciation (depreciation) on: Investments (152,191,345) Open futures contracts 45,991,544 Open swap contracts (39,328,192) Foreign currency, forward contracts and foreign currency related transactions (6,541,625) ----------------- Net unrealized loss (152,069,618) ----------------- Net realized and unrealized gain 80,898,237 ----------------- Net increase in net assets resulting from operations $ 144,537,537 =================
See accompanying notes to the financial statements. 25 GMO International Core Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 --------------------- --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 63,639,300 $ 103,049,778 Net realized gain 232,967,855 231,885,655 Change in net unrealized appreciation (depreciation) (152,069,618) (42,361,514) --------------------- --------------------- Net increase in net assets resulting from operations 144,537,537 292,573,919 --------------------- --------------------- Distributions to shareholders from: Net investment income Class I (27,297) (2,078) Class II (268,136) (231,954) Class III (31,242,846) (56,618,907) --------------------- --------------------- Total distributions from net investment income (31,538,279) (56,852,939) --------------------- --------------------- Net realized gains Class I (75,824) (8,575) Class II (780,290) (932,158) Class III (90,918,336) (264,270,135) --------------------- --------------------- Total distributions from net realized gains (91,774,450) (265,210,868) --------------------- --------------------- Net share transactions: (Note 4) Class I 3,181,300 206,837 Class II 15,183,268 25,522,151 Class III (235,983,925) (275,828,032) --------------------- --------------------- Decrease in net assets from net fund share transactions (217,619,357) (250,099,044) --------------------- --------------------- Total decrease in net assets (196,394,549) (279,588,932) Net assets: Beginning of period 4,258,447,291 4,538,036,223 --------------------- --------------------- End of period (including accumulated undistributed net investment income of $41,323,670 and $9,222,649, respectively) $ 4,062,052,742 $ 4,258,447,291 ===================== =====================
See accompanying notes to the financial statements. 26 GMO International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from September 10, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ----------------- --------------------- Net asset value, beginning of period $ 24.36 $ 24.17 ------------------ ---------------- Income (loss) from investment operations: Net investment income 0.38(d) 0.14 Net realized and unrealized gain (loss) 0.43 1.38 ------------------ ---------------- Total from investment operations 0.81 1.52 ------------------ ---------------- Less distributions to shareholders: From net investment income (0.20) (0.26) From net realized gains (0.55) (1.07) ------------------ ---------------- Total distributions (0.75) (1.33) ------------------ ---------------- Net asset value, end of period $ 24.42 $ 24.36 ================== ================ Total Return (a) 3.14% 6.38% Ratios/Supplemental Data: Net assets, end of period (000's) $ 3,466 $ 208 Net expenses to average daily net assets 0.84%*(b) 0.85%*(b) Net investment income to average daily net assets 2.97%* 1.12%* Portfolio turnover rate 42% 97% Average broker commission rate (c) $ 0.0066 $ 0.0062 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.04 $ 0.04
* Annualized (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .03% of average daily net assets for the period ended February 28, 1997 and .02% of average daily net assets for the six months ended August 31, 1997. (c) The average broker commission rate will vary depending on the markets in which trades are executed. (d) Computed using average shares outstanding throughout the period. See accompanying notes to the financial statements. 27 GMO International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from September 26, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------------- -------------------------------- Net asset value, beginning of period $ 24.36 $ 24.60 ------------------ ---------------- Income (loss) from investment operations: Net investment income 0.36(d) 0.14 Net realized and unrealized gain (loss) 0.44 0.96 ------------------ ---------------- Total from investment operations 0.80 1.10 ------------------ ---------------- Less distributions to shareholders: From net investment income (0.19) (0.27) From net realized gains (0.55) (1.07) ------------------ ---------------- Total distributions (0.74) (1.34) ------------------ ---------------- Net asset value, end of period $ 24.42 $ 24.36 ================== ================ Total Return (a) 3.18% 4.51% Ratios/Supplemental Data: Net assets, end of period (000's) $ 40,429 $ 25,302 Net expenses to average daily net assets 0.78%*(b) 0.80%*(b) Net investment income to average daily net assets 2.88%* 0.98%* Portfolio turnover rate 42% 97% Average broker commission rate (c) $ 0.0066 $ 0.0062 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.04 $ 0.05
* Annualized (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .04% of average daily net assets for the period ended February 28, 1997 and .02% of average daily net assets for the six months ended August 31, 1997. (c) The average broker commission rate will vary depending on the markets in which trades are executed. (d) Computed using average shares outstanding throughout the period. 28 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------------------------ (Unaudited) 1997 1996 1995 ---------------- ------------ ----------- ----------- Net asset value, beginning of period $ 24.37 $ 24.62 $ 22.32 $ 25.56 ---------------- ------------ ----------- ----------- Income (loss) from investment operations: Net investment income 0.37 (d) 0.59 0.36 0.27 Net realized and unrealized gain (loss) 0.45 1.02 3.09 (1.57) ---------------- ------------ ----------- ----------- Total from investment operations 0.82 1.61 3.45 (1.30) ---------------- ------------ ----------- ----------- Less distributions to shareholders: From net investment income (0.19) (0.33) (0.39) (0.35) From net realized gains (0.55) (1.53) (0.76) (1.59) ---------------- ------------ ----------- ----------- Total distributions (0.74) (1.86) (1.15) (1.94) ---------------- ------------ ----------- ----------- Net asset value, end of period $ 24.45 $ 24.37 $ 24.62 $ 22.32 ================ ============ =========== =========== Total Return (a) 3.18% 6.72% 15.72% (5.31%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,018,157 $ 4,232,937 $ 4,538,036 $ 2,591,646 Net expenses to average daily net assets 0.71%*(b) 0.71%(b) 0.71% (b) 0.70% Net investment income to average daily net assets 2.94%* 2.34% 1.93% 1.48% Portfolio turnover rate 42% 97% 14% 53% Average broker commission rate (c) $ 0.0066 $ 0.0062 N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following pershare amounts: $ 0.04 $ 0.06 $ 0.03 $ 0.03
Year Ended February 28/29, ------------------------------ 1994 1993 ------------ --------- Net asset value, beginning of period $ 18.51 $ 18.80 ----------- --------- Income (loss) from investment operations: Net investment income 0.29 0.29 Net realized and unrealized gain (loss) 7.44 (0.04) ----------- --------- Total from investment operations 7.73 0.25 ----------- --------- Less distributions to shareholders: From net investment income (0.27) (0.20) From net realized gains (0.41) (0.34) ----------- --------- Total distributions (0.68) (0.54) ---------- --------- Net asset value, end of period $ 25.56 $ 18.51 =========== ========= Total Return (a) 42.10% 1.43% Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,286,431 $ 918,332 Net expenses to average daily net assets 0.71%(b) 0.70% Net investment income to average daily net assets 1.48% 2.36% Portfolio turnover rate 23% 23% Average broker commission rate (c) N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following pershare amounts: $ 0.03 $ 0.03
* Annualized (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .02% of average daily net assets. (c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. The average broker commission rate will vary depending on the markets in which trades are executed. (d) Computed using average shares outstanding throughout the period. See accompanying notes to the financial statements. 29 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO International Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks maximum total return through investment in a portfolio of common stocks of non-U.S. issuers. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market- makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 30 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may purchase and sell stock index futures contracts. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is subsequently settled. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 5 for all open futures contracts held as of August 31, 1997. 31 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts The Fund may enter into forward currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 5 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to the equity markets. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or that there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 5 for a summary of the open swap agreement as of August 31, 1997. 32 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $225,737,354 collateralized by cash in the amount of $243,948,417, which was invested in a short-term instrument. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryover for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 33 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .60% of the amount invested. Prior to June 1, 1996, the premium on cash purchases was .75% of the amount invested. All purchase premiums are paid to and recorded as paid in capital by the Fund. For the six months ended August 31, 1997, the Fund received $624,536 in purchase premiums. There is no premium for cash redemptions or reinvested distributions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO receives a management fee paid monthly at the annual rate of .75% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed .54% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for fees exceeding .69%; thus the net annual expense ratio after the waiver for a Class III shareholder is unchanged. 34 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statement (Unaudited) - continued - -------------------------------------------------------------------------------- The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $19,688. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchase and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997 aggregated $1,716,136,961 and $2,067,610,352, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - ------------------------- ---------------------------- --------------------------- ---------------------------- $4,194,867,439 $416,311,147 $274,515,529 $141,795,618
4. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from September 10, 1996 Six Months Ended (commencement of operations) August 31, 1997 to February 28, 1997 ---------------------------------------- -------------------------------------- Class I: Shares Amount Shares Amount ------------------- ------------------- ----------------- ----------------- Shares sold 129,487 $ 3,080,979 8,196 $ 198,184 Shares issued to shareholders in reinvestment of distributions 4,031 103,121 440 10,653 Shares repurchased (107) (2,800) (82) (2,000) ------------------- ------------------- ----------------- ----------------- Net increase 133,411 $ 3,181,300 8,554 $ 206,837 =================== =================== ================= =================
35 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statement (Unaudited) - continued - -------------------------------------------------------------------------------- Share transactions - continued
Period from September 26,1996 Six Months Ended (commencement of operations) August 31, 1997 to February 28, 1997 -------------------------------------------- ----------------------------------------- Class II: Shares Amount Shares Amount ------------------- ---------------------- ----------------- -------------------- Shares sold 575,487 $ 14,134,842 990,710 $ 24,358,040 Shares issued to shareholders in reinvestment of distributions 40,970 1,048,426 48,104 1,164,111 Shares repurchased - - - - ------------------- ---------------------- ----------------- -------------------- Net increase 616,457 $ 15,183,268 1,038,814 $ 25,522,151 =================== ====================== ================= ==================== Six Months Ended Year Ended August 31, 1997 February 28, 1997 -------------------------------------------- ----------------------------------------- Class III: Shares Amount Shares Amount ------------------- ---------------------- ----------------- -------------------- Shares sold 13,419,025 $ 342,145,965 26,694,331 $ 662,148,445 Shares issued to shareholders in reinvestment of distributions 4,282,384 109,671,851 12,151,121 296,116,351 Shares repurchased (27,037,410) (687,801,741) (49,513,521) (1,234,092,828) ------------------- ---------------------- ----------------- -------------------- Net decrease (9,336,001) $ (235,983,925) (10,668,069) $ (275,828,032) =================== ====================== ================= ====================
36 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statement (Unaudited) - continued - -------------------------------------------------------------------------------- 5. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) --------------- -------------------------- --------------------- -------------------- ------------------ Buys 9/12/97 ATS 565,890,380 $ 44,685,653 $ (2,988,347) 11/07/97 ATS 395,997,242 31,378,960 (1,252,040) 12/05/97 AUD 51,986,058 38,253,071 (608,319) 11/07/97 BEF 5,623,456,600 151,823,915 (4,851,481) 9/12/97 CAD 24,469,942 17,630,414 (424,586) 12/05/97 CAD 80,368,552 58,184,872 (524,128) 11/07/97 CHF 90,188,819 61,237,822 (2,332,292) 11/07/97 ESP 31,917,593,763 209,987,623 (9,317,610) 11/07/97 FIM 362,155,407 67,101,023 (3,044,996) 11/07/97 GBP 3,667,997 5,930,967 (145,033) 12/05/97 HKD 445,961,992 57,146,041 (335,386) 9/12/97 IEP 20,630,888 30,648,556 (777,444) 11/07/97 IEP 37,215,060 55,233,973 (22,027) 11/07/97 ITL 51,510,023,590 29,187,595 (969,616) 12/05/97 JPY 32,732,008,994 275,688,658 (17,593,505) 11/07/97 NLG 104,327,117 51,689,949 (2,123,051) 9/12/97 NOK 882,361,588 118,387,084 (7,810,916) 11/07/97 NOK 972,040,352 130,773,625 (5,347,048) 11/07/97 SEK 1,052,288,500 134,286,702 (1,855,647) ------------------ $ (62,323,472) ==================
37 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statement (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts - continued
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) --------------- -------------------------- --------------------- -------------------- ------------------ Sales 9/12/97 AUD 95,633,939 $ 70,276,271 $ 3,899,229 12/05/97 AUD 219,503,547 161,644,409 1,721,128 11/07/97 BEF 2,142,471,090 57,909,580 3,112,097 11/07/97 CHF 91,586,959 62,229,407 (1,070,108) 11/07/97 ESP 2,424,145,741 15,960,928 247,712 11/07/97 FIM 19,973,671 3,704,568 150,609 9/12/97 GBP 172,830,742 280,247,040 2,359,960 11/07/97 GBP 9,606,169 15,538,938 96,062 10/09/97 HKD 1,428,954,700 183,838,040 469,987 11/07/97 HKD 1,040,295,141 133,633,871 657,228 12/05/97 HKD 103,937,236 13,330,813 43,299 12/12/97 HKD 913,202,000 117,081,349 535,662 12/05/97 JPY 26,214,923,000 220,919,099 15,093,921 11/07/97 NOK 75,837,000 10,213,050 (213,050) 11/07/97 SEK 243,180,870 31,066,311 455,071 ------------------ $ 27,558,807 ==================
Currency Abbreviations ATS Austrian Schilling IEP Irish Pound AUD Australian Dollar ITL Italian Lira BEF Belgian Franc JPY Japanese Yen CAD Canadian Dollar NLG Netherlands Guilder CHF Swiss Franc NOK Norwegian Kroner ESP Spanish Peseta SEK Swedish Krona FIM Finnish Markka GBP British Pound HKD Hong Kong Dollar
38 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statement (Unaudited) - continued - -------------------------------------------------------------------------------- Futures contracts
Net Unrealized Number of Appreciation Contracts Type Expiration Date Contract Value (Depreciation) ----------------- --------------------- ---------------------- --------------------- --------------------- Buys 671 DAX September 1997 $ 146,303,086 $ (3,265,243) 1,352 MIB 30 September 1997 163,680,071 11,867,704 343 TOPIX September 1997 40,604,539 (2,446,399) 1,997 TSE 35 September 1997 249,184,522 (2,365,481) --------------------- $ 3,790,581 ===================== Sales 3,867 ALL ORDS September 1997 $ 182,264,592 $ 10,936,827 767 FTSE 100 ID September 1997 150,017,029 968,255 2,011 HANG SENG September 1997 180,364,563 23,204,634 200 IBEX September 1997 8,599,619 307,600 372 MATIF CAC 40 September 1997 33,989,350 2,108,762 660 OMX STOCK September 1997 20,352,441 1,418,514 --------------------- $ 38,944,592 =====================
At August 31, 1997 the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 39 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statement (Unaudited) - continued - -------------------------------------------------------------------------------- Swap agreement
Notional Expiration Unrealized Amount Date Description Depreciation ------------------------- -------------- ----------------------------------------------------- --------------------- CHF 241,069,567 08/06/98 Agreement with Swiss Bank Corporation dated 8/6/97 to receive (pay) the notional amount multiplied by the return on the Swiss Market Index (including dividends) and to pay the notional amount multiplied by 6 month CHF LIBOR adjusted by a specified spread. $ (16,735,992) =====================
40 GMO Japan Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- STOCK AND EQUIVALENTS - 92.5% Automotive - 3.0% 42,000 Denso Corp 907,806 146,000 Fuji Heavy Industries Ltd 644,493 41,000 Isuzu Motors Ltd 115,887 11,700 Mabuchi Motor Co 624,441 120,000 Mazda Motor Corp * 409,012 49,000 NGK Spark Plug Co 419,569 386,000 Nissan Motor Co Ltd 2,496,533 46,000 Suzuki Motor Corp 435,947 54,000 Yamaha Motor Co 489,318 ------------------- 6,543,006 ------------------- Banking - 6.8% 16,000 Bandai Co 345,831 74,000 Bank of Fukuoka Ltd 339,579 249,000 Bank of Tokyo-Mitsubishi 4,533,295 258,000 Dai Ichi Kangyo Bank 3,002,743 63,000 Fuji Bank 769,889 12,000 Hiroshima Bank Ltd 41,699 57,000 Hokkaido Bank Ltd 65,866 25,000 Hokkaido Takushoku Bank Ltd 25,355 108,000 Industrial Bank of Japan 1,490,398 432,000 Nippon Credit Bank 739,812 91,000 Sakura Bank Ltd 537,119 47,000 Sanwa Bank Ltd 586,084 92,000 Sumitomo Bank 1,361,377 96,000 Toyo Trust & Banking Co Ltd 782,110 17,000 Yamaguchi Bank Ltd 238,840 ------------------- 14,859,997 ------------------- Chemicals - 3.0% 274,000 Daicel Chemical Industries Ltd 779,017 194,000 Japan Synthetic Rubber Co Ltd 1,483,748 72,000 Kaneka Corp 447,718 43,000 Kureha Chemical Industry Co Ltd 143,345 215,000 Mitsubishi Gas Chemical Co Inc 815,030 54,000 Nippon Carbon Co Ltd * 123,452 56,000 Nippon Soda Chemical Co Ltd 479,508 39,000 Sekisui Chemical Co Ltd 330,701 34,000 Shin-Etsu Chemical Co Ltd 870,563 451,000 Showa Denko 877,330 83,000 Tokyo Ink Manufacturing Co Ltd 253,920 ------------------- 6,604,332 -------------------
See accompanying notes to the financial statements. 1 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------- Computers and Office Equipment - 0.4% 58,000 Casio Computer Co 506,277 48,000 NCR Japan Ltd 314,440 --------------------- 820,717 --------------------- Construction - 3.2% 496,000 Aoki Corp * 296,883 4,000 Chudenko Corp 91,778 28,300 Daito Trust Construction Co Ltd 312,902 29,000 Daiwa House Industry Co Ltd 335,107 225,000 Haseko Corp * 211,364 32,000 Hazama-Gumi Ltd 41,500 74,000 INAX Corp 362,956 114,000 Maeda Corp 497,548 171,000 Mitsui Engineering & Shipbuilding * 281,470 43,000 National House Industrial 561,227 91,000 Nichiei Co Ltd 149,032 80,000 Okumura Corp 448,915 102,000 Penta Ocean Construction 248,450 3,000 Sankyo Aluminum Industry Co Ltd 6,235 225,000 Sato Kogyo Co Ltd 252,515 43,000 Sekisui House Ltd 407,515 149,000 Shokusan Jutaku Sogo Co Ltd * 143,686 117,000 Sumitomo Heavy Industries Ltd 369,607 72,000 Takara Standard Co 554,261 30,000 Takuma Corp 364,120 143,000 Tokyo Construction Co Ltd 186,641 20,000 Tostem Corp 417,325 13,000 Toto Ltd 137,252 23,000 Toyo Exterior Co Ltd 227,534 --------------------- 6,905,823 --------------------- Consumer Goods - 6.4% 102,000 Citizen Watch Co 787,746 55,000 Ezaki Glico Co Ltd 413,792 90,600 Fuji Photo Film Co Ltd 3,494,754 34,000 Hitachi Maxell Ltd 768,809 149,000 Kao Corp 2,204,838 117,000 Konica Corp 675,019 67,000 Minolta Co Ltd 384,321 14,000 Nikon Corp 231,607 40,500 Nintendo Co Ltd 3,346,662 66,000 Olympus Optical Co Ltd 470,762 42,000 Victor Co of Japan Ltd 509,768
2 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods - continued 59,000 Yakult Honsha Co Ltd $ 578,768 2,000 Yamaha Corp 30,925 -------------------- 13,897,771 -------------------- Electric - 5.0% 31,000 Alps Electric Co Ltd 368,526 1,500 Hirose Electric 105,370 17,000 Kinden Corp 236,013 31,000 Kokusai Electric 546,346 306,000 Matsushita Electric Industrial Co Ltd 5,647,352 285,000 Mitsubishi Electric Corp 1,310,209 190,000 Oki Electric Industry 679,192 128,000 Sharp Corp 1,287,555 77,000 Showa Electric Wire & Cable 193,956 62,000 Stanley Electric Co Ltd 266,473 48,000 Yokogawa Electric Corp 316,834 -------------------- 10,957,826 -------------------- Electronics - 4.7% 14,900 Advantest Corp 1,362,541 20,000 Brother Industries Ltd 69,831 36,200 Fanuc Co 1,390,340 70,000 Hosiden Corp * 657,578 60,000 Japan Aviation Electronics 423,975 33,000 Kyocera Corp 2,084,961 22,000 Matsushita Kotubuki 718,763 34,000 Nichicon Corp 421,149 18,000 Pioneer Electronics Corp 359,132 21,000 Tokyo Electron 1,143,487 293,000 Toshiba Corp 1,622,230 -------------------- 10,253,987 -------------------- Financial Services - 2.3% 155,000 Daiwa Securities Co Ltd 979,300 304,000 Nikko Securities 1,437,992 97,000 Nomura Securities Co Ltd 1,290,215 3,700 Orix Corp 275,293 583,000 Yamaichi Securities Co Ltd 1,143,802 -------------------- 5,126,602 -------------------- Food and Beverage - 5.0% 97,000 Asahi Breweries Ltd 1,443,428 5,000 Denny's Japan Co Ltd 133,843 70,000 House Foods Corp 1,187,131 37,000 Ito-Yokado 1,999,335
See accompanying notes to the financial statements. 3 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------- Food and Beverage - continued 90,000 Kikkoman Corp 508,771 157,000 Kirin Brewery Co Ltd 1,275,160 57,000 Meiji Seika Kaisha Ltd 259,199 47,000 Mercian Corp 219,586 75,000 Nichirei 256,256 66,000 Nippon Meat Packers Inc 795,577 149,000 Nippon Suisan Kaisha Ltd * 334,442 20,000 Nissin Food Products Co Ltd 465,542 49,700 Q.P. Corp 413,168 61,000 Sapporo Breweries Ltd 434,084 92,000 Snow Brand Milk Products Co Ltd 380,115 39,000 Takara Shuzo Co Ltd 226,627 19,000 Toyo Suisan Kaisha 189,542 23,000 Yamazaki Baking Co Ltd 317,400 ----------------- 10,839,206 ----------------- Health Care - 3.7% 91,000 Daiichi Seiyaku Co Ltd 1,550,835 46,000 Eisai Co Ltd 875,717 6,000 Hoya Corp 254,884 119,000 Kyowa Hakko Kogyo Co Ltd 697,440 31,000 Sankyo Co Ltd 943,221 139,000 Shionogi and Co Ltd 937,144 175,000 Shiseido Co Ltd 2,865,991 ----------------- 8,125,232 ----------------- Leisure - 0.2% 19,000 Heiwa Corp 341,176 27,000 Tokyotokeiba Co Ltd 62,848 ----------------- 404,024 ----------------- Machinery - 1.7% 8,000 Aida Engineering Ltd 44,027 4,000 Aisin Seiki Co Ltd 54,535 129,000 Amada Co Ltd 875,085 142,000 Kubota Corp 573,714 36,000 Mori Seiki Co Ltd 445,922 35,000 Okuma Corp 215,313 17,000 Rinnai Corp 316,568 47,000 Sanden Corp 322,346 106,000 Toshiba Tungaloy Co Ltd 400,948 81,000 Tsubakimoto Chain 434,325 ----------------- 3,682,783 -----------------
4 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------- Metals and Mining - 2.2% 45,000 Fujikara Ltd 377,837 80,000 Hitachi Metals Ltd 422,313 194,000 Japan Metals & Chemicals * 325,779 110,000 Mitsui Mining & Smelting Co Ltd 447,169 127,000 Nachi Fujikoshi Co 292,452 123,000 Nippon Sheet Glass Co Ltd 315,961 112,000 Nitto Denko Corp 1,945,964 63,000 NTN Corp 293,291 49,000 Tokyo Steel Manufacturing Co 399,609 ----------------- 4,820,375 ----------------- Oil and Gas - 3.8% 301,000 Cosmo Oil Co Ltd 975,892 21,000 General Sekiyu (KK) 122,205 246,000 Mitsubishi Oil Co Ltd * 858,924 1,138,000 Nippon Oil Co Ltd 5,099,194 119,600 Showa Shell Sekiyu 830,210 86,000 Teikoku Oil Co Ltd 329,587 ----------------- 8,216,012 ----------------- Paper and Allied Products - 1.0% 77,000 Hokuetsu Paper Mills 395,594 129,000 New Oji Paper Co Ltd 654,169 114,000 Nippon Paper Industries 661,501 49,000 Sumitomo Forestry Co Ltd 472,525 ----------------- 2,183,789 ----------------- Pharmaceuticals - 5.6% 72,000 Banyu Pharmaceutical Co Ltd 1,209,078 120,000 Chugai Pharmaceutical Co Ltd 1,007,565 48,000 Dainippon Pharmaceutical Co Ltd 275,335 177,000 Fujisawa Pharmaceutical Co Ltd 1,721,589 109,000 Kaken Pharmaceutical Co Ltd 453,978 14,000 Kissei Pharmaceutical Co Ltd 256,048 21,000 Ono Pharmaceutical Co Ltd 654,668 37,000 Taisho Pharmaceutical Co Ltd 907,391 77,000 Takeda Chemical Industries Ltd 2,054,784 90,000 Tanabe Seiyaku Co Ltd 677,862 17,000 Terumo Corp 310,915 98,000 Yamanouchi Pharmaceutical Co Ltd 2,346,316 62,000 Yoshitomi Pharmaceutical Industries Ltd 404,606 ----------------- 12,280,135 ----------------- Primary Processing - 0.0% 28,000 Nippon Yakin Kogyo Co Ltd * 39,571 -----------------
See accompanying notes to the financial statements. 5 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Real Estate - 0.7% 137,000 Mitsui Fudosan Co Ltd * 1,594,480 4,000 Tokyo Land Corp * 12,736 ----------------- 1,607,216 ----------------- Retail Trade - 1.3% 20,000 Aoyama Trading 538,698 26,000 Best Denki Co Ltd 200,582 6,200 Familymart 260,288 35,000 Hankyu Department Stores Inc 286,599 49,000 Joshin Denki Co Ltd 349,913 1,000 Matsuzakaya Co Ltd 5,902 46,000 Nichii Co Ltd 523,901 72,000 Sanrio Co Ltd * 544,684 17,000 Takashimaya Co 189,376 ----------------- 2,899,943 ----------------- Services - 6.5% 57,000 Canon Sales Co Inc 1,156,206 68,100 CSK Corp 2,315,479 101,000 Dainippon Printing Co Ltd 2,115,887 47,000 Hanwa Co Ltd * 81,270 122,000 Kamigumi Co Ltd 562,890 30,000 Kokusai Kogyo Co Ltd 178,319 26,000 Kokuyo Co Ltd 620,334 13,000 Kyodo Printing Co Ltd 92,942 348,000 Nissho Iwai Corp 1,310,533 7,000 Okamoto Industries Inc 22,113 16,000 Secom Co Ltd 1,139,912 6,100 Sega Enterprises 174,445 18,000 Seiko Corp 123,452 386,000 Sumitomo Corp 3,208,912 42,000 Sumitomo Warehouse Co Ltd 204,955 66,000 Toppan Printing Co Ltd 949,206 ----------------- 14,256,855 ----------------- Technology - 8.1% 93,000 Dainippon Screen Manufacturing Co Ltd 873,639 456,000 Fujitsu Ltd 5,458,808 439,000 Hitachi Ltd 4,050,960 32,000 Makita Corp 438,939 12,300 Murata Manufacturing Co Ltd 502,062 300,000 NEC Corp 3,366,863 80,000 Omron Corp 1,489,733 2,000 Rohm Co Ltd 207,831
6 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------- Technology - continued 52,000 Taiyo Yuden Co Ltd $ 609,527 7,900 TDK Corp 608,147 ------------------ 17,606,509 ------------------ Telecommunications - 1.3% 95,000 Gakken Co Ltd * 405,936 25,000 Japan Radio Co 224,458 28,000 Matsushita Communications 914,789 1,400 Nippon Television Network 492,310 69,000 Nitsuko Corp 358,509 23,000 Tokyo Broadcasting System Inc 388,145 ------------------ 2,784,147 ------------------ Textiles - 1.6% 140,000 Kurabo Industries Ltd 296,783 123,000 Nisshinbo Industries Inc 797,573 44,000 Onward Kashiyama Co Ltd 676,698 323,000 Renown Inc * 555,832 91,000 Toyobo Co Ltd 180,048 95,000 Wacoal Corp 1,097,764 ------------------ 3,604,698 ------------------ Tobacco - 1.6% 431 Japan Tobacco Inc 3,471,934 ------------------ Transportation - 3.8% 291 East Japan Railway Co 1,330,535 27,000 Fujita Kanko Inc 287,306 54,000 Fukuyama Transporting Co Ltd 269,349 114,000 Hankyu Corp 566,730 19,000 Japan Airport Terminal Co Ltd 200,599 238,000 Kawasaki Kisen * 362,075 44,000 Keihin Electric Express Railway Co Ltd 182,160 162,000 Kinki Nippon Railway Co Ltd 914,440 57,000 Nagoya Railroad Co Ltd 210,865 39,000 Nankai Electric Railway Co Ltd 188,046 57,000 Nippon Express Co Ltd 376,241 62,000 Odakyu Electric Railway Co Ltd 313,891 52,000 Royal Co Ltd 890,515 58,000 Sagami Railway Co Ltd 185,635 37,000 Seino Transportation Co Ltd 369,108 112,000 Showa Line Ltd * 81,935 39,000 Skylark Co Ltd 541,442 54,000 Toei Co Ltd 287,755 67,000 Yamato Transport Co Ltd 807,632 ------------------ 8,366,259 ------------------
See accompanying notes to the financial statements. 7 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares/ Par Value Description Value ($) - -------------------------------------------------------------------------------------------------------------------- Utilities - 9.6% 39,800 Chubu Electric Power Co Inc 668,352 32,300 Chugoku Electric Power Co Inc 523,610 38,600 Hokkaido Electric Power 648,200 64,300 Kansai Electric Power 1,202,718 8,000 Kokusai Denshin Denwa 511,431 73,300 Kyushu Electric Power Co Inc 1,194,347 1,511 Nippon Telegraph & Telephone 14,194,280 62,600 Shikoku Electric Power 1,014,798 62,400 Tohoku Electric Power Co Inc 1,016,743 3,000 Tokyo Electric Power 57,361 --------------- 21,031,840 --------------- TOTAL STOCK AND EQUIVALENTS (Cost $218,914,327) 202,190,589 --------------- SHORT-TERM INVESTMENTS - 13.2% Cash Equivalents - 10.5% $ 600,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 600,000 22,340,559 The Boston Global Investment Trust (b) 22,340,559 --------------- 22,940,559 --------------- U.S. Government - 2.7% $ 6,000,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 5,890,347 --------------- TOTAL SHORT-TERM INVESTMENTS (Cost $28,828,709) 28,830,906 --------------- TOTAL INVESTMENTS - 105.7% (Cost $247,743,036) 231,021,495 Other Assets and Liabilities (net) - -5.7% (12,550,429) --------------- TOTAL NET ASSETS - 100.0% $ 218,471,066 ===============
Notes to the Schedule of Investments: (a) This security is held as collateral for open futures contracts. (b) Represents investment of security lending collateral (Note 1). * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997. 8 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $247,743,036) (Note 1) $ 231,021,495 Foreign currency, at value (cost $9,615,424) (Note 1) 9,433,027 Cash 115,325 Receivable for investments sold 974,847 Receivable for Fund shares sold 369,449 Dividends and interest receivable 49,550 Receivable for expenses waived or borne by Manager (Note 2) 67,924 ---------------- Total assets 242,031,617 ---------------- Liabilities: Payable upon return of securities loaned (Note 1) 22,340,559 Payable for Fund shares repurchased 292,158 Payable for variation margin on open futures contracts (Notes 1 and 6) 652,023 Payable to affiliate for (Note 2): Management fee 148,552 Shareholder service fee 29,784 Accrued expenses 97,475 ---------------- Total liabilities 23,560,551 ---------------- Net assets $ 218,471,066 ================ Net assets consist of: Paid-in capital $ 252,324,705 Distributions in excess of net investment income (331,805) Accumulated net realized loss (15,942,935) Net unrealized depreciation (17,578,899) ---------------- $ 218,471,066 ================ Net assets attributable to Class III Shares $ 218,471,066 ================ Shares outstanding - Class III 29,301,811 ================ Net asset value per share - Class III $ 7.46 ================
See accompanying notes to the financial statements. 9 GMO Japan Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Investment income: Dividends (net of foreign tax expense of $125,606) $ 827,057 Interest (including securities lending income of $69,541) 241,904 --------------- Total income 1,068,961 --------------- Expenses: Management fee (Note 2) 902,308 Custodian fees 105,064 Audit fees 31,004 Transfer agent fees 15,456 Stamp duties and transfer taxes 6,256 Legal fees 4,968 Trustees fee (Note 2) 1,012 Miscellaneous 920 Fees waived or borne by Manager (Note 2) (411,070) --------------- 655,918 Shareholder service fee - Class III (Note 2) 180,468 --------------- Net expenses 836,386 --------------- Net investment income 232,575 --------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (16,950,926) Closed futures contracts 1,670,235 Foreign currency and foreign currency related transactions (558,358) --------------- Net realized loss (15,839,049) --------------- Change in net unrealized appreciation (depreciation) on: Investments 30,462,095 Open futures contracts (205,480) Foreign currency and foreign currency related transactions 425,513 --------------- Net unrealized gain 30,682,128 --------------- Net realized and unrealized gain 14,843,079 --------------- Net increase in net assets resulting from operations $ 15,075,654 ===============
10 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ----------------------- --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 232,575 $ 23,994 Net realized loss (15,839,049) (1,918,375) Change in net unrealized appreciation (depreciation) 30,682,128 (46,708,941) ---------------------- -------------------- Net increase (decrease) in net assets resulting from operations 15,075,654 (48,603,322) ---------------------- -------------------- Distributions to shareholders from: In excess of net investment income - Class III - (36,409) ---------------------- -------------------- Net share transactions - Class III (Note 5) (15,401,512) 141,329,696 ---------------------- -------------------- Total increase (decrease) in net assets (325,858) 92,689,965 Net assets: Beginning of period 218,796,924 126,106,959 ---------------------- -------------------- End of period (including distributions in excess of net investment income of $331,805 and $564,380, respectively) $ 218,471,066 $ 218,796,924 ====================== =====================
See accompanying notes to the financial statements. 11 GMO Japan Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended February 28/29, ------------------------------------- (Unaudited) 1997 1996 -------------- ---------------- ------------ Net asset value, beginning of period $ 7.02 $ 8.52 $ 9.12 -------------- ---------------- ------------ Income (loss) from investment operations: Net investment income (loss) 0.01 - (d) (0.01)(d) Net realized and unrealized gain (loss) 0.43 (1.50) 0.79 -------------- ---------------- ------------ Total from investment operations 0.44 (1.50) 0.78 -------------- ---------------- ------------ Less distributions to shareholders: From net investment income - - - In excess of net investment income - (0.00) - From net realized gains - - (1.38) -------------- ---------------- ------------ Total distributions - (0.00) (1.38) -------------- ---------------- ------------ Net asset value, end of period $ 7.46 $ 7.02 $ 8.52 ============== ================ ============ Total Return (a) 6.27% (17.69%) 8.29% Ratios/Supplemental Data: Net assets, end of period (000's) $ 218,471 $ 218,797 $ 126,107 Net expenses to average daily net assets 0.69%* 0.70%(e) 0.92% Net investment income (loss) to average daily net assets 0.19%* 0.01% (0.13%) Portfolio turnover rate 80% 4% 23% Average broker commission rate per equity share (b) $ 0.0074 $ 0.0066 N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.03 $ 0.01 Year Ended February 28/29, ------------------------------------------------------- 1995 1994 1993 ------------- ------------ ------------ Net asset value, beginning of period $ 11.13 $ 7.37 $ 7.73 ------------ ------------ ------------ Income (loss) from investment operations: Net investment income (loss) - (d) - 0.01 Net realized and unrealized gain (loss) (1.08) 3.94 (0.36) ------------ ------------ ------------ Total from investment operations (1.08) 3.94 (0.35) ------------ ------------ ------------ Less distributions to shareholders: From net investment income - - (0.01) In excess of net investment income - (0.01) - From net realized gains (0.93) (0.17) - ------------ ------------ ------------ Total distributions (0.93) (0.18) (0.01) ------------ ------------ ------------ Net asset value, end of period $ 9.12 $ 11.13 $ 7.37 ============ ============ ============ Total Return (a) (10.62%) 53.95% (4.49%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 60,123 $ 450,351 $ 306,423 Net expenses to average daily net assets 0.83% 0.87% 0.88% Net investment income (loss) to average daily net assets (0.02%) (0.01%) 0.12% Portfolio turnover rate 60% 8% 17% Average broker commission rate per equity share (b) N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: (c) $ 0.01 $ 0.01
* Annualized (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. (c) Fees and expenses waived or borne by the Manager were less than $.01 per share. (d) Based on average month end shares outstanding. (e) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .01% of average daily net assets. 12 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Japan Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks maximum total return through investment in Japanese securities, primarily in common stocks of Japanese companies. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully described in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Securities which are primarily traded on foreign exchanges are generally valued at the preceding closing values of such securities on their respective exchanges. Those values are then translated into U.S. dollars at the current exchange rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 13 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may purchase and sell Japanese futures contracts. Japanese futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instruments or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the accumulation in commitment value ("variation margin") is recorded by the Fund. The payable or receivable is subsequently settled. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $21,108,748 collateralized by cash in the amount of $22,340,559, which was invested in a short-term instrument. 14 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. Distributions to shareholders The Fund's present policy is to declare and pay distributions from net investment income, if any, semi-annually, and from net realized short-term and long-term capital gains, if any, at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over- distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex- dividend date, if later. Interest income is recorded on the accrual basis and is adjusted for accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. 15 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .40% of the amount invested. In the case of cash redemptions, the fee is .61% of the amount redeemed. Prior to June 1, 1996, the redemption fee was .70% of the amount redeemed. The Manager may waive such premium or fee to the extent that a transaction results in minimal brokerage and transaction costs to the Fund. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997 the Fund received $67,293 in purchase premiums and no redemption fees. There is no premium for reinvested distributions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .75% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including management fee but excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed .54% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .69%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. Additionally, effective March 14, 1996, the waiver was adjusted to include custodian fees. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $1,012. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 16 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $163,604,276 and $168,540,696, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation -------------------------------------------------------------------------- $247,743,036 $7,866,513 $24,588,054 $16,721,541
4. Principal shareholders At August 31, 1997, 26% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Class III: Six Months Ended Year Ended August 31, 1997 February 28, 1997 -------------------------------- --------------------------------- Shares Amount Shares Amount ------------ ---------------- -------------- -------------- Shares sold 3,585,003 $ 28,036,213 22,172,884 $ 188,630,734 Shares issued to shareholders in reinvestment of distributions - - 3,661 28,076 Shares repurchased (5,462,917) (43,437,725) (5,789,470) (47,329,114) ----------- ------------- -------------- -------------- Net increase / (decrease) (1,877,914) $ (15,401,512) 16,387,075 $ 141,329,696 =========== ============= ============== ==============
17 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding futures contracts purchased at August 31, 1997 is as follows:
Net Number of Contract Unrealized Contracts Type Expiration Date Value Depreciation --------- -------- --------------- --------------- ---------------- 76 TOPIX September 1997 $ 8,996,924 $ 652,023 ================
At August 31, 1997, the Fund had cash and/or securities to cover any margin requirements on open futures contracts. 18 GMO Global Hedged Equity Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Global Hedged Equity Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Par Value Description Value ($) - --------------------------------------------------------------------------------------------------------- MUTUAL FUNDS - 85.8% United States - 85.8% 3,165,732 GMO Core Fund (Class III shares) 61,098,623 937,407 GMO Emerging Markets Fund (Class III shares) 12,195,666 984,000 GMO Evolving Countries Fund * 9,840,000 2,504,696 GMO International Core Fund (Class III shares) 61,239,812 325,272 GMO International Small Companies Fund (Class III shares) 4,553,804 664,723 GMO REIT Fund (Class III shares) 8,880,703 727,927 GMO Small Cap Growth Fund (Class III shares) 9,099,081 492,552 GMO Small Cap Value Fund (Class III shares) 8,989,065 ---------------- 175,896,754 ---------------- TOTAL MUTUAL FUNDS (Cost $179,478,318) 175,896,754 ---------------- STOCK AND EQUIVALENTS - 0.2% France - 0.0% 1,000 FINEXTEL 16,915 ---------------- Hong Kong - 0.0% 11,700 Johnson Electric Holdings Ltd 26,272 ---------------- Malaysia - 0.0% 9,000 Malaysian Resources Corp 7,254 ---------------- Sweden - 0.0% 2,839 Hufvudstaden International * 2,748 ---------------- United Kingdom - 0.0% 7,847 Betacomm Plc * 5,727 8,000 Costain Group (b) * 5,838 17,870 Viglen Technology * 18,838 ---------------- 30,403 ---------------- United States - 0.2% 953 Archer Daniels Midland 20,659 3,379 Bell Atlantic Corp 244,555 97 Houston Industries Inc 1,964 700 Oracle Systems Corp * 26,688 1,300 Pennzoil Co 100,344 ---------------- 394,210 ---------------- TOTAL STOCK AND EQUIVALENTS (Cost $427,270) 477,802 ---------------- DEBT OBLIGATIONS - 4.9% United Kingdom - 0.0% GBP 29,128 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (b) 55,176 ---------------- U.S. Government - 2.4% $ 5,000,000 U.S. Treasury Note, 5.50% due 11/15/98 (a) 4,981,250 ---------------- U.S. Government Agency - 2.5% $ 5,000,000 Student Loan Marketing Association, 6.05% due 10/26/09 5,016,406 ---------------- TOTAL DEBT OBLIGATIONS (Cost $10,028,786) 10,052,832 ----------------
See accompanying notes to the financial statements. 1 GMO Global Hedged Equity Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 13.4% Cash Equivalents - 10.3% $ 21,200,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 21,200,000 --------------- U.S. Government - 3.1% $ 6,450,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 6,332,123 --------------- TOTAL SHORT-TERM INVESTMENTS (Cost $27,528,446) 27,532,123 --------------- Principal Amount (000's omitted) CALL OPTION PURCHASED - 1.0% United States - 1.0% $ 250,000 U.S. Treasury Bond 7.50%, Expires 10/7/99, Strike 102 (cost $2,656,250) 2,025,000 --------------- TOTAL INVESTMENTS - 105.3% (Cost $220,119,070) 215,984,511 Other Assets and Liabilities (net) - (5.3%) (10,846,640) --------------- TOTAL NET ASSETS - 100.0% $ 205,137,871 =============== Notes to the Schedule of Investments: GBP - British Pound (a) This security is held as collateral for open futures contracts. (b) Valued by management (Note 1). * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997.
2 See accompanying notes to the financial statements. GMO Global Hedged Equity Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $220,119,070) (Note 1) $ 215,984,511 Foreign currency, at value (cost $362,501) (Note 1) 355,878 Cash 20,375 Receivable for investments sold 1,552,882 Dividends and interest receivable 606,741 Receivable for open forward foreign currency contracts (Notes 1 and 6) 5,021,357 Foreign withholding taxes receivable 169,475 Receivable for expenses waived or borne by Manager (Note 2) 63,231 --------------- Total assets 223,774,450 --------------- Liabilities: Payable for open swap contracts (Notes 1 and 6) 76,342 Payable for closed swap contracts (Note 1) 1,250,455 Payable for variation margin on open futures contracts (Notes 1 and 6) 209,787 Payable for investments purchased 10,592,022 Payable for Fund shares repurchased 895,143 Payable for open forward foreign currency contracts (Notes 1 and 6) 5,129,238 Payable to affiliate for (Note 2): Management fee 129,028 Shareholder service fee 22,152 Accrued expenses 332,412 --------------- Total liabilities 18,636,579 --------------- Net assets $ 205,137,871 =============== Net assets consist of: Paid-in capital $ 188,085,157 Accumulated undistributed net investment income 2,838,201 Accumulated net realized gain 20,574,089 Net unrealized depreciation (6,359,576) --------------- $ 205,137,871 =============== Net assets attributable to Class III Shares $ 205,137,871 =============== Shares outstanding - Class III 19,156,768 =============== Net asset value per share - Class III $ 10.71 ===============
See accompanying notes to the financial statements. 3 GMO Global Hedged Equity Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $275,699) $ 3,273,742 Interest (including security lending income of $27,884) 1,738,698 -------------- Total income 5,012,440 -------------- Expenses: Management fee (Note 2) 893,937 Custodian fees 356,132 Audit fees 35,144 Stamp duties and transfer taxes 27,324 Transfer agent fees 14,444 Legal fees 6,900 Trustees fee (Note 2) 1,380 Miscellaneous 1,196 Fees waived or borne by Manager (Note 2) (288,840) -------------- 1,047,617 Shareholder service fee - Class III (Note 2) 198,682 -------------- Net expenses 1,246,299 -------------- Net investment income 3,766,141 -------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 40,851,946 Closed futures contracts (17,405,082) Closed swap contracts (7,328,568) Foreign currency, forward contracts and foreign currency related transactions (1,495,521) -------------- Net realized gain 14,622,775 -------------- Change in net unrealized appreciation (depreciation) on: Investments (22,484,694) Open futures contracts 1,115,634 Open swap contracts 4,277,548 Foreign currency, forward contracts and foreign currency related transactions 443,066 -------------- Net unrealized loss (16,648,446) -------------- Net realized and unrealized loss (2,025,671) -------------- Net increase in net assets resulting from operations $ 1,740,470 ==============
4 See accompanying notes to the financial statements. GMO Global Hedged Equity Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ------------------- -------------------- Increase (decrease) in net assets: Operations: Net investment income $ 3,766,141 $ 6,639,580 Net realized gain 14,622,775 21,603,070 Change in net unrealized appreciation (depreciation) (16,648,446) (21,597,390) ------------------ ------------------- Net increase in net assets resulting from operations 1,740,470 6,645,260 ------------------ ------------------- Distributions to shareholders from: Net investment income - Class III - (5,664,462) ------------------ ------------------- Net realized gains - Class III (1,922,297) - ------------------ ------------------- (1,922,297) (5,664,462) ------------------ ------------------- Net share transactions - Class III (Note 5) (91,382,254) (87,212,602) ------------------ ------------------- Total decrease in net assets (91,564,081) (86,231,804) Net assets: Beginning of period 296,701,952 382,933,756 ------------------ ------------------- End of period (accumulated undistributed net investment income of $2,838,201 and distributions in excess of net investment income of $927,940, respectively) $ 205,137,871 $ 296,701,952 ================== ===================
See accompanying notes to the financial statements. 5 GMO Global Hedged Equity Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended February 28/29, August 31, 1997 -------------------------------------------------- (Unaudited) 1997 1996 1995* ------------------ -------------- ------------ ------------- Net asset value, beginning of period $ 10.69 $ 10.64 $ 10.12 $ 10.00 ---------------- ------------- ----------- ------------ Income from investment operations: Net investment income 0.18 0.24 0.21 0.11 Net realized and unrealized gain (loss) (0.08) 0.01 0.55 0.08 ---------------- ------------- ----------- ------------ Total from investment operations 0.10 0.25 0.76 0.19 ---------------- ------------- ----------- ------------ Less distributions to shareholders : From net investment income - (0.20) (0.24) (0.07) From net realized gains (0.08) - - - ---------------- ------------- ----------- ------------ Net asset value, end of period $ 10.71 $ 10.69 $ 10.64 $ 10.12 ---------------- ------------- ----------- ------------ Total Return (a) 1.01% 2.34% 7.54% 1.92% Ratios/Supplemental Data: Net assets, end of period (000's) $ 205,138 $ 296,702 $ 382,934 $ 214,638 Net expenses to average daily net assets 0.91%**(c) 0.91%(c) 0.78% 0.92** Net investment income to average daily net assets 2.74%** 1.99% 2.44% 2.85** Portfolio turnover rate 103% 463% 214% 194% Average broker commission rate (b) $ 0.0104 $ 0.0084 N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02 $ 0.005 $ 0.006
* Period from July 29, 1994 (commencement of operations) to February 28, 1995. ** Annualized (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. The average broker commission rate will vary depending on the markets in which trades are executed. (c) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .02% of average daily net assets. 6 See accompanying notes to the financial statements. GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global Hedged Equity Fund (the "Fund"), is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks total return consistent with minimal exposure to general equity market risk, either directly or through investment in other Funds of the Trust. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bore the same total operating expenses (after the voluntary expense waiver) as those shares. On August 20, 1997, the Fund revised its voluntary expense waiver to include certain expenses incurred indirectly by the Fund through investment in underlying Funds (See Note 2). At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 7 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Foreign currency translation The accounting records of the Fund are maintained in U.S. dollars. The market values of foreign securities, currency holdings, other assets and liabilities are translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may purchase index futures contracts. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is subsequently settled. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from the changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. 8 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts The Fund may enter into forward currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. As of August 31, 1997, there were no outstanding written options. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. 9 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to the equity markets. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or that there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 6 for a summary of open swap agreements as of August 31, 1997. Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the fund had no securities on loan. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryover for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. 10 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over- distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex- dividend date, if later. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses indirectly incurred by the fund will vary. (See Note 2). Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .37% of the amount invested. Prior to June 30, 1997, the premium on cash purchases was .50% of the amount invested. In the case of cash redemptions, the fee is 1.40% of the amount redeemed. The Manager may waive the fee on cash redemptions if it is not necessary to incur costs relating to the early termination of hedging transactions to meet redemption requests. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $2,320 in purchase premiums and no redemption fees. There is no premium for reinvested distributions. 11 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .65% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. The Fund will always invest in the class of shares of each underlying Fund being offered that bears the lowest shareholder service fee. Like the management fee (as described below), the shareholder service fee of each class of the Fund's shares will be waived (but not below zero) to the extent of the indirect shareholder service fees paid in connection with the Fund's investment in shares of underlying Funds. GMO has agreed to waive a portion of its fee (but not below zero) and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding custody fees, brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses ("fund expenses")) plus the amount of fees and expenses (excluding shareholder service fee and fund expenses (as defined above) incurred indirectly by the Fund through investment in underlying Funds) exceed .50% of average daily net assets. Because GMO will not waive the management fees below zero, and because the amount of fees and expenses incurred indirectly by the Fund will vary, the operating expenses (excluding shareholder service fees and fund expenses) incurred indirectly by the Fund through investment in underlying Funds may exceed .50% of the Fund's average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $1,380. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 12 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds -------------------- --------------------- U.S. Government securities $ - $ 313,850,234 Investments (non-U.S. Government securities) 238,528,428 316,306,799
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ -------------------- ------------------- ----------------- $220,119,070 $358,453 $4,493,012 $4,134,559
4. Principal shareholders At August 31, 1997, 36% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended August 31, 1997 February 28, 1997 --------------------------------- ------------------------------------- Class III: Shares Amount Shares Amount --------------- --------------- ---------------- ----------------- Shares sold 43,712 $ 464,823 2,716,101 $ 28,751,811 Shares issued to shareholders in reinvestment of distributions 177,828 1,865,419 335,863 3,585,825 Shares repurchased (8,825,361) (93,712,496) (11,267,323) (119,550,238) --------------- --------------- ---------------- ----------------- Net decrease (8,603,821) $ (91,382,254) (8,215,359) $ (87,212,602) =============== =============== ================ =================
13 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Short futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation ------------- -------- ------------------- ------------------ ------------------ 150 S&P 500 September 1997 $ 67,732,500 $ 2,027,242 ==================
At August 31, 1997, the Fund had cash and/or securities to cover any margin requirements on open futures contracts. Forward currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) ----------------- -------------------- -------------------- ------------------- -------------------- Buys 9/12/97 ATS 14,790,020 $ 1,167,897 $ (78,103) 11/07/97 ATS 72,812,206 5,769,665 (197,254) 9/12/97 AUD 2,488,335 1,827,261 (14,480) 12/05/97 AUD 9,458,570 6,959,931 (84,086) 11/07/97 BEF 54,433,054 1,469,601 (42,866) 9/12/97 CAD 3,247,299 2,339,655 (56,345) 12/05/97 CAD 5,861,690 4,243,721 (34,262) 11/07/97 CHF 30,915,832 20,991,718 108,956 9/12/97 DEM 6,029,357 3,350,969 71,292 11/07/97 DEM 21,692,244 12,102,120 (345,077) 9/12/97 DKK 1,782,883 260,193 5,539 11/07/97 DKK 27,917,301 4,087,522 28,623 11/07/97 ESP 1,359,281,890 8,942,791 (359,395) 11/07/97 FIM 17,968,183 3,329,188 (150,441) 11/07/97 FRF 34,898,616 5,777,422 (100,678) 9/12/97 GBP 3,919,479 6,353,076 64,177
14 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts - continued
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) ----------------- -------------------- -------------------- ------------------- -------------------- Buys - continued 11/07/97 GBP 15,273,380 $ 24,696,292 $ (10,899) 10/09/97 HKD 50,351,750 6,474,194 (1,499) 11/07/97 HKD 19,245,236 2,470,241 4,957 12/05/97 HKD 45,917,947 5,883,974 (6,556) 9/12/97 IEP 485,147 720,718 (18,282) 11/07/97 IEP 1,298,678 1,927,476 (42,579) 9/12/97 ITL 2,214,959,600 1,257,405 25,037 11/07/97 ITL 12,787,994,480 7,246,178 (189,589) 12/05/97 JPY 1,856,227,594 15,634,265 (793,073) 9/12/97 MYR 7,658,868 2,622,697 (135,367) 12/05/97 MYR 14,223,463 4,814,984 (389,422) 11/07/97 NLG 40,562,980 20,097,348 (245,201) 9/12/97 NOK 39,441,209 5,291,855 (349,145) 11/07/97 NOK 54,045,143 7,270,973 (106,160) 9/12/97 NZD 1,362,682 870,226 (5,024) 12/05/97 NZD 16,180,452 10,276,704 (424,004) 11/07/97 SEK 90,171,113 11,507,093 (64,853) 12/05/97 SGD 14,901,949 9,846,669 (138,081) ---------------- $ (4,074,140) ================ Sales 9/12/97 ATS 14,790,020 1,168,319 (26,409) 11/07/97 ATS 72,812,206 5,772,607 20,310 9/12/97 AUD 2,488,335 1,828,545 101,456 12/05/97 AUD 9,458,570 6,965,377 83,549 11/07/97 BEF 54,433,054 1,471,290 (29,182) 9/12/97 CAD 3,247,299 2,340,715 (9,727) 12/05/97 CAD 5,861,690 4,245,592 (319) 11/07/97 CHF 30,915,832 21,005,981 346,989
15 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - --------------------------------------------------------------------------------
Forward currency contracts - continued Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) ----------------- -------------------- -------------------- ------------------- -------------------- Sales - continued 9/12/97 DEM 6,029,357 $ 3,351,938 $ 220,062 11/07/97 DEM 21,692,244 12,105,857 320,558 9/12/97 DKK 1,782,883 260,277 16,723 11/07/97 DKK 27,917,301 4,089,518 122,100 11/07/97 ESP 1,359,281,890 8,949,710 (174,171) 11/07/97 FIM 17,968,183 3,332,605 (32,163) 11/07/97 FRF 34,898,616 5,779,113 (13,626) 9/12/97 GBP 3,919,479 6,355,481 53,520 11/07/97 GBP 15,273,380 24,706,219 192,075 10/09/97 HKD 50,351,750 6,477,859 16,627 11/07/97 HKD 19,245,236 2,472,198 10,802 12/05/97 HKD 45,917,947 5,889,358 16,916 9/12/97 IEP 485,147 722,054 (17,864) 11/07/97 IEP 1,298,678 1,931,242 (35,370) 9/12/97 ITL 2,214,959,600 1,257,838 58,162 11/07/97 ITL 12,787,994,480 7,249,252 642 12/05/97 JPY 1,856,227,594 15,642,851 1,022,295 9/12/97 MYR 7,658,868 2,628,254 437,746 12/05/97 MYR 14,223,463 4,828,442 640,350 11/07/97 NLG 40,562,980 20,103,075 65,366 9/12/97 NOK 39,441,209 5,296,505 (152,020) 11/07/97 NOK 54,045,143 7,278,317 (91,496) 9/12/97 NZD 1,362,682 870,939 70,061 12/05/97 NZD 16,180,452 10,287,302 362,837 11/07/97 SEK 90,171,113 11,519,343 (164,170) 12/05/97 SGD 14,901,949 9,869,712 533,630 -------------- $ 3,966,259 ==============
16 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Currency Abbreviations ATS Austrian Schilling HKD Hong Kong Dollar AUD Australian Dollar IEP Irish Pound BEF Belgian Franc ITL Italian Lira CAD Canadian Dollar JPY Japanese Yen CHF Swiss Franc MYR Malaysian Ringgit DEM German Mark NLG Netherlands Guilder DKK Danish Krona NOK Norwegian Kroner ESP Spanish Peseta NZD New Zealand Dollar FIM Finnish Markka SEK Swedish Krona FRF French Franc SGD Singapore Dollar GBP British Pound 17 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Swap agreements
Unrealized Notional Expiration Appreciation Amount Date Description (Depreciation) ------------------- ------------ ------------------------------------------------------ ----------------- $ 14,999,965 09/30/97 Agreement with Deutsche Bank AG dated September 30, $ (556,923) 1996 to pay (receive) the notional amount multiplied by the return on the EAFE Index (including dividends) and to receive the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 15,500,000 05/29/98 Agreement with Swiss Bank Corporation dated May 30, 369,924 1997 to pay (receive) the notional amount multiplied by the return on the EAFE Index (including dividends) and to receive the notional amount multiplied by 12 month LIBOR adjusted by a specified spread. 25,641,923 05/29/98 Agreement with Swiss Bank Corporation dated May 30, 110,657 1997 to pay (receive) the notional amount multiplied by the return on the EAFE X-Japan Index (including dividends) and to receive the notional amount multiplied by 12 month LIBOR adjusted by a specified spread. ---------------- Net unrealized depreciation $ (76,342) ================
18 GMO Global Properties Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Global Properties Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS - 87.4% Canada - 11.1% 13,700 Brookfield Properties Corp * 191,422 40,000 Burcon International Development Ltd 144A * 420,613 10,000 Cambridge Shopping Centres Ltd 101,192 2,500 Canadian Hotel Inc 15,125 10,000 Oxford Properties Group * 255,681 6,000 Trizec Hahn Corp (Sub-Voting) 135,375 ------------------- 1,119,408 ------------------- France - 8.6% 2,665 Klepierre * 347,103 1,357 Silic * 179,651 9,430 Sophia SA * 342,033 ------------------- 868,787 ------------------- Japan - 9.1% 8,000 Daibiru Corp * 88,453 5,000 Hankyu Realty Co Ltd * 33,253 10,000 Heiwa Real Estate Co Ltd * 46,222 5,000 Keihanshin Real Estate * 28,431 26,000 Mitsubishi Real Estate Co Ltd * 365,284 13,000 Mitsui Fudosan Co Ltd * 151,301 7,000 Sankei Building Co Ltd * 39,862 11,000 Sumitomo Realty and Development Co Ltd * 87,696 6,000 Toc Co Ltd * 65,342 5,000 Tokyo Rakutenchi * 16,419 ------------------- 922,263 ------------------- Netherlands - 10.2% 16,880 German City Estates NV (Bearer) * 254,060 11,340 Nagron * 320,091 5,700 Vastned (Offices) NV * 208,147 5,896 VIB NV * 151,877 1,600 Wereldhave NV 97,905 ------------------- 1,032,080 ------------------- New Zealand - 13.0% 1,736,363 Trans Tasman Properties Ltd 1,032,272 500,000 Trans Tasman Properties * 278,074 ------------------- 1,310,346 ------------------- Sweden - 0.4% 5,000 Castellum AB * 40,759 ------------------- United Kingdom - 7.6% 750,000 Hemingway Properties Plc * 474,373 150,000 Nursing Home Properties * 291,924 ------------------- 766,297 ------------------- United States - 27.4% 6,000 Arden Realty Group Inc 173,250 3,000 Associated Estates Realty Corp 68,063
See accompanying notes to the financial statements. 1 GMO Global Properties Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------- United States - continued 2,500 Avalon Properties 70,156 4,500 Bedford Properties Investments Inc 92,250 3,000 Bradley Real Estate Inc 56,250 2,500 Crescent Real Estate Equities 79,063 2,000 Developers Diversified Realty Co 77,750 4,500 Eastgroup Properties Inc 91,969 5,000 Equity Office Properties Trust 145,938 2,000 Excel Reality Trust * 59,250 5,000 Felcor Suite Hotels Inc 190,000 2,500 First Industrial Realty Trust Inc * 77,188 3,000 Gables Residential Trust 78,938 2,000 Glimcher Realty Trust 41,250 1,000 HRE Properties 18,125 2,000 Lexington Corporate Properties 29,625 2,500 MGI Properties 57,969 2,000 Mills Corp 53,000 3,000 Parkway Properties Inc * 93,750 7,998 Patriot Amern Hospitality Preferred 194,951 5,000 Prentiss Properties Trust 138,125 6,000 Reckson Associates Realty Corp * 144,750 2,500 Security Capital Atlantic Inc 56,406 5,000 Security Capital Atlantic Rights 9/9/97 * 78 2,500 Security Capital Pacific Trust 54,531 4,000 Shurgard Storage Centers Class A * 110,250 4,000 Simon DeBartolo Group Inc 126,750 3,000 Smith Charles E Residential Realty 91,500 2,000 Starwood Lodging Trust Combined 92,375 3,000 Sunstone Hotel Investors Inc 45,188 5,000 Urban Shopping Centers Inc 154,688 ------------------ 2,763,376 ------------------ TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $8,671,168) 8,823,316 ------------------ SHORT-TERM INVESTMENTS - 12.9% Par Value Cash Equivalents - 12.9% $ 1,300,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 1,300,000 ------------------ TOTAL SHORT-TERM INVESTMENTS (Cost $1,300,000) 1,300,000 ------------------ TOTAL INVESTMENTS - 100.3% (Cost $9,971,168) 10,123,316 Other Assets and Liabilities (net) - (0.3%) (33,553) ------------------ TOTAL NET ASSETS - 100.0% $ 10,089,763 ==================
2 See accompanying notes to the financial statements. GMO Global Properties Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments: 144A Securities 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. * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997. GMO Global Properties Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $9,971,168) (Note 1) $ 10,123,316 Foreign currency, at value (cost $191) 187 Cash 41,274 Dividends and interest receivable 8,932 --------------- Total assets 10,173,709 --------------- Liabilities: Payable for investments purchased 15,643 Payable to affiliate for (Note 2): Management fee 6,445 Shareholder service fee 1,289 Accrued expenses 60,569 --------------- Total liabilities 83,946 --------------- Net assets $ 10,089,763 =============== Net assets consist of: Paid-in capital $ 9,716,059 Accumulated undistributed net investment income 219,715 Accumulated net realized gain 1,840 Net unrealized appreciation 152,149 --------------- $ 10,089,763 =============== Net assets attributable to Class III Shares $ 10,089,763 =============== Shares outstanding - Class III 964,910 =============== Net asset value per share - Class III $ 10.46 ===============
4 See accompanying notes to the financial statements. GMO Global Properties Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - --------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $8,486) $ 144,061 Interest 137,398 ------------------ Total income 281,459 ------------------ Expenses: Management fee (Note 2) 37,041 Custodian fees 24,196 Audit fees 23,460 Transfer agent fees 11,040 Stamp duties and transfer taxes 368 Legal fees 184 Fees waived or borne by Manager (Note 2) (42,092) ------------------ 54,197 Shareholder service fee - Class III (Note 2) 7,408 ------------------ Net expenses 61,605 ------------------ Net investment income 219,854 ------------------ Realized and unrealized gain (loss): Net realized gain on foreign currency and foreign currency related transactions 1,840 ------------------ Change in net unrealized appreciation (depreciation) on: Investments 196,233 Foreign currency, forward contracts and foreign currency related transactions 1 ------------------ Net unrealized gain 196,234 ------------------ Net realized and unrealized gain 198,074 ------------------ Net increase in net assets resulting from operations $ 417,928 ==================
See accompanying notes to the financial statements. 5 GMO Global Properties Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------
Six Months Ended August 31, 1997 Period Ended (Unaudited) February 28, 1997 * ----------------------- --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 219,854 $ 42,303 Net realized gain (loss) 1,840 (1,952) Change in net unrealized appreciation (depreciation) 196,234 (44,085) ------------------------ ------------------- Net increase (decrease) in net assets resulting from operations 417,928 (3,734) ------------------------ ------------------- Distributions to shareholders from: Net investment income - Class III (40,490) - ------------------------ ------------------- Net share transactions - Class III (Note 5) 247,970 9,468,089 ------------------------ ------------------- Total increase in net assets 625,408 9,464,355 Net assets: Beginning of period 9,464,355 - ------------------------ ------------------- End of period (including accumulated undistributed net investment income of $219,715 and $40,351, respectively) $ 10,089,763 $ 9,464,355 ======================== ==================
* Period from December 20, 1996 (commencement of operations) to February 28, 1997. 6 See accompanying notes to the financial statements. GMO Global Properties Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Period Ended (Unaudited) February 28, 1997 * ------------------- -------------------- Net asset value, beginning of period $ 10.06 $ 10.00 ------------------- -------------------- Income from investment operations: Net investment income 0.23 0.04 Net realized and unrealized gain 0.21 0.02 (c) ------------------- -------------------- Total from investment operations 0.44 0.06 ------------------- -------------------- Less distributions to shareholders: From net investment income (0.04) - ------------------- -------------------- Net asset value, end of period $ 10.46 $ 10.06 =================== ==================== Total Return (a) 4.40% 0.60% Ratios/Supplemental Data: Net assets, end of period (000's) $ 10,090 $ 9,464 Net expenses to average daily net assets 1.25% ** 1.98% ** Net investment income to average daily net assets 4.45% ** 2.39% ** Portfolio turnover rate 0% 0% Average broker commission rate (b) $ 0.0137 $ 0.0062 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.04 $ 0.05
* Period from December 20, 1996 (commencement of operations) to February 28, 1997. ** Annualized. (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) The average broker commission rate will vary depending on the markets in which trades are executed. (c) The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss) on investments for the period ended February 28, 1997 due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund. See accompanying notes to the financial statements. 7 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global Properties Fund (the "Fund"), which commenced operations on December 20, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open- end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. Prior to April 7, 1997, the offering of shares for the Fund was not registered under the Securities Act of 1933, as amended (the "Act"), but rather was made privately by the Fund pursuant to the private placement exemption from registration provided by Section 4(2) of the Act and Regulation D thereunder. The Fund seeks long-term capital growth primarily through investment in securities of issuers throughout the world which are engaged in or related to the real estate industry or which own significant real estate assets. The Fund offers three classes of shares: Class I, Class II, and Class III. The principal economic difference between the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 8 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryover for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. 9 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- The Fund's investments in REIT equity securities may at times result in the Fund's receipt of cash in excess of its interest in the REIT's earnings. The excess amount cannot be determined by the Fund at the time of receipt. If the Fund distributes amounts which are subsequently determined to exceed REIT earnings, such amounts would constitute a return of capital to Fund shareholders for federal income tax purposes. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex- dividend date, if later. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Dividends representing a return of capital are reflected as a reduction of cost. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .60% of the amount invested. In the case of cash redemptions, the fee is .30% of the amount redeemed. The Manager may waive such premiums to the extent that a transaction results in minimal brokerage and transaction costs to the Fund. All purchase premiums and redemption fees are pa id to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $1,434 in purchase premiums and no redemption fees. There is no premium for reinvested distributions. Investment risks There are certain additional risks involved in investing in real-estate related securities rather than a more diversified portfolio of investments. Since the Fund's investments are concentrated in real-estate related securities, the value of its shares can be expected to change in light of factors affecting the real estate industry, including local or regional economic conditions, changes in zoning laws, changes in real estate values and property taxes, and changes in interest rates. The value of the Fund's shares may fluctuate more widely than the value of shares of a portfolio that invests in a broader range of industries. Additionally, there are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 10 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .75% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding custody fees, brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed .60% of average daily net assets. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. For the six months ended August 31, 1997, the Fund incurred no Trustees fees. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short- term investments, for the six months ended August 31, 1997, aggregated $5,275,698 and $0, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - -------------------- --------------------- ------------------ --------------- $9,971,168 $349,031 $196,883 $152,148
4. Principal shareholder At August 31, 1997, 71% of the outstanding shares of the Fund were held by one shareholder, who is an affiliate of the Manager. 11 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Class III: Period from December 20, 1996 Six Months Ended (commencement of operations) August 31, 1997 to February 28, 1997 ------------------------- -------------------------------- Shares Amount Shares Amount ---------- ------------ ----------- ---------------- Shares sold 23,696 $ 239,003 940,343 $ 9,468,089 Shares issued to shareholders in reinvestment of distributions 871 8,967 - - Shares repurchased - - - - ---------- ------------ ----------- ---------------- Net increase 24,567 $ 247,970 940,343 $ 9,468,089 ========== ============ =========== ================
12 Pelican Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 Pelican Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------- COMMON STOCKS - 83.4% Automotive - 1.3% 10,000 Chrysler Corp 351,250 15,000 General Motors Corp 941,250 80,000 Mascotech Industries Inc 1,675,000 -------------------- 2,967,500 -------------------- Banking and Financial Services - 11.0% 40,000 American Express Co 3,110,000 117,500 Block (HR) Inc 4,611,875 37,500 Chase Manhattan Corp 4,169,531 42,500 Citicorp 5,424,063 25,000 First Chicago NBD Corp 1,793,750 10,000 Nationsbank Corp 593,750 10,000 PNC Bank Corp 432,500 42,500 Travelers Group Inc (The) 2,698,750 5,000 Wells Fargo Co 1,271,250 -------------------- 24,105,469 -------------------- Chemicals - 0.7% 25,000 Albemarle Corp 614,063 10,000 Bayer A G 375,000 25,000 Borden Chemical and Plastics LP 260,938 10,000 Georgia Gulf Corp 287,500 -------------------- 1,537,501 -------------------- Computer and Office Equipment - 0.4% 87,500 Intergraph Corp * 869,531 -------------------- Construction - 0.1% 10,000 McDermott International Inc 322,500 -------------------- Consumer Goods - 3.7% 25,000 Black & Decker Corp 957,813 57,500 Eastman Kodak 3,759,063 5,000 Hasbro Inc 134,375 35,000 Maytag Corp 960,313 100,000 Safety Kleen 2,018,750 15,000 Scotts Company Class A * 420,000 -------------------- 8,250,314 -------------------- Electronic Equipment - 0.5% 50,000 International Rectifier Corp * 1,140,625 -------------------- Environmental Control - 0.2% 35,000 Wheelabrator Technologies Inc 549,063 -------------------- Food and Beverage - 2.8% 40,000 Anheuser-Busch Cos Inc 1,705,000 10,500 Archer Daniels Midland 227,063 15,000 Coors (Adolph) Co 553,125
See accompanying notes to the financial statements. 1 Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------- Food and Beverage - continued 15,000 Darden Restaurants Inc 150,938 40,000 Nestle SA ADR 2,331,392 12,500 Riviana Foods Inc 221,875 25,000 RJR Nabisco Holdings Corp 870,313 5,000 Sara Lee Corp 201,250 ----------------- 6,260,956 ----------------- Health Care - 1.3% 25,000 Baxter International Inc 1,329,688 50,000 Beverly Enterprises Inc * 815,625 50,000 Owens and Minor Holdings Co 678,125 5,000 Quest Diagnostics Inc * 93,438 ----------------- 2,916,876 ----------------- Insurance - 6.2% 5,000 Aetna Inc 477,165 25,000 Allstate Corp 1,826,563 20,000 Chartwell Re Corp 685,000 7,500 Cigna Corp 1,375,313 7,500 Gallagher (Arthur J) and Co 268,125 150,000 Reliance Group Holdings Inc 1,837,500 50,000 Sedgwick Group ADR 488,565 135,000 TIG Holdings Inc 4,218,750 7,500 Transamerica Corp 739,219 25,000 USF & G Corp 548,438 20,000 Washington National Corp 590,000 60,000 Willis Corroon Group Plc ADR 618,750 ----------------- 13,673,388 ----------------- Machinery - 1.2% 35,000 Cincinnati Milacron Inc 901,250 25,000 Coltec Industries Inc * 559,375 5,000 Cummins Engine Inc 384,688 10,000 FMC Corp * 830,625 ----------------- 2,675,938 ----------------- Manufacturing - 10.1% 35,000 American Greetings Corp 1,216,250 25,000 Clayton Homes Inc 420,313 27,500 Corning Inc 1,454,063 32,500 General Electric Co 2,031,250 50,000 Griffon Corp * 700,000 47,500 International Business Machines Corp 4,791,563 82,500 Owens Corning 3,346,406 30,000 Rockwell International Corp 1,800,000 10,000 Tenneco Inc 485,625 37,500 United Technologies Corp 2,927,344 115,000 Westinghouse Electric Corp 2,961,250 ----------------- 22,134,064 -----------------
2 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------- Metals and Mining - 1.4% 5,000 Alcan Aluminum Ltd 174,688 50,000 Allegheny Teledyne Inc 1,543,750 37,500 Amcol International Corp 637,500 50,000 Boliden Ltd 262,921 20,600 Echo Bay Mines Ltd * 104,288 5,000 Pittston Minerals Group 55,938 15,000 Placer Dome Inc 249,375 1,666 Westaim Corp * 8,220 ---------------- 3,036,680 ---------------- Oil and Gas - 7.6% 25,000 Amerada Hess Corp 1,453,125 15,000 Cabot Oil & Gas Corp, Class A 347,813 5,000 Dresser Industries Inc 208,750 30,000 Enron Oil & Gas Co 723,750 52,483 Enserch Exploration Inc * 472,344 50,000 Lasmo Plc ADR 615,625 25,000 Mitchell Energy Class A 621,875 40,000 Mitchell Energy Class B 1,000,000 10,000 Mobil Corp 727,500 15,000 Monterey Resources Inc 309,375 112,500 Occidental Petroleum Corp 2,636,719 50,000 Santa Fe Energy Resources Inc * 553,125 35,000 Union Texas Petroleum Holdings Inc 815,938 45,000 Unocal Corp 1,757,813 92,500 USX - Marathon Group 3,012,031 50,000 Westcoast Energy Inc 956,250 15,000 YPF SA ADR 488,438 ---------------- 16,700,471 ---------------- Paper and Allied Products - 0.6% 20,000 Fort James Corp 840,000 10,000 Weyerhaeuser Co 577,500 ---------------- 1,417,500 ---------------- Pharmaceuticals - 1.5% 10,000 Allergan Inc 323,750 7,500 Glaxo Wellcome Plc ADR 299,063 17,500 Lilly (Eli) and Co 1,830,938 25,000 Medpartners Inc * 534,375 10,000 Smithkline Beecham PLC 433,125 ---------------- 3,421,251 ---------------- Primary Processing - 0.6% 11,500 Du Pont (E I) De Nemours & Co Inc 716,594 20,000 Intermet Corp 346,250 5,000 LTV Corp 65,000 12,500 Tubos De Acero De Mexico SA ADR * 225,000 ---------------- 1,352,844 ---------------- Printing and Publishing - 0.2% 25,000 News Corp Ltd ADR 451,563 ----------------
See accompanying notes to the financial statements. 3 Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------- Real Estate - 2.0% 25,000 Boston Properties Inc * 745,313 10,000 Evans Withycombe Residential 238,125 65,000 JP Realty Inc 1,600,625 50,000 Summit Properties Inc 996,875 37,500 Walden Residential Properties Inc 895,313 ---------------- 4,476,251 ---------------- Refining - 0.6% 15,000 Ashland Inc 751,875 5,000 Imperial Oil Ltd 276,250 25,000 Quaker State Corp 387,500 ---------------- 1,415,625 ---------------- Retail Trade - 3.5% 37,500 Costco Co Inc * 1,352,344 75,000 Federated Department Stores * 3,150,000 20,000 Toys R Us Inc * 691,250 75,000 Wal-Mart Stores Inc 2,662,500 ---------------- 7,856,094 ---------------- Services - 3.7% 37,500 Cordiant Plc ADR 210,938 5,000 Manpower Inc 213,438 35,000 Ogden Corp 811,563 2,500 Time Warner Inc 128,750 200,000 Waste Management Inc 6,400,000 50,000 Waste Management International Plc * 406,250 ---------------- 8,170,939 ---------------- Technology - 8.8% 25,000 Avnet Inc 1,729,688 85,000 Digital Equipment Corp * 3,655,000 25,000 Information Resources Inc * 450,000 30,000 Intel Corp 2,763,750 100,000 Storage Technology Corp * 5,093,750 137,500 Tandem Computers Inc * 4,728,281 12,500 Xerox Corp 943,750 ---------------- 19,364,219 ---------------- Telecommunications - 5.6% 10,000 AT&T Corp 390,000 50,000 Cox Communications Inc * 1,353,125 87,500 GTE Corp 3,899,219 30,000 MCI Communications Corp 855,000 12,500 SBC Communications Inc 679,688 50,000 Tele-Communications Class A * 875,000 35,000 US West Inc 1,253,438 150,000 US West Media Group * 3,000,000 ---------------- 12,305,470 ---------------- Tobacco - 0.3% 5,000 Gallaher Group Plc 89,688 47,500 Imperial Tobacco Group Plc 587,813 ---------------- 677,501 ----------------
4 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------ Transportation - 2.0% 10,000 AMR Corp * 1,007,500 60,000 Canadian Pacific Ltd 1,751,250 7,500 Delta Air Lines Inc 648,750 5,000 Hunt (JB) Transportation Services Inc 83,125 15,000 Ryder System Inc 535,313 10,000 Sabre Group Holdings Inc * 307,500 ----------------- 4,333,438 ----------------- Utilities - 5.5% 25,000 Calpine Corp * 462,500 10,000 CMS Energy Corp 359,375 62,664 Duke Energy Co 3,035,288 20,000 Energy Group Plc 808,750 37,481 Houston Industries Inc 758,990 100,000 Niagara Mohawk Power Corp * 893,750 5,000 Pacific Corp 103,750 92,875 Texas Utilities 3,239,016 25,000 TransCanada Pipeline Ltd 468,750 90,000 Unicom Corp 2,126,250 ----------------- 12,256,419 ----------------- TOTAL COMMON STOCKS (Cost $115,468,639) 184,639,990 ----------------- PREFERRED STOCKS - 1.8% Metals and Mining - 0.3% 25,000 Freeport-McMoran Corp Preferred 0.00% 745,313 ----------------- Oil and Gas - 0.2% 22,500 Atlantic Richfield Co Convertible Preferred 9.00% 534,375 ----------------- Paper and Allied Products - 0.6% 28,500 James River Corp Convertible Preferred 9.00% 1,086,563 ----------------- Primary Processing - 0.0% 500 Armco Inc Convertible Preferred $3.625 25,063 ----------------- Transportation - 0.7% 16,500 Navistar International Corp Preferred $6.00 987,938 7,500 US Airways Group Inc Convertible Preferred Series B $4.38 642,188 ----------------- 1,630,126 ----------------- TOTAL PREFERRED STOCKS (Cost $3,101,093) 4,021,440 -----------------
See accompanying notes to the financial statements. 5 Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value ($) Description Value ($) - ------------------------------------------------------------------------------------------------------------------- DEBT OBLIGATIONS - 13.9% Banking and Financial Services - 0.9% 99,101 Citicorp, Variable Rate Note, 6.50% due 5/1/04 99,655 1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 955,310 1,000,000 Standard Credit Card Master Trust I, Variable Rate Note, 6.11% due 9/15/97 1,000,000 ----------------- 2,054,965 ----------------- Food and Beverage - 0.4% 250,000 Anheuser-Busch Cos Inc, 8.50% due 3/1/17 259,438 750,000 General Foods Corp, 7.00% due 6/15/11 722,940 ----------------- 982,378 ----------------- Paper and Allied Products - 0.2% 500,000 Georgia Pacific Corp, 9.75% due 1/15/18 521,705 ----------------- Real Estate - 0.8% 1,750,000 HMH Properties Inc, 9.50% due 5/15/05 1,824,375 ----------------- Technology - 1.7% 2,500,000 Digital Equipment Corp, 7.125% due 10/15/02 2,447,239 1,000,000 VLSI Technology Inc, 8.25% due 10/01/05 1,027,500 ----------------- 3,474,739 ----------------- Transportation - 0.9% 1,000,000 AMR Corp, 9.00% due 8/1/12 1,146,780 1,000,000 United Air Lines Inc, 9.13% due 1/15/12 1,117,660 ----------------- 2,264,440 ----------------- U.S. Government - 8.9% 7,500,000 U.S. Treasury Note, 4.75% due 8/31/98 7,427,325 1,250,000 U.S. Treasury Note, 7.75% due 2/15/01 1,311,325 5,750,000 U.S. Treasury Bond, 11.13% due 8/15/03 7,107,518 750,000 U.S. Treasury Bond, 10.75% due 8/15/05 950,745 2,500,000 U.S. Treasury Bond, 7.25% due 5/15/16 2,653,125 ----------------- 19,450,038 ----------------- U.S. Government Agency - 0.1% 353,992 Federal Home Loan Mortgage Corp, 7.50% due 1/1/23, Series 146, Interest Only Strip 115,157 ----------------- TOTAL DEBT OBLIGATIONS (Cost $29,472,677) 30,687,797 ----------------- SHORT-TERM INVESTMENT 2,090,000 State Street Bank and Trust Co Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $2,090,929 and an effective yield of 4.00%, collateralized by a U.S. Treasury Note, with a rate of 7.50% due 11/15/16 with an aggregate market value of $2,133,209 (Cost $2,090,000). 2,090,000 -----------------
6 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value ($) - ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS - 100.0% (Cost $150,132,409) 221,439,227 Other Assets and Liabilities (net) 54,169 -------------------- TOTAL NET ASSETS - 100.0% $ 221,493,396 ====================
