-----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, JrO2ywUKeWVkP4YD8vOQoaOh8/Vu5A7J0nVXNxt8k1x2KMRVFnDPe1WeoQI50TXH lIBvSQJ5FiYfgznNmFfsnA== 0000950109-99-003896.txt : 19991110 0000950109-99-003896.hdr.sgml : 19991110 ACCESSION NUMBER: 0000950109-99-003896 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991109 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: 99743874 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 ANNUAL REPORTS GMO U.S. Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Common Stocks -- 91.1% Aerospace -- 1.3% 503,800 Allied Signal Inc 30,857,754 35,700 General Dynamics Corp 2,249,103 85,800 Lockheed Martin Corp 3,174,603 112,900 Northrop Grumman Corp 8,185,254 --------------- 44,466,714 --------------- Automotive -- 3.6% 33,100 Eaton Corp 3,243,803 736,100 Ford Motor Co 38,369,217 785,500 General Motors Corp 51,941,192 180,100 General Motors Corp, Class H* 9,275,154 130,100 Genuine Parts Co 3,756,641 253,700 Goodyear Tire & Rubber Co 14,238,917 --------------- 120,824,924 --------------- Banking and Financial Services -- 8.2% 140,300 American General Corp 9,961,304 70,000 Amsouth Bancorp 1,531,253 649,609 Bank of America Corp 39,301,349 68,400 BB&T Corp 2,291,403 326,633 Bear Stearns Cos Inc 13,596,103 876,400 Charles Schwab & Co Inc 34,617,804 94,300 Chase Manhattan Corp 7,891,735 543,860 Citigroup Inc 24,167,783 162,200 Comdisco Inc 3,416,341 153,900 Countrywide Credit Industries Inc 4,944,041 37,100 Dime Bancorp Inc 681,716 182,600 Fannie Mae 11,344,029 102,700 First Union Corp 4,262,053 695,600 Firstar Corp 18,650,779 9,300 Fleet Financial Group Inc 370,259 220,300 Franklin Resources Inc 7,917,035 344,000 Freddie Mac 17,716,004 7,100 Golden West Financial Corp 644,772 57,100 Greenpoint Financial Corp 1,477,466 26,900 Huntington Bancshares Inc 805,322 55,900 J.P. Morgan & Co Inc 7,221,584 258,300 Lehman Brothers Holding Inc 13,883,629 2,600 M & T Bank Corp 1,206,403 454,700 MBNA Corp 11,225,410
See accompanying notes to the financial statements. 1 GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------ Banking and Financial Services-- continued 39,900 Merrill Lynch 2,977,541 148,900 MGIC Investment Corp 6,467,847 66,112 Morgan Stanley Dean Witter & Co 5,673,239 89,200 National City Corp 2,464,153 55,100 Old Kent Financial Corp 2,176,453 73,400 Paine Webber Group Inc 2,880,953 26,500 Republic New York Corp 1,838,441 89,400 Rowe (T) Price & Associates Inc 2,765,816 37,600 Suntrust Banks Inc 2,418,153 28,900 U.S. Bancorp 892,291 71,500 Unionbancal Corp 2,743,816 46,800 Wells Fargo & Co 1,863,228 50,300 Zions Bancorporation 2,502,428 --------------- 276,789,936 --------------- Chemicals-- 1.3% 55,100 Air Products and Chemicals 1,873,403 126,500 Eastman Chemical Co 5,874,347 120,000 PPG Industries Inc 7,207,503 273,200 Praxair Inc 12,840,404 219,041 Rohm & Haas Co 8,186,661 162,700 Union Carbide Corp 9,253,567 --------------- 45,235,885 --------------- Computer and Office Equipment-- 3.0% 972,800 EMC Corp* 58,368,004 62,000 Gateway Inc* 6,010,128 82,100 Hewlett Packard Co 8,651,292 220,800 IBM Corp 27,503,404 --------------- 100,532,828 --------------- Construction-- 1.7% 303,200 Georgia-Pacific Corp 12,544,904 732,000 Home Depot Inc 44,743,504 --------------- 57,288,408 --------------- Consumer Goods-- 1.6% 122,000 Eastman Kodak Co 8,959,379 296,600 Fortune Brands Inc 11,122,504 173,600 Hasbro Inc 4,242,353 20,900 Johnson Controls 1,429,041 63,400 Jones Apparel Group Inc* 1,644,441
2 See accompanying notes to the financial statements. GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Consumer Goods-- continued 401,900 Mattel Co 8,565,498 39,800 Maytag Corp 2,492,478 112,500 Nike Inc, Class B 5,203,128 98,500 VF Corp 3,546,003 110,200 Whirlpool Corp 7,789,766 --------------- 54,994,591 --------------- Electronic Equipment-- 2.4% 199,700 Cooper Industries Inc 10,359,442 31,100 Emerson Electric Co 1,947,641 259,000 General Instrument Corp* 12,739,567 88,100 Harris Corp 2,312,628 68,700 Litton Industries* 4,396,803 45,200 Motorola Inc 4,169,703 252,900 Raytheon Co, Class B 17,228,817 215,600 Texas Instruments Inc 17,692,679 138,100 Xilinx Inc* 9,658,373 --------------- 80,505,653 --------------- Food and Beverage-- 2.7% 293,100 Anheuser Busch Cos Inc 22,568,704 486,764 Archer Daniels Midland Co 6,327,938 10,400 Brown Forman Corp Class B 611,003 113,100 Coca Cola Enterprises Inc 3,216,284 180,200 ConAgra Inc 4,414,903 36,400 Heinz (HJ) Co 1,699,428 286,000 McDonald's Corp 11,833,254 596,100 Nabisco Group Holdings 10,580,779 383,500 Seagrams Co Ltd 20,349,473 68,500 Sysco Corp 2,234,816 122,500 Unilever NV 8,437,192 --------------- 92,273,774 --------------- Health Care-- 3.7% 62,700 Becton Dickinson & Co 1,763,441 731,700 Columbia HCA Healthcare Corp 18,018,117 518,300 Healthsouth Corp* 4,243,584 591,600 Johnson & Johnson 60,491,104 154,700 Pharmacia & Upjohn Inc 8,083,079 557,900 Tenet Healthcare Corp* 9,728,385 245,500 United Healthcare Corp 14,929,473
See accompanying notes to the financial statements. 3 GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Health Care-- continued 108,400 Wellpoint Health Network* 7,899,654 --------------- 125,156,837 --------------- Insurance-- 5.4% 94,231 Aegon N.V. ADR 8,180,433 239,100 Aetna Life and Casualty Co 18,590,029 474,000 Allstate Corp 15,553,129 120,500 AMBAC Inc 6,363,909 190,700 Chubb Corp 10,905,660 261,100 Cigna Corp 23,450,048 119,800 Cincinnati Financial Corp 4,747,078 66,400 CNA Financial Corp* 2,415,303 473,636 Conseco Inc 11,367,268 136,300 Equitable Companies Inc 8,416,529 147,000 Hartford Financial Services Group Inc 6,679,316 56,000 Jefferson Pilot Corp 3,738,003 190,500 Lincoln National Corp 8,929,692 192,300 Loews Corp 15,095,554 139,000 MBIA Inc 7,210,628 108,700 Old Republic International Corp 1,684,853 100,000 ReliaStar Financial Corp 4,506,253 132,800 Safeco Corp 4,731,003 263,500 Saint Paul Cos Inc 8,448,473 132,100 Torchmark Corp 3,764,853 199,300 Travelers Property Casualty Corp, Class A 7,075,153 --------------- 181,853,167 --------------- Machinery-- 1.3% 49,000 American Standard Co* 2,009,003 337,400 Applied Materials Inc* 23,976,492 397,200 Baker Hughes Inc 13,504,804 88,800 Deere and Co 3,452,103 --------------- 42,942,402 --------------- Manufacturing-- 2.0% 96,800 Corning Inc 6,437,203 126,100 Leggett & Platt Inc 2,789,966 185,800 Minnesota Mining and Manufacturing Co 17,558,104 288,700 Owens Illinois Inc* 7,145,328 283,600 Rockwell International Corp 16,767,854 77,900 Temple Inland Inc 4,829,803
4 See accompanying notes to the financial statements. GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Manufacturing -- continued 120,300 Tenneco Inc 2,421,041 166,100 United Technologies Corp 10,983,367 --------------- 68,932,666 --------------- Metals and Mining -- 0.9% 263,000 Alcan Aluminum Ltd 8,646,129 156,700 Allegheny Teledyne Inc 2,928,334 182,800 Phelps Dodge Corp 10,225,379 135,900 Reynolds Metals Co 8,604,173 --------------- 30,404,015 --------------- Oil and Gas -- 6.2% 138,800 Amerada Hess Corp 8,614,279 159,000 Apache Corp 7,234,503 240,000 Atlantic Richfield Co 21,105,004 251,400 Burlington Resources Inc 10,511,667 73,300 Chevron Corp 6,761,928 91,250 Columbia Energy Group 5,389,456 131,600 Consolidated Natural Gas Co 8,381,279 370,400 Diamond Offshore Drilling Inc 14,167,804 320,500 Enron Oil & Gas 7,651,941 254,800 Exxon Corp 20,097,354 133,300 Mobil Corp 13,646,592 325,400 Occidental Petroleum Corp 7,057,116 242,700 Phillips Petroleum Co 12,377,704 150,400 Sonat Inc 5,433,203 295,700 Texaco Inc 18,776,954 733,700 Union Pacific Resources Group 13,160,748 343,500 Unocal Corp 14,384,067 347,600 USX - Marathon Group 10,819,054 38,000 Vastar Resources Inc 2,531,753 --------------- 208,102,406 --------------- Paper and Allied Products -- 1.1% 148,000 Champion International Corp 8,140,004 288,411 International Paper Co 13,573,347 189,200 Mead Corp 7,059,528 51,400 Weyerhaeuser Co 2,891,253 106,300 Willamette Industries Inc 4,212,141 --------------- 35,876,273 ---------------
See accompanying notes to the financial statements. 5 GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Pharmaceuticals -- 5.5% 1,137,500 Abbott Laboratories 49,339,067 161,900 Allergan Inc 16,169,767 292,600 American Home Products Corp 12,142,904 857,000 Amgen Inc* 71,291,692 164,900 Merck & Co Inc 11,079,223 208,800 Pfizer Inc 7,882,204 254,500 Schering Plough Corp 13,377,160 119,300 Sigma Aldrich Corp 3,847,428 --------------- 185,129,445 --------------- Primary Materials -- 0.3% 288,300 Crown Cork & Seal Inc 7,657,972 37,900 Vulcan Materials Co 1,615,491 --------------- 9,273,463 --------------- Primary Processing -- 0.4% 78,200 Alcoa Inc 5,048,791 41,400 Dow Chemical Co 4,704,078 112,700 Nucor Corp 5,247,597 --------------- 15,000,466 --------------- Printing and Publishing -- 0.1% 4,500 Washington Post Co, Class B 2,425,503 --------------- Refining -- 0.6% 116,800 Ashland Inc 4,504,103 130,800 Royal Dutch Petroleum Co 8,093,254 289,100 Tosco Corp 7,372,053 --------------- 19,969,410 --------------- Retail Trade -- 4.5% 224,152 Albertsons Inc 10,745,291 221,400 Autozone Inc* 5,272,091 120,700 Best Buy Co Inc* 8,479,179 189,000 Dillard's Inc 4,441,503 137,100 Federated Department Stores Inc* 6,306,603 149,300 Food Products Lion Inc 1,203,734 581,587 Gap Inc 22,754,595 877,100 Kmart Corp* 11,018,573 172,800 Penney (JC) Co Inc 6,264,003 39,100 Safeway Inc* 1,820,597 190,500 TJX Cos Inc 5,500,691
6 See accompanying notes to the financial statements. GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Retail Trade -- continued 667,800 Toys R Us Inc* 9,223,992 1,081,000 Wal Mart Stores Inc 47,901,817 508,100 Walgreen Co 11,781,573 --------------- 152,714,242 --------------- Services -- 1.3% 89,100 Cendant Corp* 1,598,234 234,500 Fluor Corp 9,702,442 78,800 Hertz Corp 3,176,628 150,100 Marriott International Inc, Class A 5,140,928 410,400 Time Warner Inc 24,341,854 --------------- 43,960,086 --------------- Technology -- 13.6% 369,900 BMC Software Inc* 19,905,248 1,668,900 Cisco Systems Inc* 113,172,285 107,400 First Data Corp 4,725,603 67,100 Grainger (WW) Inc 2,923,047 916,600 Intel Corp 75,333,067 1,186,000 Microsoft Corp* 109,779,129 1,029,600 Novell Inc* 24,388,654 724,300 Oracle Corp* 26,436,954 610,500 Seagate Technology Corp* 20,260,973 362,700 Solectron Corp* 28,381,279 326,300 Sun Microsystems Inc 25,940,854 128,500 Teradyne Inc* 8,746,035 --------------- 459,993,128 --------------- Telecommunications -- 10.1% 93,900 Alltel Corp 6,349,991 242,500 Ameritech Corp 15,307,817 1,941,582 AT & T Corp 87,371,194 542,414 Bell Atlantic Corp 33,222,862 574,300 Bellsouth Corp 25,987,079 160,700 Centurytel Inc 6,317,522 125,700 Cincinnati Bell Inc 2,325,453 655,400 GTE Corp 44,976,829 446,685 MCI Worldcom Inc* 33,836,393 62,600 MediaOne Group Inc* 4,115,953 488,640 SBC Communications 23,454,724
See accompanying notes to the financial statements. 7 GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- Telecommunications -- continued 318,800 Sprint Corp 14,146,754 56,200 United States Cellular Corp* 3,161,253 362,800 US West Inc 18,956,304 535,000 Viacom Inc, Class B* 22,503,442 --------------- 342,033,570 --------------- Tobacco -- 1.5% 1,378,300 Philip Morris Cos Inc 51,600,110 --------------- Transportation -- 2.1% 130,800 AMR Corp* 7,668,153 649,400 Burlington Northern Santa Fe Railroad Co 18,832,604 199,300 CSX Corp 8,706,923 98,100 Delta Air Lines Inc 4,984,709 296,300 Norfolk Southern Corp 7,759,359 143,300 UAL Corp* 9,287,635 207,500 Union Pacific Corp 10,102,660 98,200 Viad Corp 2,939,866 --------------- 70,281,909 --------------- Utilities -- 4.7% 35,300 Allegheny Energy Inc 1,191,378 97,900 Ameren Corp 3,922,122 108,700 American Electric Power Inc 3,947,172 397,000 Central & South West Corp 8,982,129 46,600 Cinergy Corp 1,415,478 240,700 Coastal Corp 10,425,323 20,600 Consolidated Edison Inc 906,403 180,100 Constellation Energy Group Inc 5,335,466 124,800 Dominion Resources Inc 5,772,003 333,500 DTE Energy Co 13,152,410 45,200 Edison International 1,146,953 179,900 El Paso Energy Corp 6,577,597 713,000 Entergy Corp 21,256,317 132,500 Firstenergy Corp 3,784,534 286,300 General Public Utilities Inc 9,769,992 99,400 Keyspan Corp 2,932,303 125,600 New Century Energies Inc 4,537,303 115,500 Niagara Mohawk Holdings Inc* 1,746,941 92,000 PacifiCorp 1,880,253 136,200 Peco Energy Co 5,533,128
8 See accompanying notes to the financial statements. GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------------------------- Utilities -- continued 144,300 PG & E Corp 4,374,097 20,800 Pinnacle West Capital Corp 790,403 208,400 PP & L Resources Inc 5,835,203 330,000 Public Service Enterprise Group Inc 13,530,004 43,900 Reliant Energy Inc 1,215,484 363,400 Texas Utilities Co 14,694,992 154,200 Unicom Corp 5,955,978 --------------- 160,611,366 --------------- TOTAL COMMON STOCKS (COST $2,617,827,799) 3,079,173,177 --------------- SHORT-TERM INVESTMENTS -- 14.6% Cash Equivalents -- 4.0% $22,621,862 BankBoston Eurodollar Time Deposit, 5.4325%, due 22,621,862 10/29/99(a) 24,797,463 Merrimac Cash Fund Premium Class(a) 24,797,463 $88,500,000 Prudential Securities Group Inc, Master Note, 5.625%, due 3/10/2000(a) 88,500,000 --------------- 135,919,325 --------------- U.S. Government -- 0.6% $19,500,000 U.S. Treasury Bill, 4.70%, due 10/21/99(b) 19,292,748 --------------- Repurchase Agreements -- 10.0% $169,247,316 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $169,269,318 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $172,632,262. 169,247,316 $169,247,316 Morgan Stanley Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $169,269,224, and an effective yield of 4.66%, collateralized by a U.S. Treasury Obligation with a rate of 5.17%, maturity date of 9/15/99, and market value, including accrued interest, of $172,636,644. 169,247,316 --------------- 338,494,632 --------------- TOTAL SHORT-TERM INVESTMENTS (Cost $493,790,461) 493,706,705 ---------------