Notes to the Schedule of Investments: ADR - American Depositary Receipt Variable Rate Notes - The rates shown on variable rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. * Non-income producing security. See accompanying notes to the financial statements. 7 Pelican Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - ----------------------------------------------------------------------------------------- Assets: Investments, at value (cost $150,132,409) (Note 1) $ 221,439,227 Cash 2,826 Dividends and interest receivable 785,173 Receivable for investments sold 3,123,032 Receivable for Fund shares sold 26,435 Receivable for expenses waived or borne by Manager (Note 2) 12,066 ---------------- Total assets 225,388,759 ---------------- Liabilities: Payable for investments purchased 209,695 Payable for Fund shares repurchased 3,292,898 Payable to affiliate for management fee (Note 2) 318,578 Accrued expenses and other liabilities 74,192 ---------------- Total liabilities 3,895,363 ---------------- Net Assets (equivalent to $18.00 per share based on 12,305,071 shares outstanding, unlimited shares authorized) $ 221,493,396 ================ Net Assets consist of: Paid-in capital $ 134,404,147 Accumulated undistributed net investment income 772,490 Accumulated undistributed net realized gain 15,009,941 Net unrealized appreciation 71,306,818 ---------------- Net assets $ 221,493,396 ================
8 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Investment income: Dividends (net of withholding taxes of $25,093) $ 1,902,944 Interest 1,113,925 --------------- Total income 3,016,869 --------------- Expenses: Management fee (Note 2) 966,368 Custodian and transfer agent fees 84,916 Audit fees 27,232 Registration fees 6,164 Legal fees 4,692 Trustees fee (Note 2) 920 Miscellaneous 2,742 --------------- Total expenses 1,093,034 Less: expenses waived or borne by Manager (Note 2) (73,820) --------------- Net expenses 1,019,214 --------------- Net investment income 1,997,655 --------------- Realized and unrealized gain (loss): Net realized gain on investments 16,525,120 Change in net unrealized appreciation (depreciation) on investments 11,436,775 --------------- Net realized and unrealized gain 27,961,895 --------------- Net increase in net assets resulting from operations $ 29,959,550 ===============
See accompanying notes to the financial statements. 9 Pelican Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 --------------------- --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,997,655 $ 3,995,498 Net realized gain 16,525,120 9,036,632 Change in net unrealized appreciation (depreciation) 11,436,775 19,894,742 --------------------- --------------------- Net increase in net assets resulting from operations 29,959,550 32,926,872 --------------------- --------------------- Distributions to shareholders from: Net investment income (2,698,528) (3,383,491) Net realized gains (6,192,203) (6,758,143) --------------------- --------------------- (8,890,731) (10,141,634) --------------------- --------------------- Fund share transactions: (Note 5) Proceeds from sale of shares 10,325,932 22,372,007 Net asset value of shares issued to shareholders in payment of distributions declared 8,071,282 9,313,111 Cost of shares repurchased (25,341,505) (24,339,781) --------------------- --------------------- Net increase (decrease) in net assets resulting from Fund share transactions (6,944,291) 7,345,337 --------------------- --------------------- Total increase in net assets 14,124,528 30,130,575 Net assets: Beginning of period 207,368,868 177,238,293 --------------------- --------------------- End of period (including accumulated undistributed net investment income of $772,490 and $1,473,363, respectively) $ 221,493,396 $ 207,368,868 ===================== =====================
10 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Financial Highlights (For a share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended February 28/29, ------------------------------ (Unaudited) 1997 1996 ------------ ------------- ------------ Net asset value, beginning of period $ 16.31 $ 14.52 $ 11.99 ------------ ------------- ------------ Income from investment operations: Net investment income 0.17 0.33 0.31 Net realized and unrealized gain 2.25 2.27 3.04 ------------ ------------- ------------ Total from investment operations 2.42 2.60 3.35 ------------ ------------- ------------ Less distributions to shareholders: From net investment income (0.22) (0.27) (0.29) From net realized gains (0.51) (0.54) (0.53) ------------ ------------- ------------ Total distributions (0.73) (0.81) (0.82) ------------ ------------- ------------ Net asset value, end of period $ 18.00 $ 16.31 $ 14.52 ============ ============= ============ Total Return (a) 15.00% 18.40% 28.54% Ratios/Supplemental Data: Net assets, end of period (000's) $ 221,493 $ 207,369 $ 177,238 Net expenses to average daily net assets 0.95%* 0.95% 1.05% Net investment income to average daily net assets 1.86%* 2.10% 2.42% Portfolio turnover rate 15% 27% 32% Average broker commission rate (b) $ 0.0689 $ 0.0556 N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01 $ - Year Ended February 28/29, ------------------------------------------------- 1995 1994 1993 ----------- ------------- ------------ Net asset value, beginning of period $ 12.08 $ 11.37 $ 10.70 ----------- ------------- ------------ Income from investment operations: Net investment income 0.37 0.29 0.36 Net realized and unrealized gain 0.46 1.40 1.06 ----------- ------------- ------------ Total from investment operations 0.83 1.69 1.42 ----------- ------------- ------------ Less distributions to shareholders: From net investment income (0.37) (0.37) (0.38) From net realized gains (0.55) (0.61) (0.37) ----------- ------------- ------------ Total distributions (0.92) (0.98) (0.75) ----------- ------------- ------------ Net asset value, end of period $ 11.99 $ 12.08 $ 11.37 =========== ============= ============ Total Return (a) 7.38% 15.14% 13.93% Ratios/Supplemental Data: Net assets, end of period (000's) $ 117,920 $ 101,165 $ 85,401 Net expenses to average daily net assets 1.10% 1.10% 1.10% Net investment income to average daily net assets 2.51% 2.42% 3.40% Portfolio turnover rate 40% 49% 39% Average broker commission rate (b) N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ - $ 0.01 $ 0.01
* Annualized. (a) The total returns would have been lower had certain expenses not been waived during the periods shown. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. See accompanying notes to the financial statements. 11 Pelican Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies The Pelican Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC ("the Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which will issue a separate series of shares. The Fund seeks long-term capital growth primarily through investment in equity securities. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term debt obligations with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. 12 Pelican Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for amortization of discount on bonds. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Expenses The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. 2. Management fee and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .90% of average daily net assets. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions and transfer taxes) exceed .95% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $920. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 13 Pelican Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds -------------------- --------------------- U.S. Government securities $ 2,762,813 $ - Investments (non-U.S. Government securities) 27,890,243 45,292,785
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------------- --------------------------- ------------------------- ---------------------- $150,132,409 $73,115,887 $1,809,069 $71,306,818
4. Principal shareholder At August 31, 1997, 38% of the outstanding shares of the Fund were held by one shareholder. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended August 31, 1997 February 28, 1997 ------------------------ ------------------ Shares sold 602,006 1,487,108 Shares issued to shareholders in reinvestment of distributions 462,817 632,940 Shares repurchased (1,473,913) (1,610,011) ------------------ ------------------ Net increase/(decrease) (409,090) 510,037 Fund shares: Beginning of period 12,714,161 12,204,124 ------------------ ------------------ End of period 12,305,071 12,714,161 ================== ==================
14 GMO Foreign Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------- STOCK AND EQUIVALENTS - 89.8% Argentina - 0.2% 57,500 YPF SA ADR 1,872,344 ------------------- Australia - 4.0% 336,591 Australia and New Zealand Banking Group Ltd 2,417,707 706,644 Boral Ltd 2,060,409 486,000 Burswood Property Trust 538,984 219,100 Caltex Australia Ltd 638,844 178,264 Capral Aluminum Ltd 569,528 2,376,006 Crown Ltd * 2,914,246 237,472 Dominion Mining Ltd Warrants 12/31/98 * 21,801 494,945 Dominion Mining Ltd * 174,486 690,504 Email Ltd 2,124,919 334,137 Energy Research Group Ltd 306,759 465,510 Foodland Associated 3,318,080 1,432,358 Goodman Fielder Ltd 2,051,391 312,500 Menzies Gold NL Rights 9/22/97 * 230 2,500,000 Menzies Gold NL * * 413,128 3,045,980 MIM Holdings Ltd 3,646,506 550,417 National Mutual Holdings 816,593 390,000 Oil Search Ltd 945,237 54,000 Orogen Minerals Ltd GDR 144A 1,560,060 2,236,235 Pasminco Ltd 4,045,238 587,001 Pioneer International Ltd 1,974,543 616,496 Rothmans Holdings Ltd 3,254,169 785,000 Sydney Harbour Casinos Preferred * 1,066,605 834,448 Westpac Banking Corp 4,835,468 501,706 Wills (WD & HO) Holdings Ltd 678,000 ------------------- 40,372,931 ------------------- Austria - 0.3% 41,420 Bank Austria AG (Participating Certificate) 1,173,765 4,613 Oesterreichische Brau Beteiligungs AG 243,969 7,170 Radex-Heraklith AG 276,761 1,991 Universale Bau AG 64,436 3,932 VA Technologie AG (Bearer) 721,472 3,140 Wienerberger Baustoffindustrie AG 609,735 ----------------- 3,090,138 ----------------- Belgium - 2.5% 1,942 Banque Bruxelles Lambert 453,099 1,109 Bekaert SA 701,332 25,042 Cie Francois De Enterprises 7,412,863 14,200 Credit Commercial Dexia 1,360,388 19,173 Electrabel SA 3,771,653 6,397 Generale Banque NPV 2,397,154 17,305 GIB Holdings Ltd 866,181 5,032 Kredietbank NPV 1,872,104 2,713 Petrofina SA Bruxelles 969,189 9,616 Powerfin SA 1,261,518 1,510 Royale Belge NPV 416,510 24,780 Solvay Et Cie 1,387,040 800 UCB Cap NPV 2,495,156 ----------------- 25,364,187 -----------------
See accompanying notes to the financial statements. 1 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Brazil - 0.0% 6,439,529 Gerdau SA Preferred 126,196 2,809,993 Metalurgica Gerdau Preferred 126,089 158,537 Metalurgica Gerdau SA 4,355 ------------------- 256,640 ------------------- Canada - 1.6% 136,620 Abitibi-Price Inc 2,391,059 299,128 Air Canada Inc * 2,348,299 29,693 Alliance Forest Preferred (d) * 702,521 10,200 Alliance Forest Products Inc * 241,327 10,000 Avenor Inc 187,259 12,000 Boliden Ltd Installment Receipt 144A * 63,092 283,000 Boliden Ltd * 1,487,918 36,700 Burcon International Development Ltd 144A * 385,912 50,000 Burcon International Development Ltd * 525,766 113,149 Cambridge Shopping Centres Ltd 1,144,977 33,500 Canfor Corp 361,914 15,711 Elan Energy Inc * 101,840 101,500 Iamgold (International African Mining Gold) * 427,653 116,600 KAP Resources Ltd Warrants 8/3/00 * 92,376 220,100 KAP Resources Ltd * 412,157 200,000 Meridian Gold Inc Installment Receipt 144A * 893,082 633,600 Semi-Tech Class A * 1,588,050 37,800 St Laurent Paperboard * 643,862 43,000 Suzy Shier (Non Voting) 322,086 99,000 Tembec Inc Class A * 926,933 23,140 Trizec Hahn Corp (Sub-Voting) 524,981 ------------------- 15,773,064 ------------------- Chile - 0.0% 141,751 Five Arrows Chile Investment Trust Ltd 457,856 27,821 Five Arrows Chile Warrants 5/31/99 * 12,241 ------------------- 470,097 ------------------- Denmark - 0.0% 12,300 Alm Brand AS Class B 373,238 ------------------- France - 6.8% 9,350 Accor SA 1,402,770 34,245 Alcatel Alsthom Cie Generale d'Electricite SA 4,200,524 17,136 Axa SA 1,093,336 4,788 AXA UAP 13,143 31,216 Banque Nationale de Paris 1,332,939 46,100 BIC SA 3,336,559 13,896 Bouygues 1,113,421 4,080 Cap Gemini SA 248,883 7,793 CGIP 2,184,173 5,278 Chargeurs International SA 313,260 5,943 Christian Dior 837,732 2,600 Cie Bancaire SA 286,769 12,983 Club Mediterranee SA * 1,041,337 3,200 Colas SA 423,114 6,890 Credit Local de France SA 595,229
2 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------ France - continued 16,505 Credit Lyonnais * 892,530 7,679 Dollfus-Mieg and Cie * 143,566 107,505 Elf Aquitaine SA 11,963,709 2,871 Elf Gabon 658,879 3,304 Eridania Beghin-Say SA 430,329 17,926 Financiere de Paribas SA 1,236,541 1,739 Gaz Et Eaux 743,996 11,174 Generale Des Eaux 1,249,027 11,021 Generale Des Eaux Warrants 5/2/2001 * 6,178 7,038 Group Axime * 734,491 6,744 Groupe Andre * 620,419 14,288 Groupe Danone 2,129,479 1,035 Guyenne Et Gascogne 345,540 4,389 Labinal SA 1,049,221 12,000 Lafarge Coppee SA 775,534 36,617 Lagardere Groupe 981,001 45,816 Lyonnaise Des Eaux 4,615,213 23,010 Michelin SA Class B 1,293,613 4,318 Pathe SA 807,289 25,523 Pechiney SA Class A 1,104,152 6,970 Pernod-Ricard 325,776 18,403 Peugeot SA 2,066,185 51,312 Rhone Poulenc SA Class A 1,884,810 6,796 Saint-Gobain 934,443 55,294 Seita 1,704,720 16,483 Sidel (Bearer) 1,195,700 18,605 Societe Generale Paris 2,312,780 15,100 Sommer Allibert 536,485 35,100 SPIE Batignolles 1,870,881 4,196 Strafor Facom 289,165 6,000 Sylea (Bearer) 534,169 46,206 Thomson CSF 1,242,469 30,104 Total SA 2,824,034 2,700 TV Francaise 220,345 9,260 Vallourec 552,654 6,835 Worms et Compagnie SA 372,654 ---------------- 69,071,166 ---------------- Germany - 6.5% 126,500 Bankgesellschaft Berlin AG 3,106,019 66,500 BASF AG 2,286,671 61,990 Bayer AG 2,286,896 135,000 Bayerishe Hypotheken und Wechsel-Bank AG 2,272,311 26,800 Brau und Brunnen * 2,128,934 139,500 Commerzbank AG 4,851,096 133,310 Continental AG 3,243,606 26,500 Daimler-Benz 1,987,334 220,000 Deutsche Telekom AG 4,399,633 169,140 Dresdner Bank 6,736,849 3,641 Dyckerhoff AG (Non Voting) 1,254,018 9,800 Holzmann (Philipp) * 2,966,975
See accompanying notes to the financial statements. 3 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Germany - continued 3,331 Kolnische Rueckversicherungs Gesellschaft Preferred 2,812,610 9,945 Kolnische Rueckversicherungs Gesellschaft (Registered) 8,563,036 25,272 Metro AG Preferred Class I 897,081 123,000 Pfeiffer Vacuum Tech Sponsored ADR * 3,490,125 5,500 Rheinmetall Berlin AG 977,696 604 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 97,639 131,860 RWE Preferred 5,090,837 5,150 Villeroy and Boch AG * 826,792 2,100 Volkswagen AG 1,510,707 4,000 Volkswagen AG Preferred .79% 2,155,376 4,500 Volkswagen AG Warrants 10/27/98 * 1,787,351 ------------------- 65,729,592 ------------------- Greece - 0.0% 27,350 Greek Progress Fund 239,582 ------------------- Hong Kong - 3.9% 1,132,400 Amoy Properties Ltd 1,139,853 2,255,052 Dairy Farm International 1,894,244 496,327 Great Eagle Holdings Ltd 1,450,743 1,844,800 Hang Lung Development Co Ltd 3,332,972 49,128 Hang Lung Development Co Ltd Warrants 10/31/97 * 3,297 1,310,641 Hong Kong Land Holdings 3,787,752 656,900 Hysan Development Co Ltd 1,907,375 28,345 Hysan Development Co Ltd Warrants 4/30/98 * 12,437 302,000 Jardine International Motor Holdings Ltd 342,960 403,000 Jardine Strategic Preferred 485,615 135,133 Jardine Strategic Warrants 5/02/98 * 59,459 729,000 Kumagai Gumi Hong Kong Ltd 1,368,815 1,590,000 Lai Sun Development 1,579,946 1,250,000 Lai Sun Garment International Ltd 1,508,259 1,025,266 Liu Chong Hing Bank Ltd 2,732,190 1,103,000 National Mutual Asia Ltd 896,748 70,000 Orient Overseas International Ltd 46,974 7,004,073 Regal Hotels International Ltd 1,920,719 1,695,655 Semi Tech (Global) Co Ltd 2,549,281 160,248 Semi Tech (Global) Co Ltd Warrants 7/31/98 * 38,878 562,000 Swire Pacific Ltd Class A 4,297,135 1,369,500 Swire Pacific Ltd Class B 1,988,240 1,106,500 Wharf Holdings Ltd 4,005,333 638,000 Wheelock & Co Ltd 1,325,565 183,912 Wing On Co 211,229 758,486 Winsor Industrial Corp Ltd 215,340 429,243 Winsor Properties Holdings Ltd 686,877 ------------------- 39,788,236 ------------------- Hungary - 0.0% 96,327 Fotex (Registered) * 117,625 ------------------- India - 0.2% 157,150 India Fund Class A 708,527 40,000 India Liberalisation * 353,200 59,007 Mahindra & Mahindra GDR 144A (d) 672,680 11,000 Morgan Stanley India Fund Inc * 118,250 ------------------- 1,852,657 -------------------
See accompanying notes to the financial statements. 4 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Indonesia - 0.2% 1,685,198 Bank Dagang Nasional Industries (Foreign Registered) 357,034 240,744 Bank Dagang Nasional Warrants 2/14/00 (Foreign Registered) * 14,281 130,000 Bunas Finance Indonesia 88,136 603,500 Daya Guna Samudera (Foreign Registered) 818,305 1,073,668 Dharmal Sakit Sejatera (Foreign Registered) 418,549 204,137 Dharmala Intiland (Foreign Registered) 183,377 350,000 Komatsu Indonesia (Foreign Registered) 109,746 ------------------- 1,989,428 ------------------- Israel - 0.0% 39,500 Koor Industries Ltd ADR 254,281 ------------------- Italy - 3.4% 26,000 Aeroporti Di Roma * 214,266 78,457 Assicurazioni Generali SPA 1,657,632 515,792 Banca Commerciale Italiana SPA 1,288,964 59,948 Banca di Legano SPA 196,285 236,958 Banca Toscana 526,213 513,583 Banco Ambrosiano Veneto SPA (Non Convertible) 1,125,930 207,500 Comau Finanziaria SPA 646,999 1,234,464 Credito Italiano 2,559,085 163,232 Danieli and Co SPA (Non Convertible) 579,427 246,322 ENI SPA 1,378,011 29,972 Ericsson SPA 516,640 146,530 Falck Acciaierie and Ferriere Lombarde 574,234 331,490 Fiat SPA 1,020,430 413,552 Fiat SPA Preferred 642,393 29,074 Fiat SPA (Non Convertible) 48,630 221,428 Gilardini SPA 365,965 39,570 IFI Istituto Finanziario Preferred 2.46% 450,603 172,607 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 292,138 627,004 Industriali Riunite SPA * 442,644 215,693 Istituto Mobilaire Italiano 2,008,449 160,238 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 388,149 223,315 Italgas SPA 687,433 74,642 Mediaset SPA 328,336 42,000 Mediobanco SPA 274,083 1,383,702 Montedison SPA 840,891 975,630 Montedison SPA (Non Convertible) 482,079 210,955 Montefibre SPA 123,407 456,107 Olivetti and Co SPA * * 185,219 46,000 Pagnossin SPA 194,638 84,930 RAS SPA 722,822 73,200 Rinascente per l'Esercizio di Grandi Magazzini SPA 447,339 117,157 SAI di Risp 355,988 719,880 Seat SPA di Risp * 176,627 713,947 Seat SPA * 266,407 127,537 Sirti SPA 684,513 1,341,241 Telecom Italia Mobile SPA (Non Convertible) 2,247,203 741,724 Telecom Italia SPA di Risp 4,414,861 833,885 Telecom Italia SPA di Risp (Non Convertible) 2,950,581
See accompanying notes to the financial statements. 5 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Italy - continued 54,563 Toro Assicurazioni 680,215 68,306 Unione Cementi Marchino Emiliane e di Augusta-Casale 485,904 134,857 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 348,496 --------------- 33,820,129 --------------- Japan - 22.0% 28,000 Advantest Corp 2,560,479 54,000 Aisin Seiki Co Ltd 736,221 52,200 AJL Peps Trust Exchange 796,050 40,300 Akita Bank 237,867 75,000 Arisawa Manufacturing 1,034,999 226,000 Asahi Breweries Ltd 3,363,039 56,000 Banyu Pharmaceutical Co Ltd 940,394 313,000 Bridgestone Corp 6,947,460 196,000 Canon Inc 5,425,887 24 Chubu Electric Power Co Inc 403 4,000 Chudenko Corp 91,778 39,758 Chugoku Electric Power Co Inc 644,510 31,800 Circle K Japan Co Ltd 1,596,741 33,300 Credit Saison Co 860,944 83,000 Daiichi Seiyaku Co Ltd 1,414,498 170,000 Daikin Industries Ltd 1,232,355 239,000 Dainippon Ink & Chemicals Inc 882,168 148,000 Dainippon Printing Co Ltd 3,100,507 444 East Japan Railway Co 2,030,094 30,100 Exedy Corp 242,472 52,400 Ezaki Glico Co Ltd 394,231 104,000 Familymart 4,366,115 54 Fuji International Finance Preferred ADS 144A, .25% due 2/1/02 1,393,881 160,000 Fuji Photo Film Co Ltd 6,171,752 89,000 Fujitec Co 1,043,229 414,000 Fujitsu Ltd 4,956,023 46,000 Gunma Bank Ltd 401,530 137,000 Hitachi Cable Ltd 1,002,245 60,000 Hitachi Credit Corp 1,142,240 696,000 Hitachi Ltd 6,422,479 46,312 Hokkaido Electric Power 777,706 291,000 Honda Motor Co Ltd 8,999,252 15,000 Hoya Corp 637,210 156 Japan Tobacco Inc 1,256,663 40,000 Jusco Co 1,070,746 84,350 Kansai Electric Power 1,577,750 245,000 Kao Corp 3,625,405 229,000 Kawasaki Heavy Industry 896,658 23,000 Kirin Beverage 372,849 50,400 Kurita Water Industries Ltd 1,332,380 21,000 Kyudenko Corp 140,012 72,133 Kyushu Electric Power Co Inc 1,175,332 126,000 Marui Co Ltd 2,000,665 54,000 Maruichi Steel Tube 785,602 545,000 Matsushita Electric Industrial Co Ltd 10,058,193
6 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Japan - continued 225,000 Matsushita Electric Works Ltd 2,431,624 447,000 Minebea Co Ltd 4,459,224 275,000 Minolta Co Ltd 1,577,438 150,000 Mitsubishi Corp 1,483,914 446,000 Mitsui & Co 3,648,383 23,000 Murata Manufacturing Co Ltd 938,815 34,700 Namco Ltd 1,174,071 203,000 NEC Corp 2,278,244 35,350 Nichido Fire & Marine Insurance Co Ltd 234,805 88,000 Nichii Co Ltd 1,002,245 33,400 Nintendo Co Ltd 2,759,963 21,000 Nippon Broadcasting System 1,555,491 77,700 Nippon Electric Glass Co 1,065,799 215,000 Nippon Meat Packers Inc 2,591,654 480,000 Nissho Iwai Corp 1,807,632 214,000 Obayashi Corp 1,295,137 34,000 Omron Corp 633,137 101,000 Onward Kashiyama Co Ltd 1,553,329 58,000 Orix Corp 4,315,404 28,400 Paris Miki Inc 552,465 352,000 Ricoh Co Ltd 4,769,806 40,000 Rinnai Corp 744,867 65,000 Rohm Co Ltd 6,754,510 9 Sakura Finance Preferred .75% 144A 453,965 102,000 Sanden Corp 699,559 66,900 Sankyo Co Ltd 2,035,531 164,000 Sekisui Chemical Co Ltd 1,390,639 25,000 Shimachu Co 565,301 162,750 Shin-Etsu Chemical Co Ltd 4,167,179 140,000 Shiseido Co Ltd 2,292,792 33,000 Sho Bond Construction Co 685,843 1,400 Shohkoh Fund & Co 407,349 75,000 Showa Corp 563,638 37,800 SMC 3,173,830 101,600 Sony Corp 8,868,568 114,000 Sumitomo Electric 1,724,811 262,000 Sumitomo Realty and Development Co Ltd * 2,088,769 356,000 Suzuki Motor Corp 3,373,847 46,000 Tachi-S Co Ltd 447,419 85,000 Taisho Pharmaceutical Co Ltd 2,084,546 123,000 Taiyo Yuden Co Ltd 1,441,766 285,000 Takeda Chemical Industries Ltd 7,605,370 105,000 Tanabe Seiyaku Co Ltd 790,839 99,000 TDK Corp 7,621,082 217,000 Terumo Corp 3,968,742 450 Toagosei Chemical Industry Co Ltd 1,186 74,000 Toda Corp 412,171 14 Tohoku Electric Power Co Inc 228 28,000 Tokyo Broadcasting System Inc 472,525 60 Tokyo Electric Power 1,147
See accompanying notes to the financial statements. 7 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Japan - continued 77,200 Tokyo Electron 4,203,674 80,000 Tokyo Seimitsu Co Ltd 2,028,431 68,000 Toppan Printing Co Ltd 977,970 50,500 Tsubaki Nakashima Co Ltd 316,963 30,000 Unicharm Corp 1,017,541 92,000 UNY Co Ltd 1,690,249 42,000 Wacoal Corp 485,327 354 West Japan Railway Co 1,221,299 177,000 Yamanouchi Pharmaceutical Co Ltd 4,237,759 81,000 Yamatake Honeywell 1,407,349 96,000 Yamato Kogyo Co 837,975 ------------------- 221,530,150 ------------------- Korea - 1.3% 121,500 Bank of Pusan 706,787 390 Daehan Flour Mill 37,596 114,350 Daewoo Corp 899,596 22,000 Daewoo Securities Ltd Preferred 15.98% * 158,449 829 Daewoo Securities * 13,319 100 Dong Yang Dragon Fund * 1,100,000 9,860 Dongkuk Steel Mill 219,597 67,310 Dongwon Securities Co Preferred 335,618 15,310 Halla Climate Control Corp 435,975 32,641 Hana Bank Sponsored GDR (d) 326,410 1,500 Hankook Tire Manufacturing Co Ltd 59,668 14,490 Hansol Paper Manufacturing Ltd 356,430 147,376 Hanwha Corp 1,521,933 41,000 Hyundai Motor Service Co GDR 144A (d) 312,625 68,540 Jinro Ltd Preferred 151,889 6,795 Kookmin Bank 105,923 100,000 Korea Exchange Bank 570,637 159,000 Korea First Bank 632,477 68 Korea Trust * 238,000 16,000 Kyungki Bank * 70,914 158,230 Kyungnam Bank 1,376,294 10,000 LG Cable & Machinery Ltd 162,881 30,000 LG Securities Co Preferred 172,853 2,580 Pohang Iron & Steel 222,625 122,300 Samsung Corp 1,504,188 68,036 Samsung Heavy Industries Co Ltd * 814,170 72,000 Seoul Bank * 248,111 27,940 Shinhan Bank 277,976 1,040 Shinyoung Securities Preferred 5,992 6,746 Sindoricom Co Ltd 352,033 130 SK Telecom 97,083 6,300 Ssangyong Investment Securities Co Preferred 59.90% * 20,942 ------------------- 13,508,991 ------------------- Mexico - 0.4% 40,238 Cifra SA 76,865 329,000 Cifra SA De Class C 583,648 30,000 Desc SA De CV Sponsored ADR * 997,500
8 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Mexico - continued 15,000 Desc Sociedad De Formento Class C 124,373 357,000 Empaques Ponderosa Class B * 270,768 109,000 Grupo Financiero Banamex Class B 292,152 8,868 Grupo Financiero Banamex Class L 23,028 569,562 Grupo Financiero Bancomer SA Class B 347,785 21,085 Grupo Financiero Bancomer SA Class L 10,842 1,496 Grupo Mexico Desarollo Class B ADR * 935 1,496 Grupo Mexico Desarollo Class L ADR * 1,496 28,600 Grupo Televisa 483,101 61,333 Mexico Fund 1,203,660 ------------------- 4,416,153 ------------------- Netherlands - 5.8% 135,280 ABN Amro Holdings NV 2,663,610 42,642 Aegon NV 3,177,449 27,461 Akzo Nobel NV 4,271,365 586,358 ASM International NV * 7,695,949 13,161 Bam Groep 753,375 10,000 Cap Volmac Group NV 323,225 30,822 De Boer Unigro NV 1,026,665 61,636 Dordtsche Petroleum 3,151,072 90,660 Elsevier NV 1,377,941 25,000 Endemol Entertainment * 579,832 23,439 Fugro NV 803,874 29,331 Gist Brocades NV 839,497 54,225 Hal Trust Class B 998,096 60,274 Hal Trust (Participating Certificate) 1,109,438 33,449 Heidemij Holdings NV 353,233 40,500 Hunter Douglas NV 1,700,782 24,644 ING Groep NV 1,076,263 11,500 Internatio-Muller 369,439 42,226 Kon Bolswessanen 708,473 15,637 Koninklijke NV 337,209 15,588 Koninklijke Pakhoed 534,613 64,081 Koninklijke PTT Nederland 2,279,967 75,537 Kononklijke Volker Wessels 2,236,532 82 Moeara Enim Petroleum 1,901,848 20,560 Nedlloyd 610,779 9,220 Nutricia Ver Bedrijven 1,433,196 98,883 Philips Electronics 7,060,806 24,778 Philips NV ADR 1,774,724 13,917 Roto Smeets D Boer 596,801 49,468 Royal Dutch Petroleum 2,519,232 5,941 Unilever NV 1,204,940 13,402 Van Ommeren (Koninklijke) (Participating Certificate) 551,569 16,452 Vendex International 826,477 27,761 Wereldhave NV 1,698,716 ------------------- 58,546,987 ------------------- New Zealand - 1.9% 324 Air New Zealand Ltd Class B 876 1,303,036 Brierley Investment Ltd 1,116,174 896,561 Carter Holt Harvey Ltd 1,856,930
See accompanying notes to financial statements. 9 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- New Zealand - continued 38,750 DB Group Ltd 54,001 311,727 Fisher and Paykel Industries Ltd 1,046,175 292,975 Fletcher Challenge Buildings 820,305 316,511 Fletcher Challenge Energy 1,116,860 1,212,246 Fletcher Challenge Ltd 1,425,868 586,821 Fletcher Challenge Paper 1,185,396 362,307 Lion Nathan Ltd 914,839 1,731,203 Progressive Enterprise * 2,014,142 2,586,505 Sovereign Assurance 4,133,558 6,589,327 Trans Tasman Properties * 3,664,638 485,082 Wrightson Ltd 282,181 ------------------- 19,631,943 ------------------- Norway - 0.9% 7,907 Bolig OG Naeringsk 207,920 1,090 Bona Shipholding Ltd * 13,746 139,700 Den Norske Bank AS Class A 571,642 23,100 Dyno Industrier AS 573,339 25,900 Elkem AS Class A 462,146 24,400 Fokus Bank 191,502 9,594 Hafslund ASA B Shares 48,912 14,050 Kvaerner Industrier AS 750,218 15,395 Leif Hoegh and Co AS 328,401 30,000 Norsk Data AS Class B ADR (b) * 300 34,916 Norsk Hydro AS 1,897,176 5,400 Norske Skogindustrier AS Class A 200,679 24,594 Nycomed ASA B Shares 450,391 17,100 Orkla-Borregaard AS Class A 1,213,612 8,300 Orkla-Borregaard AS Class B (Non Voting) 538,954 37,900 Schibsted AS 645,760 15,200 Storli A 330,359 83,000 Uni Storebrand AS * 546,749 27,000 Unitor AS 380,348 ------------------- 9,352,154 ------------------- Philippines - 0.0% 400,000 Pilipino Telephone 126,316 ------------------- Poland - 0.1% 40,000 Bank Handlowy W Warszawie * 504,209 ------------------- Russia - 0.6% 9,215,000 Irkutskenergo 2,838,220 74,228 Mosenergo AO Sponsored ADR 144A (d) * 3,340,260 ------------------- 6,178,480 ------------------- Singapore - 0.3% 285,400 Jardine Matheson Holdings Ltd 1,997,800 280,205 Jardine Strategic Holdings Ltd 1,036,759 ------------------- 3,034,559 ------------------- South Africa - 0.4% 61,000 Barlow Ltd 718,374 185,197 Housewares Group * 41,054 29,000 New South Africa Fund Inc 445,875
10 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- South Africa - continued 755,908 NSA International Inc * 2,175,159 151,244 NSA Investments Ltd Warrants 9/27/97 * 280,470 1,109,100 Sun International Ltd 709,219 ------------------- 4,370,151 ------------------- Spain - 4.6% 4,560 Acerinox SA 751,952 16,000 Argentaria Corporacion Bancaria de Espana SA 796,685 266,322 Banco Bilbao Vizcaya SA 7,015,850 3,217 Banco Central Hispanoamericano SA 119,344 11,945 Banco Popular (Registered) 2,676,881 162,723 Banco Santander SA (Registered) 4,538,220 37,806 Bankinter SA 1,922,255 13,956 Corporacion Mapfre (Registered) 771,100 16,000 Ebro Agricolas Compania de Alimentacion SA 283,628 214,548 Endesa 4,332,450 261,917 FENOSA SA 2,032,902 20,816 General Aguas de Barcelona SA 757,170 47,861 Hidroelec Cantabrico 1,807,026 429,443 Iberdrola SA 4,830,280 11,405 Inmobilana Metropolitan Vasco Central SA 404,348 516 Inmobilana Metropolitan Vasco Central SA * 18,084 49,000 Midesa 617,214 57,410 Repsol SA 2,273,289 93,767 Sevillana de Electricidad 835,719 352,988 Telefonica de Espana SA 9,171,233 33,458 Vallehermoso SA 777,965 ------------------- 46,733,595 ------------------- Sweden - 0.1% 98,000 Castellum AB * 798,884 ------------------- Switzerland - 3.3% 1,330 Ascom Holding AG (Bearer) * 1,800,458 125 Baloise Holdings * 325,966 1,586 Banque Cantonale Vaudoise (Bearer) 395,418 2,186 Belimo Automation AG 640,753 360 Bobst SA (Bearer) 555,507 5,500 Ciba Spec Chem Holdings (Registered) * 476,231 49,741 CS Holdings (Registered) 5,991,175 7,000 Feldschloesschen Huerlimann Warrants 12/15/98 * 18,396 3,500 Feldschloesschen Huerlimann (Participating Certificates) 398,572 365 Fischer (George) AG (Bearer) 506,162 255 Flughafen Immobilien Ges 347,091 2,099 Forbo Holdings AG (Registered) 872,668 1,193 Hero AG (Bearer) 618,989 777 Holderbank Financiere Glarus AG (Bearer) 651,841 3,274 Jelmoli (Registered) 509,615 3,300 Kraftwerk Laufenberg (Bearer) 589,266 750 Liechtenstein Global Trust AG 407,837
See accompanying notes to the financial statements. 11 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- Switzerland - continued 2,048 Merkur Holding AG (Registered) 427,802 415 Motor Columbus (Bearer) 788,585 2,401 Nestle AG (Registered) 2,798,915 3,583 Novartis AG (Registered) 5,089,427 154 Roche Holdings (Participating Certificate) 1,302,315 335 Sairgroup Namen AKT * 397,968 1,000 Schweizerische Rueckversicherungsgesellschaft (Bearer) 1,331,492 2,289 SMH AG (Bearer) 1,281,735 2,200 Sulzer Gebrueder AG (Registered) 1,546,174 2,305 Sulzer Medica AG * 601,082 1,962 Swiss Bank Corp (Registered) * 473,958 161 Swiss Insurance Co 324,376 3,599 Zuerich Versicherungs Namen (Registered) 1,309,565 ------------------- 32,779,339 ------------------- ------------------- Taiwan - 0.5% 22,526 Baring Taiwan Fund Ltd * 354,785 208 Formosa Fund IDR * 2,932,800 43,000 Formosa Growth Fund * 1,128,750 15,700 R O C Taiwan Fund 204,100 42,052 Tuntex Distinct Corp GDR 144A (d) * 231,286 ------------------- 4,851,721 ------------------- Thailand - 0.3% 301,300 Bank of Ayudhya Plc (Foreign Registered) 467,064 428,900 First Bangkok City (Foreign Registered) 307,343 645,900 Jasmine International Public Co (Foreign Registered) 505,347 9,000 Telecomasia Sponsored GDR 144A (d) * 104,202 462,200 Telecomasia (Foreign Registered) * 405,557 487,700 Thai Telephone & Telecommunications (Foreign Registered) * 153,342 204,800 Total Access Communication 819,200 122,800 United Communication Industries (Foreign Registered) 395,841 ------------------- 3,157,896 ------------------- United Kingdom - 17.7% 161,272 Allied Domecq Plc 1,218,827 465,630 Allied Irish Banks Plc * 3,934,377 310,976 Anglian Water Plc 3,921,250 2,088,281 ASDA Group 4,876,955 442,838 BAA 3,971,617 432,056 Bank of Scotland 2,907,940 104,531 Barclays Bank Plc 2,390,350 75,000 Bass * 1,003,489 399,188 BAT Industries 3,343,837 557,684 Berkley Group 6,783,389 119,028 Betacomm Plc * 86,868 919,527 BG Plc 4,011,567 440,000 Billiton Plc * 1,712,621 409,953 BPB Industries Plc 2,253,881 581,232 British Airways 6,061,188 748,619 British Petroleum 10,465,631 100,000 British Sky Broadcasting Plc 707,105
12 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------- United Kingdom - continued 575,750 British Steel 1,615,390 1,967,530 British Telecom Plc 12,699,942 1,050,000 BTR 3,712,300 641,375 Capital Shopping Centres * 4,004,701 408,800 Caradon 1,359,133 519,527 Centrica Plc * 745,674 174,780 Commercial Union Plc 2,097,591 300,000 Cookson Group * 1,245,542 380,267 Costain Group (c) * 277,523 234,287 Energy Group Plc 2,370,992 180,000 First Russian Frontiers Trust Plc * 4,670,784 38,000 First Russian Frontiers Warrants 2001 * 677,912 68,927 Flextech Plc * 684,129 84,013 General Accident 1,235,808 350,000 General Electric 2,168,347 407,251 Glaxo Wellcome Plc 8,156,924 494,116 Grand Metropolitan 4,539,689 210,586 Great Portland Estates Plc 706,964 223,079 Great Universal Stores Plc 2,268,420 207,098 Guardian Royal 910,212 166,008 Hanson Plc 794,234 83,636 Hanson Plc Warrants 9/30/97 * 327 873,094 Hillsdown Holdings 2,293,894 83,469 HSBC Holdings 2,599,104 79,909 Hyder Plc 1,082,130 157,839 Hyder Plc Cumulative Redemption Preferred Shares 276,462 223,071 Imperial Chemical Industries Plc 3,610,530 132,816 Imperial Tobacco Group Plc 824,986 431,065 Ladbroke Group 1,810,672 2,128 Lloyds TSB Group 24,918 735,537 Marley 1,324,112 361,140 Mirror Group Plc 1,188,965 216,000 National Power 1,993,257 230,940 National Westminster Bank 2,955,109 275,000 Norwich Union Plc * 1,511,923 221,504 Peninsular & Oriental Steam Navigation Co 2,335,029 134,894 Powergen 1,706,415 2,148,935 Raglan Property Plc 801,583 331,830 Railtrack Group Plc 4,157,301 98,000 Reckitt & Colman 1,513,075 673,843 Royal & Sun Alliance Insurance 5,464,193 279,023 Safeway Plc 1,696,948 500,000 Scottish Power Plc 3,523,361 1,174,447 Sears 1,199,972 234,593 Severn Trent Plc 3,329,051 246,940 Severn Trent Plc Class B 128,156 100,000 Smith (WH) Group * 614,662 235,171 Standard Chartered 3,157,995 485,000 Sun Life & Province Holding 3,055,836 769,207 T & N 2,002,237
See accompanying notes to the financial statements. 13 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares/ Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------- United Kingdom - continued 202,185 Tarmac 388,566 200,000 Tate & Lyle 1,328,254 200,225 Taylor Woodrow Plc 603,988 188,228 TC Group Plc 323,584 203,196 Thames Water 2,601,744 17,600 United Utilities 196,666 271,030 Viglen Technology * 285,712 ------------------- 178,503,820 ------------------- TOTAL STOCK AND EQUIVALENTS (Cost $811,180,674) 908,460,683 ------------------- CONVERTIBLE BONDS - 0.5% Hong Kong - 0.1% HKD 810,000 Sino Land Co, 5.00% due 2/26/01 144A 761,400 ------------------- Italy - 0.0% ITL 425,000,000 Mediobanca (Banc Credito Finanz), 4.00% due 12/31/97 239,498 ------------------- ------------------- Japan - 0.1% JPY 145,000,000 STB Cayman Capital Ltd. Convertible, .50% due 10/01/07 1,310,895 ------------------- Mexico - 0.0% $ 870,000 Grupo Financiero Invermexico, 7.50% due 6/16/01 313,200 ------------------- New Zealand - 0.1% NZD 978,881 Brierley Investment, 9.00% due 6/30/98 782,187 ------------------- Singapore - 0.2% SGD 1,750,000 Keppel Corp 2.0% due 8/12/02 144A 1,662,500 ------------------- TOTAL CONVERTIBLE BONDS (Cost $5,259,673) 5,069,680 ------------------- DEBT OBLIGATIONS - 0.1% United Kingdom - 0.1% GBP 441,779 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (c) 836,845 ------------------- TOTAL DEBT OBLIGATIONS (Cost $541,150) 836,845 ------------------- SHORT-TERM INVESTMENTS - 14.9% Cash Equivalents - 14.9% $ 50,000,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 50,000,000 67,133,952 The Boston Global Investment Trust (a) 67,133,952 $ 33,200,000 Wachovia Bank Time Deposit, 5.43% due 9/2/97 33,200,000 ------------------- 150,333,952 ------------------- TOTAL SHORT-TERM INVESTMENTS (Cost $150,333,952) 150,333,952 ------------------- TOTAL INVESTMENTS - 105.4% (Cost $967,315,449) 1,064,701,160 Other Assets and Liabilities (net) - (5.6%) (56,290,212) ------------------- TOTAL NET ASSETS - 100.0% $ 1,008,410,948 ===================
14 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt IDR International Depository Receipt GBP British Pound HKD Hong Kong Dollar ITL Italian Lira JPY Japanese Yen NZD New Zealand Dollar SGD Singapore Dollar (a) Represents investment of security lending collateral (Note 1). (b) Bankrupt issuer. (c) Valued by management (Note 1). (d) Security is restricted as to public resale. The aggregate market value of restricted securities is $5,689,984 or 5.64% of net assets. 144A - Securities 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. * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997. See accompanying notes to the financial statements. 15 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1997, industry sector diversification of the Fund's investments (excluding short-term investments) was as follows:
Percentage of Industry Sector Net Assets Banking 11.4% Consumer Goods 8.1 Electronic Equipment 6.3 Conglomerates 5.8 Construction 5.4 Oil and Gas 5.3 Machinery 5.1 Insurance 5.0 Retail Trade 4.9 Utilities 4.7 Telecommunications 4.5 Services 4.4 Health Care 4.2 Chemicals 3.7 Automotive 2.7 Real Estate 2.5 Metals and Mining 2.2 Transportation 2.2 Computers 1.9 Food and Beverage 1.9 Paper and Allied Products 1.4 Financial Services 1.1 Communications 0.9 Textiles 0.6 Aerospace 0.3 Miscellaneous 3.5 ----- 100 % =====
16 See accompanying notes to financial statements. GMO Foreign Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------------ Assets: Investments, at value (cost $967,315,449) (Note 1) $ 1,064,701,160 Foreign currency, at value (cost $6,224,651) (Note 1) 6,243,836 Cash 6,697 Receivable for investments sold 2,228,392 Receivable for Fund shares sold 17,181,418 Dividends and interest receivable 2,560,206 Foreign withholding taxes receivable 937,829 Receivable for expenses waived or borne by Manager (Note 2) 214,546 -------------- Total assets 1,094,074,084 -------------- Liabilities: Payable upon return of securities loaned (Note 1) 67,133,952 Payable for investments purchased 7,538,121 Payable for Fund shares repurchased 10,000,000 Payable to affiliate for (Note 2): Management fee 648,490 Shareholder service fee 132,632 Accrued expenses 209,941 -------------- Total liabilities 85,663,136 -------------- Net assets $ 1,008,410,948 ============== Net assets consist of: Paid-in capital $ 902,934,496 Undistributed net investment income 8,642,725 Accumulated net realized loss (563,919) Net unrealized appreciation 97,397,646 -------------- $ 1,008,410,948 ============== Net assets attributable to: Class I Shares $ 12,529,788 ============== Class II Shares $ 24,270,797 ============== Class III Shares $ 971,610,363 ============== Shares outstanding: Class I 1,067,893 ============== Class II 2,067,776 ============== Class III 82,738,491 ============== Net asset value per share: Class I $ 11.73 ============== Class II $ 11.74 ============== Class III $ 11.74 ==============
See accompanying notes to the financial statements. 17 GMO Foreign Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------ Investment income: Dividends (net of foreign tax expense of $1,427,559) $ 12,762,869 Interest (including security lending income of $196,930) 2,079,402 ------------- Total income 14,842,271 ------------- Expenses: Management fee (Note 2) 3,161,700 Custodian fees 293,848 Audit fees 33,120 Stamp duties and transfer taxes 32,568 Transfer agent fees 32,384 Legal fees 15,640 Registration fees 4,048 Trustees fee (Note 2) 3,220 Miscellaneous 2,811 Fees waived or borne by Manager (Note 2) (1,016,991) ------------- 2,562,348 Shareholder service fee (Note 2) Class I 11,736 Class II 26,358 Class III 608,081 ------------- Net expenses 3,208,523 ------------- Net investment income 11,633,748 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 2,403,470 Foreign currency, forward contracts and foreign currency related transactions (103,764) ------------- Net realized gain 2,299,706 ------------- Change in net unrealized appreciation (depreciation) on: Investments 55,175,266 Foreign currency, forward contracts and foreign currency related transactions 4,537 ------------- Net unrealized gain 55,179,803 ------------- Net realized and unrealized gain 57,479,509 ------------- Net increase in net assets resulting from operations $ 69,113,257 =============
18 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ------------------------------------------------------------------------------------------------------------------- Six Months Ended Increase (decrease) in net assets: August 31, 1997 Period Ended Operations: (Unaudited) February 28, 1997 * -------------------- --------------------- Net investment income $ 11,633,748 $ 4,998,592 Net realized gain (loss) 2,299,706 (3,379,420) Change in net unrealized appreciation (depreciation) 55,179,803 42,217,843 -------------------- --------------------- Net increase in net assets resulting from operations 69,113,257 43,837,015 -------------------- --------------------- Distributions to shareholders from: Net investment income Class I (34,608) (32,692) Class II (80,383) (86,399) Class III (2,799,758) (4,439,981) -------------------- --------------------- Total distributions from net investment income (2,914,749) (4,559,072) -------------------- --------------------- Net share transactions: (Note 5) Class I 7,235,586 4,554,323 Class II 80,383 21,186,399 Class III 236,219,746 633,658,060 -------------------- --------------------- Increase in net assets resulting from net share transactions 243,535,715 659,398,782 -------------------- --------------------- Total increase in net assets 309,734,223 698,676,725 Net assets: Beginning of period 698,676,725 - -------------------- --------------------- End of period (including undistributed net investment income of $8,642,725 and distributions in excess of $ 1,008,410,948 $ 698,676,725 net investment income of $76,274, respectively) ==================== =====================
* Period from June 28, 1996 (commencement of operations) to February 28, 1997. See accompanying notes to the financial statements. 19 GMO Foreign Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Period Ended (Unaudited) February 28, 1997 * ------------------ ------------------ Net asset value, beginning of period $ 10.65 $ 9.88 ------------------ ------------------ Income from investment operations: Net investment income 0.16(d) 0.06 Net realized and unrealized gain 0.96 0.78 ------------------ ------------------ Total from investment operations 1.12 0.84 ------------------ ------------------ Less distributions to shareholders from: Net investment income (0.04) (0.07) ------------------ ------------------ Net asset value, end of period $ 11.73 $ 10.65 ================== ================== Total Return (a) 10.50% 8.53% Ratios/Supplemental Data: Net assets, end of period (000's) $ 12,530 $ 4,891 Net expenses to average daily net assets 0.89%**(b) 0.89%**(b) Net investment income to average daily net assets 2.59%** 0.98%** Portfolio turnover rate 9% 13% Average broker commission rate per equity share (c) $ 0.0146 $ 0.0204 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02
* Period from July 10, 1996 (commencement of operations) to February 28,1997. ** Annualized. (a) The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .01% of average daily net assets. (c) The average broker commission rate will vary depending on the markets in which trades are executed. (d) Computed using average shares outstanding throughout the period. 20 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Period Ended (Unaudited) February 28, 1997 * ---------------- ------------------- Net asset value, beginning of period $ 10.65 $ 10.02 ---------------- ------------------- Income from investment operations: Net investment income 0.16(d) 0.06 Net realized and unrealized gain 0.97 0.65 ---------------- ------------------- Total from investment operations 1.13 0.71 ---------------- ------------------- Less distributions to shareholders from: Net investment income (0.04) (0.08) ---------------- ------------------- Net asset value, end of period $ 11.74 $ 10.65 ================ =================== Total Return (a) 10.59% 7.08% Ratios/Supplemental Data: Net assets, end of period (000's) $ 24,271 $ 21,957 Net expenses to average daily net assets 0.83%**(b) 0.84%**(b) Net investment income to average daily net assets 2.75%** 0.83%** Portfolio turnover rate 9% 13% Average broker commission rate per equity share (c) $ 0.0146 $ 0.0204 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02
* Period from September 30, 1996 (commencement of operations) to February 28, 1997. ** Annualized. (a) The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .02% of average daily net assets for the period ended February 28, 1997 and .01% of average daily net assets for the six months ended August 31, 1997. (c) The average broker commission rate will vary depending on the markets in which trades are executed. (d) Computed using average shares outstanding throughout the period. See accompanying notes to the financial statements. 21 GMO Foreign Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Period Ended (Unaudited) February 28, 1997 * ---------------- ------------------- Net asset value, beginning of period $ 10.66 $ 10.00 ---------------- ------------------- Income from investment operations: Net investment income 0.16(d) 0.08 Net realized and unrealized gain 0.96 0.66 ---------------- ------------------- Total from investment operations 1.12 0.74 ---------------- ------------------- Less distributions to shareholders from: Net investment income (0.04) (0.08) ---------------- ------------------- Net asset value, end of period $ 11.74 $ 10.66 ================ =================== Total Return (a) 10.50% 7.37% Ratios/Supplemental Data: Net assets, end of period (000's) $ 971,610 $ 671,829 Net expenses to average daily net assets 0.76%**(b) 0.76%**(b) Net investment income to average daily net assets 2.76%** 1.24%** Portfolio turnover rate 9% 13% Average broker commission rate per equity share (c) $ 0.0146 $ 0.0204 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02
* Period from June 28, 1996 (commencement of operations) to February 28, 1997. ** Annualized. (a) The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .01% of average daily net assets. (c) The average broker commission rate will vary depending on the markets in which trades are executed. (d) Computed using average shares outstanding throughout the period. 22 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Foreign Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund commenced operations on June 28, 1996 subsequent to a transaction involving the reorganization of the GMO International Equities Pool of The Common Fund for Nonprofit Organizations (the "GMO Pool"). The GMO Pool was discontinued and its net assets distributed pro rata to the unitholders of the GMO Pool as a liquidating distribution. Such net assets were immediately thereafter transferred by the unitholders to the Fund in exchange for shares of the Fund. The portfolio of the Fund on June 28, 1996 was the same as the portfolio of the GMO Pool prior to the transfer. The Fund seeks maximum total return through investment primarily in equity securities of non-U.S. issuers. The Fund offers three classes of shares: Class I, Class II, and Class III. The principal economic difference between the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. 23 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. These prices may differ from the value that would have been used had a broader market for the securities existed and the differences could be material to the financial statements. 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Forward currency contracts The Fund may enter into forward currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. There were no open 24 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- forward currency contracts as of August 31, 1997. Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997 the Fund loaned securities having a market value of $63,419,189 collateralized by cash in the amount of $67,133,952, which was invested in a short-term instrument. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryover for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Dividends received by shareholders of the Fund which are derived from foreign source income and foreign taxes paid by the Fund are to be treated, to the extent allowable under the Code, as if received and paid by the shareholders of the Fund. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex-dividend date, if later. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 25 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments of domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .75% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Service Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed .60% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $3,220. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 26 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997 aggregated $288,367,798 and $71,222,310, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------ -------------------- -------------------- ------------------ $967,315,449 $131,334,221 $33,948,510 $97,385,711
4. Principal shareholder At August 31, 1997, 12% of the outstanding shares of the Fund were held by one shareholder. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from July 10, 1996 Six Months Ended (commencement of operations) Class I: August 31, 1997 to February 28, 1997 -------------------------------------- ------------------------------------- Shares Amount Shares Amount ---------------- ----------------- -------------- ------------------ Shares sold 605,992 $ 7,201,878 455,993 $ 4,521,631 Shares issued to shareholders in reinvestment of distributions 2,874 34,608 3,119 32,692 Shares repurchased (85) (900) - - ---------------- ----------------- -------------- ---------------- Net increase 608,781 $ 7,235,586 459,112 $ 4,554,323 ================ ================= ============== ================
27 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Share transactions - continued
Period from September 30, 1996 Six Months Ended (commencement of operations) Class II: August 31, 1997 to February 28, 1997 --------------------------------------- -------------------------------------- Shares Amount Shares Amount ---------------- ------------------ --------------- ------------------ Shares sold - $ - 2,052,856 $ 21,100,000 Shares issued to shareholders in reinvestment of distributions 6,676 80,383 8,244 86,399 Shares repurchased - - - - ---------------- ------------------ --------------- ------------------ Net increase 6,676 $ 80,383 2,061,100 $ 21,186,399 ================ ================== =============== ================== Period from June 28, 1996 Six Months Ended (commencement of operations) Class III: August 31, 1997 to February 28, 1997 --------------------------------------- -------------------------------------- Shares Amount Shares Amount ---------------- ------------------ --------------- ------------------ Shares sold 21,514,444 $ 257,949,654 64,118,750 $ 644,703,588 Shares issued to shareholders in reinvestment of distributions 89,884 1,082,206 167,499 1,757,065 Shares repurchased (1,918,301) (22,812,114) (1,233,785) (12,802,593) ---------------- ------------------ --------------- ------------------ Net increase 19,686,027 $ 236,219,746 63,052,464 $ 633,658,060 ================ ================== =============== ==================
28 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------- STOCK AND EQUIVALENTS - 93.6% Australia - 4.1% 80,300 Advance Property Fund 89,054 12,100 Amalgamated Holdings Ltd 61,764 16,500 Amcor Ltd 99,856 369,832 Australia and New Zealand Banking Group Ltd 2,656,474 21,400 Australian Gas & Light 134,697 156,708 Australian National Industries Ltd 179,547 431,109 Boral Ltd 1,257,013 21,500 Broken Hill Proprietary Ltd 269,705 139,229 Burns Philp & Co Ltd 244,394 42,600 Capcount Property Trust 29,097 40,500 Capital Property Trust 66,629 80,800 Capral Aluminum Ltd 258,145 26,100 Coca-Cola Amatil Ltd 266,068 521,098 Coles Myer Ltd 2,426,065 22,200 Comalco Ltd 110,873 39,056 Commonwealth Bank of Australia 431,418 78,496 Consolidated Rutile Ltd * 40,356 2,900 Coventry Group Ltd 11,821 16,500 CRA Ltd 243,702 18,200 CSL Ltd 113,619 466,263 CSR Ltd 1,650,594 141,300 Cultus Petroleum * 348,693 17,000 Email Ltd 52,315 57,290 Foodland Associated 408,354 169,629 Fosters Brewing Group Ltd 320,181 2,410 G E Crane Holdings Ltd 25,223 463,827 Goodman Fielder Ltd 664,283 83,000 Hardie (James) Industries Ltd 282,242 13,300 Incitec Ltd 58,121 28,700 Jupiters Ltd 67,030 175,700 MIM Holdings Ltd 210,340 47,700 Mirvac Ltd 100,896 91,266 National Australia Bank Ltd 1,266,873 68,430 National Consolidated Ltd 40,207 53,900 National Mutual Property Trust 43,546 783,203 News Corp Ltd 3,527,270 372,983 News Corp Ltd Preferred 1.19% 1,421,735 24,115 Normandy Mining Ltd 29,224 58,349 North Broken Hill Peko Ltd 196,402 46,800 Pacific Dunlop Ltd 120,303 18,700 Pasminco Ltd 33,827 622,752 Pioneer International Ltd 2,094,801 51,674 PMP Communications Ltd 124,103 17,200 Portman Mining Ltd 40,045 43,600 Qantas Airways Ltd 95,426 156,535 QCT Resources Ltd 182,798 38,869 Rothmans Holdings Ltd 205,170 141,604 Santos Ltd 672,887
See accompanying notes to the financial statements. 1 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Australia - continued 199,197 Schroders Property $ 327,713 42,245 Sea World Property Trust 43,438 27,651 Simsmetal Ltd 203,083 72,700 Southcorp Holdings Ltd 250,954 19,500 Sydney Harbour Casinos Preferred * 26,495 3,749 W H Soul Pattison & Co Ltd 121,152 15,800 Westfarmers Ltd 153,525 224,365 Westfield Trust Units 420,201 62,950 Westpac Banking Corp 364,783 12,800 Wills (WD & HO) Holdings Ltd 17,298 15,600 Woodside Petroleum Ltd 124,886 --------------------- 25,326,714 --------------------- Austria - 0.7% 86 Bau Holding AG Preferred 2.42% (Non Voting) 4,182 5,058 Brau Union AG 283,953 3,040 Creditanstalt-Bankverein 186,694 118 Creditanstalt-Bankverein Preferred 1.65% 5,774 26 EA-Generali AG 6,126 3,200 EVN Energie-Versorgung Niederoesterreich AG 382,683 17,012 Lenzing AG * 1,066,234 25,893 Leykam-Muerztaler Papier und Zellstoff AG * 609,081 4,518 OEMV AG 597,005 1,649 Oesterreichische Brau Beteiligungs AG 87,211 9,785 Oesterreichische Elektrizitaetswirtschafts AG 665,647 11,004 Oesterreichische Laenderbank AG 547,227 454 Wienerberger Baustoffindustrie AG 88,159 --------------------- 4,529,976 --------------------- Canada - 4.1% 10,798 Abitibi-Price Inc 188,982 50,561 Agrium Inc 611,779 21,000 Air Canada Inc * 164,860 14,400 Anderson Exploration Ltd * 179,423 12,500 BC Telecom Inc 300,695 58,196 BCE Inc 1,649,330 11,700 Biochem Pharma Inc * 303,360 45,900 Bombardier Inc Class B 890,925 49,600 CAE Industries Inc 380,453 2,500 Canadian Hotel Inc 123,609 48,700 Canadian Marconi Co 710,271 22,600 Canadian Tire Corp Ltd Class A 424,020 27,189 Cominco Ltd 704,962 21,900 Corel Corp * 127,761 8,400 Co-Steel Inc 142,475 34,300 Cott Corp 327,325 22,600 Dofasco Inc 460,643 153,232 Dominion Textile Inc 827,714 15,000 Edperbrascan Corp Class A Ltd (Voting Shares) 254,961 23,693 Fletcher Challenge Canada Ltd Class A 405,278 37,998 Gulf Canada Resources Ltd * 310,618
2 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------- Canada - continued 34,500 Imasco Ltd $ 980,248 22,893 Imperial Oil Ltd 1,261,345 23,100 Inco Ltd 624,729 9,500 Ipsco Inc 396,845 18,500 Laidlaw Inc 270,482 89,081 Macmillan Bloedel Ltd 1,116,360 5,500 Magna International Class A 364,435 22,200 Methanex Corp * 186,273 12,200 Molson Co Ltd, Class A 224,063 16,600 Moore Corporation Ltd 333,566 28,200 Newbridge Networks Corp * 1,284,634 45,600 Noranda Forest Inc 308,718 14,898 Norcen Energy Resource 358,917 114,500 Nova Corp of Alberta 968,976 22,600 Nova Scotia Power Inc 234,391 6,700 Potash Corp of Saskatchewan 496,305 22,800 Quebecor Inc Class B 425,309 15,900 Rogers Cantel Mobile Communications Class B * 317,782 26,500 Seagram Ltd 925,673 10,600 Suncor Energy Inc 332,479 17,794 Teck Corp Class B 333,209 31,200 Telus Corp 620,202 17,200 Thomson Corp 392,078 42,400 Transalta Corp 528,301 46,600 Transcanada Pipelines Ltd 872,628 14,899 United Dominion Inds Ltd 405,083 30,000 Westcoast Energy Inc 573,661 4,100 Weston George Ltd 277,133 ---------------- 24,903,269 ---------------- Finland - 0.2% 7,000 Amer Group Class A * 135,611 1,500 Cultor OY Class 1 76,108 43,000 Enso OY Class A 376,852 3,100 Instrumentarium OY, Class A 104,098 5,800 Metra AB Class B 161,590 10,500 Partek OY 191,793 22,603 Rautaruukki OY 223,949 8,900 Valmet OY 129,069 ---------------- 1,399,070 ---------------- France - 8.3% 5,365 Accor SA 804,905 1,668 Air Liquide L Shares 255,473 8,053 Alcatel Alsthom Cie Generale d'Electricite SA 987,789 44,200 Assurances Generales De France (Bearer) 1,581,304 2,625 Axa SA 167,484 65,029 Banque Nationale de Paris 2,776,772 4,300 Bertrand Faure SA 209,843 5,280 Bouygues 423,062 1,750 Canal Plus 282,458
See accompanying notes to the financial statements. 3 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------ France - continued 300 Carrefour $ 181,073 10,625 Casino Guichard-Perrachon 529,017 27,059 Cerus * 156,140 2,890 CGIP 809,991 22,683 Cie Bancaire SA 2,501,843 1 Colas SA 132 18,680 Credit Commercial de France 926,070 10,310 Credit Local de France SA 890,683 21,936 Credit Lyonnais * 1,186,218 4,807 Credit National 285,305 40,040 Elf Aquitaine SA 4,455,857 3,593 Elf Sanofi SA 345,350 8,344 Eridania Beghin-Say SA 1,086,763 413,900 Eurotunnel SA Units (Bearer) * 481,081 22,062 Financiere de Paribas SA 1,521,843 17,843 FINEXTEL 301,820 19,835 GAN (Group Assurances National) * 457,819 7,520 Generale Des Eaux 840,584 3,420 Generale Des Eaux Warrants 5/2/2001 * 1,917 7,480 Groupe Danone 1,114,817 3,630 GTM-Entrepose 201,683 822 Havas Advertising 92,696 802 Labinal SA 191,724 44,693 Lafarge Coppee SA 2,888,411 13,887 Lyonnaise Des Eaux 1,398,888 16,800 Metaleurop SA * 227,121 24,053 Michelin SA Class B 1,352,250 19,220 Peugeot SA 2,157,913 880 Pinault Printemps Redoute 376,055 17,350 Renault SA * 440,508 75,185 Rhone Poulenc SA Class A 2,761,721 15,290 Saint-Gobain 2,102,359 8,110 Seita 250,032 10,940 SGS Thomson Microelectronics * 1,011,844 3,000 Societe Eurafrance 1,137,581 28,897 Societe Generale Paris 3,592,175 6,850 Sommer Allibert 243,372 19,619 SPIE Batignolles 1,045,721 1,220 Synthelabo 147,434 1,860 Technip SA (Compagnie Francaise) 225,083 17,067 Thomson CSF 458,928 17,980 Total SA 1,686,690 30,700 Usinor Sacilor 532,967 1,090 Valeo 65,592 10,623 Worms et Compagnie SA 579,182 -------------- 50,731,343 -------------- Germany - 6.1% 6,450 Adidas AG 779,310 31,605 AGIV AG * 737,389
4 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------- Germany - continued 46,600 Bankgesellschaft Berlin AG $ 1,144,194 65,800 BASF AG 2,262,600 54,900 Bayer AG 2,025,336 28,800 Bayerische Hypotheken und Wechsel - Bank AG 1,055,912 500 Bayerische Vereinsbank 26,026 950 Beiresdorf AG (Bearer) 38,472 18,430 Berliner Kraft & Licht Class A 386,486 38,700 BHF Bank AG 1,080,285 11,150 Bilfinger & Berger 463,925 23,400 Bremer Vulkan Verbund AG * 31,717 99,990 Continental AG 2,432,887 1,950 Deutsche Babcock & Wilcox * 124,031 43,550 Douglas Holdings AG 1,521,704 300 Escada AG 43,663 12,181 FAG Kugelfischer 221,946 4,200 Fresenius AG Preferred .82 (Non Voting) 816,599 300 Friedrich Grohe AG Preferred (Non Voting) 83,326 3,650 Friedrich Krupp AG 782,657 10,600 Gerresheimer Glas AG 135,433 750 Hamburgische Electricitaets-Werke AG 183,318 8,155 Heidelberg Port-Zement 609,309 20,750 Henkel KGAA Preferred 1,050,093 52,296 Klockner Humboldt Deutz * 431,406 393 Klockner-Werke AG * 25,543 100 Krones Preferred 38,941 264,255 Lufthansa AG 5,314,019 400 MAN AG 109,991 350 MAN AG Preferred 79,035 46,990 Metallgesellschaft * 1,057,187 400 Philips Kommunikations Industrie AG 112,257 200 Phoenix AG 3,500 846 Porsche AG Preferred (Non Voting) 1,221,898 2,200 Preussag AG 619,004 8,300 Puma AG Preferred 207,022 20,150 RWE Preferred 777,949 20,600 Schering AG 2,010,621 7,750 Schwarz Pharma AG 569,578 31,700 Siemens AG 1,949,388 13,150 SKW Trostberg AG 438,297 350 Strabag Bau AG * 27,453 1,200 Thyssen AG 276,644 18,900 Veba AG 1,028,914 6,400 Viag AG 2,664,667 400 Walter Bau AG 57,773 150 Wella AG 94,159 ---------------- 37,151,864 ---------------- Hong Kong - 9.2% 2,516,000 Allied Properties Ltd 603,918 472,400 Allied Properties Ltd Warrants 7/3/00 * 51,818
See accompanying notes to the financial statements. 5 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------- Hong Kong - continued 1,488,000 Amoy Properties Ltd $ 1,497,793 1,927,000 Cathay Pacific Airways Ltd 3,133,333 377,500 Century City International 116,918 145,600 Champion Technology Holdings Warrants 6/30/98 * 23,675 346,000 Cheung Kong Holdings 3,672,538 616,000 China Light & Power Co 2,853,839 1,030,000 China Overseas Land & Investment Ltd 757,646 181,500 Dao Heng Bank 772,938 133 Dickson Concept International Ltd 505 4,230,000 Elec & Eltek International Holdings Ltd 1,446,574 63,800 Furama Hotel Enterprises Ltd 265,936 9,400 Gold Peak Industry Warrants 12/31/25 * * 910 684,281 Great Eagle Holdings Ltd 2,000,124 237,700 Guoco Group 923,315 1,390,300 Hang Lung Development Co Ltd 2,511,834 32,300 Hang Seng Bank 389,734 2,086,000 Henderson Investment Ltd 2,207,407 491,000 Henderson Land Development Co Ltd 4,071,074 314,880 HKR International Ltd 402,286 487,000 Hong Kong Ferry Co Ltd 952,129 169,100 Hongkong Aircraft Engineering Co Ltd 556,465 1,095,500 Hongkong Electric Holdings Ltd 3,838,279 164,600 Hysan Development Co Ltd 477,933 1,000 Innovative International 329 616,127 Kumagai Gumi Hong Kong Ltd 1,156,878 346,000 Lai Sun Development 343,812 161,400 Lai Sun Garment International Ltd 194,746 71,049 Lai Sun Hotel International Warrants 4/30/99 * 5,135 250,000 Lane Crawford International Ltd Class B 30,972 96,000 Laws International Holdings Ltd 22,919 7,466 Leading Spirit Warrants 12/31/99 * 3,420 19,900 Liu Chong Hing Bank Ltd 53,031 148,000 Liu Chong Hing Investment Ltd 207,227 193,600 New Asia Realty & Trust A Shares 709,542 588,815 New World Development Co Ltd 3,677,719 1,000 Oriental Press Group 345 65,300 Oriental Press Group Warrants 10/2/98 * 2,528 148,000 Paul Y- ITC Construction Holdings Ltd 43,928 18,100 Realty Development Corp Ltd Class A 69,606 7,428,000 Regal Hotels International Ltd 2,036,973 530,000 Shanghai Petrochemical Co Class H 220,577 129,900 Shaw Brothers Ltd 129,079 1,124,000 Shun Tak Holdings Ltd 634,598 1,531,972 South China Morning Post Ltd 1,225,736 399,000 Sun Hung Kai Properties Ltd 4,531,165 134,600 Sun Hung Kai & Co Ltd Warrants 2/18/00 * 36,911 82,500 Swire Pacific Ltd Class A 630,807 630,000 Swire Pacific Ltd Class B 914,634 170,500 Tai Cheung Holdings Ltd 126,516
6 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Hong Kong - continued 660,000 Wharf Holdings Ltd $ 2,389,082 1,655,200 Wheelock & Co Ltd 3,438,988 43,880 Wing Lung Bank 268,977 31,800 Yue Yuen Industrial Holdings 71,611 ---------------- 56,706,712 ---------------- Italy - 4.3% 241,366 Alitalia Linee Aeree Italiane Class A * 145,995 28,000 Alleanza Assicurazioni SPA 233,770 134,500 Assicurazioni Generali SPA 2,841,703 270,169 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 642,929 145,000 Banca Commerciale Italiana SPA 362,355 897,017 Banca di Roma * 799,860 225,718 Banca Fideuram SPA 782,005 11,500 Banca Popolare di Bergamo Credit 154,469 32,000 Banca Popolare di Milano 171,204 31,000 Banco Ambrosiano Veneto SPA (Non Convertible) 67,961 187,997 Banco di Napoli di Risp * 90,224 27,000 Bulgari SPA 160,248 49,900 Cartiere Burgo SPA 283,976 143,000 COFIDE SPA * 47,675 532,500 Credito Italiano 1,103,890 264,000 Credito Italiano (Non Convertible) 304,378 1,000 Edison SPA 4,680 90,500 Editoriale L'Espresso SPA 323,819 269,700 Fiat SPA 830,221 208,500 Fiat SPA Preferred 323,875 597,270 Fiat SPA (Non Convertible) 999,009 90,000 Finmeccanica SPA * 63,384 515,480 HPI SPA * 233,923 106,000 IFI Istituto Finanziario Preferred 2.46% 1,207,073 212,900 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 360,334 184,700 Industriali Riunite SPA (Non Convertible) * 68,710 210,700 Industriali Riunite SPA * 148,747 117,000 Istituto Bancario San Paolo 817,343 82,750 Istituto Mobilaire Italiano 770,536 706,892 Istituto Nazionale Delle Assicurazioni 1,033,817 48,750 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 118,088 6,800 Italmobiliare SPA 107,945 1,750 Luxottica Group Sponsored ADR 102,156 59,000 Mediobanco SPA 385,022 62,500 Merloni Elettrodomestici SPA 222,567 1,664,200 Montedison SPA 1,011,353 135,000 Montedison SPA (Non Convertible) 66,706 151,333 Montefibre SPA 88,529 187,136 Olivetti and Co SPA * * 75,994 80,535 Parmalat Finanziaria SPA 125,100 2,063,769 Permafin Finanziaria * 576,686 352,200 Pirelli SPA (Non Convertible) 492,082 29,500 RAS SPA 251,069
See accompanying notes to the financial statements. 7 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------- Italy - continued 15,000 RAS SPA (Non Convertible) $ 74,544 24,650 Sirti SPA 132,301 46,240 SMI (Societa Metallurgica Italy) * 18,699 277,500 Sopaf SPA * 223,802 47,149 Stefanel SPA * 72,034 747,500 Telecom Italia Mobile SPA 2,589,730 110,146 Telecom Italia Mobile SPA (Non Convertible) 184,546 511,500 Telecom Italia SPA di Risp 3,044,530 237,936 Telecom Italia SPA di Risp (Non Convertible) 841,902 74,500 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) 192,522 -------------- 26,376,020 -------------- Japan - 14.2% 9,100 Advantest Corp 832,156 45,000 Amada Co Ltd 305,262 227,000 Aoki Corp * 135,872 7,000 Aoyama Trading 188,544 4,600 Arabian Oil Co Ltd 129,637 35,000 Asahi Breweries Ltd 520,825 11,000 Bandai Co 237,759 29,000 Bank of Fukuoka Ltd 133,078 58,000 Bank of Tokyo-Mitsubishi 1,055,948 22,000 Banyu Pharmaceutical Co Ltd 369,441 51,000 Brother Industries Ltd 178,070 24,000 Canon Sales Co Inc 486,824 37,000 Casio Computer Co 322,970 13,600 Chubu Electric Power Co Inc 228,381 9,000 Chudenko Corp 206,501 58,000 Chugai Pharmaceutical Co Ltd 486,990 27,000 Chugoku Bank Ltd 399,535 13,100 Chugoku Electric Power Co Inc 212,362 42,000 Citizen Watch Co 324,366 126,000 Cosmo Oil Co Ltd 408,513 31,800 CSK Corp 1,081,237 99,000 Dai Ichi Kangyo Bank 1,152,215 123,000 Daicel Chemical Industries Ltd 349,705 25,000 Daiichi Seiyaku Co Ltd 426,054 36,000 Dainippon Pharmaceutical Co Ltd 206,501 43,000 Dainippon Printing Co Ltd 900,823 44,000 Dainippon Screen Manufacturing Co Ltd 413,334 98,000 Daishowa Paper Manufacturing * 536,886 19,500 Daito Trust Construction Co Ltd 215,604 64,000 Daiwa Securities Co Ltd 404,356 21,000 Denso Corp 453,903 121 East Japan Railway Co 553,246 27,000 Eisai Co Ltd 514,008 43,000 Ezaki Glico Co Ltd 323,510 2,200 Familymart 92,360 14,700 Fanuc Co 564,586 26,000 Fuji Bank 317,732
8 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------- Japan - continued 122,000 Fuji Heavy Industries Ltd $ 538,549 37,800 Fuji Photo Film Co Ltd 1,458,076 49,000 Fujikara Ltd 411,422 25,000 Fujisawa Pharmaceutical Co Ltd 243,162 33,000 Fukuyama Transporting Co Ltd 164,602 69,000 Gakken Co Ltd * 294,838 49,000 General Sekiyu (KK) 285,144 77,000 Hankyu Corp 382,792 198,000 Haseko Corp * 186,001 16,000 Heiwa Corp 287,306 64,000 Hino Motors 278,261 180,000 Hitachi Ltd 1,660,986 14,000 Hitachi Maxell Ltd 316,568 62,000 Hitachi Metals Ltd 327,292 22,200 Hokkaido Electric Power 372,799 33,000 House Foods Corp 559,648 2,000 Hoya Corp 84,961 33,000 INAX Corp 161,859 31,000 Industrial Bank of Japan 427,800 25,000 Intec Inc 284,729 75,000 Itochu Corp 309,876 34,000 Itoham Foods Inc 142,456 16,000 Ito-Yokado 864,577 9,000 Japan Airport Terminal Co Ltd 95,020 142,000 Japan Energy Co Ltd 251,442 43,000 Japan Radio Co 386,067 87,000 Japan Synthetic Rubber Co Ltd 665,392 397 Japan Tobacco Inc 3,198,046 50,000 Kamigumi Co Ltd 230,693 28,000 Kandenko Co 192,036 44,000 Kaneka Corp 273,606 129,000 Kankaku Securities Co Ltd * 143,703 31,400 Kansai Electric Power 587,331 61,000 Kao Corp 902,652 10,000 Katokichi Co Ltd 162,108 74,000 Keio Teito Electric Railway Co Ltd 319,894 52,000 Kikkoman Corp 293,956 19,000 Kinden Corp 263,779 65,000 Kirin Brewery Co Ltd 527,933 14,000 Kissei Pharmaceutical Co Ltd 256,048 3,000 Kokusai Denshin Denwa 191,787 26,000 Kokusai Electric 458,226 4,000 Kokusai Kogyo Co Ltd 23,776 8,000 Kokuyo Co Ltd 190,872 60,000 Konica Corp 346,163 27,000 Koyo Seiko Co Ltd 185,626 59,000 Kubota Corp 238,374 64,000 Kurabo Industries Ltd 135,672 13,000 Kyocera Corp 821,348
See accompanying notes to the financial statements. 9 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------- Japan - continued 57,000 Kyowa Hakko Kogyo Co Ltd $ 334,068 30,100 Kyushu Electric Power Co Inc 490,448 26,000 Kyushu Matsushita Electric 315,571 88,000 Lion Corp 339,446 4,800 Mabuchi Motor Co 256,181 57,000 Maeda Corp 248,774 20,000 Maeda Road Construction 130,185 17,000 Makita Corp 233,187 141,000 Marudai Food Co Ltd 479,416 15,000 Matsushita Communications 490,066 16,000 Matsushita Kotubuki 522,737 48,000 Meiji Seika Kaisha Ltd 218,273 35,000 Minolta Co Ltd 200,765 118,000 Mitsubishi Electric Corp 542,472 60,000 Mitsubishi Gas Chemical Co Inc 227,450 121,000 Mitsubishi Oil Co Ltd * 422,479 10,000 Mitsubishi Warehouse & Transportation Co Ltd 116,385 87,000 Mitsui Fudosan Co Ltd * 1,012,553 32,000 Mitsui Petrochemical Industries Ltd 110,400 5,000 Murata Manufacturing Co Ltd 204,090 19,000 National House Industrial 247,984 123,000 NEC Corp 1,380,414 53,000 New Oji Paper Co Ltd 268,767 23,000 NGK Spark Plug Co 196,941 15,000 Nichicon Corp 185,801 30,000 Nichii Co Ltd 341,674 59,000 Nichirei 201,588 127,000 Nikko Securities 600,740 6,000 Nikon Corp 99,260 17,400 Nintendo Co Ltd 1,437,825 79,000 Nippon Carbon Co Ltd * 180,605 29,000 Nippon Chemi-Con Corp 135,007 186,000 Nippon Credit Bank 318,530 9,000 Nippon Electric Glass Co 123,452 26,000 Nippon Express Co Ltd 171,619 48,000 Nippon Hodo Co 326,810 38,000 Nippon Meat Packers Inc 458,060 248,000 Nippon Oil Co Ltd 1,111,248 47,000 Nippon Paper Industries 272,724 619 Nippon Telegraph & Telephone 5,814,864 1,700 Nippon Television Network 597,805 39,000 Nishimatsu Construction 230,194 56,000 Nisshinbo Industries Inc 363,123 132,000 Nissho Iwai Corp 497,099 8,000 Nissin Food Products Co Ltd 186,217 51,000 Nitto Denko Corp 886,109 39,000 Nomura Securities Co Ltd 518,746 80,000 Oki Electric Industry 285,976 27,000 Olympus Optical Co Ltd 192,585
10 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------- Japan - continued 32,000 Omron Corp $ 595,893 9,000 Ono Pharmaceutical Co Ltd 280,572 31,000 Onward Kashiyama Co Ltd 476,765 3,300 Orix Corp 245,532 32,000 Pioneer Electronics Corp 638,457 29,000 Q.P. Corp 241,084 146,000 Renown Inc * 251,243 9,000 Rinnai Corp 167,595 1,000 Rohm Co Ltd 103,916 21,000 Royal Co Ltd 359,631 8,000 Ryosan Co 161,609 98,000 Sagami Railway Co Ltd 313,659 38,000 Sakura Bank Ltd 224,291 22,000 Sanden Corp 150,885 12,000 Sankyo Co Ltd 365,118 40,000 Sanwa Bank Ltd 498,795 17,000 Sanwa Shutter Corp 131,432 30,000 Sapporo Breweries Ltd 213,484 6,500 Secom Co Ltd 463,089 50,000 Seino Transportation Co Ltd 498,795 33,000 Sekisui House Ltd 312,744 34,000 Sharp Corp 342,007 25,700 Shikoku Electric Power 416,618 15,000 Shin-Etsu Chemical Co Ltd 384,072 81,000 Shionogi and Co Ltd 546,105 72,000 Shiseido Co Ltd 1,179,150 213,000 Showa Denko 414,349 49,000 Showa Shell Sekiyu 340,136 16,000 Skylark Co Ltd 222,130 58,000 Snow Brand Milk Products Co Ltd 239,638 99,000 Stanley Electric Co Ltd 425,497 37,000 Sumitomo Bank 547,510 310,000 Sumitomo Complete Corp 2,577,105 52,000 Sumitomo Heavy Industries Ltd 164,270 22,000 Suzuki Motor Corp 208,496 16,000 Taisho Pharmaceutical Co Ltd 392,385 15,000 Taiyo Yuden Co Ltd 175,825 32,000 Takeda Chemical Industries Ltd 853,936 25,000 Takuma Corp 303,433 50,000 Tanabe Seiyaku Co Ltd 376,590 700 TDK Corp 53,886 68,000 Teikoku Oil Co Ltd 260,604 26,000 Terumo Corp 475,518 25,600 Tohoku Electric Power Co Inc 417,125 18,000 Tokai Bank Ltd 157,120 2,000 Tokyo Broadcasting System Inc 33,752 53,000 Tokyo Electric Co Ltd 190,781 1,100 Tokyo Electric Power 21,033 9,000 Tokyo Electron 490,066
See accompanying notes to the financial statements. 11 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------- Japan - continued 67,000 Tokyo Steel Manufacturing Co $ 546,405 38,000 Toppan Printing Co Ltd 546,513 78,000 Toshiba Corp 431,856 8,000 Tostem Corp 166,930 25,000 Toyo Suisan Kaisha 249,397 58,000 Toyo Trust & Banking Co Ltd 472,525 137,000 Toyobo Co Ltd 271,062 21,000 Tsumura and Co 162,183 19,000 Victor Co of Japan Ltd 230,609 19,000 Wacoal Corp 219,553 37,000 Yakult Honsha Co Ltd 362,956 18,000 Yamaha Corp 278,327 22,000 Yamaha Motor Co 199,352 70,000 Yamaichi Securities Co Ltd 137,335 40,000 Yamanouchi Pharmaceutical Co Ltd 957,686 27,000 Yamato Transport Co Ltd 325,464 30,000 Yamazaki Baking Co Ltd 414,000 62,000 Yasuda Trust and Banking Co Ltd 231,940 52,000 Yoshitomi Pharmaceutical Industries Ltd 339,347 ------------- 87,028,227 ------------- Malaysia - 3.0% 235,500 AMMB Holdings Berhad 840,062 285,500 Arab Malaysian Finance (Foreign Registered) 269,293 93,000 Berjaya Leisure Berhad (c) 173,847 317,700 Berjaya Sports Toto 871,754 125,700 Carlsberg Brew Malaysia 474,258 219,500 Edaran Otomobil Berhad 790,516 308,000 Ekran Berhad 361,297 230,000 Highlands and Lowlands Berhad 227,988 623,000 Hong Leong Properties Berhad 453,013 122,300 IGB Corp Berhad 83,896 365,000 IOI Corporation Berhad 328,006 74,300 Kedah Cement Berhad 73,905 131,900 Kumpulan Guthrie Berhad 139,342 141,550 Malayan Cement Berhad 172,841 115,000 Malayan United Industries Berhad 59,167 103,840 Malaysia Mining Corp Berhad 76,207 296,000 Malaysian Airline Systems 563,471 305,500 Malaysian International Ship (Alien Market) 628,709 77,000 Malaysian Pacific Industries 209,964 681,600 Malaysian Resources Corp 549,395 1,035,000 MBF Capital Berhad 972,698 92,000 New Straits Times 410,221 294,800 Oriental Holdings Berhad 1,061,705 22,000 OYL Industries Berhad 101,115 330,500 Pan Malaysia Cement 284,533 114,300 Perlis Plantations 282,271 565,000 Perusahaan Otomobil 1,647,230 128,100 Petronas Dagangan Berhad 180,144
12 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------- Malaysia - continued 269,300 Petronas Gas Berhad $ 743,565 729,232 Public Bank Berhad (Alien Market) 685,336 204,000 Rashid Hussain Berhad 493,295 542,000 Renong Berhad 557,709 427,000 RHB Capital Berhad 732,293 74,000 Rothmans of Pall Mall Malaysia Berhad 596,467 227,000 Sarawak Enterprises Corp 168,177 8,000 Shell Refinery Co 18,110 250,000 TA Enterprise Berhad 166,352 920,400 Tan Chong Motor Holdings Berhad 972,331 282,000 UMW Holdings Berhad 759,287 218,000 YTL Corp 348,441 ------------- 18,528,211 ------------- Netherlands - 0.0% 51 Fortis Amev NV 2,086 7,075 Schroders International Property Fund 12,731 ------------- 14,817 ------------- Norway - 0.6% 449 Bona Shipholding Ltd * 5,662 62,550 Norsk Hydro AS 3,398,681 ------------- 3,404,343 ------------- Singapore - 2.6% 113,800 Asia Food & Properties Ltd Warrants 7/12/02 * 36,985 1,517,333 Asia Food & Properties Ltd * 743,493 243,900 City Developments 1,539,997 95,000 Creative Technology Ltd * 1,909,421 105,000 DBS Land Ltd 269,355 282,900 Development Bank of Singapore (Foreign Registered) 2,992,661 40,000 First Capital Corp Ltd 89,388 59,984 Hai Sun Hup Group Ltd 38,469 6,564 Haw Paw Brothers International Ltd 12,586 9,500 Haw Paw Brothers International Ltd Warrants 7/18/2001 * 7,035 10,495 Highlands and Lowlands Berhad 10,686 259,708 Inchcape Berhad 867,124 669,441 Jardine Matheson Holdings Ltd 4,686,087 226,500 Jardine Strategic Holdings Ltd 838,050 114,000 Marco Polo Developments Ltd 180,867 184,000 Natsteel Ltd 501,210 42,500 Neptune Orient Lines Ltd 32,033 89,900 Parkway Holdings Ltd 338,797 5,000 Robinson and Co Ltd 23,306 125,000 Singapore Tech Industrial Corp 191,736 70,900 Singapore Technologies Aero (Foreign Registered) 107,815 267,000 Straits Trading Co Ltd 494,281 ------------- 15,911,382 ------------- Spain - 2.6% 41,782 Argentaria Corporacion Bancaria de Espana SA 2,080,443 227,013 Banco Bilbao Vizcaya SA 5,980,314 59,436 Banco Central Hispanoamericano SA 2,204,953
See accompanying notes to the financial statements. 13 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Spain - continued 1,787 Fabricacion de Automoviles Renault de Espana SA $ 37,026 252,397 FENOSA SA 1,959,011 110,196 Iberdrola SA 1,239,460 670 Koipe SA 44,996 74,858 Telefonica de Espana SA 1,944,939 2,700 Telefonica de Espana SA ADR 209,925 --------------- 15,701,067 --------------- Sweden - 5.8% 36,934 Assi Doman 1,124,351 73,200 Avesta Sheffield AB 694,617 11,701 Celsius Industrier AB Class B 219,088 63,000 Electrolux AB Class B 4,493,724 55,500 Ericsson LM Class B 2,318,700 31,250 Granges AB * 469,688 16,625 Hufvudstaden International * 16,094 40,600 Kinnevik Investment Class B 1,225,610 49,100 Marieberg Tidnings AB Class A 1,269,566 132,800 Mo Och Domsjo AB Class B 4,397,939 29,200 Nordbanken 929,824 120,605 Skanska AB Class B 4,800,574 41,900 Sparbanken Sverige AB Class A 912,616 60,600 Ssab Swedish Steel Class A 1,258,166 195,300 Stora Kopparberg Bergslags Class A 3,109,496 48,100 Stora Kopparberg Bergslags Class B 753,578 136,100 Svenska Cellulosa Class B 3,025,042 74,460 Svenska Handelsbanken Class A 2,295,177 1,712 Sydkraft AB Class A 41,432 92,700 Trelleborg AB Class B 1,428,706 31,050 Volvo AB Class B 798,897 --------------- 35,582,885 --------------- Switzerland - 3.1% 4,295 Alberta Energy Ltd 95,585 30 Ascom Holding AG (Bearer) * 40,612 250 Bobst SA (Registered) 193,727 8,700 CS Holdings (Registered) 1,047,893 635 Elektrowatt AG (Bearer) 229,773 120 Financiere Richemont AG Class A 161,720 910 Hilti AG, Schaan (Participating Certificate) 625,451 556 Holderbank Financiere Glarus AG (Bearer) 466,440 3,670 Holderbank Financiere Glarus AG (Registered) 652,862 7,840 Nestle AG (Registered) 9,139,315 2,093 Novartis AG (Registered) 2,972,975 270 Rieter Holdings AG (Registered) 120,805 35 Roche Holdings (Participating Certificate) 295,981 180 Sairgroup Namen AKT * 213,834 650 Schweizerische Rueckversicherungsgesellschaft (Bearer) 865,470 70 Sig Schweiz Industrie (Registered) 101,412 140 Sulzer Gebrueder AG (Registered) 98,393 3,450 Swiss Bank Corp (Registered) * 833,412 2,080 Zuerich Versicherungs Namen (Registered) 756,848 --------------- 18,912,508 ---------------
14 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- United Kingdom - 24.7% 136,200 Abbey National 1,828,962 207,600 Allied Domecq Plc 1,568,955 155,590 AMEC 358,317 63,900 Anglian Water Plc 805,747 1 Argos Plc 10 2,337,138 ASDA Group 5,458,133 27,600 Associated British Foods 231,866 216,100 Bank of Scotland 1,454,455 112,100 Barclays Bank Plc 2,563,433 165,590 Barratt Development 688,841 72,480 Bass * 969,772 418,800 BAT Industries 3,508,119 24,391 Betacomm Plc * 17,801 2,092,494 BG Plc 9,128,802 135,700 Blue Circle Industries 845,101 81,531 Booker Plc 413,870 80,455 British Aerospace 1,884,159 408,281 British Airways 4,257,625 323,200 British Steel 906,807 214,900 British Telecom Plc 1,387,129 224,750 BTR 794,609 162,320 Burton Group 325,773 358,182 Coats Viyella 688,366 50,300 Commercial Union Plc 603,666 86 Costain Group (c) * 63 303,700 Courtaulds Textiles Plc 1,617,996 68,700 Electrocomponents Plc 513,635 384,690 FKI 1,179,153 9,050 Glaxo Wellcome Plc 181,265 110,756 Greenalls Group Plc 847,826 1 Hanson Plc 5 1,074,312 Hazlewood Foods 2,334,708 150,744 Hillsdown Holdings 396,052 43,320 HSBC Holdings 1,298,338 106,360 Imperial Chemical Industries Plc 1,721,497 88,277 Kingfisher 1,037,965 733,291 Ladbroke Group 3,080,161 70,800 Land Securities 1,027,670 572,500 Lasmo 2,379,231 156,575 Legal & General Group 1,149,048 139,215 Lex Service 1,000,200 743,800 Lloyds TSB Group 8,709,449 802,603 Lonrho 1,607,552 214,011 Marley 385,262 58,600 Meyer International 406,285 729,393 National Power 6,730,869 33,800 Next 406,741 1,817,485 Norcros Plc 2,033,842 136,600 Northern Foods Plc * 482,953
See accompanying notes to the financial statements. 15 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------- United Kingdom - continued 53,290 Ocean Group $ 486,145 333,800 Peninsular & Oriental Steam Navigation Co 3,518,819 870,137 Pilkington * 2,053,279 289,759 Powergen 3,665,463 120,200 Prudential Corp 1,189,136 170,000 Railtrack Group Plc 2,129,829 47,673 Reckitt & Colman 736,049 100,610 Redland 473,191 534,100 Rentokil Plc 1,870,999 430,600 Reuters Holdings 4,371,653 70,460 RMC Group 1,147,291 122,254 Safeway Plc 743,518 110,200 Sainsbury (J) 770,293 28,740 Schroders 882,104 139,016 Scottish Hydro-Electric Plc 1,005,534 536,442 Scottish Power Plc 3,780,157 798,712 Sears 816,071 92,815 Severn Trent Plc 1,317,114 97,700 Severn Trent Plc Class B 50,704 53,520 Shell Transport & Trading (Registered) 362,819 1,505,328 Smithkline Beecham Plc 13,036,761 193,789 Southern Electric Plc 1,452,006 30,900 Southwest Water 404,918 67,630 Storehouse Plc 251,173 179,500 T & N 467,237 1,222,840 Tarmac 2,350,094 432,766 Taylor Woodrow Plc 1,305,459 163,300 Thames Water 2,090,911 544,415 Transport Development Group 1,470,082 92,108 Unilever Plc 2,552,917 221,452 United Biscuits 741,647 330,200 United Utilities 3,689,722 55,540 Viglen Technology * 58,549 456,630 Vodafone Group Plc 2,347,583 137,800 Waste Management International * 554,240 165,350 Whitbread Plc Class A 2,162,748 777,669 Wilson (Connolly) Holdings 2,181,917 278,175 Wimpey (George) 600,022 126,788 Yorkshire Water 900,637 ----------------- 151,206,875 ----------------- TOTAL STOCK AND EQUIVALENTS (Cost $571,949,727) 573,415,283 ---------------- Par Value DEBT OBLIGATIONS - 0.0% United Kingdom - 0.0% 90,530 Viglen Technology Floating Rate Note, 6.75% due 9/1/2000 (c) 171,488 ----------------- TOTAL DEBT OBLIGATIONS (Cost $99,516) 171,488 -----------------
16 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares/ Par Value ($) Description Value ($) - --------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 9.5% Cash Equivalents - 7.5% $ 26,400,000 First National Bank of Chicago Time Deposit, 5.44% due 9/2/97 26,400,000 19,807,665 The Boston Global Investment Trust (b) 19,807,665 -------------- 46,207,665 -------------- U.S. Government - 2.0% $ 12,450,000 U.S. Treasury Bill, 5.56% due 1/8/98 (a) 12,222,469 -------------- TOTAL SHORT-TERM INVESTMENTS (Cost $58,425,102) 58,430,134 -------------- TOTAL INVESTMENTS - 103.1% (Cost $630,474,345) 632,016,905 Other Assets and Liabilities (net) - (3.1%) (18,833,044) -------------- TOTAL NET ASSETS - 100.0% $ 613,183,861 ==============
Notes to the Schedule of Investments: ADR American Depositary Receipt GBP British Pounds (a) This security is held as collateral for open futures contracts. (b) Represents investment of security lending collateral (Note 1). (c) Valued by management (Note 1). * Non-income producing security. A dividend has not been declared for the twelve months ended August 31, 1997. See accompanying notes to the financial statements. 17 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1997, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Banking 12.0 % Utilities 7.9 Consumer Goods 7.0 Conglomerates 6.4 Services 5.9 Construction 5.6 Real Estate 5.4 Health Care 4.7 Transportation 4.5 Electronic Equipment 4.2 Telecommunications 3.6 Oil and Gas 3.5 Chemicals 3.1 Retail Trade 3.0 Paper and Allied Products 2.8 Food and Beverage 2.6 Machinery 2.5 Automotive 2.2 Insurance 1.9 Metals and Mining 1.8 Communications 1.7 Financial Services 1.7 Textiles 0.9 Aerospace 0.8 Computers 0.1 Miscellaneous 4.2 ------ 100.0% ======
18 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $630,474,345) (Note 1) $ 632,016,905 Foreign currency, at value (cost $956,483) (Note 1) 963,317 Cash 27,969 Dividends and interest receivable 1,275,198 Foreign withholding taxes receivable 675,572 Receivable for variation margin on open futures contracts (Notes 1 and 6) 2,237,170 Receivable for open forward foreign currency contracts (Notes 1 and 6) 24,241,832 Receivable for expenses waived or borne by Manager (Note 2) 206,121 ------------------ Total assets 661,644,084 ------------------ Liabilities: Payable for investments purchased 70,977 Payable for open forward foreign currency contracts (Notes 1 and 6) 16,258,710 Payable upon return of securities loaned (Note 1) 19,807,665 Payable for Fund shares repurchased 10,644,708 Payable for open swap contracts (Notes 1 and 6) 707,741 Payable to affiliate for (Note 2): Management fee 394,480 Shareholder service fee 78,896 Accrued expenses 497,046 ------------------ Total liabilities 48,460,223 ------------------ Net assets $ 613,183,861 ================== Net assets consist of: Paid-in capital $ 549,585,695 Accumulated undistributed net investment income 39,102,896 Accumulated undistributed net realized gain 10,331,400 Net unrealized appreciation 14,163,870 ------------------ $ 613,183,861 ================== Net assets attributable to Class III Shares $ 613,183,861 ================== Shares outstanding - Class III 48,855,437 ================== Net asset value per share - Class III $ 12.55 ==================