See accompanying notes to the financial statements. 9 GMO U.S. Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Value ($) --------------- TOTAL INVESTMENTS -- 105.7% (COST $3,111,618,260) 3,572,879,882 Other Assets and Liabilities (net) -- (5.7)% (193,327,228) --------------- TOTAL NET ASSETS -- 100% $3,379,552,654 ===============
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 U.S. Core Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $3,111,618,260) (Note 1) $ 3,572,879,882 Cash 7,521,473 Receivable for investments sold 6,394,613 Dividends and interest receivable 4,655,189 Receivable for expenses waived or borne by Manager (Note 2) 63,506 --------------- Total assets 3,591,514,663 --------------- Liabilities: Payable for investments purchased 74,131,181 Payable upon return of securities loaned (Note 1) 135,919,325 Payable for Fund shares repurchased 108,717 Payable to affiliate for (Note 2): Management fee 957,251 Shareholder service fee 361,671 Payable for open swap contracts (Notes 1 and 6) 129,975 Payable for variation margin on open futures contracts (Notes 1 and 6) 199,756 Accrued expenses 154,133 --------------- Total liabilities 211,962,009 --------------- Net assets $ 3,379,552,654 =============== Net assets consist of: Paid-in capital $ 2,530,655,869 Accumulated undistributed net investment income 6,945,132 Accumulated undistributed net realized gain 384,953,785 Net unrealized appreciation 456,997,868 --------------- $ 3,379,552,654 =============== Net assets attributable to: Class II shares $ 99,313,067 =============== Class III shares $ 1,619,876,964 =============== Class IV shares $ 1,660,362,623 =============== Shares outstanding: Class II 5,330,778 =============== Class III 86,866,822 =============== Class IV 89,077,834 =============== Net asset value per share: Class II $ 18.63 =============== Class III $ 18.65 =============== Class IV $ 18.64 ===============
See accompanying notes to the financial statements. 11 GMO U.S. Core Fund (A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $82,920) $ 23,625,342 Interest (including securities lending income of $142,712) 6,432,557 ------------- Total income 30,057,899 ------------- Expenses: Management fee (Note 2) 5,817,015 Custodian and transfer agent fees 255,420 Legal fees 54,575 Audit fees 24,381 Trustees fees (Note 2) 19,324 Registration fees 910 Miscellaneous 8,103 Fees waived or borne by Manager (Note 2) (362,713) ------------- 5,817,015 Shareholder service fee (Note 2) Class II 75,086 Class III 1,325,780 Class IV 886,932 ------------- Net expenses 8,104,813 ------------- Net investment income 21,953,086 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 396,266,632 Closed futures contracts 2,524,887 Closed swap contracts (15,304,615) ------------- Net realized gain 383,486,904 ------------- Change in net unrealized appreciation (depreciation) on: Investments (155,787,589) Open futures contracts (2,776,898) Open swap contracts 4,228,840 ------------- Net unrealized loss (154,335,647) ------------- Net realized and unrealized gain 229,151,257 ------------- Net increase in net assets resulting from operations $ 251,104,343 =============
12 See accompanying notes to the financial statements. GMO U.S. Core Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ----------------------------------------------------------------------------------------------- Six Months Ended August Year Ended 31, 1999 February 28, (Unaudited) 1999 ----------------- --------------- Increase (decrease) in net assets: Operations: Net investment income $ 21,953,086 $ 49,037,379 Net realized gain 383,486,904 624,236,822 Change in net unrealized appreciation (depreciation) (154,335,647) (170,678,257) ------------- -------------- Net increase in net assets resulting from operations 251,104,343 502,595,944 ------------- -------------- Distributions to shareholders from: Net investment income Class II (398,725) (438,239) Class III (10,882,777) (32,457,119) Class IV (10,675,372) (20,082,410) ------------- -------------- Total distributions from net investment income (21,956,874) (52,977,768) ------------- -------------- Net realized gains Class II (4,464,320) (7,077,306) Class III (106,222,191) (420,933,348) Class IV (105,545,990) (249,579,720) ------------- -------------- Total distributions from net realized gains (216,232,501) (677,590,374) ------------- -------------- (238,189,375) (730,568,142) ------------- -------------- Net share transactions: (Note 5) Class II 59,626,795 27,619,700 Class III (175,106,351) (396,156,147) Class IV 116,767,543 257,262,203 ------------- -------------- Increase (decrease) in net assets resulting from net share transactions 1,287,987 (111,274,244) ------------- -------------- Total increase (decrease) in net assets 14,202,955 (339,246,442) Net assets: Beginning of period 3,365,349,699 3,704,596,141 ------------- -------------- End of period (including accumulated undistributed net investment income of $6,945,132 and $6,948,920, respectively) $3,379,552,654 $3,365,349,699 ============== ==============
See accompanying notes to the financial statements. 13 GMO U.S. Core Fund (A Series of GMO Trust)
Financial Highlights (For a Class II share outstanding throughout each period) - ------------------------------------------------------------------------------------------------- Year Ended February 28, Six Months Ended -------------------------------------------- August 31, 1999 (Unaudited) 1999 1998 (1) 1998 (2) 1997 (3) ---------------- -------- -------- --------- -------- Net asset value, beginning of period $ 18.57 $ 19.98 $ 17.65 $ 20.10 $ 20.12 -------- -------- -------- ------- ------- Income from investment operations: Net investment income 0.11+ 0.25+ 0.04+ 0.24+ 0.25 Net realized and unrealized gain 1.33 2.55 2.29 3.99 2.92 -------- -------- -------- ------- ------- Total from investment 1.44 2.80 2.33 4.23 3.17 operations -------- -------- -------- ------- ------- Less distributions to shareholders: From net investment income (0.12) (0.29) 0.00 (0.22) (0.30) From net realized gains (1.26) (3.92) 0.00 (3.90) (2.89) -------- -------- -------- ------- ------- Total distributions (1.38) (4.21) 0.00 (4.12) (3.19) -------- -------- -------- ------- ------- Net asset value, end of period $ 18.63 $ 18.57 $ 19.98 $ 20.21 $ 20.10 ======== ======== ======== ======= ======= Total Return (a) 7.40% 14.99% 13.20% 23.00% 17.46% Ratios/Supplemental Data: Net assets, end of period (000's) $99,313 $ 41,684 $ 16,958 $ 2,037 $ 64,763 Net expenses to average daily net 0.55%* 0.55% 0.55%* 0.55%* 0.55%* assets Net investment income to average daily net assets 1.17%* 1.29% 1.53%* 1.66%* 1.63%* Portfolio turnover rate 41% 71% 60% 60% 107% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.04 $ 0.01 $ 0.03 $ 0.03
(1) Period from January 9, 1998 to February 28, 1998. (2) Period from March 1, 1997 to November 17, 1997. (3) Period from June 7, 1996 (commencement of operations) to February 28 1997. (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. + Computed using average shares outstanding throughout the period. * Annualized. 14 See accompanying notes to the financial statements. GMO U.S. 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, 1999 ---------------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ------------ ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 18.59 $ 19.99 $ 20.12 $ 19.46 $ 15.45 $ 15.78 ----------- ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income 0.12+ 0.26+ 0.35 0.36 0.41 0.41 Net realized and unrealized gain 1.32 2.55 5.89 3.58 5.49 0.66 ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations 1.44 2.81 6.24 3.94 5.90 1.07 ----------- ----------- ----------- ----------- ----------- ----------- Less distributions to shareholders: From net investment income (0.12) (0.29) (0.32) (0.39) (0.42) (0.39) From net realized gains (1.26) (3.92) (6.05) (2.89) (1.47) (1.01) ----------- ----------- ----------- ----------- ----------- ----------- Total distributions (1.38) (4.21) (6.37) (3.28) (1.89) (1.40) ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 18.65 $ 18.59 $ 19.99 $ 20.12 $ 19.46 $ 15.45 =========== =========== =========== =========== =========== =========== Total Return (a) 7.46% 15.02% 36.69% 22.05% 39.08% 7.45% Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,619,877 $ 1,780,011 $ 2,317,103 $ 3,051,344 $ 3,179,314 $ 2,309,248 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48% Net investment income to average daily net assets 1.22%* 1.36% 1.67% 1.78% 2.25% 2.63% Portfolio turnover rate 41% 71% 60% 107% 77% 99% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.04 $ 0.05 $ 0.04 $ 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) 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. 15 GMO U.S. Core Fund (A Series of GMO Trust) Financial Highlights (For a Class IV share outstanding throughout the period) - --------------------------------------------------------------------------------
Six Months Ended August Year Ended February 28, 31, 1999 -------------------------- (Unaudited) 1999 1998* -------------- ---------- ---------- Net asset value, beginning of period $ 18.58 $ 19.99 $ 17.65 ---------- ---------- ---------- Income from investment operations: Net investment income 0.13+ 0.27+ 0.04+ Net realized and unrealized gain 1.32 2.55 2.30 ---------- ---------- ---------- Total from investment operations 1.45 2.82 2.34 ---------- ---------- ---------- Less distributions to shareholders: From net investment income (0.13) (0.31) 0.00 From net realized gains (1.26) (3.92) 0.00 ---------- ---------- ---------- Total distributions (1.39) (4.23) 0.00 ---------- ---------- ---------- Net asset value, end of period $ 18.64 $ 18.58 $ 19.99 ========== ========== ========== Total Return (a) 7.50% 15.07% 13.26% Ratios/Supplemental Data: Net assets, end of period (000's) $1,660,363 $1,543,655 $1,370,535 Net expenses to average daily net 0.435%** 0.435% 0.435%** assets Net investment income to average daily net assets 1.27%** 1.41% 1.67%** Portfolio turnover rate 41% 71% 60% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: --(b) $ 0.04 $ 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) Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Period from January 9, 1998 (commencement of operations) to February 28, 1998. ** Annualized. + Computed using average shares outstanding throughout the period. 16 See accompanying notes to the financial statements. GMO U.S. Core Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO U.S. Core Fund (the "Fund"), formerly named the GMO Core 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 high total return through investment in U.S. equity securities. The Fund's current benchmark is the S&P 500 index. 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 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 17 GMO U.S. Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $131,161,948, collateralized by cash in the amount of $135,919,325, 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. The Fund also enters into contracts for differences in which the Fund agrees with the counterparty that its return will be based on the relative performance of two different groups or "baskets" of securities, adjusted by an interest rate payment. 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 will be no liquid 18 GMO U.S. Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 all open swap agreements as of August 31, 1999. 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 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 are 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 dividends 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 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 of shares of the Fund 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. All purchase premiums are paid to and recorded by the Fund as paid-in capital. This fee is allocated relative to each class' net 19 GMO U.S. Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- assets on the share transaction date. Purchase premiums are included as part of each class' "shares sold", as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $282,603 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 .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 .22% for Class II shares, .15% for Class III shares, and .105% for Class IV shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .525% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $19,324. 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, 1999, aggregated $1,292,691,981 and $1,563,878,955, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and deprecation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation --------------------- --------------------- --------------------- --------------------- $ 3,111,618,260 $ 585,538,492 $ 124,276,870 $ 461,261,622
20 GMO U.S. Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholder At August 31, 1999, 13.5% 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, including a class' portion of the purchase premiums received by the Fund, were as follows:
Six Months Ended Year Ended Class II: August 31, 1999 February 28, 1999 ------------------------------- ------------------------------- Shares Amount Shares Amount ------------- ------------- ------------- ------------- Shares sold 3,192,034 $ 61,586,173 1,137,984 $ 23,036,514 Shares issued to shareholders in reinvestment of distributions 240,154 4,670,483 394,655 7,372,964 Shares repurchased (345,501) (6,629,861) (137,205) (2,789,778) ------------- ------------- ------------- ------------- Net increase 3,086,687 $ 59,626,795 1,395,434 $ 27,619,700 ============= ============= ============= ============= Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 ------------------------------- ------------------------------- Shares Amount Shares Amount ------------- ------------- ------------- ------------- Shares sold 6,524,797 $ 127,730,285 7,724,323 $ 155,828,896 Shares issued to shareholders in reinvestment of distributions 5,802,133 112,943,787 23,463,193 440,891,297 Shares repurchased (21,225,619) (415,780,423) (51,356,934) (992,876,340) ------------- ------------- ------------- ------------- Net decrease (8,898,689) $ (175,106,351) (20,169,418) $ (396,156,417) ============= ============= ============= ============= Six Months Ended Year Ended Class IV: August 31, 1999 February 28, 1999 ------------------------------- ------------------------------- Shares Amount Shares Amount ------------- ------------- ------------- ------------- Shares sold 3,568,626 $ 71,683,830 22,393,827 $ 428,114,213 Shares issued to shareholders in reinvestment of distributions 5,936,902 115,504,308 14,303,391 268,384,348 Shares repurchased (3,510,555) (70,420,595) (22,187,638) (439,236,358) ------------- ------------- ------------- ------------- Net increase 5,994,973 $ 116,767,543 14,509,580 $ 257,262,203 ============= ============= ============= =============
21 GMO U.S. Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation --------------- --------------- ------------------------ --------------------- ------------------- 397 S&P 500 September 1999 $ 130,990,150 $ (1,842,376) 285 Russell 2000 September 1999 61,047,000 (2,291,403) ------------------- $ (4,133,779) ===================
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. Swap agreement
Notional Amount Expiration Net Unrealized Fund/Counterparty Date Description Depreciation --------------------- ------------- ----------------------------------------- ------------------ $ 38,514,144/ 2/18/00 Agreement with Morgan Stanley Capital $ (129,975) 39,637,675 Services, Inc. dated 2/18/99 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 3 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 counterparty's notional amount multiplied by 3 month LIBOR adjusted by a specified spread. ----------------- $ (129,975) =================
22 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Common Stocks -- 91.4% Aerospace -- 1.4% 33,800 Allied Signal Inc 2,070,249 2,500 General Dynamics Corp 157,500 5,900 Lockheed Martin Corp 218,300 7,800 Northrop Grumman Corp 565,500 ------------- 3,011,549 ------------- Automotive -- 3.8% 2,300 Eaton Corp 225,400 50,700 Ford Motor Co 2,642,737 54,100 General Motors Corp 3,577,362 12,400 General Motors Corp, Class H* 638,600 9,000 Genuine Parts Co 259,875 17,500 Goodyear Tire & Rubber Co 982,188 ------------- 8,326,162 ------------- Banking and Financial Services -- 8.1% 9,700 American General Corp 688,700 4,500 Amsouth Bancorp 98,438 44,764 Bank of America Corp 2,708,221 4,700 BB&T Corp 157,450 22,501 Bear Stearns Cos Inc 936,604 58,700 Charles Schwab & Co Inc 2,318,649 6,500 Chase Manhattan Corp 543,969 22,022 Citigroup Inc 978,603 4,400 Comdisco Inc 92,675 10,300 Countrywide Credit Industries Inc 330,888 2,300 Dime Bancorp Inc 42,263 12,200 Fannie Mae 757,925 8,000 First Union Corp 332,000 47,900 Firstar Corp 1,284,319 14,800 Franklin Resources Inc 531,875 23,500 Freddie Mac 1,210,250 500 Golden West Financial Corp 45,406 3,900 Greenpoint Financial Corp 100,913 1,900 Huntington Bancshares Inc 56,881 3,800 J.P. Morgan & Co Inc 490,913 17,300 Lehman Brothers Holding Inc 929,875 100 M & T Bank Corp 46,400 30,500 MBNA Corp 752,969 2,700 Merrill Lynch 201,488 See accompanying notes to the financial statements. 1 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 10,300 MGIC Investment Corp 447,406 4,445 Morgan Stanley Dean Witter & Co 381,437 6,200 National City Corp 171,275 3,700 Old Kent Financial Corp 146,150 4,900 Paine Webber Group Inc 192,325 1,800 Republic New York Corp 124,875 6,200 Rowe (T) Price & Associates Inc 191,813 2,600 Suntrust Banks Inc 167,213 2,000 U.S. Bancorp 61,750 4,900 Unionbancal Corp 188,038 2,900 Wells Fargo & Co 115,456 3,400 Zions Bancorporation 169,150 ------------- 17,994,562 ------------- Chemicals -- 1.4% 3,700 Air Products and Chemicals 125,800 8,700 Eastman Chemical Co 404,006 8,300 PPG Industries Inc 498,519 18,300 Praxair Inc 860,100 14,658 Rohm & Haas Co 547,843 11,200 Union Carbide Corp 637,000 ------------- 3,073,268 ------------- Computer and Office Equipment -- 3.1% 67,000 EMC Corp* 4,019,999 4,400 Gateway Inc* 426,525 5,500 Hewlett Packard Co 579,563 15,200 IBM Corp 1,893,349 ------------- 6,919,436 ------------- Construction -- 1.8% 20,900 Georgia-Pacific Corp 864,738 50,400 Home Depot Inc 3,080,699 ------------- 3,945,437 ------------- Consumer Goods -- 1.6% 8,400 Eastman Kodak Co 616,875 20,300 Fortune Brands Inc 761,250 11,700 Hasbro Inc 285,919 1,300 Johnson Controls 88,888 4,200 Jones Apparel Group Inc* 108,938 27,700 Mattel Co 590,356 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 2,700 Maytag Corp 169,088 3,700 Nike Inc, Class B 171,125 6,600 VF Corp 237,600 7,400 Whirlpool Corp 523,088 ------------- 3,553,127 ------------- Electronic Equipment -- 2.3% 13,800 Cooper Industries Inc 715,875 17,800 General Instrument Corp* 875,538 5,900 Harris Corp 154,875 4,700 Litton Industries* 300,800 3,100 Motorola Inc 285,975 17,200 Raytheon Co, Class B 1,171,750 14,800 Texas Instruments Inc 1,214,525 4,400 Xilinx Inc* 307,725 ------------- 5,027,063 ------------- Food and Beverage -- 2.5% 20,200 Anheuser Busch Cos Inc 1,555,399 33,536 Archer Daniels Midland Co 435,967 600 Brown Forman Corp Class B 35,250 7,800 Coca Cola Enterprises Inc 221,813 12,400 ConAgra Inc 303,800 2,300 Heinz (HJ) Co 107,381 19,700 McDonald's Corp 815,088 25,700 Seagrams Co Ltd 1,363,706 4,700 Sysco Corp 153,338 8,400 Unilever NV 578,550 ------------- 5,570,292 ------------- Health Care -- 3.9% 4,300 Becton Dickinson & Co 120,938 50,400 Columbia HCA Healthcare Corp 1,241,100 34,800 Healthsouth Corp* 284,925 40,700 Johnson & Johnson 4,161,574 10,700 Pharmacia & Upjohn Inc 559,075 38,400 Tenet Healthcare Corp* 669,600 16,900 United Healthcare Corp 1,027,731 7,300 Wellpoint Health Network* 531,988 ------------- 8,596,931 ------------- See accompanying notes to the financial statements. 3 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- 5.0% 5,673 Aegon N.V. ADR 492,487 16,500 Aetna Life and Casualty Co 1,282,875 21,900 Allstate Corp 718,594 8,100 AMBAC Inc 427,781 13,100 Chubb Corp 749,156 18,000 Cigna Corp 1,616,624 8,000 Cincinnati Financial Corp 317,000 4,600 CNA Financial Corp* 167,325 31,866 Conseco Inc 764,784 9,400 Equitable Companies Inc 580,450 9,900 Hartford Financial Services Group Inc 449,831 3,800 Jefferson Pilot Corp 253,650 13,100 Lincoln National Corp 614,063 9,600 MBIA Inc 498,000 7,450 Old Republic International Corp 115,475 6,900 ReliaStar Financial Corp 310,931 8,900 Safeco Corp 317,063 18,100 Saint Paul Cos Inc 580,331 9,100 Torchmark Corp 259,350 13,700 Travelers Property Casualty Corp, Class A 486,350 ------------- 11,002,120 ------------- Machinery -- 1.3% 3,400 American Standard Co* 139,400 23,200 Applied Materials Inc* 1,648,649 27,400 Baker Hughes Inc 931,600 6,000 Deere and Co 233,250 ------------- 2,952,899 ------------- Manufacturing -- 2.1% 6,700 Corning Inc 445,550 8,700 Leggett & Platt Inc 192,488 12,800 Minnesota Mining and Manufacturing Co 1,209,600 19,900 Owens Illinois Inc* 492,525 19,000 Rockwell International Corp 1,123,375 5,200 Temple Inland Inc 322,400 8,300 Tenneco Inc 167,038 11,400 United Technologies Corp 753,825 ------------- 4,706,801 ------------- 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Metals and Mining -- 1.0% 18,100 Alcan Aluminum Ltd 595,038 10,500 Allegheny Teledyne Inc 196,219 12,600 Phelps Dodge Corp 704,813 9,400 Reynolds Metals Co 595,138 ------------- 2,091,208 ------------- Oil and Gas -- 6.2% 9,500 Amerada Hess Corp 589,594 11,000 Apache Corp 500,500 16,500 Atlantic Richfield Co 1,450,969 17,300 Burlington Resources Inc 723,356 5,000 Chevron Corp 461,250 6,300 Columbia Energy Group 372,094 9,100 Consolidated Natural Gas Co 579,556 25,500 Diamond Offshore Drilling Inc 975,375 22,100 Enron Oil & Gas 527,638 11,600 Exxon Corp 914,950 8,400 Mobil Corp 859,950 22,400 Occidental Petroleum Corp 485,800 16,600 Phillips Petroleum Co 846,600 10,400 Sonat Inc 375,700 20,100 Texaco Inc 1,276,350 49,100 Union Pacific Resources Group 880,731 23,300 Unocal Corp 975,688 23,900 USX - Marathon Group 743,888 2,600 Vastar Resources Inc 173,225 ------------- 13,713,214 ------------- Paper and Allied Products -- 1.1% 10,200 Champion International Corp 561,000 19,295 International Paper Co 908,071 13,000 Mead Corp 485,063 3,500 Weyerhaeuser Co 196,875 7,300 Willamette Industries Inc 289,263 ------------- 2,440,272 ------------- Pharmaceuticals -- 5.7% 78,300 Abbott Laboratories 3,396,262 10,800 Allergan Inc 1,078,650 17,600 American Home Products Corp 730,400 59,000 Amgen Inc* 4,908,062 11,400 Merck & Co Inc 765,938 See accompanying notes to the financial statements. 5 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Pharmaceuticals -- continued 14,400 Pfizer Inc 543,600 17,000 Schering Plough Corp 893,563 8,000 Sigma Aldrich Corp 258,000 ------------- 12,574,475 ------------- Primary Materials -- 0.3% 19,900 Crown Cork & Seal Inc 528,594 2,600 Vulcan Materials Co 110,825 ------------- 639,419 ------------- Primary Processing -- 0.5% 6,800 Alcoa Inc 439,025 2,800 Dow Chemical Co 318,150 7,600 Nucor Corp 353,875 ------------- 1,111,050 ------------- Printing and Publishing -- 0.1% 300 Washington Post Co, Class B 161,700 ------------- Refining -- 0.6% 8,000 Ashland Inc 308,500 8,800 Royal Dutch Petroleum Co 544,500 19,400 Tosco Corp 494,700 ------------- 1,347,700 ------------- Retail Trade -- 4.7% 15,276 Albertsons Inc 732,293 15,200 Autozone Inc* 361,950 8,300 Best Buy Co Inc* 583,075 13,000 Dillard's Inc 305,500 9,400 Federated Department Stores Inc* 432,400 10,000 Food Products Lion Inc 80,625 40,037 Gap Inc 1,566,447 60,400 Kmart Corp* 758,775 11,600 Penney (JC) Co Inc 420,500 2,700 Safeway Inc* 125,719 13,100 TJX Cos Inc 378,263 44,800 Toys R Us Inc* 618,800 74,400 Wal Mart Stores Inc 3,296,849 35,300 Walgreen Co 818,519 ------------- 10,479,715 ------------- 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- 1.4% 6,000 Cendant Corp* 107,625 16,100 Fluor Corp 666,138 5,400 Hertz Corp 217,688 10,100 Marriott International Inc, Class A 345,925 28,300 Time Warner Inc 1,678,543 ------------- 3,015,919 ------------- Technology -- 14.4% 25,500 BMC Software Inc* 1,372,219 114,900 Cisco Systems Inc* 7,791,655 7,400 First Data Corp 325,600 4,500 Grainger (WW) Inc 196,031 63,100 Intel Corp 5,186,030 84,000 Microsoft Corp* 7,775,249 69,000 Novell Inc* 1,634,437 49,900 Oracle Corp* 1,821,349 42,000 Seagate Technology Corp* 1,393,875 25,000 Solectron Corp* 1,956,249 22,500 Sun Microsystems Inc 1,788,749 8,900 Teradyne Inc* 605,756 ------------- 31,847,199 ------------- Telecommunications -- 10.0% 6,300 Alltel Corp 426,038 16,700 Ameritech Corp 1,054,188 102,532 AT & T Corp 4,613,939 37,386 Bell Atlantic Corp 2,289,892 39,600 Bellsouth Corp 1,791,899 10,800 Centurytel Inc 424,575 8,700 Cincinnati Bell Inc 160,950 45,100 GTE Corp 3,094,987 30,792 MCI Worldcom Inc* 2,332,493 4,200 MediaOne Group Inc* 276,150 33,632 SBC Communications 1,614,335 22,000 Sprint Corp 976,250 3,900 United States Cellular Corp* 219,375 25,000 US West Inc 1,306,250 36,800 Viacom Inc, Class B* 1,547,899 ------------- 22,129,220 ------------- See accompanying notes to the financial statements. 7 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Transportation -- 2.1% 8,700 AMR Corp* 510,038 44,700 Burlington Northern Santa Fe Railroad Co 1,296,300 13,700 CSX Corp 598,519 6,600 Delta Air Lines Inc 335,363 19,800 Norfolk Southern Corp 518,513 9,900 UAL Corp* 641,644 13,900 Union Pacific Corp 676,756 4,100 Viad Corp 122,744 ------------- 4,699,877 ------------- Utilities -- 5.0% 2,200 Allegheny Energy Inc 74,250 6,700 Ameren Corp 268,419 7,500 American Electric Power Inc 272,344 27,300 Central & South West Corp 617,663 3,200 Cinergy Corp 97,200 16,600 Coastal Corp 718,988 1,400 Consolidated Edison Inc 61,600 11,800 Constellation Energy Group Inc 349,575 8,600 Dominion Resources Inc 397,750 23,000 DTE Energy Co 907,063 2,700 Edison International 68,513 12,400 El Paso Energy Corp 453,375 47,800 Entergy Corp 1,425,038 9,000 Firstenergy Corp 257,063 19,700 General Public Utilities Inc 672,263 6,800 Keyspan Corp 200,600 8,600 New Century Energies Inc 310,675 8,000 Niagara Mohawk Holdings Inc* 121,000 6,300 PacifiCorp 128,756 9,400 Peco Energy Co 381,875 9,900 PG & E Corp 300,094 1,400 Pinnacle West Capital Corp 53,200 14,400 PP & L Resources Inc 403,200 22,700 Public Service Enterprise Group Inc 930,700 4,400 Reliant Energy Inc 121,825 25,800 Texas Utilities Co 1,043,288 10,800 Unicom Corp 417,150 ------------- 11,053,467 ------------- TOTAL COMMON STOCKS (COST $194,688,983) 201,984,082 ============= 8 See accompanying notes to the financial statements. GMO Tobacco-Free Core Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- Short-Term Investments -- 12.5% Cash Equivalents -- 3.9% $1,274,858 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(a) 1,274,858 3,414,662 Merrimac Cash Fund Premium Class(a) 3,414,662 $4,000,000 Prudential Securities Group Inc, Master Note, 5.625%, due 3/10/2000(a) 4,000,000 ------------- 8,689,520 ------------- Repurchase Agreements -- 7.5% $5,441,089 Morgan Stanley Inc. Repurchase Agree- ment, dated 8/31/99, due 9/1/99, with a maturity value of $5,441,793, and an effective yield of 4.66%, collateralized by a U.S. Treasury Obligation with a rate of 5.17%, maturity date of 9/15/99, and market value, including accrued interest, of $5,557,980. 5,441,089 $11,067,962 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $11,069,401 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 7.25%, maturity date of 5/15/16 and market value, including accrued interest, of $11,289,321. 11,067,962 ------------- 16,509,051 ------------- U.S. Government -- 1.1% $ 2,410,000 U.S. Treasury Bill, 4.68%, due 10/21/99(b) 2,384,386 ------------- Total Short-Term Investments (Cost $27,593,324) 27,582,957 ============= Total Investments -- 103.9% (COST $222,282,307) 229,567,039 Other Assets and Liabilities (net) -- (3.9)% (8,584,301) ------------- TOTAL NET ASSETS -- 100% $ 220,982,738 ============= 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $222,282,307) (Note 1) $229,567,039 Dividends and interest receivable 311,745 Receivable for variation margin on open futures contracts (Notes 1 and 6) 10,075 Receivable for expenses waived or borne by Manager (Note 2) 13,516 ------------ Total assets 229,902,375 ------------ Liabilities: Payable upon return of securities loaned (Note 1) 8,689,520 Payable for Fund shares repurchased 113,750 Payable to affiliate for (Note 2): Management fee 62,459 Shareholder service fee 28,030 Accrued expenses 25,878 ------------ Total liabilities 8,919,637 ------------ Net assets $220,982,738 ============ Net assets consist of: Paid-in capital $185,518,260 Accumulated undistributed net investment income 504,966 Accumulated undistributed net realized gain 28,166,706 Net unrealized appreciation 6,792,806 ============ $220,982,738 ============ Net assets attributable to: Class III shares $220,982,738 ============ Shares outstanding: Class III 14,736,568 ============ Net asset value per share: Class III $ 15.00 ============ 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $5,973) $ 1,477,673 Interest (including securities lending income of $10,960) 632,563 ----------- Total income 2,110,236 ----------- Expenses: Management fee (Note 2) 398,308 Custodian and transfer agent fees 42,643 Audit fees 16,932 Legal fees 3,674 Trustees fees (Note 2) 1,377 Registration fees 364 Miscellaneous 1,563 Fees waived or borne by Manager (Note 2) (66,553) ----------- 398,308 Shareholder service fee (Note 2) Class III 181,049 ----------- Net expenses 579,357 ----------- Net investment income 1,530,879 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 27,517,183 Closed futures contracts 1,560,366 Closed swap contracts (1,012,894) ----------- Net realized gain 28,064,655 ----------- Change in net unrealized appreciation (depreciation) on: Investments (12,578,901) Open futures contracts (271,638) Open swap contracts 173,044 ----------- Net unrealized loss (12,677,495) ----------- Net realized and unrealized gain 15,387,160 ----------- Net increase in net assets resulting from operations $16,918,039 =========== 11 See accompanying notes to the financial statements. GMO Tobacco-Free Core fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,530,879 $ 1,799,442 Net realized gain 28,064,655 12,285,912 Change in net unrealized appreciation (depreciation) (12,677,495) 2,331,870 ------------ ------------ Net increase in net assets resulting from operations 16,918,039 16,417,224 ------------ ------------ Distributions to shareholders from: Net investment income Class III (1,456,125) (1,592,308) ------------ ------------ Total distributions from net investment income (1,456,125) (1,592,308) ------------ ------------ Net realized gains Class III (3,737,249) (15,222,676) ------------ ------------ Total distributions from net realized gains (3,737,249) (15,222,676) ------------ ------------ (5,193,374) (16,814,984) ------------ ------------ Net share transactions: (Note 5) Class III (17,900,412) 127,633,807 ------------ ------------ Increase (decrease) in net assets resulting from net share transactions (17,900,412) 127,633,807 ------------ ------------ Total increase (decrease) in net assets (6,175,747) 127,236,047 Net assets: Beginning of period 227,158,485 99,922,438 ------------ ------------ End of period (including accumulated undistributed net investment income of $504,966 and $430,212, respectively) $220,982,738 $227,158,485 ============ ============
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 August Year Ended February 28/29, 31, 1999 ----------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ------------ ------ ------ ------ ------ ------ Net asset value, beginning of period $ 14.26 $ 14.05 $12.98 $ 12.93 $ 10.65 $ 11.07 ------- ------- ------ ------- ------- ------- Income from investment operations: Net investment income 0.10 0.18 0.22 0.24 0.28 0.23 Net realized and unrealized gain 0.99 1.99 4.07 2.41 3.71 0.50 ------- ------- ------ ------- ------- ------- Total from investment operations 1.09 2.17 4.29 2.65 3.99 0.73 ------- ------- ------ ------- ------- ------- Less distributions to shareholders: From net investment income (0.09) (0.19) (0.22) (0.24) (0.25) (0.28) From net realized gains (0.26) (1.77) (3.00) (2.36) (1.46) (0.87) ------- ------- ------ ------- ------- ------- Total distributions (0.35) (1.96) (3.22) (2.60) (1.71) (1.15) ------- ------- ------ ------- ------- ------- Net asset value, end of period $ 15.00 $ 14.26 $14.05 $ 12.98 $ 12.93 $ 10.65 ======= ======= ====== ======= ======= ======= Total Return (a) 7.57% 16.29% 37.82% 22.76% 38.64% 7.36% Ratios/Supplemental Data: Net assets, end of period $220,983 $227,158 $99,922 $66,260 $57,485 $47,969 (000's) Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48% Net investment income to average daily net assets 1.27%* 1.35% 1.66% 1.83% 2.25% 2.52% Portfolio turnover rate 66% 77% 70% 131% 81% 112% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.03 $ 0.04 $ 0.04 $ 0.03 $ 0.03
(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. * Annualized. See accompanying notes to the financial statements. 13 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 high total return through investment in U.S. equity securities. The Fund's current benchmark is the S&P 500 Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 14 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $8,392,063, collateralized by cash in the amount of $8,689,520, 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. The Fund also enters into contracts for differences in which the Fund agrees with the counterparty that its return will be based on the relative performance of two different groups or "baskets" of securities, adjusted by an interest rate payment. 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 will be 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. As of August 31, 1999, there were no open swap agreements. 15 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 are 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 dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $49,719 in purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 16 GMO Tobacco-Free Core Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $1,377. 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, 1999, aggregated $139,720,135 and $136,269,353, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation --------------------- ----------------------- ----------------------- ----------------------- $222,282,307 $17,336,801 $10,052,069 $7,284,732
4. Principal shareholders At August 31, 1999, 74.5% of the outstanding shares of the Fund were held by four 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--(continued) August 31, 1999(Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 --------------------------- -------------------------- Shares Amount Shares Amount ----------- -------------- ----------- ------------- Shares sold 2,296,873 $ 35,513,807 8,174,912 $ 118,663,463 shares issued to shareholders in reinvestment of distributions 304,249 4,741,118 1,181,509 16,525,109 Shares repurchased (3,790,695) (58,155,337) (544,280) (7,554,765) ----------- -------------- ----------- ------------- Net increase (decrease) (1,189,573) $ (17,900,412) 8,812,141 $ 127,633,807 =========== ============== =========== ============= 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Long futures contracts Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation ------------- ------------ ---------------- --------------- --------------- 16 S&P 500 September 1999 $ 5,279,200 $ (227,491) 31 Russell 2000 September 1999 6,640,200 (264,435) --------------- (491,926) =============== At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. GMO Small Cap Growth Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- COMMON STOCKS -- 99.2% Advertising -- 0.2% 4,400 TMP Worldwide Inc* 243,650 -------------- Aerospace -- 0.1% 2,100 Heico Corp 46,200 5,700 Kellstrom Industries Inc* 58,514 -------------- 104,714 -------------- Automotive -- 0.7% 5,400 Copart Inc* 118,125 9,100 Exide Corp 100,669 3,900 Hayes Lemmerz International Inc* 109,931 1,800 Keystone Automotive Industries Inc* 26,100 14,200 Meritor Automotive Inc 309,738 6,950 Monaco Coach Corp* 201,550 4,700 National R.V. Holdings Inc* 113,388 800 Oshkosh Truck Corp 26,900 -------------- 1,006,401 -------------- Banking and Financial Services -- 4.5% 7,600 Advanta Corp, Class A 149,625 3,500 Anchor Bancorp 58,188 1,500 Bancfirst Corp 51,844 5,200 Bank United Corp 178,425 6,700 Bay View Capital Corp 109,294 10,600 City National Corp 351,788 5,900 Comdisco Inc 124,269 5,240 Commerce Bancorp Inc 225,320 3,900 Commonwealth Bancorp Inc 69,956 10,000 Cullen Frost Bankers Inc 261,250 13,600 Dime Bancorp Inc 249,900 8,400 Dime Community Bancshares 182,700 13,400 Doral Financial Corp 185,925 3,900 Financial Federal Corp* 73,369 3,500 Financial Security Assurance Holdings Ltd 175,219 4,600 First Federal Capital Corp 72,163 5,100 First Federal Financial Corp* 77,775 3,500 First Financial Holdings 65,625 7,700 First Sierra Financial Inc* 84,700
See accompanying notes to the financial statements. 1 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Banking and Financial Services -- continued 3,400 First Washington Bancorp Inc 63,750 4,600 Flagstar Bancorp Inc 90,850 4,200 GBC Bancorp California 82,425 3,600 Greenpoint Financial Corp 93,150 7,500 Hambrecht and Quist Group* 286,406 7,000 Independence Community Bank Corp 86,625 4,500 Medallion Financial Corp 89,156 11,366 Metris Companies Inc 313,275 7,000 National Commerce Bancorp 148,313 7,700 Ocean Financial Corp 137,638 2,500 Old National Bancorp 75,000 2,000 Oriential Financial Group Inc 47,250 7,300 PFF Bancorp Inc* 145,088 6,750 Queens County Bancorp Inc 185,625 3,300 Reliance Bancorp Inc 114,056 7,300 Ryland Group Inc 175,656 3,000 S&T Bancorp 69,563 5,800 SEI Investments Co 533,238 2,900 Southwest Securities Group Inc 97,875 5,300 US Trust Corp 440,563 -------------- 6,022,837 -------------- Chemicals -- 0.3% 7,100 Geon Co 212,113 9,000 W.R. Grace & Co* 172,125 -------------- 384,238 -------------- Communications -- 0.1% 6,400 Aerial Communications Inc* 100,800 900 Metro Networks Inc* 51,300 -------------- 152,100 -------------- Computer and Office Equipment -- 3.8% 6,900 Apex Inc* 228,994 7,400 Auspex Systems Inc* 81,863 7,200 CDW Computer Centers Inc* 319,500 5,300 Emulex Corp* 365,369 6,100 Infocus Systems Inc* 97,600 13,600 Micron Electronics Inc* 131,750
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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Computer and Office Equipment -- continued 8,600 MTI Technology Corp* 191,888 28,600 Rational Software Corp* 773,987 6,900 Sandisk Corp* 582,188 7,300 Sequent Computer Inc* 128,663 18,100 Silicon Graphics Inc* 207,019 700 SMART Modular Technologies Inc* 14,569 10,600 Sterling Software Inc* 213,325 19,500 Symbol Technologies Inc 678,843 11,900 Visual Networks Inc* 493,850 16,100 Xircom Inc* 640,981 -------------- 5,150,389 -------------- Construction -- 2.0% 20,900 Centex Corp 587,813 2,200 Crossmann Communities Inc* 55,550 6,900 Granite Construction Inc 172,500 27,000 Horton (DR) Inc 393,188 8,100 Insituform Technologies Inc, Class A* 168,075 7,100 Johns Manville Corp 102,063 16,900 Kaufman & Broad Home Corp 345,394 7,900 MDC Holdings Inc 148,619 4,200 NVR Inc* 242,813 12,500 Pulte Corp 289,063 12,400 Standard Pacific Corp 138,725 -------------- 2,643,803 -------------- Consumer Goods -- 3.8% 5,400 Brown Shoe Co Inc 93,825 16,400 Burlington Industries Inc* 93,275 32,000 Callaway Golf Co 318,000 1,500 Church & Dwight Co Inc 69,750 14,700 Cytyc Corp* 496,125 10,500 Donna Karan International Inc* 86,625 10,950 Fossil Inc* 341,503 8,800 Furniture Brands International Inc* 176,550 9,100 Genesco Inc* 108,063 4,400 Guess ? Inc* 58,025 2,400 Jakks Pacific Inc* 72,300
See accompanying notes to the financial statements. 3 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Consumer Goods -- continued 25,200 Jones Apparel Group Inc* 653,625 4,300 K-Swiss Inc, Class A 134,913 2,900 Knoll Inc* 77,575 13,600 La-Z-Boy Chair Co 298,350 5,200 O'Sullivan Industries Holdings Inc* 81,900 3,300 Oneida Ltd 78,788 7,700 Osh Kosh B Gosh, Class A 124,163 8,800 Patterson Dental Company* 360,800 10,900 Pinnacle Systems Inc* 355,613 11,750 Quiksilver Inc* 202,688 7,500 Scholastic Corp* 297,188 600 SCP Pool Corp* 13,800 4,300 THQ Inc* 135,988 7,300 Tiffany & Co 385,988 -------------- 5,115,420 -------------- Electronic Equipment -- 13.8% 12,600 3DFX Interactive Inc* 140,175 18,600 Actel Corp* 291,788 45,000 Adaptec Inc* 1,754,999 6,300 Alpha Industries Inc* 358,706 29,200 American Power Conversion Corp* 512,825 10,700 Antec Corp* 487,519 16,900 Atmel Corp* 664,381 3,200 Atmi Inc* 105,600 6,000 C&D Technology Inc 189,000 21,400 C-Cube Microsystems Inc* 595,188 18,300 Cellnet Data Systems* 127,528 2,400 Concord Communications Inc* 88,575 600 Conexant Systems Inc* 43,125 5,400 CTS Corp 257,175 2,300 Customtracks Corp* 88,263 41,200 Cypress Semiconductor Corp* 952,749 31,100 Digital Microwave Corp* 425,681 14,000 DII Group Inc* 496,125 18,400 DSP Communications Inc* 432,400 5,300 Electro Scientific Industries* 212,000