See accompanying notes to the financial statements. 19 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $1,065,527) $ 9,427,808 Interest (including securities lending income of $145,260) 1,073,570 ---------------- Total income 10,501,378 ---------------- Expenses: Management fee (Note 2) 2,260,433 Custodian fees 532,588 Stamp duties and transfer taxes 66,148 Audit fees 35,144 Transfer agent fees 14,904 Legal fees 13,524 Trustees fee (Note 2) 2,760 Miscellaneous 2,116 Fees waived or borne by Manager (Note 2) (1,233,957) ---------------- 1,693,660 Shareholder service fee - Class III (Note 2) 452,086 ---------------- Net expenses 2,145,746 ---------------- Net investment income 8,355,632 ---------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 27,086,891 Closed futures contracts (1,597,520) Closed swap contracts (90,724) Foreign currency, forward contracts and foreign currency related transactions 13,354,113 ---------------- Net realized gain 38,752,760 ---------------- Change in net unrealized appreciation (depreciation) on: Investments (22,350,792) Open futures contracts 6,785,593 Open swap contracts (707,741) Foreign currency, forward contracts and foreign currency related transactions 6,574,343 ---------------- Net unrealized loss (9,698,597) ---------------- Net realized and unrealized gain 29,054,163 ---------------- Net increase in net assets resulting from operations $ 37,409,795 ================
20 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended Increase (decrease) in net assets: (Unaudited) February 28, 1997 --------------------- --------------------- Operations: Net investment income $ 8,355,632 $ 11,550,285 Net realized gain 38,752,760 56,218,667 Change in net unrealized appreciation (depreciation) (9,698,597) 11,580,140 --------------------- --------------------- Net increase in net assets resulting from operations 37,409,795 79,349,092 --------------------- --------------------- Distributions to shareholders from: Net investment income - Class III (740,074) (12,206,199) Net realized gains - Class III (43,272,559) (18,177,235) --------------------- --------------------- (44,012,633) (30,383,434) --------------------- --------------------- Net share transactions - Class III (Note 5) 38,687,614 124,906,849 --------------------- --------------------- Total increase in net assets 32,084,776 173,872,507 Net assets: Beginning of period 581,099,085 407,226,578 --------------------- --------------------- End of period (including accumulated undistributed net investment income of $39,102,896 and $31,487,338, respectively) $ 613,183,861 $ 581,099,085 ===================== =====================
See accompanying notes to the financial statements. 21 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - -------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended Period Ended (Unaudited) February 28, 1997 February 29, 1996* ----------------- ---------------- ---------------- Net asset value, beginning of period $ 12.68 $ 11.54 $ 10.00 ----------------- ---------------- ---------------- Income from investment operations: Net investment income 0.13 0.22 0.23 Net realized and unrealized gain 0.75 1.63 1.44 ----------------- ---------------- ---------------- Total from investment operations 0.88 1.85 1.67 ----------------- ---------------- ---------------- Less distributions to shareholders from: Net investment income (0.02) (0.28) (0.06) Net realized gains (0.99) (0.43) (0.07) ----------------- ---------------- ---------------- Total distributions (1.01) (0.71) (0.13) ------------------ ---------------- ---------------- Net asset value, end of period $ 12.55 $ 12.68 $ 11.54 ================= ================ ================ Total Return (a) 6.74% 16.55% 16.66% Ratios/Supplemental Data: Net assets, end of period (000's) $ 613,184 $ 581,099 $ 407,227 Net expenses to average daily net assets 0.71%**(c) 0.72%(c) 0.69%** Net investment income to average daily net assets 2.77%** 2.25% 1.89%** Portfolio turnover rate 64% 84% 7% Average broker commission rate per equity share (b) $ 0.0081 $ 0.0067 N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.04 $ 0.05
* Period from June 30, 1995 (commencement of operations) to February 29, 1996. ** Annualized. (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. The average broker commission rate will vary depending on the markets in which trades are executed. (c) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximates .03% of average daily net assets for the year ended February 28, 1997 and .02% of average daily net assets for the six months ended August 31, 1997. 22 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Currency Hedged International Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks maximum total return through investment in a portfolio of common stocks of non-U.S. issuers and through management of the Fund's foreign currency positions. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 23 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the stock and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is subsequently settled. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. 24 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to the equity markets. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or that there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 6 for a summary of the open swap agreement as of August 31, 1997. 25 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Security lending The Fund may lend its securities to certain qualified brokers. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $18,462,608 collateralized by cash in the amount of $19,807,665, which was invested in a short-term instrument. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign interest and dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, or when the Fund is informed of the ex-dividend date, if later. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 26 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .60% of the amount invested. Prior to June 1, 1996, the premium on cash purchases was .75% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $55,841 in purchase premiums. There is no premium for cash redemptions or reinvested distributions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .75% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed .54% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .69%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $2,760. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 27 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $377,171,931 and $358,175,500, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------------------- ----------------------------- -------------------------- ---------------------------- $630,474,345 $42,097,068 $40,554,508 $1,542,560
4. Principal shareholders At August 31, 1997, 43% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the outstanding shares of the Fund. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Class III: Six Months Ended Year Ended August 31, 1997 February 28, 1997 --------------------------------------- ---------------------------------------- Shares Amount Shares Amount ------------------ ------------------ ------------------ ------------------- Shares sold 6,488,946 $ 99,389,052 16,351,665 $ 195,574,666 Shares issued to shareholders in reinvestment of distributions 3,439,944 43,824,889 2,179,223 26,037,897 Shares repurchased (6,884,580) (104,526,327) (7,998,316) (96,705,714) ------------------ ------------------ ------------------ ------------------- Net increase 3,044,310 $ 38,687,614 10,532,572 $ 124,906,849 ================== ================== ================== ===================
28 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Settlement Net Unrealized Date Deliver/Receive Units of Currency Value Depreciation ----------------- ----------------------- -------------------- ------------------- ------------------- Buys 9/12/97 ATS 95,470,410 $ 7,538,841 $ (504,159) 11/07/97 ATS 419,075,859 33,207,717 (1,354,845) 12/05/97 AUD 3,303,719 2,430,986 (61,009) 11/07/97 BEF 737,760,487 19,918,298 (731,053) 12/05/97 CAD 31,744,991 22,982,599 (272,918) 11/07/97 CHF 24,998,000 16,966,745 (184,237) 11/07/97 DEM 76,358,281 42,600,346 (1,302,016) 11/07/97 DKK 5,186,232 759,344 (22,893) 11/07/97 ESP 2,726,762,754 17,939,524 (843,281) 11/07/97 FIM 49,423,287 9,157,265 (295,931) 11/07/97 GBP 24,913,592 40,284,033 (849,616) 12/05/97 HKD 89,351,874 11,449,644 (74,021) 9/12/97 IEP 4,084,031 6,067,100 (153,901) 11/07/97 IEP 10,813,299 16,048,919 (171,971) 11/07/97 ITL 35,064,965,576 19,869,181 (660,057) 12/05/97 JPY 1,874,956,260 15,792,009 (1,127,516) 9/12/97 MYR 11,835,524 4,052,948 (685,052) 12/05/97 MYR 6,559,122 2,220,420 (374,580) 11/07/97 NLG 24,663,704 12,219,887 (110,672) 9/12/97 NOK 93,523,420 12,548,104 (827,896) 11/07/97 NOK 196,918,957 26,492,528 (954,581) 12/05/97 NZD 22,205,633 14,103,482 (1,172,883) 11/07/97 SEK 285,694,075 36,458,552 (629,970) 12/05/97 SGD 4,215,450 2,785,417 (210,426) ------------------- $ (13,575,484) ===================
29 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts - continued
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) ----------------- -------------------------- -------------------- --------------------- ------------------ Sales 11/07/97 ATS 413,053,753 $ 32,747,217 $ 1,152,662 9/12/97 AUD 12,369,475 9,089,666 504,334 12/05/97 AUD 56,701,753 41,755,687 592,553 11/07/97 BEF 734,491,953 19,852,833 1,066,904 9/12/97 CAD 1,295,667 933,941 22,059 12/05/97 CAD 15,843,985 11,475,717 135,685 11/07/97 CHF 95,787,346 65,083,389 811,996 9/12/97 DEM 31,026,209 17,248,590 1,132,410 11/07/97 DEM 154,972,054 86,485,732 (2,683,226) 9/12/97 DKK 12,615,344 1,841,671 118,329 11/07/97 DKK 88,389,173 12,947,854 573,245 11/07/97 ESP 214,456,980 1,412,016 46,646 11/07/97 FIM 5,500,000 1,020,099 42,292 11/07/97 FRF 246,082,631 40,750,591 1,249,079 9/12/97 GBP 19,411,482 31,475,941 265,059 11/07/97 GBP 111,986,763 181,149,788 869,083 11/07/97 HKD 13,517,395 1,736,413 7,587 12/05/97 HKD 559,701,085 71,786,307 314,749 11/07/97 IEP 7,272,525 10,814,851 189,207 9/12/97 ITL 3,531,143,800 2,005,277 92,723 11/07/97 ITL 61,056,934,630 34,611,924 905,149 12/05/97 JPY 15,832,284,835 133,422,253 3,270,660 12/05/97 MYR 107,449,497 36,475,902 5,860,328 11/07/97 NLG 63,263,484 31,353,480 1,070,035 11/07/97 NOK 54,694,151 7,365,720 165,203 9/12/97 NZD 6,180,581 3,950,229 317,771 12/05/97 NZD 30,857,391 19,618,692 1,223,822
30 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Forward currency contracts - continued
Settlement Net Unrealized Date Deliver/Receive Units of Currency Value Appreciation ----------------- -------------------------- -------------------- -------------------- ------------------ Sales - continued 11/07/97 SEK 320,472,261 $ 40,940,272 $ 485,670 12/05/97 SGD 44,547,073 29,503,978 1,756,592 ------------------ $ 21,558,606 ==================
Currency Abbreviations ATS Austrian Schilling GBP British Pound AUD Australian Dollar HKD Hong Kong Dollar BEF Belgian Franc IEP Irish Pound CAD Canadian Dollar ITL Italian Lira CHF Swiss Franc JPY Japanese Yen DEM German Mark MYR Malaysian Ringgit DKK Danish Krona NLG Netherlands Guilder ESP Spanish Peseta NOK Norwegian Kroner FIM Finnish Markka NZD New Zealand Dollar FRF French Franc SEK Swedish Krona SGD Singapore Dollar
31 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - continued - -------------------------------------------------------------------------------- Futures Contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Appreciation -------------- ---------------------- -------------------------------------------- -------------------- Buys 146 DAX September 1997 $ 31,833,458 $ 229,315 213 MIB 30 September 1997 25,786,875 2,079,398 138 TOPIX September 1997 16,336,520 964,863 145 TSE 35 September 1997 18,093,017 215,289 -------------------- $ 1,128,561 ==================== Sales 386 ALL ORDS September 1997 $ 18,193,466 $ 1,107,260 87 FTSE 100 ID September 1997 17,016,273 269,640 237 HANG SENG September 1997 21,256,291 2,643,646 4 IBEX 35 September 1997 171,992 6,350 19 MATIF CAC 40 September 1997 1,736,015 80,438 271 OMX STOCK September 1997 8,356,836 682,688 -------------------- $ 4,250,742 ====================
At August 31, 1997, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. Swap agreement
Notional Expiration Unrealized Amount Date Description Depreciation ------------------------ --------------- ---------------------------------------------------- ------------------ CHF 251,264,052 08/06/98 Agreement with Swiss Bank Corporation dated 8/6/97 to receive (pay) the notional amount multiplied by the return on the Swiss Market Index (including dividends) and to pay the notional amount multiplied by 6 month CHF LIBOR adjusted by a specified spread. $ (707,741) ==================
32 GMO Evolving Countries Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1997 (Unaudited)* - ---------------------------------------------------------------------------------- Assets: Receivable for Fund shares sold $ 18,703,000 Receivable for expenses waived or borne by Manager 1,216 ---------------- Total assets 18,704,216 ---------------- Liabilities: Payable to affiliate for: Management fee 820 Shareholder service fee 154 Accrued expenses 4,104 ---------------- Total liabilities 5,078 ---------------- Net assets $ 18,699,138 ================ Net assets consist of: Paid-in capital $ 18,703,000 Accumulated undistributed net investment income (3,862) ---------------- $ 18,699,138 ================ Net assets attributable to Class III Shares $ 18,699,138 ================ Shares outstanding - Class III 1,840,375 ================ Net asset value per share - Class III $ 10.16 ** ================
* The Fund commenced operations on August 29, 1997. This statement reflects the capital stock activity for that date and expense accruals for the two day period ended August 31, 1997. ** The variance between the subscription price and net asset value per share is attributable to the purchase premium earned by the Fund and that not yet offset by investment transactions. GMO Short-Term Income Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Short-Term Income Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - --------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 92.8% Asset Backed Securities -- 53.3% $ 563,228 Americredit Automobile Receivables Trust Series 96-B Class A, 6.50%, due 1/12/02 565,428 3,498,324 Banc One Student Loan Trust 94-A Class A2, Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 10/25/16 3,512,317 4,940,000 Brazos Student Loan Finance Corp. Series 96-A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.94%, due 12/01/02 4,933,053 2,500,000 Chevy Chase Master Credit Card Trust Series 96-A, Variable Rate, 1 mo. LIBOR + .15%, 5.80%, due 2/15/05 2,500,391 463,100 Dilmun Capital Corp, Variable Rate, 6 mo. LIBOR + .88%, 6.86%, due 11/15/03 464,026 5,000,000 First Chicago Master Trust II 95-0, Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due 2/15/04 5,018,750 1,000,000 National Premier Finance 95-2, 144A, 6.21%, due 6/01/99 993,000 5,500,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 5,582,500 2,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A, Variable Rate, 1 mo. LIBOR + .30%, 5.94%, due 8/25/07 2,011,563 500,000 Premier Auto Trust 94-4 Certificates, 6.85%, due 5/02/99 505,750 4,155,502 Signet Student Loan Trust Series 96-A Class A-1, Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due 1/25/05 4,155,502 2,000,000 Starvest CBO-1 Class A, Variable Rate 6 mo. LIBOR + .19% 144A, 6.00%, due 7/30/11 1,988,648 ----------- 32,230,928 ----------- Structured Notes -- 6.2% 750,000 Federal Home Loan Bank, Variable Rate, ((.50 * 10YR CMT) + 1.25%), 4.55%, due 3/16/98 743,250 1,000,000 Federal National Mortgage Association, Variable Rate, ((.50 * 2YR CMT) + 1.80%), 4.81%, due 3/10/98 993,000 2,000,000 Student Loan Marketing Association, Variable Rate, (10.25% - 5YR DM SWAP), 6.06%, due 3/23/98 1,996,000 ----------- 3,732,250 ----------- U.S. Government -- 15.4% 9,000,000 U.S. Treasury Note, 7.75%, due 11/30/99 9,320,625 ----------- U.S. Government Agency -- 17.9% 350,000 Agency for International Development Floater (Support of Botswana), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.88%, due 10/01/12 347,813 2,250,000 Agency for International Development Floater (Support of C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.85%, due 10/01/12 2,244,375
See accompanying notes to the financial statements. 1 GMO Short-Term Income Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - --------------------------------------------------------------------------------------------- U.S. Government Agency -- continued $2,416,832 Agency for International Development Floater (Support of Honduras), Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 5.94%, due 10/01/11 2,416,832 101,836 Agency for International Development Floater (Support of Peru), Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.68%, due 5/01/14 101,263 5,670,048 Small Business Administration Pool #502320, Variable Rate, Prime - 2.18%, 6.31%, due 8/25/18 5,698,399 ----------- 10,808,682 ----------- TOTAL DEBT OBLIGATIONS (COST $56,082,658) 56,092,485 ----------- SHORT-TERM INVESTMENTS -- 9.7% Repurchase Agreements -- 9.7% 2,947,813 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $2,949,447 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.811%, with a maturity date of 3/1/35 and a market value of $3,006,780 2,947,813 2,947,813 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $2,949,467 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $3,015,363. 2,947,813 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $5,895,626) 5,895,626 ----------- TOTAL INVESTMENTS -- 102.5% (COST $61,978,284) 61,988,111 Other Assets and Liabilities (net)-- (2.5)% (1,534,665) ----------- TOTAL NET ASSETS-- 100% $60,453,446 =========== Notes to the Schedule of Investments: CMT - Constant Maturity Treasury Index DM SWAP - 5 year Deutsche Mark Constant Maturity Swap Rate Variable rates - The rates shown on variable rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. 144A - Securities 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.
2 See accompanying notes to the financial statements. GMO Short-Term Income Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $61,978,284) (Note 1) $61,988,111 Cash 1,974,496 Receivable for investments sold 60,000 Interest receivable 615,726 Receivable for expenses waived or borne by Manager (Note 2) 9,051 ----------- Total assets 64,647,384 ----------- Liabilities: Payable for investments purchased 4,161,439 Payable to affiliate for (Note 2): Management fee 11,209 Shareholder service fee 6,726 Accrued expenses 14,564 ----------- Total liabilities 4,193,938 ----------- Net assets $60,453,446 =========== Net assets consist of: Paid-in-capital $59,929,593 Accumulated undistributed net investment income 539,921 Accumulated undistributed net realized loss (25,895) Net unrealized appreciation 9,827 =========== $60,453,446 =========== Shares outstanding 6,147,369 =========== Net asset value per share $ 9.83 ===========
See accompanying notes to the financial statements. 3 GMO Short-Term Income Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest 1,376,656 ---------- Expenses: Management fee (Note 2) 57,957 Audit fees 12,594 Custodian and transfer agent fees 3,373 Legal fees 913 Registration fees 786 Trustees fees (Note 2) 179 Miscellaneous 270 Fees waived or borne by Manager (Note 2) (64,479) ---------- 11,593 Shareholder service fee (Note 2) 34,774 ---------- Net expenses 46,367 ---------- Net investment income 1,330,289 ---------- Realized and unrealized gain (loss): Net realized loss on investments (8,001) ---------- Change in net unrealized appreciation (depreciation) on investments 62,684 ---------- Net realized and unrealized gain 54,683 ---------- Net increase in net assets resulting from operations $1,384,972 ==========
4 See accompanying notes to the financial statements. GMO Short-Term Income Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 --------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $1,330,289 $ 1,624,987 Net realized gain (loss) (8,001) 76,160 Change in net unrealized appreciation (depreciation) 62,684 (75,627) ------------ ------------ Net increase in net assets resulting from operations 1,384,972 1,625,520 ------------ ------------ Distributions to shareholders from: Net investment income (1,118,549) (1,442,981) ------------ ------------ (1,118,549) (1,442,981) ------------ ------------ Fund share transactions: (Note 5) Proceeds from sale of shares 32,141,959 94,033,050 Net asset value of shares issued to shareholders in payment of distributions declared 782,800 1,044,258 Cost of shares repurchased (13,674,673) (65,388,935) ------------ ------------ Net increase in net assets resulting from Fund share transactions 19,250,086 29,688,373 ------------ ------------ Total increase in net assets 19,516,509 29,870,912 Net assets: Beginning of period 40,936,937 11,066,025 ------------ ------------ End of period (including accumulated undistributed net investment income of $539,921 and $328,181, respectively) $60,453,446 $40,936,937 ============ ============
See accompanying notes to the financial statements. 5 GMO Short-Term Income Fund (A Series of GMO Trust) Financial Highlights (For a share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ----------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- -------- -------- ------- -------- -------- Net asset value, beginning of period $ 9.78 $ 9.77 $ 9.56 $ 9.79 $ 10.05 $ 10.11 -------- -------- -------- ------- -------- -------- Income from investment operations: Net investment income 0.24 0.47 0.57 0.63 0.44 0.44 Net realized and unrealized gain (loss) 0.04 0.06 0.20 (0.28) (0.09) 0.30 -------- -------- -------- ------- -------- -------- Total from investment operations 0.28 0.53 0.77 0.35 0.35 0.76 -------- -------- -------- ------- -------- -------- Less distributions to shareholders: From net investment income (0.23) (0.52) (0.56) (0.58) (0.46) (0.38) From net realized gains -- -- -- -- (0.15) (0.44) -------- -------- -------- ------- -------- -------- Total distributions (0.23) (0.52) (0.56) (0.58) (0.61) (0.82) -------- -------- -------- ------- -------- -------- Net asset value, end of period $ 9.83 $ 9.78 $ 9.77 $ 9.56 $ 9.79 $ 10.05 ======== ======== ======== ======= ======== ======== Total Return/(a)/ 2.90% 5.62% 8.32% 3.78% 3.54% 8.25% Ratios/Supplemental Data: Net assets, end of period (000's) $60,453 $40,937 $11,066 $8,193 $ 8,095 $10,499 Net expenses to average daily net assets 0.20%* 0.20% 0.25% 0.25% 0.25% 0.25% Net investment income to average daily net assets 5.74%* 5.88% 6.49% 5.02% 4.35% 4.94% Portfolio turnover rate 9% 287% 139% 335% 243% 649% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.03
/(a)/ The total returns would have been lower had certain expenses not been waived during the periods shown. * Annualized. 6 See accompanying notes to the financial statements. GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Short Term Income Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares. The Fund seeks current income to the extent consistent with the preservation of capital and liquidity through investment in a portfolio of high quality short-term instruments. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults, the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed 7 GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund had no securities on loan. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts and amortization of premiums. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Expenses The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. 8 GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .25% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of the Fund at the annual rate of .15%. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .05% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .20%; thus, the net annual expense ratio after the waiver is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $179. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds --------------------- --------------------- U.S. Government securities $ - $ 2,012,813 Investments (non-U.S. Government securities) 22,011,715 2,180,159
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------------- ---------------------- ---------------------- ---------------------- $61,978,284 $57,633 $47,806 $9,827
4. Principal shareholders At August 31, 1997, 36% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 9 GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended August 31, 1997 February 28, 1997 ------------------ -------------------- Shares sold 3,284,450 9,668,234 Shares issued to shareholders in reinvestment of distributions 80,638 108,123 Shares repurchased (1,405,525) (6,721,285) ------------------ -------------------- Net increase 1,959,563 3,055,072 Fund shares: Beginning of period 4,187,806 1,132,734 ------------------ -------------------- End of period 6,147,369 4,187,806 ================== ====================
10 GMO International Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 90.9% Argentina -- 0.3% USD 1,000,000 Republic of Argentina Par Bond, Variable Rate, Step Up, 5.50%, due 3/31/23 736,875 --------------- Australia -- 1.9% GBP 2,000,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 12/07/06 3,350,639 AUD 2,620,000 Queensland Treasury Corp., 8.00%, due 9/14/07 2,107,207 --------------- 5,457,846 --------------- Austria -- 2.0% CAD 7,000,000 Autobahn Schnell, 8.50%, due 3/03/03 5,661,505 --------------- Brazil -- 0.3% USD 1,135,141 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 925,140 --------------- Bulgaria -- 1.3% USD 1,000,000 Bulgaria Discount Bond Series B, Variable Rate, 6 mo. LIBOR + 1.31%, 7.19%, due 7/28/24 781,250 USD 5,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 7/28/24 550,300 USD 15,000,000 Bulgaria Discount Strips, due 7/28/24 2,284,350 --------------- 3,615,900 --------------- Canada -- 4.3% CAD 750,000 Government of Canada, 10.25%, due 3/15/14 749,892 CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 3,969,103 CAD 3,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 2,246,014 CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,613,252 CAD 5,000,000 Societe Quebec D'Ass D'Eaux, 8.13%, due 8/11/03 3,953,907 --------------- 12,532,168 --------------- Cayman Islands -- 0.5% CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 1,536,910 --------------- Denmark -- 4.1% DKK 78,200,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 11,994,789 --------------- Ecuador -- 0.4% USD 2,000,000 Republic of Ecuador Par Bond, Variable Rate, Step up, 3.50%, due 2/28/25 1,047,500 ---------------
See accompanying notes to the financial statements. 1 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- France -- 6.7% FRF 14,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 2,680,900 SEK 10,000,000 Credit Foncier, 6.50%, due 2/22/99 1,289,645 ECU 2,000,000 Credit Foncier, 8.38%, due 3/17/04 2,447,844 ECU 7,000,000 Government of France, 8.25%, due 4/25/22 9,110,328 ECU 3,000,000 Societe Nationale des Chemins de Fer, 9.38%, due 3/12/01 3,709,451 --------------- 19,238,168 --------------- Germany -- 3.9% DEM 2,200,000 Bundesrepublic Deutschland, 6.00%, due 9/15/03 1,278,302 DEM 1,000,000 Bundesrepublic Deutschland, 6.00%, due 6/20/16 541,884 ESP 250,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 1,838,453 GBP 2,000,000 KFW International Finance, 10.63%, due 9/03/01 3,579,313 ESP 280,000,000 KFW International Finance, 8.60%, due 5/20/03 2,059,988 DEM 1,300,000 Treuhandanstalt, 7.12%, due 1/29/03 791,468 DEM 2,000,000 Treuhandanstalt, 6.25%, due 3/04/04 1,171,537 --------------- 11,260,945 --------------- Greece -- 0.9% GRD 750,000,000 Hellenic Republic, Variable Rate, 12 mo. GTB + 1.50%, 14.20%, due 9/30/03 2,699,481 --------------- Italy -- 0.7% ITL 1,550,000,000 BTPS, 8.50%, due 8/01/04 967,658 ITL 1,700,000,000 BTPS, 9.00%, due 11/01/23 1,152,061 --------------- 2,119,719 --------------- Japan -- 6.7% GBP 2,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,569,582 JPY 400,000,000 Japan Development Bank, 6.50%, due 9/20/01 4,008,646 GBP 2,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 2/16/05 3,532,280 USD 1,030,000 Japan Highway Public Corporation, 7.63%, due 9/22/04 1,086,135 GBP 4,000,000 Kobe City, 9.50%, due 10/20/04 7,187,818 --------------- 19,384,461 --------------- Jordan -- 0.2% USD 1,000,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step up 144A, 4.00%, due 12/23/23 690,000 --------------- Mexico -- 0.7% FRF 15,000,000 Mexico Par Bond, 6.63%, due 12/31/19 2,111,326 --------------- New Zealand -- 1.7% NZD 7,800,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 4,764,246 ---------------
2 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Norway -- 0.3% SEK 6,300,000 A/S Eksportfinans, 7.50%, due 8/16/01 845,537 ---------------- Supra National -- 5.0% JPY 175,000,000 Asian Development Bank, 5.00%, due 2/05/03 1,707,228 ITL 5,000,000,000 European Investment Bank, 12.20%, due 2/18/03 3,545,455 CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 577,746 GBP 1,755,000 European Investment Bank, 8.75%, due 8/25/17 3,251,851 GBP 2,000,000 International Bank Recon and Development, 11.50%, due 11/09/03 3,915,025 SEK 10,000,000 International Finance Corp, 10.63%, due 9/20/99 1,401,732 ---------------- 14,399,037 ---------------- Sweden -- 8.9% SEK 4,000,000 AB Spintab, 8.50%, due 12/19/01 552,490 SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 2,569,609 SEK 181,300,000 Kingdom of Sweden, 6.00%, due 2/09/05 22,561,470 ---------------- 25,683,569 ---------------- United Kingdom -- 1.4% GBP 2,000,000 Guaranteed Export Financial Corp, 12.88%, due 9/29/02 3,971,788 ---------------- United States -- 38.4% Asset Backed Securities -- 34.3% USD 4,590,245 AFC Home Equity Loan Trust Series 97-1 Class A, Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 4,587,376 USD 5,000,000 Augusta Funding Series 96-F2, Variable Rate, LIBOR + .30% 144A, 6.05%, due 4/15/06 5,000,000 USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR + .25% 144A, 5.65%, due 4/25/03 5,000,000 USD 6,000,000 Circuit City Credit Card Master Trust 96-1 Class A, Variable Rate, LIBOR + .17%, 5.85%, due 10/15/06 6,000,000 USD 3,833,887 CS First Boston Mortgage Securities Corp., Series 96-1 Class A1, Variable Rate, 3 mo. LIBOR + .23%, 5.98%, due 7/28/29 3,836,187 USD 1,500,000 First International Funding Co, Variable Rate, 3 mo. LIBOR + .55%, 6.36%, due 6/03/98 1,506,450 USD 5,000,000 First USA Credit Card Master Trust 94-4 Class A, Variable Rate, 1 mo. LIBOR + .37%, 6.00%, due 8/15/03 5,041,406 USD 9,000,000 National Premier Finance 95-2, 144A, 6.21%, due 6/01/99 8,937,000 USD 5,000,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 5,075,000
See accompanying notes to the financial statements. 3 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 18,000,000 Navistar Financial Dealer Note Master Trust 97-1 Class A, Variable Rate, 1 mo. LIBOR + .15%, 5.78%, due 8/25/03 18,005,400 USD 10,000,000 Northstar CBO Series 97-1 Class A2, 6.62%, due 7/15/09 10,297,000 USD 10,000,000 Rhino CBO Series 97-1 Class A-2, 144A, 6.33%, due 9/15/09 10,049,900 USD 5,966,000 SMS Student Loan Trust 94-A Certificates, Variable Rate, 1 mo. LIBOR + .70%, 6.35%, due 7/26/21 5,986,881 USD 5,000,000 Society Student Loan Trust 93-A Class B, Variable Rate, 1 mo. LIBOR + .75%, 6.44%, due 7/25/03 5,007,813 USD 5,000,000 Starvest CBO-1 Class A, Variable Rate, 6 mo. LIBOR + .19% 144A, 6.00%, due 7/30/11 4,971,620 ---------------- 99,302,033 ---------------- Structured Notes -- 0.4% USD 1,000,000 Bankers Trust Medium Term Note, 17.10%, due 10/14/97/(a)/ 1,094,400 ---------------- U.S. Government Agency -- 3.7% USD 2,900,198 Agency for International Development Floater (Support of Honduras), Variable Rate, 3 mo. U.S. Treasury Bill x 1.17%, 5.94%, due 10/01/11 2,900,198 USD 1,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.47%, due 2/01/27 1,003,438 USD 1,961,401 Agency for International Development Floater (Support of Morocco), Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 5.78%, due 11/15/14 1,954,046 USD 333,333 Agency for International Development Floater (Support of Peru), Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.68%, due 2/01/02 331,458 USD 3,680,037 Agency for International Development Floater (Support of Peru), Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.68%, due 5/01/14 3,659,337 USD 953,219 National Oceanic & Atmospheric Administration Floater, Variable Rate, 6 mo. LIBOR + .50%, 5.88%, due 6/15/08 953,814 ---------------- 10,802,291 ---------------- Total United States 111,198,724 ---------------- Venezuela -- 0.3% USD 1,000,000 Republic of Venezuela Discount Bond Series B, Variable Rate, 6 mo. LIBOR + .81%, 6.81%, due 3/31/20 903,750 ---------------- TOTAL DEBT OBLIGATIONS (COST $262,256,816) 262,779,384 ----------------
4 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- LOAN ASSIGNMENTS -- 0.4% Ivory Coast -- 0.4% FRF 15,000,000 Ivory Coast Credit Agreement (Assignment with Banque Paribas, J.P. Morgan, Bank of America, Chase Manhattan and Salomon)* 1,298,327 --------------- TOTAL LOAN ASSIGNMENTS (COST $585,502) 1,298,327 --------------- LOAN PARTICIPATIONS -- 0.4% Russia -- 0.4% ECU 1,000,000 Russia Vnesheconombank Loan Agreement (Participation with Bank of America)* 1,129,165 --------------- TOTAL LOAN PARTICIPATIONS (COST $397,643) 1,129,165 --------------- Shares - ------------------------------- PREFERRED STOCKS -- 1.7% United States -- 1.7% 5,000 Bear Stearns Managed Income Securities Plus Fund 4,949,850 --------------- TOTAL PREFERRED STOCKS (COST $4,933,793) 4,949,850 --------------- Principal Amount - ------------------------------- CALL OPTIONS PURCHASED -- 3.7% Cross Currency Options -- 2.6% DEM 233,600,000 DEM Call/BEF Put, Expires 10/08/97, Strike 20.50 973,224 ECU 109,700,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 1,234,201 ECU 89,000,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 2,158,166 ECU 123,600,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out 1.9225, Strike 1.91 3,280,701 --------------- 7,646,292 ---------------
See accompanying notes to the financial statements. 5 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Principal Amount Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Options on Bonds -- 0.3% USD 6,500,000 Brazil Discount Bond, Expires 11/07/97, Strike 80.00 378,333 SEK 175,000,000 Sweden Government Bond, Expires 10/24/97, Strike 95.484 461,851 --------------- 840,184 --------------- Options on Currency -- 0.8% USD 44,800,000 British Pound, Expires 11/06/97, Strike 1.6325 990,080 USD 13,000,000 German Mark, Expires 2/09/98, Strike 1.61 1,270,100 --------------- 2,260,180 --------------- TOTAL CALL OPTIONS PURCHASED (COST $9,022,217) 10,746,656 --------------- PUT OPTIONS PURCHASED -- 1.2% Cross Currency Options -- 1.2% DEM 55,800,000 DEM Put/ITL Call, Expires 1/21/98, Strike 950 15,498 DEM 118,400,000 DEM Put/ITL Call, Expires 9/18/97 Knock Out 1050, Strike 1030 3,308,255 USD 2,000,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 400 24,000 USD 782,986 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 3,500 --------------- 3,351,253 --------------- Options on Currency -- 0.0% USD 5,000,000 Czech Koruna, Expires 10/02/97, Strike 29.56 -- USD 12,500,000 Czech Koruna, Expires 10/02/97, Strike 29.69 -- USD 13,000,000 German Mark, Expires 2/09/98, Strike 1.61 36,400 --------------- 36,400 --------------- TOTAL PUT OPTIONS PURCHASED (COST $2,523,268) 3,387,653 --------------- Shares - ------------------------------ RIGHTS AND WARRANTS -- 0.0% Mexico -- 0.0% 1,740,000 United Mexican States Warrants, Expires 6/30/03 ** -- ---------------
6 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Venezuela -- 0.0% 19,280 Republic of Venezuela Recovery Warrants, Expires 04/15/20** -- --------------- TOTAL RIGHTS AND WARRANTS (COST $0) -- --------------- Par Value - ------------------------------ SHORT-TERM INVESTMENTS -- 2.9% Cash Equivalents -- 1.4% USD 3,719,171 BankBoston Eurodollar Time Deposit, 5.7875% due 9/02/97/(b)/ 3,719,171 USD 84,645 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/02/97/(b)/ 84,645 USD 253,934 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/02/97/(b)/ 253,934 --------------- 4,057,750 --------------- Repurchase Agreement -- 0.3% USD 779,815 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $780,252 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $797,684. 779,815 --------------- U.S. Government -- 1.2% USD 500,000 U.S. Treasury Bill, 5.31%, due 1/08/98/(c)/ 490,951 USD 3,000,000 U.S. Treasury Bill, 5.33% due 1/15/98/(c)/ 2,945,064 --------------- 3,436,015 --------------- TOTAL SHORT-TERM INVESTMENTS (COST $8,268,579) 8,273,580 --------------- TOTAL INVESTMENTS -- 101.2% (COST $287,987,818) 292,564,615 Other Assets and Liabilities (net) -- (1.2)% (3,328,451) --------------- TOTAL NET ASSETS -- 100% $ 289,236,164 ===============
See accompanying notes to the financial statements. 7 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------- Notes to the Schedule of Investments: GTB - Greek Treasury Bill PIK -- Payment In Kind Knock Out -- Option will expire if underlying security reaches Knock Out price. 144A -- Securities 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. Variable and Step up rates -- The rates shown on variable and step up rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. Currency Abbreviations AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc GRD - Greek Drachma CAD - Canadian Dollar ITL - Italian Lira CHF - Swiss Franc JPY - Japanese Yen DEM - German Mark NLG - Netherlands Guilder DKK - Danish Krone NZD - New Zealand Dollar ECU - European Currency Unit SEK - Swedish Krona ESP - Spanish Peseta THB - Thailand Baht FRF - French Franc TRL - Turkish Lira USD - United States Dollar
/(a)/Principal is linked to the value of the Brazilian Capitalization Bond and the Brazilian IDU Bond. Restricted as to public resale. At the date of aquisition, this security was valued at cost. There were no outstanding unrestricted securities of the same class as those held. /(b)/Represents investments of security lending collateral (Note 1). /(c)/All or a portion of this security is held as collateral for open futures contracts. * Non-performing. Borrower not currently paying interest. ** Non-income producing security. 8 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------ Assets: Investments, at value (cost $287,987,818) (Note 1) $ 292,564,615 Foreign currency, at value (cost $873,294) (Note 1) 816,801 Receivable for investments sold 4,595,664 Interest receivable 6,811,212 Receivable for variation margin on open futures contracts (Notes 1 and 6) 387,095 Receivable for open forward foreign currency contracts (Notes 1 and 6) 7,816,416 Receivable for expenses waived or borne by Manager (Note 2) 51,527 --------------- Total assets 313,043,330 --------------- Liabilities: Payable for investments purchased 2,806,892 Payable upon return of securities loaned (Note 1) 4,057,750 Written options outstanding, at value (premiums $1,356,004) (Notes 1 and 6) 1,432,145 Payable for open forward foreign currency contracts (Notes 1 and 6) 14,973,036 Payable for Fund shares repurchased 74,458 Payable to affiliate for (Note 2): Management fee 89,332 Shareholder service fee 33,536 Accrued expenses 52,487 Payable for open swap contracts (Note 1 and 6) 285,931 Miscellaneous payable 1,599 --------------- Total liabilities 23,807,166 --------------- Net assets $ 289,236,164 =============== Net assets consist of: Paid-in-capital $ 276,062,601 Accumulated undistributed net investment income 13,209,617 Accumulated undistributed net realized gain 3,080,496 Net unrealized depreciation (3,116,550) --------------- $ 289,236,164 =============== Net assets attributable to: Class III shares $ 289,236,164 =============== Shares outstanding: Class III 26,571,560 =============== Net asset value per share: Class III $ 10.89 ===============
See accompanying notes to the financial statements. 9 GMO International Bond Fund (A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------------ Investment Income: Interest (including securities lending income of $865) $ 8,271,620 Dividends 165,875 ------------- Total income 8,437,495 ------------- Expenses: Management fee (Note 2) 501,193 Custodian and transfer agent fees 81,795 Audit fees 34,733 Legal fees 5,308 Registration fees 2,394 Trustees fees (Note 2) 1,347 Miscellaneous 1,034 Fees waived or borne by Manager (Note 2) (314,558) ------------- 313,246 Shareholder service fee (Note 2) Class III 187,959 ------------- Net expenses 501,205 ------------- Net investment income 7,936,290 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 995,304 Closed futures contracts 2,458,802 Closed swap contracts 316,606 Foreign currency, forward contracts and foreign currency related transactions 1,193,521 ------------- Net realized gain 4,964,233 ------------- Change in net unrealized appreciation (depreciation) on: Investments (6,512,782) Open futures contracts 909,501 Open swap contracts (285,931) Written options (202,891) Foreign currency, forward contracts and foreign currency related transactions (1,993,249) ------------- Net unrealized loss (8,085,352) ------------- Net realized and unrealized loss (3,121,119) ------------- Net increase in net assets resulting from operations $ 4,815,171 =============
10 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 7,936,290 $ 14,716,597 Net realized gain 4,964,233 15,665,683 Change in net unrealized appreciation (depreciation) (8,085,352) (7,800,186) ------------ ------------ Net increase in net assets resulting from operations 4,815,171 22,582,094 ------------ ------------ Distributions to shareholders from: Net investment income Class III -- (15,718,077) ------------ ------------ Total distributions from net investment income -- (15,718,077) ------------ ------------ Net realized gains Class III (2,670,095) (10,685,120) ------------ ------------ Total distributions from net realized gains (2,670,095) (10,685,120) ------------ ------------ In excess of net realized gains Class III -- (2,935,300) ------------ ------------ Total distributions in excess of net realized gains -- (2,935,300) ------------ ------------ (2,670,095) (29,338,497) ------------ ------------ Net share transactions: (Note 5) Class III 51,307,965 48,619,210 ------------ ------------ Increase in net assets resulting from net share transactions 51,307,965 48,619,210 ------------ ------------ Total increase in net assets 53,453,041 41,862,807 Net assets: Beginning of period 235,783,123 193,920,316 ------------ ------------ End of period (including accumulated undistributed net investment income of $13,209,617 and $5,273,327, respectively) $289,236,164 $235,783,123 ============ ============
See accompanying notes to the financial statements. 11 GMO International Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------------------------ (Unaudited) 1997 1996 1995 1994* ----------- --------- --------- --------- -------- Net asset value, beginning of period $ 10.78 $ 10.92 $ 9.64 $ 9.96 $ 10.00 --------- --------- --------- --------- -------- Income from investment operations: Net investment income 0.26 0.71 0.62 0.98 0.08 Net realized and unrealized gain (loss) (0.04) 0.65 1.55 (0.21) (0.12) --------- --------- --------- --------- -------- Total from investment operations 0.22 1.36 2.17 0.77 0.77 --------- --------- --------- --------- -------- Less distributions to shareholders: From net investment income -- (0.81) (0.59) (0.75) -- From net realized gains (0.11) (0.54) (0.30) (0.34) -- In excess of net realized gains -- (0.15) -- -- -- --------- --------- --------- --------- -------- Total distributions (0.11) (1.50) (0.89) (1.09) -- --------- --------- --------- --------- -------- Net asset value, end of period $ 10.89 $ 10.78 $ 10.92 $ 9.64 $ 9.96 ========= ========= ========= ========= ======== Total Return /a)/ 2.00% 12.39% 22.72% 8.23% (0.40)% Ratios/Supplemental Data: Net assets, end of period (000's) $ 289,236 $ 235,783 $ 193,920 $ 151,189 $ 39,450 Net expenses to average daily net assets 0.40%** 0.40% 0.40% 0.40% 0.40%** Net investment income to average daily net assets 6.33%** 6.93% 8.17% 7.51% 5.34%** Portfolio turnover rate 53% 95% 99% 141% 14% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02 $ 0.01 $ 0.02 $ 0.02
* For the period from December 22, 1993 (commencement of operations) to February 28, 1994. ** Annualized. /(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. 12 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO International Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks high total return by investing primarily in investment grade bonds denominated in various currencies including U.S. dollars and multicurrency units. The Fund generally seeks to provide a total return greater than that provided by the international fixed income securities market. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 13 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - ------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the bond and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from the changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies 14 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. See Note 6 for a summary of open written option contracts as of August 31, 1997. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Loan agreements The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. The Fund's investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the lender) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. Direct indebtedness of emerging countries involves a risk that the governmental entities responsible for the repayment of the debt may be unable or unwilling to pay the principal and interest when due. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. 15 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to interest rates. The Fund entered into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest rates. See Note 6 for a summary of open swap agreements as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $4,005,956, collateralized by cash in the amount of $4,057,750 which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. 16 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis, and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. Effective June 1, 1996, the Manager will reduce such premium only when any portion of a purchase is offset by a corresponding redemption occurring on the same day. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $75,270 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 17 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .40% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .25% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .40%; thus the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $1,347. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ---------------------- -------------------- U.S. Government securities $ 8,426,671 $ 7,888,918 Investments (non-U.S. Government securities) 167,240,709 109,778,082
At August 31,1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation --------------------------- --------------------------- -------------------------- ----------------------- $ 287,987,818 $10,990,956 $6,414,159 $4,576,797
18 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1997, 33% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended August 31, 1997 February 28, 1997 ------------------------------------------- ----------------------------------------- Class III: Shares Amount Shares Amount ------------------- ------------------- ------------------ -------------------- Shares sold 7,081,890 $ 77,125,119 9,398,594 $ 108,940,870 Shares issued to shareholders in reinvestment of distributions 242,142 2,644,188 2,130,615 23,653,871 Shares repurchased (2,625,983) (28,461,342) (7,421,298) (83,975,531) ------------------- ------------------- ------------------ -------------------- Net increase 4,698,049 $ 51,307,965 4,107,911 $ 48,619,210 =================== =================== ================== ====================
6. Financial instruments A summary of outstanding financial instruments at August 31, l997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) -------------- -------------------- -------------------- ----------------- --------------------- Buys 09/26/97 CAD 29,900,000 $ 21,570,276 $ (44,666) 09/02/97 DEM 4,172,890 2,318,643 3,419 09/05/97 DEM 455,100,000 252,925,229 (7,799,937) 09/22/97 DEM 29,200,000 15,134,048 51,875 10/17/97 GBP 20,200,000 32,691,867 138,410 09/22/97 ITL 17,513,852,250 9,939,075 198,092 10/09/97 JPY 10,190,000,000 85,215,964 (5,828,428) --------------------- $ (13,281,235) =====================
19 GMO International Bond Fund (A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - ----------------------------------------------------------------------------------------------------------------- Forward currency contracts -- continued Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) -------------- -------------------- -------------------- ----------------- --------------------- Sales 11/28/97 AUD 3,400,000 $ 2,502,821 $ 41,059 09/26/97 CAD 45,600,000 32,896,475 213,080 09/05/97 DEM 249,600,000 138,717,067 2,926,185 09/22/97 DEM 17,900,000 9,959,539 (218,556) 10/17/97 GBP 22,200,000 35,928,686 201,861 09/22/97 ITL 28,602,096,000 16,231,630 (36,660) 10/09/97 JPY 3,230,000,000 27,011,537 772,714 09/23/97 NZD 7,600,000 4,850,637 294,563 03/23/98 THB 200,000,000 5,463,983 1,468,426 06/22/98 THB 100,000,000 2,703,433 703,722 --------------------- $ 6,366,394 =====================
Forward cross currency contracts Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) -------------- ------------------------------------ --------------------------------- ------------------- 10/10/97 BEF 536,765,280 DEM 26,000,000 $ 4,327 11/13/97 CHF 9,473,700 DEM 16,700,000 (17,649) 09/02/97 DEM 1,337,914 DKK 5,095,446 129 09/02/97 DEM 2,834,976 SEK 12,346,319 (3,393) 09/19/97 DEM 10,600,000 NLG 11,936,702 1,522 09/22/97 DEM 41,600,000 ITL 41,235,305,000 254,759 10/10/97 DEM 87,000,000 BEF 1,796,281,750 (9,553) 10/23/97 DEM 35,600,000 ESP 3,017,368,800 5,934 10/27/97 DEM 109,059,510 ECU 55,300,000 (286,223) 11/07/97 DEM 11,900,000 FRF 40,115,582 2,273 11/13/97 DEM 7,100,000 CHF 5,823,917 (3,679) 11/14/97 DEM 50,000,000 DKK 190,462,500 (8,050) 11/21/97 DEM 16,000,000 SEK 69,962,310 517 11/14/97 DKK 189,496,870 DEM 49,700,000 (17,958) 10/23/97 ESP 584,737,000 DEM 6,900,000 (557) 11/07/97 FRF 141,317,893 DEM 41,900,000 (19,695) 09/22/97 ITL 89,090,143,500 DEM 89,700,000 (648,538) 09/19/97 NLG 18,456,232 DEM 16,400,000 3,513 11/21/97 SEK 211,417,360 DEM 48,300,000 (29,494) 10/27/97 ECU 111,100,000 DEM 219,024,414 530,036 ------------------- $ (241,779) ===================
20 GMO International Bond Fund (A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - ------------------------------------------------------------------------------------------------------------------ Futures contracts Net Unrealized Number of Contract Value Appreciation Contracts Type Expiration Date (Depreciation) --------------- --------------------------------------- -------------------- ------------------ -------------------- Buys 79 Australian Government Bond 3 yr September 1997 $ 6,986,895 $ 143,636 74 Australian Government Bond 10 yr September 1997 7,753,442 302,802 5 MATIF FRF Bond September 1997 529,047 790 153 German Government Bond December 1997 21,524,498 (37,975) 85 Italian Government Bond 10 yr December 1997 10,429,048 9,975 10 Japanese Government Bond 10 yr December 1997 10,655,332 24,965 107 MATIF ECU Bond September 1997 11,678,938 267,527 1 U.S. Treasury Bond 30 yr December 1997 113,125 399 254 U.K. Gilt September 1997 24,145,209 (11,642) 70 U.K. Gilt December 1997 6,479,941 (8,558) -------------------- $ 691,919 ==================== Sales 8 Canadian Government Bond 10 yr September 1997 $ 692,160 $ (896) 182 Spanish Government Bond 10 yr September 1997 14,709,829 (348,308) 162 Swiss Government Bond September 1997 13,542,480 (15,571) 113 Swiss Government Bond December 1997 8,972,972 11,543 100 U.S. Treasury Bill 3 Month December 1997 23,732,500 (81,000) 124 U.S. Treasury Note 10 yr September 1997 13,519,875 (239,555) 71 U.S. Treasury Note 10 yr December 1997 7,716,813 1,624 72 U.S. Treasury Bond 30 yr December 1997 8,118,000 (29,790) -------------------- $ (701,953) ====================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. 21 GMO International Bond Fund (A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - ------------------------------------------------------------------------------------------------------------------ Written option transactions Puts Calls Principal Amount Principal Amount of of Contracts Contracts (000's omitted) Premiums (000's omitted) Premiums -------------------- ---------------------------------------------- ----------------- Outstanding, beginning of period $ 13,000 $ 646,750 13,000 $ 553,800 Options written 8,000 40,000 9,091 155,454 Options exercised (8,000) (40,000) -- -- -------------------- --------------------- --------------------- ----------------- Outstanding, end of period $ 13,000 $ 646,750 22,091 $ 709,254 ==================== ===================== ===================== =================
Summary of written options outstanding Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value --------------------- ----------------- --------------------- ----------------- Calls Japanese Yen $ 13,000 117 JPY 2/09/98 $ 422,500 Thai Baht 9,091 33 THB 10/16/97 584,545 Puts Japanese Yen 13,000 117 JPY 2/09/98 425,100 ----------------- $ 1,432,145 =================
22 GMO International Bond Fund (A Series of GMO Trust)
Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - ------------------------------------------------------------------------------------------------------------------ Swap agreements Net Unrealized Expiration Appreciation Notional Amount Date Description (Depreciation) - -------------------------- --------------- ----------------------------------------------------------- ------------------ TRL 267,500,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to receive $(313,117) the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. TRL 110,000,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to receive 27,186 the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. ------------------ Net unrealized depreciation $(285,931) ==================
See Notes to the Schedule of Investments for definitions of currency abbreviations. 23 GMO Domestic Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Domestic Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 88.9% Asset Backed Securities -- 35.2% $ 5,000,000 Augusta Funding Series 96-F2, Variable Rate, LIBOR + .30% 144A, 6.05%, due 4/15/06 5,000,000 11,887,168 Augusta Funding VI Series 96-A3, 144A, 7.38%, due 4/15/13 12,023,276 17,000,000 Bombardier Receivables Master Trust I 97-1 Class A, Variable Rate, 1 mo. LIBOR + .12%, 5.80%, due 4/15/04 17,010,625 9,590,000 Brazos Student Loan Finance Corp. Series 96-A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.94%, due 12/01/02 9,576,514 3,833,887 CS First Boston Mortgage Securities Corp., Series 96-1 Class A1, Variable Rate, 3 mo. LIBOR + .23%, 5.98%, due 7/28/29 3,836,187 4,167,900 Dilmun Capital Corp, Variable Rate, 6 mo. LIBOR + .88%, 6.86%, due 11/15/03 4,176,236 15,000,000 First Deposit Master Trust Series 96-1A, Variable Rate, 1 mo. LIBOR +.17%, 5.82%, due 8/15/07 15,037,500 9,500,000 First Union Master Credit Card Trust 96-1 Class A, Variable Rate, 1 mo. LIBOR + .17%, 5.82%, due 9/15/03 9,511,875 7,500,000 First USA Credit Card Master Trust 94-4 Class A, Variable Rate, 1 mo. LIBOR + .37%, 6.00%, due 8/15/03 7,562,109 10,050,000 Keycorp Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .73%, 6.42%, due 11/25/21 10,050,000 11,224,915 Keystone Auto Grantor Trust Series 1996-A Class A, 144A, 6.60%, due 12/15/02 11,359,613 6,000,000 National Premier Finance 95-2, 144A, 6.21%, due 6/01/99 5,958,000 14,000,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 14,210,000 6,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A, Variable Rate, 1 mo. LIBOR + .30%, 5.94%, due 8/25/07 6,034,688 3,343,135 New York City Tax Lien Series 96-1 Class B, 144A, 6.91%, due 5/25/05 3,368,208 5,000,000 Northstar CBO Series 97-1 Class A2, 6.62%, due 7/15/09 5,148,500 3,500,000 Premier Auto Trust 94-4 Certificates, 6.85%, due 5/02/99 3,540,250 2,102,134 Resolution Trust Corp 94-C1 Class A1, Variable Rate, 1 mo. LIBOR + .45%, 6.08%, due 6/25/26 2,101,477 2,481,329 Resolution Trust Corp 94-C1 Class A3, Variable Rate, 1 mo. LIBOR + .55%, 6.18%, due 6/25/26 2,488,308 2,637,000 SMS Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due 10/25/23 2,637,000 4,932,000 SMS Student Loan Trust 95-A Certificates, Variable Rate, 1 mo. LIBOR + .65%, 6.28%, due 4/25/25 4,925,835 5,888,000 Society Student Loan Trust 93-A Class B, Variable Rate, 1 mo. LIBOR + .75%, 6.44%, due 7/25/03 5,897,200
See accompanying notes to the financial statements. 1 GMO Domestic Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- Asset Backed Securities -- continued $ 2,617,126 UCFC Home Equity Loan 95-B2 Class A8, Variable Rate, 1 mo. LIBOR + .45%, 6.14%, due 10/10/26 2,619,743 ----------- 164,073,144 ----------- Foreign Government Obligation -- 2.0% 25,000,000 Bulgaria Discount Strips, due 7/28/24 3,807,250 39,794,675 Republic of Albania Par Bond, Zero Coupon, due 8/31/25 5,421,627 ----------- 9,228,877 ----------- Structured Notes -- 7.0% 3,000,000 Federal Home Loan Bank, 4.90%, due 2/23/98 2,970,000 3,550,000 Federal Home Loan Bank, Variable Rate, (10 YR CMT + 2.55% - 3 mo. LIBOR), 3.06%, due 7/28/98 3,443,500 2,500,000 Federal National Mortgage Association, Variable Rate, ((.50 * 10 YR CMT) + 1.50%), 4.67%, due 2/25/98 2,480,000 1,250,000 Federal National Mortgage Association, Variable Rate, ((.50 * 2 YR CMT) + 1.80%), 4.81%, due 3/10/98 1,241,250 22,500,000 Student Loan Marketing Association, Variable Rate, (10.25% - 5 YR DM SWAP), 6.06%, due 3/23/98 22,455,000 ----------- 32,589,750 ----------- U.S. Government -- 13.7% 28,000,000 U.S. Treasury Bond, 6.25%, due 8/15/23/(a)/ 26,495,000 29,365,000 U.S. Treasury Inflation Indexed Note, 3.41%, due 1/15/07 29,224,361 8,400,000 U.S. Treasury Note, 6.38%, due 8/15/02 8,455,121 ----------- 64,174,482 ----------- U.S. Government Agency -- 31.0% 8,750,000 Agency for International Development Floater (Support of Jamaica), Variable Rate, 6 mo. LIBOR + .30%, 6.32%, due 12/01/14 8,771,875 15,000,000 Agency for International Development Floater (Support of Morocco), Variable Rate, 6 mo. LIBOR + .15%, 6.15%, due 10/29/26 15,042,188 20,000,000 Agency for International Development Floater (Support of Morocco), Variable Rate, 6 mo. LIBOR - .015%, 5.99%, due 2/01/25 19,575,000 25,000,000 Agency for International Development Floater (Support of Portugal), Variable Rate, 6 mo. LIBOR, 7.00%, due 1/01/21 24,765,625 10,425,000 Agency for International Development Floater (Support of Sri Lanka), Variable Rate, 6 mo. LIBOR + .20%, 5.93%, due 6/15/12 10,464,094 10,633,333 Agency for International Development Floater (Support of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.09%, due 1/01/12 10,633,333
2 See accompanying notes to the financial statements. GMO Domestic Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- U.S. Government Agency -- continued $10,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.47%, due 2/01/27 10,034,375 15,000,000 Federal National Mortgage Association, 5.19%, due 7/20/98 14,962,500 5,000,000 Federal National Mortgage Association, 6.73%, due 11/04/02 4,940,000 25,000,000 Small Business Administration, 7.35%, due 8/10/06 25,400,000 ----------- 144,588,990 ----------- TOTAL DEBT OBLIGATIONS (COST $412,850,506) 414,655,243 ----------- Shares - --------------- PREFERRED STOCKS -- 6.3% Preferred Stocks -- 6.3% 10,000 Bear Stearns Managed Income Securities Plus Fund 9,899,700 20,000 Home Ownership Funding 2 Preferred 144A, 13.338% 19,769,400 ----------- 29,669,100 ----------- TOTAL PREFERRED STOCKS (COST $29,706,361) 29,669,100 ----------- Par Value - --------------- SHORT-TERM INVESTMENTS -- 9.1% Cash Equivalents -- 0.1% $ 588,000 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(b)/ 588,000 ----------- Repurchase Agreements -- 9.0% 22,310,000 Morgan Stanley Repurchase Agreement dated 8/29/97, due 9/2/97, with a maturity value of $22,324,346 and an effective yield of 5.788%, collateralized by the following debt obligations having an aggregate market value of $26,977,022/(b)/: Household Bank FSB, 0.00% due 6/2/99 Household Finance Corp, 0.00% due 4/3/01 22,310,000 19,427,524 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $19,438,425 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $19,872,706 19,427,524 ----------- 41,737,524 -----------
See accompanying notes to the financial statements. 3 GMO Domestic Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value ($) - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $42,325,524) 42,325,524 ------------ TOTAL INVESTMENTS -- 104.3% (Cost $484,882,391) 486,649,867 Other Assets and Liabilities (net) -- (4.3)% (20,020,567) ------------ TOTAL NET ASSETS -- 100% $466,629,300 ============
Notes to the Schedule of Investments: CMT - Constant Maturity Treasury Index DM SWAP - 5 Year Deutsche Mark Constant Maturity Swap Rate Variable rates -- The rates shown on variable notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. 144A - Securities 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. /(a)/ All or a portion of this security is held as collateral for open futures contracts. /(b)/ Represents investments of security lending collateral (Note 1). 4 See accompanying notes to the financial statements. GMO Domestic Bond Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $484,882,391) (Note 1) $486,649,867 Receivable for investments sold 115,000 Dividends and interest receivable 4,250,345 Receivable for open swap contracts (Notes 1 and 6) 1,013,143 Receivable for expenses waived or borne by Manager (Note 2) 77,627 Receivable for Fund shares sold 26,000 ------------ Total assets 492,131,982 ------------ Liabilities: Payable upon return of securities loaned (Note 1) 22,898,000 Payable for Fund shares repurchased 2,007,286 Payable to affiliate for (Note 2): Management fee 91,772 Shareholder service fee 55,388 Accrued expenses 47,081 Payable for variation margin on open futures contracts (Notes 1 and 6) 403,155 ------------ Total liabilities 25,502,682 ------------ Net assets $466,629,300 ============ Net assets consist of: Paid-in-capital $453,891,440 Accumulated undistributed net investment income 5,375,717 Accumulated undistributed net realized gain 3,002,552 Net unrealized appreciation 4,359,591 ------------ $466,629,300 ============ Net assets attributable to: Class I shares $ 2,867,997 ============ Class III shares $463,761,303 ============ Shares outstanding: Class I 278,778 ============ Class III 44,982,628 ============ Net asset value per share: Class I $ 10.29 ============ Class III $ 10.31 ============
See accompanying notes to the financial statements. 5 GMO Domestic Bond Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $60,626) $18,120,165 Dividends 1,270,608 ----------- Total income 19,390,773 ----------- Expenses: Management fee (Note 2) 736,458 Custodian and transfer agent fees 48,494 Audit fees 21,832 Legal fees 14,651 Registration fees 9,946 Trustees fees (Note 2) 2,895 Miscellaneous 2,607 Fees waived or borne by Manager (Note 2) (542,282) ----------- 294,601 Shareholder service fee (Note 2) Class I 4,600 Class III 439,411 ----------- Net expenses 738,612 ----------- Net investment income 18,652,161 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 409,418 Closed futures contracts 1,912,319 Closed swap contracts 1,182,479 ----------- Net realized gain 3,504,216 ----------- Change in net unrealized appreciation (depreciation) on: Investments 2,094,081 Open futures contracts 4,467,113 Open swap contracts 134,344 Written options (9,375) ----------- Net unrealized gain 6,686,163 ----------- Net realized and unrealized gain 10,190,379 ----------- Net increase in net assets resulting from operations $28,842,540 ===========
6 See accompanying notes to the financial statements. GMO Domestic Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 18,652,161 $ 27,372,630 Net realized gain 3,504,216 984,536 Change in net unrealized appreciation (depreciation) 6,686,163 (3,180,642) ------------- ------------ Net increase in net assets resulting from operations 28,842,540 25,176,524 ------------- ------------ Distributions to shareholders from: Net investment income Class I (98,560) (17,070) Class III (18,881,356) (25,071,527) ------------- ------------ Total distributions from net investment income (18,979,916) (25,088,597) ------------- ------------ Net realized gains Class I (63) (1,958) Class III (12,496) (3,491,659) ------------- ------------ Total distributions from net realized gains (12,559) (3,493,617) ------------- ------------ In excess of net realized gains Class I -- (878) Class III -- (1,566,602) ------------- ------------ Total distributions in excess of net realized gains -- (1,567,480) ------------- ------------ (18,992,475) (30,149,694) ------------- ------------ Net share transactions: (Note 5) Class I (798,506) 3,600,624 Class III (116,914,899) 264,915,841 ------------- ------------ Increase (decrease) in net assets resulting from net share transactions (117,713,405) 268,516,465 ------------- ------------ Total increase (decrease) in net assets (107,863,340) 263,543,295 Net assets: Beginning of period 574,492,640 310,949,345 ------------- ------------ End of period (including accumulated undistributed net investment income of $5,375,717 and $5,703,472, respectively) $ 466,629,300 $574,492,640 ============= ============
See accompanying notes to the financial statements. 7 GMO Domestic Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Period from Ended September 10, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 --------------- ---------------------------- Net asset value, beginning of period $10.16 $10.01 ------ ------ Income from investment operations: Net investment income 0.33+ 0.36 Net realized and unrealized gain 0.10 0.13 ------ ------ Total from investment operations 0.43 0.49 ------ ------ Less distributions to shareholders: From net investment income (0.30) (0.29) From net realized gains 0.00 (0.03) In excess of net realized gains 0.00 (0.02) ------ ------ Total distributions (0.30) (0.34) ------ ------ Net asset value, end of period $10.29 $10.16 ====== ====== Total Return/(a)/ 4.37% 4.93% Ratios/Supplemental Data: Net assets, end of period (000's) $2,868 $3,630 Net expenses to average daily net assets 0.38%* 0.38%* Net investment income to average daily net assets 6.14%* 5.83%* Portfolio turnover rate 29% 25% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01
* Annualized. + Computed using average shares outstanding throughout the period. /(a)/ The total returns would have been lower had certain expenses not been waived during the periods shown. 8 See accompanying notes to the financial statements. GMO Domestic Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------- (Unaudited) 1997 1996 1995* ----------- --------- --------- --------- Net asset value, beginning of period $ 10.18 $ 10.40 $ 10.13 $ 10.00 -------- -------- -------- -------- Income from investment operations: Net investment income 0.34+ 0.58 0.66 0.24 Net realized and unrealized gain (loss) 0.10 (0.09) 0.58 0.07 -------- -------- -------- -------- Total from investment operations 0.44 0.49 1.24 0.31 -------- -------- -------- -------- Less distributions to shareholders: From net investment income (0.31) (0.60) (0.60) (0.18) From net realized gains 0.00 (0.08) (0.37) 0.00 In excess of net realized gains 0.00 (0.03) 0.00 0.00 -------- -------- -------- -------- Total distributions (0.31) (0.71) (0.97) (0.18) -------- -------- -------- -------- Net asset value, end of period $ 10.31 $ 10.18 $ 10.40 $ 10.13 ======== ======== ======== ======== Total Return /(a)/ 4.41% 4.93% 12.50% 3.16% Ratios/Supplemental Data: Net assets, end of period (000's) $463,761 $570,862 $310,949 $209,377 Net expenses to average daily net assets 0.25%** 0.25% 0.25% 0.25%** Net investment income to average daily net assets 6.33%** 6.15% 6.52% 6.96%** Portfolio turnover rate 29% 25% 70% 65% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02 $ 0.01 $ 0.01
* For the period from August 18, 1994 (commencement of operations) to February 28, 1995. ** Annualized. + Computed using average shares outstanding throughout the period. /(a)/ The total returns would have been lower had certain expenses not been waived during the periods shown. See accompanying notes to the financial statements. 9 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks high total return through investment in U.S. government securities and other investment grade bonds denominated in U.S. dollars while generally maintaining a portfolio duration of approximately four to six years (excluding short-term investments). On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully described in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Futures contracts The Fund may use futures contracts to manage its exposure to the bond markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instruments or hedge other Fund instruments. Upon purchase of a 10 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. If a written put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. At August 31, 1997, the Fund had no written option contracts outstanding. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults, the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Indexed securities The Fund may also invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. 11 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $26,308,295, collateralized by cash in the amount of $22,898,000 which was invested in short-term instruments. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to interest rates. The Fund entered into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest rates. See Note 6 for a summary of open swap agreements as of August 31, 1997. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. 12 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .25% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .10% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .25%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $2,895. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------ ------------------ U.S. Government securities $ 95,264,539 $ 178,541,336 Investments (non-U.S. Government securities) 65,086,943 101,453,619
13 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------------- ----------------------- ---------------------- -------------------- $484,882,391 $2,628,722 $861,246 $1,767,476
4. Principal shareholders At August 31, 1997, 42% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from September 10, 1996 Six Months Ended (commencement of operations) to August 31, 1997 February 28, 1997 ----------------------------------- -------------------------------------- Class I: Shares Amount Shares Amount ---------------- --------------- ----------------- ----------------- Shares sold 41,339 $ 423,471 385,608 $ 3,888,618 Shares issued to shareholders in reinvestment of distributions 9,850 98,623 1,967 19,906 Shares repurchased (129,670) (1,320,600) (30,316) (307,900) ---------------- --------------- ----------------- ----------------- Net increase/(decrease) (78,481) $ (798,506) 357,259 $ 3,600,624 ================ =============== ================= ================= Six Months Ended Year Ended August 31, 1997 February 28, 1997 ----------------------------------- ------------------------------------- Class III: Shares Amount Shares Amount ---------------- --------------- ---------------- ----------------- Shares sold 11,782,835 $ 119,660,867 26,591,731 $ 269,419,204 Shares issued to shareholders in reinvestment of distributions 1,575,174 15,815,384 2,531,335 25,549,376 Shares repurchased (24,440,175) (252,391,150) (2,947,048) (30,052,739) ---------------- --------------- ----------------- ----------------- Net increase/(decrease) (11,082,166) $ (116,914,899) 26,176,018 $ 264,915,841 ================ =============== ================ =================
14 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Net Unrealized Number of Appreciation Contracts Type Expiration Date Contract Value (Depreciation) - ------------------ ----------------------------- ----------------- ---------------- ---------------- 268 U.S. Treasury Bond September 1997 $30,317,500 $1,191,177 38 U.S. Treasury Bond December 1997 4,284,500 6,809 500 U.S. Treasury Note 10 yr. September 1997 54,515,625 1,251,344 150 U.S. Treasury Note 10 yr. December 1997 16,303,125 (26,344) 462 U.S. Treasury Note 5 yr. December 1997 49,174,125 34,785 ---------------- $2,457,771 ================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. Written put option transactions
Principal Amount of Contracts (000's omitted) Premiums -------------------- -------------------- Outstanding, beginning of period $30,000 $126,563 Options written 30,000 150,000 Options exercised (30,000) (150,000) Options expired (30,000) (126,563) -------------------- -------------------- Outstanding, end of period - - ==================== ====================
Swap agreement
Net Unrealized Notional Amount Expiration Date Description Appreciation - ------------------ ------------------ --------------------------------------- ----------------- $50,000,000 5/21/98 Agreement with Morgan Guaranty Trust $134,344 Company dated 4/21/97 to receive the notional amount multiplied by the return on the Lehman Brothers Treasury Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. ----------------- $134,344 =================
15 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 80.0% Argentina -- 0.2% USD 1,000,000 Republic of Argentina Par Bond, Variable Rate, Step Up, 5.50%, due 3/31/23 736,875 ---------------- Australia -- 4.1% GBP 6,700,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 12/07/06 11,224,640 AUD 2,620,000 Queensland Treasury Corp., 8.00%, due 9/14/07 2,107,207 ---------------- 13,331,847 ---------------- Austria -- 1.1% SEK 25,000,000 Oesterreich Kontrollbank, 9.25%, due 7/15/99 3,405,299 ---------------- Brazil -- 1.0% USD 3,972,611 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 3,237,677 ---------------- Bulgaria -- 1.2% USD 10,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 1,100,600 7/28/24 USD 15,000,000 Bulgaria Discount Strips, due 7/28/24 2,284,350 USD 1,000,000 Bulgaria FLIRB Series B, Variable Rate, Step up, 2.75%, due 7/28/12 617,500 ---------------- 4,002,450 ---------------- Canada -- 5.5% CAD 3,750,000 Government of Canada, 10.25%, due 3/15/14 3,749,460 CAD 8,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 6,350,565 CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 3,743,356 CAD 5,000,000 Province of Quebec, 7.50%, due 12/01/03 3,892,690 ---------------- 17,736,071 ---------------- Cayman Islands -- 1.0% CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 3,073,821 ---------------- Denmark -- 4.1% DKK 85,300,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 13,083,830 ---------------- Ecuador -- 0.1% USD 523,723 Republic of Ecuador PDI (Registered), PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.69%, due 2/27/15 368,243 ----------------
See accompanying notes to the financial statements. 1 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments - Continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- France -- 11.2% FRF 21,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 4,021,350 FRF 30,000,000 Auxiliare Credit Foncier, 6.25%, due 3/28/03 5,146,319 SEK 30,000,000 Credit Foncier, 6.50%, due 2/22/99 3,868,934 ECU 11,000,000 Government of France, 8.25%, due 4/25/22 14,316,230 ECU 7,000,000 Societe Nationale des Chemins de Fer, 9.38%, due 3/12/01 8,655,385 ---------------- 36,008,218 ---------------- Germany -- 3.1% DEM 1,350,000 Bundesobligation, 6.50%, due 3/15/00 790,412 DEM 2,200,000 Bundesrepublic Deutschland, 6.00%, due 9/15/03 1,278,302 DEM 1,000,000 Bundesrepublic Deutschland, 6.00%, due 6/20/16 541,884 ESP 320,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 2,353,220 GBP 2,000,000 KFW International Finance, 10.63%, due 9/03/01 3,579,313 DEM 2,450,000 Treuhandanstalt, 6.25%, due 3/04/04 1,435,132 ---------------- 9,978,263 ---------------- Greece -- 1.1% GRD 1,000,000,000 Hellenic Republic, Variable Rate, 12 mo. GTB + 1.50%, 14.20%, due 9/30/03 3,599,308 ---------------- Italy -- 0.7% ITL 1,550,000,000 BTPS, 8.50%, due 8/01/04 967,658 ITL 1,700,000,000 BTPS, 9.00%, due 11/01/23 1,152,061 ---------------- 2,119,719 ---------------- Japan -- 6.5% GBP 2,300,000 Export Import Bank of Japan, 10.75%, due 5/15/01 4,105,019 USD 800,000 Japan Development Bank, 6.88%, due 12/16/99 811,600 GBP 3,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 2/16/05 5,298,421 GBP 6,000,000 Kobe City, 9.50%, due 10/20/04 10,781,726 ---------------- 20,996,766 ---------------- Jordan -- 0.2% USD 1,000,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step up, 4.00%, due 12/23/23 144A 690,000 ---------------- Mexico -- 1.9% FRF 44,500,000 Mexico Par Bond, 6.63%, due 12/31/19 6,263,602 ---------------- New Zealand -- 1.6% NZD 8,200,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 5,008,566 ----------------
2 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments - Continued (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Norway -- 0.6% SEK 13,700,000 A/S Eksportfinans, 7.50%, due 8/16/01 1,838,707 ---------------- Supra National -- 7.7% JPY 440,000,000 Asian Development Bank, 5.00%, due 2/05/03 4,292,460 CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 577,746 ESP 821,900,000 European Investment Bank, 10.35%, due 12/20/05 6,706,354 GBP 1,755,000 European Investment Bank, 8.75%, due 8/25/17 3,251,851 JPY 200,000,000 International Bank Recon and Development, 6.75%, due 6/18/01 2,001,829 GBP 3,000,000 International Bank Recon and Development, 11.50%, due 11/09/03 5,872,538 SEK 15,000,000 International Finance Corp, 10.63%, due 9/20/99 2,102,598 ---------------- 24,805,376 ---------------- Sweden -- 4.0% SEK 4,000,000 AB Spintab, 8.50%, due 12/19/01 552,490 SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 4,496,816 SEK 61,400,000 Kingdom of Sweden, 6.00%, due 2/09/05 7,640,785 ---------------- 12,690,091 ---------------- United States -- 22.5% Asset Backed Securities -- 19.0% USD 4,590,245 AFC Home Equity Loan Trust Series 97-1 Class A, Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 4,587,376 USD 3,000,000 Augusta Funding VI Series 96-A3, 144A, 7.38%, due 4/15/13 3,034,350 USD 87 Banc One Student Loan Trust 94-A Class A2, Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 10/25/16 87 USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR + .25% 144A, 5.65%, due 4/25/03 5,000,000 USD 3,833,887 CS First Boston Mortgage Securities Corp., Series 96-1 Class A1, Variable Rate, 3 mo. LIBOR + .23%, 5.98%, due 7/28/29 USD 4,000,000 First Chicago Master Trust II 95-0, 3,836,187 Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due 2/15/04 4,015,000 USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .73%, 6.42%, due 11/25/21 1,950,000 USD 9,000,000 National Premier Finance 95-2, 6.21%, due 6/01/99 144A 8,937,000 USD 6,500,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 6,597,500 USD 8,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A, Variable Rate, 1 mo. LIBOR + .30%, 5.94%, due 8/25/07 8,046,250
See accompanying notes to the financial statements. 3 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 1,253,676 New York City Tax Lien Series 96-1 Class B, 6.91%, due 5/25/05 144A 1,263,078 USD 5,000,000 Rhino CBO Series 97-1 Class A-2, 6.33%, due 9/15/09 144A 5,024,950 USD 5,000,000 Student Loan Marketing Association Series 96-4 Class A2, Variable Rate, 3 mo. LIBOR +.64%, 5.95%, due 7/25/09 5,016,406 USD 3,465,000 TMS Auto Grantor Trust Series 96-1 Class CTFS, 7.10%, due 12/20/02 3,560,288 ---------------- 60,868,472 ---------------- Structured Notes -- 0.7% USD 2,000,000 Bankers Trust Medium Term Note, 17.10%, due 10/14/97/(a)/ 2,188,800 ---------------- U.S. Government Agency -- 2.8% USD 1,650,000 Agency for International Development Floater (Support of Belize), Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 5.83%, due 1/01/14 1,645,875 USD 2,416,667 Agency for International Development Floater (Support of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.09%, due 1/01/12 2,416,667 USD 5,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.47%, due 2/01/27 5,017,188 ---------------- 9,079,730 ---------------- Total United States 72,137,002 ---------------- Venezuela -- 0.6% USD 2,000,000 Republic of Venezuela Discount Bond Series A, Variable Rate, 6 mo. LIBOR + .81%, 6.81%, due 3/31/20 1,807,500 ---------------- TOTAL DEBT OBLIGATIONS (COST $255,159,698) 256,919,231 ---------------- LOAN PARTICIPATIONS -- 1.1% Russia -- 1.1% ECU 1,000,000 Russia Vnesheconombank Loan Agreement (Participation with Bank of America)* 1,129,165 FRF 14,991,267 Russia Vnesheconombank Loan Agreement (Participation with Banque Paribas, Chase Manhattan, Bank of America, Lehman Brothers and J.P. Morgan)* 2,554,979 ---------------- 3,684,144 ---------------- TOTAL LOAN PARTICIPATIONS (COST $1,101,243) 3,684,144 ----------------
4 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS -- 3.1% United States -- 3.1% 10,000 Bear Stearns Managed Income Securities Plus Fund 9,899,700 ---------------- TOTAL PREFERRED STOCKS (COST $9,778,893) 9,899,700 ---------------- Principal Amount - -------------------------------- CALL OPTIONS PURCHASED -- 6.1% Cross Currency Options -- 4.3% DEM 477,100,000 DEM Call/BEF Put, Expires 10/08/97, Strike 20.50 1,987,694 ECU 143,200,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 1,611,099 ECU 176,200,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 4,272,684 ECU 218,500,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out 1.9225, Strike 1.91 5,799,621 ---------------- 13,671,098 ---------------- Options on Bonds -- 0.4% USD 8,500,000 Brazil Discount Bond, Expires 11/07/97, Strike 80.00 494,743 SEK 340,000,000 Sweden Government Bond, Expires 10/24/97, Strike 95.484 897,311 ---------------- 1,392,054 ---------------- Options on Currency -- 1.4% USD 89,100,000 British Pound, Expires 11/06/97, Strike 1.6325 1,969,110 USD 25,000,000 German Mark, Expires 2/09/98, Strike 1.61 2,442,500 ---------------- 4,411,610 ---------------- TOTAL CALL OPTIONS PURCHASED (COST $15,985,452) 19,474,762 ---------------- PUT OPTIONS PURCHASED -- 2.1% Cross Currency Options -- 2.1% DEM 112,000,000 DEM Put/ITL Call, Expires 1/21/98, Strike 950 31,108 DEM 237,600,000 DEM Put/ITL Call, Expires 9/18/97 Knock Out 1050, Strike 1030 6,638,862 USD 3,700,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 400 44,400
See accompanying notes to the financial statements. 5 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Principal Amount Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Cross Currency Options -- continued USD 1,448,524 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 6,475 ---------------- 6,720,845 ---------------- Options on Currency -- 0.0% USD 10,000,000 Czech Koruna, Expires 10/02/97, Strike 29.56 -- USD 25,000,000 Czech Koruna, Expires 10/02/97, Strike 29.69 -- USD 25,000,000 German Mark, Expires 2/09/98, Strike 1.61 70,000 ---------------- 70,000 ---------------- TOTAL PUT OPTIONS PURCHASED (COST $5,015,726) 6,790,845 ---------------- Par Value/ Shares - ------------------------------ RIGHTS AND WARRANTS -- 0.0% Mexico -- 0.0% 9,849,000 United Mexican States Warrants, Expires 6/30/03 ** -- ---------------- Venezuela -- 0.0% 19,280 Republic of Venezuela Recovery Warrants, Expires 04/15/20 ** -- ---------------- TOTAL RIGHTS AND WARRANTS (COST $0) -- ---------------- SHORT-TERM INVESTMENTS -- 3.9% Cash Equivalents -- 1.9% USD 451,240 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(b)/ 451,240 USD 124,065 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(b)/ 124,065 USD 372,195 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(b)/ 372,195 4,000,000 Janus Money Market Fund Institutional Shares/(b)/ 4,000,000 USD 1,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(b)/ 1,000,000 ---------------- 5,947,500 ----------------
6 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- Repurchase Agreement -- 0.2% USD 697,556 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $697,948 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $713,541. 697,556 ---------------- U.S. Government -- 1.8% USD 6,000,000 U.S. Treasury Bill, 5.33% due 1/15/98/(c)/ 5,890,128 ---------------- TOTAL SHORT-TERM INVESTMENTS (COST $12,525,133) 12,535,184 ---------------- TOTAL INVESTMENTS -- 96.3% (COST $299,566,145) 309,303,866 Other Assets and Liabilities (net) -- 3.7% 11,853,085 ---------------- TOTAL NET ASSETS -- 100% $ 321,156,951 ================ Notes to the Schedule of Investments: FLIRB -- Front Loaded Interest Reduction Bond GTB -- Greek Treasury Bill PDI -- Past Due Interest PIK -- Payment In Kind Knock Out -- Option will expire if underlying security reaches Knock Out price. 144A -- Securities 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.