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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Electronic Equipment -- continued 4,800 FSI International Inc* 30,900 7,100 Hadco Corp* 295,094 900 Harmonic Lightwaves Inc* 113,400 9,100 Hutchinson Technology Inc* 245,700 46,300 Integrated Device Technology Inc* 902,849 22,600 Interdigital Communications Corp* 138,425 24,700 International Rectifier Corp* 398,288 10,300 Kent Electronics Corp* 174,456 33,600 Komag Inc* 107,100 8,800 MEMC Electronic Materials Inc* 174,900 16,600 Microchip Technology Inc* 908,849 26,000 National Semiconductor Corp* 732,874 32,700 P-Com Inc* 157,369 5,300 Park Electrochemical Corp 154,031 26,000 Picturetel Corp* 143,814 20,300 PMC-Sierra Inc* 1,887,899 5,200 Polycom Inc* 190,125 7,700 Powertel Inc* 284,900 600 QLogic Corp* 52,238 28,800 Read Rite Corp* 162,000 8,700 Remec Inc* 108,206 4,800 Scientific Atlanta Inc 246,000 5,400 SDL Inc* 442,125 7,400 Semtech Corp* 518,463 15,900 Sensormatic Electronics Corp* 185,831 9,100 Silicon Valley Group Inc* 108,063 8,350 SLI Inc* 204,575 2,600 Stoneridge Inc* 46,800 4,000 Transwitch Corp* 198,750 4,100 Triumph Group Inc* 101,475 18,500 Unitrode Corp* 756,187 20,700 Westell Technologies Inc* 156,544 -------------- 18,552,032 -------------- Food and Beverage -- 2.0% 2,600 Agribrands International Inc* 126,425 15,000 Cadiz Inc* 150,000
See accompanying notes to the financial statements. 5 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Food and Beverage -- continued 9,700 Coors (Adolph) Co, Class B 553,506 16,800 Darden Restaurants Inc 262,500 2,100 Hormel (Geo A) and Co 84,525 15,800 IBP Inc 362,413 3,400 Performance Food Group Co* 88,506 1,450 Pilgrims Pride Corp, Class A* 11,781 15,800 Ryan's Family Steak Houses Inc* 153,063 13,700 Smithfield Foods Inc* 402,438 15,000 Topp Inc (The)* 133,125 12,000 Wendy's International Inc 336,000 -------------- 2,664,282 -------------- Health Care -- 8.0% 24,700 Apria Healthcare Group* 416,813 9,000 Bard (CR) 419,625 12,666 Bindley Western Industries Inc 212,156 6,100 Carematrix Corp* 49,563 29,800 Chiron Corp* 957,324 20,500 Columbia Laboratories Inc* 126,844 5,300 Cooper (The) Companies Inc 126,869 15,300 Express Scripts Inc, Class A* 1,030,837 3,500 Gliatech Inc* 70,656 6,700 Hooper Holmes Inc 153,263 13,500 Idexx Laboratories Inc* 229,500 46,400 Laboratory Corporation of America Holdings* 133,400 8,300 Lincare Holdings Inc* 218,913 14,700 Medimmune Inc* 1,516,855 11,600 Medquist Inc* 403,825 11,100 Mid Atlantic Medical Services Inc* 93,656 6,100 Novoste Corp* 133,819 3,000 OEC Medical Systems Inc* 103,500 11,000 Orthodontic Centers of America* 178,750 4,500 Perclose Inc* 238,219 10,500 Renal Care Group Inc* 200,813 5,400 ResMed Inc* 149,850 3,200 Techne Corp* 99,200 12,700 US Bioscience Inc* 147,638 35,600 Visx Inc* 3,221,799
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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Health Care -- continued 2,600 Xomed Surgical Products Inc* 152,913 -------------- 10,786,600 -------------- Insurance -- 1.4% 2,200 Brown & Brown Inc 78,650 4,000 E. W. Blanch Holdings Inc 265,000 8,220 Fidelity National Financial Inc 126,383 3,600 Foremost Corp of America 85,500 3,600 Gallagher (Arthur J) and Co 196,650 3,300 Hilb Rogal and Hamilton Co 79,613 2,800 Medical Assurance Inc* 70,350 38,700 Oxford Health Plans Inc* 599,850 4,100 Stewart Information Services Corp 85,331 9,500 UICI* 249,969 -------------- 1,837,296 -------------- Lodging -- 0.1% 14,300 Boyd Gaming Corp* 76,863 2,500 Trendwest Resorts Inc* 61,875 -------------- 138,738 -------------- Machinery -- 3.7% 9,100 American Standard Co* 373,100 9,000 Astec Industries* 304,875 6,000 Asyst Technologies Inc* 187,500 4,700 Aviall Inc* 52,288 9,500 Briggs & Stratton Corp 578,313 3,500 Detroit Diesel Corp 71,531 6,600 Donaldson Co Inc 129,525 11,450 Dycom Industries Inc* 353,519 2,900 Federal Mogul Corp 132,313 8,200 Helix Technology Corp 231,650 13,900 JLG Industries Inc 246,725 11,300 Kulicke & Soffa Industries* 232,356 10,400 Lam Research Corp* 586,950 12,800 Mohawk Industries Inc* 289,600 9,000 Pall Corp 178,875 6,300 Scott Technologies Inc* 119,503 3,700 Tecumseh Products Co 210,900
See accompanying notes to the financial statements. 7 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Machinery -- continued 7,200 Terex Corp* 193,500 4,000 Toro Co 147,000 14,500 Ultratech Stepper Inc* 193,938 3,000 Woodward Governor Co 74,625 1,400 York International Corp 57,575 -------------- 4,946,161 -------------- Manufacturing -- 1.7% 5,100 Blyth Industries Inc* 144,394 26,300 Dal Tile International Inc* 233,413 18,500 General Cable Corp 268,250 20,100 Gentex Corp* 384,413 4,600 Lafarge Corp 126,500 8,000 Manitowoc Co Inc 296,500 3,200 Nortek Inc* 114,000 9,500 Owens Corning 267,188 3,200 Temple Inland Inc 198,400 10,200 Tower Automotive Inc* 204,000 2,100 Tredegar Industries 45,675 -------------- 2,282,733 -------------- Metals and Mining -- 0.4% 6,900 Amcol International Corp 100,050 17,800 Stillwater Mining Co* 392,713 -------------- 492,763 -------------- Oil and Gas -- 1.6% 3,100 Barrett Resources Corp* 111,794 2,800 Basin Exploration Inc* 63,700 8,700 Brown Tom Inc* 143,006 32,700 Chesapeake Energy Corp* 106,275 4,800 Equitable Resources Inc 176,400 11,200 Forest Oil Corp* 167,300 56,500 Grey Wolf Inc* 162,438 62,900 Harken Energy Corp* 106,144 2,000 Houston Exploration Co* 42,500 6,100 HS Resources Inc* 104,463 8,000 Marine Drilling Co Inc* 127,000 14,000 Meridian Resource Corp* 66,500
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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Oil and Gas -- continued 1,400 Mitchell Energy, Class B 27,650 4,100 Newfield Exploration Co* 124,538 12,200 Patterson Energy Inc* 163,938 13,300 Pioneer Natural Resources Co 151,288 3,700 Plains Resource Inc* 69,838 5,200 Stone Energy Corp* 276,900 2,000 Union Pacific Resources Group 35,875 -------------- 2,227,547 -------------- Paper and Allied Products -- 1.1% 2,300 Boise Cascade Corp 83,663 26,600 Gaylord Container Corp, Class A* 214,463 14,900 Longview Fibre Co 192,769 15,400 Louisiana Pacific Corp 284,900 4,400 Mead Corp 164,175 4,900 Pentair Inc 222,950 4,300 Shorewood Packaging Corp* 63,425 12,200 United Stationers Inc* 276,025 -------------- 1,502,370 -------------- Pharmaceuticals -- 6.2% 3,400 Algos Pharmaceuticals Corp* 28,263 4,100 Amerisource Health Corp* 105,831 3,000 Andrx Corp* 215,625 9,800 Aviron* 275,013 12,100 Biomatrix Inc* 237,463 35,700 Genzyme Corp - General Division* 2,014,818 5,565 Gilead Sciences Inc* 433,722 7,600 IDEC Pharmaceuticals Corp* 965,674 34,800 Ivax Corp* 574,200 22,900 Ligand Pharmaceuticals Inc, Class B* 154,575 22,800 Liposome Company Inc* 449,589 60,700 Medpartners Inc* 424,900 10,900 Millipore Corp 411,475 17,500 Roberts Pharmaceutical Corp* 469,219 8,400 Sangstat Medical Corp* 173,250 14,600 Sepracor Inc* 1,093,174 11,100 Triangle Pharmaceuticals Inc* 203,963
See accompanying notes to the financial statements. 9 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Pharmaceuticals -- continued 7,400 Vical Inc* 98,975 -------------- 8,329,729 -------------- Primary Materials -- 0.7% 4,300 Centex Construction Products Inc 165,281 5,775 Elcor Corp 111,169 2,600 Florida Rock Industries 103,838 12,600 USG Corp 617,400 -------------- 997,688 -------------- Primary Processing -- 0.7% 10,800 AK Steel Holding Corp 226,800 7,700 Belden Inc 180,469 8,700 Commscope Inc* 299,606 4,500 Imco Recycling Inc 70,594 4,500 Ryerson Tull Inc 85,219 8,900 Titanium Metals Corp 76,206 -------------- 938,894 -------------- Printing and Publishing -- 1.3% 4,600 Consolidated Graphics Inc* 194,350 8,900 Harland (JH) Co 176,888 5,900 Harte Hanks Communications 132,381 4,500 Houghton Mifflin Co 214,875 7,000 John Wiley and Sons Inc, Class A 113,750 3,700 McClatchy Newspapers Inc 127,881 3,900 Playboy Enterprises Inc, Class B* 82,144 15,100 Valassis Communications Inc* 660,625 600 World Color Press Inc* 22,050 -------------- 1,724,944 -------------- Real Estate -- 0.6% 8,400 Catellus Development Corp* 114,975 4,300 CN Fairfield Communities Inc* 55,900 8,200 Lennar Corp 155,800 5,800 LNR Property Corp 108,025 5,300 Redwood Trust Inc* 74,531 4,800 Summit Properties Inc 95,400 4,700 Town & Country Trust 81,663 5,700 Webb (D) Corp 123,975 -------------- 810,269 --------------
10 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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Retail Trade -- 8.9% 35,000 7 Eleven Inc* 72,188 4,525 99 Cents Only Stores* 162,900 5,700 Action Performance Cos Inc* 140,719 19,000 American Eagle Outfitters Inc* 745,749 9,700 Ames Department Stores Inc* 284,938 18,100 AnnTaylor Stores Corp* 599,563 15,600 Brinker International Inc* 374,400 5,950 Buckle Inc* 100,406 11,300 Cato Corp, Class A 151,844 15,650 CEC Entertainment Inc* 436,244 38,800 Charming Shoppes Inc* 215,825 4,300 Chicos Fas Inc* 95,406 6,700 Children's Place Retail Stores Inc* 211,888 10,700 Cost Plus Inc* 476,150 3,400 CPI Corp 110,500 2,900 Dave and Busters Inc* 34,075 11,625 Dollar Tree Stores Inc* 383,625 5,800 Ethan Allen Interiors Inc 169,288 40,300 Family Dollar Stores Inc 793,405 17,700 Foodmaker Inc* 408,206 1,300 Goodys Family Clothing Inc* 11,984 8,300 Gymboree Corp* 43,056 7,200 Haverty Furniture Companies Inc 116,550 11,300 Linens N Things Inc* 387,025 18,900 Micro Warehouse Inc* 231,525 25,700 Musicland Stores Corp* 218,450 3,800 NPC International Inc* 42,988 4,900 O'Reilly Automotive Inc* 187,425 22,800 Outback Steakhouse Inc* 675,449 16,900 Pacific Sunwear of California* 392,925 5,500 Papa Johns International Inc* 218,625 8,100 Petco Animal Supplies Inc* 101,250 59,200 Petsmart Inc* 284,900 15,100 Ross Stores Inc 628,538
See accompanying notes to the financial statements. 11 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Retail Trade -- continued 12,200 Ruby Tuesday Inc 221,125 19,500 Spiegel Inc, Class A* 174,281 30,600 Sunglass Hut Inc* 386,325 10,900 Talbots Inc 337,219 9,000 The Cheesecake Factory Inc* 272,250 15,100 Transportation World Entertainment Corp* 181,200 31,550 Valhi Inc 356,909 6,000 Valuevision International Inc, Class A* 143,250 7,800 Wet Seal Inc* 118,950 7,600 Williams-Sonoma Inc* 296,400 -------------- 11,995,918 -------------- Services -- 8.4% 4,000 Abacus Direct Corp* 407,750 13,500 Acnielson Corp* 337,500 5,900 Advo Inc* 115,788 9,300 AMF Bowling Inc* 37,200 2,500 Aquarion Co 90,000 6,600 Argosy Gaming Co* 89,513 15,200 Aztar Corp* 139,650 1,800 Bally Total Fitness Holdings Corp* 57,713 8,900 Buffets Inc* 99,569 4,200 Burns International Services Corp* 65,888 6,000 Capital Senior Living Corp* 47,250 4,900 Casella Waste Systems Inc, Class A* 83,300 6,100 Catalina Marketing Corp* 553,575 2,500 Celgene Corp* 42,656 23,000 Cephalon Inc* 435,563 2,700 Championship Auto Racing Teams, Inc* 89,606 15,100 COR Therapeutics Inc* 329,369 17,400 Devry Inc* 363,225 7,500 Dollar Thrifty Automotive Group Inc* 141,094 1,900 E-Town Corp 96,425 13,800 Education Management Corp* 178,538 6,200 Extended Stay America Inc* 55,800 7,800 First Consulting Group Inc* 99,938 13,500 Handleman Co* 178,875
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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Services -- continued 28,300 Hollywood Entertainment Corp* 383,819 10,300 Hollywood Park District Inc* 174,456 21,900 Icos Corp* 696,693 5,600 IT Group Inc* 66,850 16,550 Labor Ready Inc* 265,834 11,400 Metamor Worldwide Inc* 182,757 28,200 Metromedia International Group Inc* 178,013 6,000 Millennium Pharmaceuticals Inc* 353,625 26,300 Modis Professional Services Inc* 415,869 10,600 Navigant Consulting Inc* 465,075 6,300 NCO Group Inc* 286,650 4,200 Neurogen Corp* 67,725 5,300 ON Assignment Inc* 158,338 33,600 PER-SE Technologies Inc* 119,700 6,200 Personnel Group of America Inc* 51,925 3,700 Philadelphia Suburban Corp 85,794 7,800 Regis Corp 149,175 20,400 Sitel Corp* 80,325 8,500 Sonic Corp* 260,313 2,700 Speedway Motorsports Inc* 100,744 15,600 Station Casinos Inc* 315,900 3,700 Stone & Webster Inc 95,044 14,400 Sunterra Resorts Inc* 189,900 3,800 Superior Consultant Holdings* 86,925 21,300 UnitedGlobal.Com Inc, Class A* 1,560,224 3,600 URS Corp* 89,100 7,200 Whittman-Hart Inc* 189,450 13,700 WMS Industries Inc* 148,988 -------------- 11,354,996 -------------- Technology -- 13.7% 32,400 Acclaim Entertainment Inc* 228,825 11,500 Acxiom Corp* 201,969 3,200 Advanced Energy Industries Inc* 110,000 16,900 Advanced Micro Devices Inc* 349,619 2,400 Advent Software Inc* 117,900 2,300 Affiliated Computer Services Inc* 98,325
See accompanying notes to the financial statements. 13 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Technology -- continued 19,500 American Management Systems Inc* 558,188 2,000 Aspect Development Inc* 31,375 4,400 AVT Corp* 124,300 7,800 Bisys Group Inc* 370,500 12,100 Clarify Inc* 532,400 10,000 Cognex Corp* 301,875 2,900 Cohu Inc 123,975 7,800 Credence Systems Corp* 335,400 14,200 CSG Systems International Inc* 320,388 9,100 Cybercash Inc* 79,625 11,900 Data Broadcasting Corp* 89,250 10,200 Dendrite International Inc* 424,575 7,900 Dionex Corp* 314,519 5,300 DST Systems Inc* 352,450 6,300 Electroglas Inc* 121,275 18,400 Electronics For Imaging Inc* 1,078,699 3,700 Factset Research Systems Inc 171,356 8,700 FileNet Corp* 90,263 5,000 IMR Global Corp* 85,313 76,600 Informix Corp* 557,748 8,800 Infousa Inc, Class B* 44,550 9,100 Intel Corp 747,905 8,200 International Telecomm Data Systems Inc* 64,575 3,700 JDA Software Group Inc* 33,069 6,900 JDS Uniphase Corp* 731,830 4,700 Kronos Inc* 235,735 25,000 Legato Systems Inc* 1,076,562 6,400 LHS Group Inc* 212,400 2,600 LTX Corp* 33,800 20,900 Macromedia Inc* 828,162 16,300 Manugistics Group Inc* 203,750 11,100 Mastech Corp* 192,169 1,375 Medical Manager Corp* 81,813 18,600 Mentor Graphics Corp* 166,820 26,600 Mercury Interactive Corp* 1,270,149 1,700 Micromuse Inc* 97,113 13,400 National Computer System Inc 522,600