See accompanying notes to the financial statements. 7 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments -- continued Variable and step up rates -- The rates shown on variable and step up rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. Currency Abbreviations AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc ITL - Italian Lira CAD - Canadian Dollar JPY - Japanese Yen CHF - Swiss Franc NLG - Netherlands Guilder DEM - German Mark NZD - New Zealand Dollar DKK - Danish Krone SEK - Swedish Krona ECU - European Currency Unit THB - Thailand Baht ESP - Spanish Peseta TRL - Turkish Lira FRF - French Franc USD - United States Dollar
/(a)/ Principal is linked to the value of the Brazilian Capitalization Bond and the Brazilian IDU Bond. Restricted as to public resale. At the date of acquisition, this security was valued at cost. There were no outstanding unrestricted securities of the same class as those held. /(b)/ Represents investments of security lending collateral (Note 1). /(c)/ All or a portion of this security is held as collateral for open futures contracts. * Non-performing. Borrower not currently paying interest. ** Non-income producing security. 8 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------- Assets: Investments, at value (cost $299,566,145) (Note 1) $ 309,303,866 Foreign currency, at value (cost $1,868,949) (Note 1) 1,885,124 Receivable for investments sold 2,007,441 Interest receivable 7,459,953 Receivable for variation margin on open futures contracts (Notes 1 and 6) 754,202 Receivable for open forward foreign currency contracts (Notes 1 and 6) 20,769,423 Receivable for expenses waived or borne by Manager (Note 2) 93,865 Miscellaneous receivable 1,598 ------------- Total assets 342,275,472 ------------- Liabilities: Payable for investments purchased 138,777 Payable upon return of securities loaned (Note 1) 5,947,500 Written options outstanding, at value (premiums $2,526,387) (Notes 1 and 6) 2,448,364 Payable for Fund shares repurchased 1,084 Payable to affiliate for (Note 2): Management fee 134,846 Shareholder service fee 40,690 Accrued expenses 70,993 Payable for open forward foreign currency exchange contracts (Notes 1 and 6) 11,794,895 Payable for open swap contracts (Note 1 and 6) 528,972 Miscellaneous payable 12,400 ------------- Total liabilities 21,118,521 ------------- Net assets $ 321,156,951 ============= Net assets consist of: Paid-in-capital $ 271,609,205 Accumulated undistributed net investment income 1,909,542 Accumulated undistributed net realized gain 29,543,527 Net unrealized appreciation 18,094,677 ------------- $ 321,156,951 ============= Net assets attributable to: Class I shares $ 1,307,175 ============= Class III shares $ 319,849,776 ============= Shares outstanding: Class I 109,508 ============= Class III 26,768,992 ============= Net asset value per share: Class I $ 11.94 ============= Class III $ 11.95 =============
See accompanying notes to the financial statements. 9 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $9,438) $ 14,566,857 Dividends 331,750 ------------- Total income 14,898,607 ------------- Expenses: Management fee (Note 2) 1,106,286 Custodian and transfer agent fees 144,123 Audit fees 34,906 Legal fees 11,050 Registration fees 10,003 Trustees fees (Note 2) 2,967 Miscellaneous 1,983 Fees waived or borne by Manager (Note 2) (758,175) ------------- 553,143 Shareholder service fee (Note 2) Class I 1,697 Class III 331,081 ------------- Net expenses 885,921 ------------- Net investment income 14,012,686 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 1,006,459 Closed futures contracts 5,415,129 Closed swap contracts 585,721 Foreign currency, forward contracts and foreign currency related transactions 33,513,595 ------------- Net realized gain 40,520,904 ------------- Change in net unrealized appreciation (depreciation) on: Investments (11,551,954) Open futures contracts 1,671,822 Open swap contracts (528,972) Written options (165,727) Foreign currency, forward contracts and foreign currency related transactions (13,869,424) ------------- Net unrealized loss (24,444,255) ------------- Net realized and unrealized gain 16,076,649 ------------- Net increase in net assets resulting from operations $ 30,089,335 =============
10 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 --------------------- --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 14,012,686 $ 24,438,613 Net realized gain 40,520,904 37,539,759 Change in net unrealized appreciation (depreciation) (24,444,255) 19,999,551 ----------------- ---------------- Net increase in net assets resulting from operations 30,089,335 81,977,923 ----------------- ---------------- Distributions to shareholders from: Net investment income Class I (11,527) -- Class III (4,396,337) (20,376,190) ----------------- ---------------- Total distributions from net investment income (4,407,864) (20,376,190) ----------------- ---------------- Net realized gains Class I (85,437) -- Class III (32,584,613) (15,129,774) ----------------- ---------------- Total distributions from net realized gains (32,670,050) (15,129,774) ----------------- ---------------- (37,077,914) (50,212,717) ----------------- ---------------- Net share transactions: (Note 5) Class I 162,204 1,123,429 Class III (142,157,896) 201,090,729 ----------------- ---------------- Increase (decrease) in net assets resulting from net share transactions (141,995,692) 202,214,158 ----------------- ---------------- Total increase (decrease) in net assets (148,984,271) 233,979,364 Net assets: Beginning of period 470,141,222 236,161,858 ----------------- ---------------- End of period (including accumulated undistributed net investment income and distributions in excess of net investment income of $1,909,542 and ($7,695,280), respectively) $ 321,156,951 $ 470,141,222 ================= ================
See accompanying notes to the financial statements. 11 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - -------------------------------------------------------------------------------
Six Months Ended Period from January 2, 1997 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ------------------ ------------------------------ Net asset value, beginning of period $ 12.16 $ 11.75 ------- ------- Income from investment operations: Net investment income 0.37+ 0.11 Net realized and unrealized gain 0.41 0.30 ------- ------- Total from investment operations 0.78 0.41 ------- ------- Less distributions to shareholders: From net investment income (0.12) -- From net realized gains (0.88) -- ------- ------- Total distributions (1.00) -- ------- ------- Net asset value, end of period $ 11.94 $ 12.16 ======= ======= Total Return/(a)/ 6.69% 3.49% Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,307 $ 1,162 Net expenses to average daily net assets 0.53%* 0.53%* Net investment income to average daily net assets 6.15%* 5.91%* Portfolio turnover rate 57% 90% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.01
* Annualized. + Computed using average shares outstanding throughout the period. (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. 12 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - -------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------------ (Unaudited) 1997 1996 1995* ------------ ---------- ---------- ---------- Net asset value, beginning of period $ 12.16 $ 10.92 $ 9.99 $ 10.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.39+ 0.66 1.05 0.24 Net realized and unrealized gain (loss) 0.40 2.07 1.62 (0.09) ---------- ---------- ---------- ---------- Total from investment operations 0.79 2.73 2.67 0.15 ---------- ---------- ---------- ---------- Less distributions to shareholders: From net investment income (0.12) (0.60) (1.04) (0.16) From net realized gains (0.88) (0.45) (0.42) -- In excess of net realized gains -- (0.44) (0.28) -- ---------- ---------- ---------- ---------- Total distributions (1.00) (1.49) (1.74) (0.16) ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.95 $ 12.16 $ 10.92 $ 9.99 ========== ========== ========== ========== Total Return /(a)/ 6.78% 25.57% 27.36% 1.49% Ratios/Supplemental Data: Net assets, end of period (000's) $ 319,850 $ 468,979 $ 236,162 $ 238,664 Net expenses to average daily net assets 0.40%** 0.40% 0.40% 0.40%** Net investment income to average daily net assets 6.33%** 6.86% 8.54% 8.46%** Portfolio turnover rate 57% 90% 85% 64% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.03 $ 0.03 $ 0.01
* Period from September 30, 1994 (commencement of operations) to February 28, 1995. ** Annualized. + Computed using average shares outstanding throughout the period. (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. See accompanying notes to the financial statements. 13 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - ------------------------------------------------------------------------------- 1. Significant accounting policies GMO Currency Hedged International Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks high total return by investing primarily in investment grade bonds denominated in various currencies including U.S. dollars and multicurrency units, while generally attempting to hedge substantially all of its foreign currency risk. The Fund generally seeks to provide a total return greater than that provided by the international fixed income securities market. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 14 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - ------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the bond and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from the changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. 15 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. See Note 6 for all open written option contracts as of August 31, 1997. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Loan agreements The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. The Fund's investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the lender) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. Direct indebtedness of emerging countries involves a risk that the governmental entities responsible for the repayment of the debt may be unable or unwilling to pay the principal and interest when due. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to interest rates. The Fund entered into interest rate swap agreements which involve the exchange by the Fund with another party of their respective 16 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - ------------------------------------------------------------------------------- commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest rates. See Note 6 for a summary of open swap agreements as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $5,886,912, collateralized by cash in the amount of $5,947,500, which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. 17 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - ------------------------------------------------------------------------------- Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis, and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. Effective June 1, 1996, the Manager will reduce such premium only when any portion of a purchase is offset by a corresponding redemption occurring on the same day. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $39,494 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 18 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - ------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .50% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .25% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .40%; thus the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $2,967. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------- ------------------ U.S. Government securities $ 17,855,370 $ 34,411,524 Investments (non-U.S. Government securities) 192,726,800 297,085,135
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------------- ----------------------- ---------------------- -------------------- $ 299,566,145 $ 19,621,481 $ 9,883,760 $ 9,737,721
4. Principal shareholders At August 31, 1997, 34% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 19 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from January 2, 1997 Six Months Ended (commencement of operations) to August 31, 1997 February 28, 1997 -------------------------------- ------------------------------------ Class I: Shares Amount Shares Amount ------------- -------------- ---------------- --------------- Shares sold 5,519 $ 65,240 95,601 $ 1,123,429 Shares issued to shareholders in reinvestment of distributions 8,388 96,964 -- -- Shares repurchased -- -- -- -- ------------- -------------- ---------------- --------------- Net increase 13,907 $ 162,204 95,601 $ 1,123,429 ============= ============== ================ =============== Six Months Ended Year Ended August 31, 1997 February 28, 1997 -------------------------------- ------------------------------------ Class III: Shares Amount Shares Amount ------------- -------------- ---------------- --------------- Shares sold 4,171,473 $ 51,255,549 20,865,195 $ 251,713,393 Shares issued to shareholders in reinvestment of distributions 3,069,510 35,514,234 3,723,568 43,606,382 Shares repurchased (19,030,568) (228,927,679) (7,658,494) (94,229,046) -------------- --------------- --------------- --------------- Net increase (decrease) (11,789,585) $ (142,157,896) 16,930,269 $ 201,090,729 ============== =============== =============== ===============
20 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - ------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) - --------------- ------------------ --------------------- --------------- ------------------- Buys 09/26/97 CAD 54,600,000 $ 39,389,200 $ (56,332) 09/05/97 DEM 325,900,000 181,121,363 (1,458,419) 09/19/97 DEM 69,800,000 38,828,730 (1,860,991) 09/22/97 DEM 270,300,000 150,394,598 (5,623,305) 10/17/97 GBP 45,500,000 73,637,622 660,054 09/22/97 ITL 50,240,819,250 28,511,560 (62,822) 10/09/97 JPY 4,850,000,000 40,559,119 (1,942,622) ------------------- $ (10,344,437) =================== Sales 11/28/97 AUD 12,900,000 $ 9,495,998 $ 155,782 09/26/97 CAD 97,000,000 67,812,909 498,625 09/02/97 CHF 1,905,856 1,284,806 (4,677) 09/02/97 DEM 69,407 35,566 (57) 09/05/97 DEM 416,000,000 231,195,112 6,012,064 09/22/97 DEM 51,000,000 28,376,339 158,043 10/17/97 GBP 59,800,000 96,780,874 1,795,807 09/22/97 ITL 269,404,004,000 152,886,211 3,130,678 10/09/97 JPY 6,190,000,000 51,765,144 1,556,024 09/19/97 NLG 78,551,524 38,813,780 1,875,942 09/23/97 NZD 12,700,000 8,105,670 445,490 03/23/98 THB 280,000,000 7,649,577 2,055,796 06/22/98 THB 140,000,000 3,784,807 985,210 ------------------- $ 18,664,727 ===================
21 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - -------------------------------------------------------------------------------
Forward cross currency contracts Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) - -------------- -------------------------- --------------------------- ----------------------- 10/10/97 BEF 619,384,800 DEM 30,000,000 $ 3,907 11/13/97 CHF 15,783,134 DEM 19,200,000 (13,138) 09/02/97 DEM 232,681 DKK 896,164 22 09/19/97 DEM 95,100,000 NLG 107,037,911 (13,316) 09/22/97 DEM 39,700,000 ITL 39,358,339,000 246,743 10/10/97 DEM 196,200,000 BEF 4,052,671,420 25,567 10/23/97 DEM 56,500,000 ESP 4,788,385,350 6,679 10/27/97 DEM 157,500,940 ECU 80,100,000 (153,710) 11/07/97 DEM 102,600,000 FRF 345,516,608 (39,012) 11/13/97 DEM 7,700,000 CHF 6,316,079 (3,990) 11/14/97 DEM 52,300,000 DKK 199,232,690 (7,114) 11/21/97 DEM 20,000,000 SEK 87,455,370 963 11/14/97 DKK 274,521,280 DEM 72,000,000 (25,818) 10/23/97 ESP 5,407,205,000 DEM 63,800,000 (8,486) 11/07/97 FRF 504,208,185 DEM 149,500,000 (67,499) 09/22/97 ITL 35,045,200,000 DEM 35,000,000 (414,117) 09/19/97 NLG 78,767,500 DEM 70,000,000 19,489 09/02/97 SEK 1,315,591 DEM 302,088 259 11/21/97 SEK 248,223,528 DEM 56,700,000 (39,470) 10/27/97 ECU 341,800,000 DEM 672,943,920 1,136,279 ----------------------- $ 654,238 =======================
22 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - -------------------------------------------------------------------------------
Futures contracts Net Unrealized Number of Contract Value Appreciation Contracts Type Expiration Date (Depreciation) ------------- --------------------------------- ------------------ --------------- ----------------- Buys 145 Australian Government Bond 3 yr September 1997 $ 12,824,014 $ 263,601 69 Australian Government Bond 10 yr September 1997 7,252,420 336,925 159 German Government Bond December 1997 22,366,739 (40,938) 107 Italian Government Bond 10 yr December 1997 13,128,456 12,682 11 Japanese Government Bond December 1997 11,614,998 (8,053) 109 MATIF ECU Bond September 1997 11,894,884 270,186 215 U.K. Gilt September 1997 20,608,190 58,355 60 U.K. Gilt December 1997 5,550,434 (10,339) ================= $ 882,419 ================= Sales 120 Euro Dollar September 1997 $ 28,279,500 $ 12,600 5 Canadian Government Bond September 1997 430,358 955 107 MATIF FRF Bond September 1997 11,917,366 (100,526) 280 Spanish Government Bond 10 yr September 1997 22,648,290 (555,210) 177 Swiss Government Bond September 1997 14,848,699 (21,180) 130 Swiss Government Bond December 1997 10,322,610 14,728 118 U.S. Treasury Bond December 1997 13,304,500 (48,948) 29 U.S. Treasury Note 10 yr September 1997 3,161,906 9751 16 U.S. Treasury Note 10 yr December 1997 1,739,000 318 60 U.S. Treasury Bill 90 day September 1997 14,239,500 (48,450) ================= $ (735,962) =================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. 23 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - -------------------------------------------------------------------------------
Written option transactions Puts Calls Principal Amount of Principal Amount Contracts of Contracts (000's omitted) Premiums (000's omitted) Premiums ----------------- --------------- ------------------ --------------- Outstanding, beginning of period $ 25,000 $ 1,243,750 $ 25,000 $ 1,065,000 Options written 18,000 90,000 12,727 217,637 Options exercised (18,000) (90,000) -- -- ----------------- --------------- ------------------ --------------- Outstanding, end of period $ 25,000 $ 1,243,750 $ 37,727 $ 1,282,637 ================= =============== ================== =============== Summary of written options outstanding Principal Amount of Contracts Expiration (000's omitted) Premiums Date Value ----------------- -------------- ----------------- -------------- Calls Japanese Yen $ 25,000 117 JPY 2/09/98 $ 812,500 Thai Baht 12,727 33 THB 10/16/97 818,364 Puts Japanese Yen 25,000 117 JPY 2/09/98 817,500 -------------- $ 2,448,364 ==============
24 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - --------------------------------------------------------------------------------
Swap agreements Net Unrealized Expiration Appreciation Notional Amount Date Description (Depreciation) ---------------------- ------------ ------------------------------------------------- -------------- TRL 494,875,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to $(579,266) receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. TRL 203,500,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 50,294 receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. -------------- Net unrealized depreciation $(528,972) ==============
See Notes to the Schedule of Investments for definitions of currency abbreviations. 25 GMO Global Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value($) - -------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 89.1% Brazil -- 0.9% USD 851,029 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 693,588 ------------ Bulgaria -- 0.6% USD 2,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 7/28/24 220,120 USD 500,000 Bulgaria FLIRB Series B, Variable Rate, Step up, 2.75%, due 7/28/12 308,750 ------------ 528,870 ------------ Canada -- 2.0% CAD 2,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 1,587,641 ------------ Denmark -- 3.6% DKK 19,000,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 2,914,335 ------------ Ecuador -- 0.3% USD 500,000 Republic of Ecuador Par Bond, Variable Rate, Step up, 3.50%, due 2/28/25 261,875 ------------ France -- 8.2% FRF 23,650,000 Credit Foncier, 6.50%, due 10/13/08 4,023,873 ECU 1,000,000 Government of France, 8.25%, due 4/25/22 1,301,475 ECU 1,000,000 Societe Nationale des Chemins de Fer, 9.38%, due 3/12/01 1,236,484 ------------ 6,561,832 ------------ Germany -- 0.9% ESP 100,000,000 Deutsche Ausgleichsbank, 8.60%, due 5/22/03 735,381 ------------ Greece -- 1.1% GRD 250,000,000 Hellenic Republic, Variable Rate, 12 mo. GTB + 1.50%, 14.20%, due 9/30/03 899,827 ------------ Jordan -- 0.4% USD 500,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step up 144A, 4.00%, due 12/23/23 345,000 ------------ Mexico -- 0.9% FRF 5,000,000 Mexico Par Bond, 6.63%, due 12/31/19 703,775 ------------ New Zealand -- 2.7% NZD 3,500,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 2,137,803 ------------
See accompanying notes to the financial statements. 1 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - --------------------------------------------------------------------------------- Nigeria -- 0.4% USD 500,000 Central Bank of Nigeria Par Bond, Variable Rate, Step up, 6.25%, due 11/15/20 355,000 ------------ Supra National -- 3.5% JPY 85,000,000 Asian Development Bank, 5.00%, due 2/05/03 829,225 GBP 1,000,000 International Bank Recon and Development, 11.50%, due 11/09/03 1,957,513 ------------ 2,786,738 ------------ Sweden -- 6.9% SEK 5,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 642,402 SEK 39,500,000 Kingdom of Sweden, 6.00%, due 2/09/05 4,915,488 ------------ 5,557,890 ------------ United States -- 56.1% Asset Backed Securities -- 37.6% USD 918,049 AFC Home Equity Loan Trust Series 97-1 Class A, Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 917,475 USD 5,000,000 Augusta Funding Series 96-F2, Variable Rate, LIBOR + .30%, 6.05%, due 4/15/06, 144A 5,000,000 USD 320,744 BCI Home Equity Loan 94-1 Class A1, Variable Rate, 1 mo. LIBOR + .24%, 5.93%, due 3/29/44 320,744 USD 3,000,000 Eagle Pier Corp BV, Variable Rate, 6 mo. LIBOR + .25%, 6.22%, due 10/03/01 3,016,500 USD 2,000,000 First Chicago Master Trust II 95-0, Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due 2/15/04 2,007,500 USD 5,000,000 First Union Master Credit Card Trust 96-1 Class A, Variable Rate, 1 mo. LIBOR + .17%, 5.82%, due 9/15/03 5,006,251 USD 4,000,000 National Premier Finance 95-2, 6.21%, due 6/01/99, 144A 3,972,000 USD 2,000,000 National Premier Finance IX 96-1A, 7.20%, due 7/01/00 2,030,000 USD 5,000,000 Rhino CBO Series 97-1 Class A-2, 6.33%, due 9/15/09, 144A 5,024,951 USD 3,000,000 Starvest CBO-1 Class A, Variable Rate, 6 mo. LIBOR + .19%, 6.00%, due 7/30/11, 144A 2,982,972 ------------ 30,278,393 ------------ Structured Notes -- 8.7% USD 2,750,000 Federal Home Loan Bank, Variable Rate, ((.50 * 10YR CMT) + 1.25%), 4.55%, due 3/16/98 2,725,250 USD 5,000,000 Federal Home Loan Bank, Variable Rate, (10.00% - 6 mo. LIBOR), 4.19%, due 9/22/03 4,285,000 ------------ 7,010,250 ------------
2 See accompanying notes to the financial statements. GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - --------------------------------------------------------------------------------- U.S. Government -- 2.6% USD 1,000,000 U.S. Treasury Note, 6.88%, due 8/31/99(a) 1,016,875 USD 1,000,000 U.S. Treasury Note, 9.25%, due 8/15/98 1,031,250 ------------- 2,048,125 ------------- U.S. Government Agency -- 7.2% USD 4,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.47%, due 2/01/27 4,013,750 USD 1,787,000 Ship Co 668, Series A, 8.50%, due 5/11/02 1,787,894 ------------- 5,801,644 ------------- Total United States 45,138,412 ------------- Venezuela -- 0.6% USD 500,000 Republic of Venezuela Discount Bond Series A, Variable Rate, 6 mo. LIBOR + .81%, 6.81%, due 3/31/20 451,875 ------------- TOTAL DEBT OBLIGATIONS (COST $72,732,392) 71,659,842 ------------- Principal Amount - ----------------------- CALL OPTIONS PURCHASED -- 4.4% Cross Currency Options -- 3.1% DEM 79,600,000 DEM Call/BEF Put, Expires 10/08/97, Strike 20.50 331,630 ECU 32,400,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 364,522 ECU 31,200,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 756,571 ECU 38,800,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out 1.9225, Strike 1.91 1,029,864 ------------- 2,482,587 ------------- Options on Bonds -- 0.4% USD 2,500,000 Brazil Discount Bond, Expires 11/07/97, Strike 80.00 145,513 SEK 60,000,000 Sweden Government Bond, Expires 10/24/97, Strike 95.484 158,349 ------------- 303,862 ------------- Options on Currency -- 0.9% USD 15,500,000 British Pound, Expires 11/06/97, Strike 1.6325 342,550 USD 4,000,000 German Mark, Expires 2/09/98, Strike 1.61 390,800 ------------- 733,350 ------------- TOTAL CALL OPTIONS PURCHASED (COST $2,964,118) 3,519,799 -------------
See accompanying notes to the financial statements. 3 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Principal Amount Description Value($) - -------------------------------------------------------------------------------- PUT OPTIONS PURCHASED -- 1.3% Cross Currency Options -- 1.3% DEM 17,400,000 DEM Put/ITL Call, Expires 1/21/98, Strike 950 4,833 DEM 37,500,000 DEM Put/ITL Call, Expires 9/18/97 Knock Out 1050, Strike 1030 1,047,800 USD 700,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 400 8,400 USD 274,045 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 1,225 ---------- 1,062,258 ---------- Options on Currency -- 0.0% USD 2,000,000 Czech Koruna, Expires 10/02/97, Strike 29.56 -- USD 5,000,000 Czech Koruna, Expires 10/02/97, Strike 29.69 -- USD 4,000,000 German Mark, Expires 2/09/98, Strike 1.61 11,200 ---------- 11,200 ---------- TOTAL PUT OPTIONS PURCHASED (COST $834,436) 1,073,458 ---------- Shares - --------------------- RIGHTS AND WARRANTS -- 0.0% Mexico -- 0.0% 870,000 United Mexican States Warrants, Expires 6/30/03* -- ---------- TOTAL RIGHTS AND WARRANTS (COST $0) -- ---------- Par Value - --------------------- SHORT-TERM INVESTMENTS -- 6.0% Cash Equivalents -- 0.3% USD 248,388 BankBoston Eurodollar Time Deposit, 5.7875% due 9/02/97/(b)/ 248,388 USD 5,653 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/02/97/(b)/ 5,653 USD 16,959 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/02/97/(b)/ 16,959 ---------- 271,000 ----------
4 See accompanying notes to the financial statements. GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value($) - -------------------------------------------------------------------------------- Repurchase Agreements -- 5.7% USD 548,000 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/02/97, with a maturity value of $548,304 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.811%, with a maturity date of 3/01/35 and a market value of $558,962. 548,000 USD 4,030,793 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/02/97, with a maturity value of $4,033,055 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $4,123,159. 4,030,793 ----------- 4,578,793 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $4,849,793) 4,849,793 ----------- TOTAL INVESTMENTS -- 100.8% (Cost $81,380,739) 81,102,892 Other Assets and Liabilities (net) -- (0.8)% (665,808) ----------- TOTAL NET ASSETS-- 100% $80,437,084 =========== Notes to the Schedule of Investments: GTB - Greek Treasury Bill PIK - Payment In Kind CMT - Constant Maturity Treasury Index Knock Out - Option will expire if underlying security reaches knock out price. 144A - Securities 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.
See accompanying notes to the financial statements. 5 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments -- Continued Variable and Step up rates - The rates shown on variable and step up rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security.
Currency Abbreviations AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc GRD - Greek Drachma CAD - Canadian Dollar ITL - Italian Lira CHF - Swiss Franc JPY - Japanese Yen DEM - German Mark NLG - Netherlands Guilder DKK - Danish Krone NZD - New Zealand Dollar ECU - European Currency Unit SEK - Swedish Krona ESP - Spanish Peseta THB - Thailand Baht FRF - French Franc TRL - Turkish Lira USD - United States Dollar
/(a)/ All or a portion of this security is held as collateral for open futures contracts. /(b)/ Represents investments of security lending collateral (Note 1). * Non-income producing security. 6 See accompanying notes to the financial statements. GMO Global Bond Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - ------------------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $81,380,739) (Note 1) $ 81,102,892 Cash 4,080 Foreign currency, at value (cost $392,704) (Note 1) 342,254 Interest receivable 1,347,041 Receivable for open forward foreign currency contracts (Notes 1 and 6) 2,312,207 Receivable for expenses waived or borne by Manager (Note 2) 28,210 ------------- Total assets 85,136,684 ------------- Liabilities: Payable for investments purchased 335,520 Payable upon return of securities loaned (Note 1) 271,000 Written options outstanding, at value (premiums $416,037) (Notes 1 and 6) 436,164 Payable for open forward foreign currency contracts (Notes 1 and 6) 3,385,055 Payable to affiliate for (Note 2): Management fee 22,179 Shareholder service fee 10,120 Accrued expenses 40,591 Payable for open swap contracts (Note 1 and 6) 100,076 Payable for variation margin on open futures contracts (Notes 1 and 6) 98,895 ------------- Total liabilities 4,699,600 ------------- Net assets $ 80,437,084 ============= Net assets consist of: Paid-in-capital $ 76,740,939 Accumulated undistributed net investment income 2,722,095 Accumulated undistributed net realized gain 2,287,272 Net unrealized depreciation (1,313,222) ------------- $ 80,437,084 ============= Net assets attributable to: Class I shares $ 5,909,080 ============= Class III shares $ 74,528,004 ============= Shares outstanding: Class I 565,863 ============= Class III 7,122,992 ============= Net asset value per share: Class I $ 10.44 ============= Class III $ 10.46 =============
See accompanying notes to the financial statements. 7 GMO Global Bond Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $ 2,463,065 ----------- Expenses: Management fee (Note 2) 138,014 Custodian and transfer agent fees 41,125 Audit fees 34,872 Registration fees 6,447 Legal fees 1,732 Trustees fees (Note 2) 449 Miscellaneous 849 Fees waived or borne by Manager (Note 2) (148,566) ----------- 74,922 Shareholder service fee (Note 2) Class I 7,276 Class III 55,251 ----------- Net expenses 137,449 ----------- Net investment income 2,325,616 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (332,790) Closed futures contracts 1,111,803 Closed swap contracts 110,812 Foreign currency, forward contracts and foreign currency related transactions 1,337,321 ----------- Net realized gain 2,227,146 ----------- Change in net unrealized appreciation (depreciation) on: Investments (1,056,859) Open futures contracts 602,897 Open swap contracts (100,076) Written options (59,127) Foreign currency, forward contracts and foreign currency related transactions (719,349) ----------- Net unrealized loss (1,332,514) ----------- Net realized and unrealized gain 894,632 ----------- Net increase in net assets resulting from operations $ 3,220,248 ===========
8 See accompanying notes to the financial statements. GMO Global Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 2,325,616 $ 3,974,892 Net realized gain 2,227,146 3,056,295 Change in net unrealized appreciation (depreciation) (1,332,514) 364,425 ----------- ----------- Net increase in net assets resulting from operations 3,220,248 7,395,612 ----------- ----------- Distributions to shareholders from: Net investment income Class I (58,480) -- Class III (740,209) (3,484,400) ----------- ----------- Total distributions from net investment income (798,689) 3,484,400 ----------- ----------- Net realized gains Class III -- (2,181,543) ----------- ----------- Total distributions from net realized gains -- (2,181,543) ----------- ----------- In excess of net realized gains (798,689) 5,665,943 ----------- ----------- Net share transactions: (Note 5) Class I 5,051,786 654,817 Class III 1,549,429 37,957,406 ----------- ----------- Increase in net assets resulting from net share transactions 6,601,215 38,612,223 ----------- ----------- Total increase in net assets 9,022,774 40,341,892 Net assets: Beginning of period 71,414,310 31,072,418 ----------- ----------- End of period (including accumulated undistributed net investment income of $2,722,095 and $1,195,168, respectively) $80,437,084 $71,414,310 =========== ===========
See accompanying notes to the financial statements. 9 GMO Global Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from January 6, 1997 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ---------------------------- Net asset value, beginning of period $10.15 $10.29 ------- ------- Income from investment operations: Net investment income 0.29+ 0.09 Net realized and unrealized gain (loss) 0.11 (0.23) ------- ------- Total from investment operations 0.40 (0.14) ------- ------- Less distributions to shareholders: From net investment income (0.11) -- ------- ------- Total distributions (0.11) -- ------- ------- Net asset value, end of period $10.44 $10.15 ======= ======= Total Return /(a)/ 3.94% (1.36)% Ratios/Supplemental Data: Net assets, end of period (000's) $5,909 $ 646 Net expenses to average daily net assets 0.47%* 0.47%* Net investment income to average daily net assets 5.74%* 6.05%* Portfolio turnover rate 39% 72% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.01
* Annualized. + Computed using average shares outstanding throughout the period. (a)Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. 10 See accompanying notes to the financial statements. GMO Global Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended August 31, 1997 February 28/29, -------------------- (Unaudited) 1997 1996 * ----------- -------- -------- Net asset value, beginning of period $ 10.16 $ 9.89 $ 10.00 -------- -------- -------- Income from investment operations: Net investment income 0.30 0.61 0.05 Net realized and unrealized gain (loss) 0.11 0.59 (0.16) -------- -------- -------- Total from investment operations 0.41 1.20 (0.11) -------- -------- -------- Less distributions to shareholders: From net investment income (0.11) (0.57) -- From net realized gains -- (0.36) -- -------- -------- -------- Total distributions (0.11) (0.93) -- -------- -------- -------- Net asset value, end of period $ 10.46 $ 10.16 $ 9.89 ======== ======== ======== Total Return/(a)/ 4.02% 12.01% (1.10)% Ratios/Supplemental Data: Net assets, end of period (000's) $74,528 $70,768 $31,072 Net expenses to average daily net assets 0.34%** 0.34% 0.34%** Net investment income to average daily net assets 5.91%** 6.31% 6.16%** Portfolio turnover rate 39% 72% 0% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.04 $ 0.01
* Period from December 28, 1995 (commencement of operations) to February 29, 1996. ** Annualized. (a)Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. See accompanying notes to the financial statements. 11 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global Bond Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks high total return by investing primarily in investment grade bonds denominated in various currencies including U.S. dollars and multicurrency units. The Fund generally seeks to provide a total return greater than that provided by the global fixed income securities market. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. As of August 31,1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 12 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the bond and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from the changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies 13 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. See Note 6 for all open written option contracts as of August 31, 1997. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to interest rates. The Fund entered into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest rates. See Note 6 for a summary of open swap agreements as of August 31, 1997. 14 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $265,625, collateralized by cash in the amount of $271,000, which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis, and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 15 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. Effective June 1, 1996, the Manager will reduce such premium only when any portion of a purchase is offset by a corresponding redemption occurring on the same day. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $16,621 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .35% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .19% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .34%; thus the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $449. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 16 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------- ------------------ U.S. Government securities $ 3,967,860 $ 4,085,459 Investments (non-U.S. Government securities) 31,651,582 22,280,116
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation --------------------- --------------------- --------------------- --------------------- $ 81,380,739 $ 1,978,554 $ 2,256,401 $ 277,847
4. Principal shareholders At August 31, 1997, 86% of the outstanding shares of the Fund were held by four shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from January 6, 1997 Six Months Ended (commencement of operations) to August 31, 1997 February 28, 1997 -------------------------------- ------------------------------------ Class I: Shares Amount Shares Amount -------------- -------------- ---------------- ---------------- Shares sold 496,553 $ 4,993,306 63,643 $ 654,817 Shares issued to shareholders in reinvestment of distributions 5,667 58,480 - - Shares repurchased - - - - -------------- -------------- ---------------- ---------------- Net increase 502,220 $ 5,051,786 63,643 $ 654,817 ============== ============== ================ ================
17 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Share transactions - continued
Six Months Ended Year Ended August 31, 1997 February 28, 1997 -------------------------------- ------------------------------------ Class III: Shares Amount Shares Amount -------------- -------------- ---------------- ---------------- Shares sold 594,764 $ 6,087,036 4,047,314 $ 40,339,699 Shares issued to shareholders in reinvestment of distributions 45,819 473,766 435,009 4,467,251 Shares repurchased (480,956) (5,011,373) (662,011) (6,849,544) -------------- -------------- ---------------- ---------------- Net increase 159,627 $ 1,549,429 3,820,312 $ 37,957,406 ============== ============== ================ ================
6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) ----------- ----------------- ---------------- ------------ ---------------- Buys 09/26/97 CAD 9,700,000 $ 6,997,715 $ (26,759) 09/02/97 DEM 604,481 335,876 495 09/05/97 DEM 106,100,000 58,965,869 (1,809,010) 10/17/97 GBP 9,100,000 14,727,524 (124,906) 10/09/97 JPY 2,000,000,000 16,725,410 (1,114,858) ---------------- $ (3,075,038) ================ Sales 11/28/97 AUD 900,000 $ 662,512 $ 10,868 09/26/97 CAD 10,800,000 7,791,270 34,917 09/05/97 DEM 71,000,000 39,458,781 1,003,165 10/17/97 GBP 6,200,000 10,034,137 30,000 10/09/97 JPY 950,000,000 7,944,570 225,991 09/23/97 NZD 3,400,000 2,170,022 144,378 03/23/98 THB 60,000,000 1,639,195 440,528 06/22/98 THB 30,000,000 811,030 211,117 ---------------- $ 2,100,964 ================
18 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Forward cross currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) ------------ --------------------------- -------------------------- ---------------- 11/07/97 FRF 78,920,129 DEM 23,400,000 $ (10,662) 11/14/97 DKK 56,048,335 DEM 14,700,000 (5,306) 10/23/97 ESP 372,888,900 DEM 4,400,000 (443) 10/10/97 DEM 17,100,000 BEF 353,261,230 3,489 09/02/97 DEM 323,681 DKK 886,164 22 09/22/97 ITL 39,178,056,000 DEM 39,500,000 (255,812) 09/02/97 DEM 4,971,800 SEK 21,735,449 98 11/21/97 SEK 45,962,704 DEM 10,500,000 (6,719) 11/13/97 CHF 3,866,230 DEM 4,700,000 (5,018) 09/22/97 DEM 16,200,000 ITL 15,977,404,000 53,483 10/27/97 ECU 31,300,000 DEM 61,703,610 148,456 09/19/97 DEM 3,500,000 NLG 3,941,197 420 10/23/97 DEM 10,000,000 ESP 847,560,450 1,568 10/10/97 BEF 30,955,500 DEM 1,500,000 566 11/07/97 DEM 4,000,000 FRF 13,484,858 868 11/13/97 DEM 2,000,000 CHF 1,640,540 (1,036) 10/27/97 DEM 8,484,285 ECU 4,300,000 (24,526) 09/19/97 NLG 9,340,654 DEM 8,300,000 1,778 -------------- $ (98,774) ==============
19 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Futures contracts
Net Unrealized Number of Contract Appreciation Contracts Type Expiration Date Value (Depreciation) ------------ --------------------------------- ---------------- ------------- ---------------- Buys 25 Australian Government Bond 3 yr. September 1997 $ 2,157,794 $ 54,692 19 Australian Government Bond 10 yr September 1997 1,950,999 98,947 23 Canadian Government Bond September 1997 1,983,118 75,237 16 German Government Bond December 1997 2,250,861 (3,883) 16 Italian Government Bond 10 yr. December 1997 1,958,488 1,863 4 Japanese Government Bond September 1997 4,246,737 635 49 MATIF ECU Bond September 1997 5,173,501 122,535 92 U.S. Treasury Bond 30 yr. September 1997 10,407,500 375,437 11 U.S. Treasury Bond 30 yr. December 1997 1,240,250 1,668 87 U.K. Gilt September 1997 8,077,765 20,402 24 U.K. Gilt December 1997 2,221,051 (3,982) -------------- $ 743,551 ============== Sales 15 Eurodollar September 1997 $ 3,534,938 $ (1,425) 75 FRF MATIF Bond September 1997 8,017,476 (110,932) 4 Japanese Government Bond September 1997 4,243,744 (204,613) 4 Japanese Government Bond December 1997 4,221,132 (695) 63 Spanish Government Bond 10 yr. September 1997 4,840,512 (123,106) 76 Swiss Government Bond September 1997 6,094,428 (1,355) 11 U.S. Treasury Note 10 yr. September 1997 1,199,344 3,699 7 U.S. Treasury Note 10 yr. December 1997 760,813 354 ---------------- $ (438,073) ================
At August 31, 1997, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 20 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Written option transactions
Puts Calls Principal Amount of Principal Amount Contracts of Contracts (000's omitted) Premiums (000's omitted) Premiums ----------------- --------------- ------------------ --------------- Outstanding, beginning of period $ 4,000 $199,000 $ 4,000 $ 170,400 Options written 4,000 20,000 2,727 46,637 Options exercised (4,000) (20,000) -- -- Options expired -- -- -- -- ----------------- --------------- ------------------ --------------- Outstanding, end of period $ 4,000 $199,000 $ 6,727 $ 217,037 ================= =============== ================== ===============
Summary of written options outstanding
Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value ----------------- --------------- ------------------ -------------- Calls Japanese Yen $ 4,000 117 JPY 2/09/98 $ 130,000 Thai Baht 2,727 33 THB 10/16/97 75,364 Puts Japanese Yen 4,000 117 JPY 2/09/98 130,800 -------------- $ 436,164 ==============
21 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements
Net Unrealized Expiration Appreciation Notional Amount Date Description (Depreciation) - ---------------------- ------------- --------------------------------------------------- --------------- TRL 93,625,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to $(109,591) receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. TRL 38,500,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 9,515 receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. --------------- Net unrealized depreciation $(100,076) ===============
See Notes to the Schedule of Investments for definitions of currency abbreviations. 22 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 99.3% New Zealand -- 3.3% NZD 1,000,000 New Zealand Indexed Linked Bond, 4.50%, due 2/15/16 610,801 ----------- United States -- 96.0% U.S. Government -- 96.0% USD 17,618,000 U.S. Treasury Inflation Indexed Note, 3.375%, due 1/15/07 17,533,622 ----------- Total United States 17,533,622 ----------- TOTAL DEBT OBLIGATIONS (COST $18,093,975) 18,144,423 ----------- SHORT-TERM INVESTMENTS -- 0.5% Repurchase Agreements -- 0.5% USD 91,026 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $91,077 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $93,112. 91,026 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $91,026) 91,026 ----------- TOTAL INVESTMENTS -- 99.8% (Cost $18,185,001) 18,235,449 Other Assets and Liabilities (net) -- 0.2% 34,204 ----------- TOTAL NET ASSETS -- 100% $18,269,653 =========== Currency Abbreviations NZD - New Zealand Dollar USD - United States Dollar
See accompanying notes to the financial statements. 1 GMO Inflation Indexed Bond Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $18,185,001) (Note 1) $18,235,449 Dividends and interest receivable 75,815 Receivable for open forward foreign currency contracts (Notes 1 and 6) 11,032 Receivable for expenses waived or borne by Manager (Note 2) 12,525 ----------- Total assets 18,334,821 ----------- Liabilities: Payable to affiliate for (Note 2): Management fee 2,996 Shareholder service fee 1,771 Accrued expenses 60,401 ----------- Total liabilities 65,168 ----------- Net assets $18,269,653 =========== Net assets consist of: Paid-in-capital $18,090,519 Accumulated undistributed net investment income 118,480 Accumulated undistributed net realized loss (813) Net unrealized appreciation 61,467 ----------- $18,269,653 =========== Net assets attributable to: Class III shares $18,269,653 =========== Shares outstanding: Class III 1,786,832 =========== Net asset value per share: Class III $ 10.22 ===========
2 See accompanying notes to the financial statements. GMO Inflation Indexed Bond Fund (A Series of GMO Trust)
Statement of Operations -- Period from March 31, 1997 (commencement of operations) to August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest 127,503 --------- Expenses: Custodian and transfer agent fees 43,593 Audit fees 16,682 Management fee (Note 2) 9,023 Registration fees 1,511 Legal fees 1,180 Trustees fees (Note 2) 236 Miscellaneous 384 Fees waived or borne by Manager (Note 2) (68,974) --------- 3,635 Shareholder service fee (Note 2) Class III 5,388 --------- Net expenses 9,023 --------- Net investment income 118,480 --------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 4,126 Foreign currency, forward contracts and foreign currency related transactions (4,939) --------- Net realized loss (813) --------- Change in net unrealized appreciation (depreciation) on: Investments 50,448 Foreign currency, forward contracts and foreign currency related transactions 11,019 --------- Net unrealized gain 61,467 --------- Net realized and unrealized gain 60,654 --------- Net increase in net assets resulting from operations $ 179,134 =========
See accompanying notes to the financial statements. 3 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from March 31, 1997 (commencement of operations) to August 31, 1997 (Unaudited) ---------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 118,480 Net realized loss (813) Change in net unrealized appreciation (depreciation) 61,467 ----------- Net increase in net assets resulting from operations 179,134 ----------- Net share transactions: (Note 5) Class I -- Class II -- Class III 18,090,519 ----------- Increase in net assets resulting from net share transactions 18,090,519 ----------- Total increase in net assets 18,269,653 Net assets: Beginning of period -- ----------- End of period (including accumulated undistributed net investment income of $118,480) $18,269,653 ===========
4 See accompanying notes to the financial statements. GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from March 31, 1997 (commencement of operations) to August 31, 1997 (Unaudited) --------------------- Net asset value, beginning of period $10.00 ------- Income from investment operations: Net investment income 0.14+ Net realized and unrealized gain 0.08 ------- Total from investment operations 0.22 ------- Net asset value, end of period $10.22 ======= Total Return /(a)/ 2.20% Ratios/Supplemental Data: Net assets, end of period (000's) $18,270 Net expenses to average daily net assets 0.25%* Net investment income to average daily net assets 3.28%* Portfolio turnover rate 7% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.08
+ Computed using average shares outstanding throughout the period. (a) Calculation excludes purchase premiums and redemption fees. The total return would have been lower had certain expenses not been waived during the period shown. * Annualized. See accompanying notes to the financial statements. 5 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Inflation Indexed Bond Fund (the "Fund"), which commenced operations on March 31, 1997, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund seeks maximum total return by investing primarily in foreign and U.S. government bonds that are indexed or otherwise linked to general measures of inflation in the country of issue. The Fund offers three classes of shares: Class I, Class II, and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class III was the only active class of shares of the fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that 6 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund had no securities on loan. 7 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. The difference between original principal and the inflation component of principal is included in unrealized gain or loss. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases and fee on redemptions of Fund shares is .10% of the amount invested. The manager will reduce such premium or fee only when any portion of a purchase or redemption is offset by corresponding redemption or purchase occurring on the same day. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the period ended August 31, 1997, the Fund received $18,891 in purchase premiums and $801 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 8 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .25% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .10% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the period ended August 31, 1997 was $236. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the period from March 31 to August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds --------------- -------------- U.S. Government securities $ 18,058,988 $ 583,454 Investments (non-U.S. Government securities) 614,298 -
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------- -------------------- ------------------ ---------------- $18,185,001 $53,962 $3,514 $50,448
4. Principal shareholders At August 31, 1997, 52% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 9 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from March 31, 1997 (commencement of Class III: operations) to August 31, 1997 -------------------------------- Shares Amount ------------ ------------- Shares sold 1,866,277 $ 18,891,131 Shares issued to shareholders in reinvestment of distributions - - Shares repurchased (79,445) (800,612) ------------ ------------- Net increase 1,786,832 $ 18,090,519 ============ =============
6. Financial Instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Settlement Units of Unrealized Date Deliver Currency Value Appreciation ------------------- ------------------- ------------- ----------- ------------ Sales 9/23/97 NZD 900,000 $574,418 $11,032 ============
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. 10 GMO Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 91.5% Advertising -- 0.0% 12,500 Interpublic Group Inc 609,375 ------------- Aerospace -- 0.9% 370,100 Raytheon Co 20,355,500 58,600 Textron Inc 3,651,513 168,700 TRW Inc 8,793,488 ------------- 32,800,501 ------------- Automotive -- 1.6% 9,700 Bandag Inc 517,131 42,200 Chrysler Corp 1,482,275 19,900 Eaton Corp 1,792,244 599,300 Ford Motor Co 25,769,900 275,400 General Motors Corp 17,281,350 114,100 Genuine Parts Co 3,522,838 82,600 Goodyear Tire & Rubber Co 5,090,225 ------------- 55,455,963 ------------- Banking and Financial Services -- 11.9% 281,600 Ahmanson (HF) & Co 14,291,200 137,200 Amsouth Bancorp 5,770,975 181,800 Bank of New York Inc 8,112,825 351,900 BankBoston Corp 29,251,687 159,900 Bankers Trust New York Corp 16,589,625 411,300 Barnett Banks Inc 28,019,812 242,999 Bear Stearns Inc 9,613,648 83,900 Beneficial Corp 6,004,094 25,900 Charles Schwab & Co Inc 1,099,131 487,308 Chase Manhattan Corp 54,182,557 65,700 Citicorp 8,384,963 6,250 Comdisco Inc 169,922 114,300 Countrywide Credit Industry Inc 3,850,481 58,700 Donaldson Lufkin & Jenrette 3,485,313 175,100 Edwards (AG) Inc 6,960,225 168,800 Fleet Financial Group Inc 10,877,050 90,500 Franklin Resources Inc 7,002,438 6,400 Golden West Financial Corp 526,800 132,500 Greenpoint Financial Corp 8,157,031 6,000 Household International Inc 665,625 193,900 Lehman Brothers Holding Inc 8,507,363
See accompanying notes to the financial statements. 1 GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 372,200 Merrill Lynch 22,890,300 15,200 MGIC Investment Corp 764,750 82,200 Morgan Jersey Co Inc 8,815,950 545,412 Morgan Stanley Dean Witter Discover & Co 26,247,953 210,100 Paine Webber Group Inc 8,075,719 605,200 PNC Bank Corp 26,174,900 166,400 Providian Financial Corp 6,198,400 5,300 Republic New York Corp 567,431 268,600 Salomon Inc 16,082,425 20,700 SLM Holding Corp 2,804,850 88,200 Summit Bancorp 5,236,875 118,700 Synovus Financial Corp 3,108,456 543,373 Travelers Group Inc 34,504,185 355,170 Washington Mutual Inc 21,265,804 ------------- 414,260,763 ------------- Chemicals -- 0.8% 97,900 Eastman Chemical Co 5,855,644 145,300 Great Lakes Chemical Corp 6,756,450 66,100 Lubrizol Corp 2,896,006 211,900 Union Carbide Corp 10,873,119 ------------- 26,381,219 ------------- Computer and Office Equipment -- 3.7% 1,229,050 Compaq Computer Corp 80,502,774 294,100 EMC Corp * 15,091,006 48,200 Gateway 2000 Inc 1,885,825 490,800 Micron Technology Inc * 21,871,275 31,400 Pitney Bowes Inc 2,398,175 10,700 Sterling Software Inc 367,144 121,300 Western Digital Corp 5,837,563 ------------- 127,953,762 ------------- Construction -- 0.1% 43,400 Georgia-Pacific Corp 3,960,250 ------------- Consumer Goods -- 3.7% 200,600 Callaway Golf Co 6,757,713 79,100 Clorox Co 10,381,875 38,200 Colgate-Palmolive Co 2,397,050 275,400 Eastman Kodak Co 18,004,275 443,600 Fortune Brands Inc 15,248,750
2 See accompanying notes to financial statements. GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 42,700 Hasbro Inc 1,147,563 71,200 Jones Apparel Group Inc 3,573,350 89,000 Liz Claiborne Inc 3,966,063 96,500 Moore Corp Ltd 1,911,906 175,100 Newell Co 6,894,563 14,300 Nike Inc, Class B 763,263 276,700 Procter and Gamble Co 36,818,393 170,700 Reebok International Ltd 7,500,131 104,900 Sunbeam Corp 4,615,600 120,800 VF Corp 10,675,700 ------------- 130,656,195 ------------- Electronic Equipment -- 0.8% 13,200 Arrow Electronics Inc * 810,975 51,300 Cooper Industries Inc 2,734,931 17,400 Harris Corp Inc 1,515,975 5,000 Hubbell Inc, Class B 229,375 41,800 Litton Industries * 2,084,775 183,900 Motorola Inc 13,493,663 61,100 Texas Instruments 6,942,488 ------------- 27,812,182 ------------- Environmental Control -- 0.1% 201,700 Wheelabrator Technology Inc 3,164,169 ------------- Food and Beverage -- 6.8% 696,500 Anheuser Busch Cos Inc 29,688,312 1,041,768 Archer Daniels Midland Co 22,528,228 111,700 Campbell Soup Co 5,180,088 691,800 Coca Cola Co 39,648,787 401,300 Coca Cola Enterprises Inc 11,035,750 375,200 CPC International Inc 33,439,699 40,550 Dean Foods Co 1,799,406 353,300 Heinz (HJ) Co 14,706,113 1,000 Hormel (Geo A) and Co 29,750 190,800 IBP Inc 4,376,475 66,400 RJR Nabisco Holdings Corp 2,311,550 649,700 Sara Lee Corp 26,150,425 290,100 Seagrams Co Ltd 10,135,369 153,600 Unilever NV ADR 30,911,999 13,900 Universal Foods Corp 539,494 175,600 Whitman Corp 4,302,200
See accompanying notes to the financial statements. 3 GMO Core Fund (A Series of GMO Trust) Schedule of Investments--(Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- continued 18,100 Wrigley (William Jr) Co 1,312,250 ------------- 238,095,895 ------------- Health Care -- 1.6% 19,400 Becton Dickinson & Co 929,988 119,600 Columbia HCA Healthcare Corp 3,774,875 51,000 Hillenbrand Industries Inc 2,240,813 215,200 Johnson & Johnson 12,199,150 169,100 Mallinckrodt Inc 6,151,013 55,300 McKesson Corp 5,180,919 295,900 Pharmacia & Upjohn Inc 10,079,094 379,750 Tenet Healthcare Corp * 10,348,188 113,800 United States Surgical Corp 3,748,288 32,400 Wellpoint Health Network * 1,761,750 ------------- 56,414,078 ------------- Insurance -- 4.2% 182,800 AFLAC Corp 10,065,425 73,500 AMBAC Inc 5,939,719 20,100 CNA Financial Corp * 2,280,094 551,900 Conseco Inc 23,731,700 174,500 Lincoln National Corp 11,680,594 194,000 Loews Corp 19,775,875 78,200 MBIA Inc 8,856,150 89,400 Old Republic International Corp 3,212,813 107,700 Progressive Corp 10,662,300 50,000 Reliastar Financial Corp 3,737,500 209,200 Safeco Corp 10,276,950 194,800 Saint Paul Cos Inc 14,293,450 188,200 Torchmark Corp 7,092,788 107,809 Transamerica Corp 10,625,925 41,700 Transatlantic Holding Inc 2,947,669 ------------- 145,178,952 ------------- Machinery -- 1.4% 403,800 Applied Materials Inc * 38,108,624 71,200 Cummins Engine Inc 5,477,950 47,400 FMC Corp * 3,937,163 ------------- 47,523,737 -------------
4 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Schedule of Investments--(Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Manufacturing -- 5.5% 232,500 Corning Inc 12,293,438 990,300 General Electric Co 61,893,749 42,800 Gillette Co 3,544,375 615,400 IBM Corp 62,078,474 179,000 International Game Technology 3,580,000 88,800 Leggett & Platt Inc 3,818,400 171,500 Minnesota Mining And Manufacturing Co 15,413,563 111,100 Owens Illinois Inc * 3,867,669 105,500 Temple Inland Inc 6,804,750 202,900 Tyco International Ltd * 15,914,969 38,600 United Technologies Corp 3,013,213 ------------- 192,222,600 ------------- Metals and Mining -- 0.1% 59,800 Phelps Dodge Corp 4,810,163 ------------- Oil and Gas -- 7.5% 209,400 Apache Corp 8,310,563 433,000 Atlantic Richfield Co 32,474,999 46,500 Burlington Resources Inc 2,354,063 184,400 Chevron Corp 14,279,475 61,200 Columbia Natural Gas Systems Inc 4,039,200 117,100 El Paso Natural Gas Co 6,586,875 200 Ensco International Inc 12,700 870,800 Exxon Corp 53,282,074 2,100 FINA Inc, Class A 138,600 52,500 Mobil Corp 3,819,375 147,700 Occidental Petroleum Corp 3,461,719 53,200 Oryx Energy Co * 1,406,475 65,900 Pennzoil Co 5,086,656 389,200 Phillips Petroleum Co 18,511,325 272,000 Schlumberger Ltd 20,723,000 199,600 Sonat Inc 9,942,575 235,800 Texaco Inc 27,175,950 342,700 Union Pacific Resources Group 8,567,500 490,800 Unocal Corp 19,171,875 670,500 USX - Marathon Group 21,833,156 ------------- 261,178,155 ------------- Paper and Allied Products -- 1.3% 75,500 Champion International Corp 4,468,656 76,900 Fort James Corp 3,229,800
See accompanying notes to the financial statements. 5 GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Paper and Allied Products -- continued 298,900 International Paper Co 15,766,975 92,900 Mead Corp 6,590,094 79,000 Sonoco Products Co 2,572,438 183,200 Westvaco Corp 6,205,900 69,600 Willamette Industries Inc 5,550,600 ------------- 44,384,463 ------------- Pharmaceuticals -- 7.5% 1,190,800 Abbott Laboratories 71,373,574 97,200 Allergan Inc 3,146,850 87,240 American Home Products Corp 6,281,280 1,080,400 Bristol Myers Squibb Co 82,110,399 71,600 Lilly (Eli) & Co 7,491,150 420,700 Merck & Co Inc 38,625,518 87,500 Pfizer Inc 4,845,313 343,500 Schering Plough Corp 16,488,000 250,200 Warner Lambert Co 31,791,037 ------------- 262,153,121 ------------- Primary Materials -- 0.1% 46,400 Rubbermaid Inc 1,160,000 37,400 Vulcan Materials Co 3,286,525 ------------- 4,446,525 ------------- Primary Processing -- 0.3% 66,800 Du Pont (EI) De Nemours & Co 4,162,475 129,700 USX-US Steel Group Inc 4,555,713 ------------- 8,718,188 ------------- Refining -- 0.8% 23,300 Murphy Oil Corp 1,250,919 415,700 Royal Dutch Petroleum 21,096,775 182,600 Tosco Corp 6,037,213 ------------- 28,384,907 ------------- Retail Trade -- 4.5% 474,800 Albertsons Inc 16,321,250 556,900 American Stores Co 13,191,569 564,500 Costco Cos Inc * 20,357,281 356,700 Dayton Hudson Corp 20,331,900 4,900 DG Corp 203,044 54,800 Dillards Department Stores Inc 2,192,000
6 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------- Retail Trade -- continued 163,300 Fruit of the Loom Inc * 4,368,275 1,600,000 Kmart Corp * 22,200,000 277,000 Limited Inc 6,301,750 29,600 Penney (JC) Co Inc 1,776,000 139,800 Rite Aid Corp 6,998,738 239,870 Safeway Inc * 12,218,353 98,600 TJX Cos Inc 2,711,500 68,900 Toys R Us Inc * 2,381,356 686,600 Wal Mart Stores Inc 24,374,300 ------------- 155,927,316 ------------- Services -- 0.3% 14,900 BHC Communications Inc, Class A 1,828,975 65,900 Disney Walt Co 5,061,944 5,000 Fleming Cos Inc 94,375 126,300 Supervalu Inc 4,957,275 ------------- 11,942,569 ------------- Technology -- 10.6% 343,900 Advanced Micro Devices Inc * 12,874,756 96,800 Avnet Inc 6,697,350 43,700 Cisco Systems Inc * 3,293,888 596,800 Dell Computer Corp 48,974,899 43,000 Grainger (WW) Inc 3,818,938 1,413,600 Intel Corp 130,227,899 804,500 Microsoft Corp 106,344,843 109,150 Oracle Corp 4,161,344 260,600 Seagate Technology Corp 9,951,663 262,500 Storage Technology Corp * 13,371,094 128,000 Teradyne Inc * 7,128,000 323,200 Xerox Corp 24,401,600 ------------- 371,246,274 ------------- Telecommunications -- 4.8% 1,442,400 AT & T Corp 56,253,599 278,958 Bell Atlantic Corp 20,189,556 17,700 Bellsouth Corp 778,800 72,200 Cincinnati Bell Inc 1,944,888 242,500 GTE Corp 10,806,406 868,300 MCI Communications Corp 24,746,550 175,601 SBC Communications 9,548,295
See accompanying notes to the financial statements. 7 GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Telecommunications -- continued 841,800 Sprint Corp 39,564,599 152,000 US West Inc 5,443,500 ------------- 169,276,193 ------------- Tobacco -- 1.1% 873,600 Philip Morris Cos Inc 38,110,799 ------------- Transportation -- 1.8% 410,300 Burlington Northern Santa Fe Railroad Co 37,619,380 149,700 CSX Corp 8,560,969 174,600 Federal Express Corp 11,599,988 79,900 Ryder System Inc 2,851,431 53,100 UAL Corp * 4,045,556 ------------- 64,677,324 ------------- Utilities -- 7.7% 434,600 AES Corp 16,080,200 207,300 Allegheny Power System Inc 6,024,656 305,900 American Electric Power Inc 13,364,006 460,200 Baltimore Gas and Electric Co 12,425,400 143,400 Carolina Power and Light Co 4,839,750 42,300 Central & South West Corp 875,081 396,300 Cinergy Corp 13,102,669 133,724 Citizens Utilities, Class B 1,119,939 178,700 CMS Energy Corp 6,422,031 131,800 Coastal Corp 7,611,450 286,000 Dominion Resources Inc 10,296,000 209,100 DPL Inc 4,953,056 154,200 DQE Inc 4,895,850 275,200 Duke Power Co 13,330,000 739,300 Edison International 17,835,613 23,800 Enova Corp 571,200 730,700 Entergy Corp 18,130,494 218,900 Florida Progress Corp 7,045,844 909,498 Houston Industries Inc 18,417,327 207,900 Illinova Corp 4,781,700 93,600 LG&E Energy Corp 2,117,700 246,100 Long Island Lighting Co 6,075,594 77,600 New Century Energies Inc * 3,133,100 94,000 Nipsco Industries Inc 3,836,375 78,100 Northern States Power Co 3,758,563 7,800 Ohio Edison Co 171,600
8 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - -------------------------------------------------------------------------------- Utilities -- continued 428,300 Pacificorp 8,887,225 99,100 PG & E Corp 2,297,881 150,700 Potomac Electric Power Co 3,419,006 47,100 PP & L Resources Inc 1,033,256 102,800 Scana Corp 2,480,050 1,436,100 Southern Co 30,247,855 143,300 Teco Energy Inc 3,448,156 355,800 Texas Utilities Co 12,408,525 139,800 Wisconsin Energy Corp 3,573,638 ------------- 269,010,790 ------------- TOTAL COMMON STOCKS (COST $2,577,016,015) 3,196,756,428 ------------- SHORT-TERM INVESTMENTS -- 15.6% Cash Equivalents -- 6.5% $48,364,924 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 48,364,924 $5,196,064 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 5,196,064 $14,188,190 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 14,188,190 107,444,941 Merrimac Cash Fund Premium Class/(a)/ 107,444,941 $51,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 51,000,000 ------------- 226,194,119 ------------- U.S. Government -- 0.4% $12,700,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 12,543,765 ------------- Repurchase Agreements -- 8.7% $175,040,721 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $175,138,938 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $179,051,781. 175,040,721 $129,578,425 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $129,650,269 and an effective yield of 4.99%, collateralized by U.S. Government and Agency Obligations with rates ranging from 5.337% to 8.000%, with maturity dates ranging from 5/31/99 to 1/1/35 and an aggregate market value of $132,170,434. 129,578,425 ------------- 304,619,146 -------------
See accompanying notes to the financial statements. 9 GMO Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value ($) - ------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $543,350,758) $ 543,357,030 -------------- TOTAL INVESTMENTS -- 107.1% (COST $3,120,366,773) 3,740,113,458 Other Assets and Liabilities (net) -- (7.1)% (247,130,754) -------------- TOTAL NET ASSETS -- 100% $3,492,982,704 ==============
Notes to the Schedule of Investments: ADR - American Depositary Receipt * Non-income producing security. /(a)/ Represents investments of security lending collateral (Note 1). /(b)/ Security has been segregated to cover margin requirements on open financial futures contracts. 10 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $3,120,366,773) (Note 1) $3,740,113,458 Receivable for investments sold 37,361,942 Dividends and interest receivable 6,005,726 Receivable for open swap contracts (Notes 1 and 6) 4,110,228 Receivable for variation margin on open futures contracts (Notes 1 and 6) 894,043 Receivable for expenses waived or borne by Manager (Note 2) 597,191 Receivable for Fund shares sold 4,230,538 Miscellaneous receivable 5,931 -------------- Total assets 3,793,319,057 -------------- Liabilities: Payable for investments purchased 60,838,426 Payable upon return of securities loaned (Note 1) 226,194,119 Payable for Fund shares repurchased 11,215,936 Payable to affiliate for (Note 2): Management fee 1,439,773 Shareholder service fee 414,956 Accrued expenses 233,143 -------------- Total liabilities 300,336,353 -------------- Net assets $3,492,982,704 ============== Net assets consist of: Paid-in-capital $2,600,901,234 Accumulated undistributed net investment income 9,554,200 Accumulated undistributed net realized gain 264,935,429 Net unrealized appreciation 617,591,841 -------------- $3,492,982,704 ============== Net assets attributable to: Class I shares $ 12,304,728 ============== Class II shares $ 39,157,489 ============== Class III shares $3,441,520,487 ============== Shares outstanding: Class I 637,713 ============== Class II 2,030,993 ============== Class III 178,331,768 ============== Net asset value per share: Class I $ 19.30 ============== Class II $ 19.28 ============== Class III $ 19.30 ==============
See accompanying notes to the financial statements. 11 GMO Core Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $3,793) $ 29,429,375 Interest (including securities lending income of $29,155) 6,852,294 ------------ Total income 36,281,669 ------------ Expenses: Management fee (Note 2) 8,440,695 Custodian and transfer agent fees 239,637 Legal fees 71,562 Audit fees 29,078 Trustees fees (Note 2) 16,604 Miscellaneous 10,342 Fees waived or borne by Manager (Note 2) (3,502,338) ------------ 5,305,580 Shareholder service fee (Note 2) Class I 14,445 Class II 71,143 Class III 2,355,128 ------------ Net expenses 7,746,296 ------------ Net investment income 28,535,373 ------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 238,777,934 Closed futures contracts 29,185,386 Closed swap contracts (7,698,505) ------------ Net realized gain 260,264,815 ------------ Change in net unrealized appreciation (depreciation) on: Investments 210,513,756 Open futures contracts (4,894,098) Open swap contracts 10,037,664 ------------ Net unrealized gain 215,657,322 ------------ Net realized and unrealized gain 475,922,137 ------------ Net increase in net assets resulting from operations $504,457,510 ============
12 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ---------------- ------------------- Increase (decrease) in net assets: Operations: Net investment income $ 28,535,373 $ 56,560,600 Net realized gain 260,264,815 857,162,171 Change in net unrealized appreciation (depreciation) 215,657,322 (272,499,847) ------------- -------------- Net increase in net assets resulting from operations 504,457,510 641,222,924 ------------- -------------- Distributions to shareholders from: Net investment income Class I (74,956) (60,981) Class II (513,250) (622,038) Class III (23,771,559) (60,383,941) ------------- -------------- Total distributions from net investment income (24,359,765) (61,066,960) ------------- -------------- Net realized gains Class I (1,989,360) (574,148) Class II (12,616,955) (6,542,685) Class III (555,275,629) (430,596,024) ------------- -------------- Total distributions from net realized gains (569,881,944) (437,712,857) ------------- -------------- (594,241,709) (498,779,817) ------------- -------------- Net share transactions: (Note 5) Class I 3,642,439 8,598,090 Class II (24,586,852) 65,659,589 Class III 478,499,701 (270,803,491) ------------- -------------- Increase (decrease) in net assets resulting from net share transactions 457,555,288 (196,545,812) ------------- -------------- Total increase (decrease) in net assets 367,771,089 (54,102,705) Net assets: Beginning of period 3,125,211,615 3,179,314,320 ------------- -------------- End of period (including accumulated undistributed net investment income of $9,554,200 and $5,378,592, respectively) $3,492,982,704 $3,125,211,615 ============== ==============
See accompanying notes to the financial statements. 13 GMO Core Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from July 2, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- -------------------------- Net asset value, beginning of period $20.12 $ 18.97 ------ ------- Income from investment operations: Net investment income 0.17+ 0.20 Net realized and unrealized gain 3.06 2.88 ------ ------- Total from investment operations 3.23 3.08 ------ ------- Less distributions to shareholders: From net investment income (0.15) (0.19) From net realized gains (3.90) (1.74) ------ ------- Total distributions (4.05) (1.93) ------ ------- Net asset value, end of period $19.30 $ 20.12 ====== ======= Total Return /(a)/ 17.02% 16.84% Ratios/Supplemental Data: Net assets, end of period (000's) $12,305 $ 9,104 Net expenses to average daily net assets 0.61%* 0.61%* Net investment income to average daily net assets 1.65%* 1.55%* Portfolio turnover rate 31% 107% Average broker commission rate per equity share $0.0301 $0.0297 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.02
+ Computed using average shares outstanding throughout the period. (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. * Annualized. 14 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from June 7, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ---------------------------- Net asset value, beginning of period $ 20.10 $ 20.12 ------- ------- Income from investment operations: Net investment income 0.17+ 0.25 Net realized and unrealized gain 3.07 2.92 ------- ------- Total from investment operations 3.24 3.17 ------- ------- Less distributions to shareholders: From net investment income (0.16) (0.30) From net realized gains (3.90) (2.89) ------- ------- Total distributions (4.06) (3.19) ------- ------- Net asset value, end of period $ 19.28 $ 20.10 ======= ======= Total Return/(a)/ 17.00% 17.46% Ratios/Supplemental Data: Net assets, end of period (000's) $39,157 $64,763 Net expenses to average daily net assets 0.55%* 0.55%* Net investment income to average daily net assets 1.68%* 1.63%* Portfolio turnover rate 31% 107% Average broker commission rate per equity share $0.0301 $0.0297 Fees and expenses voluntarily waived or borne by the Manager consisted of the following $ 0.02 $ 0.03 per share amounts:
+ Computed using average shares outstanding throughout the period. /(a)/Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. * Annualized. See accompanying notes to the financial statements. 15 GMO Core Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended February 28/29, ---------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73 $ 15.96 ---------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.18+ 0.36 0.41 0.41 0.42 0.45 Net realized and unrealized gain 3.06 3.58 5.49 0.66 1.59 1.13 ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.24 3.94 5.90 1.07 2.01 1.58 ---------- ---------- ---------- ---------- ---------- ---------- Less distributions to shareholders: From net investment income (0.16) (0.39) (0.42) (0.39) (0.43) (0.46) From net realized gains (3.90) (2.89) (1.47) (1.01) (1.53) (1.35) ---------- ---------- ---------- ---------- ---------- ---------- Total distributions (4.06) (3.28) (1.89) (1.40) (1.96) (1.81) ---------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 19.30 $ 20.12 $ 19.46 $ 15.45 $ 15.78 $ 15.73 ========== ========== ========== ========== ========== ========== Total Return /(a)/ 17.07% 22.05% 39.08% 7.45% 13.36% 10.57% Ratios/Supplemental Data: Net assets, end of period (000's) $3,441,520 $3,051,344 $3,179,314 $2,309,248 $1,942,005 $1,892,955 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49% Net investment income to average daily 1.78%* 1.78% 2.25% 2.63% 2.56% 2.79% net assets Portfolio turnover rate 31% 107% 77% 99% 40% 54% Average broker commission rate per equity share /(b)/ $ 0.0301 $ 0.0297 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.04 $ 0.01 $ 0.01 $ 0.01 $ 0.01
* Annualized. + Computed using average shares outstanding throughout the period. /(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. 16 See accompanying notes to the financial statements. GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund seeks a total return greater than that of the Standard & Poor's 500 Stock Index through investment of substantially all of its assets in common stocks chosen from the Wilshire 5000 Index and primarily in common stocks chosen from among the 1,200 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange, and/or shares of other domestic equity funds of the trust. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II, and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. 17 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $217,592,899, collateralized by cash in the amount of $226,194,119, which was invested in short-term instruments. Swap agreements The Fund may enter into swap agreements to manage its exposure to the equity markets. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these 18 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- agreements, that the counterparty to the agreements may default on its obligation to perform, or that there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 6 for a summary of all open swap agreements as of August 31, 1997. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. Prior to June 1, 1996, the premium on cash purchases was .17% of the amount invested. All purchase premiums are paid to 19 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $196,853 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .525% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .33% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .48%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $16,604. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $908,055,570 and $1,154,788,973, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and deprecation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------------- ---------------------- ---------------------- ---------------------- $3,120,366,773 $ 647,227,901 $ 27,481,216 $ 619,746,685
4. Principal shareholder At August 31, 1997, 10% of the outstanding shares of the Fund were held by one shareholder. 20 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from July 2, 1996 Six Months Ended (commencement of operations) Class I: August 31, 1997 to February 28, 1997 -------------------------------- --------------------------------- Shares Amount Shares Amount -------------- -------------- -------------- --------------- Shares sold 76,715 $ 1,635,079 422,178 $ 8,023,942 Shares issued to shareholders in reinvestment of distribution 108,520 2,007,960 30,330 574,148 Shares repurchased (30) (600) -- -- -------------- -------------- -------------- --------------- Net increase 185,205 $ 3,642,439 452,508 $ 8,598,090 ============== ============== ============== =============== Period from June 7, 1996 Six Months Ended (commencement of operations) Class II: August 31, 1997 to February 28, 1997 -------------------------------- --------------------------------- Shares Amount Shares Amount -------------- -------------- -------------- --------------- Shares sold -- $ -- 2,843,284 $ 58,494,866 Shares issued to shareholders in reinvestment of distributions 709,887 13,117,185 378,119 7,164,723 Shares repurchased (1,900,297) (37,704,037) -- -- -------------- -------------- -------------- --------------- Net increase (decrease) (1,190,410) $(24,586,852) 3,221,403 $ 65,659,589 ============== ============== ============== =============== Six Months Ended Year Ended Class III: August 31, 1997 February 28, 1997 ------------------------------- --------------------------------- Shares Amount Shares Amount -------------- -------------- -------------- --------------- Shares sold 17,473,181 $ 343,374,583 15,209,862 $ 294,136,127 Shares issued to shareholders in reinvestment of distributions 30,676,388 567,872,589 25,657,273 468,161,533 Shares repurchased (21,493,483) (432,747,471) (51,595,821) (1,033,101,151) -------------- -------------- -------------- --------------- Net increase (decrease) 26,656,086 $ 478,499,701 (11,725,686) $ (270,803,491) ============== ============== ============== ===============
21 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation --------------- --------------- ------------------- ------------------ ---------------- 545 S&P 500 September 1997 $ 246,094,750 $ 6,265,072 ================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. Swap agreements
Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) --------------------- ------------ ----------------------------------------- ---------------- $ 106,169,066/ 9/11/97 Agreement with Morgan Stanley Capital $ 6,217,894 102,378,940 Services, Inc. dated September 9, 1996 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread and to receive (pay) the change in market value of a basket of selected securities (including dividends) less the counterparty's notional amount multiplied by 6 month LIBOR adjusted by a specified spread . 15,380,772/ 10/2/97 Agreement with Morgan Stanley Capital 770,708 14,350,837 Services, Inc. dated 8/20/97 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to receive (pay) the counterparty's notional amount multiplied by the return on the Russell 2000 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread.