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, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Technology -- continued 8,400 Network Appliance Inc* 551,775 1,200 Network Solutions Inc* 69,150 2,800 New Era of Networks Inc* 46,900 11,200 Open Market Inc* 135,800 2,500 Optical Coating Laboratories Inc 191,875 2,400 Pixar Inc* 81,750 9,700 Progress Software Corp* 297,063 2,100 Psinet Inc* 100,538 2,400 QRS Corp* 115,500 6,800 Radiant Systems Inc* 133,875 2,200 Radisys Corp* 84,700 9,700 Remedy Corp* 237,650 35,300 S3 Inc* 353,000 11,800 Security Dynamics Technologies Inc* 278,775 47,800 Sybase Inc* 597,500 5,400 Sykes Enterprises Inc* 129,600 10,500 Symantec* 315,000 12,700 Synopsys Inc* 710,405 2,600 USWeb Corp* 50,700 4,100 Waters Corp* 270,344 -------------- 18,465,014 -------------- Telecommunications -- 3.5% 2,800 Adelphia Communications Corp, Class A* 173,600 12,000 American Mobile Satellite Corp* 234,000 17,500 Brightpoint Inc* 61,798 21,500 Centennial Cellular Corp, Class A* 841,187 5,100 Commnet Cellular Inc* 159,375 3,300 Commonwealth Telephone Enterprises Inc* 140,663 17,400 Comsat Corp 604,650 1,900 Hispanic Broadcasting Corp* 142,025 25,800 Paging Network Inc* 79,820 5,300 Price Communications Corp* 108,981 15,900 Skytel Communications Inc* 315,019 25,000 Talk Com Inc* 257,813 6,900 Telephone and Data Systems Inc 479,550 4,400 Transaction Network Services Inc* 193,050
See accompanying notes to the financial statements. 15 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value($) - --------------------------------------------------------------------------------------------------- Telecommunications -- continued 9,800 TV Guide Inc, Class A* 271,950 14,300 Western Wireless Corp, Class A* 553,231 5,400 World Access Inc* 67,163 -------------- 4,683,875 -------------- Textiles -- 0.7% 47,600 Shaw Industries Inc 951,999 -------------- Tobacco -- 0.1% 4,600 Brooke Group Ltd 89,413 -------------- Transportation -- 2.1% 39,300 Airtran Holdings Inc* 217,380 11,400 American Freightways Corp* 239,400 2,800 American West Holdings Corp, Class B* 54,600 5,950 Atlas Air Inc* 162,138 14,400 Comair Holdings Inc 304,200 5,000 Landstar System Inc* 185,000 3,700 M.S. Carriers Inc* 105,450 11,300 Mesa Airline Group Inc* 77,688 5,800 Mesaba Holdings Inc* 71,775 6,200 Midwest Express Holdings Inc* 167,400 8,200 MotivePower Industries Inc* 101,475 5,900 Navistar International Corp* 286,888 7,400 Newport News Shipbuilding Inc 232,638 2,100 Roadway Express Inc 44,231 12,300 Skywest Inc 247,538 5,600 US Freightways Corp 271,600 -------------- 2,769,401 -------------- Utilities -- 3.0% 2,900 California Water Service Group 86,638 6,000 Calpine Corp* 543,750 1,500 Cilcorp Inc 96,656 3,800 DQE Inc 147,013 5,700 Empire District Electric Co 145,350
16 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, 1999 (Unaudited)
Shares/ Par Value ($) Description Value($) - ----------------------------------------------------------------------------------------------------- Utilities -- continued 39,300 Energy East Corp 982,499 22,300 Niagara Mohawk Holdings Inc* 337,288 12,600 Northeast Utilities* 221,288 15,700 OGE Energy Corp 368,950 9,500 Potomac Electric Power Co 251,750 12,500 Public Service Co of North Carolina 381,250 11,400 Southwest Natural Gas Corp 317,775 7,700 Southwestern Energy Co 68,819 4,300 Western Gas Resources Inc 73,369 -------------- 4,022,395 -------------- TOTAL COMMON STOCKS (COST $124,149,946) 133,388,609 -------------- SHORT-TERM INVESTMENTS -- 8.4% Cash Equivalents -- 5.9% $3,968,794 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(a) 3,968,794 $4,000,000 Prudential Securities Group Inc, Master Note, 5.625%, due 3/10/2000(a) 4,000,000 -------------- 7,968,794 -------------- U.S. Government -- 1.1% $1,535,000 U.S. Treasury Bill, 4.68%, due 10/21/99(b) 1,518,686 -------------- Repurchase Agreements -- 1.4% $1,797,949 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $1,798,183 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 7.25%, maturity date of 5/15/16 and market value, including accrued interest, of $1,833,908. 1,797,949 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $11,292,032) 11,285,429 -------------- TOTAL INVESTMENTS -- 107.6% (COST $135,441,978) 144,674,038 Other Assets and Liabilities (net)-- (7.6)% (10,157,170) -------------- TOTAL NET ASSETS -- 100% $ 134,516,868 ==============
See accompanying notes to the financial statements. 17 GMO Small Cap Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Notes to the Schedule of Investments: * Non-income producing security. (a) Represents investments of security lending collateral (Note 1). (b) All or a portion of this security has been segregated to cover margin requirements on financial future contracts. 18 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $135,441,978) (Note 1) $144,674,038 Receivable for investments sold 1,428,572 Dividends and interest receivable 46,779 Receivable for variation margin on closed futures contracts (Note 1) 301 Receivable for expenses waived or borne by Manager (Note 2) 11,748 ------------- Total assets 146,161,438 ------------- Liabilities: Payable for investments purchased 3,582,044 Payable upon return of securities loaned (Note 1) 7,968,794 Payable to affiliate for (Note 2): Management fee 37,738 Shareholder service fee 15,522 Accrued expenses 40,472 ------------- Total liabilities 11,644,570 ------------- Net assets $134,516,868 ============= Net assets consist of: Paid-in capital $119,861,390 Accumulated undistributed net investment income 3,972 Accumulated undistributed net realized gain 5,419,446 Net unrealized appreciation 9,232,060 ============= $134,516,868 ============= Net assets attributable to: Class III shares $134,516,868 ============= Shares outstanding: Class III 11,356,077 ============= Net asset value per share: Class III $ 11.85 =============
See accompanying notes to the financial statements. 19 GMO Small Cap Growth Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $135) $ 242,828 Interest (including securities lending income of $35,287) 132,868 ------------ Total income 375,696 ------------ Expenses: Management fee (Note 2) 221,419 Custodian and transfer agent fees 46,902 Audit fees 16,932 Legal fees 2,400 Trustees fees (Note 2) 740 Registration fees 364 Miscellaneous 1,840 Fees waived or borne by Manager (Note 2) (69,178) ------------ 221,419 Shareholder service fee (Note 2) Class III 100,645 ------------ Net expenses 322,064 ------------ Net investment income 53,632 ------------ Realized and unrealized gain: Net realized gain on: Investments 7,489,982 Closed futures contracts 66,189 ------------ Net realized gain 7,556,171 ------------ Change in net unrealized appreciation (depreciation) on: Investments 4,379,991 Open futures contracts 14,860 ------------ Net unrealized gain 4,394,851 ------------ Net realized and unrealized gain 11,951,022 ------------ Net increase in net assets resulting from operations $12,004,654 ============
20 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August Year Ended 31, 1999 February 28, (Unaudited) 1999 ---------------- ------------- Increase (decrease) in net assets: Operations: Net investment income $ 53,632 $ 644,666 Net realized gain 7,556,171 10,411,205 Change in net unrealized appreciation (depreciation) 4,394,851 (29,532,766) ------------ ------------- Net increase (decrease) in net assets resulting from operations 12,004,654 (18,476,895) ------------ ------------- Distributions to shareholders from: Net investment income Class III (158,896) (535,430) ------------ ------------- Total distributions from net investment income (158,896) (535,430) ------------ ------------- Net realized gains Class III (803,980) (10,987,255) ------------ ------------- Total distributions from net realized gains (803,980) (10,987,255) ------------ ------------- (962,876) (11,522,685) ------------ ------------- Net share transactions: (Note 5) Class III (6,508,281) (239,630,042) ------------ ------------- Decrease in net assets resulting from net share transactions (6,508,281) (239,630,042) ------------ ------------- Total increase (decrease) in net assets 4,533,497 (269,629,622) Net assets: Beginning of period 129,983,371 399,612,993 ------------ ------------- End of period (including accumulated undistributed net investment income of $3,972 and $109,236, respectively) $134,516,868 $129,983,371 ============= =============
See accompanying notes to the financial statements. 21 GMO Small Cap Growth Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended February 28, -------------------------------------- (Unaudited) 1999 1998 1997* ----------- --------- -------- --------- Net asset value, beginning of period $ 10.88 $ 12.28 $ 9.82 $ 10.00 ----------- --------- -------- --------- Income from investment operations: Net investment income 0.01 0.03 0.05 0.01 Net realized and unrealized gain (loss) 1.05 (0.98) 3.43 (0.19) ----------- --------- -------- --------- Total from investment operations 1.06 (0.95) 3.48 (0.18) ----------- --------- -------- --------- Less distributions to shareholders: From net investment income (0.02) (0.02) (0.06) -- In excess of net investment income -- -- (0.01) -- From net realized gains (0.07) (0.43) (0.95) -- ----------- --------- -------- --------- Total distributions (0.09) (0.45) (1.02) -- ----------- --------- -------- --------- Net asset value, end of period $ 11.85 $ 10.88 $ 12.28 $ 9.82 =========== ========= ======== ========= Total Return (a) 9.67% (8.20)% 36.66% (1.80)% Ratios/Supplemental Data: Net assets, end of period (000's) $ 134,517 $129,983 $399,613 $159,898 Net expenses to average daily 0.48%** 0.48% 0.48% 0.48%** net assets Net investment income to average daily net assets 0.08%** 0.21% 0.47% 0.70%** Portfolio turnover rate 87% 113% 132% 13% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03 $ 0.03 $ 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. * Period from December 31, 1996 (commencement of operations) to February 28, 1997. ** Annualized. 22 See accompanying notes to the financial statements. GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Small Cap 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. The Fund's current benchmark is the Russell 2500 Growth Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 23 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. As of August 31, 1999, the Fund had no open 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $7,601,858, collateralized by cash in the amount of $7,968,794, 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 may enter into interest rate and total return swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments 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. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to 24 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- perform and that there may be unfavorable changes in the fluctuation of interest rates. The Fund did not have any open swap agreements as of August 31, 1999. 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 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 are 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 dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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 by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $9,792 in purchase premiums and $46,884 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 25 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $740. 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, 1999, aggregated $112,977,559 and $111,225,806, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation -------------------- ------------------- ------------------ --------------------- $135,441,978 $20,125,389 $10,893,329 $9,232,060
4. Principal shareholders At August 31, 1999, 36.3% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 26 GMO Small Cap Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 ----------------------------- ----------------------------- Shares Amount Shares Amount ------------- -------------- ------------- -------------- Shares sold 165,285 $ 1,958,379 3,439,182 $ 39,799,712 Shares issued to shareholders in reinvestment of distributions 72,475 890,619 907,024 11,146,358 Shares repurchased (823,532) (9,357,279) (24,951,990) (290,576,112) ------------- -------------- ------------- -------------- Net decrease (585,772) $ (6,508,281) (20,605,784) $ (239,630,042) ============= ============== ============= ==============