22 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements -- (Continued)
Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) --------------------- ------------ ----------------------------------------- ---------------- $ 27,853,318/ 10/7/97 Agreement with Morgan Stanley Capital $ 579,432 24,427,455 Services, Inc. dated December 30, 1996 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread and to receive (pay) the counterparty's notional amount multiplied by the return on the Russell 2000 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 107,930,602/ 5/6/98 Agreement with NatWest Markets dated (12,425,863) 107,930,602 5/6/97 to receive (pay) the counterparty's notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to pay (receive) the change in market value of a basket of selected securities (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread. 8,726,409/ 5/6/98 Agreement with NatWest Markets dated 146,493 7,753,340 8/20/97 to receive (pay) the counterparty's notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to pay (receive) the change in market value of a basket of selected securities (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread.
23 GMO Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements -- (Continued)
Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) --------------------- ------------ ----------------------------------------- ---------------- $ 109,371,445/ 5/13/98 Agreement with Morgan Stanley Capital $ 8,821,564 101,009,713 Services, Inc. dated 5/13/97 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to receive (pay) the change in market value of a basket of selected securities (including dividends) less the counterparty's notional amount multiplied by LIBOR adjusted by a specified spread. ================ Net unrealized appreciation $ 4,110,228 ================
24 GMO Emerging Country Debt Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 47.3% Argentina -- 11.2% ARP 35,134,370 Argentina Pro-1 Co-Participation Rights, Variable Rate, 1 mo. Peso Deposit Rate, 3.24%, due 4/01/07 23,615,020 ARP 10,000,000 Republic of Argentina Bocon Pro 1, PIK, Variable Rate, 1 mo. Peso Deposit Rate, 3.24%, due 4/01/07 10,512,102 USD 3,600,000 Republic of Argentina Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.88%, due 3/31/23 3,260,250 USD 900,000 Republic of Argentina Global Bond, 11.38%, due 1/30/17 1,050,300 USD 27,000,000 Republic of Argentina Par Bond, Variable Rate, Step Up, 5.50%, due 3/31/23 19,895,625 ----------- 58,333,297 ----------- Brazil -- 2.6% USD 16,693,636 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 13,605,313 ----------- Bulgaria -- 0.4% USD 18,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 7/28/24 1,981,080 USD 5,000,000 Bulgaria Par Bond, Series B Strips, Tranche 2, due 7/28/24 300,300 ----------- 2,281,380 ----------- Costa Rica -- 0.8% USD 2,099,136 Central Bank of Costa Rica Interest Series A, Variable Rate, 3 mo. LIBOR + .81%, 6.66%, due 5/21/05 2,046,658 USD 1,194,336 Central Bank of Costa Rica Interest Series B, Variable Rate, 3 mo. LIBOR + .81%, 6.66%, due 5/21/05 1,158,506 USD 1,000,000 Central Bank of Costa Rica Principal Bond Series A, 6.25%, due 5/21/10 865,000 ----------- 4,070,164 ----------- Dominican Republic -- 1.6% USD 10,957,000 Dominican Republic Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.88%, due 8/30/24 8,382,105 ----------- Ecuador -- 5.8% USD 8,215,000 Republic of Ecuador Discount Bond (Global Registered), Variable Rate, 6 mo. LIBOR + .81%, 6.69%, due 2/28/25 6,387,163 USD 44,500,000 Republic of Ecuador Par Bond, Variable Rate, Step up, 3.50%, due 2/28/25 23,306,875
See accompanying notes to the financial statements. 1 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- Ecuador -- continued USD 765,558 Republic of Ecuador PDI, (Global Bearer Capitalization Bond), PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.69%, due 2/27/15 538,283 ------------ 30,232,321 ------------ Jordan -- 5.0% USD 21,250,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step up 144A, 4.00%, due 12/23/23 14,662,500 USD 11,631,619 Hashemite Kingdom of Jordan PDI, Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 12/23/05 11,166,354 ------------ 25,828,854 ------------ Macedonia -- 0.2% USD 1,721,615 Macedonia Capitalization Bond, PIK, Variable Rate, 9 mo. and 10 mo. interpolated LIBOR + .81%, 6.88%, due 7/02/12 1,196,523 ------------ Mexico -- 9.1% USD 550,000 Mexico Discount Bond Series C, Variable Rate, 6 mo. LIBOR + .81%, 6.82%, due 12/31/19 518,031 FRF 335,250,000 Mexico Par Bond, 6.63%, due 12/31/19 47,188,144 ------------ 47,706,175 ------------ Nigeria -- 1.8% USD 13,500,000 Central Bank of Nigeria Par Bond, Variable Rate, Step up, 6.25%, due 11/15/20 9,585,000 ------------ Panama -- 1.1% USD 7,518,000 Panama Interest Reduction Bond, Variable Rate, Step up, 3.75%, due 7/17/14 5,798,258 ------------ Peru -- 0.6% USD 5,000,000 Peru FLIRB, Variable Rate, Step up 144A, 3.25%, due 3/07/17 2,968,750 ------------ Supra National -- 0.9% ZAR 150,000,000 International Bank Recon and Development, 0.00%, due 5/14/12 4,453,799 ------------ United States -- 0.4% Structured Notes -- 0.4% USD 2,000,000 Bankers Trust Medium Term Note, 17.10%, due 10/14/97(a) 2,188,800 ----------- Total United States 2,188,800 ------------
2 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- Venezuela -- 5.8% USD 15,000,000 Republic of Venezuela DCB, Variable Rate, 6 mo. LIBOR + .88%, 6.88%, due 12/18/08 13,659,375 USD 360,000 Republic of Venezuela FLIRB Series B Odd Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.75%, due 3/31/07 333,675 USD 15,265,500 Republic of Venezuela New Money Bond Series A, Variable Rate, 6 Mo. LIBOR + 1, 6.88%, due 12/18/05 14,425,900 USD 2,062,500 Republic of Venezuela New Money Bond Series B Odd Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.75%, due 12/18/05 1,949,063 ------------ 30,368,013 ------------ TOTAL DEBT OBLIGATIONS (COST $191,852,333) 246,998,752 ------------ LOAN ASSIGNMENTS -- 9.0% Congo Republic -- 1.7% ECU 8,195,761 Congo Loan Agreement (Direct Assignment with F.H. International and Bank of America)* 3,088,519 FRF 102,097,963 Congo Loan Agreement (Direct Assignment with F.H. International, Salomon and Bank of America)* 5,807,237 ------------ 8,895,756 ------------ Ivory Coast -- 6.0% FRF 298,297,436 Ivory Coast Credit Agreement (Assignment with Banque Paribas, J.P. Morgan, Bank of America, Chase Manhattan and Salomon)* 25,819,166 USD 2,014,873 Ivory Coast Credit Agreement (Assignment with J.P. Morgan)* 967,139 DEM 361,735 Ivory Coast Credit Agreement (Assignment with Salomon)* 88,414 SDR 2,974,383 Ivory Coast Credit Agreement (Assignment with Salomon)* 1,784,582 FRF 1,150,000 Ivory Coast Credit Agreement (Assignment with Salomon)* 99,538 JPY 428,291,342 Ivory Coast Refinancing Agreement (Assignment with Salomon)* 1,566,616 USD 1,641,700 Ivory Coast Refinancing Agreement (Assignment with Salomon)* 705,931
See accompanying notes to the financial statements. 3 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------- Ivory Coast -- continued BEF 18,333,554 Ivory Coast Refinancing Agreement (Assignment with Salomon)* 217,082 ------------ 31,248,468 ------------ Russia -- 1.3% CHF 1,500,000 International Bank for Economic Cooperation Loan Agreement (Direct Assignment with Oppenheimer)* 704,973 ECU 5,000,000 International Bank for Economic Cooperation Loan Agreement (Direct Assignment with Salomon)* 3,809,396 DEM 5,208,190 Russia Vnesheconombank Note Purchase Agreement (Direct Assignment with German Hermes Club)* 2,473,615 ------------ 6,987,984 ------------ TOTAL LOAN ASSIGNMENTS (COST $28,472,793) 47,132,208 ------------ LOAN PARTICIPATIONS -- 30.6% Algeria -- 3.3% JPY 217,500,000 Algeria Tranche 1, Japanese LIBOR + 13/16, 1.375%, (Participation with Bank of America) 1,417,122 USD 2,000,000 Algeria Tranche 2, LIBOR + 13/16, 6.50%, (Participation with Salomon) 1,737,500 JPY 500,000,000 Algeria Tranche 3, Japanese 6 mo. LIBOR +13/16, 1.375% (Participation with Credit Agricole Indosuez) 3,086,291 FRF 50,564,324 Algeria Tranche 3, PIBOR + 13/16, 4.1875%, (Participation with Salomon and Union De Banques Arabes Et Francaises) 6,231,445 FRF 40,000,000 Algeria Tranche 3, PIBOR + 13/16, 4.1875%, (Participation with Salomon) 4,929,519 ------------ 17,401,877 ------------ Cameroon -- 0.8% NLG 28,052,902 Cameroon Loan Agreement (Participation with Bank of America and Salomon)* 4,014,479 ------------
4 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------- Congo Republic -- 0.3% USD 4,179,127 Republic of Congo Loan (Participation with F.H. International)* 1,441,799 ------------ Jamaica -- 1.0% USD 6,000,000 Jamaica Refinancing Agreement Tranche B, LIBOR + 13/16, 6.56%, (Participation with Salomon and Chase Manhattan Bank) 5,550,000 ------------ Morocco -- 4.4% JPY 384,300,844 Morocco Restructuring and Consolidating Agreement Tranche A, Japanese Long Term Fixed Prime + .2175%, 3.0175%, (Participation with J.P. Morgan) 2,647,679 JPY 2,971,603,837 Morocco Restructuring and Consolidating Agreement Tranche A, Japanese Long Term Floating Prime + .1175%, 2.6175%, (Participation with Bankers Trust Co. and J.P. Morgan) 20,473,162 ------------ 23,120,841 ------------ Russia -- 20.0% USD 24,000,000 International Investment Bank Loan Agreement (Participation with Bank of America and Salomon)* 17,280,000 JPY 900,000,000 International Investment Bank Loan Agreement (Participation with Bank of America)* 4,863,247 DEM 10,000,000 International Investment Bank Loan Agreement (Participation with Bank of America)* 3,999,556 ECU 2,550,000 Russia Vnesheconombank Loan Agreement (Participation with Bank of America)* 2,879,371 FRF 313,826,550 Russia Vnesheconombank Loan Agreement (Participation with Banque Paribas, Chase Manhattan, Bank of America, Lehman Brothers and J.P. Morgan)* 53,485,812 GBP 8,311,366 Russia Vnesheconombank Loan Agreement (Participation with Chase Manhattan Bank and Bank of America)* 13,934,302 ECU 3,000,000 Russia Vnesheconombank Note Purchase Agreement (Participation with Bank of America)* 3,387,495 ECU 5,000,000 Russia Vnesheconombank Note Purchase Agreement (Participation with J.P. Morgan)* 4,580,833 ------------ 104,410,616 ------------
5 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------- Yugoslavia -- 0.8% USD 2,144,772 Yugoslavia Loan Participation Note Tranche A (Participation with Chase Manhattan Bank)* 1,045,576 USD 3,202,321 Yugoslavia Loan Participation Note Tranche B (Participation with Chase Manhattan Bank)* 1,561,131 USD 3,181,156 Yugoslavia Loan Participation Note Tranche C (Participation with Chase Manhattan Bank and J.P. Morgan)* 1,550,814 ------------- 4,157,521 ------------- TOTAL LOAN PARTICIPATIONS (COST $85,419,755) 160,097,133 ------------- Principal Amount ------------------- CALL OPTIONS PURCHASED -- 4.8% Options on Bonds -- 4.8% USD 55,000,000 Argentina Discount Bond, Expires 9/19/97 Knock out 78.00, Strike 75.00 6,891,500 USD 60,000,000 Brazil Discount Bond, Expires 11/07/97, Strike 80.00 3,492,300 USD 30,000,000 Brazil Discount Bond, Expires 9/12/97 Knock Out 77.00, Strike 77.00 2,799,000 USD 83,000,000 Brazil Par Bond, Expires 11/21/97, Strike 58.00 3,278,500 USD 50,000,000 Mexico Discount Bond, Expires 9/05/97 Knock Out 86.00, Strike 86.00 4,360,000 USD 58,000,000 Venezuela Par Bond, Expires 12/05/97, Strike 74.00 4,437,000 ------------- 25,258,300 ------------- TOTAL CALL OPTIONS PURCHASED (COST $21,254,400) 25,258,300 ------------- PUT OPTIONS PURCHASED -- 0.0% Cross Currency Options -- 0.0% USD 3,914,929 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 17,500 ------------- Options on Bonds -- 0.0% USD Russia Ministry of Finance Series 3, 15,000,000 Expires 10/06/97, Strike 77.125 60 USD 30,000,000 Russia Ministry of Finance Series 3, Expires 9/29/97, Strike 76.3125 -- ------------- 60 -------------
6 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Principal Amount Description Value ($) - -------------------------------------------------------------------------------- Options on Commodities -- 0.0% USD 200,000 NYMEX, Expires 6/05/98, Strike 16.2 42,000 ------------ TOTAL PUT OPTIONS PURCHASED (COST $356,998) 59,560 ------------ Par Value/ Shares ----------------- RIGHTS AND WARRANTS -- 0.0% Mexico -- 0.0% 75,017,000 United Mexican States Warrants, Expires 6/30/03 ** -- ------------ Nigeria -- 0.0% 14,000 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20 ** -- ------------ Venezuela -- 0.0% 312,840 Republic of Venezuela Recovery Warrants, Expires 04/15/20 ** -- ------------ TOTAL RIGHTS AND WARRANTS (COST $0) -- ------------ SHORT-TERM INVESTMENTS -- 11.2% Cash Equivalents -- 4.9% USD 10,188,707 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(b)/ 10,188,707 USD 536,856 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(b)/ 536,856 USD 1,610,568 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(b)/ 1,610,568 13,400,000 Janus Money Market Fund Institutional Shares/(b)/ 13,400,000 ------------ 25,736,131 ------------ Repurchase Agreements -- 5.5% USD 2,403,588 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $2,404,920 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.811%, with a maturity date of 3/1/35 and a market value of $2,451,668. 2,403,588
See accompanying notes to the financial statements. 7 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- Repurchase Agreements -- continued USD 26,352,125 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $26,366,911 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $26,955,984. 26,352,125 ------------- 28,755,713 ------------- U.S. Government -- 0.8% USD 4,000,000 U.S. Treasury Bill, 5.31% due 1/08/98(c) 3,926,752 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $58,413,888) 58,418,596 ------------- TOTAL INVESTMENTS -- 102.9% (COST $385,770,167) 537,964,549 Other Assets and Liabilities (net) -- (2.9)% (14,931,755) ------------- TOTAL NET ASSETS -- 100% $523,032,794 =============
Notes to the Schedule of Investments: DCB - Debt Conversion Bond FLIRB - Front Loaded Interest Reduction Bond PIK - Payment In Kind PDI - Past Due Interest Knock Out -- Option will expire if underlying security reaches knock out price. 144A -- Securities 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. 8 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments -- continued Variable and Step up rates -- The rates shown on variable and step up rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. Currency Abbreviations: ARP - Argentinian Peso BEF - Belgian Franc CHF - Swiss Franc DEM - German Mark ECU - European Currency Unit FRF - French Franc GBP - British Pound JPY - Japanese Yen NLG - Netherlands Guilder SDR - Special Drawing Rights ZAR - South African Rand THB - Thailand Baht TRL - Turkish Lira USD - United States Dollar (a) Principal is linked to the value of the Brazilian Capitalization Bond and the Brazilian IDU Bond. Restricted as to public resale. At the date of aquisition, this security was valued at cost. There were no outstanding unrestricted securities of the same class as those held. (b) Represents investments of security lending collateral (Note 1). (c) All or a portion of this security is held as collateral for open futures contracts. * Non-performing. Borrower not currently paying interest. ** Non-income producing security. See accompanying notes to the financial statements. 9 GMO Emerging Country Debt Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $385,770,167) (Note 1) $537,964,549 Cash 6,063 Foreign currency, at value (cost $155,680) (Note 1) 153,814 Receivable for investments sold 2,684,762 Interest receivable 4,681,548 Receivable for open swap contracts (Notes 1 and 6) 6,500,602 Receivable for open forward foreign currency contracts (Notes 1 and 6) 13,998,805 Receivable for expenses waived or borne by Manager (Note 2) 74,544 Receivable for Fund shares sold 120,823 Miscellaneous receivable 300,000 ------------ Total assets 566,485,510 ------------ Liabilities: Payable for investments purchased 5,594,370 Payable upon return of securities loaned (Note 1) 25,736,131 Written options outstanding, at value (premiums $1,155,454) (Notes 1 and 6) 1,909,595 Payable for Fund shares repurchased 613,591 Payable to affiliate for (Note 2): Management fee 210,057 Shareholder service fee 64,088 Accrued expenses 207,799 Payable for open forward foreign currency contracts (Notes 1 and 6) 6,300,031 Payable for variation margin on open futures contracts (Notes 1 and 6) 2,773,247 Miscellaneous payable 43,807 ------------ Total liabilities 43,452,716 ------------ Net assets $523,032,794 ============ Net assets consist of: Paid-in capital $281,826,473 Accumulated undistributed net investment income 32,440,493 Accumulated undistributed net realized gain 43,714,761 Net unrealized appreciation 165,051,067 ------------ $523,032,794 ============ Net assets attributable to: Class I shares $ 8,987,503 ============ Class II shares $ 2,684,668 ============ Class III shares $511,360,623 ============ Shares outstanding: Class I 674,958 ============ Class II 201,559 ============ Class III 38,335,213 ============ Net asset value per share: Class I $ 13.32 ============ Class II $ 13.32 ============ Class III $ 13.34 ============
10 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $17,814,562 ----------- Expenses: Management fee (Note 2) 1,299,053 Custodian and transfer agent fees 149,821 Audit fees 35,199 Transfer agent and dividend disbursing agent fees 16,699 Legal fees 14,779 Trustees fees (Note 2) 2,460 Miscellaneous 3,073 Fees waived or borne by Manager (Note 2) (453,402) ----------- 1,067,682 Shareholder service fee (Note 2) Class I 5,773 Class II 2,327 Class III 384,783 ----------- Net expenses 1,460,565 ----------- Net investment income 16,353,997 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 52,283,801 Closed futures contracts 1,098,035 Closed swap contracts 1,061,908 Written options (1,880,000) Foreign currency, forward contracts and foreign currency related transactions 18,924,826 ----------- Net realized gain 71,488,570 ----------- Change in net unrealized appreciation (depreciation) on: Investments 1,399,269 Open futures contracts (1,202,746) Open swap contracts 4,992,543 Written options (754,141) Foreign currency, forward contracts and foreign currency related transactions (1,250,977) ----------- Net unrealized gain 3,183,948 ----------- Net realized and unrealized gain 74,672,518 ----------- Net increase in net assets resulting from operations $91,026,515 ===========
See accompanying notes to the financial statements. 11 GMO Emerging Country Debt Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Year Ended August 31, 1997 February (Unaudited) 28, 1997 ---------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $16,353,997 $ 53,277,149 Net realized gain 71,488,570 223,812,662 Change in net unrealized appreciation (depreciation) 3,183,948 74,007,909 ------------ ------------- Net increase in net assets resulting from operations 91,026,515 351,097,720 ------------ ------------- Distributions to shareholders from: Net investment income Class I (87,057) -- Class II (27,620) -- Class III (5,393,380) (60,410,173) ------------ ------------- Total distributions from net investment income (5,508,057) (60,410,173) ------------ ------------- Net realized gains Class I (1,536,333) -- Class II (487,418) -- Class III (99,192,711) (149,956,551) ------------ ------------- Total distributions from net realized gains (101,216,462) (149,956,551) ------------ ------------- (106,724,519) (210,366,724) ------------ ------------- Net share transactions: (Note 5) Class I 9,415,878 34,101 Class II 2,710,273 -- Class III (28,883,710) (200,761,783) ------------ ------------- Decrease in net assets resulting from net share transactions (16,757,559) (200,727,682) ------------ ------------- Total decrease in net assets (32,455,563) (59,996,686) Net assets: Beginning of period 555,488,357 615,485,043 ------------ ------------- End of period (including accumulated undistributed net investment income of $32,440,493 and $21,594,553, respectively) $523,032,794 $555,488,357 ============ =============
12 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from December 31, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ----------------------------- Net asset value, beginning of period $14.08 $12.87 ------ ------ Income from investment operations: Net investment income 0.40 ** 0.10 Net realized and unrealized gain 2.06 1.11 ------ ------ Total from investment operations 2.46 1.21 ------ ------ Less distributions to shareholders: From net investment income (0.17) -- From net realized gains (3.05) -- ------ ------ Total distributions (3.22) -- ------ ------ Net asset value, end of period $13.32 $14.08 ====== ====== Total Return (a) 19.43% 9.40% Ratios/Supplemental Data: Net assets, end of period (000's) $8,988 $ 36 Net expenses to average daily net assets 0.69%* 0.71%* Net investment income to average daily net assets 5.24%* 6.06%* Portfolio turnover rate 61% 152% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.00(b)
* Annualized. ** Computed using average shares outstanding throughout the period. (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Fees and expenses waived or borne by the Manager were less than $0.01 per share. See accompanying notes to the financial statements. 13 GMO Emerging Country Debt Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from March 21, 1997 (commencement of operations) to August 31, 1997 (Unaudited) -------------------------- Net asset value, beginning of period $ 13.74 ------- Income from investment operations: Net investment income 0.35 Net realized and unrealized gain 2.45 ------- Total from investment operations 2.80 ------- Less distributions to shareholders: From net investment income (0.17) From net realized gains (3.05) ------- Total distributions (3.22) ------- Net asset value, end of period $ 13.32 ======= Total Return/(a)/ 22.39% Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,685 Net expenses to average daily net assets 0.63%* Net investment income to average daily net assets 6.06%* Portfolio turnover rate 61% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01
* Annualized. (a) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. 14 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended February 28/29, ------------------------------- (Unaudited) 1997 1996 1995* ----------- --------- --------- --------- Net asset value, beginning of period $ 14.09 $ 11.76 $ 8.39 $ 10.00 --------- --------- --------- --------- Income from investment operations: Net investment income 0.46 1.48 1.35 0.48 Net realized and unrealized gain (loss) 2.01 6.40 3.84 (1.59) --------- --------- --------- --------- Total from investment operations 2.47 7.88 5.19 (1.11) --------- --------- --------- --------- Less distributions to shareholders: From net investment income (0.17) (1.58) (1.17) (0.40) From net realized gains (3.05) (3.97) (0.65) -- In excess of net realized gains -- -- -- (0.10) --------- --------- --------- --------- Total distributions (3.22) (5.55) (1.82) (0.50) --------- --------- --------- --------- Net asset value, end of period $ 13.34 $ 14.09 $ 11.76 $ 8.39 ========= ========= ========= ========= Total Return /(a)/ 19.52% 74.32% 63.78% (11.65)% Ratios/Supplemental Data: Net assets, end of period (000's) $511,361 $555,452 $615,485 $243,451 Net expenses to average daily net assets 0.56%** 0.57% 0.50% 0.50%** Net investment income to average daily net assets 6.29%** 8.35% 12.97% 10.57%** Portfolio turnover rate 61% 152% 158% 104% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03 $ 0.02 $ 0.01
* For the period from April 19, 1994 (commencement of operations) to February 28, 1995. ** Annualized. /(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. See accompanying notes to the financial statements. 15 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks high total return by investing primarily in sovereign debt of countries in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and Africa. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 16 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the bond and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Forward currency contracts The Fund may enter into forward currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency 17 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. See Note 6 for all open written option contracts as of August 31, 1997. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Loan agreements The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. The Fund's investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the lender) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. Direct indebtedness of emerging countries involves a risk that the governmental entities responsible for the repayment of the debt may be unable or unwilling to pay the principal and interest when due. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. 18 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to interest rates. The Fund entered into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest rates. See Note 6 for a summary of open swap agreements as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $25,204,816 collateralized by cash in the amount of $25,736,131, which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. 19 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis, and is adjusted for the accretion of discounts. Income is not recognized and discounts are not amortized on securities for which collection is not expected. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .50% of the amount invested. In the case of cash redemptions, the fee is .25% of the amount redeemed. Effective June 1, 1996, the Manager will reduce such premium or fee only when any portion of a purchase is offset by a corresponding redemption occurring on the same day. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $230,182 in purchase premiums and $234,487 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. Investment risk Investments in emerging country debt present certain risks that are not inherent in many other securities. Many emerging countries present elements of political and/or economic instability, which may result in the fund's inability to collect on a timely basis, or in full, principal and interest payments. Further, countries may impose various types of foreign currency regulations or controls which may impede the 20 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- fund's ability to repatriate amounts it receives. The fund may acquire interests in securities or bank loans which are in default at the time of acquisition in anticipation of improving conditions in the related countries. These factors may result in significant volatility in the values of its holdings. The markets for emerging country debt are relatively illiquid. Accordingly, the fund may not be able to realize in an actual sale amounts approximating those used to value its holdings. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .50% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding custody fees, brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .35% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .50%; thus the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997, was $2,460. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the six months ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ----------------- ------------------ Investments (non-U.S. Government securities) $ 284,799,692 $ 352,012,908
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------------- ----------------------- ---------------------- -------------------- $385,770,167 $154,228,351 $2,033,969 $152,194,382
21 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1997, 31% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from December 31, 1996 Six Months Ended (commencement of operations) to August 31, 1997 February 28, 1997 ---------------------------------- -------------------------------------- Class I: Shares Amount Shares Amount -------------- --------------- ----------------- ---------------- Shares sold 547,047 $ 7,875,387 2,566 $ 34,101 Shares issued to shareholders in reinvestment of distributions 125,345 1,540,491 -- -- Shares repurchased -- -- -- -- -------------- --------------- ----------------- ---------------- Net increase 672,392 $ 9,415,878 2,566 $ 34,101 ============== =============== ================= ================ Period from March 21, 1997 (commencement of operations) to August 31, 1997 ------------------------------------ Class II: Shares Amount --------------- ---------------- Shares sold 159,652 $ 2,195,235 Shares issued to shareholders in reinvestment of distributions 41,907 515,038 Shares repurchased -- -- --------------- ---------------- Net increase 201,559 $ 2,710,273 =============== ================ Six Months Ended Year Ended August 31, 1997 February 28, 1997 ------------------------------------ ------------------------------------ Class III: Shares Amount Shares Amount -------------- -------------- --------------- ---------------- Shares sold 5,703,905 $ 84,484,383 11,310,056 $ 162,038,721 Shares issued to shareholders in reinvestment of distributions 8,351,431 102,806,110 14,440,766 185,738,098 Shares repurchased (15,129,948) (216,174,203) (38,680,281) (548,538,602) -------------- --------------- ---------------- ---------------- Net decrease (1,074,612) $ (28,883,710) (12,929,459) $ (200,761,783) ============== =============== ================ ================
22 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) ------------ ----------------- ---------------- -------------- ----------------- Buys 9/05/97 DEM 3,600,000 $ 2,000,727 $ 70,587 9/19/97 DEM 70,000,000 38,939,987 (1,958,082) 10/31/97 FRF 76,900,000 12,731,230 101,896 9/19/97 NLG 78,767,500 38,920,497 (1,937,468) 9/02/97 THB 522,000,000 15,237,910 (70,008) 9/02/97 ZAR 7,025,000 1,495,646 (308) 9/03/97 ZAR 3,525,000 750,266 (373) ----------------- $ (3,793,756) ================= Sales 12/22/97 ARP 6,000,000 $ 5,983,545 $ (4,472) 1/15/98 ARP 3,000,000 2,988,197 1,340 8/11/98 ARP 7,000,000 6,983,906 (49,781) 1/09/98 BRL 4,000,000 3,536,199 6,760 10/03/97 CHF 1,000,000 676,693 (16,714) 9/05/97 DEM 39,600,000 22,007,996 1,066,574 9/19/97 DEM 70,000,000 38,939,987 1,917,979 11/20/97 ECU 6,350,000 6,957,750 (124,991) 10/31/97 FRF 725,000,000 120,027,847 (2,137,834) 10/17/97 GBP 8,600,000 13,918,320 557,200 10/09/97 JPY 3,136,000,000 26,225,443 2,027,013 9/19/97 NLG 78,767,500 38,920,497 1,977,572 9/02/97 THB 1,044,000,000 30,475,820 4,095,975 3/23/98 THB 200,000,000 5,463,983 1,468,426 6/22/98 THB 100,000,000 2,703,433 703,722 11/14/97 ZAR 17,500,000 3,653,101 3,761 ----------------- $ 11,492,530 =================
23 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Short futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation ------------- -------------------------------- ------------------ --------------- ----------------- 100 MATIF FRF Bond September 1997 $ 11,233,803 $ (158,292) 100 U.S. Treasury Bond September 1997 11,275,000 (41,375) 150 U.S. Treasury Bill September 1997 35,598,750 (121,475) ----------------- $ (321,142) =================
At August 31, 1997, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. Written call option transactions
Principal Amount of Contracts (000's omitted) Premiums ----------------- ---------------- Outstanding, beginning of period $ -- $ -- Options written 109,091 2,025,454 Options exercised (50,000) (870,000) ----------------- ---------------- Outstanding, end of period $ 59,091 $ 1,155,454 ================= ================
Summary of written call options outstanding
Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value ----------------- --------------- ------------------ -------------- Thai Baht $ 9,091 33 THB 10/16/97 $ 584,545 Venezuela Par Bond 50,000 $ 79.50 9/25/97 1,325,050 -------------- $ 1,909,595 ==============
24 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements
Net Unrealized Expiration Appreciation Notional Amount Date Description (Depreciation) - ---------------------- ------------ --------------------------------------------------- --------------- $5,000,000 9/08/97 Agreement with Morgan Guaranty Trust Company $ (311,336) dated 8/6/97 to receive the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina, 11.75% due 2/12/07 and to pay the notional amount multiplied by 1 month LIBOR adjusted by a specified spread. 6,000,000 9/16/97 Agreement with Morgan Guaranty Trust Company 147,871 dated 6/12/97 to receive the notional amount multiplied by the change in market value (including accrued interest) of Brazil Par ZL Floating Rate Note 8/15/24 and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. 40,000,000 9/16/97 Agreement with Morgan Guaranty Trust Company (2,489,200) dated 3/20/97 to pay the notional amount multiplied by the J.P. Morgan Emerging Markets Bond Index on 9/16/97, adjusted by a specified percentage, and to receive 3.45% per year times the notional amount. 68,500,000 11/28/97 Agreement with Credit Suisse Financial Products 6,612,111 dated 5/23/97 to receive the notional amount multiplied by the change in market value (including accrued interest) of Republic of Ecuador PDI Floating Rate Note due 2/27/15 and to pay a fixed amount upon termination. 30,000,000 4/24/98 Agreement with Morgan Guaranty Trust Company (1,908,258) dated 4/24/97 to pay the notional amount multiplied by the J.P. Morgan Emerging Markets Bond Index on 4/24/98, adjusted by a specified percentage, and to receive 4.78% per year times the notional amount.
25 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements -- continued $54,278,259 2/26/99 Agreement with Credit Suisse Financial Products $8,536,814 dated 2/12/97 to purchase, for a set price, a specified amount of Bulgaria FLIRB Fixed/Floating Rate Note Series A due July 28, 2012 and Bulgaria FLIRB Fixed/Floating Rate Note Series B due July 28, 2012. In the event of default by Bulgaria, the agreement to purchase the bonds is eliminated; in its place, Credit Suisse Financial Products acquires the option to sell the same amount of the bonds to the Fund for a lower set price. TRL 550,000,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 135,955 receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. 21,500,000 5/27/01 Agreement with Credit Suisse Financial Products (1,288,434) dated 5/21/97 to pay 4.78% per year times the notional amount. The Fund receives payment only upon a default event in Ecuador, the notional amount times the difference between par value and the then-market value of the Republic of Ecuador PDI Floating Rate Note maturing 2/27/15. 47,000,000 5/29/01 Agreement with Credit Suisse Financial Products (2,934,926) dated 5/23/97 to pay 3.30% per year times the notional amount. The Fund receives payment only upon a default event in Ecuador, the notional amount times the difference between 60.25 and the then-market value of the Republic of Ecuador PDI Floating Rate Note maturing 2/27/15. =============== Net unrealized appreciation $ 6,500,602 ===============
See Notes to the Schedule of Investments for definitions of currency abbreviations. 26 GMO Fundamental Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 92.0% Aerospace -- 0.1% 3,000 Boeing Company 163,313 ----------- Automotive -- 2.0% 10,000 Chrysler Corp 351,250 20,000 General Motors Corp 1,255,000 122,500 Mascotech Industries Inc 2,564,844 ----------- 4,171,094 ----------- Banking and Financial Services -- 9.3% 32,500 American Express Co 2,526,875 105,000 Block (HR) Inc 4,121,249 45,000 Chase Manhattan Corp 5,003,437 30,000 Citicorp 3,828,749 15,000 PNC Bank Corp 648,750 40,000 Travelers Group Inc 2,540,000 2,500 Wells Fargo & Co 635,625 ----------- 19,304,685 ----------- Chemicals -- 1.0% 20,000 Albemarle Corp 491,250 5,000 Borden Chemical & Plastics L. P. 52,188 10,000 Engelhard Corp 208,750 12,300 Georgia Gulf Corp 353,625 10,000 IMC Global Inc 351,875 10,000 Millenium Chemicals Inc 210,000 15,000 Wellman Inc 341,250 ----------- 2,008,938 ----------- Computer and Office Equipment -- 0.5% 95,000 Intergraph Corp * 944,063 1 NCR Corp * 9 5,000 Silicon Graphics Inc * 137,188 ----------- 1,081,260 ----------- Consumer Goods -- 4.4% 25,000 Black and Decker Corp 957,813 10,000 Burlington Industries Inc * 120,625 62,500 Eastman Kodak Co 4,085,937 15,000 Hasbro Inc 403,125 42,500 Maytag Corp 1,166,094
See accompanying notes to the financial statements. 1 GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 100,000 Safety Kleen 2,018,750 12,500 Scotts Company, Class A * 350,000 ----------- 9,102,344 ----------- Electronic Equipment -- 0.5% 50,000 International Rectifier Corp * 1,140,625 ----------- Environmental Control -- 0.3% 37,500 Wheelabrator Technology Inc 588,281 ----------- Food and Beverage -- 3.2% 35,000 Anheuser Busch Cos Inc 1,491,875 12,500 Coors (Adolph) Co 460,938 25,000 Cott Corp 239,063 5,000 Darden Restaurants Inc 50,313 42,500 Nestle SA ADR 2,477,104 50,000 RJR Nabisco Holdings Corp 1,740,625 5,000 Sara Lee Corp 201,250 ----------- 6,661,168 ----------- Health Care -- 1.9% 32,500 Baxter International Inc 1,728,594 62,500 Beverly Enterprises Inc * 1,019,531 5,000 Haemonetics Corp * 91,250 5,000 Johnson & Johnson 283,438 42,500 Owens and Minor Holdings Co 576,406 15,000 Perrigo Co * 214,688 5,625 Quest Diagnostics Inc * 105,117 ----------- 4,019,024 ----------- Insurance -- 5.8% 7,500 Aetna Life and Casualty Co 715,781 7,500 Allmerica Financial Corp 310,313 22,500 Allstate Corp 1,643,906 25,000 Chartwell Re Corp 856,250 2,500 Cigna Corp 458,438 127,500 Reliance Group Holdings Inc 1,561,875 50,000 Sedgwick Group ADR 500,000 125,000 TIG Holdings Inc 3,906,249 35,600 USF & G Corp 780,975 20,000 Washington National Corp 590,000 75,000 Willis Corroon Group Plc ADR 773,438 ----------- 12,097,225 -----------
2 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value($) - -------------------------------------------------------------------------------- Machinery -- 0.9% 42,500 Cincinnati Milacron Inc 1,094,375 10,000 FMC Corp * 830,625 --------------- 1,925,000 --------------- Manufacturing -- 10.7% 35,000 American Greetings Corp 1,216,250 27,500 Clayton Homes Inc 462,344 22,500 Corning Inc 1,189,688 32,500 General Electric Co 2,031,250 41,000 Griffon Corp * 574,000 46,000 IBM Corp 4,640,249 15,000 Lafarge Corp 487,500 89,500 Owens Corning 3,630,343 27,500 Rockwell International Corp 1,650,000 22,500 Tenneco Inc 1,092,656 30,000 United Technologies Corp 2,341,875 110,001 Westinghouse Electric Corp 2,832,512 --------------- 22,148,667 --------------- Metals and Mining -- 1.7% 7,500 Alcan Aluminum Ltd 262,031 50,000 Allegheny Teledyne Inc 1,543,750 32,500 Amcol International Corp 552,500 7,500 Asarco Inc 230,625 10,000 Cyprus Amax Minerals Co 252,500 5,000 Newmont Mining Corp 211,563 25,000 Pittston Minerals Group 279,688 10,000 Placer Dome Inc 166,250 --------------- 3,498,907 --------------- Oil and Gas -- 7.8% 10,000 Amerada Hess Corp 581,250 20,000 Cabot Oil & Gas Corp, Class A 463,750 5,000 Dresser Industries Inc 208,750 35,000 Enron Oil & Gas 844,375 37,488 Enserch Exploration Inc * 337,389 75,000 Lasmo Plc ADR 923,438 25,000 Mitchell Energy, Class A 621,875 50,300 Mitchell Energy, Class B 1,257,500
See accompanying notes to the financial statements 3 GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Oil and Gas -- continued 22,053 Monterey Resources Inc 454,843 112,500 Occidental Petroleum Corp 2,636,718 5,000 Questar Corp 200,000 50,000 Santa Fe Energy Resources Inc 553,125 5,000 Texaco Inc 576,250 5,000 Total SA 236,875 35,000 Union Texas Petroleum Holdings Inc 815,938 30,000 Unocal Corp 1,171,875 90,000 USX - Marathon Group 2,930,624 75,000 Westcoast Energy Inc 1,434,375 --------------- 16,248,950 --------------- Paper and Allied Products -- 0.5% 5,000 Champion International Corp 295,938 7,500 International Paper Co 395,625 5,000 Weyerhaeuser Co 288,750 --------------- 980,313 --------------- Pharmaceuticals -- 1.7% 5,000 Glaxo Wellcome Plc ADR 199,375 25,000 Lilly (Eli) & Co 2,615,625 15,000 Medpartners Inc * 320,625 10,000 Smithkline Beecham Plc 433,125 --------------- 3,568,750 --------------- Primary Materials -- 0.1% 12,500 Rubbermaid Inc 312,500 --------------- Primary Processing -- 0.9% 25,000 Armco Inc * 148,438 5,000 Dow Chemical Co 442,500 10,000 Du Pont (EI) De Nemours & Co 623,125 20,000 Intermet Corp 346,250 10,000 USX-US Steel Group Inc 351,250 --------------- 1,911,563 --------------- Real Estate -- 3.9% 50,000 Amli Residential Properties Trust 1,137,500 35,000 Boston Properties Inc * 1,043,439 25,000 Crown American Realty Trust 242,188 85,000 JP Realty Inc 2,093,125 25,000 Simon Debartolo Group Inc 792,188
See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Real Estate -- continued 77,500 Summit Properties Inc 1,545,156 50,000 Walden Residential Properties Inc 1,193,750 ----------- 8,047,346 ----------- Refining -- 0.4% 7,500 Ashland Inc 375,938 35,000 Quaker State Corp 542,500 ----------- 918,438 ----------- Retail Trade -- 3.4% 25,000 Costco Cos Inc * 901,563 75,000 Federated Department Stores * 3,149,999 85,000 Wal Mart Stores Inc 3,017,499 ----------- 7,069,061 ----------- Services -- 4.3% 20,000 Cordiant Plc ADR 112,500 37,500 Ogden Corp 869,531 15,000 Pinkertons Inc 349,688 5,000 Time Warner Inc 257,500 200,000 Waste Management Inc 6,399,999 115,000 Waste Management International PLC ADR * 934,375 ----------- 8,923,593 ----------- Technology -- 8.9% 25,000 Avnet Inc 1,729,688 10,000 Bay Networks Inc * 353,750 22,500 Data General Corp * 808,594 75,000 Digital Equipment Corp * 3,224,999 15,000 G TECH Holdings Corp * 450,938 17,500 Intel Corp 1,612,188 10,000 Novell Inc * 93,750 95,000 Storage Technology Corp * 4,839,062 137,500 Tandem Computers Inc * 4,674,999 10,000 Xerox Corp 755,000 ----------- 18,542,968 ----------- Telecommunications -- 6.0% 5,000 AT & T Corp 195,000 32,500 Cox Communications, Class A * 879,531 90,000 GTE Corp 4,010,624
See accompanying notes to the financial statements. 5 GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Telecommunications -- continued 5,000 Liberty Media Group, Class A 131,875 25,000 MCI Communications Corp 712,500 25,000 SBC Communications 1,359,389 50,000 Tele-Communications, Class A 875,000 47,500 US West Inc 1,701,094 125,000 US West Media Group * 2,500,000 ----------- 12,365,013 ----------- Tobacco -- 0.5% 75,000 Imperial Tobacco Group Plc ADR 939,008 ----------- Transportation -- 2.1% 10,500 AMR Corp * 1,057,875 70,000 Canadian Pacific 2,043,125 7,500 Delta Air Lines Inc 648,750 10,000 Ryder System Inc 356,875 5,000 USAir Group Inc * 170,625 ----------- 4,277,250 ----------- Utilities -- 9.2% 35,000 Calpine Corp * 647,500 20,000 Cinergy Corp 661,250 25,000 DPL Inc 592,188 62,500 Duke Power Co 3,027,343 10,000 Energy Group PLC ADR 404,375 60,000 Entergy Corp 1,488,750 74,963 Houston Industries Inc 1,518,001 20,900 Illinova Corp 480,700 112,500 Niagara Mohawk Power Corp * 1,005,469 10,000 Northeast Utilities 100,625 25,000 Ohio Edison Co 550,000 32,500 Pacificorp 674,375 20,000 PG & E Corp 463,750 25,000 Public Service Enterprise Group Inc 620,313 25,000 Southern Co 526,563 105,625 Texas Utilities Co 3,683,671 30,000 TransCanada Pipeline Ltd 562,500 85,000 Unicom Corp 2,008,125 ----------- 19,015,498 =========== TOTAL COMMON STOCKS (COST $131,521,188) 191,030,782 -----------
6 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - -------------------------------------------------------------------------------- PREFERRED STOCKS -- 5.4% Banking and Financial Services -- 0.1% 5,000 Time Warner Financing Convertible $.31 195,000 ---------- Metals and Mining -- 0.8% 5,000 Battle Mountain Gold Convertible $3.25 249,375 50,300 Freeport McMoran Corp $0.34 1,499,569 ---------- 1,748,944 ---------- Oil and Gas -- 0.2% 15,000 Atlantic Richfield Co Convertible 9.00% 356,250 ---------- Paper and Allied Products -- 1.7% 95,000 Fort James Corp Convertible 9.00% 3,621,874 ---------- Primary Processing -- 0.1% 5,000 Armco Inc Convertible $3.625 250,625 ---------- Refining -- 0.8% 30,000 Unocal Corp Convertible 6.25% 144A 1,736,250 ---------- Services -- 0.2% 25,000 International Technology Corp Convertible 7.00% 481,250 ---------- Telecommunications -- 0.3% 15,000 Sprint Corp Convertible 8.25% 534,375 ---------- Transportation -- 1.2% 26,100 Navistar International Corp $6.00 10,000 US Air Group Inc Convertible 1,562,738 Series B $8.759 856,250 ---------- 2,418,988 ---------- TOTAL PREFERRED STOCKS (COST $8,671,197) 11,343,556 ---------- DEBT OBLIGATIONS -- 1.0% Health Care -- 0.6% $2,500,000 Roche Holdings Inc, 0.00% due 4/20/10 1,200,000 ---------- Oil and Gas -- 0.4% $1,000,000 Noram Energy Corp, 6.00% due 3/15/12 897,500 ---------- TOTAL DEBT OBLIGATIONS (COST $1,855,832) 2,097,500 ----------
See accompanying notes to financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 7.2% Cash Equivalents -- 5.7% $1,760,158 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 1,760,158 $ 244,891 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 244,891 $ 734,672 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 734,672 $9,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 9,000,000 ----------- 11,739,721 ----------- Repurchase Agreement -- 1.5% $3,073,181 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $3,074,906 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $3,143,603. 3,073,181 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $14,812,902) 14,812,902 ----------- TOTAL INVESTMENTS -- 105.6% (COST $156,861,119) 219,284,740 Other Assets and Liabilities (net) -- (5.6)% (11,555,233) ----------- TOTAL NET ASSETS-- 100% $207,729,507 ============
Notes to the Schedule of Investments: ADR - American Depositary Receipt 144A - Securities 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 investors. * Non-income producing security. /(a)/ Represents investments of security lending collateral (Note 1). 8 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $156,861,119) (Note 1) $219,284,740 Receivable for investments sold 282,522 Dividends and interest receivable 502,920 Receivable for expenses waived or borne by Manager (Note 2) 39,356 ------------ Total assets 220,109,538 ------------ Liabilities: Payable for investments purchased 447,100 Payable upon return of securities loaned (Note 1) 11,739,721 Payable to affiliate for (Note 2): Management fee 129,427 Shareholder service fee 25,874 Accrued expenses 37,909 ------------ Total liabilities 12,380,031 ------------ Net assets $207,729,507 ============ Net assets consist of: Paid-in-capital $116,965,400 Accumulated undistributed net investment income 843,392 Accumulated undistributed net realized gain 27,497,094 Net unrealized appreciation 62,423,621 ------------ $207,729,507 ============ Net assets attributable to: Class III shares $207,729,507 ============ Shares outstanding: Class III 11,632,360 ============ Net asset value per share: Class III $ 17.86 ============
See accompanying notes to the financial statements. 9 GMO Fundamental Value Fund (A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $ 2,931,866 Interest (including securities lending income of $13,586) 161,149 ------------ Total income 3,093,015 ------------ Expenses: Management fee (Note 2) 847,830 Audit fees 23,484 Custodian and transfer agent fees 21,413 Registration fees 7,188 Legal fees 5,229 Trustees fees (Note 2) 1,059 Miscellaneous 629 Fees waived or borne by Manager (Note 2) (228,568) ------------ 678,264 Shareholder service fee (Note 2) Class III 169,566 ------------ Net expenses 847,830 ------------ Net investment income 2,245,185 ------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 27,845,315 ------------ Net realized gain 27,845,315 ------------ Change in net unrealized appreciation (depreciation) on: Investments 2,943,114 ------------ Net unrealized gain 2,943,114 ------------ Net realized and unrealized gain 30,788,429 ------------ Net increase in net assets resulting from operations $33,033,614 ============
10 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ---------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 2,245,185 $ 4,658,349 Net realized gain 27,845,315 18,434,364 Change in net unrealized appreciation (depreciation) 2,943,114 17,227,189 ------------ ------------ Net increase in net assets resulting from operations 33,033,614 40,319,902 ------------ ------------ Distributions to shareholders from: Net investment income Class III (2,339,999) (4,445,572) ------------ ------------ Total distributions from net investment income (2,339,999) (4,445,572) ------------ ------------ Net realized gains Class III (9,663,730) (17,043,498) ------------ ------------ Total distributions from net realized gains (9,663,730) (17,043,498) ------------ ------------ (12,003,729) (21,489,070) ------------ ------------ Net share transactions: (Note 5) Class III (45,883,602) 1,324,046 ------------ ------------ Increase (decrease) in net assets resulting from net share transactions (45,883,602) 1,324,046 ------------ ------------ Total increase (decrease) in net assets (24,853,717) 20,154,878 Net assets: Beginning of period 232,583,224 212,428,346 ------------ ------------ End of period (including accumulated undistributed net investment income of $843,392 and $938,206, respectively) $207,729,507 $232,583,224 ============ ============
See accompanying notes to the financial statements. 11 GMO Fundamental Value Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------------------------ (Unaudited) 1997 1996 1995 1994 1993 ---------- -------- ------- ------- ------- ------- Net asset value, beginning of period $ 16.33 $ 15.04 $ 12.54 $ 12.49 $ 11.71 $ 10.82 ------- -------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.18 0.33 0.37 0.34 0.27 0.30 Net realized and unrealized gain 2.26 2.53 3.26 0.55 1.64 1.32 ------- -------- ------- ------- ------- ------- Total from investment operations 2.44 2.86 3.63 0.89 1.91 1.62 ------- -------- ------- ------- ------- ------- Less distributions to shareholders: From net investment income (0.17) (0.32) (0.37) (0.32) (0.28) (0.30) From net realized gains (0.74) (1.25) (0.76) (0.52) (0.85) (0.43) ------- -------- ------- ------- ------- ------- Total distributions (0.91) (1.57) (1.13) (0.84) (1.13) (0.73) ------- -------- ------- ------- ------- ------- Net asset value, end of period $ 17.86 $ 16.33 $ 15.04 $ 12.54 $ 12.49 $ 11.71 ======= ======== ======= ======= ======= ======= Total Return/(a)/ 15.31% 20.03% 29.95% 7.75% 16.78% 15.66% Ratios/Supplemental Data: Net assets, end of period (000's) $207,730 $232,583 $212,428 $182,871 $147,767 $62,339 Net expenses to average daily net assets 0.75%* 0.75% 0.75% 0.75% 0.75% 0.73% Net investment income to average daily net assets 1.99%* 2.15% 2.61% 2.84% 2.32% 2.77% Portfolio turnover rate 10% 25% 34% 49% 65% 83% Average broker commission rate per equity share/(b)/ $0.0674 $ 0.0590 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.03
* Annualized. /(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. 12 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Fundamental Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks long-term capital growth through investment primarily in equity securities. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. 13 GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $11,260,103, collateralized by cash in the amount of $11,739,721, which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. 14 GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited)--(Continued) August 31, 1997 - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. The Manager may waive such premium to the extent that a transaction results in minimal brokerage and transaction costs to the Fund. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $150 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .75% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .60% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .75%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $1,059. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $21,498,027 and $83,556,415, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - --------------------------------------------------------------------------------------------------- $ 156,861,119 $ 65,890,956 $ 3,467,335 $ 62,423,621
15 GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited)--(Continued) August 31, 1997 - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1997, 93% of the outstanding shares of the Fund were held by four shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended Class III: August 31, 1997 February 29, 1997 ----------------------------- -------------------------- Shares Amount Shares Amount ------------ ------------ ----------- ---------- Shares sold 5,670 $ 100,000 7,028 $ 107,000 Shares issued to shareholders in reinvestment of distributions 587,700 10,016,398 1,161,012 17,805,046 Shares repurchased (3,207,188) (56,000,000) (1,045,307) (16,588,000) ------------ ------------ ----------- ----------- Net increase (decrease) (2,613,818) $(45,883,602) 122,733 $ 1,324,046 ============ ============= =========== ===========
16 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value ($)/ Shares Description Value ($) - -------------------------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 518,570 GMO Core Fund (Class III Shares) 10,008,400 371,774 GMO Currency Hedged International Core Fund (Class III Shares) 4,665,765 1,112,286 GMO Domestic Bond Fund (Class III Shares) 11,467,667 80,083 GMO Emerging Country Debt Fund (Class III Shares) 1,068,309 318,066 GMO Emerging Markets Fund (Class III Shares) 4,138,041 91,342 GMO Growth Fund (Class III Shares) 419,261 110,004 GMO Inflation Indexed Bond Fund (Class III Shares) 1,124,236 93,508 GMO International Bond Fund (Class III Shares) 1,018,303 206,140 GMO International Core Fund (Class III Shares) 5,040,116 38,851 GMO International Small Companies Fund (Class III Shares) 543,912 286,810 GMO REIT Fund (Class III Shares) 3,831,782 214,739 GMO Small Cap Growth Fund (Class III Shares) 2,684,238 152,344 GMO Small Cap Value Fund (Class III Shares) 2,780,272 1,271,234 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 13,424,235 105,596 GMO Value Fund (Class III Shares) 1,648,347 ----------- TOTAL MUTUAL FUNDS (COST $61,597,727) 63,862,884 ----------- SHORT-TERM INVESTMENT -- 0.0% Repurchase Agreement -- 0.0% $ 6,708 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $6,712 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $6,862. 6,708 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $6,708) 6,708 ----------- TOTAL INVESTMENTS -- 100.0% (Cost $61,604,435) 63,869,592 Other Assets and Liabilities (net) -- 0.0% (336) ----------- TOTAL NET ASSETS-- 100% $63,869,256 ===========
See accompanying notes to the financial statements. 1 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $61,604,435) (Note 1) $63,869,592 Receivable for expenses waived or borne by Manager (Note 2) 16,793 ------------ Total assets 63,886,385 ------------ Liabilities: Payable to affiliate for (Note 2): Shareholder service fee 3,383 Accrued expenses 13,746 ------------ Total liabilities 17,129 ------------ Net assets $63,869,256 ============ Net assets consist of: Paid-in-capital $58,388,148 Accumulated undistributed net investment income 433,389 Accumulated undistributed net realized gain 2,782,562 Net unrealized appreciation 2,265,157 ============ $63,869,256 ============ Net assets attributable to: Class I shares $14,107,807 ============ Class II shares $34,592,428 ============ Class III shares $15,169,021 ============ Shares outstanding: Class I 1,160,947 ============ Class II 2,844,780 ============ Class III 1,247,141 ============ Net asset value per share: Class I $ 12.15 ============ Class II $ 12.16 ============ Class III $ 12.16 ============
2 See accompanying notes to the financial statements. GMO Global Balanced Allocation Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 447,920 Interest 1,935 ----------- Total income 449,855 ----------- Expenses: Custodian and transfer agent fees 12,191 Registration fees 8,214 Audit fees 7,576 Legal fees 786 Trustees fees (Note 2) 171 Fees waived or borne by Manager (Note 2) (28,938) ----------- -- Shareholder service fee (Note 2) Class I 6,619 Class II 9,847 ----------- Net expenses 16,466 ----------- Net investment income 433,389 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 104,856 Realized gain distributions from investment company shares 2,683,941 ----------- Net realized gain 2,788,797 ----------- Change in net unrealized appreciation (depreciation) on: Investments 1,491,067 ----------- Net unrealized gain 1,491,067 ----------- Net realized and unrealized gain 4,279,864 ----------- Net increase in net assets resulting from operations $4,713,253 ===========
See accompanying notes to the financial statements. 3 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Period from July 29, 1996 August 31, 1997 (commencement of operations) (Unaudited) February 28, 1997 ---------------- ---------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 433,389 $ 64,042 Net realized gain 2,788,797 206,668 Change in net unrealized appreciation (depreciation) 1,491,067 774,090 ----------- ----------- Net increase in net assets resulting from operations 4,713,253 1,044,800 ----------- ----------- Distributions to shareholders from: Net investment income Class I -- (64,042) ----------- ----------- Total distributions from net investment income -- (64,042) ----------- ----------- In excess of net investment income Class I -- (1,958) ----------- ----------- Total distributions in excess of net investment income -- (1,958) ----------- ----------- Net realized gains Class I (31,446) (48,900) Class II (90,795) -- Class III (39,804) -- ----------- ----------- Total distributions from net realized gains (162,045) (48,900) ----------- ----------- (162,045) (114,900) ----------- ----------- Net share transactions: (Note 5) Class I 6,467,806 6,386,281 Class II 17,216,657 13,891,398 Class III 14,426,006 -- ----------- ----------- Increase in net assets resulting from net share transactions 38,110,469 20,277,679 ----------- ----------- Total increase in net assets 42,661,677 21,207,579 Net assets: Beginning of period 21,207,579 -- ----------- ----------- End of period (including accumulated undistributed net investment income of $433,389 and $0, respectively) $63,869,256 $21,207,579 =========== ===========
4 See accompanying notes to the financial statements. GMO Global Balanced Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - -------------------------------------------------------------------------------
Six Months Ended Period from July 29, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 --------------- ---------------------------- Net asset value, beginning of period $ 11.19 $10.00 -------- ------- Income from investment operations: Net investment income (b) 0.08 0.22 Net realized and unrealized gain 0.91 1.35 -------- ------- Total from investment operations 0.99 1.57 -------- ------- Less distributions to shareholders: From net investment income -- (0.22) From net realized gains (0.03) (0.16) -------- ------- Total distributions (0.03) (0.38) -------- ------- Net asset value, end of period $ 12.15 $11.19 ======== ======= Total Return/(a)/ 8.86% 15.85% Ratios/Supplemental Data: Net assets, end of period (000's) $14,108 $6,848 Net expenses to average daily net assets 0.13%* 0.15%* Net investment income to average daily net assets/(b)/ 1.83%* 2.75%* Portfolio turnover rate 18% 33% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. * Annualized. See accompanying notes to the financial statements. 5 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from December 31, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ---------------------------- Net asset value, beginning of period $11.19 $ 10.86 ------- -------- Income from investment operations: Net investment income (b) 0.09 -- Net realized and unrealized gain 0.91 0.33 ------- -------- Total from investment operations 1.00 0.33 ------- -------- Less distributions to shareholders: From net realized gains (0.03) -- ------- -------- Total distributions (0.03) -- ------- -------- Net asset value, end of period $12.16 $ 11.19 ======= ======== Total Return/(a)/ 8.95% 3.04% Ratios/Supplemental Data: Net assets, end of period (000's) $34,592 $14,359 Net expenses to average daily net assets 0.07%* 0.07%* Net investment income to average daily net assets/(b)/ 1.84%* (0.07)%* Portfolio turnover rate 18% 33% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. * Annualized. 6 See accompanying notes to the financial statements. GMO Global Balanced Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Period from June 2, 1997 (commencement of operations) to August 31, 1997 (Unaudited) ------------------------- Net asset value, beginning of period $ 11.56 -------- Income from investment operations: Net investment income (b) 0.06 Net realized and unrealized gain 0.57 -------- Total from investment operations 0.63 -------- Less distributions to shareholders: From net realized gains (0.03) -------- Total distributions (0.03) -------- Net asset value, end of period $ 12.16 ======== Total Return (a) 5.47% Ratios/Supplemental Data: Net assets, end of period (000's) $15,169 Net expenses to average daily net assets 0.00%* Net investment income to average daily net assets (b) 2.20%* Portfolio turnover rate 18% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01
(a)Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (b)Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. * Annualized. See accompanying notes to the financial statements. 7 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - ------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global Balanced Allocation Fund (the "Fund"), which commenced operations on July 29, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund operates as a "fund-of-funds" in that, pursuant to management provided by the Manager, it makes investments in other funds of the Trust ("underlying funds"). The Fund seeks a total return greater than that of the GMO Global Balanced Index, a benchmark developed by the Manager. The Fund will pursue its objective by investing primarily in Class III shares of domestic equity, international equity, and fixed income funds of the Trust. The Fund offers three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Shares of underlying funds are valued at their net asset value as reported on each business day. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. 8 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .35% of the amount invested. In the case of cash redemptions, the fee is .11% of the amount redeemed. Prior to June 30, 1997, the premium on cash purchases was .31% and the fee on cash redemptions was .03%. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997 the Fund 9 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- received $89,703 in purchase premiums and no redemption fees. There is no premium for reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates The Manager determines the allocation of the assets of the Fund among designated underlying funds. The Manager does not charge an advisory fee for asset allocation advice provided to the Fund, but receives advisory fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .13% for Class I shares and .07% for Class II shares. No shareholder service fee is charged for Class III shares. GMO has agreed to reimburse all expenses until further notice (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses). Prior to November 25, 1996, GMO had agreed to reimburse these expenses to the extent that the Fund's annual expenses exceeded .05% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $171. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $49,406,554 and $8,253,015, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------ ------------------- ------------------ ------------------ $ 61,604,435 $2,393,120 $127,963 $2,265,157
4. Principal shareholders At August 31, 1997, 74% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. 10 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from July 29, 1996 Six Months Ended (commencement of operations) Class I: August 31,1997 to February 28, 1997 -------------------------------- ------------------------------- Shares Amount Shares Amount -------------- -------------- ------------- --------------- Shares sold 548,802 $ 6,466,367 601,548 $ 6,271,381 Shares issued to shareholders in reinvestment of distributions 2,586 31,446 10,580 114,900 Shares repurchased (2,569) (30,007) -- -- -------------- -------------- ------------- --------------- Net increase 548,819 $ 6,467,806 612,128 $ 6,386,281 ============== ============== ============= =============== Period from December 31, 1996 Six Months Ended (commencement of operations) Class II: August 31,1997 to February 28, 1997 ------------------------------- -------------------------------- Shares Amount Shares Amount -------------- -------------- -------------- --------------- Shares sold 1,554,303 $ 17,130,385 1,283,396 $ 13,891,398 Shares issued to shareholders in reinvestment of distributions 7,391 89,950 -- -- Shares repurchased (310) (3,678) -- -- -------------- -------------- ------------- --------------- Net increase 1,561,384 $ 17,216,657 1,283,396 $ 13,891,398 ============== ============== ============= =============== Period from June 2, 1997 (commencement of operations) Class III: to August 31, 1997 -------------------------------- Shares Amount -------------- --------------- Shares sold 1,243,871 $ 14,386,202 Shares issued to shareholders in reinvestment of distributions 3,270 39,804 Shares repurchased -- -- -------------- ---------------- Net increase 1,247,141 $ 14,426,006 ============== ================
11 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - ------------------------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 670,376 GMO Core Fund (Class III Shares) 12,938,263 226,863 GMO Currency Hedged International Core Fund (Class III Shares) 2,847,129 52,761 GMO Emerging Country Debt Fund (Class III Shares) 703,832 267,529 GMO Emerging Markets Fund (Class III Shares) 3,480,549 94,703 GMO Growth Fund (Class III Shares) 434,689 76,185 GMO Inflation Indexed Bond Fund (Class III Shares) 778,613 70,313 GMO International Bond Fund (Class III Shares) 765,711 248,888 GMO International Core Fund (Class III Shares) 6,085,320 37,370 GMO International Small Companies Fund (Class III Shares) 523,180 241,385 GMO REIT Fund (Class III Shares) 3,224,903 218,595 GMO Small Cap Growth Fund (Class III Shares) 2,732,435 147,699 GMO Small Cap Value Fund (Class III Shares) 2,695,503 143,663 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 1,517,079 117,151 GMO Value Fund (Class III Shares) 1,828,732 ----------- TOTAL MUTUAL FUNDS (COST $39,270,154) 40,555,938 ----------- SHORT-TERM INVESTMENT -- 0.0% Repurchase Agreement -- 0.0% $ 9,636 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $9,641 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $9,856. 9,636 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $9,636) 9,636 ----------- TOTAL INVESTMENTS -- 100.0% (Cost $39,279,790) 40,565,574 Other Assets and Liabilities (net) -- 0.0% 3,053 ----------- TOTAL NET ASSETS -- 100% $40,568,627 ===========
See accompanying notes to the financial statements. 1 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $39,279,790) (Note 1) $40,565,574 Receivable for expenses waived or borne by Manager (Note 2) 16,765 ----------- Total assets 40,582,339 ----------- Liabilities: Payable to affiliate for (Note 2): Shareholder service fee 129 Accrued expenses 13,583 ----------- Total liabilities 13,712 ----------- Net assets $40,568,627 =========== Net assets consist of: Paid-in-capital $36,011,348 Accumulated undistributed net investment income 235,779 Accumulated undistributed net realized gain 3,035,716 Net unrealized appreciation 1,285,784 =========== $40,568,627 =========== Net assets attributable to: Class I shares $ 1,226,782 =========== Class III shares $39,341,845 =========== Shares outstanding: Class I 108,248 =========== Class III 3,469,237 =========== Net asset value per share: Class I $ 11.33 =========== Class III $ 11.34 ===========
2 See accompanying notes to the financial statements. GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 235,452 Interest 748 ----------- Total income 236,200 ----------- Expenses: Registration fees 9,818 Audit fees 8,106 Custodian and transfer agent fees 7,977 Legal fees 775 Trustees fees (Note 2) 171 Miscellaneous 168 Fees waived or borne by Manager (Note 2) (27,015) ----------- -- Shareholder service fee (Note 2) Class I 413 ----------- Net expenses 413 ----------- Net investment income 235,787 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 73,548 Realized gain distributions from investment company shares 3,087,507 ----------- Net realized gain 3,161,055 ----------- Change in net unrealized appreciation (depreciation) on: Investments 908,152 ----------- Net unrealized gain 908,152 ----------- Net realized and unrealized gain 4,069,207 ----------- Net increase in net assets resulting from operations $4,304,994 ===========
See accompanying notes to the financial statements. 3 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Period from Ended November 25, 1996 August 31, (commencement of 1997 operations) (Unaudited) to February 28, 1997 --------------- ------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 235,787 $ 202,369 Net realized gain 3,161,055 672,205 Change in net unrealized appreciation (depreciation) 908,152 377,632 ----------- ----------- Net increase in net assets resulting from operations 4,304,994 1,252,206 ----------- ----------- Distributions to shareholders from: Net investment income Class III -- (202,377) ----------- ----------- Total distributions from net investment income -- (202,377) ----------- ----------- Net realized gains Class I (17,980) -- Class III (644,646) (134,918) ----------- ----------- Total distributions from net realized gains (662,626) (134,918) ----------- ----------- (662,626) (337,295) ----------- ----------- Net share transactions: (Note 5) Class I 1,163,492 -- Class III 4,976,188 29,871,668 ----------- ----------- Increase in net assets resulting from net share transactions 6,139,680 29,871,668 ----------- ----------- Total increase in net assets 9,782,048 30,786,579 Net assets: Beginning of period 30,786,579 -- ----------- ----------- End of period (including accumulated undistributed net investment income of $235,779 and distributions in excess of net investment income $8, respectively) $40,568,627 $30,786,579 =========== ===========
4 See accompanying notes to the financial statements. GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from April 30, 1997 (commencement of operations) to August 31, 1997 (Unaudited) -------------------------- Net asset value, beginning of period $10.24 ------- Income from investment operations: Net investment income (b) 0.04 Net realized and unrealized gain 1.24 ------- Total from investment operations 1.28 ------- Less distributions to shareholders: From net realized gains (0.19) ------- Total distributions (0.19) ------- Net asset value, end of period $11.33 ======= Total Return/(a)/ 12.51% Ratios/Supplemental Data: Net assets, end of period (000's) $1,227 Net expenses to average daily net assets 0.13%* Net investment income to average daily net assets/(b)/ 1.30%* Portfolio turnover rate 14% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01
/(a)/ Calculation excludes purchase premiums and redemption fees. The total return would have been lower had certain expenses not been waived during the period shown. /(b)/ Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. * Annualized. See accompanying notes to the financial statements. 5 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Period from Six Months November 25, 1996 Ended (commencement of August 31, 1997 operations) (Unaudited) to February 28, 1997 --------------- -------------------- Net asset value, beginning of period $ 10.30 $ 10.00 ------- ------- Income from investment operations: Net investment income (b) 0.07 0.12 Net realized and unrealized gain 1.16 0.38 ------- ------- Total from investment operations 1.23 0.50 ------- ------- Less distributions to shareholders: From net investment income -- (0.12) From net realized gains (0.19) (0.08) ------- ------- Total distributions (0.19) (0.20) ------- ------- Net asset value, end of period $ 11.34 $ 10.30 ======= ======= Total Return/(a)/ 11.96% 5.09% Ratios/Supplemental Data: Net assets, end of period (000's) $39,342 $30,787 Net expenses to average daily net assets 0.00%* 0.00%* Net investment income to average daily net assets/(b)/ 1.29%* 3.21%* Portfolio turnover rate 14% 10% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. * Annualized. 6 See accompanying notes to the financial statements. GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global (U.S.+) Equity Allocation Fund (the "Fund"), which commenced operations on November 25, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund operates as a "fund-of-funds" in that, pursuant to management provided by the Manager, it makes investments in other funds of the Trust ("underlying funds"). The Fund seeks a total return greater than that of the GMO Global (U.S.+) Equity Index, a benchmark developed by the Manager. The Fund will pursue its objective by investing primarily in Class III shares of domestic equity, international equity, and fixed income funds of the Trust. The Fund offers three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Shares of underlying funds are valued at their net asset value as reported on each business day. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral 7 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary. 8 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .47% of the amount invested. In the case of cash redemptions, the fee is .15% of the amount redeemed. Prior to June 30, 1997, the premium on cash purchases was .42% and the fee on cash redemptions was .05%. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $35,943 in purchase premiums and $1,531 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates The Manager determines the allocation of the assets of the Fund among designated underlying funds. The Manager does not charge an advisory fee for asset allocation advice provided to the Fund, but receives advisory fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .13% for Class I shares and .07% for Class II shares. No shareholder service fee is charged for Class III shares. GMO has agreed to reimburse all expenses until further notice (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses). The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $171. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $13,740,792 and $4,958,268, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation -------------------- -------------------- ------------------- ------------------ $ 39,279,790 $ 1,741,475 $ 455,691 $ 1,285,784
9 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1997, 49% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from April 30, 1997 (commencement of operations) Class I: to August 31, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold 106,668 $1,145,512 Shares issued to shareholders in reinvestment of distributions 1,580 17,980 Shares repurchased -- -- --------------- --------------- Net increase 108,248 $1,163,492 =============== =============== Period from November 25, 1996 Six Months Ended (commencement of operations) Class III: August 31, 1997 to February 28, 1997 -------------------------------- --------------------------------- Shares Amount Shares Amount -------------- --------------- --------------- --------------- Shares sold 677,223 $7,121,850 3,086,368 $30,859,765 Shares issued to shareholders in reinvestment of distributions 16,835 191,584 -- -- Shares repurchased (213,689) (2,337,246) (97,500) (988,097) -------------- --------------- --------------- --------------- Net increase 480,369 $4,976,188 2,988,868 $29,871,668 =============== =============== =============== ===============
10 GMO Growth Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 95.6% Advertising -- 0.2% 6,900 Interpublic Group Inc 336,375 ----------- Aerospace -- 0.9% 3,800 Allied Signal Inc 313,738 20,200 Raytheon Co 1,111,000 500 Teleflex Inc 15,844 4,600 Thiokol Corp 366,275 ----------- 1,806,857 ----------- Automotive -- 0.4% 1,200 Bandag Inc 63,975 3,400 Borg Warner Automotive Inc 177,225 800 Breed Technologies Inc 17,000 8,650 Genuine Parts Co 267,069 4,900 Lear Corp * 224,481 ----------- 749,750 ----------- Banking and Financial Services -- 6.5% 11,500 Ahmanson (HF) & Co 583,625 3,000 Alex Brown Inc 254,063 2,350 Amsouth Bancorp 98,847 7,600 BankBoston Corp 631,750 2,100 Bankers Trust New York Corp 217,875 5,800 Barnett Banks Inc 395,125 5,996 Bear Stearns Inc 237,223 5,200 Beneficial Corp 372,125 17,200 Charles Schwab & Co Inc 729,925 5,900 Chase Manhattan Corp 656,006 4,900 City National Corp 136,894 2,001 Comdisco Inc 54,395 1,000 Credit Acceptance Corp * 14,125 10,000 Dime Bancorp Inc 193,125 7,100 Edwards (AG) Inc 282,225 900 Fleet Financial Group Inc 57,994 6,800 Franklin Resources Inc 526,150 1,900 Golden State Bancorp * 54,863 2,500 Greenpoint Financial Corp 153,906 8,800 Hibernia Corporation, Class A 133,650 700 John Nuveen and Co Inc, Class A 21,306 500 Liberty Financial Cos 24,781
See accompanying notes to the financial statements. 1 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 8,300 MGIC Investment Corp 417,594 27,900 Morgan Stanley Dean Witter Discover & Co 1,342,688 3,000 Paine Webber Group Inc 115,313 2,200 Peoples Heritage Finance Group Inc 81,950 9,500 PNC Bank Corp 410,875 600 Popular Inc 25,950 8,600 Providian Financial Corp 320,350 7,300 Rowe (T) Price & Associates Inc 401,500 800 Sunamerica Inc 43,100 53,197 Travelers Group Inc 3,378,010 180 Washington Federal Inc 4,905 8,300 Washington Mutual Inc 496,963 -------------- 12,869,176 -------------- Chemicals -- 0.8% 300 Betzdearborn Inc 19,556 5,600 Great Lakes Chemical Corp 260,400 2,300 Lubrizol Corp 100,769 10,900 Morton International Inc 362,425 5,800 Praxair Inc 309,938 2,900 Scherer (RP) Corp * 163,306 9,300 Sherwin Williams Co 255,169 8,900 Wellman Inc 202,475 -------------- 1,674,038 -------------- Computer and Office Equipment -- 8.0% 113,500 Compaq Computer Corp 7,434,250 33,700 EMC Corp * 1,729,231 22,700 Gateway 2000 Inc 888,138 32,600 Hewlett Packard Co 1,998,788 5,000 Lexmark International Group Inc * 175,000 37,500 Micron Technology Inc * 1,671,094 25,600 Quantum Corp 897,600 9,300 Silicon Graphics Inc * 255,169 5,400 Stratus Computer Inc * 299,700 10,600 Western Digital Corp 510,125 -------------- 15,859,095 -------------- Construction -- 0.3% 11,900 Home Depot Inc 561,531 1,300 McDermott International Inc 41,925 -------------- 603,456 --------------
2 See accompanying notes to financial statements. GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- 5.5% 1,500 Avon Products Inc 96,094 1,400 Block Drug Co Inc, Class A 66,500 18,600 Callaway Golf Co 626,588 3,300 Clorox Co 433,125 18,600 Colgate-Palmolive Co 1,167,150 3,200 Department 56 Inc * 87,400 6,700 Eastman Kodak Co 438,013 5,200 First Brands Corp 129,675 6,900 Fortune Brands Inc 237,188 2,400 Hasbro Inc 64,500 2,200 Hon Industries Inc 128,700 11,400 Jones Apparel Group Inc 572,138 2,100 Kinetic Concepts Inc 38,588 5,300 Kohls Corp * 365,369 4,700 Lancaster Colony Corp 243,519 4,200 Liz Claiborne Inc 187,163 12,300 Miller Herman Inc 636,525 11,400 Newell Co 448,875 8,100 Nike Inc, Class B 432,338 1,000 Nine West Group Inc * 42,250 17,200 Procter and Gamble Co 2,288,675 8,600 Reebok International Ltd 377,863 8,500 Russell Corp 242,250 8,900 Sunbeam Corp 391,600 3,300 Technology Data Corp * 128,494 6,300 Terra Industries Inc 84,263 6,900 Unifi Inc 264,788 7,300 VF Corp 645,138 3,400 Wallace Computer Services 105,400 -------------- 10,970,169 -------------- Electronic Equipment -- 5.3% 1,800 3 Com Corp * 89,888 6,400 Adaptec Inc 307,200 7,000 ADC Telecommunications Inc 259,875 14,100 Altera Corp 750,825 31,700 American Power Conversion Corp * 832,125 200 Andrew Corp 4,975
See accompanying notes to the financial statements. 3 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- continued 2,400 Atmel Corp * 84,900 14,800 Cypress Semiconductor Corp * 262,700 7,100 Dallas Semiconductor Corp 272,019 200 Diebold Inc 9,275 700 Hubbell Inc, Class B 32,113 900 Integrated Device Technology Inc * 12,263 4,100 Lattice Semiconductor Corp * 261,119 10,100 Linear Technology Corp 662,181 3,400 Litton Industries * 169,575 5,900 LSI Logic * 189,906 12,600 Maxim Integrated Products Inc * 870,975 11,000 Microchip Technology Inc 444,813 4,900 Molex Inc 191,713 37,600 Motorola Inc 2,758,900 3,200 Perkin Elmer Corp 236,800 13,100 Read Rite Corp * 375,806 1,700 Sanmina Corp * 134,725 2,700 Tellabs Inc 161,156 6,400 Texas Instruments 727,200 4,400 Vishay Intertechnology Inc 117,425 5,400 Xilinx Inc * 256,500 -------------- 10,476,952 -------------- Environmental Control -- 0.1% 15,900 Wheelabrator Technology Inc 249,431 -------------- Food and Beverage -- 5.7% 7,471 Archer Daniels Midland Co 161,555 131,100 Coca Cola Co 7,513,669 36,900 Coca Cola Enterprises Inc 1,014,750 8,900 CPC International Inc 793,213 1,200 Darden Restaurants Inc 12,075 400 Dean Foods Co 17,750 6,700 Flowers Industries Inc 123,950 6,300 IBP Inc 144,506 6,000 Pepsico Inc 216,000 11,500 RJR Nabisco Holdings Corp 400,344 2,400 Sara Lee Corp 96,600 3,700 Smith Food and Drug Center, Class B * 202,575 2,500 Unilever NV ADR 503,125
4 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- continued 1,500 Universal Corp 54,563 7,600 Whitman Corp 186,200 -------------- 11,440,875 -------------- Health Care -- 4.8% 3,400 Bard (CR) 117,300 2,700 Beckman Instruments Inc 127,069 3,800 Becton Dickinson & Co 182,163 26,500 BioMet Inc 549,875 9,950 Cardinal Health Inc 659,188 67,600 Columbia HCA Healthcare Corp 2,133,625 1,400 Forest Laboratories Inc * 57,488 10,400 Health Care & Retirement * 378,950 3,600 Hillenbrand Industries Inc 158,175 32,700 Johnson & Johnson 1,853,681 4,100 Laboratory Corporation America Holdings 10,763 7,500 Lincare Holdings Inc * 357,656 9,400 Mallinckrodt Inc 341,925 2,300 Marquette Medical Systems, Class A * 59,513 6,500 McKesson Corp 608,969 8,500 Novacare Corp * 128,031 7,500 Perrigo Co * 107,344 7,800 Sofamor Denek Group Inc * 373,913 6,800 Stryker Corp 271,575 4,695 Tenet Healthcare Corp * 127,939 7,500 United States Surgical Corp 247,031 5,500 Universal Health Services, Class B * 240,969 6,300 Vencor Inc * 252,788 4,100 Wellpoint Health Network * 222,938 -------------- 9,568,868 -------------- Insurance -- 3.5% 12,900 AFLAC Corp 710,306 2,800 AMBAC Inc 226,275 3,400 American Bankers Insurance Group 224,400 600 American International Group Inc 56,625 1,800 American National Insurance Co 174,600 17,600 Conseco Inc 756,800 600 Equitable of Iowa Cos 39,075 10,900 Foundation Health Systems * 346,756
See accompanying notes to the financial statements. 5 GMO Growth Fund (A Series of GMO Trust) Schedule of Investment -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- continued 2,300 Fremont General Corp 91,713 2,100 Horace Mann Educators Corp 114,713 9,800 Loews Corp 998,988 5,000 MBIA Inc 566,250 1 Pacificare Health Systems, Class A * 53 1,396 Pacificare Health Systems, Class B * 95,452 7,900 Progressive Corp 782,100 2,300 Reliastar Financial Corp 171,925 12,800 Saint Paul Cos Inc 939,200 11,800 Torchmark Corp 444,713 3,900 Transatlantic Holding Inc 275,681 -------------- 7,015,625 -------------- Machinery -- 2.5% 35,800 Applied Materials Inc * 3,378,625 1,300 Donaldson Co Inc 58,013 8,500 Lam Research Corp * 480,250 300 Nordson Corp 17,325 5,700 Novellus System Inc * 653,363 14,800 Oakley Inc 180,375 1,600 Smith International Inc * 116,400 800 Tecumseh Products Co, Class B 43,200 2,500 US Filter Corp * 90,000 -------------- 5,017,551 -------------- Manufacturing -- 3.4% 9,400 American Greetings Corp 326,650 2,600 Corning Inc 137,475 5,500 Crane Co 242,688 40,046 Gillette Co 3,316,309 400 IBM Corp 40,350 9,300 Leggett & Platt Inc 399,900 15,700 Owens Illinois Inc * 546,556 6,200 Trinity Industries Inc 246,450 20,000 Tyco International Ltd * 1,568,750 -------------- 6,825,128 -------------- Metals and Mining -- 0.1% 6,600 Timken Co 247,088 --------------
6 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Oil and Gas -- 2.8% 6,500 Apache Corp 257,969 8,800 Atlantic Richfield Co 660,000 400 BJ Services Co * 28,900 900 Columbia Natural Gas Systems Inc 59,400 4,800 El Paso Natural Gas Co 270,000 1 Enserch Exploration Inc * 3 100 FINA Inc, Class A 6,600 2,100 National Fuel Natural Gas Co 93,319 2,600 Pennzoil Co 200,688 6,800 Phillips Petroleum Co 323,425 1,400 Pioneer Natural Resources Co * 55,913 10,000 Santa Fe Energy Resources Inc 110,625 7,100 Schlumberger Ltd 540,931 8,200 Sonat Inc 408,463 2,000 Texaco Inc 230,500 11,400 Union Pacific Resources Group 285,000 4,800 Union Texas Petroleum Holdings Inc 111,900 15,400 Unocal Corp 601,563 36,100 USX - Marathon Group 1,175,506 5,000 Williams Co Inc 232,813 ----------- 5,653,518 ----------- Paper and Allied Products -- 0.1% 900 Plum Creek Timber Co Limited Partnership 29,981 4,800 Sonoco Products Co 156,300 ----------- 186,281 ----------- Pharmaceuticals -- 7.5% 76,204 Abbott Laboratories 4,567,477 1,200 Agouron Pharmaceuticals Inc 52,800 4,400 Allergan Inc 142,450 2,000 Barr Laboratories Inc 78,500 8,725 Bergen Brunswig Corp, Class A 366,450 2,900 Bristol Myers Squibb Co 220,400 3,600 General Nutrition Cos Inc * 99,900 7,100 Immnunex Corp * 310,625 4,230 Mark IV Industries Inc 106,279 20,600 Merck & Co Inc 1,891,338 68,212 Pfizer Inc 3,777,240 24,500 Schering Plough Corp 1,176,000 16,300 Warner Lambert Co 2,071,119 ----------- 14,860,578 -----------
See accompanying notes to the financial statements. 7 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Primary Materials -- 0.4% 1,100 EVI Inc 57,819 7,600 Premark International Inc 226,100 8,700 Rubbermaid Inc 217,500 1,800 Tupperware Corp 60,413 2,200 Vulcan Materials Co 193,325 ----------- 755,157 ----------- Printing and Publishing -- 0.2% 1,100 Central Newspapers, Class A 74,869 700 Pulitzer Publishing Co 36,794 700 Washington Post Co, Class B 294,525 ----------- 406,188 ----------- Real Estate -- 0.0% 900 Lennar Corp 33,638 ----------- Refining -- 0.3% 14,700 Tosco Corp 486,019 3,600 Valero Energy Corp 119,925 ----------- 605,944 ----------- Retail Trade -- 7.4% 31,300 Albertsons Inc 1,075,938 24,600 American Stores Co 582,713 19,300 Autozone Inc * 545,225 5,600 Bed, Bath & Beyond Inc * 173,600 1,100 Blair Corp 17,325 800 Circuit City Stores Inc 28,500 187 Consolidated Stores Corp 7,001 35,000 Costco Cos Inc * 1,262,188 700 Dayton Hudson Corp 39,900 15,775 DG Corp 653,677 3,300 Dillards Department Stores Inc 132,000 21,500 Food Products Lion Inc 155,875 11,700 Fruit of the Loom Inc * 312,975 24,200 Gap Inc 1,075,388 2,700 Hannaford Brothers Co 91,800 3,200 Kmart Corp * 44,400 7,900 Limited Inc 179,725
8 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade -- continued 800 Macfrugals Bargains Close Outs Inc * 21,800 1,800 Meyer Fred Inc * 93,600 2,000 Pep Boys, Manny, Moe & Jack 53,000 6,400 Rite Aid Corp 320,400 4,500 Ross Stores Inc 132,188 36,363 Safeway Inc * 1,852,215 3,800 Southland Corp * 10,806 800 Stanhome Inc 26,000 3,600 Tandy Corp 238,950 3,200 TJX Cos Inc 88,000 11,900 Toys R Us Inc * 411,294 1,800 Value City Department Stores Inc * 14,400 141,100 Wal Mart Stores Inc 5,009,050 500 Weismarkets Inc 16,875 ----------- 14,666,808 ----------- Services -- 2.6% 600 BHC Communications Inc, Class A 73,650 2,800 Catalina Marketing Corp * 129,675 3,300 Cintas Corp 230,175 1,000 Circus Circus Enterprises Inc * 23,938 35,600 Disney Walt Co 2,734,525 3,300 Fleming Cos Inc 62,288 300 Kingworld Productions Inc 11,925 5,500 Robert Half International Inc * 321,063 9,450 Servicemaster Industry Inc 240,384 9,700 Supervalu Inc 380,725 1,100 Total System Services Inc 25,781 25,900 Waste Management Inc 828,800 7,000 Wolverine World Wide 154,875 ----------- 5,217,804 ----------- Technology -- 19.2% 3,500 Acxiom Corp 62,125 12,400 Adobe Systems Inc 488,250 18,200 Advanced Micro Devices Inc * 681,363 9,500 America Online Inc * 612,750 7,000 Autodesk Inc 306,250 7,400 Avnet Inc 511,988 3,500 Bay Networks Inc * 123,813
See accompanying notes to the financial statements. 9 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Technology -- continued 11,500 BMC Software Inc 720,188 18,400 Cisco Systems Inc * 1,386,900 6,300 Cognex Corp * 240,975 15,000 Compuware Corp 926,250 57,600 Dell Computer Corp 4,726,800 3,100 Fiserv Inc * 139,500 5,800 Grainger (WW) Inc 515,113 124,700 Intel Corp 11,487,988 2,800 Keane Inc 164,500 7,500 KLA Instruments Corp * 531,563 79,300 Microsoft Corp 10,482,469 26,700 Oracle Corp 1,017,938 2,850 Paychex Inc 97,613 36,100 Seagate Technology Corp 1,378,569 700 Solectron Corp 29,313 16,800 Storage Technology Corp * 855,750 2,400 Sungard Data Systems Inc * 125,100 4,700 Symantec * 113,094 9,600 Teradyne Inc * 534,600 ----------- 38,260,762 ----------- Telecommunications -- 2.6% 67,600 AT & T Corp 2,636,400 400 Century Telephone 14,525 1,700 Comsat Corp 36,869 16,900 MCI Communications Corp 481,650 1 SBC Communications 43 26,700 Sprint Corp 1,254,900 27,400 Worldcom Inc * 820,288 ----------- 5,244,675 ----------- Tobacco -- 2.8% 127,384 Philip Morris Cos Inc 5,557,127 ----------- Transportation -- 1.5% 14,000 Burlington Northern Santa Fe Railroad Co 1,283,625 14,600 CSX Corp 834,938 10,100 Federal Express Corp 671,019 2,200 Gatx Corp 137,638 ----------- 2,927,220 -----------
10 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Description Shares Value ($) - -------------------------------------------------------------------------------- Utilities -- 0.2% 800 Brooklyn Union Natural Gas Co 24,150 6,868 Citizens Utilities, Class B 57,520 1,100 Coastal Corp 63,525 1,918 Houston Industries Inc 38,846 4,800 MCN Corp 147,300 3,300 Natural Gas Clearinghouse 54,038 1,600 Nicor Inc 58,100 1,994 PG & E Corp 46,245 193 Texas Utilities Co 6,674 ------------ 496,398 ------------ TOTAL COMMON STOCKS (COST $146,796,290) 190,582,532 ------------ SHORT-TERM INVESTMENTS -- 19.8% Cash Equivalents -- 16.2% $9,322,164 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 9,322,164 $675,605 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 675,605 $3,426,816 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 3,426,816 9,962,992 Merrimac Cash Fund Premium Class/(a)/ 9,962,992 $9,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 9,000,000 ------------ 32,387,577 ------------ U.S. Government -- 0.3% $700,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 691,389 ------------ Repurchase Agreement -- 3.3% $6,499,364 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $6,503,010 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $6,648,297. 6,499,364 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $39,577,981) 39,578,330 ------------ TOTAL INVESTMENTS -- 115.4% (COST $186,374,271) 230,160,862 Other Assets and Liabilities (net) -- (15.4)% (30,787,144) ------------ TOTAL NET ASSETS -- 100% $199,373,718 ============
See accompanying notes to the financial statements. 11 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments: ADR - American Depositary Receipt * Non-income producing security. /(a)/ Represents investments of security lending collateral (Note 1). /(b)/ Security has been segregated to cover margin requirements on open financial futures contracts. 12 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $186,374,271) (Note 1) $230,160,862 Receivable for investments sold 4,381,246 Dividends and interest receivable 133,898 Receivable for open swap contracts (Notes 1 and 6) 954,089 Receivable for variation margin on open futures contracts (Notes 1 and 6) 19,864 Receivable for expenses waived or borne by Manager (Note 2) 40,588 ------------ Total assets 235,690,547 ------------ Liabilities: Payable for investments purchased 3,344,774 Payable upon return of securities loaned (Note 1) 32,387,577 Payable for Fund shares repurchased 434,023 Payable to affiliate for (Note 2): Management fee 85,104 Shareholder service fee 25,938 Accrued expenses 39,413 ------------ Total liabilities 36,316,829 ------------ Net assets $199,373,718 ============ Net assets consist of: Paid-in-capital $135,699,182 Accumulated undistributed net investment income 208,375 Accumulated undistributed net realized gain 18,895,325 Net unrealized appreciation 44,570,836 ------------ $199,373,718 ============ Net assets attributable to: Class III shares $199,373,718 ============ Shares outstanding: Class III 43,449,109 ============ Net asset value per share: Class III $ 4.59 ============
See accompanying notes to financial statements. 13 GMO Growth Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $ 977,303 Interest (including securities lending income of $13,884) 352,632 ----------- Total income 1,329,935 ----------- Expenses: Management fee (Note 2) 511,712 Custodian and transfer agent fees 42,832 Audit fees 23,426 Legal fees 4,950 Trustees fees (Note 2) 983 Registration fees 288 Miscellaneous 615 Fees waived or borne by Manager (Note 2) (247,076) ----------- 337,730 Shareholder service fee (Note 2) Class III 153,920 ----------- Net expenses 491,650 ----------- Net investment income 838,285 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 18,299,867 Closed futures contracts 1,347,258 Closed swap contracts (2,260,246) ----------- Net realized gain 17,386,879 ----------- Change in net unrealized appreciation (depreciation) on: Investments 16,173,086 Open futures contracts 138,001 Open swap contracts 2,603,610 ----------- Net unrealized gain 18,914,697 ----------- Net realized and unrealized gain 36,301,576 ----------- Net increase in net assets resulting from operations $37,139,861 ===========
14 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ----------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 838,285 $ 3,964,241 Net realized gain 17,386,879 108,934,644 Change in net unrealized appreciation (depreciation) 18,914,697 (50,479,915) ------------ ------------ Net increase in net assets resulting from operations 37,139,861 62,418,970 ------------ ------------ Distributions to shareholders from: Net investment income Class III (1,298,039) (4,363,604) ------------ ------------ Total distributions from net investment income (1,298,039) (4,363,604) ------------ ------------ Net realized gains Class III (50,944,575) (77,849,380) ------------ ------------ Total distributions from net realized gains (50,944,575) (77,849,380) ------------ ------------ (52,242,614) (82,212,984) ------------ ------------ Net share transactions: (Note 5) Class III (29,706,961) (127,388,467) ------------ ------------ Decrease in net assets resulting from net share transactions (29,706,961) (127,388,467) ------------ ------------ Total decrease in net assets (44,809,714) (147,182,481) Net assets: Beginning of period 244,183,432 391,365,913 ------------ ------------ End of period (including accumulated undistributed net investment income of $208,375 and $668,129, respectively) $199,373,718 $244,183,432 ============ ============
See accompanying notes to the financial statements. 15 GMO Growth Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------------------------ (Unaudited) 1997 1996 1995 1994 1993 ---------------- -------- -------- -------- -------- -------- Net asset value, beginning of period $ 5.18 $ 5.65 $ 4.45 $ 4.14 $ 4.55 $ 5.82 ------- -------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.03 0.07 0.08 0.06 0.06 0.07 Net realized and unrealized gain 0.90 1.03 1.54 0.38 0.11 0.17 ------- -------- ------- ------- ------- ------- Total from investment operations 0.93 1.10 1.62 0.44 0.17 0.24 ------- -------- ------- ------- ------- ------- Less distributions to shareholders: From net investment income (0.04) (0.08) (0.07) (0.06) (0.06) (0.08) From net realized gains (1.48) (1.49) (0.35) (0.07) (0.52) (1.43) ------- -------- ------- ------- ------- ------- Total distributions (1.52) (1.57) (0.42) (0.13) (0.58) (1.51) ------- -------- ------- ------- ------- ------- Net asset value, end of period $ 4.59 $ 5.18 $ 5.65 $ 4.45 $ 4.14 $ 4.55 ======= ======== ======= ======= ======= ======= Total Return /(a)/ 20.20% 21.64% 37.77% 10.86% 4.13% 3.71% Ratios/Supplemental Data: Net assets, end of period (000's) $199,374 $244,183 $391,366 $239,006 $230,698 $168,143 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49% Net investment income to average daily net assets 0.82%* 1.21% 1.54% 1.50% 1.38% 1.15% Portfolio turnover rate 25% 100% 76% 139% 57% 36% Average broker commission rate per equity share /(c)/ $0.0277 $ 0.0281 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01 (b) (b) (b) (b)
/(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Fees and expenses waived or borne by the Manager were less than $0.01 per share. /(c)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. * Annualized. 16 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Growth Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks long-term growth of capital through investment of substantially all of its assets in common stocks chosen from the Wilshire 5000 Index and primarily in the equity securities of companies chosen from among the 1,200 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. 17 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $31,324,576, collateralized by cash in the amount of $32,387,577, which was invested in short-term instruments. Swap agreements The Fund may enter into swap agreements to manage its exposure to the equity markets. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform, or that 18 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 6 for a summary of all open swap agreements as of August 31, 1997. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. Prior to June 1, 1996, the premium on cash purchases was .17% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund 19 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- received $345 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .50% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .33% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .48%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the year ended February 28, 1997 was $983. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $48,724,067 and $115,423,000, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - ------------------ ------------------ ------------------ ------------------ $186,374,271 $46,239,035 $2,452,444 $43,786,591
4. Principal shareholders At August 31, 1997, 70% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. 20 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended Class III: August 31, 1997 February 28, 1997 ------------------------------ -------------------------------- Shares Amount Shares Amount ------------ ------------- ------------- ---------------- Shares sold 83,220 $ 428,959 2,041,337 $ 11,235,177 Shares issued to shareholders in reinvestment of distributions 12,178,950 52,068,328 15,334,132 78,162,104 Shares repurchased (15,948,801) (82,204,248) (39,536,755) (216,785,748) ------------- -------------- -------------- --------------- Net decrease (3,686,631) $ (29,706,961) (22,161,286) $ (127,388,467) ============= ============== ============== ===============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation --------------- --------------- ---------------- --------------------- ----------------- 11 S&P 500 September 1997 $4,967,050 $ 169,844 =================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. Swap agreements
Notional Amount Expiration Unrealized Fund/Counterparty Date Description Appreciation --------------------- ------------ ----------------------------------------- ---------------- $ 11,821,545/ 9/19/97 Agreement with Morgan Stanley Capital $ 370,084 10,497,940 Services, Inc. dated September 19, 1996 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread and to receive (pay) the counterparty's notional amount multiplied by the return on the
21 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements -- continued
Notional Amount Expiration Unrealized Fund/Counterparty Date Description Appreciation --------------------- ------------ ----------------------------------------- ---------------- Russell 2000 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. $ 10,131,000/ 6/23/98 Agreement with Morgan Stanley Capital 584,005 10,131,000 Services, Inc. dated 6/23/97 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to receive (pay) the counterparty's notional amount multiplied by the return on the Russell 2000 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread. ================ Net unrealized appreciation $ 954,089 ================
22 GMO International Equity Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO International Equity Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value ($)/ Shares Description Value ($) - -------------------------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 79,168 GMO Emerging Country Debt Fund (Class III Shares) 1,056,099 1,140,572 GMO Emerging Markets Fund (Class III Shares) 14,838,841 92,004 GMO Evolving Countries Fund (Class III Shares) 920,040 61,817 GMO Inflation Indexed Bond Fund (Class III Shares) 631,768 137,149 GMO International Bond Fund (Class III Shares) 1,493,553 2,379,808 GMO International Core Fund (Class III Shares) 58,186,308 209,313 GMO International Small Companies Fund (Class III Shares) 2,930,383 59,956 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 633,131 ----------- TOTAL MUTUAL FUNDS (COST $80,983,197) 80,690,123 ----------- SHORT-TERM INVESTMENT -- 0.7% Repurchase Agreement -- 0.7% $ 686,374 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $686,759 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $702,102. 686,374 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $686,374) 686,374 ----------- TOTAL INVESTMENTS -- 100.8% (Cost $81,669,571) 81,376,497 Other Assets and Liabilities (net)-- (0.8)% (671,441) ----------- TOTAL NET ASSETS-- 100% $80,705,056 ===========
See accompanying notes to the financial statements. 1 GMO International Equity Allocation Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $80,983,197) (Note 1) $81,376,497 Cash 259,787 Receivable for expenses waived or borne by Manager (Note 2) 20,366 ----------- Total assets 81,656,650 ----------- Liabilities: Payable for investments purchased 935,000 Payable to affiliate for (Note 2): Shareholder service fee 1,224 Accrued expenses 15,370 ----------- Total liabilities 951,594 ----------- Net assets $80,705,056 =========== Net assets consist of: Paid-in-capital $78,662,307 Accumulated undistributed net investment income 488,180 Accumulated undistributed net realized gain 1,161,269 Net unrealized appreciation 393,300 =========== $80,705,056 =========== Net assets attributable to: Class I shares $ 5,274,602 =========== Class II shares $16,131,335 =========== Class III shares $59,299,119 =========== Shares outstanding: Class I 491,118 =========== Class II 1,502,898 =========== Class III 5,523,149 =========== Net asset value per share: Class I $ 10.74 =========== Class II $ 10.73 =========== Class III $ 10.74 ===========
2 See accompanying notes to the financial statements. GMO International Equity Allocation Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 494,241 Interest 551 ---------- Total income 494,792 ---------- Expenses: Custodian and transfer agent fees 14,522 Registration fees 13,307 Audit fees 7,925 Legal fees 955 Trustees fees (Note 2) 181 Miscellaneous 168 Fees waived or borne by Manager (Note 2) (37,058) ---------- -- Shareholder service fee (Note 2) Class I 997 Class II 5,615 ---------- Net expenses 6,612 ---------- Net investment income 488,180 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (196,563) Realized gain distributions from investment company shares 1,363,912 ---------- Net realized gain 1,167,349 ---------- Change in net unrealized appreciation (depreciation) on: Investments (162,551) ---------- Net unrealized loss (162,551) ---------- Net realized and unrealized gain 1,004,798 ---------- Net increase in net assets resulting from operations $1,492,978 ==========
See accompanying notes to the financial statements. 3 GMO International Equity Allocation Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Period from October 11, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 --------------- --------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 488,180 $ 258,062 Net realized gain 1,167,349 831,547 Change in net unrealized appreciation (depreciation) (162,551) 555,851 ------------ ------------ Net increase in net assets resulting from operations 1,492,978 1,645,460 ------------ ------------ Distributions to shareholders from: Net investment income Class I -- -- Class II -- (98,709) Class III -- (159,298) ------------ ------------ Total distributions from net investment income -- (258,007) ------------ ------------ Net realized gains Class I (22,318) -- Class II (175,525) (44,198) Class III (524,314) (71,327) ------------ ------------ Total distributions from net realized gains (722,157) (115,525) ------------ ------------ (722,157) (373,532) ------------ ------------ Net share transactions: (Note 5) Class I 5,337,667 -- Class II 175,525 15,022,907 Class III 28,472,141 29,654,067 ------------ ------------ Increase in net assets resulting from net share transactions 33,985,333 44,676,974 ------------ ------------ Total increase in net assets 34,756,154 45,948,902 Net assets: Beginning of period 45,948,902 -- ------------ ------------ End of period (including accumulated undistributed net investment income of $488,180 and $0, respectively) $ 80,705,056 $ 45,948,902 ============ ============
4 See accompanying notes to the financial statements. GMO International Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from April 1, 1997 (commencement of operations) to August 31, 1997 (Unaudited) ---------------------------- Net asset value, beginning of period $10.17 ------ Income from investment operations: Net investment income/(b)/ 0.07+ Net realized and unrealized gain 0.62 ------ Total from investment operations 0.69 ------ Less distributions to shareholders: From net realized gains (0.12) ------ Total distributions (0.12) ------ Net asset value, end of period $10.74 ====== Total Return/(a)/ 6.70% Ratios/Supplemental Data: Net assets, end of period (000's) $5,275 Net expenses to average daily net assets 0.13%* Net investment income to average daily net assets (b) 1.79%* Portfolio turnover rate 9% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01
/(a)/Calculation excludes purchase premiums and redemption fees. The total return would have been lower had certain expenses not been waived during the period shown. /(b)/Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 5 GMO International Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from December 23, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ----------------------------- Net asset value, beginning of period $10.41 $ 10.10 ------- ------- Income from investment operations: Net investment income/(b)/ 0.08+ -- Net realized and unrealized gain 0.36 0.41 ------- ------- Total from investment operations 0.44 0.41 ------- ------- Less distributions to shareholders: From net investment income -- (0.07) From net realized gains (0.12) (0.03) ------- ------- Total distributions (0.12) (0.10) ------- ------- Net asset value, end of period $ 10.73 $ 10.41 ======= ======= Total Return/(a)/ 4.24% 4.07% Ratios/Supplemental Data: Net assets, end of period (000's) $16,131 $15,490 Net expenses to average daily net assets 0.07%* 0.07%* Net investment income to average daily net assets/(b)/ 1.43%* (0.07)%* Portfolio turnover rate 9% 0% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 /(c)/
/(a)/Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. + Computed using average shares outstanding throughout the period. * Annualized. /(c)/Fees and expenses waived or borne by the Manager were less than $0.01 per share. 6 See accompanying notes to the financial statements. GMO International Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from October 11, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ---------------------------- Net asset value, beginning of period $ 10.41 $ 10.00 ------- ------- Income from investment operations: Net investment income/(b)/ 0.09+ 0.10 Net realized and unrealized gain 0.36 0.41 ------- ------- Total from investment operations 0.45 0.51 ------- ------- Less distributions to shareholders: From net investment income -- (0.07) From net realized gains (0.12) (0.03) ------- ------- Total distributions (0.12) (0.10) ------- ------- Net asset value, end of period $ 10.74 $ 10.41 ======= ======= Total Return/(a)/ 4.24% 5.11% Ratios/Supplemental Data: Net assets, end of period (000's) $59,299 $30,459 Net expenses to average daily net assets 0.00%* 0.01%* Net investment income to average daily net assets/(b)/ 1.81%* 3.60%* Portfolio turnover rate 9% -- Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01
/(a)/Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 7 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO International Equity Allocation Fund (the "Fund"), which commenced operations on October 11, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund operates as a "fund-of-funds" in that, pursuant to management provided by the Manager, it makes investments in other funds of the Trust ("underlying funds"). The Fund seeks a total return greater than that of the Morgan Stanley Capital International Europe, Australian and Far East Index. The Fund will pursue its objective by investing primarily in Class III shares of international equity and fixed income funds of the Trust. The Fund offers three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Shares of underlying funds are valued at their net asset value as reported on each business day. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. 8 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .80% of the amount invested. In the case of cash redemptions, the fee is .11% of the amount redeemed. Prior to June 30, 1997, the fee on cash redemptions was .10%. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the 9 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Fund. For the six months ended August 31, 1997, the Fund received $209,010 in purchase premiums and $4,300 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates The Manager determines the allocation of the assets of the Fund among designated underlying funds. The Manager does not charge an advisory fee for asset allocation advice provided to the Fund, but receives advisory fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .13% for Class I shares and .07% for Class II shares. No shareholder service fee is charged for Class III shares. GMO has agreed to reimburse all expenses until further notice (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses). Prior to November 25, 1996, GMO had agreed to reimburse these expenses to the extent that the Fund's annual expenses exceeded .05% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the period ended August 31, 1997 was $181. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the period ended August 31, 1997, aggregated $40,123,341 and $5,032,000, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------- ------------------ ------------------ ------------------ $80,983,197 $1,629,371 $1,236,071 $393,300
4. Principal shareholders At August 31, 1997, 43% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 10 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from April 1, 1997 (commencement of operations) Class I: to August 31, 1997 ----------------------------------- Shares Amount --------------- ---------------- Shares sold 489,162 $ 5,315,349 Shares issued to shareholders in reinvestment of distributions 1,956 22,318 Shares repurchased -- -- --------------- ---------------- Net increase 491,118 $ 5,337,667 =============== ================ Six Months Ended Class II: August 31, 1997 ---------------------------------- Shares Amount --------------- --------------- Shares sold -- $ -- Shares issued to shareholders in reinvestment of distributions 15,397 175,525 Shares repurchased -- -- --------------- --------------- Net increase 15,397 $ 175,525 =============== =============== Period from December 23, 1996 (commencement of operations) Class II: to February 28, 1997 ---------------------------------- Shares Amount --------------- --------------- Shares sold 1,473,267 $ 14,880,000 Shares issued to shareholders in reinvestment of distributions 14,234 142,907 Shares repurchased -- -- --------------- --------------- Net increase 1,487,501 $ 15,022,907 =============== ===============
11 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions -- (Continued)
Six Months Ended Class III: August 31, 1997 -------------------------------------- Shares Amount ----------------- ------------------- Shares sold 2,969,431 $ 32,243,187 Shares issued to shareholders in reinvestment of distributions 45,952 524,314 Shares repurchased (417,442) (4,295,360) ----------------- ------------------- Net increase 2,597,941 $ 28,472,141 ================= =================== Period from October 11, 1996 (commencement of operations) Class III: to February 28, 1997 -------------------------------------- Shares Amount ----------------- ------------------- Shares sold 2,910,529 $ 29,506,688 Shares issued to shareholders in reinvestment of distributions 14,679 147,379 Shares repurchased -- -- ----------------- ------------------- Net increase 2,925,208 $ 29,654,067 ================= ===================
12 GMO REIT Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS -- 97.4% Apartments -- 15.3% 32,400 Ambassador Apartments Inc 720,900 33,900 AMLI Residential Properties Trust 771,225 60,700 Apartment Investment & Management Co, Class A 1,968,956 22,200 Associated Estates Realty Capital 503,663 87,700 Avalon Properties Inc 2,461,081 98,300 Bay Apartment Communities Inc 3,655,531 71,000 Berkshire Realty Co 803,188 88,900 BRE Properties Inc 2,394,744 112,804 Camden Property Trust 3,327,718 39,000 Columbus Realty Trust 884,813 300,025 Equity Residential Properties Trust 14,607,442 49,000 Evans Withycombe Residential 1,166,813 59,400 Gables Residential Trust 1,562,963 71,400 Irvine Apartment Communities 2,043,825 101,600 Merry Land & Investment Co 2,209,800 26,500 Mid America Apartment Community 727,094 38,900 Oasis Residential Inc 909,288 44,500 Post Properties Inc 1,660,406 110,200 Security Capital Atlantic 2,486,388 38,400 Security Capital Atlantic (Rights) 599 397,275 Security Capital Industry (Rights) 3,099 314,500 Security Capital Pacific (Rights) 4,906 297,000 Security Capital Pacific Trust 6,478,313 20,800 Smith (Charles E) Residential 634,400 55,900 Summit Properties Inc 1,114,506 8,300 Town & Country Trust 141,100 295,838 United Dominion Realty Trust 4,178,712 50,500 Walden Residential Properties Inc 1,205,688 ----------- 58,627,161 ----------- Diversified -- 7.9% 581,600 Catellus Development Corp * 11,195,799 86,600 Colonial Properties Trust 2,500,575 101,500 Cousins Properties Inc 2,708,781 460,000 First Union Real Estate 6,037,500 80,000 Glenborough Realty Trust Inc 2,065,000 124,900 Lexington Corporate Properties 1,850,081 45,600 MGI Properties Inc 1,057,350 50,900 Pacific Gulf Properties Inc 1,164,338 13,100 Pennsylvania Real Estate 338,144
See accompanying notes to the financial statements. 1 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Diversified -- continued 72,200 Washington Realty Trust 1,218,375 ----------- 30,135,943 ----------- Enclosed Malls -- 9.5% 97,000 CBL & Associates Properties 2,346,188 73,100 Crown American Realty Trust 708,156 156,100 General Growth Properties 5,346,425 86,600 JP Realty Inc 2,132,525 130,400 Macerich Co 3,610,450 107,900 Mills Corp 2,859,350 447,100 Simon Debartolo Group Inc 14,167,480 182,600 Taubman Centers Inc 2,328,150 90,100 Urban Shopping Centers Inc 2,787,469 ---------- 36,286,193 ---------- Factory Outlet -- 0.4% 30,400 Chelsea GCA Realty Inc 1,141,900 17,200 Horizon Group Inc 216,075 8,000 Prime Retail Inc 115,500 ---------- 1,473,475 ---------- Hotel/Motel -- 16.5% 97,800 American General Hospitality 2,524,463 43,800 Boykin Lodging Co 1,127,850 124,200 Equity Inns Inc 1,800,900 194,400 Felcor Suite Hotels Inc 7,387,199 188,100 Franchise Finance Corp of America 4,714,256 48,000 Homestead Village 804,000 11,182 Homestead Village Properties Purchase Warrants* 83,862 99,100 Hospitalities Properties Trust 3,319,850 212,000 Innkeepers USA Trust 3,233,000 44,800 Jameson Inns Inc 560,000 839,974 Patriot America Hospitality Inc 20,474,365 102,300 RFS Hotel Investors Inc 1,892,550 276,600 Starwood Lodging Trust 12,775,462 97,000 Sunstone Hotel Investors Inc 1,461,063 72,800 Winston Hotels Inc 973,700 ---------- 63,132,520 ---------- Industrial -- 10.7% 41,800 Bedford Property Investors 856,900 80,900 Centerpoint Properties Corp 2,598,913
See accompanying notes to the financial statements. 2 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Industrial -- continued 291,600 Duke Realty Investments 6,105,375 48,850 Eastgroup Properties Inc 998,372 124,100 First Industrial Reality Trust 3,831,588 186,300 Liberty Property Trust 4,785,581 35,200 Meridian Industrial Trust Inc 805,200 357,075 Security Capital Industrial Trust 7,543,208 239,600 Spieker Properties Inc 8,910,124 71,700 Trinet Corporate Realty Trust 2,549,831 62,300 Weeks Corp 1,962,450 ---------- 40,947,542 ---------- Manufactured Housing -- 1.6% 63,700 Chateau Communities Inc 1,918,963 81,200 Manufactured Home Communities 1,903,125 63,400 Sun Communities Inc 2,234,850 ---------- 6,056,938 ---------- Office -- 17.2% 128,600 Arden Realty Group Inc 3,713,325 76,000 Boston Properties Inc * 2,265,750 155,400 Brandywine Realty Trust 3,321,675 176,100 Cali Realty Trust 6,559,725 278,700 Carramerica Realty Corp 8,308,743 392,200 Crescent Real Estate Equities 12,403,324 275,500 Equity Office Properties 8,041,155 37,000 Great Lakes Reit Inc 649,813 171,800 Highwood Properties Inc 5,583,500 47,400 Kilroy Realty Corp 1,211,663 71,300 Koger Equity Inc 1,381,438 32,400 Parkway Properties Inc 1,012,500 100,800 Prentiss Properties Trust 2,784,600 111,000 Reckson Associates Realty 2,677,875 100,000 Sl Green Realty Corp 2,381,250 150,000 Trizec Hahn Corporation 3,384,375 ---------- 65,680,711 ---------- Recreation -- 0.3% 36,700 National Golf Properties Inc 1,176,694 ---------- Self Storage -- 5.4% 490,800 Public Storage Inc 13,773,074 59,100 Shurgard Storage Centers 1,628,944
See accompanying notes to the financial statements. 3 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------ Self Storage -- continued 24,100 Sovran Self Storage 732,038 33,000 Storage Trust Realty 837,375 94,700 Storage USA Inc 3,870,863 ------------ 20,842,294 ------------ Shopping Centers -- 0.1% 30,000 Pan Pacific Retail Properties Inc 601,875 ------------ Shopping/Power Center -- 12.5% 32,300 Alexander Haagen Properties 506,706 73,500 Bradley Real Estate Inc 1,378,125 82,100 Burnham Pacific Properties Inc 1,139,138 89,400 Commercial Net Lease Realty 1,408,050 80,400 Developers Diversified Realty Corp 3,125,550 60,300 Essex Property Trust Inc 1,929,600 73,900 Excel Realty Trust Inc 2,189,288 125,700 Federal Realty Investment Trust 3,166,069 5,300 First Washington Realty Trust 125,544 76,700 Glimcher Realty Trust 1,581,938 102,700 IRT Property Co 1,245,238 53,400 JDN Realty Corp 1,738,838 122,900 Kimco Realty Corp 4,140,194 19,800 Kranzco Realty Trust 348,975 10,900 Mark Centers Trust 101,506 116,100 New Plan Realty Trust 2,728,350 40,700 Price Reit Inc 1,544,056 10,800 Ramco-Gershenson Property 214,650 87,400 Realty Income Corp 2,414,425 74,600 Regency Realty Corp 1,981,563 30,500 Saul Centers Inc 533,750 135,200 Vornado Realty Trust 9,396,399 100,800 Weingarten Realty 4,189,500 53,400 Western Investment Real Estate Trust 717,563 ------------ 47,845,015 ------------ TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $353,490,128) 372,806,361 ------------
4 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 4.9% Cash Equivalents -- 1.6% $ 472,135 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 472,135 $ 124,541 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 124,541 $ 373,624 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 373,624 3,000,000 Merrimac Cash Fund Premium Class/(a)/ 3,000,000 $ 2,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 2,000,000 ------------ 5,970,300 ------------ U.S. Government -- 0.1% $ 400,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 395,079 ------------ Repurchase Agreement -- 3.2% $12,258,505 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $12,265,383 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $12,539,408. 12,258,505 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $18,623,685) 18,623,884 ------------ TOTAL INVESTMENTS -- 102.3% (COST $372,113,813) 391,430,245 Other Assets and Liabilities (net) -- (2.3)% (8,709,902) ------------ TOTAL NET ASSETS-- 100% $382,720,343 ============
Notes to the Schedule of Investments: * Non-income producing security. (a) Represents investments of security lending collateral (Note 1). (b) Security has been segregated to cover margin requirements on open financial futures contracts. See accompanying notes to the financial statements. 5 GMO REIT Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $372,113,813) (Note 1) $ 391,430,245 Dividends and interest receivable 564,879 Receivable for variation margin on open futures contracts (Notes 1 and 6) 21,643 Receivable for expenses waived or borne by Manager (Note 2) 133,223 Miscellaneous receivable 14,863 -------------- Total assets 392,164,853 -------------- Liabilities: Payable for investments purchased 192,350 Payable upon return of securities loaned (Note 1) 5,970,300 Payable for Fund shares repurchased 2,977,385 Payable to affiliate for (Note 2): Management fee 219,641 Shareholder service fee 43,960 Accrued expenses 40,874 -------------- Total liabilities 9,444,510 -------------- Net assets $ 382,720,343 ============== Net assets consist of: Paid-in-capital $ 338,016,031 Accumulated undistributed net investment income 8,454,789 Accumulated undistributed net realized gain 17,048,824 Net unrealized appreciation 19,200,699 ============== $ 382,720,343 ============== Net assets attributable to: Class I shares $ 111,722 ============== Class III shares $ 382,608,621 ============== Shares outstanding: Class I 8,368 ============== Class III 28,640,140 ============== Net asset value per share: Class I $ 13.35 ============== Class III $ 13.36 ==============
6 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust) Statement of Operations--Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $ 9,159,761 Interest (including securities lending income of $12,004) 452,304 ------------ Total income 9,612,065 ------------ Expenses: Management fee (Note 2) 1,265,212 Custodian and transfer agent fees 48,674 Registration fees 40,681 Audit fees 19,492 Legal fees 7,023 Trustees fees (Note 2) 1,721 Miscellaneous 895 Fees waived or borne by Manager (Note 2) (475,753) ------------ 907,945 Shareholder service fee (Note 2) Class I 96 Class II 1,386 Class III 252,055 ------------ Net expenses 1,161,482 ------------ Net investment income 8,450,583 ------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 16,155,001 Closed futures contracts 1,278,491 ------------ Net realized gain 17,433,492 ------------ Change in net unrealized appreciation (depreciation) on: Investments (2,710,929) Open futures contracts (421,661) ------------ Net unrealized loss (3,132,590) ------------ Net realized and unrealized gain 14,300,902 ------------ Net increase in net assets resulting from operations $22,751,485 ============
See accompanying notes to the financial statements. 7 GMO REIT Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Period from May 31, 1996 Ended (commencement of August 31, 1997 operations) to (Unaudited) February 28, 1997 --------------- ------------------------ Increase (decrease) in net assets: Operations: Net investment income $ 8,450,583 $ 4,196,242 Net realized gain 17,433,492 4,239,035 Change in net unrealized appreciation (depreciation) (3,132,590) 22,333,289 ------------ ------------ Net increase in net assets resulting from operations 22,751,485 30,768,566 ------------ ------------ Distributions to shareholders from: Net investment income Class I (203) -- Class II (8,729) -- Class III (1,196,725) (2,888,627) ------------ ------------ Total distributions from net investment income (1,205,657) (2,888,627) ------------ ------------ Net realized gains Class I (648) -- Class II (26,734) -- Class III (3,909,302) (784,771) ------------ ------------ Total distributions from net realized gains (3,936,684) (784,771) ------------ ------------ (5,142,341) (3,673,398) ------------ ------------ Net share transactions: (Note 5) Class I 66,725 41,658 Class II (218,750) -- Class III 104,292,920 233,833,478 ------------ ------------ Increase in net assets resulting from net share transactions 104,140,895 233,875,136 ------------ ------------ Total increase in net assets 121,750,039 260,970,304 Net assets: Beginning of period 260,970,304 -- ------------ ------------ End of period (including accumulated undistributed net investment income of $8,454,789 and $1,209,863, respectively) $382,720,343 $260,970,304 ============ ============
8 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust)
Financial Highlights (For a Class I share outstanding throughout each period) - ---------------------------------------------------------------------------------------------------- Six Months Ended Period from December 31, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ----------------------------- Net asset value, beginning of period $12.62 $ 12.58 ------- -------- Income from investment operations: Net investment income 0.32+ 0.03 Net realized and unrealized gain 0.61 0.01 ------- -------- Total from investment operations 0.93 0.04 ------- -------- Less distributions to shareholders: From net investment income (0.05) -- From net realized gains (0.15) -- ------- -------- Total distributions (0.20) -- ------- -------- Net asset value, end of period $13.35 $ 12.62 ======= ======== Total Return/(a)/ 7.34% 0.32% Ratios/Supplemental Data: Net assets, end of period (000's) $ 112 $ 41 Net expenses to average daily net assets 0.82%* 0.82%* Net investment income to average daily net assets 4.88%* 3.17%* Portfolio turnover rate 37% 21% Average broker commission rate per equity share $0.0394 $0.0323 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 (b)
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Fees and expenses waived or borne by the Manager were less than $0.01 per share. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 9 GMO REIT Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from April 30, 1997 (commencement of operations) to August 4, 1997 (Unaudited) ---------------------------- Net asset value, beginning of period $ 12.31 ------- Income from investment operations: Net investment income 0.16+ Net realized and unrealized gain 1.25 ------- Total from investment operations 1.41 ------- Less distributions to shareholders: From net investment income (0.05) From net realized gains (0.15) ------- Total distributions (0.20) ------- Net asset value, end of period $13.52/(a)/ ====== Total Return/(b)/ 11.46% Ratios/Supplemental Data: Net expenses to average daily net assets 0.76%* Net investment income to average daily net assets 4.72%* Portfolio turnover rate 37% Average broker commission rate per equity share $0.0394 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01
+ Computed using average shares outstanding throughout the period. /(a)/ All Class II shares of the Fund were exchanged for Class III shares on August 4, 1997. Amount represents ending net asset value per share on August 4, 1997. /(b)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. * Annualized. 10 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Period from May 31, 1996 Ended (commencement of operations) August 31, 1997 to February 28, 1997 (Unaudited) ---------------- ------------------------- Net asset value, beginning of period $ 12.62 $ 10.00 -------- --------- Income from investment operations: Net investment income 0.33+ 0.24 Net realized and unrealized gain 0.61 2.60 -------- --------- Total from investment operations 0.94 2.84 -------- --------- Less distributions to shareholders: From net investment income (0.05) (0.17) From net realized gains (0.15) (0.05) -------- --------- Total distributions (0.20) (0.22) -------- --------- Net asset value, end of period $ 13.36 $ 12.62 ======== ========= Total Return/(a)/ 7.41% 28.49% Ratios/Supplemental Data: Net assets, end of period (000's) $382,609 $260,929 Net expenses to average daily net assets 0.69%* 0.69%* Net investment income to average daily net assets 5.01%* 4.72%* Portfolio turnover rate 37% 21% Average broker commission rate per equity share $0.0394 $ 0.0323 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.02
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 11 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO REIT Fund (the "Fund"), which commenced operations on May 31, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks maximum total return through investment primarily in real estate investment trusts ("REITs"). The Fund offers three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class I and Class III are the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts 12 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $5,753,275, collateralized by cash in the amount of $5,970,300, which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semiannually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. 13 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. The Fund's investments in REIT equity securities may at times result in the Fund's receipt of cash in excess of its interest in the REIT's earnings. The excess amount cannot be determined by the Fund at the time of receipt. If the Fund distributes amounts which are subsequently determined to exceed REIT earnings, such amounts would constitute a return of capital to Fund shareholders for federal income tax purposes. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Dividends representing a return of capital are reflected as a reduction of cost. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases and fee on redemptions of Fund shares is .50% of the amount invested or redeemed. Prior to March 25, 1997, the premium on cash purchases and the fee on redemptions was .75% of the amount invested or redeemed. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $702,701 in purchase premiums and $217,874 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. Investment risk There are certain additional risks involved in investing in REITs rather than a more diversified portfolio of investments. Since the Fund's investments are concentrated in real-estate related securities, the value of its shares can be expected to change in light of factors affecting the real estate industry, including local or regional economic conditions, changes in zoning laws, changes in real estate value and property taxes, and changes in interest rates. The value of the Fund's shares may fluctuate more widely than the value of shares of a portfolio that invests in a broader range of industries. 14 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .75% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .54% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $1,721. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $224,601,783 and $118,562,192, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - ------------------------- ---------------------- ---------------------- ---------------------- $ 372,113,813 $ 21,417,967 $ 2,101,535 $ 19,316,432
4. Principal shareholders At August 31, 1997, 27% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 15 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from December 31, 1996 Six Months Ended (commencement of operations) Class I: August 31, 1997 to February 28, 1997 --------------------------------- ----------------------------------- Shares Amount Shares Amount --------------- -------------- --------------- --------------- Shares sold 5,019 $ 65,874 3,284 $ 41,658 Shares issued to shareholders in reinvestment of distributions 65 851 -- -- Shares repurchased -- -- -- -- --------------- -------------- --------------- --------------- Net increase 5,084 $ 66,725 3,284 $ 41,658 =============== ============== =============== =============== Period from April 30, 1997 (commencement of operations) Class II: to August 4, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold 181,864 $ 2,240,225 Shares issued to shareholders in reinvestment of distributions 2,703 35,463 Shares repurchased (184,567) (2,494,438) --------------- --------------- Net decrease -- $ (218,750) =============== =============== Period from May 31, 1996 Six Months Ended (commencement of operations) Class III: August 31, 1997 to February 28, 1997 --------------------------------- --------------------------------- Shares Amount Shares Amount --------------- --------------- --------------- ---------------- Shares sold 10,932,795 $ 143,405,985 20,722,033 $ 234,377,685 Shares issued to shareholders in reinvestment of distributions 348,938 4,581,563 180,673 2,193,376 Shares repurchased (3,314,206) (43,694,628) (230,093) (2,737,583) --------------- --------------- --------------- ---------------- Net increase 7,967,527 $ 104,292,920 20,672,613 $ 233,833,478 =============== =============== =============== ================
16 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation ------------- ------------- ----------------- ------------------ ----------------- 10 S&P 500 September 1997 $4,515,500 $(115,733) ================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 17 GMO Small Cap Growth Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 94.4% Advertising -- 0.3% 28,400 CKS Group Inc * 947,850 ----------- Aerospace -- 1.2% 5,000 AAR Corp 167,813 14,500 BE Aerospace Inc * 514,750 34,900 Gencorp Inc 933,575 15,500 Greenwich Airline Services, Class A 465,000 2,094 Northrop Grumman Corp 245,129 3,800 OEA Inc 141,313 4,100 Orbital Sciences Corp * 88,919 19,700 Thiokol Corp 1,568,613 13,400 Unc Incorporated * 199,325 ----------- 4,324,437 ----------- Automotive -- 2.0% 35,500 Arvin Industries Inc 1,235,844 13,200 Borg Warner Automotive Inc 688,050 33,900 Caliber Systems Inc 1,415,325 2,500 Coachmen Industries Inc 46,250 45,600 Mascotech Industries Inc 954,750 49,700 SPX Corp 2,888,812 ----------- 7,229,031 ----------- Banking and Financial Services -- 4.2% 2,400 Acceptance Insurance Cos Inc * 53,400 7,500 Albank Financial Corp 288,750 3,450 Alex Brown Inc 292,172 17,700 Americredit * 473,475 9,400 Astoria Financial Corp 452,375 24,700 BOK Financial Corporation 913,900 23,500 City National Corp 656,531 9,000 Cityscape Financial Corp * 92,813 7,610 CNB Bancshares Inc 312,010 12,750 Comdisco Inc 346,641 3,600 Deposit Guaranty Corp 115,425 18,100 Dime Bancorp Inc 349,556 5,500 Donaldson Lufkin & Jenrette 326,563 18,700 Eaton Vance Corp 535,288 800 Finova Group Inc 67,650
See accompanying notes to financial statements. 1 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 4,400 First Citizens Bancshares, Class A 393,800 800 First Empire State Corp 292,400 13,600 First Federal Financial Corp * 459,000 9,300 First Finance Corp 299,925 8,800 First Financial Bancorp 400,400 6,900 Fort Wayne National Corp 217,350 12,100 Fund American Enterprises Holdings 1,276,550 3,700 Interra Financial Inc 160,950 5,500 Legg Mason Inc 339,625 12,500 Mercantile Bankshares 351,563 18,600 National Commerce Bancorp 467,325 17,700 Northfork Bancorp 441,394 7,100 Onbancorp Inc 369,200 6,500 Park District National Corp 451,344 28,600 Provident Financial Group 1,354,925 25,450 St. Paul Bancorp Inc 588,531 8,300 Sumitomo Bank Of California 321,625 100 Summit Bancorp 5,938 1,900 TCF Financial Corporation 101,294 11,900 United Asset Management Corp 319,069 10,500 US Trust Corp 551,250 12,900 Value Line Inc 470,850 5,720 Washington Federal Inc 155,870 5,700 Zions Bancorporation 220,875 ----------- 15,287,602 ----------- Chemicals -- 1.1% 8,300 Betzdearborn Inc 541,056 22,900 Cytec Industries Inc * 1,117,806 8,100 Dexter Corp 307,800 11,400 Fuller (HB) Co 629,138 3,400 Lilly Industrial Coating Inc, Class A 75,225 16,100 Macdermid Inc 1,247,750 14,500 Mississippi Chemical Corp 314,469 ----------- 4,233,244 ----------- Communications -- 0.0% 4,800 Commnet Cellular Inc * 168,000 ----------- Computer and Office Equipment -- 2.6% 26,100 Amdahl Corp * 321,356
2 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Computer and Office Equipment -- continued 12,700 Analogic Corp 479,425 21,200 Comverse Technology Inc * 973,875 29,700 Concord EFS Inc * 824,175 4,000 Dynatech Corp * 153,000 9,200 General Binding Corp 285,200 32,000 Lexmark International Group Inc * 1,120,000 73,000 Micron Electronics Inc * 1,190,813 8,900 Network Computing Devices * 105,688 18,200 Quantum Corp 638,138 3,800 Rational Software Corp 62,700 23,300 Sequent Computer Inc * 656,769 23,800 Stratus Computer Inc * 1,320,900 95,000 Unisys Corp * 1,074,688 5,300 Western Digital Corp 255,063 14,400 Xircom Inc * 203,400 ----------- 9,665,190 ----------- Construction -- 0.9% 31,300 Centex Corp 1,701,938 6,700 Eagle Hardware & Garden Inc * 146,981 25,000 McDermott International Inc 806,250 49,400 Standard Pacific Corp 540,313 ----------- 3,195,482 ----------- Consumer Goods -- 5.6% 700 Block Drug Co Inc, Class A 33,250 7,900 CDW Computer Centers Inc * 575,713 10,200 Church & Dwight Co Inc 291,975 70,400 Furniture Brands International Inc * 1,240,800 22,500 Genesco Inc * 279,844 25,200 Hartmarx Corp * 195,300 32,300 Hon Industries Inc 1,889,549 18,700 Jones Apparel Group Inc 938,506 11,000 Kimball International, Class B 495,000 63,700 Miller Herman Inc 3,296,474 11,400 N. E. Business SVC Inc 347,700 125,700 O'Sullivan Industries Holdings Inc * 1,657,669 13,400 Oxford Industries Inc 449,738 8,700 Royal Appliance Manufacturing Co * 75,581 22,200 Russ Berrie and Co 635,475
See accompanying notes to the financial statements. 3 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 11,800 Scotts Company, Class A * 330,400 18,600 Standard Register Co 635,888 84,400 Technology Data Corp * 3,286,324 5,000 Tiffany & Co 226,250 34,400 Timberland Co * 2,272,549 16,400 Tultex Corp * 94,300 34,900 US Industries Inc * 1,326,200 ----------- 20,574,485 ----------- Electronic Equipment -- 9.1% 26,400 Alliance Semiconductor Corp * 349,800 27,900 American Power Conversion Corp * 732,375 15,200 Ampex Corp, Class A * 71,250 25,500 Applied Magnetics Corp * 941,906 24,800 Boston Technology Inc * 730,050 33,400 Cellstar Corp 1,112,638 1 Chyron Corp 5 38,500 Cyrix Corp * 1,080,406 26,800 Dallas Semiconductor Corp 1,026,775 27,400 Digital Microwave Corp * 1,126,825 3,800 DSP Communications Inc 73,150 9,300 Electro Scientific Industries * 451,050 24,100 ESS Technology * 418,738 9,500 Highwaymaster Communications * 86,688 51,700 Hutchinson Technology Inc 1,706,100 17,700 Integrated Process Equipment * 584,100 65,700 Jabil Circuit Inc 3,892,724 16,800 Lattice Semiconductor Corp * 1,069,950 60,700 Magnetek Inc * 1,278,494 13,100 Microchip Technology Inc 529,731 326,100 Oak Technology Inc * 3,546,337 17,600 P-Com Inc * 817,300 25,700 Pairgain Technologies Inc 661,775 94,100 Read Rite Corp * 2,699,493 23,900 Rexel Inc * 497,419 14,700 Sanmina Corp * 1,164,975 5,000 SCI Systems Inc 196,563 27,300 Silicon Valley Group Inc * 921,375 4,400 Symmetricom Inc * 70,950
4 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- continued 11,000 Technitrol Inc 374,000 30,800 Tekelec 1,118,425 11,900 Unitrode Corp * 928,200 8,300 Valmont Inds Inc 174,300 23,100 Vitesse Semiconductor Corp 1,088,588 33,800 VLSI Technology * 1,115,400 13,900 Xylan Corp * 286,688 35,400 Zenith Electronics Corp * 367,275 ----------- 33,291,818 ----------- Food and Beverage -- 5.3% 23,700 Canadnaigua Wine Co, Class B * 959,850 24,400 Coors (Adolph) Co 899,750 48,000 Dean Foods Co 2,129,999 47,000 Dekalb Genetics Corp 1,844,749 12,300 Dimon Inc 295,200 36,700 Flowers Industries Inc 678,950 12,100 Hudson Foods Inc 196,625 52,300 Interstate Bakeries Corp 3,066,087 23,500 Pilgrims Pride Corp 276,125 7,600 Quality Food Centers Inc * 312,550 20,800 Ralcorp Holdings Inc * 416,000 8,300 Sanderson Farms Inc 124,500 4,100 Savannah Foods and Industries Inc 71,750 800 Seaboard Corp 231,600 9,800 Showbiz Pizza Time * 229,075 22,900 Smith Food and Drug Center, Class B * 1,253,775 46,200 Smithfield Foods Inc * 2,546,774 20,400 Tootsie Roll Industries Inc 997,050 17,200 Triarc Companies * 360,125 66,800 Universal Corp 2,429,849 ----------- 19,320,383 ----------- Health Care -- 2.7% 25,200 Acuson Corp * 678,825 30,400 Bio Technology General Corp * 387,600 6,700 Lincare Holdings Inc * 319,506 97,200 Novacare Corp * 1,464,075 27,000 Orthodontic Centers of America 462,375 6,300 Pediatrix Medical Group Inc * 262,238
See accompanying notes to the financial statements. 5 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Health Care -- continued 96,200 Safeskin Corp 3,198,649 3,700 Sofamor Denek Group Inc * 177,369 17,400 Total Renal Care Holdings * 796,050 77,400 Vivus Inc 2,070,449 ----------- 9,817,136 ----------- Insurance -- 4.8% 31,000 American Annuity Group Inc 643,250 5,600 American Bankers Insurance Group 369,600 600 Capital Re Corp 30,488 8,200 CMAC Investment Corp 378,225 17,000 Commerce Group Inc 474,938 46,800 Crawford and Co 988,650 8,803 Delphi Financial Group Inc 385,681 6,100 Enhance Financial Services Group Inc 282,125 106,500 Everest Re Holdings Inc 3,853,968 6,700 First American Financial Corp 299,825 14,000 Fremont General Corp 558,250 48,318 Frontier Insurance Group Inc 1,691,130 15,800 Guaranty National Corp 445,363 9,100 HCC Insurance Holdings Inc 240,581 9,100 Life Re Corp 466,944 36,900 Mercury General Corp 3,228,749 7,200 Orion Capital 306,000 24,200 Presidential Life Corp 462,825 112,000 Reliance Group Holdings Inc 1,372,000 10,100 United Wisconsin Services 330,144 14,100 Vesta Insurance Group 695,306 6,400 Zurich Reinsurance Centre Inc 252,400 ----------- 17,756,442 ----------- Machinery -- 5.7% 18,600 Aviall Inc * 304,575 22,600 Camco International Inc 1,556,575 110,900 Coltec Industries Inc * 2,481,387 46,700 Cooper Cameron Corp 3,029,662 8,900 Culligan Water Technologies * 410,513 7,800 Donaldson Co Inc 348,075 1,700 ETEC Systems Inc * 113,900 28,500 Federal Mogul Corp 1,018,875 13,700 Graco Inc 433,263
6 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Machinery -- continued 7,800 Helix Technology Corp 466,050 60,400 Kulicke & Soffa Industries * 2,774,624 2,700 Lindsay Manufacturing Co 105,300 19,500 Mohawk Industries Inc * 504,563 9,700 Novellus System Inc * 1,111,863 10,600 Paxar Corp Common Stock 230,550 31,400 Smith International Inc * 2,284,349 8,500 Tennant Co 292,188 32,300 US Filter Corp * 1,162,800 55,200 Varco International Inc * 2,194,199 ----------- 20,823,311 ----------- Manufacturing -- 3.2% 3,300 ABT Building Products Corp * 56,925 11,900 ACX Technologies Inc * 311,631 8,600 Applied Power Inc, Class A 546,100 18,500 Barnes Group Inc 509,906 29,500 Blyth Industries Inc 1,089,656 3,000 Champion Enterprises Inc * 51,750 16,300 Crane Co 719,238 7,800 CSS Industries Inc * 279,825 6,100 Gibson Greetings Inc * 137,250 3,100 Global Industrial Technologies Inc * 58,706 26,900 Griffon Corp * 376,600 46,500 Lafarge Corp 1,511,250 42,625 Manitowoc Co Inc 1,539,828 9,700 Mine Safety Appliances 611,100 65,500 Nortek Inc * 1,645,688 23,800 Robbins & Myers Inc 776,475 9,000 Synetic Inc * 388,125 6,000 Tredegar Industries 412,875 13,800 Watts Industries Inc, Class A 336,375 18,600 Wyman-Gordon Co. * 508,013 ----------- 11,867,316 ----------- Metals and Mining -- 1.0% 17,000 Amcol International Corp 289,000 23,700 Asarco Inc 728,775 1,000 Oregon Metallurgical Corp * 22,000 29,500 Timken Co 1,104,406
See accompanying notes to the financial statements. 7 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Metals and Mining -- continued 4,000 Wesco Financial Corp 1,100,250 20,600 Zeigler Coal Holding Co 526,588 ----------- 3,771,019 ----------- Oil and Gas -- 6.7% 8,100 Atwood Oceanics Inc * 734,569 9,400 Berry Petroleum, Class A 172,725 27,600 BJ Services Co * 1,994,099 2,800 Brown Tom Inc * 68,600 7,800 Cabot Oil & Gas Corp, Class A 180,863 21,500 Devon Energy Corp 917,781 5,400 El Paso Natural Gas Co 303,750 122,900 Falcon Drilling Co Inc 3,871,349 57,100 Harken Energy Corp * 353,306 31,800 Helmerich & Payne Inc 2,245,874 8,000 HS Resources Inc * 122,000 25,800 Louis Dreyfus Natural Gas * 493,425 103,000 Marine Drilling Co Inc * 2,471,999 14,100 Mitchell Energy, Class B 352,500 1 Monterey Resources Inc 21 25,900 Nabors Industries Inc * 891,931 23,600 National Fuel Natural Gas Co 1,048,725 14,400 Newfield Exploration Co 369,900 2,750 North Carolina Natural Gas 86,109 10,800 Nuevo Energy Co * 548,775 17,100 Ocean Energy Inc * 1,099,744 8,200 Oneok Inc 265,475 6,200 Oryx Energy Co * 163,913 6,500 Peoples Energy Corp 244,969 16,286 Pioneer Natural Resources Co * 650,411 2,900 Plains Resource Inc * 52,925 7,200 Pogo Producing Co 312,300 12,900 Pooled Funds Energy Services Co * 403,931 23,300 Rowan Cos Inc * 696,088 7,200 RPC Inc 155,700 24,200 Santa Fe Energy Resources Inc 267,713 7,300 Seagull Energy Corp * 178,394 27,000 Snyder Oil Corp 531,563 2,700 Triton Energy Limited * 103,950
8 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Oil and Gas -- continued 7,700 Union Texas Petroleum Holdings Inc 179,506 15,500 Unit Corp * 208,281 3,800 United Meridian Corp * 148,913 9,000 Vintage Petroleum Inc 386,438 28,800 Weatherford Enterra Inc * 1,326,600 ----------- 24,605,115 ----------- Paper and Allied Products -- 1.2% 23,000 Bowater Inc 1,177,313 17,700 Jefferson Smurfit Corp * 344,044 16,700 Mosinee Paper Corp 496,825 14,300 Playtex Products Inc * 140,319 13,800 TJ International Inc 348,450 59,500 US Office Products Co * 1,948,624 2,900 Zurn Industries Inc 86,094 ----------- 4,541,669 ----------- Pharmaceuticals -- 1.7% 29,800 Agouron Pharmaceuticals Inc 1,311,200 7,200 Amerisource Health Corp * 360,450 5,400 Dura Pharmaceuticals Inc * 192,375 15,900 General Nutrition Cos Inc * 441,225 14,100 Herbalife International Inc 333,113 100 Jones Medical Industries Inc 2,975 75,700 NBTY Inc * 1,684,325 7,300 Protein Design Labs Inc * 260,063 13,600 Quintiles Transnational Corp * 1,060,800 18,400 Rexall Sundown Inc * 639,400 ----------- 6,285,926 ----------- Primary Materials -- 3.5% 12,500 Carlisle Cos Inc 527,344 18,000 Centec Construction Products 515,250 5,600 Elcor Corp 173,250 94,300 EVI Inc 4,956,643 10,400 Kuhlman Corp 295,100 10,400 Lone Star Industries 552,500 8,700 Medusa Corp 408,900 44,800 Premark International Inc 1,332,800 2,300 Sealed Air Corp * 119,313
See accompanying notes to the financial statements. 9 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Primary Materials -- continued 41,000 Southdown Inc 1,924,437 45,700 USG Corp * 1,959,387 ----------- 12,764,924 ----------- Primary Processing -- 1.4% 3,200 Bethlehem Steel Corp * 38,400 7,700 Birmingham Steel Corp 144,375 66,400 Inland Steel Industries Inc 1,398,550 30,600 Lone Star Technologies Inc * 1,248,863 26,000 LTV Corp 338,000 29,700 National Steel Corp, Class B * 558,731 13,000 Oregon Steel Mills Inc 350,188 14,500 Precision Castparts Corp 937,063 2,500 Quanex Corp 90,781 ----------- 5,104,951 ----------- Printing and Publishing -- 2.3% 39,600 Central Newspapers, Class A 2,695,274 800 Harland (JH) Co 15,850 10,700 Hollinger International Inc 137,763 88,200 K-III Communications Corp * 1,074,938 38,375 McClatchy Newspapers Inc 1,156,047 8,600 Playboy Enterprises Inc, Class B * 108,575 8,600 Pulitzer Publishing Co 452,038 81,800 Valassis Communications Inc * 2,484,674 8,000 World Color Press Inc * 239,000 ----------- 8,364,159 ----------- Real Estate -- 0.8% 15,250 CN Fairfield Communities Inc 545,188 32,200 PEC Isreal Economic Corp * 666,138 35,400 Penn Virginia Corp 973,500 7,500 Security Capital Corp 776,250 ----------- 2,961,076 ----------- Retail Trade -- 7.8% 26,000 AnnTaylor Stores Corp * 445,250 9,700 Apogee Enterprises Inc 212,188 2,000 Arbor Drugs Inc 47,750 68,000 Borders Group Inc 1,619,250 43,200 Burlington Coat Factory Warehouse * 993,600
See accompanying notes to the financial statements. 10 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Retail Trade -- continued 30,500 Cash American Investments Inc 327,875 25,700 CKE Restaurants Inc 828,825 4,600 CompUSA Inc 142,313 26,450 Dollar Tree Stores Inc 1,028,244 123,500 Dress Barn Inc * 2,531,749 34,500 Ethan Allen Interiors Inc 2,535,749 45,350 Family Dollar Stores Inc 963,688 10,800 Finish Line Inc 151,200 38,500 Foodmaker Inc * 755,563 9,400 Genovese Drug Stores Inc, Class A 164,500 57,800 Goodys Family Clothing Inc * 1,972,424 23,800 Just For Feet Inc 312,375 48,100 Lands End Inc * 1,265,631 8,000 Macfrugals Bargains Close Outs Inc * 218,000 35,600 Meyer Fred Inc * 1,851,199 13,400 Microage Inc * 364,313 7,200 Neiman Marcus Group Inc * 222,300 11,200 NPC International Inc * 127,400 54,700 Pier 1 Imports Inc 929,900 3,500 Proffitts Inc * 187,906 101,700 Ross Stores Inc 2,987,437 11,300 Ruddick Corp 169,500 27,700 Shopko Stores Inc * 761,750 19,300 Stein Mart Inc * 540,400 42,600 Stride Rite Corp 505,875 90,600 Valhi Inc 792,750 2,000 Wet Seal Inc * 43,500 53,600 Williams-Sonoma Inc * 2,398,599 3,400 Zale Corp * 73,100 -------------- 28,472,103 -------------- Services -- 5.9% 107,600 Accustaff Inc * 2,858,124 13,900 Apac Teleservices Inc * 229,350 24,100 Apollo Group Inc * 860,069 20,400 Avid Technology Inc * 673,200 11,300 Bowne and Co Inc 326,994 11,400 CDI Corp * 401,850 15,200 Central Parking Corp 695,400
See accompanying notes to the financial statements. 11 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 170,700 Corestaff Inc 5,078,324 33,700 Doubletree Corp * 1,685,000 19,300 Extended Stay America Inc * 258,138 22,400 Handleman Co * 133,000 14,500 Hollywood Entertainment Corp * 237,438 8,200 Hollywood Park District Inc * 143,500 55,800 Mcgrath Rentcorp 1,283,400 3,400 Meredith Corp 102,000 133,700 Metromedia International Group Inc * 1,587,688 24,400 Morningstar Group Inc * 728,950 22,200 Norrell Corp 717,338 36,000 Promus Hotel Corp * 1,397,250 21,700 Rykoff Sexton Inc 547,925 3,450 Technology Solutions Co 80,213 20,250 Volt Information Sciences Inc 1,130,203 14,350 Wolverine World Wide 317,494 ----------- 21,472,848 ----------- Technology -- 8.2% 10,900 ABR Information Services Inc 292,938 10,200 Affiliated Computer Services 267,750 23,800 Autodesk Inc 1,041,250 21,800 Avanti Corporation * 633,563 10,300 BGS Systems Inc 283,250 54,200 Citrix Systems Inc * 2,737,099 23,800 Cognex Corp * 910,350 14,400 Credence Systems Corp * 677,700 23,500 CSG Systems International Inc * 649,188 32,500 Data General Corp * 1,167,969 2,900 Electronics For Imaging Inc 155,150 6,600 Envoy Corporation * 178,200 4,200 Genrad Inc * 111,300 14,300 HNC Software Inc * 520,163 22,000 Hyperion Software Corp * 633,875 6,300 Inso Corporation * 87,413 26,100 Keane Inc 1,533,375 13,700 KLA Instruments Corp * 970,988 3,100 Mcafee Associates Inc 175,538 17,000 National Instruments Corp * 701,250
12 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Technology -- continued 7,600 Network Appliance Inc * 359,100 12,800 Platinum Software Corp * 139,200 16,100 Psinet Inc * 131,819 52,800 Remedy Corp 2,036,099 60,800 Symantec * 1,463,000 11,700 Systems & Computer Technology Corp * 412,425 223,800 Tandem Computers Inc * 7,609,199 8,500 Uniphase Corp * 580,125 23,000 Vantive Corp 701,500 13,100 Viasoft Inc 709,038 67,300 Visio Corp 2,321,849 ----------- 30,191,663 ----------- Telecommunications -- 0.8% 46,300 Mastec Inc 2,161,630 18,000 Premiere Technologies Inc * 559,125 6,100 Telemundo Group Inc * 203,588 ----------- 2,924,343 ----------- Textiles -- 0.5% 8,750 Guilford Mills 190,313 20,000 Interface Flooring Systems Inc 560,000 24,000 Westpoint Stevens Inc * 960,000 ----------- 1,710,313 ----------- Tobacco -- 0.1% 4,200 Culbro Corp 404,513 ----------- Transportation -- 2.7% 28,100 Airborne Freight Corp 1,383,925 4,200 Alexander & Baldwin Inc 113,400 34,900 CNF Transportation Inc 1,260,763 23,400 Expeditors International Washington Inc 857,025 53,800 Navistar International Corp * 1,334,913 14,800 Offshore Logistics Inc * 270,100 11,300 Swift Transportation Co * 330,525 6,100 US Freightways Corp 183,000 49,400 USAir Group Inc * 1,685,775 76,100 Yellow Corp * 2,387,637 ----------- 9,807,063 -----------
See accompanying notes to the financial statements. 13 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value ($)/ Shares Description Value ($) - ------------------------------------------------------------------------------------- Utilities -- 1.1% 24,000 Aquila Natural Gas Pipeline Corp 250,500 32,500 Calenergy Inc * 1,076,563 77,400 Centerior Energy Corp 870,750 5,000 Energen Corp 180,313 990 Houston Industries Inc 20,038 8,300 Kinder Morgan Energy Partners 551,431 7,500 Public Services Co of New Mexico 136,875 2,900 TNP Enterprises Inc 67,969 500 Tucson Electric Power Co * 7,969 12,600 UGI Corp 329,175 21,200 Western Gas Resources Inc 402,800 ----------- 3,894,383 ----------- TOTAL COMMON STOCKS (COST $309,778,295) 345,777,795 ----------- SHORT-TERM INVESTMENTS -- 21.2% Cash Equivalents -- 12.7% $15,570,049 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 15,570,049 $974,809 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 974,809 $2,924,426 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 2,924,426 15,258,785 Merrimac Cash Fund Premium Class/(a)/ 15,258,785 $12,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 12,000,000 ----------- 46,728,069 ----------- U.S. Government -- 0.3% $1,000,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 987,698 ----------- Repurchase Agreements -- 8.2% $18,443,595 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $18,453,944 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $18,866,230. 18,443,595 $11,589,463 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $11,595,889 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.072%, with a maturity date of 3/1/35 and a market value of $11,821,292. 11,589,463 ----------- 30,033,050 -----------
14 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value ($) - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $77,748,327) 77,748,825 ------------ TOTAL INVESTMENTS -- 115.6% (COST $387,526,622) 423,526,620 Other Assets and Liabilities (net) -- (15.6)% (57,276,924) ------------ TOTAL NET ASSETS -- 100% $366,249,696 ============ Notes to the Schedule of Investments: * Non-income producing security. /(a)/ Represents investments of security lending collateral (Note 1). /(b)/ Security has been segregated to cover margin requirements on open financial futures contracts.