27 GMO REIT Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Real Estate Investments -- 96.0% Common Stocks -- 2.4% Diversified-- 0.5% 25,000 St. Joe Co 584,375 ----------- Lodging-- 1.7% 47,330 Crestline Capital Corp* 896,312 12,495 Interstate Hotels Corp* 45,294 374,871 Wyndham International Inc, Class A 1,335,478 ----------- 2,277,084 ----------- Office-- 0.2% 20,000 Brookfield Properties Corp 247,500 ----------- Services-- 0.0% 12,500 Vornado Operating Inc* 79,688 ----------- Total Common Stocks (Cost $9,113,929) 3,188,647 ----------- Real Estate Investment Trusts -- 93.6% Apartments-- 10.2% 78,200 Apartment Investment & Management Co, Class A 3,206,200 26,300 BRE Properties Inc 664,075 82,500 Cornerstone Realty Income Trust 819,844 72,500 Equity Residential Properties Trust 3,189,978 29,600 Gables Residential Trust 708,550 25,000 Mid America Apartment Community 545,313 28,900 Smith (Charles E) Residential 991,631 50,000 Summit Properties Inc 993,750 149,000 United Dominion Realty Trust Inc 1,713,500 25,000 Walden Residential Properties Inc 470,313 ----------- 13,303,154 ----------- Diversified-- 19.1% 100,000 Catellus Development Corp* 1,368,750 91,000 Colonial Properties Trust 2,474,063 420,000 Crescent Real Estate Equities 8,714,999 97,500 Glenborough Realty Trust Inc 1,687,969 See accompanying notes to the financial statements. 1 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Diversified -- continued 55,200 Meditrust Corp 493,350 122,000 The Rouse Company 2,775,500 215,000 Vornado Realty Trust 7,336,874 ---------- 24,851,505 ---------- Factory Outlet -- 1.0% 21,400 Chelsea GCA Realty Inc 727,600 70,000 Prime Retail Inc 525,000 ---------- 1,252,600 ---------- Industrial -- 6.3% 59,050 Eastgroup Properties Inc 1,099,806 93,300 First Industrial Realty Trust 2,390,813 70,000 Liberty Property Trust 1,715,000 149,000 Prologis Trust 2,924,125 ---------- 8,129,744 ---------- Lodging -- 9.9% 96,000 Felcor Lodging Trust Inc 1,722,000 492,500 Host Marriott Corp 4,555,625 275,000 Starwood Hotels and Resorts Worldwide Inc 6,548,437 ---------- 12,826,062 ---------- Manufactured Housing -- 0.7% 29,000 Chateau Communities Inc 844,625 ---------- Office -- 33.5% 28,500 Alexandria Real Estate Equities Inc 835,406 42,900 Arden Realty Group Inc 1,000,106 71,000 Bedford Property Investors 1,260,250 18,500 Boston Properties Inc 616,281 159,700 Brandywine Realty Trust 2,864,619 52,000 Carramerica Realty Corp 1,196,000 55,000 Cornerstone Properties Inc 876,563 265,286 Duke Realty Investments 5,952,354 150,000 Equity Office Properties 3,834,375 152,500 Highwood Properties Inc 3,783,906 55,700 Kilroy Realty Corp 1,277,619 2 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Office -- continued 62,800 Koger Equity Inc 1,067,600 200,000 Mack-Cali Realty Corp 5,675,000 60,800 Parkway Properties Inc 2,006,400 100,000 Prentiss Properties Trust 2,268,750 23,600 Prime Group Realty Trust 390,875 40,000 Reckson Associates Realty Corp 830,000 24,955 Reckson Associates Realty Corp, Class B 542,771 43,900 SL Green Realty Corp 913,669 84,100 Spieker Properties Inc 3,216,825 160,800 Trizec Hahn Corporation 3,135,600 ----------- 43,544,969 ----------- Regional Malls -- 8.1% 29,800 CBL & Associates Properties Inc 741,275 60,000 General Growth Properties 1,995,000 22,900 JP Realty Inc 443,688 68,600 Macerich Co 1,719,288 74,500 Mills Corp 1,429,469 39,700 Simon Property Group Inc 1,012,350 55,600 Urban Shopping Centers Inc 1,706,225 98,800 Westfield America Inc 1,432,600 ----------- 10,479,895 ----------- Self Storage -- 0.4% 5,200 Public Storage Inc 135,200 16,800 Shurgard Storage Centers Inc 424,200 ----------- 559,400 ----------- Shopping/Power Center -- 3.1% 100,000 Developers Diversified Realty Corp 1,493,750 49,400 JDN Realty Corp 1,037,400 76,780 New Plan Excel Realty Trust 1,454,021 ----------- 3,985,171 ----------- See accompanying notes to the financial statements. 3 GMO REIT Fund (A Series of GMO Trust) Schedule of Investments - (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Per Value($) Description Value ($) - -------------------------------------------------------------------------------- Triple Net Leasing -- 1.3% 34,200 Hospitalities Properties Trust 919,125 33,500 Trinet Corporate Realty Trust Inc 818,656 ----------- 1,737,781 ----------- Total Real Estate Investment Trusts (Cost $149,084,729) 121,514,906 ----------- Total real estate investments (Cost $158,198,658) 124,703,553 ----------- SHORT-TERM INVESTMENTS -- 13.0% Cash Equivalents -- 8.8% $ 76,907 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(a) 76,907 4,338,165 Merrimac Cash Fund Premium Class(a) 4,338,165 $7,000,000 Prudential Securities Group Inc. Master Note, 5.6250%, due 3/10/2000(a) 7,000,000 ----------- 11,415,072 ----------- Repurchase Agreements -- 4.2% $5,506,346 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $5,507,062 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 7.25%, maturity date of 5/15/16 and market value, including accrued interest, of $5,616,473. 5,506,346 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $16,921,418) 16,921,418 ----------- TOTAL INVESTMENTS -- 109.0% (Cost $175,120,076) 141,624,971 Other Assets and Liabilities (net) -- (9.0)% (11,746,10) ----------- TOTAL NET ASSETS -- 100% $129,878,864 ============ Notes to the Schedule of Investments: * Non-income producing security. (a) Represents investments of security lending collateral (Note 1). 4 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $175,120,076) (Note 1) $141,624,971 Receivable for investments sold 31,095 Dividends and interest receivable 103,297 Receivable for expenses waived or borne by Manager (Note 2) 6,262 ------------ Total assets 141,765,625 ------------ Liabilities: Payable for investments purchased 367,947 Payable upon return of securities loaned (Note 1) 11,415,072 Payable to affiliate for (Note 2): Management fee 57,633 Shareholder service fee 14,422 Accrued expenses 31,687 ------------ Total liabilities 11,886,761 ------------ Net assets $129,878,864 ============ Net assets consist of: Paid-in capital $183,052,962 Accumulated undistributed net investment income 4,326,666 Accumulated net realized loss (24,005,659) Net unrealized depreciation (33,495,105) ------------ $129,878,864 ============ Net assets attributable to: Class III shares $129,878,864 ============ Shares outstanding: Class III 14,552,915 ============ Net asset value per share: Class III $ 8.92 ============ See accompanying notes to the financial statements. 5 GMO REIT Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $4,743,406 Interest (including securities lending income of $5,250) 80,034 ---------- Total income 4,823,440 ---------- Expenses: Management fee (Note 2) 382,196 Custodian and transfer agent fees 19,008 Audit fees 18,770 Legal fees 2,301 Trustees fees (Note 2) 736 Registration fees 364 Miscellaneous 1,104 Fees waived or borne by Manager (Note 2) (42,283) ---------- 382,196 Shareholder service fee (Note 2) Class III 106,166 ---------- Net expenses 488,362 ---------- Net investment income 4,335,078 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (7,775,943) Closed futures contracts 31,149 ---------- Net realized loss (7,744,794) ---------- Change in net unrealized appreciation (depreciation) on: Investments 7,774,809 Open futures contracts 14,056 ---------- Net unrealized gain 7,788,865 ---------- Net realized and unrealized gain 44,071 ---------- Net increase in net assets resulting from operations $4,379,149 ========== 6 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 --------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 4,335,078 $ 10,721,126 Net realized loss (7,744,794) (12,500,837) Change in net unrealized appreciation (depreciation) 7,788,865 (60,036,287) ------------ ------------- Net increase (decrease) in net assets resulting from operations 4,379,149 (61,815,998) ------------ ------------- Distributions to shareholders from: Net investment income Class III (7,241,520) (3,197,384) ------------ ------------- Total distributions from net investment income (7,241,520) (3,197,384) ------------ ------------- Net realized gains Class III -- (15,126,689) ------------ ------------- Total distributions from net realized gains -- (15,126,689) ------------ ------------- (7,241,520) (18,324,073) ------------ ------------- Net share transactions: (Note 5) Class III (10,387,826) (151,505,021) ------------ ------------- Decrease in net assets resulting from net share transactions (10,387,826) (151,505,021) ------------ ------------- Total decrease in net assets (13,250,197) (231,645,092) Net assets: Beginning of period 143,129,061 374,774,153 ------------ ------------- End of period (including accumulated undistributed net investment income of $4,326,666 and $7,233,108, respectively) $129,878,864 $ 143,129,061 ============ ============= See accompanying notes to the financial statements. 7 GMO REIT Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - -------------------------------------------------------------------------------- Six Months Ended August Year Ended February 28, 31, 1999 -------------------------- (Unaudited) 1999 1998 1997* ---------- ----- ----- ----- Net asset value, beginning of period $9.13 $12.92 $12.62 $10.00 ----- ------ ------ ------ Income from investment operations: Net investment income 0.33 0.51+ 0.53 0.24 Net realized and unrealized gain (loss) (0.04) (3.36) 1.26 2.60 ------- ------- ------- ------- Total from investment operations 0.29 (2.85) 1.79 2.84 ------- ------- ------- ------- Less distributions to shareholders: From net investment income (0.50) (0.19) (0.57) (0.17) In excess of net investment income -- -- (0.03) -- From net realized gains -- (0.75) (0.89) (0.05) ------- ------- ------- ------- Total distributions (0.50) (0.94) (1.49) (0.22) ------- ------- ------- ------- Net asset value, end of period $ 8.92 $ 9.13 $ 12.92 $ 12.62 ======= ======= ======= ======= Total Return (a) 2.80% (23.27)% 14.29% 28.49% Ratios/Supplemental Data: Net assets, end of period (000's) $129,879 $143,129 $374,774 $260,929 Net expenses to average daily net assets 0.69%** 0.69% 0.69% 0.69%** Net investment income to average daily net assets 6.12%** 4.60% 4.10% 4.72%** Portfolio turnover rate 4% 59% 86% 21% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.03 $ 0.03 $ 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) Fees and expenses waived or borne by the Manager were less than $0.01 per share. + Computed using average shares outstanding throughout the period. * Period from May 31, 1996 (commencement of operations) to February 28, 1997. ** Annualized. 8 See accompanying notes to the financial statements. GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO REIT 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 or exposure to real estate investment trusts ("REITS"), which are managed vehicles that invest in real estate or real estate-related assets. The Fund's current benchmark is the Morgan Stanley REIT Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 9 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. As of August 31, 1999, the Fund held no open 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $10,946,615, collateralized by cash in the amount of $11,415,072, 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 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. At February 28, 1999, the Fund had a capital loss carryforward available to offset future capital gains, if any, of $8,368,927 expiring in 2007. 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 dividends 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. 10 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements - (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, when the amount of return of capital is conclusively determined. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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 by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $61,409 in purchase premiums and $136,161 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. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .54% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. 11 GMO REIT Fund (A Series of GMO Trust) Notes to Financial Statements - (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $736. 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, 1999, aggregated $5,068,659 and $20,947,916, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ ------------------ ------------------ ------------------ $175,120,076 $1,373,446 $34,868,551 $33,495,105 4. Principal shareholder At August 31, 1999, 10.8% of the outstanding shares of the Fund were held by one shareholder. 12 GMO REIT Fund (A series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 ------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------- Shares sold 1,330,465 $ 12,281,745 2,311,420 $ 26,773,478 Shares issued to shareholders in reinvestment of 471,614 4,494,486 1,482,780 16,781,879 distributions Shares repurchased (2,928,503) (27,164,057) (17,130,461) (195,060,378) ======================================================= Net decrease (1,126,424) $(10,387,826) (13,336,261) $(151,505,021) ======================================================= 13 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- MUTUAL FUND -- 100.0% 8,892,953 GMO Emerging Country Debt Fund (Cost $82,856,667) 64,029,260 ----------- SHORT-TERM INVESTMENTS -- 0.0% Repurchase Agreements -- 0.0% $ 11,864 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $11,866 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $12,101. 11,864 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $11,864) 11,864 ----------- TOTAL INVESTMENTS -- 100.0% (Cost $82,868,531) 64,041,124 Other Assets and Liabilities (net) -- (0.0)% (5,241) ----------- TOTAL NET ASSETS -- 100% $64,035,883 =========== See accompanying notes to the financial statements. 1 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $82,868,531) (Note 1) $ 64,041,124 Receivable for expenses waived or borne by Manager (Note 2) 1,707 ------------ Total assets 64,042,831 ------------ Liabilities: Accrued expenses 6,948 ------------ Total liabilities 6,948 ------------ Net assets $ 64,035,883 ============ Net assets consist of: Paid-in capital $ 80,167,273 Undistributed net investment income 2,594,982 Accumulated undistributed net realized gain 101,035 Net unrealized depreciation (18,827,407) ------------ $ 64,035,883 ============ Shares outstanding 8,598,386 ============ Net asset value per share $ 7.45 ============ 2 See accompanying notes to the financial statements. GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $2,592,884 Interest 2,098 ---------- Total income 2,594,982 ---------- Expenses: Audit fees 5,342 Custodian and transfer agent fees 2,942 Legal fees 643 Trustees fees (Note 2) 275 Miscellaneous 1,104 Fees waived or borne by Manager (Note 2) (10,306) ---------- Net expenses -- ---------- Net investment income 2,594,982 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (1,316) Realized gain distributions from investment company shares 102,351 ---------- Net realized gain 101,035 ---------- Change in net unrealized appreciation (depreciation) on investments 124,149 ---------- Net realized and unrealized gain 225,184 ---------- Net increase in net assets resulting from operations $2,820,166 ========== See accompanying notes to the financial statements. 3 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from Six Months Ended July 20, 1998 August 31, 1999 (commencement of operations) (Unaudited) through February 28, 1999 --------------------- ---------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 2,594,982 $ 167,273 Net realized gain 101,035 -- Change in net unrealized appreciation (depreciation) 124,149 (18,951,556) ------------- ------------ Net increase (decrease) in net assets resulting from operations 2,820,166 (18,784,283) ------------- ------------ Distributions to shareholders from: Net investment income -- (168,000) ------------- ------------ -- (168,000) ------------- ------------ Net share transactions: (Note 5) 20,000,000 60,168,000 ------------- ------------ Increase in net assets resulting from net share transactions 20,000,000 60,168,000 ------------- ------------ Total increase in net assets 22,820,166 41,215,717 Net assets: Beginning of period 41,215,717 -- ------------- ------------ End of period (including accumulated undistributed net investment income of $2,594,982 and $0, respectively.) $ 64,035,883 $ 41,215,717 ============= ============