See accompanying notes to the financial statements. 15 GMO Small Cap Growth Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Assets: Investments, at value (cost $387,526,622) (Note 1) $ 423,526,620 Receivable for investments sold 10,488,967 Dividends and interest receivable 191,195 Receivable for variation margin on open futures contracts (Notes 1 and 6) 98,731 Receivable for expenses waived or borne by Manager (Note 2) 94,040 Miscellaneous receivable 15,374 ----------- Total assets 434,414,927 ------------ Liabilities: Payable for investments purchased 18,141,921 Payable upon return of securities loaned (Note 1) 46,728,069 Payable for Fund shares repurchased 3,082,179 Payable to affiliate for (Note 2): Management fee 138,292 Shareholder service fee 41,371 Accrued expenses 33,399 ------------ Total liabilities 68,165,231 ------------ Net assets $366,249,696 ============ Net assets consist of: Paid-in-capital $315,535,749 Accumulated undistributed net investment income 458,604 Accumulated undistributed net realized gain 14,007,266 Net unrealized appreciation 36,248,077 ============ $366,249,696 ============ Net assets attributable to: Class III shares $366,249,696 ============ Shares outstanding: Class III 29,305,824 ============ Net asset value per share: Class III $ 12.50 ============
16 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Investment Income: Dividends $ 654,635 Interest (including securities lending income of $70,669) 604,399 ------------ Total income 1,259,034 ------------ Expenses: Management fee (Note 2) 546,060 Registration fees 38,202 Custodian and transfer agent fees 25,978 Audit fees 21,953 Legal fees 3,771 Trustees fees (Note 2) 902 Miscellaneous 434 Fees waived or borne by Manager (Note 2) (278,389) ------------ 358,911 Shareholder service fee (Note 2) Class III 163,702 ------------ Net expenses 522,613 ------------ Net investment income 736,421 ------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 13,096,265 Closed futures contracts 892,587 ------------ Net realized gain 13,988,852 ------------ Change in net unrealized appreciation (depreciation) on: Investments 39,118,653 Open futures contracts 531,434 ------------ Net unrealized gain 39,650,087 ------------ Net realized and unrealized gain 53,638,939 ------------ Net increase in net assets resulting from operations $54,375,360 ============
See accompanying notes to the financial statements. 17 GMO Small Cap Growth Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from December 31, 1996 Six Months Ended (commencement of August 31, 1997 operations) to (Unaudited) February 28, 1997 ---------------- ------------------ Increase (decrease) in net assets: Operations: Net investment income $ 736,421 $ 173,151 Net realized gain 13,988,852 18,414 Change in net unrealized appreciation (depreciation) 39,650,087 (3,402,010) ------------ ------------ Net increase (decrease) in net assets resulting from operations 54,375,360 (3,210,445) ------------ ------------ Distributions to shareholders from: Net investment income Class III (450,968) -- ------------ ------------ Total distributions from net investment income (450,968) -- ------------ ------------ Net share transactions: (Note 5) Class III 152,427,203 163,108,546 ------------ ------------ Increase in net assets resulting from net share transactions 152,427,203 163,108,546 ------------ ------------ Total increase in net assets 206,351,595 159,898,101 Net assets: Beginning of period 159,898,101 -- ------------ ------------ End of period (including accumulated undistributed net investment income of $458,604 and $173,151, respectively) $366,249,696 $159,898,101 ============ ============
18 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from December 31, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ----------------------------- Net asset value, beginning of period $ 9.82 $ 10.00 -------- -------- Income from investment operations: Net investment income 0.03 0.01 Net realized and unrealized gain (loss) 2.68 (0.19) -------- -------- Total from investment operations 2.71 (0.18) -------- -------- Less distributions to shareholders: From net investment income (0.03) -- -------- -------- Total distributions (0.03) -- -------- -------- Net asset value, end of period $ 12.50 $ 9.82 ======== ======== Total Return/(a)/ 27.63% (1.80)% Ratios/Supplemental Data: Net assets, end of period (000's) $366,250 $159,898 Net expenses to average daily net assets 0.48%* 0.48%* Net investment income to average daily net assets 0.67%* 0.70%* Portfolio turnover rate 81% 13% Average broker commission rate per equity share $ 0.0264 $ 0.0344 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01
/(a)/Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. * Annualized. See accompanying notes to the financial statements. 19 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to the Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Small Cap Growth Fund (the "Fund"), which commenced operations on December 31, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks long-term growth of capital through investment primarily in companies whose equity capitalization ranks in the lower two-thirds of the 1,800 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange. The Fund offers three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. 20 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to the Financial Statements (Unaudited)-(Continued) August 31, 1997 - -------------------------------------------------------------------------------- Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $44,946,561, collateralized by cash in the amount of $46,728,069, which was invested in short-term instruments. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in 21 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to the Financial Statements (Unaudited)-(Continued) August 31, 1997 - -------------------------------------------------------------------------------- shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases and fee on redemptions of Fund shares is .50% of the amount invested or redeemed. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $754,834 in purchase premiums and $47,596 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .50% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, 22 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to the Financial Statements (Unaudited)-(Continued) August 31, 1997 - -------------------------------------------------------------------------------- certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .33% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $902. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $316,731,770 and $167,553,743, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------ ------------------- ------------------ --------------------- $ 388,172,008 $ 39,453,019 $ 4,098,407 $ 35,354,612
4. Principal shareholder At August 31, 1997, 22% of the outstanding shares of the Fund were held by one shareholder. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from December 31, 1996 Six Months Ended (commencement of operations) Class III: August 31, 1997 to February 28, 1997 ---------------------------------- ------------------------------- Shares Amount Shares Amount --------------- --------------- -------------- --------------- Shares sold 13,854,939 $ 162,453,671 16,278,745 $ 163,108,546 Shares issued to shareholders in reinvestment of distributions 22,568 223,251 -- -- Shares repurchased (850,428) (10,249,719) -- -- =============== =============== ============== =============== Net increase 13,027,079 $ 152,427,203 16,278,745 $ 163,108,546 =============== =============== ============== ===============
23 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to the Financial Statements (Unaudited)-(Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Appreciation - ------------ --------------- -------------------- ------------------ ------------------- 70 Russell 2000 September 1997 $ 14,843,500 $ 248,079 ===================
At August 31, 1997, the Fund had sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 7. Federal Tax Information For the tax year ended August 31, 1997, all of the Fund's distributions are from investment company taxable income. 24 GMO Small Cap Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------- COMMON STOCKS -- 93.6% Advertising -- 0.1% 1,700 Grey Advertising Inc 527,000 -------------- Aerospace -- 1.3% 6,100 Curtiss Wright Corp 445,300 25,600 Gencorp Inc 684,800 95,800 Kaman Corp, Class A 1,604,650 12,198 Northrop Grumman Corp 1,427,928 18,900 Teleflex Inc 598,894 60,000 Thiokol Corp 4,777,499 -------------- 9,539,071 -------------- Automotive -- 1.7% 17,900 Bandag Inc 954,294 34,300 Borg Warner Automotive Inc 1,787,888 25,600 Breed Technologies Inc 544,000 37,500 Caliber Systems Inc 1,565,625 36,700 Cooper Tire & Rubber Co 922,088 7,000 Lear Corp * 320,688 13,800 Mascotech Industries Inc 288,938 60,400 Modine Manufacturing Co 1,849,750 17,900 Paccar Inc 848,013 48,800 Smith (AO) Corp, Class B 1,720,200 6,300 SPX Corp 366,188 24,500 Superior Industries International Inc 667,625 36,800 Wabash National Corp 1,081,000 -------------- 12,916,297 -------------- Banking and Financial Services -- 11.4% 22,800 Advanta Corp, Class A 755,250 13,000 Albank Financial Corp 500,500 40,750 Alex Brown Inc 3,451,015 34,000 Astoria Financial Corp 1,636,250 29,000 Baldwin and Lyons Inc, Class B 561,875 3,500 BOK Financial Corporation 129,500 11,500 CCB Financial Corp 930,063 61,100 Central Fidelity Banks Inc 2,390,537 3,100 Charter One Financial Inc 168,563 19,100 Citizens Banking Corp Michigan 754,450 129,750 Comdisco Inc 3,527,577 65,800 Commerce Bancshares Inc 3,544,974
See accompanying notes to the financial statements. 1 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Banking and Financial Services -- continued 46,950 Compass Bancshares Inc 1,672,594 13,400 Corus Bancshares Inc 475,700 22,100 Deposit Guaranty Corp 708,581 45,400 Dime Bancorp Inc 876,788 24,535 Downey Financial Corp 542,837 28,800 Eaton Vance Corp 824,400 74,500 Edwards (AG) Inc 2,961,374 28,500 Financial Security Assurance Holdings Ltd 1,184,531 3,800 Finova Group Inc 321,338 13,600 First Citizens Bancshares, Class A 1,217,200 13,900 First Commerce Corp 741,913 3,800 First Empire State Corp 1,388,900 12,400 First Federal Financial Corp * 418,500 25,775 First Finance Corp 831,244 45,000 First Hawaiian Inc 1,659,375 8,125 First Midwest Bancorp Inc 284,375 9,150 First Security Corp 258,488 35,300 First Virginia Banks Inc 2,404,812 7,700 Firstbank of Illinois Co 333,025 16,000 Firstbank Puerto Rico 451,000 18,680 Fulton Financial Corp 513,700 7,200 Greenpoint Financial Corp 443,250 20,900 Interra Financial Inc 909,150 13,300 Jefferies Group Inc 904,400 6,600 JSB Financial 299,475 5,400 Legg Mason Inc 333,450 34,200 Leucadia National Corp 1,090,125 35,400 Liberty Financial Cos 1,754,513 10,100 Long Island Bancorp Inc 402,738 83,600 Mercantile Bankshares 2,351,277 21,850 Morgan Keegan Inc 558,541 9,300 National Bancorp of Alaska Inc 818,400 46,800 North American Mortgage Co 1,210,950 12,075 Old Kent Financial Corp 739,594 22,400 Onbancorp Inc 1,164,800 14,400 One Valley Bancorp Inc 618,300 47,900 Pacific Century Financial Corp 2,362,068 27,550 Peoples Bank Bridgeport 773,122 36,500 Piper Jaffray Inc 825,813 14,900 PMI Group Inc 861,406 71,600 Popular Inc 3,096,699
2 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Banking and Financial Services -- continued 13,400 Provident Financial Group 634,825 64,703 Quick And Reilly Group 2,216,078 50,750 Raymond James Financial Corp 1,471,750 9,000 RCSB Financial Inc 439,875 23,900 Riggs National Corp 501,900 34,700 Rowe (T) Price & Associates Inc 1,908,500 82,700 Ryland Group Inc 1,380,056 15,000 SEI Investments Co 435,000 45,200 Signet Banking Corp 2,341,924 67,680 Sovereign Bancorp Inc 1,049,040 25,562 St. Paul Bancorp Inc 591,121 15,500 Student Loan Group 635,500 7,945 Summit Bancorp 471,734 1 Toronto Dominion Bank Ontario 10 26,100 Trustmark Corp 751,189 19,700 UMB Financial Corp 886,500 23,200 Union Planters Corp 1,189,000 15,200 Unionbancal Corp 1,175,150 12,700 United Asset Management Corp 340,519 33,500 United Cos Financial Corp 954,750 6,800 US Trust Corp 357,000 11,000 Value Line Inc 401,500 45,165 Washington Federal Inc 1,230,746 8,400 Washington Mutual Inc 502,950 61,800 Wilmington Trust Corp 3,113,174 -------------- 84,919,091 -------------- Chemicals -- 1.0% 25,500 Albemarle Corp 626,344 18,100 Cabot Corporation 495,488 8,700 Crompton & Knowles Corp 219,675 15,500 Cytec Industries Inc * 756,594 9,900 Ferro Corp 372,488 8,300 Fuller (HB) Co 458,056 16,600 Geon Co 329,925 20,700 Hanna (MA) Co 535,613 42,900 Kaiser Aluminum Corp * 603,281 27,500 Mississippi Chemical Corp 596,406 14,200 Olin Corp 631,900 1 Potash Corp of Saskatchewan 74 33,100 Stepan Co 779,919
See accompanying notes to the financial statements. 3 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Chemicals -- continued 64,000 Wellman Inc 1,456,000 -------------- 7,861,763 -------------- Communications -- 0.0% 13,800 DSC Communications Corp * 401,925 -------------- Computer and Office Equipment -- 2.8% 77,600 Amdahl Corp * 955,450 19,500 Banctec Inc * 482,625 9,900 Everex Systems Inc/(a)/ * -- 53,600 Exabyte Corp * 629,800 45,900 Intergraph Corp * 456,131 98,700 Lexmark International Group Inc * 3,454,499 153,400 Quantum Corp 5,378,587 61,700 Sequent Computer Inc * 1,739,169 30,500 Sterling Software Inc 1,046,531 53,600 Stratus Computer Inc * 2,974,799 87,200 Unisys Corp * 986,450 41,800 Western Digital Corp 2,011,625 19,100 Zebra Technologies Corp * 561,063 -------------- 20,676,729 -------------- Construction -- 1.9% 34,200 Bridge & Toll Road Brothers Inc * 735,300 41,300 Centex Corp 2,245,688 11,400 Eagle Hardware & Garden Inc * 250,088 17,700 Foster Wheeler Corp 808,669 29,900 Granite Construction Inc 627,900 44,700 Horton (DR) Inc 704,025 116,300 Kaufman & Broad Home Corp 2,325,999 49,800 McDermott International Inc 1,606,050 64,100 MEMC Electronic Materials * 1,858,900 33,600 Pulte Corp 1,230,600 137,300 Standard Pacific Corp 1,501,719 19,800 Texas Industries Inc 659,588 -------------- 14,554,526 -------------- Consumer Goods -- 3.8% 13,900 Alberto Culver Co, Class B 405,706 17,700 Bassett Furniture Industries Inc 486,750
4 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------- Consumer Goods -- continued 16,200 Block Drug Co Inc, Class A 769,500 81,200 Burlington Industries Inc * 979,475 10,100 Callaway Golf Co 340,244 29,700 Coleman Co Inc * 469,631 46,400 Compucom Systems Inc * 466,900 22,500 Department 56 Inc * 614,531 48,600 Fastenal Co 2,800,574 21,500 First Brands Corp 536,156 53,100 Furniture Brands International Inc * 935,888 22,800 Jones Apparel Group Inc 1,144,275 91,300 Justin Industries 1,335,263 21,600 Kimball International, Class B 972,000 139,000 Kinetic Concepts Inc 2,554,124 25,700 La-z-boy Chair Co 909,138 31,310 Lancaster Colony Corp 1,622,249 1 Mattel Co 3 77,000 Moore Corp Ltd 1,525,563 7,800 National Service Industries 345,150 20,600 Nine West Group Inc * 870,350 31,300 Oneida LTD 991,819 38,400 Osh Kosh B Gosh, Class A 974,400 10,100 Patterson Dental Company * 357,288 6,100 Pittston Brinks Group 216,550 33,600 Russell Corp 957,600 24,000 Safety Kleen 484,500 5,100 Sunbeam Corp 224,400 16,800 Technology Data Corp * 654,150 117,900 Terra Industries Inc 1,576,913 5,800 Timberland Co * 383,163 18,000 Unifi Inc 690,750 14,900 US Industries Inc * 566,200 -------------- 28,161,203 -------------- Electronic Equipment -- 4.6% 5,700 Altera Corp 303,525 107,000 American Power Conversion Corp * 2,808,749 8,900 Burr - Brown Corp 315,950 5,400 CTS Corp 437,400 71,600 Cypress Semiconductor Corp * 1,270,900 47,300 Dallas Semiconductor Corp 1,812,181
See accompanying notes to the financial statements. 5 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Electronic Equipment -- continued 22,000 Federal Signal Corp 572,000 7,800 Franklin Electric Inc 479,700 16,700 Harman International Industries 747,325 13,900 Hutchinson Technology Inc 458,700 86,800 Integrated Device Technology Inc * 1,182,650 32,500 Jabil Circuit Inc 1,925,625 13,500 Kemet Corp * 393,188 39,100 Komag Inc * 686,694 9,900 Lattice Semiconductor Corp * 630,506 17,800 Magnetek Inc * 374,913 60,000 Marshall Industries * 2,381,249 6,400 Maxim Integrated Products Inc * 442,400 26,900 Methode Electronics, Class A 638,875 74,200 Oak Technology Inc * 806,925 25,500 Octel Communications Corp * 774,563 76,600 Pioneer Standard Electronics Inc 1,149,000 8,000 Pittway Corp, Class A 482,500 49,500 Read Rite Corp * 1,420,031 69,400 SCI Systems Inc 2,728,287 24,700 Sensormatic Electronics Corp 322,644 71,400 Silicon Valley Group Inc * 2,409,749 48,600 Stewart & Stevenson Services Corp 1,184,625 19,900 Tech Corp * 660,431 9,501 Thomas & Betts Corp 532,054 47,705 Vishay Intertechnology Inc 1,273,127 27,300 VLSI Technology * 900,900 26,400 Watkins Johnson 907,500 53,500 Zilog Inc * 1,310,750 -------------- 34,725,616 -------------- Food and Beverage -- 3.2% 46,300 Bob Evans Farms Inc 821,825 63,500 Chiquita Brands International Inc 904,875 43,500 Coors (Adolph) Co 1,604,063 328,600 Darden Restaurants Inc 3,306,537 25,900 Dean Foods Co 1,149,313 5,900 Farmer Brothers Co 873,200 15,900 Flowers Industries Inc 294,150 45,700 Great Atlantic & Pacific Tea Co 1,145,356 17,500 Hormel (Geo A) and Co 520,625
6 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Food and Beverage -- continued 41,400 Hudson Foods Inc 672,750 40,900 International Multifoods Corp 1,099,188 46,900 Interstate Bakeries Corp 2,749,512 35,700 Luby's Cafeterias Inc 702,844 60,000 Michael Foods Inc 1,297,500 27,600 Pilgrims Pride Corp 324,300 12,600 Quality Food Centers Inc * 518,175 84,600 Ryans Family Steak House * 782,550 1,600 Seaboard Corp 463,200 13,565 Smith Food and Drug Center, Class B * 742,684 25,600 Smithfield Foods Inc * 1,411,200 13,400 Triarc Companies * 280,563 48,525 Universal Foods Corp 1,883,377 -------------- 23,547,787 -------------- Health Care -- 5.1% 52,400 Apria Healthcare Group * 917,000 15,500 Arrow International Inc. 459,188 46,400 Ballard Medical Products 1,073,000 58,200 Bard (CR) 2,007,900 35,900 Beckman Instruments Inc 1,689,544 115,200 Beverly Enterprises Inc * 1,879,200 61,100 Bindley Western Industries Inc 1,538,956 77,500 BioMet Inc 1,608,125 11,300 Dentsply International Inc 635,625 7,900 Forest Laboratories Inc * 324,394 12,200 Genesis Health Ventures Inc * 425,475 32,600 Haemonetics Corp * 594,950 16,400 Health Care & Retirement * 597,575 70,700 Horizon CMS Healthcare Corp * 1,453,769 73,500 Integrated Health Services Inc 2,425,499 402,400 Laboratory Corporation America Holdings 1,056,300 37,400 Lincare Holdings Inc * 1,783,513 27,000 Living Centers of America Inc * 1,036,125 22,800 Marquette Medical Systems, Class A * 589,950 152,500 Mid Atlantic Medical Services Inc * 2,354,218 180,800 Novacare Corp * 2,723,299 157,500 Perrigo Co * 2,254,219 16,600 Quorum Health Group Inc * 565,438
See accompanying notes to the financial statements. 7 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------- Health Care -- continued 46,100 Rightchoice Managed Care, Class A * 501,338 23,700 Sierra Health Services Inc * 780,619 36,200 Sofamor Denek Group Inc * 1,735,338 54,600 Spacelabs Medical Inc * 1,208,025 45,500 Sunrise Medical Inc * 673,969 18,600 Sybron International Corp * 742,838 8,500 United States Surgical Corp 279,969 19,300 Universal Health Services, Class B * 845,581 18,400 Varian Associates Inc 1,049,950 800 Vencor Inc * 32,100 -------------- 37,842,989 -------------- Insurance -- 10.3% 5,757 Alleghany Corp 1,381,680 37,700 Allied Group Inc 1,668,225 1 Allmerica Financial Corp 15 9,600 AMBAC Inc 775,800 28,600 American Bankers Insurance Group 1,887,600 18,200 American Financial Group Inc 787,150 19,749 American Heritage Life Investments 697,387 16,800 American National Insurance Co 1,629,600 77,300 APL Ltd 2,473,599 25,500 Argonaut Group Inc 828,750 30,000 Berkley (WR) Corp 1,659,375 19,100 Capital Re Corp 970,519 50,200 Citizens Corp 1,418,150 12,300 CMAC Investment Corp 567,338 50,100 Commerce Group Inc 1,399,669 95,802 Conseco Inc 4,119,485 27,090 Delphi Financial Group Inc 1,186,881 21,200 Enhance Financial Services Group Inc 980,500 44,400 Equitable of Iowa Cos 2,891,549 34,400 Everest Re Holdings Inc 1,244,850 20,500 First American Financial Corp 917,375 61,510 Foundation Health Systems * 1,956,787 48,715 Fremont General Corp 1,942,511 14,700 Gallagher (Arthur J) and Co 525,525 24,500 Guaranty National Corp 690,594 22,500 Harleysville Group Inc 953,438 26,000 Horace Mann Educators Corp 1,420,250
8 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------- Insurance -- continued 85,700 Integon Corp 2,169,281 38,200 John Alden Financial Corp 1,091,088 9,900 Kansas City Life Insurance Co 806,850 26,400 Liberty Corp 1,145,100 28,700 Life Re Corp 1,472,669 37,500 Mercury General Corp 3,281,249 23,700 NAC Re Corp 1,116,863 45,300 Ohio Casualty Corp 2,106,450 27,950 Old Republic International Corp 1,004,453 49,500 Orion Capital 2,103,750 26,800 Penncorp Financial Group Inc 859,275 50,600 Presidential Life Corp 967,725 35,600 Protective Life Corp 1,771,100 88,667 Provident Cos Inc 5,774,463 5,900 Reinsurance Group of America 353,631 74,300 Reliance Group Holdings Inc 910,175 48,339 Reliastar Financial Corp 3,613,339 19,875 RLI Corp 752,766 27,800 Selective Insurance Group 1,369,150 36,300 TIG Holdings Inc 1,134,375 35,300 Transatlantic Holding Inc 2,495,268 13,950 Trenwick Group Inc 507,431 16,900 Twentieth Century Industries 391,869 9,600 UICI * 288,000 14,500 USF & G Corp 318,094 32,700 Washington National Corp 964,650 32,200 Western National Corp 897,575 10,200 Zurich Reinsurance Centre Inc 402,263 -------------- 77,043,504 -------------- Machinery -- 3.8% 70,400 Agco Corporation 2,288,000 36,800 Cincinnati Milacron Inc 947,600 19,000 Coltec Industries Inc * 425,125 32,100 Cummins Engine Inc 2,469,693 66,200 Detroit Diesel Corp. * 1,435,713 53,400 Donaldson Co Inc 2,382,974 20,800 Federal Mogul Corp 743,600 11,500 Harnischfeger Industries Inc 461,438 15,700 Kennametal Inc 734,956 31,400 Kulicke & Soffa Industries * 1,442,438
See accompanying notes to the financial statements. 9 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Machinery -- continued 65,500 Lam Research Corp * 3,700,749 36,000 Mohawk Industries Inc * 931,500 26,800 Nordson Corp 1,547,700 31,800 Novellus System Inc * 3,645,074 104,800 Oakley Inc 1,277,250 21,300 Starrett (LS) Co, Class A 745,500 38,600 Tecumseh Products Co, Class B 2,084,400 9,500 Toro Co 352,688 17,800 Ultratech Stepper Inc * 511,750 -------------- 28,128,148 -------------- Manufacturing -- 3.4% 70,500 ACX Technologies Inc * 1,846,219 21,000 Aeroquip-Vickers Inc 1,173,375 7,700 Alliant Techsystems Inc * 497,131 87,700 Amcast Industrial Corp 2,126,725 25,200 Applied Power Inc, Class A 1,600,200 34,300 Ball Corp 1,127,613 26,200 Barnes Group Inc 722,138 64,650 Clayton Homes Inc 1,086,928 47,500 Crane Co 2,095,938 10,900 CSS Industries Inc * 391,038 23,000 Gibson Greetings Inc * 517,500 28,300 Global Industrial Technologies Inc * 535,931 13,100 Greif Brothers Corp 393,000 44,500 Griffon Corp * 623,000 15,900 Harsco Corp 716,494 22,400 International Game Technology 448,000 59,600 Lafarge Corp 1,937,000 13,400 Lydall Inc * 318,250 9,500 Mine Safety Appliances 598,500 10,700 Owens Illinois Inc * 372,494 15,100 Sequa Corp, Class A * 773,875 17,200 Standex International Corp 542,875 9,950 Tredegar Industries 684,684 72,200 Trinity Industries Inc 2,869,949 33,200 Watts Industries Inc, Class A 809,250 11,100 West Co Inc 345,488 -------------- 25,153,595 --------------
10 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------- Metals and Mining -- 1.2% 13,600 Allegheny Teledyne Inc 419,900 30,100 Arch Coal Inc 833,394 86,500 Asarco Inc 2,659,874 16,700 Cleveland Cliffs Inc 696,181 29,500 Commercial Metals Co 907,125 15,700 Nacco Inds Inc, Class A 1,354,125 60,400 Timken Co 2,261,225 -------------- 9,131,824 -------------- Oil and Gas -- 1.3% 8,200 El Paso Natural Gas Co 461,250 57,511 Enserch Exploration Inc * 517,597 57,100 Equitable Resources Inc 1,745,119 8,100 FINA Inc, Class A 534,600 19,700 KCS Energy Inc 525,744 22,900 Mitchell Energy, Class B 572,500 1 Monterey Resources Inc 21 47,400 Oneok Inc 1,534,575 24,700 Oryx Energy Co * 653,006 16,600 Peoples Energy Corp 625,613 35,400 Santa Fe Energy Resources Inc 391,613 32,400 Seagull Energy Corp * 791,775 45,800 Union Texas Petroleum Holdings Inc 1,067,713 -------------- 9,421,126 -------------- Paper and Allied Products -- 3.0% 43,200 Boise Cascade Corp 1,709,100 76,100 Bowater Inc 3,895,368 66,800 Chesapeake Corp 2,296,250 58,600 Jefferson Smurfit Corp * 1,139,038 22,300 Longview Fibre Co 466,906 48,600 Media General Inc, Class A 1,786,050 19,500 Pentair Inc 694,688 41,400 Potlatch Corp 1,932,863 63,600 Rayonier Inc 3,104,474 53,900 Rock-Tenn Co, Class A 1,145,375 22,300 Shorewood Packaging Corp * 482,238 144,500 Stone Container Corp 2,492,624 16,100 TJ International Inc 406,525 22,700 Zurn Industries Inc 673,906 -------------- 22,225,405 --------------
See accompanying notes to the financial statements. 11 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------- Pharmaceuticals -- 1.0% 11,300 Amerisource Health Corp * 565,706 54,675 Bergen Brunswig Corp, Class A 2,296,350 74,000 ICN Pharmaceuticals Inc 2,673,249 64,575 Mark IV Industries Inc 1,622,447 -------------- 7,157,752 -------------- Primary Materials -- 1.2% 20,100 Ameron Inc 1,174,594 22,200 Carpenter Technology Corp 994,838 16,700 Florida Rock Inds 824,563 20,000 Martin Marietta Materials Inc 698,750 15,600 Medusa Corp 733,200 78,100 Premark International Inc 2,323,475 13,800 Southdown Inc 647,738 32,900 USG Corp * 1,410,588 -------------- 8,807,746 -------------- Primary Processing -- 2.4% 31,700 AK Steel Holding Corp 1,434,425 98,200 Alumax Inc * 4,069,162 182,100 Bethlehem Steel Corp * 2,185,200 39,500 Birmingham Steel Corp 740,625 44,900 Chaparral Steel Corp 679,113 56,000 Inland Steel Industries Inc 1,179,500 125,400 LTV Corp 1,630,200 44,500 Lukens Inc 831,594 6,700 Maxxam Inc * 368,500 6,700 Mueller Industries Inc * 293,544 81,400 National Steel Corp, Class B * 1,531,338 11,100 NCH Corp 754,800 25,000 Oregon Steel Mills Inc 673,438 19,700 Quanex Corp 715,356 38,600 Rouge Industries Inc, Class A 593,475 -------------- 17,680,270 -------------- Printing and Publishing -- 0.2% 20,900 American Business Products Inc 483,313 56,600 Hollinger International Inc 728,725 8,799 Pulitzer Publishing Co 462,497 -------------- 1,674,535 --------------
12 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Real Estate -- 0.4% 47,300 Lennar Corp 1,767,838 4,400 Security Capital Corp 455,400 57,900 Webb (D) Corp 1,013,250 -------------- 3,236,488 -------------- Refining -- 0.6% 19,500 Holly Corp 510,656 23,400 Lyondell Petro Chemical Co 567,450 9,300 Tosco Corp 307,481 56,892 Ultramar Diamond Shamrock Corp 1,856,102 34,700 Valero Energy Corp 1,155,944 -------------- 4,397,633 -------------- Retail Trade -- 6.9% 20,800 AnnTaylor Stores Corp * 356,200 13,400 Barnes & Noble Inc * 622,263 67,300 Bed, Bath & Beyond Inc * 2,086,300 50,900 Best Buy Co Inc * 865,300 28,100 Borders Group Inc 669,131 36,800 Brinker International Inc * 616,400 32,900 Brown Group Inc 549,019 15,800 Brunos Inc * 138,250 69,600 Burlington Coat Factory Warehouse * 1,600,800 24,800 Casey's General Stores Inc 564,200 54,700 Cash American Investments Inc 588,025 88,200 Charming Shoppes Inc * 531,952 25,500 Claire's Stores Inc 535,500 47,600 CompUSA Inc 1,472,625 79,100 Cone Mills Corp * 622,913 55,100 CPI Corp 1,308,625 62,100 Dress Barn Inc * 1,273,050 100,550 Family Dollar Stores Inc 2,136,688 124,700 Fingerhut Cos Inc 2,525,174 28,200 Foodmaker Inc * 553,425 14,300 Goodys Family Clothing Inc * 487,988 37,100 Hannaford Brothers Co 1,261,400 41,500 Heilig Meyers Co 622,500 132,900 Homebase Inc 1,046,588 61,600 Ingles Markets Inc 823,900 51,500 Longs Drug Stores Corp 1,303,594
See accompanying notes to the financial statements. 13 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------- Retail Trade -- continued 18,000 Macfrugals Bargains Close Outs Inc * 490,500 30,100 Mercantile Stores 1,879,369 40,400 Meyer Fred Inc * 2,100,800 84,200 Michaels Stores Inc * 2,057,638 38,300 Micro Warehouse Inc * 1,000,588 19,800 Microage Inc * 538,313 36,800 Neiman Marcus Group Inc * 1,136,200 26,700 NPC International Inc * 303,713 74,300 Officemax Inc * 1,100,569 25,200 Outback Steakhouse Inc * 607,950 47,500 Phillips Van Heusen 682,813 15,950 Pier 1 Imports Inc 271,150 12,600 Proffitts Inc * 676,463 35,200 Richfood Holdings Inc 792,000 58,300 Ross Stores Inc 1,712,563 26,000 Ruby Tuesday Inc * 702,000 46,900 Ruddick Corp 703,500 377,500 Service Merchandise Co * 1,462,813 91,000 Shopko Stores Inc * 2,502,499 324,800 Southland Corp * 923,634 80,400 Spiegel Inc, Class A * 512,550 46,000 Stanhome Inc 1,495,000 1,900 TJX Cos Inc 52,250 118,900 Value City Department Stores Inc * 951,200 22,800 Weismarkets Inc 769,500 10,800 Woolworth (FW) Co * 241,650 27,800 Zale Corp * 597,700 -------------- 51,426,735 -------------- Services -- 5.5% 14,300 Amerco * 384,313 38,200 Anixter International Inc * 618,363 54,925 Arctic Cat Inc 597,309 8,004 Ascent Entertainment Group * 88,044 103,000 Aztar Corp * 721,000 82,050 Banta Corp 2,215,350 16,300 Belo (AH) Corp 698,863 19,500 Berlitz International Inc * 511,875 31,300 Bowne and Co Inc 905,744
14 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Services -- continued 105,100 Buffetts Inc * 1,149,531 8,900 Carmike Cinemas Inc, Class A * 280,350 12,700 Catalina Marketing Corp * 588,169 9,100 Chemed Corp 342,388 30,338 Chris Craft Industries Inc 1,488,452 198,300 Dames and Moore Inc 2,602,687 23,100 Devon Group Inc * 877,800 28,600 Electro Rental Corp * 772,200 71,600 Fleming Cos Inc 1,351,450 23,000 Franklin Covey Co * 572,125 101,700 Grand Casinos Inc * 1,569,994 90,200 Handleman Co * 535,563 46,800 Healthcare Compare Corp * 2,609,099 14,000 Hollywood Entertainment Corp * 229,250 13,400 Interim Services Inc * 661,625 26,500 International Dairy Queen Inc, Class A * 652,563 32,200 Interpool Inc 511,175 27,500 Jacobs Engineering Group * 880,000 64,900 Kellwood Co 2,344,512 35,300 Kelly Services 1,182,550 38,100 Kingworld Productions Inc 1,514,475 12,300 Marcus Corp 305,194 130,700 Nash Finch Co 2,793,712 9,700 Norrell Corp 313,431 41,500 Ogden Corp 962,281 62,700 Olsten Corp 1,175,625 1 Philip Services * 11 35,700 Rollins Truck Leasing Corp 577,894 18,700 Rykoff Sexton Inc 472,175 17,900 Sbarro Inc 478,825 66,500 Spelling Entertainment Group Inc * 519,531 9,500 Stone & Webster Inc 450,063 71,100 Sun Healthcare Group Inc * 1,528,650 31,900 Supervalu Inc 1,252,075 21,500 United Video Satellite * 599,313 24,648 United Water Resources Inc 440,583 -------------- 41,326,182 --------------
See accompanying notes to the financial statements. 15 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Technology -- 4.0% 113,000 Advanced Micro Devices Inc * 4,230,437 41,100 Autodesk Inc 1,798,125 16,600 Broderbund Software Inc * 489,700 36,800 Cirrus Logic Corp * 632,500 60,800 Cognex Corp * 2,325,599 10,100 Cohu Inc 565,600 29,500 Data General Corp * 1,060,156 7,700 Dionex Corp * 359,975 36,400 EG & G Inc 773,500 35,500 Electroglas Inc * 1,136,000 23,500 Esterline Corp. * 872,438 13,200 Fisher Scientific International Inc 650,100 6,000 Fluke Corp 297,000 19,000 G TECH Holdings Corp * 571,188 16,300 KLA Instruments Corp * 1,155,263 23,800 MTS Systems Inc 761,600 9,900 National Computer System Inc 324,225 14,400 Solectron Corp 603,000 23,300 Storage Technology Corp * 1,186,844 160,800 Tandem Computers Inc * 5,467,199 18,800 Tektronix Inc 1,044,575 65,100 Teradyne Inc * 3,625,255 -------------- 29,930,279 -------------- Telecommunications -- 0.3% 24,400 Century Telephone 886,025 53,200 Comsat Corp 1,153,775 -------------- 2,039,800 -------------- Textiles -- 0.7% 4,200 Crystal Brands Inc./(a)/ * -- 44,250 Guilford Mills 962,438 44,300 Interface Flooring Systems Inc 1,240,400 68,300 Shaw Industries 764,106 36,600 Springs Industries Inc, Class A 1,720,200 21,200 Westpoint Stevens Inc * 848,000 -------------- 5,535,144 --------------
16 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Transportation -- 3.2% 52,700 Airborne Freight Corp 2,595,474 37,950 Airline Express International Corp 1,152,731 15,800 Alaska Airline Group Inc * 433,513 39,600 American West Holdings Corp, Class B * 477,675 24,200 Asa Holdings Inc 719,950 123,600 CNF Transportation Inc 4,465,049 41,800 Comair Holdings Inc 1,123,375 30,500 Fleetwood Enterprises Inc 949,313 37,100 Gatx Corp 2,321,069 1 Halter Marine Group Inc * 32 23,300 Heartland Express Inc 576,675 45,200 Hunt (JB) Transportation Services Inc 751,450 25,600 Illinois Central Corp 859,200 64,600 Navistar International Corp * 1,602,888 13,500 US Freightways Corp 405,000 109,600 USAir Group Inc * 3,740,099 44,400 Viad Corp 807,525 11,000 Werner Enterprises Inc 240,625 33,500 Yellow Corp * 1,051,063 -------------- 24,272,706 -------------- Utilities -- 7.3% 13,400 AES Corp 495,800 62,600 American Water Works Co 1,298,950 138,400 Atlantic Energy Inc 2,396,049 89,200 Boston Edison Co 2,519,899 28,200 Brooklyn Union Natural Gas Co 851,288 286,900 Centerior Energy Corp 3,227,624 21,500 Central Hudson Gas & Electric 717,563 15,600 Central Louisiana Electric Inc 409,500 61,900 Central Maine Power Co 785,356 8,400 Cilcorp Inc 337,575 76,500 Commonwealth Energy Systems 1,883,813 79,100 Delmarva Power and Light Co 1,418,856 16,100 Eastern Enterprises 574,569 35,900 Eastern Utilities Associates 686,588 59,300 El Paso Electric Company * 370,625 9,800 Energen Corp 353,413 24,400 Hawaiian Electric Industry Inc 882,975 13,883 Houston Industries Inc 281,134 47,200 Illinova Corp 1,085,600 24,500 LES Industries Inc 750,313
See accompanying notes to the financial statements. 17 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Utilities -- continued 28,300 Mapco Inc 849,000 101,882 Midamerican Energy Holding Co 1,738,362 13,300 Minnesota Power & Light Co 457,188 108,800 Montana Power Co 2,509,199 25,600 Natural Gas Clearinghouse 419,200 41,600 Nevada Power Co 878,800 111,800 New York State Electric and Gas Corp 2,725,124 289,900 Niagara Mohawk Power Corp * 2,590,980 187,600 Northeast Utilities 1,887,725 30,400 Nui Corporation 699,200 16,600 Orange and Rockland Utilities 563,363 19,224 PG & E Corp 445,752 122,600 Public Services Co of New Mexico 2,237,450 55,900 Puget Sound Power and Light Co 1,418,463 113,400 Rochester Gas and Electric Corp 2,671,987 28,300 Sierra Pacific Resources 884,375 30,800 Southwest Natural Gas Corp 610,225 16,843 Texas Utilities Co 587,382 44,700 TNP Enterprises Inc 1,047,656 22,340 Tucson Electric Power Co * 356,044 31,500 United Illuminating Co 1,100,531 59,900 Utilicorp United Inc 1,782,025 27,800 Washington Gas Light Co 707,163 26,300 Washington Water Power 512,850 81,100 Western Gas Resources Inc 1,540,900 38,600 Western Resources Inc 1,293,100 24,000 Wisconsin Power & Light Holding Co 664,500 ------------- 54,506,034 ------------- TOTAL COMMON STOCKS (COST $586,102,341) 698,768,903 ------------- RIGHTS AND WARRANTS -- 0.0% Printing and Publishing -- 0.0% 550 American Satellite Network Warrants expire 06/30/99 -- (Cost $0)* ------------- TOTAL RIGHTS AND WARRANTS (COST $0) -- ------------- SHORT-TERM INVESTMENTS -- 15.5% Cash Equivalents -- 8.1% $14,385,115 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(b)/ 14,385,115
18 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Cash Equivalents -- continued $ 1,251,691 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(b)/ 1,251,691 $ 3,758,074 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(b)/ 3,758,074 31,656,404 Merrimac Cash Fund Premium Class/(b)/ 31,656,404 $ 9,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(b)/ 9,000,000 -------------- 60,051,284 -------------- U.S. Government -- 0.1% $ 1,000,000 U.S. Treasury Bill, 5.22% due 11/28/97/(c)/ 987,698 -------------- Repurchase Agreements -- 7.3% $37,627,397 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $37,648,510 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $38,489,629. 37,627,397 $17,143,405 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $17,152,910 and an effective yield of 4.99%, collateralized by U.S. Government and Agency Obligations with rates ranging from 6.072% to 6.914%, with maturity dates ranging from 10/1/32 to 8/1/35 and with an aggregate market value of $17,486,330. 17,143,405 -------------- 54,770,802 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $115,809,286) 115,809,784 -------------- TOTAL INVESTMENTS -- 109.1% (COST $701,911,627) 814,578,687 Other Assets and Liabilities (net)-- (9.1)% (68,038,820) -------------- TOTAL NET ASSETS-- 100% $ 746,539,867 ==============
Notes to the Schedule of Investments: * Non-income producing security. /(a)/ Bankrupt security - valued by management (Note 1). /(b)/ Represents investments of security lending collateral (Note 1). /(c)/ Security has been segregated to cover margin requirements on open financial futures contracts. See accompanying notes to the financial statements. 19 GMO Small Cap Value Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Assets: Investments, at value (cost $701,911,627) (Note 1) $814,578,687 Receivable for investments sold 8,842,176 Dividends and interest receivable 804,325 Receivable for variation margin on open futures contracts (Notes 1 and 6) 218,627 Receivable for expenses waived or borne by Manager (Note 2) 179,372 Miscellaneous receivable 37,341 ------------ Total assets 824,660,528 ------------ Liabilities: Payable for investments purchased 10,176,513 Payable upon return of securities loaned (Note 1) 60,051,284 Payable for Fund shares repurchased 7,475,612 Payable to affiliate for (Note 2): Management fee 291,011 Shareholder service fee 87,006 Accrued expenses 39,235 ------------ Total liabilities 78,120,661 ------------ Net assets $746,539,867 ============ Net assets consist of: Paid-in-capital $587,972,207 Accumulated undistributed net investment income 1,967,188 Accumulated undistributed net realized gain 43,387,803 Net unrealized appreciation 113,212,669 ------------ $746,539,867 ============ Net assets attributable to: Class I shares $ 1,725,622 ============ Class III shares $744,814,245 ============ Shares outstanding: Class I 94,566 ============ Class III 40,813,011 ============ Net asset value per share: Class I $ 18.25 ============ Class III $ 18.25 ============
20 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $ 3,825,406 Interest (including securities lending income of $41,679) 4,765,073 ------------- Total income 8,590,479 ------------- Expenses: Management fee (Note 2) 1,758,768 Custodian and transfer agent fees 71,355 Registration fees 70,289 Audit fees 25,324 Legal fees 15,240 Trustees fees (Note 2) 3,683 Miscellaneous 2,132 Fees waived or borne by Manager (Note 2) (786,004) ------------- 1,160,787 Shareholder service fee (Note 2) Class I 2,098 Class III 526,033 ------------- Net expenses 1,688,918 ------------- Net investment income 6,901,561 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 16,805,156 Closed futures contracts 25,520,750 ------------- Net realized gain 42,325,906 ------------- Change in net unrealized appreciation (depreciation) on: Investments 82,967,788 Open futures contracts 2,545,139 ------------- Net unrealized gain 85,512,927 ------------- Net realized and unrealized gain 127,838,833 ------------- Net increase in net assets resulting from operations $ 134,740,394 =============
See accompanying notes to the financial statements. 21 GMO Small Cap Value Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Year Ended August 31, 1997 February 28, (Unaudited) 1997 ---------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $ 6,901,561 $ 8,393,192 Net realized gain 42,325,906 48,217,450 Change in net unrealized appreciation (depreciation) 85,512,927 7,279,028 ------------- ------------- Net increase in net assets resulting from operations 134,740,394 63,889,670 ------------- ------------- Distributions to shareholders from: Net investment income Class I (14,575) -- Class III (7,251,227) (6,723,900) ------------- ------------- Total distributions from net investment income (7,265,802) (6,723,900) ------------- ------------- Net realized gains Class I (53,330) -- Class III (25,584,900) (9,617,877) ------------- ------------- Total distributions from net realized gains (25,638,230) (9,617,877) ------------- ------------- (32,904,032) (16,341,777) ------------- ------------- Net share transactions: (Note 5) Class I 120,769 1,343,250 Class III (12,181,277) 376,339,439 ------------- ------------- Increase (decrease) in net assets resulting from net share transactions (12,060,508) 377,682,689 ------------- ------------- Total increase in net assets 89,775,854 425,230,582 Net assets: Beginning of period 656,764,013 231,533,431 ------------- ------------- End of period (including accumulated undistributed net investment income of $1,967,188 and $2,331,429, $ 746,539,867 $ 656,764,013 respectively) ============= =============
22 See accompanying notes to the financial statements. GMO Small Cap Value Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from January 2, 1997 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ---------------------------- Net asset value, beginning of period $ 15.89 $ 15.34 ------- ------- Income from investment operations: Net investment income 0.16 0.05 Net realized and unrealized gain 2.98 0.50 ------- ------- Total from investment operations 3.14 0.55 ------- ------- Less distributions to shareholders: From net investment income (0.17) -- From net realized gains (0.61) -- ------- ------- Total distributions (0.78) -- ------- ------- Net asset value, end of period $ 18.25 $ 15.89 ======= ======= Total Return/(a)/ 20.25% 3.52% Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,726 $ 1,391 Net expenses to average daily net assets 0.61%* 0.61%* Net investment income to average daily net assets 1.86%* 1.87%* Portfolio turnover rate 23% 58% Average broker commission rate per equity share $0.0370 $0.0271 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 /(b)/
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Annualized. See accompanying notes to the financial statements. 23 GMO Small Cap Value Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 --------------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- -------- -------- -------- -------- -------- Net asset value, beginning of period $ 15.89 $ 13.89 $ 13.61 $ 14.31 $ 12.68 $ 11.12 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.16 0.28 0.23 0.20 0.21 0.22 Net realized and unrealized gain 2.98 2.32 3.20 0.34 2.14 1.59 -------- -------- -------- -------- -------- -------- Total from investment operations 3.14 2.60 3.43 0.54 2.35 1.81 -------- -------- -------- -------- -------- -------- Less distributions to shareholders: From net investment income (0.17) (0.27) (0.23) (0.20) (0.22) (0.21) From net realized gains (0.61) (0.33) (2.92) (1.04) (0.50) (0.04) -------- -------- -------- -------- -------- -------- Total distributions (0.78) (0.60) (3.15) (1.24) (0.72) (0.25) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 18.25 $ 15.89 $ 13.89 $ 13.61 $ 14.31 $ 12.68 ======== ======== ======== ======== ======== ======== Total Return /(a)/ 20.22% 19.12% 27.18% 4.48% 18.97% 16.46% Ratios/Supplemental Data: Net assets, end of period (000's) $744,814 $655,373 $231,533 $235,781 $151,286 $102,232 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49% Net investment income to average daily net assets 1.96%* 2.15% 1.67% 1.55% 1.66% 2.02% Portfolio turnover rate 23% 58% 135% 54% 30% 3% Average broker commission rate per equity share /(b)/ $ 0.0370 $ 0.0271 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.03 $ 0.02 $ 0.01 $ 0.02 $ 0.02
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. * Annualized. 24 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Small Cap Value Fund (the "Fund"), formerly named the GMO Core II Secondaries Fund, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks long-term growth of capital through investment primarily in companies whose equity capitalization ranks in the lower two-thirds of the 1,800 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31,1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. 25 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $57,827,314, collateralized by cash in the amount of $60,051,284, which was invested in short-term instruments. Swap agreements The Fund may enter into swap agreements to manage its exposure to the equity markets. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform, or that there may be unfavorable changes in 26 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- the price of the security or index underlying these transactions. There were no open swap agreements as of August 31, 1997. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases and fee on redemptions of Fund shares is .50% of the amount invested or redeemed. Prior to June 1, 1996, the premium on cash purchases and fee on redemptions was .75% of the amount invested or redeemed. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $523,094 in 27 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- purchase premiums and $495,204 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .50% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .33% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .48%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $3,683. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $264,525,965 and $121,448,476, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------------- --------------------- -------------------- ------------------ $ 701,911,627 $ 119,450,718 $ 6,783,658 $ 112,667,060
4. Principal shareholder At August 31, 1997, 11% of the outstanding shares of the Fund were held by one shareholder. 28 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Class I: August 31, 1997 ------------------------------------ Shares Amount ---------------- ---------------- Shares sold 2,943 $ 52,864 Shares issued to shareholders in reinvestment of distributions 4,058 67,905 Shares repurchased - - ---------------- ---------------- Net increase 7,001 $120,769 ================ ================ Period from January 2, 1997 (commencement of operations) Class I: to February 28, 1997 ------------------------------------ Shares Amount ---------------- ---------------- Shares sold 87,565 $1,343,250 Shares issued to shareholders in reinvestment of distributions - - Shares repurchased - - ---------------- ---------------- Net increase 87,565 $1,343,250 ================ ================ Six Months Ended Class III: August 31, 1997 ------------------------------------ Shares Amount ---------------- ---------------- Shares sold 6,363,495 $106,308,601 Shares issued to shareholders in reinvestment of distributions 1,742,775 29,285,444 Shares repurchased (8,528,031) (147,775,322) ---------------- ---------------- Net increase (decrease) (421,761) $ (12,181,277) ================ ================ Class III: Year Ended February 28, 1997 ------------------------------------ Shares Amount ---------------- ---------------- Shares sold 36,443,463 $557,963,243 Shares issued to shareholders in reinvestment of distributions 846,111 12,460,382 Shares repurchased (12,721,369) (194,084,186) ---------------- ---------------- Net increase (decrease) 24,568,205 $376,339,439 ================ ================
29 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Appreciation --------------- --------------- --------------------- ------------------- --------------- 152 S&P 500 September 1997 $32,231,600 $545,609 ============
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 30 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- COMMON STOCKS -- 87.3% Advertising -- 0.0% 300 Interpublic Group Inc 14,625 ---------- Aerospace -- 0.9% 8,500 Raytheon Co 467,500 1,400 Textron Inc 87,238 3,900 TRW Inc 203,288 ---------- 758,026 ---------- Automotive -- 1.5% 100 Bandag Inc 5,331 900 Chrysler Corp 31,613 500 Eaton Corp 45,031 13,800 Ford Motor Co 593,400 6,300 General Motors Corp 395,325 2,600 Genuine Parts Co 80,275 2,000 Goodyear Tire & Rubber Co 123,250 ---------- 1,274,225 ---------- Banking and Financial Services -- 11.5% 6,500 Ahmanson (HF) & Co 329,875 3,150 Amsouth Bancorp 132,497 4,500 Bank of New York Inc 200,813 8,300 BankBoston Corp 689,937 3,700 Bankers Trust New York Corp 383,875 9,500 Barnett Banks Inc 647,187 5,635 Bear Stearns Inc 222,949 1,900 Beneficial Corp 135,969 600 Charles Schwab & Co Inc 25,463 11,164 Chase Manhattan Corp 1,241,296 1,500 Citicorp 191,438 100 Comdisco Inc 2,719 2,400 Countrywide Credit Industry Inc 80,850 1,300 Donaldson Lufkin & Jenrette 77,188 4,300 Edwards (AG) Inc 170,925 3,900 Fleet Financial Group Inc 251,306 2,100 Franklin Resources Inc 162,488 100 Golden West Financial Corp 8,231 3,300 Greenpoint Financial Corp 203,156 100 Household International Inc 11,094 1,900 J.P. Morgan & Co Inc 203,775
See accompanying notes to the financial statements. 1 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Banking and Financial Services -- continued 4,800 Lehman Brothers Holding Inc 210,600 9,200 Merrill Lynch 565,800 300 MGIC Investment Corp 15,094 12,545 Morgan Stanley Dean Witter Discover & Co 603,728 4,700 Paine Webber Group Inc 180,656 13,900 PNC Bank Corp 601,175 3,700 Providian Financial Corp 137,825 100 Republic New York Corp 10,706 6,600 Salomon Inc 395,175 500 SLM Holding Corp 67,750 2,000 Summit Bancorp 118,750 2,850 Synovus Financial Corp 74,634 12,533 Travelers Group Inc 795,845 8,800 Washington Mutual Inc 526,900 ---------- 9,677,669 ---------- Chemicals -- 0.7% 2,200 Eastman Chemical Co 131,588 3,300 Great Lakes Chemical Corp 153,450 1,500 Lubrizol Corp 65,719 5,100 Union Carbide Corp 261,694 ---------- 612,451 ---------- Computer and Office Equipment -- 3.5% 28,250 Compaq Computer Corp 1,850,374 6,600 EMC Corp * 338,663 1,100 Gateway 2000 Inc 43,038 11,300 Micron Technology Inc * 503,556 800 Pitney Bowes Inc 61,100 200 Sterling Software Inc 6,863 3,000 Western Digital Corp 144,375 ---------- 2,947,969 ---------- Construction -- 0.1% 1,100 Georgia-Pacific Corp 100,375 ---------- Consumer Goods -- 3.6% 4,500 Callaway Golf Co 151,594 1,800 Clorox Co 236,250 900 Colgate-Palmolive Co 56,475 6,300 Eastman Kodak Co 411,863 10,200 Fortune Brands Inc 350,625
2 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 1,050 Hasbro Inc 28,219 1,600 Jones Apparel Group Inc 80,300 2,000 Liz Claiborne Inc 89,125 2,100 Moore Corp Ltd 41,606 3,900 Newell Co 153,563 300 Nike Inc, Class B 16,013 6,400 Procter and Gamble Co 851,599 3,900 Reebok International Ltd 171,356 2,400 Sunbeam Corp 105,600 2,700 VF Corp 238,613 ---------- 2,982,801 ---------- Electronic Equipment -- 0.8% 300 Arrow Electronics Inc * 18,431 1,200 Cooper Industries Inc 63,975 400 Harris Corp Inc 34,850 1,000 Litton Industries * 49,875 4,500 Motorola Inc 330,188 1,400 Texas Instruments 159,075 ---------- 656,394 ---------- Environmental Control -- 0.1% 4,500 Wheelabrator Technology Inc 70,594 ---------- Food and Beverage -- 6.6% 17,100 Anheuser Busch Cos Inc 728,887 23,571 Archer Daniels Midland Co 509,733 2,600 Campbell Soup Co 120,575 15,900 Coca Cola Co 911,268 9,300 Coca Cola Enterprises Inc 255,750 8,600 CPC International Inc 766,474 1,100 Dean Foods Co 48,813 8,700 Heinz (HJ) Co 362,138 4,700 IBP Inc 107,806 14,900 Sara Lee Corp 599,725 6,700 Seagrams Co Ltd 234,081 3,500 Unilever NV ADR 704,374 400 Universal Foods Corp 15,525 4,100 Whitman Corp 100,450 500 Wrigley (William Jr) Co 36,250 ---------- 5,501,849 ----------
See accompanying notes to the financial statements. 3 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Health Care -- 1.6% 400 Becton Dickinson & Co 19,175 2,700 Columbia HCA Healthcare Corp 85,219 1,100 Hillenbrand Industries Inc 48,331 5,200 Johnson & Johnson 294,775 3,800 Mallinckrodt Inc 138,225 1,200 McKesson Corp 112,425 7,300 Pharmacia & Upjohn Inc 248,656 9,300 Tenet Healthcare Corp * 253,425 2,600 United States Surgical Corp 85,638 800 Wellpoint Health Network * 43,500 -------------- 1,329,369 -------------- Insurance -- 3.4% 4,200 AFLAC Corp 231,263 1,700 AMBAC Inc 137,381 500 CNA Financial Corp * 56,719 12,700 Conseco Inc 546,100 3,900 Lincoln National Corp 261,056 1,800 MBIA Inc 203,850 2,100 Old Republic International Corp 75,469 2,400 Progressive Corp 237,600 1,100 Reliastar Financial Corp 82,225 4,600 Safeco Corp 225,975 4,500 Saint Paul Cos Inc 330,188 4,200 Torchmark Corp 158,288 2,400 Transamerica Corp 236,550 900 Transatlantic Holding Inc 63,619 -------------- 2,846,283 -------------- Machinery -- 1.3% 9,300 Applied Materials Inc * 877,687 1,800 Cummins Engine Inc 138,488 1,100 FMC Corp * 91,369 -------------- 1,107,544 -------------- Manufacturing -- 5.5% 5,700 Corning Inc 301,388 24,400 General Electric Co 1,524,999 1,000 Gillette Co 82,813 15,100 IBM Corp 1,523,212 3,900 International Game Technology 78,000
4 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------- Manufacturing -- continued 1,900 Leggett & Platt Inc 81,700 4,200 Minnesota Mining And Manufacturing Co 377,475 2,500 Owens Illinois Inc * 87,031 2,600 Temple Inland Inc 167,700 4,600 Tyco International Ltd * 360,813 900 United Technologies Corp 70,256 ---------- 4,655,387 ---------- Metals and Mining -- 0.1% 1,500 Phelps Dodge Corp 120,656 ---------- Oil and Gas -- 7.3% 4,600 Apache Corp 182,563 10,000 Atlantic Richfield Co 749,999 200 Burlington Resources Inc 10,125 4,100 Chevron Corp 317,494 1,400 Columbia Natural Gas Systems Inc 92,400 2,600 El Paso Natural Gas Co 146,250 100 Ensco International Inc 6,350 21,400 Exxon Corp 1,309,412 1,200 Mobil Corp 87,300 3,300 Occidental Petroleum Corp 77,344 1,500 Oryx Energy Co * 39,656 1,500 Pennzoil Co 115,781 8,900 Phillips Petroleum Co 423,306 7,100 Schlumberger Ltd 540,931 4,500 Sonat Inc 224,156 5,700 Texaco Inc 656,924 7,900 Union Pacific Resources Group 197,500 11,300 Unocal Corp 441,406 15,400 USX - Marathon Group 501,463 ---------- 6,120,360 ---------- Paper and Allied Products -- 1.3% 2,400 Champion International Corp 142,050 1,700 Fort James Corp 71,400 7,000 International Paper Co 369,250 2,000 Mead Corp 141,875 1,800 Sonoco Products Co 58,613 4,300 Westvaco Corp 145,663 1,600 Willamette Industries Inc 127,600 ---------- 1,056,451 ----------
See accompanying notes to the financial statements. 5 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value Shares Description ($) - -------------------------------------------------------------------------------- Pharmaceuticals -- 7.3% 27,400 Abbott Laboratories 1,642,287 2,100 Allergan Inc 67,988 2,000 American Home Products Corp 144,000 26,200 Bristol Myers Squibb Co 1,991,199 1,600 Lilly (Eli) & Co 167,400 9,700 Merck & Co Inc 890,580 2,000 Pfizer Inc 110,750 7,900 Schering Plough Corp 379,200 5,800 Warner Lambert Co 736,962 ---------- 6,130,366 ---------- Primary Materials -- 0.1% 1,100 Rubbermaid Inc 27,500 800 Vulcan Materials Co 70,300 ---------- 97,800 ---------- Primary Processing -- 0.2% 1,600 Du Pont (EI) De Nemours & Co 99,700 2,900 USX-US Steel Group Inc 101,863 ---------- 201,563 ---------- Refining -- 0.8% 500 Murphy Oil Corp 26,844 9,600 Royal Dutch Petroleum 487,200 4,200 Tosco Corp 138,863 ---------- 652,907 ---------- Retail Trade -- 4.4% 10,700 Albertsons Inc 367,813 12,800 American Stores Co 303,200 13,000 Costco Cos Inc * 468,813 8,800 Dayton Hudson Corp 501,600 1,300 Dillards Department Stores Inc 52,000 3,800 Fruit of the Loom Inc * 101,650 39,400 Kmart Corp * 546,675 6,400 Limited Inc 145,600 700 Penney (JC) Co Inc 42,000 3,400 Rite Aid Corp 170,213 5,398 Safeway Inc * 274,935
6 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade -- continued 2,200 TJX Cos Inc 60,500 1,500 Toys R Us Inc * 51,844 16,400 Wal Mart Stores Inc 582,200 ------------- 3,669,043 ------------- Services -- 0.3% 400 BHC Communications Inc, Class A 49,100 1,500 Disney Walt Co 115,219 300 Fleming Cos Inc 5,663 2,700 Supervalu Inc 105,975 ------------- 275,957 ------------- Technology -- 10.2% 7,900 Advanced Micro Devices Inc * 295,756 2,100 Avnet Inc 145,294 1,000 Cisco Systems Inc * 75,375 13,600 Dell Computer Corp 1,116,049 1,100 Grainger (WW) Inc 97,694 32,500 Intel Corp 2,994,062 18,500 Microsoft Corp 2,445,468 2,400 Oracle Corp 91,500 6,000 Seagate Technology Corp 229,125 5,900 Storage Technology Corp * 300,531 3,100 Teradyne Inc * 172,631 8,000 Xerox Corp 604,000 ------------- 8,567,485 ------------- Telecommunications -- 4.9% 34,000 AT & T Corp 1,325,999 6,894 Bell Atlantic Corp 498,924 400 Bellsouth Corp 17,600 1,800 Cincinnati Bell Inc 48,488 6,000 GTE Corp 267,375 21,400 MCI Communications Corp 609,899 4,800 SBC Communications 261,000 19,500 Sprint Corp 916,499 3,500 US West Inc 125,344 ------------- 4,071,128 -------------
See accompanying notes to the financial statements. 7 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Transportation -- 1.8% 9,700 Burlington Northern Santa Fe Railroad Co 889,368 3,300 CSX Corp 188,719 3,900 Federal Express Corp 259,106 1,800 Ryder System Inc 64,238 1,300 UAL Corp * 99,044 ---------- 1,500,475 ---------- Utilities -- 7.5% 10,000 AES Corp* 370,000 4,800 Allegheny Power System Inc 139,500 7,000 American Electric Power Inc 305,813 10,600 Baltimore Gas and Electric Co 286,200 3,500 Carolina Power and Light Co 118,125 1,300 Central & South West Corp 26,894 9,800 Cinergy Corp 324,013 2,828 Citizens Utilities, Class B 23,685 4,000 CMS Energy Corp 143,750 2,900 Coastal Corp 167,475 7,000 Dominion Resources Inc 252,000 4,500 DPL Inc 106,594 3,800 DQE Inc 120,650 6,800 Duke Power Co 329,375 17,800 Edison International 429,425 17,600 Entergy Corp 436,700 4,900 Florida Progress Corp 157,719 22,300 Houston Industries Inc 451,575 4,700 Illinova Corp 108,100 2,000 LG&E Energy Corp 45,250 5,500 Long Island Lighting Co 135,781 1,700 New Century Energies Inc * 68,638 2,100 Nipsco Industries Inc 85,706 1,700 Northern States Power Co 81,813 10,500 Pacificorp 217,875 2,200 PG & E Corp 51,013 3,400 Potomac Electric Power Co 77,138 1,000 PP & L Resources Inc 21,938 2,200 Scana Corp 53,075 35,300 Southern Co 743,505 3,500 Teco Energy Inc 84,219 7,200 Texas Utilities Co 251,100 3,100 Wisconsin Energy Corp 79,244 ---------- 6,293,888 ---------- TOTAL COMMON STOCKS (COST $60,139,758) 73,293,640 ==========
8 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - ------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 16.2% Cash Equivalents -- 5.6% $1,573,771 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 1,573,771 $ 97,423 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 97,423 $292,270 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 292,270 706,878 Merrimac Cash Fund Premium Class/(a)/ 706,878 $2,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 2,000,000 ----------- 4,670,342 ----------- Repurchase Agreements -- 10.0% $4,198,363 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $4,200,691 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.811%, with a maturity date of 3/1/35 and with a market value of $4,282,345. 4,198,363 $4,198,363 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $4,200,719 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $4,294,569. 4,198,363 ----------- 8,396,726 ----------- U.S. Government -- 0.6% $510,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 503,726 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $13,570,540) 13,570,794 ----------- TOTAL INVESTMENTS -- 103.5% (COST $73,710,298) 86,864,434 Other Assets and Liabilities (net) -- (3.5)% (2,904,391) ----------- TOTAL NET ASSETS-- 100% $83,960,043 ===========
Notes to the Schedule of Investments: ADR - American Depositary Receipt * Non-income producing security. /(a)/ Represents investments of security lending collateral (Note 1). /(b)/ Security has been segregated to cover margin requirements on open financial futures contracts. See accompanying notes to the financial statements. 9 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Assets: Investments, at value (cost $73,710,298) (Note 1) $86,864,434 Cash 3,801,810 Receivable for investments sold 841,080 Dividends and interest receivable 143,229 Receivable for open swap contracts (Notes 1 and 6) 115,168 Receivable for variation margin on open futures contracts (Notes 1 and 6) 34,650 Receivable for expenses waived or borne by Manager (Note 2) 23,016 ----------- Total assets 91,823,387 ----------- Liabilities: Payable for investments purchased 3,113,357 Payable upon return of securities loaned (Note 1) 4,670,342 Payable to affiliate for (Note 2): Management fee 32,056 Shareholder service fee 9,601 Accrued expenses 37,988 ----------- Total liabilities 7,863,344 ----------- Net assets $83,960,043 =========== Net assets consist of: Paid-in-capital $67,211,464 Accumulated undistributed net investment income 236,490 Accumulated undistributed net realized gain 3,266,805 Net unrealized appreciation 13,245,284 =========== $83,960,043 =========== Net assets attributable to: Class III shares $83,960,043 =========== Shares outstanding: Class III 6,503,780 =========== Net asset value per share: Class III $ 12.91 ===========
10 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $77) $ 645,145 Interest (including securities lending income of $1,185) 176,076 ----------- Total income 821,221 ----------- Expenses: Management fee (Note 2) 179,569 Audit fees 23,368 Custodian and transfer agent fees 22,135 Registration fees 5,134 Legal fees 1,550 Trustees fees (Note 2) 358 Miscellaneous 92 Fees waived or borne by Manager (Note 2) (113,690) ----------- 118,516 Shareholder service fee (Note 2) Class III 53,854 ----------- Net expenses 172,370 ----------- Net investment income 648,851 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 2,805,970 Closed futures contracts 560,808 Closed swap contracts (105,975) ----------- Net realized gain 3,260,803 ----------- Change in net unrealized appreciation (depreciation) on: Investments 7,469,435 Open futures contracts (11,464) Open swap contracts 199,867 ----------- Net unrealized gain 7,657,838 ----------- Net realized and unrealized gain 10,918,641 ----------- Net increase in net assets resulting from operations $11,567,492 ===========
See accompanying notes to the financial statements. 11 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Year Ended August 31, 1997 February 28, (Unaudited) 1997 ------------------ ------------------ Increase (decrease) in net assets: Operations: Net investment income $ 648,851 $ 1,068,038 Net realized gain 3,260,803 17,195,664 Change in net unrealized appreciation (depreciation) 7,657,838 (6,109,720) ------------- ------------- Net increase in net assets resulting from operations 11,567,492 12,153,982 ------------- ------------- Distributions to shareholders from: Net investment income Class III (577,419) (1,070,308) ------------- ------------- Total distributions from net investment income (577,419) (1,070,308) ------------- ------------- Net realized gains Class III (10,998,257) (10,440,389) ------------- ------------- Total distributions from net realized gains (10,998,257) (10,440,389) ------------- ------------- (11,575,676) (11,510,697) ------------- ------------- Net share transactions: (Note 5) Class III 17,707,792 8,132,135 ------------- ------------- Increase in net assets resulting from net share transactions 17,707,792 8,132,135 ------------- ------------- Total increase in net assets 17,699,608 8,775,420 Net assets: Beginning of period 66,260,435 57,485,015 ------------- ------------- End of period (including accumulated undistributed net investment income of $236,490 and $165,058, respectively) $ 83,960,043 $ 66,260,435 ============= =============
12 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust)
Financial Highlights (For a Class III share outstanding throughout each period) - ------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended February 28/29, August 31, 1997 ---------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- --------- -------- --------- --------- --------- Net asset value, beginning of period $ 12.98 $ 12.93 $ 10.65 $ 11.07 $ 11.35 $ 10.50 --------- -------- ------- -------- -------- -------- Income from investment operations: Net investment income 0.12 0.24 0.28 0.23 0.34 0.31 Net realized and unrealized gain 2.03 2.41 3.71 0.50 1.18 0.84 --------- -------- ------- -------- -------- -------- Total from investment operations 2.15 2.65 3.99 0.73 1.52 1.15 --------- -------- ------- -------- -------- -------- Less distributions to shareholders: From net investment income (0.11) (0.24) (0.25) (0.28) (0.35) (0.30) From net realized gains (2.11) (2.36) (1.46) (0.87) (1.45) -- --------- -------- ------- -------- -------- -------- Total distributions (2.22) (2.60) (1.71) (1.15) (1.80) (0.30) --------- -------- ------- -------- -------- -------- Net asset value, end of period $ 12.91 $ 12.98 $ 12.93 $ 10.65 $ 11.07 $ 11.35 ========= ======== ======= ======== ======== ======== Total Return/(a)/ 17.39% 22.76% 38.64% 7.36% 14.12% 11.20% Ratios/Supplemental Data: Net assets, end of period (000's) $ 83,960 $ 66,260 $57,485 $ 47,969 $ 55,845 $ 85,232 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.49% Net investment income to average daily net assets 1.81%* 1.83% 2.25% 2.52% 2.42% 2.88% Portfolio turnover rate 28% 131% 81% 112% 38% 56% Average broker commission rate per equity share (b) $ 0.0253 $ 0.0259 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.04 $ 0.03 $ 0.03 $ 0.03 $ 0.02
/(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. * Annualized. See accompanying notes to the financial statements. 13 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Tobacco-Free Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks a total return greater than that of the Standard & Poor's 500 Stock Index through investment of substantially all of its assets in common stocks chosen from the Wilshire 5000 Index and primarily in common stocks chosen from the among the 1,200 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange which are not tobacco producing issuers. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its 14 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $4,489,740, collateralized by cash in the amount of $4,670,342, which was invested in short-term instruments. Swap agreements The Fund may enter into swap agreements to manage its exposure to the equity markets. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these 15 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- agreements, that the counterparty to the agreements may default on its obligation to perform, or that there may be unfavorable changes in the price of the security or index underlying these transactions. See Note 6 for a summary of all open swap agreements as of August 31, 1997. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. Prior to June 1, 1996, the premium on cash purchases was .17% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund 16 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited)--(Continued) August 31, 1997 - -------------------------------------------------------------------------------- received $9,034 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .50% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .33% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .48%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $358. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $18,749,031 and $18,355,671, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------ -------------------- -------------------- ------------------- $ 73,710,298 $ 13,786,390 $ 632,254 $ 13,154,136
4. Principal shareholders At August 31, 1997, 87% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. 17 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) - (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended Class III: August 31, 1997 February 28, 1996 ---------------------------------- ------------------------------- Shares Amount Shares Amount --------------- --------------- -------------- --------------- Shares sold 484,857 $ 6,453,116 1,730,490 $ 22,801,781 Shares issued to shareholders in reinvestment of distributions 934,872 11,575,676 933,753 11,510,698 Shares repurchased (22,153) (321,000) (2,002,361) (26,180,344) ----------- ----------- ----------- ---------- Net increase 1,397,576 $ 17,707,792 661,882 $ 8,132,135 =========== =========== =========== ==========
6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Net Number of Expiration Unrealized Contracts Type Date Contract Value Depreciation ------------- ------------ -------------- ----------------- -------------- 21 S&P 500 September 1997 $ 9,482,550 $ 24,020 ==============
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 18 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited)--(Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements
Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ----------------- ---------- ----------------------------------------------- ---------------- $ 1,886,617/ 9/11/97 Agreement with Morgan Stanley Capital Services, $ 110,492 1,819,266 Inc. dated September 9, 1996 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread and to receive (pay) the change in market value of a basket of selected securities (including dividends) less the counterparty's notional amount multiplied by 6 month LIBOR adjusted by a specified spread. $ 2,359,489/ 5/6/98 Agreement with NatWest Markets dated 5/6/97 to (271,643) 2,359,489 receive (pay) the counterparty's notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to pay (receive) the change in market value of a basket of selected securities (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread. 3,425,851/ 5/13/98 Agreement with Morgan Stanley Capital Services, 276,319 3,163,935 Inc. dated 5/13/97 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to receive (pay) the change in market value of a basket of selected securities (including dividends) less the counterparty's notional amount multiplied by LIBOR adjusted by a specified spread. -------------- Net unrealized appreciation $ 115,168 ==============
19 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ---------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 89.5% Argentina -- 0.4% USD 1,000,000 Republic of Argentina Par Bond, Variable Rate, Step Up, 5.50%, due 3/31/23 736,875 ------------- Brazil -- 0.8% USD 1,702,221 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 1,387,311 ------------- Bulgaria -- 0.1% USD 2,000,000 Bulgaria Discount Bond, Series B Strips, Basket 2, due 7/28/24 220,120 ------------- Denmark -- 0.6% DKK 6,700,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 1,027,687 ------------- Mexico -- 1.3% FRF 10,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,407,551 USD 1,000,000 Mexico Par Bond Series B, 6.25%, due 12/31/19 800,000 ------------- 2,207,551 ------------- New Zealand -- 4.3% NZD 12,000,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 7,329,609 ------------- Supra National -- 2.1% ITL 5,000,000,000 European Investment Bank, 12.20%, due 2/18/03 3,545,455 ------------- Sweden -- 4.8% SEK 65,800,000 Kingdom of Sweden, 6.00%, due 2/09/05 8,188,333 ------------- United States -- 74.6% Asset Backed Securities -- 61.2% USD 918,049 AFC Home Equity Loan Trust Series 97-1 Class A, Variable Rate, 1 mo. LIBOR + .22%, 5.87%, due 3/25/27 917,475 USD 3,379,369 Americredit Automobile Receivables Trust Series 96-B Class A, 6.50%, due 1/12/02 3,392,569 USD 15,500,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR + .25%, 5.65%, due 4/25/03 15,500,000 USD 10,000,000 Brazos Student Loan Finance Corp. Series 96-A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.94%, due 12/01/02 9,985,938 USD 10,000,000 First Chicago Master Trust II 95-0, Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due 2/15/04 10,037,500
See accompanying notes to the financial statements. 1 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ---------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 20,000,000 First Chicago Master Trust II 96-S Class A, Variable Rate, 1 mo. LIBOR + .13%, 5.78%, due 8/15/04 20,005,999 USD 5,000,000 First USA Credit Card Master Trust 97-4 Class A, Variable Rate, 1 mo. LIBOR + .21%, 5.85%, due 2/17/10 4,999,219 USD 3,025,184 Keycorp Student Loan Trust 94-B Class A, Variable Rate, 1 mo. LIBOR + .29%, 5.92%, due 8/27/18 3,036,528 USD 10,000,000 MBNA Master Credit Card Trust 94-C Class A, Variable Rate, 1 mo. LIBOR + .25%, 5.88%, due 3/15/04 10,051,563 USD 10,000,000 Navistar Financial Dealer Note Master Trust 90-A Class A3, Variable Rate, 1 mo. LIBOR + .90%, 6.54%, due 1/25/03 10,093,750 USD 5,000,000 Northstar CBO Series 97-1 Class A2, 6.62%, due 7/15/09 5,148,500 USD 8,311,004 Signet Student Loan Trust Series 96-A Class A-1, Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due 1/25/05 8,311,004 USD 3,000,000 Starvest CBO-1 Class A, Variable Rate, 6 mo. LIBOR + .19%, 6.00%, due 7/30/11, 144A 2,982,972 ------------- 104,463,017 ------------- U.S. Government -- 13.4% USD 19,000,000 U.S. Treasury Bond, 6.25%, due 8/15/23/(a)/ 17,978,749 USD 5,000,000 U.S. Treasury Inflation Indexed Note, 3.375%, due 1/15/07 4,976,053 ------------- 22,954,802 ------------- Total United States 127,417,819 ------------- Venezuela -- 0.5% USD 1,000,000 Republic of Venezuela Par Bond, 6.75%, due 3/31/20 819,375 ------------- TOTAL DEBT OBLIGATIONS (COST $152,016,156) 152,880,135 ------------- Shares - --------------------------- PREFERRED STOCKS -- 2.3% United States -- 2.3% 4,000 Bear Stearns Managed Income Securities Plus Fund 3,959,880 ------------- TOTAL PREFERRED STOCKS (COST $3,949,109) 3,959,880 -------------
See accompanying notes to the financial statements. 2 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Principal Amount Description Value ($) - ---------------------------------------------------------------------------------------------- CALL OPTIONS PURCHASED -- 1.1% Cross Currency Options -- 0.9% ECU 46,100,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 518,657 ECU 19,800,000 ECU Call/DEM Put, Expires 10/30/97, Strike 1.918 480,131 ECU 20,200,000 ECU Call/DEM Put, Expires 12/15/97 Knock Out 1.9225, Strike 1.91 536,166 ------------- 1,534,954 ------------- Options on Bonds -- 0.0% SEK 20,000,000 Sweden Government Bond, Expires 10/24/97, Strike 95.484 52,783 ------------- Options on Currency -- 0.2% USD 10,700,000 British Pound, Expires 11/06/97, Strike 1.6325 236,470 ------------- TOTAL CALL OPTIONS PURCHASED (COST $1,732,995) 1,824,207 ------------- PUT OPTIONS PURCHASED -- 0.0% Cross Currency Options -- 0.0% USD 600,000 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 400 7,200 USD 234,896 TRL Put/USD, DEM Basket Call, Expires 12/15/97, Strike 425 1,050 ------------- 8,250 ------------- TOTAL PUT OPTIONS PURCHASED (COST $11,130) 8,250 ------------- Shares - --------------------------- RIGHTS AND WARRANTS -- 0.0% Mexico -- 0.0% 2,740,000 United Mexican States Warrants, Expires 6/30/03 * -- ------------- Venezuela -- 0.0% 1,000,000 Republic of Venezuela Recovery Warrants, Expires 04/15/20 * -- ------------- TOTAL RIGHTS AND WARRANTS (COST $0) -- -------------
See accompanying notes to the financial statements. 3 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ---------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 10.2% Repurchase Agreements -- 10.2% USD 8,698,570 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $8,703,393 and an effective yield of 4.99%, collateralized by U.S. Government Agency Obligations with rates ranging from 6.072% to 6.811%, with maturity dates ranging from 10/1/32 to 3/1/35 and with an aggregate market value of $8,872,571. 8,698,570 USD 8,698,570 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $8,703,450 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $8,897,897. 8,698,570 ------------- 17,397,140 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $17,397,140) 17,397,140 ------------- TOTAL INVESTMENTS -- 103.1% (COST $175,106,530) 176,069,612 Other Assets and Liabilities (net) -- (3.1)% (5,286,200) ------------- TOTAL NET ASSETS -- 100% $ 170,783,412 =============
Notes to the Schedule of Investments: PIK -- Payment In Kind Knock Out -- Option will expire if underlying security reaches Knock Out price. 144A -- Securities 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. 4 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments -- continued Variable and Step up rates -- The rates shown on variable and step up rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. Currency Abbreviations AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc ITL - Italian Lira CAD - Canadian Dollar JPY - Japanese Yen CHF - Swiss Franc NLG - Netherlands Guilder DEM - German Mark NZD - New Zealand Dollar DKK - Danish Krone SEK - Swedish Krona ECU - European Currency Unit THB - Thailand Baht ESP - Spanish Peseta TRL - Turkish Lira FRF - French Franc USD - United States Dollar
/(a)/All or a portion of this security is held as collateral for open futures contracts. * Non-income producing security. See accompanying notes to the financial statements. 5 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $175,106,530) (Note 1) $176,069,612 Cash 21,880,488 Foreign currency, at value (cost $9,635) (Note 1) 11,917 Interest receivable 1,096,545 Receivable for open forward foreign currency contracts (Notes 1 and 6) 1,767,959 Receivable for expenses waived or borne by Manager (Note 2) 37,775 Receivable for Fund shares sold 74,346 Miscellaneous receivable 112 ------------ Total assets 200,938,754 ------------ Liabilities: Payable for investments purchased 25,141,159 Written options outstanding, at value (premiums $46,637) (Notes 1 and 6) 175,364 Payable for open forward foreign currency contracts (Notes 1 and 6) 1,073,784 Payable for Fund shares repurchased 3,263,012 Payable to affiliate for (Note 2): Management fee 42,472 Shareholder service fee 15,927 Accrued expenses 82,603 Payable for open swap contracts (Notes 1 and 6) 85,779 Payable for variation margin on open futures contracts (Notes 1 and 6) 275,242 ------------ Total liabilities 30,155,342 ------------ Net assets $170,783,412 ============ Net assets consist of: Paid-in-capital $166,479,984 Accumulated undistributed net investment income 1,951,168 Accumulated undistributed net realized gain 1,218,146 Net unrealized appreciation 1,134,114 ------------ $170,783,412 ============ Net assets attributable to: Class III shares $170,783,412 ============ Shares outstanding: Class III 16,169,307 ============ Net asset value per share: Class III $ 10.56 ============
6 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Statement of Operations -- Period from April 30, 1997 (commencement of operations) to August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $1,941,960 Dividends 132,700 ---------- Total income 2,074,660 ---------- Expenses: Management fee (Note 2) 123,193 Custodian and transfer agent fees 68,117 Audit fees 25,575 Registration fees 1,291 Legal fees 1,203 Trustees fees (Note 2) 205 Miscellaneous 395 Fees waived or borne by Manager (Note 2) (142,685) ---------- 77,294 Shareholder service fee (Note 2) Class III 46,198 ---------- Net expenses 123,492 ---------- Net investment income 1,951,168 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 86,222 Closed futures contracts 785,797 Closed swap contracts 94,982 Foreign currency, forward contracts and foreign currency related transactions 251,145 ---------- Net realized gain 1,218,146 ---------- Change in net unrealized appreciation (depreciation) on: Investments 963,082 Open futures contracts (338,818) Open swap contracts (85,779) Written options (128,727) Foreign currency, forward contracts and foreign currency related transactions 724,356 ---------- Net unrealized gain 1,134,114 ---------- Net realized and unrealized gain 2,352,260 ---------- Net increase in net assets resulting from operations $4,303,428 ==========
7 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from April 30, 1997 (commencement of operations) to August 31, 1997 (Unaudited) ---------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,951,168 Net realized gain 1,218,146 Change in net unrealized appreciation (depreciation) 1,134,114 ------------ Net increase in net assets resulting from operations 4,303,428 ------------ Net share transactions: (Note 5) Class III 166,479,984 ------------ Increase in net assets resulting from net share transactions 166,479,984 ------------ Total increase in net assets 170,783,412 Net assets: Beginning of period -- ------------ End of period (including accumulated undistributed net investment income of $1,951,168) $170,783,412 ============
8 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Period from April 30, 1997 (commencement of operations) to August 31, 1997 (Unaudited) --------------------------- Net asset value, beginning of period $ 10.00 -------- Income from investment operations: Net investment income 0.21+ Net realized and unrealized gain 0.35 -------- Total from investment operations 0.56 -------- Net asset value, end of period $ 10.56 ======== Total Return/(a)/ 5.60% Ratios/Supplemental Data: Net assets, end of period (000's) $170,787 Net expenses to average daily net assets 0.40%* Net investment income to average daily net assets 6.34%* Portfolio turnover rate 7% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.02
+ Computed using average shares outstanding throughout the period. * Annualized. /(a)/ Calculation excludes purchase premiums. The total return would have been lower had certain expenses not been waived during the period shown. See accompanying notes to the financial statements. 9 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO U.S. Bond/Global Alpha A Fund (the "Fund"), which commenced operations on April 30, 1997, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund seeks a high total return primarily through investing in investment-grade bonds. The Fund offers three classes of shares: Class I, Class II, and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies 10 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the bond and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from the changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. 11 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. See Note 6 for a summary of the open written option contracts as of August 31, 1997. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. Swap agreements The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to interest rates. The Fund entered into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest rates. See Note 6 for a summary of open swap agreements as of August 31, 1997. 12 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund had no securities on loan. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 13 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the period ended August 31, 1997, the Fund received $255,362 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .40% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .25% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the period ended August 31, 1997 was $205. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 14 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the period ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------- ------------------ U.S. Government securities $ 25,823,752 $ 3,652,500 Investments (non-U.S. Government securities) 136,782,744 2,409,360
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------------- ----------------------- ---------------------- -------------------- $175,106,530 $1,426,699 $463,617 $963,082
4. Principal shareholders At August 31, 1997, 59% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from April 30, 1997 (commencement of operations) Class III: to August 31, 1997 --------------------------------- Shares Amount ------------- ---------------- Shares sold 16,530,426 $ 170,266,298 Shares issued to shareholders in reinvestment of distributions -- -- Shares repurchased (361,119) (3,786,314) ------------- --------------- Net increase 16,169,307 $ 166,479,984 ============= ===============
15 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) - -------------- ------------------ ---------------- --------------- ----------------- Buys 9/26/97 CAD 20,400,000 $ 14,716,844 $ (9,489) 9/02/97 DEM 3,178,913 1,766,345 2,605 9/05/97 DEM 80,900,000 44,960,780 (202,115) 10/17/97 GBP 7,200,000 11,652,547 (116,971) 10/09/97 JPY 630,000,000 5,268,504 (213,730) ----------------- $ (539,700) ================= Sales 11/28/97 AUD 4,600,000 $ 3,386,170 $ 55,550 9/26/97 CAD 25,400,000 18,323,914 28,337 9/05/97 DEM 57,801,273 32,123,489 226,375 10/17/97 GBP 13,100,000 21,201,161 1,409 10/09/97 JPY 1,120,000,000 9,366,230 228,516 9/23/97 NZD 11,600,000 7,403,604 129,196 3/23/98 THB 60,000,000 1,639,195 440,528 6/22/98 THB 30,000,000 811,030 211,116 ----------------- $ 1,321,027 =================
Forward cross currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) - -------------- --------------------------- --------------------------------- ----------------- 10/10/97 BEF 2,613,775,780 DEM 126,600,000 $ 17,243 11/13/97 CHF 7,732,460 DEM 9,400,000 (10,037) 9/02/97 DEM 901,638 DKK 3,433,887 87 9/02/97 DEM 2,277,275 SEK 9,917,535 (1,953) 9/19/97 DEM 3,200,000 NLG 3,603,382 385 9/22/97 DEM 42,200,000 ITL 41,843,334,750 265,976
16 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Forward cross currency contracts -- continued
Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) - -------------- --------------------------- --------------------------------- ----------------- 10/23/97 DEM 12,000,000 ESP 1,017,075,900 $ 1,904 10/27/97 DEM 250,202,940 ECU 127,200,000 (293,783) 11/07/97 DEM 2,600,000 FRF 8,762,598 140 11/13/97 DEM 3,200,000 CHF 2,624,864 (1,658) 11/21/97 DEM 9,900,000 SEK 43,288,830 275 11/14/97 DKK 85,408,760 DEM 22,400,000 (8,346) 10/27/97 ECU 32,100,000 DEM 63,286,805 155,554 10/23/97 ESP 652,594,900 DEM 7,700,000 (1,032) 11/07/97 FRF 146,400,698 DEM 43,400,000 (24,325) 9/22/97 ITL 32,081,825,500 DEM 32,400,000 (179,048) 9/19/97 NLG 14,517,402 DEM 12,900,000 2,763 11/21/97 SEK 92,345,882 DEM 21,100,000 (11,297) ----------------- $ (87,152) =================
Futures contracts
Net Unrealized Number of Contract Appreciation Contracts Type Expiration Date Value (Depreciation) ------------- -------------------------------- ------------------ -------------- ----------------- Buys 26 Australian Government Bond 3 yr September 1997 $ 2,299,494 $ 47,282 48 Australian Government Bond 10 September 1997 5,011,257 150,809 yr 45 Canadian Government Bond September 1997 3,904,134 99,084 24 German Government Bond December 1997 3,376,112 (6,179) 27 Japanese Government Bond September 1997 28,660,726 (260) 117 U.K. Gilt September 1997 11,075,203 (16,850) 31 U.K. Gilt December 1997 2,870,276 2,405 338 U.S. Treasury Note 5 yr. December 1997 35,975,875 26,636 187 U.S. Treasury Note 10 yr. September 1997 20,388,844 81,160 129 U.S. Treasury Note 10 yr. December 1997 14,020,688 2,689 133 U.S. Treasury Bond 30 yr. September 1997 15,045,625 162,777 49 U.S. Treasury Bond 30 yr. December 1997 5,524,750 15,258 ----------------- $ 564,811 =================
17 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Futures contracts -- continued
Net Unrealized Number of Contract Appreciation Contracts Type Expiration Date Value (Depreciation) ------------- -------------------------------- ------------------ --------------- ----------------- Sales 47 MATIF FRF Bond September 1997 $ 5,017,001 $ 22,683 5 Italian Government Bond 10 yr. December 1997 613,548 (664) 27 Japanese Government Bond December 1997 28,492,845 (4,692) 27 Japanese Government Bond September 1997 29,774,812 (873,780) 6 Japanese Government Bond December 1997 6,406,436 (11,831) 91 Spanish Government Bond 10 yr. September 1997 7,075,637 (52,095) 101 Swiss Government Bond September 1997 8,343,347 10,337 63 Swiss Government Bond December 1997 5,003,538 6,413 ----------------- $ (903,629) =================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts.
Written call option transactions Principal Amount of Contracts (000's omitted) Premiums ----------------- ------------ Outstanding, beginning of period $ -- $ -- Options written 2,727 46,637 ----------------- ------------ Outstanding, end of period $ 2,727 $ 46,637 ================= ============
Summary of written options outstanding
Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value ----------------- --------------- ------------------ --------------- Thai Baht Call $ 2,727 33 THB 10/16/97 $ 175,364 ===============
18 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - --------------------------------------------------------------------------------
Swap agreements Net Unrealized Expiration Appreciation Notional Amount Date Description (Depreciation) - ---------------------- ------------- --------------------------------------------------- --------------- TRL 80,250,000,000 5/14/99 Agreement with Bank of America dated 5/29/97 to $ (93,935) receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. TRL 33,000,000,000 6/04/99 Agreement with Bank of America dated 6/23/97 to 8,156 receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Index Linked Bond and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. -------------- Net unrealized depreciation $ (85,779) ==============
See Notes to the Schedule of Investments for definitions of currency abbreviations. 19 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 93.6% Cayman Islands -- 0.8% CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 3,073,821 ------------- Denmark -- 1.7% DKK 41,800,000 Kingdom of Denmark Bullet, 7.00%, due 11/15/07 6,411,537 ------------- France -- 2.4% ECU 4,000,000 Government of France, 8.25%, due 4/25/22 5,205,902 ECU 3,000,000 Societe Nationale des Chemins de Fer, 9.38%, due 3/12/01 3,709,451 ------------- 8,915,353 ------------- Japan -- 1.5% GBP 3,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 5,354,373 ------------- New Zealand -- 1.8% NZD 10,700,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 6,535,568 ------------- Sweden -- 5.4% SEK 159,600,000 Kingdom of Sweden, 6.00%, due 2/09/05 19,861,062 ------------- United Kingdom -- 2.2% GBP 4,160,000 Guaranteed Export Financial Corp, 12.88%, due 9/29/02 8,261,319 ------------- United States -- 77.8% Asset Backed Securities -- 42.4% USD 10,000,000 Anfield Road I Ltd., Variable Rate, 6 mo. LIBOR + .25%, 6.09%, due 11/06/06 10,007,700 USD 9,795,184 Banc One Student Loan Trust 94-A Class A2, Variable Rate, 1 mo. LIBOR + .30%, 5.95%, due 10/25/16 9,834,365 USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR + .25%, 5.65%, due 4/25/03 5,000,000 USD 5,000,000 Bombardier Receivables Master Trust I 97-1 Class A, Variable Rate, 1 mo. LIBOR + .12%, 5.80%, due 4/15/04 5,003,125 USD 5,000,000 Brazos Student Loan Finance Corp. Series 96-A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.94%, due 12/01/02 4,992,969 USD 15,000,000 Chevy Chase Master Credit Card Trust 95-C Class A, Variable Rate, LIBOR + .26%, 5.91%, due 12/15/02 15,030,000 USD 7,500,000 Chevy Chase Master Credit Card Trust Series 96-A, Variable Rate, 1 mo. LIBOR + .15%, 5.80%, due 2/15/05 7,501,172
See accompanying notes to the financial statements. 1 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 10,000,000 Circuit City Credit Card Master Trust 96-1 Class A, Variable Rate, LIBOR + .17%, 5.85%, due 10/15/06 10,000,000 USD 5,000,000 European Sovereign Investments, Variable Rate, 6 mo. LIBOR + .40%, 6.24%, due 1/20/99 5,020,000 USD 4,000,000 First Chicago Master Trust II 95-0, Variable Rate, 1 mo. LIBOR + .23%, 5.88%, due 2/15/04 4,015,000 USD 5,000,000 First Deposit Master Trust Series 96-1A, Variable Rate, 1 mo. LIBOR +.17%, 5.82%, due 8/15/07 5,012,500 USD 14,000,000 First Union Master Credit Card Trust 96-1 Class A, Variable Rate, 1 mo. LIBOR + .17%, 5.82%, due 9/15/03 14,017,500 USD 10,000,000 Keycorp Student Loan Trust 95-A Class B, Variable Rate, 1 mo. LIBOR + .75%, 6.44%, due 10/27/21 10,000,000 USD 6,618,872 Keystone Auto Grantor Trust Series 1996-A Class A, 6.60%, due 12/15/02, 144A 6,698,298 USD 3,000,000 MBNA Master Credit Card Trust 96-J Class A, Variable Rate. 1 mo. LIBOR + .15%, 5.80%, due 2/15/06 3,003,000 USD 8,000,000 PARMA Food Corp BV, Variable Rate, 3 mo. LIBOR + .25%, 6.03%, due 12/20/00 8,024,000 USD 5,000,000 Premier Auto Trust 95-1 Certificates, 8.10%, due 12/04/98 5,112,500 USD 3,220,936 Resolution Trust Corp 94-C1 Class A1, Variable Rate, 1 mo. LIBOR + .45%, 6.08%, due 6/25/26 3,219,930 USD 10,000,000 Rhino CBO Series 97-1 Class A-2, 6.33%, due 9/15/09, 144A 10,049,900 USD 12,466,506 Signet Student Loan Trust Series 96-A Class A-1, Variable Rate, 1 mo. LIBOR + .09%, 5.72%, due 1/25/05 12,466,506 USD 2,620,000 SMS Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .75%, 6.38%, due 10/25/23 2,620,000 -------------- 156,628,465 -------------- Structured Notes -- 6.2% USD 2,900,000 Federal Home Loan Bank, Variable Rate, (10.00% - 6 mo. LIBOR), 4.34%, due 3/03/98 2,871,000 USD 20,000,000 Student Loan Marketing Association Series 95-1 Class A2, Variable Rate, 3 mo. U.S. Treasury Bill + .75%, 6.06%, due 5/25/04 20,120,000 -------------- 22,991,000 -------------- U.S. Government -- 18.0% USD 5,000,000 U.S. Treasury Inflation Indexed Note, 3.375%, due 1/15/07 4,976,053 USD 29,000,000 U.S. Treasury Note, 6.88%, due 8/31/99/(a)/ 29,489,375 USD 31,600,000 U.S. Treasury Note, 6.38%, due 8/15/02 31,807,359 -------------- 66,272,787 --------------
2 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- U.S. Government Agency -- 11.2% USD 16,666,667 Agency for International Development Floater (Support of India), 5.56%, due 2/01/99 16,661,458 USD 5,000,000 Agency for International Development Floater (Support of C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.85%, due 10/01/12 4,987,500 USD 20,000,000 Federal National Mortgage Association, 6.49%, due 1/19/06 19,460,000 ------------- 41,108,958 ------------- Total United States 287,001,210 ------------- TOTAL DEBT OBLIGATIONS (COST $346,387,193) 345,414,243 -------------
Principal Amount - ----------------------- CALL OPTION PURCHASED -- 0.2% Cross Currency Option -- 0.2% ECU 68,700,000 ECU Call/DEM Put, Expires 1/21/98, Strike 1.9450 772,922 ------------- TOTAL CALL OPTION PURCHASED (COST $804,841) 772,922 ------------- SHORT-TERM INVESTMENTS -- 9.3% Repurchase Agreements -- 9.3% USD 16,192,894 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $16,201,867 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.072%, with a maturity date of 10/01/32 and a market value of $16,516,807. 16,192,894 USD 18,159,611 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $18,169,801 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $18,575,739. 18,159,611 ------------- 34,352,505 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $34,352,505) 34,352,505 -------------
See accompanying notes to the financial statements. 3 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value ($) - -------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 103.1% (COST $381,544,539) 380,539,670 Other Assets and Liabilities (net)-- (3.1)% (11,389,905) -------------- TOTAL NET ASSETS-- 100% $ 369,149,765 ==============
Notes to the Schedule of Investments: 144A -- Securities 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. Variable rates -- The rates shown on variable rate notes are the current interest rates at August 31, 1997, which are subject to change based on the terms of the security. Currency Abbreviations AUD - Australian Dollar BEF - Belgian Franc CAD - Canadian Dollar CHF - Swiss Franc DEM - German Mark DKK - Danish Krone ECU - European Currency Unit ESP - Spanish Peseta FRF - French Franc GBP - British Pound ITL - Italian Lira JPY - Japanese Yen NLG - Netherlands Guilder NZD - New Zealand Dollar SEK - Swedish Krona USD - United States Dollar /(a)/ All or a portion of this security is held as collateral for open futures contracts. 4 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Assets: Investments, at value (cost $381,544,539) (Note 1) $380,539,670 Foreign currency, at value (cost $5,037) (Note 1) 5,956 Receivable for Fund shares sold 6,429,488 Interest receivable 4,492,522 Receivable for open forward foreign currency contracts (Notes 1 and 6) 1,275,245 Receivable for expenses waived or borne by Manager (Note 2) 80,552 Miscellaneous receivable 9,659 ------------ Total assets 392,833,092 ------------ Liabilities: Payable for investments purchased 20,744,916 Payable for open forward foreign currency contracts (Notes 1 and 6) 2,206,278 Payable to affiliate for (Note 2): Management fee 106,816 Shareholder service fee 40,056 Accrued expenses 27,966 Payable for variation margin on open futures contracts (Notes 1 and 6) 557,295 ------------ Total liabilities 23,683,327 ------------ Net assets $369,149,765 ============ Net assets consist of: Paid-in-capital $372,662,834 Accumulated undistributed net investment income 1,663,865 Accumulated undistributed net realized loss (982,038) Net unrealized depreciation (4,194,896) ============ $369,149,765 ============ Net assets attributable to: Class III shares $369,149,765 ============ Shares outstanding: Class III 37,287,495 ============ Net asset value per share: Class III $ 9.90 ============
See accompanying notes to the financial statements. 5 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Statement of Operations -- Period from July 29, 1997 (commencement of operations) to August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $ 1,760,575 Expenses: Management fee (Note 2) 110,526 Custodian and transfer agent fees 19,350 Audit fees 7,050 Registration fees 690 Legal fees 600 Trustees fees (Note 2) 120 Miscellaneous 270 Fees waived or borne by Manager (Note 2) (83,343) ----------- 55,263 Shareholder service fee (Note 2) Class III 41,447 ----------- Net expenses 96,710 ----------- Net investment income 1,663,865 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (2,755) Closed futures contracts (1,184,772) Foreign currency, forward contracts and foreign currency related transactions 205,489 ----------- Net realized loss (982,038) ----------- Change in net unrealized appreciation (depreciation) on: Investments (1,004,869) Open futures contracts (2,254,951) Foreign currency, forward contracts and foreign currency related transactions (935,076) ----------- Net unrealized loss (4,194,896) ----------- Net realized and unrealized loss (5,176,934) ----------- Net decrease in net assets resulting from operations $(3,513,069) ===========
6 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from July 29, 1997 (commencement of operations) to August 31, 1997 (Unaudited) -------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,663,865 Net realized loss (982,038) Change in net unrealized appreciation (depreciation) (4,194,896) ------------ Net decrease in net assets resulting from operations (3,513,069) ------------ Net share transactions: (Note 5) Class III 372,662,834 ------------ Increase in net assets resulting from net share transactions 372,662,834 ------------ Total increase in net assets 369,149,765 Net assets: Beginning of period -- ------------ End of period (including accumulated undistributed net investment income of $1,663,865) $369,149,765 ============
See accompanying notes to the financial statements. 7 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout the period) - --------------------------------------------------------------------------------
Period from July 29, 1997 (commencement of operations) to August 31, 1997 (Unaudited) ------------------------- Net asset value, beginning of period $ 10.00 -------- Income from investment operations: Net investment income 0.04 Net realized and unrealized loss (0.14) -------- Total from investment operations (0.10) -------- Net asset value, end of period $ 9.90 ======== Total Return/(a)/ (1.00)% Ratios/Supplemental Data: Net assets, end of period (000's) $369,150 Net expenses to average daily net assets 0.35%* Net investment income to average daily net assets 6.02%* Portfolio turnover rate 0% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: /(b)/
/(a)/ Calculation excludes purchase premiums. The total return would have been lower had certain expenses not been waived during the period shown. /(b)/ Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Annualized. 8 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO U.S. Bond/Global Alpha B Fund (the "Fund"), which commenced operations on July 29, 1997, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund seeks a high total return primarily through investing in investment-grade bonds. The Fund offers three classes of shares: Class I, Class II, and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. 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 rate. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Securities may be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. 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 translated to U.S. dollars based on the prevailing exchange rates each business day. Income and expenses denominated in foreign currencies 9 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- are translated at prevailing exchange rates when accrued or incurred. The Fund does not isolate realized and unrealized gains and losses attributable to changes in exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net exchange gains and losses on disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Futures contracts The Fund may use futures contracts to manage its exposure to the bond and currency markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from the changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Forward currency contracts The Fund may enter into forward currency contracts and forward cross currency contracts in connection with settling planned purchases or sales of securities or to hedge the currency exposure associated with some or all of the Fund's portfolio securities. A forward currency 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 a forward currency contract fluctuates with changes in forward currency exchange rates. Forward currency contracts are marked to market daily and the change in value is recorded by the Fund as an unrealized gain or loss. Realized gains or losses 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 are recorded upon delivery or receipt of the currency or, if a forward currency contract is offset by entering into another forward currency contract with the same broker, upon settlement of the net gain or loss. These contracts may involve market risk in excess of the unrealized gain or loss reflected in the Fund's Statement of Assets and Liabilities. In addition, the Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the Fund has committed to buy or sell is shown under Note 6 and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1997. 10 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Options The Fund may write call and put options on securities it owns or in which it may invest. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are offset against the proceeds or amounts paid on the transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. At August 31, 1997, the Fund had no outstanding written options. The Fund may also purchase put and call options. The Fund pays a premium which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked to market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Indexed securities The Fund may invest in indexed securities whose redemption values and/or coupons are linked to the prices of other securities, securities indices, or other financial indicators. The Fund uses indexed securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that may be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund had no securities on loan. 11 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific Fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the period ended August 31, 1997, the Fund received $191,158 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 12 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Investment risk There are certain additional risks involved in investing in foreign securities that are not inherent in investments in domestic securities. These risks may involve adverse political and economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times more volatile than securities of comparable U.S. companies and U.S. securities markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .40% of average daily net assets. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .20% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the period ended August 31, 1997 was $120. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities For the period ended August 31, 1997, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------- ------------------ U.S. Government securities $ 131,056,709 - Investments (non-U.S. Government securities) 216,054,393 -
At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ----------------------- ----------------------- ---------------------- -------------------- $381,544,539 $126,358 $1,131,227 $1,004,869
13 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 4. Principal shareholder At August 31, 1997, 100% of the outstanding shares of the Fund were held by one shareholder. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from July 29, 1997 (commencement of operations) Class III: to August 31, 1997 ------------------------------ Shares Amount ------------- --------------- Shares sold 37,287,495 $ 372,662,834 Shares issued to shareholders - - in reinvestment of distributions Shares repurchased - - ============= =============== Net increase 37,287,495 $ 372,662,834 ============= ===============
14 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Forward currency contracts
Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) - -------------- ------------------ ----------------- -------------- ------------------ Buys 9/26/97 CAD 71,800,000 $ 52,013,944 $ (62,630) 9/02/97 DEM 5,869,992 3,261,628 4,810 9/05/97 DEM 93,300,000 51,852,173 436,375 11/13/97 DEM 1,100,000 614,180 24,730 9/02/97 DKK 7,310,857 1,066,809 6,114 10/23/97 ESP 873,852,000 5,750,618 111,505 10/17/97 GBP 10,100,000 16,345,934 94,367 9/22/97 ITL 19,569,000,000 11,105,367 77,333 10/09/97 JPY 830,000,000 6,941,045 (202,783) 9/23/97 NZD 2,400,000 1,531,780 (7,580) ------------------ $ 482,241 ================== Sales 11/28/97 AUD 8,600,000 6,330,665 $ 103,855 9/26/97 CAD 71,600,000 51,653,237 (45) 11/13/97 CHF 893,750 607,798 (18,347) 9/02/97 DEM 1,919,616 1,066,624 (5,929) 9/05/97 DEM 95,500,000 53,074,839 (1,169,601) 9/22/97 DEM 20,000,000 11,127,976 (99,943) 10/23/97 DEM 10,300,000 5,743,313 (104,210) 10/17/97 GBP 29,700,000 38,066,755 20,352 10/09/97 JPY 1,510,000,000 12,627,685 261,632 9/23/97 NZD 12,700,000 8,105,670 62,829 ------------------ $ (949,407) ==================
15 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Forward cross currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) - -------------- --------------------------- --------------------------- ------------------- 10/10/97 BEF 2,961,652,750 DEM 143,300,000 $ (63,835) 11/13/97 CHF 12,439,414 DEM 15,100,000 (28,447) 9/02/97 DEM 27,950,376 SEK 122,216,697 6,248 9/22/97 DEM 54,600,000 ITL 53,549,528,000 9,871 10/10/97 DEM 2,000,000 BEF 41,304,800 76 10/23/97 DEM 9,300,000 ESP 788,407,500 (27,382) 10/27/97 DEM 344,876,220 ECU 175,400,000 (329,070) 11/07/97 DEM 22,300,000 FRF 75,215,651 11,062 11/13/97 DEM 6,000,000 CHF 4,921,620 (3,109) 11/14/97 DEM 1,400,000 DKK 5,338,760 626 11/14/97 DKK 189,874,490 DEM 49,800,000 (17,458) 10/27/97 ECU 75,400,000 DEM 148,075,190 41,995 10/23/97 ESP 1,051,024,000 DEM 12,400,000 (2,267) 11/07/97 FRF 212,138,427 DEM 62,900,000 (28,399) 9/22/97 ITL 41,372,071,000 DEM 42,200,000 1,465 9/19/97 NLG 25,571,523 DEM 22,700,000 (7,588) 11/21/97 SEK 210,965,728 DEM 48,200,000 (27,655) ------------------ $ (463,867) ==================
16 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Futures contracts
Net Unrealized Number of Contract Appreciation Contracts Type Expiration Date Value (Depreciation) ------------- -------------------------------- ----------------- --------------- ----------------- Buys 51 Australian Government Bond 10 yr September 1997 $ 5,309,378 $ 16,421 50 MATIF ECU Bond September 1997 5,208,329 (51,426) 9 German Government Bond December 1997 1,266,042 (2,317) 43 Japanese Government Bond September 1997 45,652,101 6,827 37 U.K. Gilt September 1997 3,409,489 (16,170) 11 U.K. Gilt December 1997 1,017,515 (1,250) 873 U.S. Treasury Note 5 yr. December 1997 92,919,938 47,732 539 U.S. Treasury Note 10 yr. September 1997 58,767,844 (778,855) 322 U.S. Treasury Note 10 yr. December 1997 34,997,375 (19,165) 366 U.S. Treasury Bond 30 yr. September 1997 41,403,750 (1,009,081) 98 U.S. Treasury Bond 30 yr. December 1997 11,049,500 19,796 ----------------- $ (1,787,488) ================= Sales 29 Canadian Government Bond September 1997 $ 2,500,899 $ 1,627 44 MATIF FRF Bond September 1997 4,606,629 31,679 44 Italian Government Bond 10 yr. December 1997 5,399,236 (5,800) 43 Japanese Government Bond December 1997 45,377,494 (7,472) 43 Japanese Government Bond September 1997 46,398,969 (608,674) 6 Japanese Government Bond December 1997 6,412,621 (10,472) 126 Spanish Government Bond September 1997 9,505,643 63,607 106 Swiss Government Bond September 1997 8,381,524 46,037 66 Swiss Government Bond December 1997 5,226,921 22,005 ----------------- $ (467,463) =================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. See Notes to the Schedule of Investments for definitions of currency abbreviations. 17 GMO U.S. Sector Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO U.S. Sector Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------- MUTUAL FUNDS-- 98.1% 5,008,467 GMO Core Fund (Class III Shares) 96,663,412 1,640,147 GMO REIT Fund (Class III Shares) 21,912,363 1,183,830 GMO Small Cap Growth Fund (Class III Shares) 14,797,878 801,055 GMO Small Cap Value Fund (Class III Shares) 14,619,247 ------------- TOTAL MUTUAL FUNDS (COST $149,059,175) 147,992,900 ------------- COMMON STOCKS -- 0.4% Food and Beverage -- 0.0% 1,560 Archer Daniels Midland Co 33,731 ------------- Oil and Gas -- 0.1% 2,100 Pennzoil Co 162,094 ------------- Technology -- 0.0% 1,150 Oracle Corp 43,844 ------------- Telecommunications -- 0.3% 5,453 Bell Atlantic Corp 394,646 ------------- Utilities -- 0.0% 122 Houston Industries Inc 2,474 ------------- TOTAL COMMON STOCKS (COST $549,169) 636,789 ------------- REAL ESTATE INVESTMENT TRUSTS -- 0.0% Apartments -- 0.0% 8,000 Security Capital Atlantic (Rights) 125 24,100 Security Capital Industry (Rights) 188 20,500 Security Capital Pacific (Rights) 320 ------------- 633 ------------- TOTAL REAL ESTATE INVESTMENT TRUSTS (COST $0) 633 -------------
See accompanying notes to the financial statements. 1 GMO U.S. Sector Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.4% Repurchase Agreement -- 1.4% $2,068,621 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $2,069,782 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $2,116,013. 2,068,621 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $2,068,621) 2,068,621 ------------- TOTAL INVESTMENTS -- 99.9% (COST $151,676,965) 150,698,943 Other Assets and Liabilities (net) -- 0.1% 88,942 ------------- TOTAL NET ASSETS -- 100% $ 150,787,885 =============
2 See accompanying notes to the financial statements. GMO U.S. Sector Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $151,676,965) (Note 1) $ 150,698,943 Receivable for investments sold 4,919,491 Dividends and interest receivable 213,741 Receivable for expenses waived or borne by Manager (Note 2) 44,294 ------------- Total assets 155,876,469 ------------- Liabilities: Payable for Fund shares repurchased 4,976,389 Payable to affiliate for (Note 2): Management fee 61,649 Shareholder service fee 13,377 Accrued expenses 36,737 Miscellaneous payable 432 ------------- Total liabilities 5,088,584 ------------- Net assets $ 150,787,885 ============= Net assets consist of: Paid-in-capital $ 109,158,067 Accumulated undistributed net investment income 637,870 Accumulated undistributed net realized gain 41,969,970 Net unrealized depreciation (978,022) ============= $ 150,787,885 ============= Net assets attributable to: Class I shares $ 1,633,106 ============= Class III shares $ 149,154,779 ============= Shares outstanding: Class I 145,192 ============= Class III 13,249,765 ============= Net asset value per share: Class I $ 11.25 ============= Class III $ 11.26 =============
See accompanying notes to the financial statements. 3 GMO U.S. Sector Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $178) $ 2,263,230 Interest (including securities lending income of $3,961) 958,483 ------------ Total income 3,221,713 ------------ Expenses: Management fee (Note 2) 497,516 Custodian and transfer agent fees 39,702 Audit fees 23,174 Legal fees 5,308 Trustees fees (Note 2) 1,174 Registration fees 309 Miscellaneous 670 Fees waived or borne by Manager (Note 2) (245,550) ------------ 322,303 Shareholder service fee (Note 2) Class I 1,977 Class III 145,605 ------------ Net expenses 469,885 ------------ Net investment income 2,751,828 ------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 40,132,107 Closed futures contracts 2,520,325 Closed swap contracts (967,257) ------------ Net realized gain 41,685,175 ------------ Change in net unrealized appreciation (depreciation) on: Investments (17,249,537) Open futures contracts (142,015) Open swap contracts 718,111 ------------ Net unrealized loss (16,673,441) ------------ Net realized and unrealized gain 25,011,734 ------------ Net increase in net assets resulting from operations $ 27,763,562 ============
4 See accompanying notes to the financial statements. GMO U.S. Sector Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended Year Ended August 31, 1997 February 28, (Unaudited) 1997 ---------------- ------------ Increase (decrease) in net assets: Operations: Net investment income $ 2,751,828 $ 4,631,135 Net realized gain 41,685,175 65,670,531 Change in net unrealized appreciation (depreciation) (16,673,441) (21,085,079) ------------- ------------- Net increase in net assets resulting from operations 27,763,562 49,216,587 ------------- ------------- Distributions to shareholders from: Net investment income Class I (22,756) (8,397) Class III (3,509,367) (3,967,362) ------------- ------------- Total distributions from net investment income (3,532,123) (3,975,759) ------------- ------------- Net realized gains Class I (335,768) (85,607) Class III (45,882,564) (51,735,148) ------------- ------------- Total distributions from net realized gains (46,218,332) (51,820,755) ------------- ------------- (49,750,455) (55,796,514) ------------- ------------- Net share transactions: (Note 5) Class I 442,948 1,245,516 Class III (55,735,695) 22,083,220 ------------- ------------- Increase (decrease) in net assets resulting from net share transactions (55,292,747) 23,328,736 ------------- ------------- Total increase (decrease) in net assets (77,279,640) 16,748,809 Net assets: Beginning of period 228,067,525 211,318,716 ------------- ------------- End of period (including accumulated undistributed net investment income of $637,870 and $1,418,165, respectively) $ 150,787,885 $ 228,067,525 ============= =============
See accompanying notes to the financial statements. 5 GMO U.S. Sector Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from September 3, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ------------------------------ Net asset value, beginning of period $13.03 $ 11.78 ------- -------- Income from investment operations: Net investment income 0.18 0.12 Net realized and unrealized gain 1.50 2.10 ------- -------- Total from investment operations 1.68 2.22 ------- -------- Less distributions to shareholders: From net investment income (0.22) (0.09) From net realized gains (3.24) (0.88) ------- -------- Total distributions (3.46) (0.97) ------- -------- Net asset value, end of period $11.25 $ 13.03 ======= ======== Total Return/(a)/ 14.06% 19.25% Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,633 $ 1,357 Net expenses to average daily net assets 0.58%* 0.61%* Net investment income to average daily net assets 2.53%* 1.97%* Portfolio turnover rate 117% 104% Average broker commission rate per equity share $0.0497 $0.0270 Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.01
/(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. * Annualized. 6 See accompanying notes to the financial statements. GMO U.S. Sector Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 ------------------------------------------------ (Unaudited) 1997 1996 1995 1994 1993 * ----------- -------- -------- -------- --------- -------- Net asset value, beginning of period $ 13.03 $ 13.63 $ 11.06 $ 11.26 $ 10.38 $ 10.00 ------- ------- ------- ------- -------- -------- Income from investment operations: Net investment income 0.19 0.26 0.29 0.28 0.29 0.05 Net realized and unrealized gain 1.51 2.20 3.90 0.49 1.21 0.33 ------- ------- ------- ------- -------- -------- Total from investment operations 1.70 2.46 4.19 0.77 1.50 0.38 ------- ------- ------- ------- -------- -------- Less distributions to shareholders: From net investment income (0.23) (0.22) (0.29) (0.27) (0.30) -- From net realized gains (3.24) (2.84) (1.33) (0.70) (0.32) -- ------- ------- ------- ------- -------- -------- Total distributions (3.47) (3.06) (1.62) (0.97) (0.62) -- ------- ------- ------- ------- -------- -------- Net asset value, end of period $ 11.26 $ 13.03 $ 13.63 $ 11.06 $ 11.26 $ 10.38 ======= ======= ======= ======= ======== ======== Total Return/(a)/ 14.20% 20.88% 38.90% 7.56% 14.64% 3.80% Ratios/Supplemental Data: Net assets, end of period (000's) $149,155 $226,711 $211,319 $207,291 $167,028 $169,208 Net expenses to average daily net assets 0.46%** 0.48% 0.48% 0.48% 0.48% 0.48%** Net investment income to average daily net assets 2.71%** 1.99% 2.27% 2.61% 2.56% 3.20%** Portfolio turnover rate 117% 104% 84% 101% 53% 9% Average broker commission rate per equity share/(b)/ $0.0497 $0.0270 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.02 $ 0.01 $ 0.01 $ 0.01 $ 0.01
/(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. * For the period from December 31, 1992 (commencement of operations) to February 28, 1993. ** Annualized. See accompanying notes to the financial statements. 7 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO U.S. Sector Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks a total return greater than that of the Standard & Poor's 500 Stock Index through investment in common stocks either directly or through investments in other Funds of the Trust. Subsequently all of its assets will be invested in or exposed to equity securities chosen from the Wilshire 5000 Index and primarily in common stocks chosen from among the 1,800 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange, and/or shares of other domestic equity funds of the Trust. On August 20, 1997, the Fund began to invest a substantial portion of its assets in other Funds of the Trust. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bore the same total operating expenses (after the voluntary expense waiver) as those shares. On August 20, 1997 the Fund revised its voluntary expense waiver to include certain expenses incurred indirectly by the Fund through investment in underlying funds (See Note 2). At August 31, 1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 8 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. At August 31, 1997, there were no outstanding futures contracts. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund had no securities on loan. Swap agreements The Fund may enter into swap agreements to manage its exposure to the equity markets. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of 9 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform, or that there may be unfavorable changes in the price of the security or index underlying these transactions. At August 31, 1997, there were no open swap agreements outstanding. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. The Fund's investments in REIT equity securities may at times result in the Fund's receipt of cash in excess of the REIT's earnings. The excess amount cannot be determined by the Fund at the time of receipt. If the Fund distributes amounts which are subsequently determined to exceed REIT earnings, such amounts would constitute a return of capital to the Fund shareholders for federal income tax purposes. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. 10 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Investment income, common expenses and realized and unrealized gains and losses are allocated prorata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary. (See Note 2). Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .27% of the amount invested. Prior to June 30, 1997, the premium on cash purchases was .14% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $21 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .49% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. The Fund will always invest in the class of shares of each underlying Fund being offered that bears the lowest shareholder service fee. Like the management fee (as described below), the shareholder service fee of each class of the Fund's shares will be waived (but not below zero) to the extent of the indirect shareholder service fees paid in connection with the Fund's investment in shares of underlying Funds. GMO has agreed to waive a portion of its fee (but not below zero) and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses ("fund expenses")) plus the amount of fees and expenses, excluding shareholder service fee and fund expenses (as defined above) incurred indirectly by the Fund through investment in underlying Funds exceed .33% of average daily net assets. Because GMO will not waive the management fees below zero, and because the amount of fees and expenses incurred indirectly by the Fund will vary, the operating expenses (excluding shareholder service fees and fund expenses) incurred indirectly by the Fund through investment in underlying Funds may exceed 0.33% of the Fund's average daily net assets. 11 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $1,174. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $191,532,436 and $238,149,024, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation --------------------- ------------------- ------------------ ------------------- $ 151,676,965 $ 487,541 $ 1,465,563 $ 978,022
4. Principal shareholders At August 31, 1997, 94% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Period from September 3, 1996 Six Months Ended (commencement of operations) Class I: August 31, 1997 to February 28, 1997 ----------------------------------- -------------------------------- Shares Amount Shares Amount --------------- ----------------- ------------- --------------- Shares sold 9,164 $ 101,224 97,467 $ 1,163,513 Shares issued to shareholders in reinvestment of distributions 33,070 358,524 7,610 94,003 Shares repurchased (1,191) (16,800) (928) (12,000) =============== ================= ============= =============== Net increase 41,043 $ 442,948 104,149 $ 1,245,516 =============== ================= ============= ===============
12 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Share transactions - continued
Six Months Ended Year Ended Class III: August 31, 1997 February 28, 1997 --------------------------------- ------------------------------- Shares Amount Shares Amount -------------- --------------- ------------ --------------- Shares sold -- $ -- 7,570,612 $ 96,850,986 Shares issued to shareholders in reinvestment of distributions 4,347,968 47,071,578 3,069,555 37,653,043 Shares repurchased (8,493,144) (102,807,273) (8,749,092) (112,420,809) ============== =============== ============ =============== Net increase (decrease) (4,145,176) $(55,735,695) 1,891,075 $ 22,083,220 ============== =============== ============ ===============
13 GMO Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 91.1% Aerospace -- 0.4% 2,100 Lockheed Martin Corp 217,744 800 Northrop Grumman Corp 93,650 19,000 Raytheon Co 1,045,000 2,400 Textron Inc 149,550 1,600 TRW Inc 83,400 ----------- 1,589,344 ----------- Automotive -- 3.6% 1,100 Bandag Inc 58,644 39,800 Chrysler Corp 1,397,975 900 Eaton Corp 81,056 6,800 Electronic Data Systems Corp 257,125 88,700 Ford Motor Co 3,814,100 98,600 General Motors Corp 6,187,150 2,600 Genuine Parts Co 80,275 2,400 Goodyear Tire & Rubber Co 147,900 900 Harley Davidson Inc 48,713 1,200 Lear Corp * 54,975 75,000 Mascotech Industries Inc 1,570,313 1,700 Paccar Inc 80,538 ----------- 13,778,764 ----------- Banking and Financial Services -- 12.9% 2,800 Advanta Corp, Class A 92,750 1,900 Ahmanson (HF) & Co 96,425 22,200 American Express Co 1,726,050 9,384 American General Corp 452,191 4,150 Amsouth Bancorp 174,559 20,100 Banc One Corp 1,077,863 2,000 Bank of New York Inc 89,250 65,400 BankAmerica Corp 4,304,138 1,100 BankBoston Corp 91,438 3,800 Bankers Trust New York Corp 394,250 2,000 Barnett Banks Inc 136,250 1,600 BB&T Corporation 82,800 9,855 Bear Stearns Inc 389,902 2,200 Beneficial Corp 157,438 127,500 Block (HR) Inc 5,004,375 1,400 Capital One Financial Corp 53,900 1,700 Central Fidelity Banks Inc 66,513
See accompanying notes to the financial statements. 1 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 49,100 Chase Manhattan Corp 5,459,306 60,899 Citicorp 7,772,235 2,300 Comdisco Inc 62,531 1,900 Comerica Inc 134,544 3,400 Commerce Bancshares Inc 183,175 3,250 Compass Bancshares Inc 115,781 3,000 Corestates Financial Corp 184,500 4,400 Countrywide Credit Industry Inc 148,225 3,300 Donaldson Lufkin & Jenrette 195,938 8,400 Edwards (AG) Inc 333,900 12,200 Federal Home Loan Mortgage Corp 397,263 36,000 Federal National Mortgage Associates 1,584,000 3,100 First Bank of America Corp 159,650 23,800 First Chicago NBD Corp 1,707,650 200 First Empire State Corp 73,100 1,900 First Hawaiian Inc 70,063 1,900 First Security Corp 53,675 16,000 First Union Corp (NE) 769,000 2,300 First Virginia Banks Inc 156,688 2,400 Firstar Corp 80,850 3,200 Fleet Financial Group Inc 206,200 3,900 Franklin Resources Inc 301,763 2,400 Golden West Financial Corp 197,550 2,900 Green Tree Financial Corp 127,419 4,300 Greenpoint Financial Corp 264,719 1,200 Household International Inc 133,125 3,900 Key Corp 236,438 7,000 Lehman Brothers Holding Inc 307,125 4,300 Liberty Financial Cos 213,119 7,350 MBNA Corp 282,516 5,300 Mercantile Bankshares 149,063 8,100 Merrill Lynch 498,150 3,700 MGIC Investment Corp 186,156 2,800 Morgan Jersey Co Inc 300,300 29,685 Morgan Stanley Dean Witter Discover & Co 1,428,591 4,600 National City Corp 259,900 25,800 Nationsbank Corp 1,531,875 1,500 Northern Trust 79,688 9,000 Norwest Corp 516,938 1,180 Old Kent Financial Corp 72,275 7,800 Pacific Century Financial Corp 384,638
2 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 4,600 Paine Webber Group Inc 176,813 1,000 PMI Group Inc 57,813 30,100 PNC Bank Corp 1,301,825 8,900 Popular Inc 384,925 13,300 Providian Financial Corp 495,425 3,500 Regions Financial Corp 119,875 2,700 Republic New York Corp 289,069 1,500 Rowe (T) Price & Associates Inc 82,500 6,900 Salomon Inc 413,138 1,800 Signet Banking Corp 93,263 1,600 SLM Holding Corp 216,800 2,900 Southtrust Corp 129,775 800 State Street Corp 39,900 2,000 Suntrust Banks Inc 125,000 35,463 Travelers Group Inc 2,251,901 1,300 Union Planters Corp 66,625 2,800 Unionbancal Corp 216,475 2,000 Wachovia Corp 124,500 3,630 Washington Federal Inc 98,918 6,770 Washington Mutual Inc 405,354 1,900 Wells Fargo & Co 483,075 1,500 Wilmington Trust Corp 75,563 -------------- 49,358,246 -------------- Chemicals -- 0.5% 15,000 Albemarle Corp 368,438 2,400 Eastman Chemical Co 143,550 3,900 Great Lakes Chemical Corp 181,350 20,000 Millenium Chemicals Inc 420,000 2,000 Morton International Inc 66,500 5,900 PPG Industries Inc 371,700 1,900 Sherwin Williams Co 52,131 3,100 Union Carbide Corp 159,069 10,000 Wellman Inc 227,500 -------------- 1,990,238 -------------- Computer and Office Equipment -- 1.3% 7,700 Apple Computer Inc 167,475 18,250 Compaq Computer Corp 1,195,318 7,900 Gateway 2000 Inc 309,088 4,800 Hewlett Packard Co 294,300 125,000 Intergraph Corp * 1,242,188
See accompanying notes to the financial statements. 3 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Computer and Office Equipment -- continued 2,600 Lexmark International Group Inc * 91,000 6,700 Micron Technology Inc * 298,569 15,000 Office Depot 276,563 2,000 Pitney Bowes Inc 152,750 5,100 Quantum Corp 178,819 25,000 Silicon Graphics Inc * 685,938 2,800 Sterling Software Inc 96,075 -------------- 4,988,083 -------------- Construction -- 0.2% 1,600 Georgia-Pacific Corp 146,000 30,000 Hanson PLC ADR 720,000 -------------- 866,000 -------------- Consumer Goods -- 3.6% 2,400 Black and Decker Corp 91,950 3,700 Callaway Golf Co 124,644 5,400 CVS Corp 304,425 79,200 Eastman Kodak Co 5,177,700 1,700 Fastenal Co 97,963 1 Footstar Inc 25 3,500 Fortune Brands Inc 120,313 28,250 Hasbro Inc 759,219 1,200 Jones Apparel Group Inc 60,225 1,900 Lancaster Colony Corp 98,444 1,800 Liz Claiborne Inc 80,213 8,500 Mattel Co 284,219 85,000 Maytag Corp 2,332,188 20,700 Moore Corp Ltd 410,119 1,800 Newell Co 70,875 2,500 Nike Inc, Class B 133,438 4,700 Procter and Gamble Co 625,394 2,100 Reebok International Ltd 92,269 2,600 Russell Corp 74,100 112,500 Safety Kleen 2,271,094 6,300 Terra Industries Inc 84,263 1,700 Unifi Inc 65,238 2,400 VF Corp 212,100 1,800 Whirlpool Corp 103,050 -------------- 13,673,468 --------------
4 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investment -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- 0.7% 4,200 American Power Conversion Corp * 110,250 2,300 Amp Inc 115,000 1,500 Arrow Electronics Inc * 92,156 1,400 Cooper Industries Inc 74,638 3,500 Emerson Electric 191,406 1,200 Harris Corp Inc 104,550 15,000 International Rectifier Corp * 342,188 2,300 ITT Corp 144,469 2,500 Linear Technology Corp 163,906 2,000 Litton Industries * 99,750 1,300 LSI Logic * 41,844 1,800 Maxim Integrated Products Inc * 124,425 6,200 Motorola Inc 454,925 12,600 National Semiconductor Corp 431,550 1,200 Texas Instruments 136,350 3,995 Vishay Intertechnology Inc 106,617 900 Xilinx Inc * 42,750 -------------- 2,776,774 -------------- Environmental Control -- 1.0% 231,900 Wheelabrator Technology Inc 3,637,931 -------------- Food and Beverage -- 3.5% 84,300 Anheuser Busch Cos Inc 3,593,288 34,292 Archer Daniels Midland Co 741,563 4,200 Coca Cola Enterprises Inc 115,500 1,500 ConAgra Inc 96,469 10,000 Coors (Adolph) Co 368,750 2,300 CPC International Inc 204,988 56,300 Darden Restaurants Inc 566,519 1,100 Dean Foods Co 48,813 2,400 Heinz (HJ) Co 99,900 2,800 Hormel (Geo A) and Co 83,300 3,600 IBP Inc 82,575 2,500 Nabisco Holdings Corp, Class A 103,750 25,400 Pepsico Inc 914,400 1,000 Quaker Oats Company 47,000 98,800 RJR Nabisco Holdings Corp 3,439,475 8,400 Sara Lee Corp 338,100 9,100 Seagrams Co Ltd 317,931 8,400 Tyson Food Inc, Class A 178,500
See accompanying notes to the financial statements. 5 GMO Value Fund (A Series of GMO Trust) Schedule of Investment -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- continued 10,000 Unilever NV ADR 2,012,500 2,700 Whitman Corp 66,150 1,000 Wrigley (William Jr) Co 72,500 -------------- 13,491,971 -------------- Health Care -- 1.6% 3,100 Bard (CR) 106,950 1,400 Bausch & Lomb Inc. 57,488 2,200 Becton Dickinson & Co 105,463 79,900 Beverly Enterprises Inc * 1,303,369 4,500 BioMet Inc 93,375 14,500 Columbia HCA Healthcare Corp 457,656 700 Guidant Corp 61,469 1,700 Hillenbrand Industries Inc 74,694 37,400 Johnson & Johnson 2,120,113 1,700 Mallinckrodt Inc 61,838 1,000 McKesson Corp 93,688 3,800 Medtronic Inc 343,425 11,800 Pharmacia & Upjohn Inc 401,938 6,875 Quest Diagnostics Inc * 128,477 10,300 Tenet Healthcare Corp * 280,675 4,500 United Healthcare Corp 218,813 2,900 Wellpoint Health Network * 157,688 -------------- 6,067,119 -------------- Insurance -- 4.9% 3,300 Aetna Life and Casualty Co 314,944 3,000 AFLAC Corp 165,188 18,082 Allstate Corp 1,321,116 3,900 AMBAC Inc 315,169 2,200 American Financial Group Inc 95,150 5,800 American National Insurance Co 562,600 2,300 Chubb Corp 153,813 2,800 Cigna Corp 513,450 800 Cincinnati Financial Corp 65,000 3,600 CNA Financial Corp * 408,375 10,764 Conseco Inc 462,852 4,200 Equitable Companies Inc 182,700 3,000 Equitable of Iowa Cos 195,375 1,800 Everest Re Holdings Inc 65,138 9,030 Foundation Health Systems * 287,267
6 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unadited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- continued 900 General Re Corp 174,488 4,400 Hartford Financial Services Group 350,900 5,100 Lincoln National Corp 341,381 14,800 Loews Corp 1,508,675 1,800 Marsh & McLennan Cos Inc 122,850 2,000 MBIA Inc 226,500 1,100 Mercury General Corp 96,250 25,000 Nationwide Financial Service, Class A 693,750 5,400 Ohio Casualty Corp 251,100 11,400 Old Republic International Corp 409,688 1,404 Pacificare Health Systems, Class B * 95,999 1,400 Progressive Corp 138,600 2,017 Provident Cos Inc 131,357 175,000 Reliance Group Holdings Inc 2,143,750 7,600 Reliastar Financial Corp 568,100 7,000 Safeco Corp 343,875 6,100 Saint Paul Cos Inc 447,588 150,000 TIG Holdings Inc 4,687,500 10,600 Torchmark Corp 399,488 2,800 Transamerica Corp 275,975 2,100 Transatlantic Holding Inc 148,444 2,700 USF & G Corp 59,231 ----------- 18,723,626 ----------- Machinery -- 1.2% 2,900 Agco Corporation 94,250 5,200 Applied Materials Inc * 490,750 2,600 Brunswick Corp 79,300 3,800 Case Corp 254,838 3,900 Caterpillar Inc 226,444 100,000 Cincinnati Milacron Inc 2,575,000 1,300 Cummins Engine Inc 100,019 6,800 FMC Corp * 564,825 4,800 Tecumseh Products Co, Class B 259,200 1,300 York International Corp 58,338 ----------- 4,702,964 ----------- Manufacturing -- 7.4% 35,600 American Greetings Corp 1,237,100 40,100 Clayton Homes Inc 674,181 32,500 Corning Inc 1,718,438
See accompanying notes to financial statements. 7 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Manufacturing -- continued 1,800 Crane Co 79,425 30,000 General Electric Co 1,875,000 65,600 IBM Corp 6,617,400 3,200 International Game Technology 64,000 27,700 Lafarge Corp 900,250 3,400 Minnesota Mining And Manufacturing Co 305,575 75,000 Owens Corning 3,042,188 2,200 Rockwell International Corp 132,000 1,800 Temple Inland Inc 116,100 50,000 Tenneco Inc 2,428,125 4,300 Trinity Industries Inc 170,925 37,700 United Technologies Corp 2,942,956 230,000 Westinghouse Electric Corp 5,922,500 ---------- 28,226,163 ---------- Metals and Mining -- 2.0% 39,000 Alcan Aluminum Ltd 1,362,563 20,000 Allegheny Teledyne Inc 617,500 17,600 Asarco Inc 541,200 40,700 Cyprus Amax Minerals Co 1,027,675 47,500 Inco Ltd 1,285,469 2,500 Newmont Mining Corp 105,781 5,000 Pegasus Gold 21,250 8,500 Phelps Dodge Corp 683,719 25,000 Pittston Minerals Group 279,688 21,300 Reynolds Metals Co 1,505,644 3,100 Timken Co 116,056 200 Wesco Financial Corp 55,013 ---------- 7,601,558 ---------- Oil and Gas -- 6.7% 25,000 Amerada Hess Corp 1,453,125 2,800 Amoco Corp 264,775 8,100 Atlantic Richfield Co 607,500 20,000 Cabot Oil & Gas Corp, Class A 463,750 2,200 Columbia Natural Gas Systems Inc 145,200 12,500 Dresser Industries Inc 521,875 900 El Paso Natural Gas Co 50,625 50,000 Enron Oil & Gas 1,206,250 74,975 Enserch Exploration Inc * 674,778 15,000 Exxon Corp 917,813 1,000 FINA Inc, Class A 66,000
8 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Oil and Gas -- continued 25,000 Mitchell Energy, Class B 625,000 20,300 Mobil Corp 1,476,825 230,300 Occidental Petroleum Corp 5,397,656 2,500 Phillips Petroleum Co 118,906 11,600 Questar Corp 464,000 12,300 Texaco Inc 1,417,575 5,500 Union Pacific Resources Group 137,500 125,000 Union Texas Petroleum Holdings Inc 2,914,063 67,400 Unocal Corp 2,632,813 97,800 USX - Marathon Group 3,184,613 50,000 Westcoast Energy Inc 956,250 -------------- 25,696,892 -------------- Paper and Allied Products -- 1.8% 16,400 Boise Cascade Corp 648,825 1,300 Bowater Inc 66,544 17,600 Champion International Corp 1,041,700 22,000 Fort James Corp 924,000 44,000 International Paper Co 2,321,000 1,900 Kimberly Clark Corp 90,131 3,000 Louisiana Pacific Corp 66,375 1,600 Mead Corp 113,500 2,100 Plum Creek Timber Co Limited Partnership 69,956 900 Potlatch Corp 42,019 1,600 Rayonier Inc 78,100 2,400 Sonoco Products Co 78,150 4,000 Stone Container Corp 69,000 1,800 Union Camp Corp 106,763 3,200 Westvaco Corp 108,400 12,700 Weyerhaeuser Co 733,425 1,700 Willamette Industries Inc 135,575 -------------- 6,693,463 -------------- Pharmaceuticals -- 1.6% 38,800 Abbott Laboratories 2,325,575 11,600 Allergan Inc 375,550 2,100 American Home Products Corp 151,200 1,500 Amgen Inc 74,344 2,600 Bergen Brunswig Corp, Class A 109,200 9,500 Bristol Myers Squibb Co 722,000 2,400 General Nutrition Cos Inc * 66,600 25,000 Immulogic Pharmaceutical 79,688
See accompanying notes to financial statements. 9 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Pharmaceuticals -- continued 12,500 Lilly (Eli) & Co 1,307,813 5,000 Merck & Co Inc 459,063 5,000 Schering Plough Corp 240,000 1,100 Warner Lambert Co 139,769 -------------- 6,050,802 -------------- Primary Materials -- 0.8% 5,000 Crown Cork & Seal Inc 254,375 7,800 Premark International Inc 232,050 100,000 Rubbermaid Inc 2,500,000 1,500 Vulcan Materials Co 131,813 -------------- 3,118,238 -------------- Primary Processing -- 0.8% 3,100 Alumax Inc * 128,456 20,000 Bethlehem Steel Corp * 240,000 10,500 Dow Chemical Co 929,250 5,000 Du Pont (EI) De Nemours & Co 311,563 23,300 LTV Corp 302,900 29,300 USX-US Steel Group Inc 1,029,163 -------------- 2,941,332 -------------- Printing and Publishing -- 0.1% 2,600 Dun and Bradstreet Corp 72,800 25,000 News Corporation Ltd ADR 451,563 -------------- 524,363 -------------- Real Estate -- 1.3% 50,000 Crown American Realty Trust 484,375 25,000 Evans Withycombe Residential 595,313 7,500 JP Realty Inc 184,688 125,000 Summit Properties Inc 2,492,188 50,000 Walden Residential Properties Inc 1,193,750 -------------- 4,950,314 -------------- Refining -- 0.2% 22,500 Quaker State Corp 348,750 6,400 Royal Dutch Petroleum 324,800 2,000 Ultramar Diamond Shamrock Corp 65,250 -------------- 738,800 --------------
10 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade -- 3.1% 10,500 Albertsons Inc 360,938 5,900 American Stores Co 139,756 5,200 Autozone Inc * 146,900 2,300 Bed, Bath & Beyond Inc * 70,869 25,000 Cone Mills Corp * 196,875 4,400 Costco Cos Inc * 158,675 3,700 Dayton Hudson Corp 210,900 5,300 Dillards Department Stores Inc 212,000 57,100 Federated Department Stores * 2,398,200 2,100 Fruit of the Loom Inc * 56,175 8,500 Gap Inc 377,719 20,100 Kmart Corp * 278,888 25,400 Limited Inc 577,850 3,400 May Department Stores Co 182,963 8,000 Mercantile Stores 499,500 6,000 Officemax Inc * 88,875 5,300 Penney (JC) Co Inc 318,000 2,200 Safeway Inc * 112,063 1,000 Sears Roebuck & Co 56,750 2,000 Tandy Corp 132,750 10,500 Toys R Us Inc * 362,906 127,700 Wal Mart Stores Inc 4,533,350 3,300 Weismarkets Inc 111,375 1,900 Winn Dixie 64,006 2,000 Woolworth (FW) Co * 44,750 -------------- 11,693,033 -------------- Services -- 3.7% 1,200 BHC Communications Inc, Class A 147,300 22,500 Browning Ferris Industries Inc 786,094 2,309 Chris Craft Industries Inc 113,285 4,600 Circus Circus Enterprises Inc * 110,113 1,100 Gannett Co Inc 107,181 2,500 Harrahs Entertainment Inc 56,094 1,400 Healthcare Compare Corp * 78,050 1,900 Kelly Services 63,650 3,100 Kingworld Productions Inc 123,225 2,000 Meredith Corp 60,000 45,000 Ogden Corp 1,043,438 3,100 Olsten Corp 58,125
See accompanying notes to the financial statements. 11 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 5,000 Servicemaster Industry Inc 127,188 41,200 Supervalu Inc 1,617,100 251,700 Waste Management Inc 8,054,400 175,000 Waste Management International PLC ADR * 1,421,875 -------------- 13,967,118 -------------- Technology -- 7.5% 2,400 Adobe Systems Inc 94,500 5,900 Advanced Micro Devices Inc * 220,881 1,700 Autodesk Inc 74,375 9,600 Avnet Inc 664,200 4,100 Bay Networks Inc * 145,038 4,700 BMC Software Inc 294,338 7,400 Cabletron Systems Inc 223,850 12,400 Cisco Systems Inc * 934,650 77,600 Digital Equipment Corp * 3,336,800 1,100 Grainger (WW) Inc 97,694 58,100 Intel Corp 5,352,463 44,300 Microsoft Corp 5,855,906 43,900 Novell Inc * 411,563 2,500 Seagate Technology Corp 95,469 103,499 Storage Technology Corp * 5,271,980 145,000 Tandem Computers Inc * 4,930,000 2,500 Teradyne Inc * 139,219 5,800 Xerox Corp 437,900 -------------- 28,580,826 -------------- Telecommunications -- 6.8% 97,100 AT & T Corp 3,786,900 6,456 Bell Atlantic Corp 467,253 2,400 Bellsouth Corp 105,600 12,500 Comcast Corp, Class A 290,625 22,500 Comsat Corp 487,969 25,000 Cox Communications, Class A * 676,563 107,900 GTE Corp 4,808,294 76,300 MCI Communications Corp 2,174,550 6,700 Nextel Communications Inc, Class A 167,919 62,500 SBC Communications 3,398,414 21,000 Sprint Corp 987,000 32,500 Tele-Communications, Class A 568,750
12 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Telecommunications -- continued 116,300 US West Inc 4,164,994 185,200 US West Media Group * 3,704,000 3,800 Viacom Inc, Class B 112,575 2,400 Worldcom Inc * 71,850 ----------- 25,973,256 ----------- Tobacco -- 0.9% 17,500 Gallaher Group Plc ADR 313,906 75,000 Imperial Tobacco Group Plc ADR 939,008 52,900 Philip Morris Cos Inc 2,307,763 ----------- 3,560,677 ----------- Transportation -- 1.4% 10,000 American West Holdings Corp, Class B * 120,625 8,100 AMR Corp * 816,075 5,800 Burlington Northern Santa Fe Railroad Co 531,788 85,000 Canadian Pacific 2,480,938 6,500 CSX Corp 371,719 2,100 Delta Air Lines Inc 181,650 1,300 Federal Express Corp 86,369 1,100 Gatx Corp 68,819 700 Norfolk Southern Corp 68,600 7,500 Ryder System Inc 267,656 11,700 Sabre Group Holding Inc 359,775 900 UAL Corp * 68,569 ----------- 5,422,583 ----------- Utilities -- 9.6% 3,400 AES Corp 125,800 6,400 American Water Works Co 132,800 3,000 Baltimore Gas and Electric Co 81,000 3,500 Boston Edison Co 98,875 62,500 Calpine Corp * 1,156,250 13,100 Centerior Energy Corp 147,375 4,600 Central & South West Corp 95,163 30,000 Cinergy Corp 991,875 6,900 CMS Energy Corp 247,969 3,400 Coastal Corp 196,350 24,600 Consolidated Edison 753,375 2,500 Delmarva Power and Light Co 44,844 3,700 Dominion Resources Inc 133,200
See accompanying notes to the financial statements. 13 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------- Utilities -- continued 20,000 DPL Inc 473,750 10,000 DTE Energy Co 296,250 50,000 Duke Power Co 2,421,875 21,900 Edison International 528,338 47,500 Energy Group PLC ADR 1,920,781 3,300 Enova Corp 79,200 85,300 Entergy Corp 2,116,506 2,000 Florida Progress Corp 64,375 2,500 FPL Group Inc 116,250 11,800 General Public Utilities Inc 396,775 43,781 Houston Industries Inc 886,565 66,200 Illinova Corp 1,522,600 9,200 Long Island Lighting Co 227,125 3,600 Midamerican Energy Holding Co 61,425 2,300 Montana Power Co 53,044 3,300 New England Electric System 126,225 6,000 New York State Electric and Gas Corp 146,250 212,000 Niagara Mohawk Power Corp * 1,894,750 8,300 Northeast Utilities 83,519 46,600 Ohio Edison Co 1,025,200 28,900 Pacificorp 599,675 16,000 Peco Energy Co 381,000 104,600 PG & E Corp 2,425,413 2,800 Pinnacle West Capital Corp 90,475 7,000 PP & L Resources Inc 153,563 63,900 Public Service Enterprise Group Inc 1,585,519 1,900 Puget Sound Power and Light Co 48,213 36,100 Southern Co 760,356 241,750 Texas Utilities Co 8,431,031 25,000 TransCanada Pipeline Ltd 468,750 127,100 Unicom Corp 3,002,738 1,900 Western Resources Inc 63,650 -------------- 36,656,062 -------------- TOTAL COMMON STOCKS (COST $283,401,394) 348,040,008 -------------- PREFERRED STOCKS -- 2.5% Banking and Financial Services -- 0.1% 10,000 Time Warner Financing Convertible $1.24 390,000 --------------
14 See accompanying notes to financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value($)/ Shares Description Value ($) - -------------------------------------------------------------------------------- Metals and Mining -- 0.1% 7,500 Freeport McMoran Corp $0.34 223,594 -------------- Paper and Allied Products -- 1.0% 100,200 Fort James Corp Convertible 9.00% 3,820,125 -------------- Refining -- 0.4% 30,000 Unocal Corp Convertible 6.25% 144A 1,736,250 -------------- Transportation -- 0.9% 23,900 Navistar International Corp $6.00 1,431,013 22,500 US Air Group Inc Convertible Series B $8.759 1,926,563 -------------- 3,357,576 -------------- TOTAL PREFERRED STOCKS (COST $5,837,267) 9,527,545 -------------- SHORT-TERM INVESTMENTS -- 15.0% Cash Equivalents -- 8.5% $10,750,565 BankBoston Eurodollar Time Deposit, 5.7875% due 9/2/97/(a)/ 10,750,565 $682,757 First Union National Bank of North Carolina Eurodollar Time Deposit, 5.5625% due 9/2/97/(a)/ 682,757 $2,048,272 Harris Bank and Trust Eurodollar Time Deposit, 5.625% due 9/2/97/(a)/ 2,048,272 13,900,000 Merrimac Cash Fund Premium Class/(a)/ 13,900,000 $5,000,000 Prudential Securities Group Inc Master Note, 5.8875% due 9/2/97/(a)/ 5,000,000 -------------- 32,381,594 -------------- U.S. Government -- 0.1% $600,000 U.S. Treasury Bill, 5.22% due 11/28/97/(b)/ 592,619 -------------- Repurchase Agreements -- 6.4% $19,275,617 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $19,286,433 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $19,717,318. 19,275,617 $5,161,101 Prudential Securities, Inc. Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $5,163,962 and an effective yield of 4.99%, collateralized by a U.S. Government Agency Obligation with a rate of 6.811%, with a maturity date of 3/1/35 and a market value of $5,264,341. 5,161,101 -------------- 24,436,718 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $57,410,632) 57,410,931 --------------
See accompanying notes to the financial statements. 15 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1997 (Unaudited)
Value ($) - -------------------------------------------------------------------------------- TOTAL INVESTMENTS -- 108.6% (COST $346,649,293) 414,978,484 Other Assets and Liabilities (net) -- (8.6)% (32,960,335) -------------- TOTAL NET ASSETS-- 100% $382,018,149 ============== Notes to the Schedule of Investments: ADR - American Depositary Receipt 144A - Securities 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 investors. * Non-income producing security. /(a)/Represents investments of security lending collateral (Note 1). /(b)/Security has been segregated to cover margin requirements on open financial futures contracts.
16 See accompanying notes to financial statements. GMO Value Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $346,649,293) (Note 1) $414,978,484 Receivable for investments sold 1,060,049 Dividends and interest receivable 784,038 Receivable for open swap contracts (Notes 1 and 6) 1,075,223 Receivable for variation margin on open futures contracts (Notes 1 and 6) 55,896 Receivable for expenses waived or borne by Manager (Note 2) 117,968 ------------ Total assets 418,071,658 ------------ Liabilities: Payable for investments purchased 1,087,577 Payable upon return of securities loaned (Note 1) 32,381,594 Payable for Fund shares repurchased 2,274,126 Payable to affiliate for (Note 2): Management fee 222,058 Shareholder service fee 47,588 Accrued expenses 40,566 ------------ Total liabilities 36,053,509 ------------ Net assets $382,018,149 ============ Net assets consist of: Paid-in-capital $264,390,609 Accumulated undistributed net investment income 1,233,449 Accumulated undistributed net realized gain 47,092,608 Net unrealized appreciation 69,301,483 ------------ $382,018,149 ============ Net assets attributable to: Class III shares $382,018,149 ============ Shares outstanding: Class III 24,464,821 ============ Net asset value per share: Class III $ 15.61 ============
See accompanying notes to the financial statements. 17 GMO Value Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $ 4,975,348 Interest (including securities lending income of $8,282) 644,731 ----------- Total income 5,620,079 ----------- Expenses: Management fee (Note 2) 1,477,425 Custodian and transfer agent fees 49,012 Registration fees 35,494 Audit fees 23,964 Legal fees 10,300 Trustees fees (Note 2) 2,096 Miscellaneous 1,550 Fees waived or borne by Manager (Note 2) (628,962) ----------- 970,879 Shareholder service fee (Note 2) Class III 316,593 ----------- Net expenses 1,287,472 ----------- Net investment income 4,332,607 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 45,425,771 Closed futures contracts 2,723,015 Closed swap contracts (210,045) ----------- Net realized gain 47,938,741 ----------- Change in net unrealized appreciation (depreciation) on: Investments 9,077,820 Open futures contracts 122,684 Open swap contracts 1,230,012 ----------- Net unrealized gain 10,430,516 ----------- Net realized and unrealized gain 58,369,257 ----------- Net increase in net assets resulting from operations $62,701,864 ===========
18 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1997 Year Ended (Unaudited) February 28, 1997 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 4,332,607 $ 7,642,847 Net realized gain 47,938,741 62,774,750 Change in net unrealized appreciation (depreciation) 10,430,516 (1,146,140) ------------- ------------ Net increase in net assets resulting from operations 62,701,864 69,271,457 ------------- ------------ Distributions to shareholders from: Net investment income Class III (4,363,090) (7,540,588) ------------- ------------ Total distributions from net investment income (4,363,090) (7,540,588) ------------- ------------ Net realized gains Class III (34,897,880) (44,759,234) ------------- ------------ Total distributions from net realized gains (34,897,880) (44,759,234) ------------- ------------ (39,260,970) (52,299,822) ------------- ------------ Net share transactions: (Note 5) Class III (111,014,107) 135,007,878 ------------- ------------ Increase (decrease) in net assets resulting from net share transactions (111,014,107) 135,007,878 ------------- ------------ Total increase (decrease) in net assets (87,573,213) 151,979,513 Net assets: Beginning of period 469,591,362 317,611,849 ------------- ------------ End of period (including accumulated undistributed net investment income of $1,233,449 and $1,263,932, respectively) $ 382,018,149 $469,591,362 ============= ============
See accompanying notes to the financial statements. 19 GMO Value Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1997 -------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 ----------- -------- --------- --------- --------- ---------- Net asset value, beginning of period $ 14.85 $ 14.25 $ 12.05 $ 13.48 $ 13.50 $ 12.94 -------- ------- -------- -------- -------- --------- Income from investment operations: Net investment income 0.17 0.31 0.39 0.41 0.43 0.38 Net realized and unrealized gain 2.11 2.47 3.71 0.32 1.27 0.98 -------- ------- -------- -------- -------- --------- Total from investment operations 2.28 2.78 4.10 0.73 1.70 1.36 -------- ------- -------- -------- -------- --------- Less distributions to shareholders: From net investment income (0.16) (0.32) (0.39) (0.45) (0.40) (0.38) From net realized gains (1.36) (1.86) (1.51) (1.71) (1.32) (0.42) -------- ------- -------- -------- -------- --------- Total distributions (1.52) (2.18) (1.90) (2.16) (1.72) (0.80) -------- ------- -------- -------- -------- --------- Net asset value, end of period $ 15.61 $ 14.85 $ 14.25 $ 12.05 $ 13.48 $ 13.50 ======== ======= ======== ======== ======== ========= Total Return/(a)/ 15.89% 21.26% 35.54% 6.85% 13.02% 11.01% Ratios/Supplemental Data: Net assets, end of period (000's) $382,018 $469,591 $317,612 $350,694 $679,532 $1,239,536 Net expenses to average daily net assets 0.61%* 0.61% 0.61% 0.61% 0.61% 0.62% Net investment income to average daily net assets 2.05%* 2.17% 2.66% 2.86% 2.70% 3.15% Portfolio turnover rate 19% 84% 65% 77% 35% 50% Average broker commission rate per equity share /(b)/ $ 0.0554 $0.0457 N/A N/A N/A N/A Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.04 $ 0.02 $ 0.02 $ 0.02 $ 0.01
/(a)/ Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. * Annualized. 20 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Value Fund (the "Fund") is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series into classes. The Fund seeks a total return greater than that of the Standard & Poor's 500 Stock Index through investment of substantially all of its assets in common stocks chosen from the Wilshire 5000 Index and primarily in common stocks chosen from among the 1,200 companies with the largest equity capitalization whose securities are listed on a United States national securities exchange. On June 1, 1996, the Fund began to offer three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. Class III shares are the continuation of the Trust's shares that existed prior to June 1, 1996, and bear the same total operating expenses (after the voluntary expense waiver) as those shares. At August 31, 1997, Class III was the only active class of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Portfolio securities listed on a securities exchange for which market quotations are available are valued at the last quoted sale price on each business day, or if there is no such reported sale, at the most recent quoted bid price. Unlisted securities for which market quotations are readily available are valued at the most recent quoted bid price. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. Futures contracts The Fund may purchase and sell futures contracts on the domestic stock indices. Stock index futures contracts represent commitments for future delivery of cash based upon the level of a specified index of equity securities at a specified price at a given date. The Fund may use futures contracts to manage its exposure to the stock markets. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund instruments. Upon purchase of a futures contract, the Fund is required to deposit with its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. 21 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- government obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value ("variation margin") is recorded by the Fund. The payable or receivable is liquidated on the following business day. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. Losses may arise from changes in the value of the underlying instrument, if there is an illiquid secondary market for the contracts, or if counterparties do not perform under the contract terms. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts held as of August 31, 1997. Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Security lending The Fund may lend its securities to certain member firms of the New York Stock Exchange. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund receives compensation for lending its securities. At August 31, 1997, the Fund loaned securities having a market value of $31,572,585, collateralized by cash in the amount of $32,381,594, which was invested in short-term instruments. Swap agreements The Fund may enter into swap agreements to manage its exposure to the equity markets. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into equity swap agreements which involve a commitment by one party in the agreement to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty, respectively. Equity swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss in the Statement of Operations. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there is no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform, or that there may be unfavorable 22 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- changes in the price of the security or index underlying these transactions. See Note 6 for a summary of all open swap agreements as of August 31, 1997. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Taxes on foreign dividend income have been withheld in accordance with the applicable country's tax treaty with the United States. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income quarterly, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis and is adjusted for the accretion of discounts. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. Investment income, common expenses and realized and unrealized gains and losses are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. Prior to June 1, 1996, the premium on cash purchases was .15% of the amount invested. All purchase premiums are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund 23 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- received $2,561 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .70% of average daily net assets. Effective June 1, 1996, the Fund adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting, and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .28% for Class I shares, .22% for Class II shares, and .15% for Class III shares. GMO has agreed to waive a portion of its fee and bear other expenses until further notice to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed .46% of average daily net assets. Prior to June 1, 1996, a similar waiver existed for annual expenses exceeding .61%; thus, the net annual expense ratio after the waiver for a Class III shareholder is unchanged. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $2,096. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short-term investments, for the six months ended August 31, 1997, aggregated $73,730,948 and $194,126,326, respectively. At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation -------------------- -------------------- -------------------- ------------------- $346,649,293 $74,530,013 $6,200,822 $68,329,191
4. Principal shareholder At August 31, 1997, 30% of the outstanding shares of the Fund were held by one shareholder. 24 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Year Ended Class III: August 31, 1997 February 29, 1997 -------------------------------- ------------------------------ Shares Amount Shares Amount ------------- --------------- -------------- -------------- Shares sold 122,462 $ 1,829,289 9,674,742 $ 141,074,274 Shares issued to shareholders in reinvestment of distributions 2,471,174 36,764,383 3,486,567 48,679,629 Shares repurchased (9,758,297) (149,607,779) (3,824,235) (54,746,025) ------------- --------------- -------------- -------------- Net increase (decrease) (7,164,661) $ (111,014,107) 9,337,074 $ 135,007,878 ============= =============== ============== ==============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1997 is as follows: Long futures contracts
Net Unrealized Number of Appreciation Contracts Type Expiration Date Contract Value (Depreciation) --------------- --------------- ------------------- -------------------- ---------------- 15 Russell 2000 September 1997 $3,180,750 $ 69,013 18 S&P 500 September 1997 8,127,900 (171,944) ---------------- $ (102,931) ================
At August 31, 1997, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 25 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Swap agreements
Notional Amount Expiration Unrealized Fund/Counterparty Date Description Appreciation --------------------- ------------ ----------------------------------------- ---------------- $3,491,545/ 9/11/97 Agreement with Morgan Stanley Capital $ 204,486 3,366,900 Services, Inc. dated September 9, 1996 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by 6 month LIBOR adjusted by a specified spread and to receive (pay) the change in market value of a basket of selected securities (including dividends) less the counterparty's notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 10,795,563/ 5/13/98 Agreement with Morgan Stanley Capital 870,737 9,970,214 Services, Inc. dated May 13, 1997 to pay (receive) the notional amount multiplied by the return on the Standard & Poor's 500 Index (including dividends) less the notional amount multiplied by LIBOR adjusted by a specified spread and to receive (pay) the change in market value of a basket of selected securities (including dividends) less the counterparty's notional amount multiplied by LIBOR adjusted by a specified spread. ---------------- Net unrealized appreciation $1,075,223 ================
26 GMO World Equity Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1997 GMO World Equity Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1997 (Unaudited)
Par Value ($)/ Shares Description Value($) - ------------------------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 333,335 GMO Core Fund (Class III Shares) 6,433,363 276,704 GMO Currency Hedged International Core Fund (Class III Shares) 3,472,632 52,514 GMO Emerging Country Debt Fund (Class III Shares) 700,538 604,808 GMO Emerging Markets Fund (Class III Shares) 7,868,546 61,210 GMO Growth Fund (Class III Shares) 280,952 61,942 GMO Inflation Indexed Bond Fund (Class III Shares) 633,047 72,590 GMO International Bond Fund (Class III Shares) 790,502 775,245 GMO International Core Fund (Class III Shares) 18,954,738 90,698 GMO International Small Companies Fund (Class III Shares) 1,269,768 181,492 GMO REIT Fund (Class III Shares) 2,424,736 153,951 GMO Small Cap Growth Fund (Class III Shares) 1,924,390 103,227 GMO Small Cap Value Fund (Class III Shares) 1,883,897 105,894 GMO U.S. Bond/Global Alpha A Fund (Class III Shares) 1,118,238 87,365 GMO Value Fund (Class III Shares) 1,363,771 ----------- TOTAL MUTUAL FUNDS (COST $46,704,691) 49,119,118 ----------- SHORT-TERM INVESTMENT -- 0.0% Repurchase Agreement -- 0.0% $11,914 Salomon Brothers Repurchase Agreement, dated 8/29/97, due 9/2/97, with a maturity value of $11,921 and an effective yield of 5.05%, collateralized by U.S. Treasury Obligations with rates ranging from 5.00% to 6.75%, with maturity dates ranging from 2/15/99 to 8/15/26 and with an aggregate market value of $12,187. 11,914 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $11,914) 11,914 ----------- TOTAL INVESTMENTS -- 100.0% (Cost $46,716,605) 49,131,032 Other Assets and Liabilities (net) -- 0.0% 436 ----------- TOTAL NET ASSETS -- 100% $49,131,468 ===========
See accompanying notes to the financial statements. 1 GMO World Equity Allocation Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $46,716,605) (Note 1) $49,131,032 Receivable for expenses waived or borne by Manager (Note 2) 13,931 ----------- Total assets 49,144,963 ----------- Liabilities: Payable to affiliate for (Note 2): Shareholder service fee 1,081 Accrued expenses 12,414 ----------- Total liabilities 13,495 ----------- Net assets $49,131,468 =========== Net assets consist of: Paid-in-capital $44,185,923 Accumulated undistributed net investment income 306,753 Accumulated undistributed net realized gain 2,224,365 Net unrealized appreciation 2,414,427 ----------- $49,131,468 =========== Net assets attributable to: Class I shares $10,126,038 =========== Class III shares $39,005,430 =========== Shares outstanding: Class I 901,408 =========== Class III 3,470,046 =========== Net asset value per share: Class I $ 11.23 =========== Class III $ 11.24 ===========
2 See accompanying notes to the financial statements. GMO World Equity Allocation Fund (A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1997 (Unaudited) - ----------------------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 312,899 Interest 243 ---------- Total income 313,142 ---------- Expenses: Custodian and transfer agent fees 12,539 Registration fees 11,856 Audit fees 7,918 Legal fees 1,037 Trustees fees (Note 2) 182 Miscellaneous 102 Fees waived or borne by Manager (Note 2) (33,634) ---------- -- Shareholder service fee (Note 2) Class I 6,389 ---------- Net expenses 6,389 ---------- Net investment income 306,753 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (17,561) Realized gain distributions from investment company shares 2,317,252 ---------- Net realized gain 2,299,691 ---------- Change in net unrealized appreciation (depreciation) on: Investments 1,044,605 ---------- Net unrealized gain 1,044,605 ---------- Net realized and unrealized gain 3,344,296 ---------- Net increase in net assets resulting from operations $3,651,049 ==========
See accompanying notes to the financial statements. 3 GMO World Equity Allocation Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------------
Six Months Ended Period from June 28, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ---------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 306,753 $ 159,870 Net realized gain 2,299,691 634,574 Change in net unrealized appreciation (depreciation) 1,044,605 1,369,822 ----------- ----------- Net increase in net assets resulting from operations 3,651,049 2,164,266 ----------- ----------- Distributions to shareholders from: Net investment income Class I -- (95,107) Class III -- (64,763) ----------- ----------- Total distributions from net investment income -- (159,870) ----------- ----------- In excess of net investment income Class I -- (702) Class III -- (478) ----------- ----------- Total distributions in excess of net investment income -- (1,180) ----------- ----------- Net realized gains Class I (92,297) (157,650) Class III (354,272) (104,501) ----------- ----------- Total distributions from net realized gains (446,569) (262,151) ----------- ----------- (446,569) (423,201) ----------- ----------- Net share transactions: (Note 5) Class I 61,705 9,038,695 Class II -- (24,488) Class III (305,009) 35,415,020 ----------- ----------- Increase (decrease) in net assets resulting from net share transactions (243,304) 44,429,227 ----------- ----------- Total increase in net assets 2,961,176 46,170,292 Net assets: Beginning of period 46,170,292 -- ----------- ----------- End of period (including accumulated undistributed net investment income of $306,753 and $0, respectively) $49,131,468 $46,170,292 =========== ===========
4 See accompanying notes to the financial statements. GMO World Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class I share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from June 28, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- ------------------------- Net asset value, beginning of period $ 10.52 $10.00 -------- ------- Income from investment operations: Net investment income/(b)/ 0.06+ 0.09 Net realized and unrealized gain 0.75 0.72 -------- ------- Total from investment operations 0.81 0.81 -------- ------- Less distributions to shareholders: From net investment income -- (0.11) In excess of net investment income -- 0.00 From net realized gains (0.10) (0.18) -------- ------- Total distributions (0.10) (0.29) -------- ------- Net asset value, end of period $ 11.23 $10.52 ======== ======= Total Return/(a)/ 7.70% 8.23% Ratios/Supplemental Data: Net assets, end of period (000's) $10,126 $9,424 Net expenses to average daily net assets 0.13%* 0.16%* Net investment income to average daily net assets/(b)/ 1.21%* 1.80%* Portfolio turnover rate 18% 31% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01
/(a)/Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 5 GMO World Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from October 22, 1996 August 31, 1997 (commencement of operations) (Unaudited) to February 28, 1997 ---------------- -------------------------- Net asset value, beginning of period $ 10.52 $ 10.07 ------- ------- Income from investment operations: Net investment income/(b)/ 0.07++ 0.11 Net realized and unrealized gain 0.75 0.63 ------- ------- Total from investment operations 0.82 0.74 ------- ------- Less distributions to shareholders: From net investment income -- (0.11) In excess of net investment income -- 0.00 From net realized gains (0.10) (0.18) ------- ------- Total distributions (0.10) (0.29) ------- ------- Net asset value, end of period $ 11.24 $ 10.52 ------- ------- Total Return/(a)/ 7.79% 7.51% Ratios/Supplemental Data: Net assets, end of period (000's) $39,005 $36,746 Net expenses to average daily net assets 0.00%* 0.00%* Net investment income to average daily net assets/(b)/ 1.33%* 0.91%* Portfolio turnover rate 18% 31% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03
/(a)/ Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. /(b)/ Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. ++ Computed using average shares outstanding throughout the period. * Annualized. 6 See accompanying notes to the financial statements. GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) August 31, 1997 - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO World Equity Allocation Fund (the "Fund"), which commenced operations on June 28, 1996, is a series of GMO Trust (the "Trust"). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end, diversified management investment company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. LLC (the "Manager" or "GMO"). The Trust was established as a Massachusetts Business Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of Trust permits the Trustees to create an unlimited number of series ("Funds"), each of which issues a separate series of shares, and to subdivide a series of shares into classes. The Fund operates as a "fund-of-funds" in that, pursuant to management provided by the Manager, it makes investments in other funds of the Trust ("underlying funds"). The Fund seeks a total return greater than that of the World Lite Extended Index, a modification of the Morgan Stanley Capital International World Index that reduces the weighting of Japan and includes a weighting for emerging countries. The Fund will pursue its objective by investing primarily in Class III shares of equity funds of the Trust. The Fund offers three classes of shares: Class I, Class II and Class III. The principal economic difference among the classes of shares is the level of shareholder service fee borne by the classes. Eligibility for and automatic conversion between the various classes of shares is generally based on the total amount of assets invested with GMO, as more fully outlined in the Trust's prospectus. At August 31, 1997, Class I and Class III were the only active classes of shares of the Fund. The following is a summary of significant accounting policies which are in conformity with generally accepted accounting principles and which are consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Portfolio valuation Shares of underlying funds are valued at their net asset value as reported on each business day. Short-term investments with a remaining maturity of sixty days or less are valued at amortized cost, which approximates market value. Other assets and securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees. 7 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Repurchase agreements The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Fund, through its custodian, takes possession of securities collateralizing the repurchase agreement. The collateral is marked to market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund in the event of default by the seller. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines or if the seller enters insolvency proceedings, realization of collateral by the Fund may be delayed or limited. Taxes The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. The Fund intends to distribute substantially all of its taxable net investment income and net realized short-term and long-term capital gains, if any, after giving effect to any available capital loss carryovers for federal income tax purposes. Therefore, no provision for federal income or excise tax is necessary. Distributions to shareholders The Fund's policy is to declare and pay distributions from net investment income semi-annually, and from net realized short-term and long-term capital gains at least annually. All distributions will be paid in shares of the Fund, at net asset value, unless the shareholder elects to receive cash distributions. The Fund declares separate dividends from net investment income on each class of shares. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Differences in the recognition or classification of income for financial statement and tax purposes which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains. Security transactions and related investment income Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Allocation of operating activity The majority of expenses of the Trust are directly identifiable to an individual fund. Expenses which are not readily identifiable to a specific fund are allocated in such manner as deemed equitable by the Trustees, taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Investment income, common expenses and realized and unrealized gains and losses 8 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- are allocated pro-rata among the classes based on the relative net assets of each class. Shareholder service fees, which are directly attributable to a class of shares, are charged to that class' operations. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in the underlying funds. Because the underlying funds have varied expense and fee levels and the Fund may own different proportions of underlying funds at different times, the amount of fees and expenses indirectly incurred by the Fund will vary. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .66% of the amount invested. In the case of cash redemptions, the fee is .15% of the amount redeemed. Prior to June 30, 1997, the premium on cash purchases was .69% and the fee on cash redemptions was .09%. All purchase premiums and redemption fees are paid to and recorded as paid-in capital by the Fund. For the six months ended August 31, 1997, the Fund received $11,234 in purchase premiums and $5,485 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 2. Fees and other transactions with affiliates The Manager determines the allocation of the assets of the Fund among designated underlying funds. The Manager does not charge an advisory fee for asset allocation advice provided to the Fund, but receives advisory fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Services Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. Pursuant to the Shareholder Services Plan, the shareholder service fee is calculated based on the average daily net assets of each class at the annual rate of .13% for Class I shares and .07% for Class II shares. No shareholder service fee is charged for Class III shares. GMO has agreed to reimburse all expenses until further notice (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses). Prior to November 25, 1996, GMO had agreed to reimburse these expenses to the extent that the Fund's annual expenses exceeded .05% of average daily net assets. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1997 was $182. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 3. Purchases and sales of securities Cost of purchases and proceeds from sales of securities, excluding short- term investments, for the six months ended August 31, 1997, aggregated $10,529,894 and $8,614,924, respectively. 9 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- At August 31, 1997, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held was as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ------------------ ----------------- ------------------ ---------------- $ 46,716,605 $ 2,436,960 $ 22,533 $ 2,414,427
4. Principal shareholders At August 31, 1997, 79% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 5. Share transactions The Declaration of Trust permits the Trustees to issue an unlimited number of shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
Six Months Ended Class I: August 31, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold -- $ -- Shares issued to shareholders in reinvestment of distributions 5,320 61,705 Shares repurchased -- -- --------------- --------------- Net increase 5,320 $ 61,705 =============== =============== Period from June 28, 1996 (commencement of operations) to February 28, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold 870,993 $ 8,785,236 Shares issued to shareholders in reinvestment of distributions 25,095 253,459 Shares repurchased -- -- --------------- --------------- Net increase 896,088 $ 9,038,695 =============== ===============
10 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements (Unaudited) -- (Continued) August 31, 1997 - -------------------------------------------------------------------------------- Share transactions - continued
Period from June 28, 1996 (commencement of operations) Class II: to February 28, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold 412,344 $ 4 ,123,441 Shares issued to shareholders in reinvestment of distributions -- -- Shares repurchased (412,344) (4,147,929) =============== =============== Net decrease -- $ (24,488) =============== =============== Six Months Ended Class III: August 31, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold 534,391 $ 5,429,961 Shares issued to shareholders in reinvestment of distributions 30,514 354,272 Shares repurchased (588,862) (6,089,242) =============== =============== Net increase/(decrease) (23,957) $ (305,009) =============== =============== Period from October 22, 1996 (commencement of operations) to February 28, 1997 --------------------------------- Shares Amount --------------- --------------- Shares sold 3,482,496 $ 35,298,804 Shares issued to shareholders in reinvestment of distributions 11,501 116,216 Shares repurchased -- -- =============== =============== Net increase/(decrease) 3,494,003 $ 35,415,020 =============== ===============
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