4 See accompanying notes to the financial statements. GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Period from Six Months Ended July 20, 1998 August 31, 1999 (commencement of operations) (Unaudited) through February 28, 1999 ------------- --------------------------- Net asset value, beginning of period $ 6.84 $ 10.00 ------- ------- Income from investment operations: Net investment income (a) 0.30 0.03 Net realized and unrealized gain (loss) 0.31 (3.16) ------- ------- Total from investment operations 0.61 (3.13) ------- ------- Less distributions to shareholders: From net investment income -- (0.03) ------- ------- Total distributions -- (0.03) ------- ------- Net asset value, end of period $ 7.45 $ 6.84 ======= ======= Total Return (b) 8.92% (31.32)% Ratios/Supplemental Data: Net assets, end of period (000's) $64,036 $41,216 Net expenses to average daily net assets (c) 0.00%* 0.00%* Net investment income to average daily net assets (a) 9.00%* 0.64%* Portfolio turnover rate 0% 0% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per --(d) --(d) share amounts:
* Annualized. (a) Recognition of net investment income is affected by the timing of the declaration of dividends by GMO Emerging Country Debt Fund. (b) The total returns would have been lower had certain expenses not been waived during the periods shown. (c) Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 1. (d) Fees and expenses waived or borne by the Manager were less than $0.01 per share. See accompanying notes to the financial statements. 5 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Emerging Country Debt Share Fund (the "Fund"), which commenced operations on July 20, 1998, 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 high total return through investment in the GMO Emerging Country Debt Fund ("ECDF"), a portfolio of the Trust. GMO also serves as investment manager to ECDF. ECDF pursues its objectives by investing primarily in sovereign debt of developing countries in Asia, Latin America, the Middle East, Africa and Europe ("Emerging Countries"). The Fund's current benchmark is the J.P. Morgan Emerging Markets Bond Index+. The financial statements of ECDF should be read in conjunction with the Fund's financial statements. 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 ECDF 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 6 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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, 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. Income dividends 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. Income dividends and capital gain distributions are recorded on the ex-dividend date of ECDF. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. In addition, the Fund will also incur fees and expenses indirectly as a shareholder in ECDF (See Note 2). Purchases and redemptions of Fund shares The Fund does not charge any purchase premium or redemption fee in connection with the purchase and sale of Fund shares. As a shareholder in ECDF, the Fund will indirectly bear ECDF's purchase premium and redemption fees which are .50% and .25%, respectively. These fees are paid to and retained by ECDF. Investment risk The Fund is subject to the investment risk associated with an investment in ECDF. 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, 7 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- countries may impose various types of foreign currency regulations or controls which may impede the Fund's ability to repatriate amounts it receives. ECDF 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, ECDF 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 The Manager does not charge an advisory fee or shareholder service fee. As a shareholder in ECDF, the Fund will indirectly bear all fees and expenses associated with an investment in ECDF. GMO, in its capacity as Manager of ECDF, has agreed to waive a portion of its fee and bear other expenses to the extent that ECDF'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. Class III shares of ECDF also bear an annual shareholder service fee of .15% of ECDF's average daily net assets. The management fee earned by GMO in its capacity as Manager of ECDF is .35% of average daily net assets. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse ECDF to the extent that ECDF's total annual operating expense (excluding custody fees, brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceeds the management fee. GMO has contractually agreed to reimburse all expenses directly incurred by the Fund until June 30, 2000 (excluding brokerage commissions, certain other transaction costs (including transfer taxes), 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, 1999 was $275. 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, 1999, aggregated $22,701,414 and $4,300 respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------- ------------------ ------------------ ---------------- $82,868,531 $0 $18,827,407 $18,827,407 8 GMO Emerging Country Debt Share Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholder At August 31, 1999, 100% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder could have a material effect. 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 20, 1998 Six Months Ended (commencement of operations) Class III: August 31, 1999 through February 28, 1999 --------------------- ---------------------------- Shares Amount Shares Amount --------- ----------- ---------- ----------- Shares sold 2,574,003 20,000,000 6,000,000 $60,000,000 Shares issued to shareholders in reinvestment of distributions -- -- 24,383 168,000 --------- ----------- ---------- ----------- Net increase 2,574,003 $20,000,000 6,024,383 $60,168,000 ========= =========== ========== ===========
9 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Common Stocks -- 75.0% Aerospace -- 0.5% 1,000 Cordant Technologies Inc 41,375 500 Curtiss Wright Corp 16,531 1,000 Fairchild Corp, Class A* 9,125 700 Gencorp Inc 15,050 5,700 Kaman Corp, Class A 74,456 5,600 Kellstrom Industries Inc* 57,487 ---------- 214,024 ---------- Automotive -- 1.9% 600 Arvin Industries Inc 21,450 600 Bandag Inc 19,950 800 Borg Warner Automotive Inc 37,900 1,900 Cooper Tire & Rubber Co 36,100 7,000 Dura Automotive Systems Inc* 181,124 1,500 Meritor Automotive Inc 32,719 1,000 Modine Manufacturing Co 29,750 1,400 Smith (AO) Corp, Class B 37,975 2,600 Standard Products Corp 90,025 800 Superior Industries International Inc 22,400 3,100 Titan International Inc 34,488 12,400 United Automotive Group Inc* 156,549 2,300 Wabash National Corp 48,300 ---------- 748,730 ---------- Banking and Financial Services -- 8.6% 5,000 Acceptance Insurance Cos Inc* 66,250 12,000 Advanta Corp, Class A 236,249 36,600 Amresco Inc* 244,762 1,100 Andover Bancorp Inc 34,650 100 Bancfirst Corp 3,456 1,100 Bancwest Corp 45,994 3,200 Bay View Capital Corp 52,200 1,800 BSB Bancorp Inc 44,888 1,200 Charter Municipal Mortgage Acceptance 14,925 4,600 Commercial Federal Corp 106,950 1,200 Corus Bancshares Inc 34,350 100 CPB Inc 2,306 3,600 Credit Acceptance Corp* 21,150 500 Dain Rauscher Corp 24,813 6,300 Downey Financial Corp 133,874 See accompanying notes to the financial statements. 1 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 800 First Bancorp Puerto Rico 16,500 1,500 First Citizens Bancshares, Class A 117,375 1,000 First Commerce Bancshares Inc, Class A 20,938 1,100 First Federal Financial Corp* 16,775 500 First Indiana Corp 11,500 3,000 First Republic Bank* 77,063 4,000 Flagstar Bancorp Inc 79,000 4,100 GBC Bancorp California 80,463 3,300 Hamilton Bancorp Inc* 80,438 7,800 Imperial Credit Industries Inc* 42,413 1,000 Interwest Bancorp Inc 22,000 4,700 Jeffries Group Inc* 116,325 3,500 Leucadia National Corp 74,156 7,400 Liberty Financial Cos 190,549 700 Midland Co 16,450 1,200 Morgan Keegan Inc 20,325 20,800 Ocwen Financial Corp* 139,099 12,300 Pacific Century Financial Corp 228,318 3,900 PFF Bancorp Inc* 77,513 1,050 PMI Group Inc 44,625 1,600 Raymond James Financial Corp 31,300 400 Reliance Bancorp Inc 13,825 17,800 Resource America Inc 177,999 11,200 Resource Bancshares Mortgage Group Inc 67,200 1,800 Ryland Group Inc 43,313 15,400 Sovereign Bancorp Inc 154,481 1,100 Student Loan Group 44,000 4,900 U.S. Bancorp Inc 72,122 600 UMB Financial Corp 25,500 500 Value Line Inc 18,625 4,200 Washington Federal Inc 100,275 6,500 Westcorp 91,000 ---------- 3,378,282 ---------- Chemicals -- 0.8% 700 Albemarle Corp 12,119 1,000 Cytec Industries Inc* 23,313 1,600 IMC Global Inc 25,500 1,500 Millenium Chemicals Inc 34,500 6,600 Mississippi Chemical Corp 49,913 1,500 Olin Corp 21,281 900 Stepan Co 22,106 See accompanying notes to the financial statements. 2 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Chemicals -- continued 6,900 Wellman Inc 116,006 ---------- 304,738 ---------- Computer and Office Equipment -- 1.5% 700 Micros Systems Inc* 23,625 28,000 Neomagic Corp* 227,499 1,900 Reynolds & Reynolds Inc, Class A 41,563 10,000 SMART Modular Technologies Inc* 208,124 2,500 Sterling Software Inc* 50,313 600 Zebra Technologies Corp* 28,200 ---------- 579,324 ---------- Construction -- 1.2% 1,200 Bridge & Toll Road Brothers Inc* 24,300 700 Centex Corp 19,688 10,300 Foster Wheeler Corp 133,255 3,600 Horton (DR) Inc 52,425 1,100 Kaufman & Broad Home Corp 22,481 300 MDC Holdings Inc 5,644 4,700 Pulte Corp 108,688 800 Texas Industries Inc 25,600 2,600 US Home Corp* 78,000 ---------- 470,081 ---------- Consumer Goods -- 2.3% 700 Bassett Furniture Industries Inc 14,263 400 Block Drug Co Inc, Class A 16,075 900 Brown Shoe Co Inc 15,638 15,500 Burlington Industries Inc* 88,156 2,200 Callaway Golf Co 21,863 25,100 CHS Electronics Inc* 59,613 3,500 Compucom Systems Inc* 12,688 8,100 Daisytek International Corp* 94,163 700 Department 56 Inc* 19,600 600 Enesco Group Inc 10,350 700 Footstar Inc* 22,750 1,100 Furniture Brands International Inc* 22,069 1,100 Hon Industries Inc 25,919 1,400 Justin Industries 19,994 2,500 Kimball International, Class B 48,281 800 Knoll Inc* 21,400 See accompanying notes to the financial statement. 3 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 900 Lancaster Colony Corp 29,588 1,000 Liz Claiborne Inc 36,750 3,700 Natures Sunshine Products Inc 36,075 700 Nautica Enterprises Inc* 9,406 600 Oxford Industries Inc 12,975 800 Pittston Brinks Group 19,050 1,000 Polo Ralph Lauren Corp* 19,375 1,800 Reebok International Ltd* 21,263 1,100 Russell Corp 18,425 1,100 Technology Data Corp* 40,769 23,700 Terra Industries Inc 53,325 1,600 Unifi Inc* 21,600 2,400 US Industries Inc 38,700 1,200 Wallace Computer Services 25,650 1,100 Warnaco Group Inc, Class A 24,200 ---------- 919,973 ---------- Electronic Equipment -- 4.5% 6,300 3DFX Interactive Inc* 70,088 2,300 Andrew Corp* 40,250 13,500 Arrow Electronics Inc* 268,312 1,000 C-Cube Microsystems Inc* 27,813 8,600 Cable Design Technologies* 181,137 900 Diebold Inc 23,963 200 Franklin Electric Inc 14,100 1,600 Genlyte Group Inc* 39,200 68,700 Glenayre Technologies Inc* 214,687 400 Harman International Industries 17,000 4,200 Innovex Inc 58,275 14,200 Komag Inc* 45,263 500 Litton Industries* 32,000 8,200 Magnetek Inc* 75,850 7,600 Marshall Industries* 278,824 900 Moog Inc, Class A* 29,475 3,300 Oak Technology Inc* 15,675 16,000 Pioneer Standard Electronics Inc 225,999 2,400 Primex Technologies 50,100 400 Thermo Ecotek Corp* 3,100 400 Thomas & Betts Corp 18,000 1,300 Triumph Group Inc* 32,175 ---------- 1,761,286 ---------- See accompanying notes to the financial statements. 4 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- 2.1% 1,600 Agribrands International Inc* 77,800 400 Bob Evans Farms Inc 8,150 1,100 Corn Product Interest Inc 35,819 200 Farmer Brothers Co 39,650 15,900 IBP Inc 364,705 7,300 Imperial Sugar Co 44,713 600 International Multifoods Corp 13,613 800 Interstate Bakeries Corp 19,150 700 Luby's Cafeterias Inc 9,363 700 Michael Foods Inc 19,381 8,700 Ryan's Family Steak Houses Inc* 84,281 900 Smithfield Foods Inc* 26,438 600 Suiza Foods Corp* 19,125 900 Universal Corp 25,538 1,200 Universal Foods Corp 25,350 ---------- 813,076 ---------- Health Care -- 3.6% 4,200 Alterra Healthcare Corp* 42,000 1,200 Apria Healthcare Group* 20,250 800 Arrow International Inc 23,200 19,800 Beverly Enterprises Inc* 99,000 600 Bindley Western Industries Inc 10,050 2,100 Coventry Health Care Inc* 21,131 700 Dentsply International Inc 17,369 1,500 First Health Group Corp* 32,344 700 HCR Manor Care Inc* 13,694 28,000 Integrated Health Services Inc* 85,750 900 Invacare Corp 16,819 1,500 Lincare Holdings Inc* 39,563 10,500 Magellan Health Services Inc* 95,813 1,200 Mallinckrodt Inc 38,475 5,500 Maxxim Medical Inc* 135,437 1,100 Mentor Corp 25,713 2,200 Mid Atlantic Medical Services Inc* 18,563 900 Ocular Sciences Inc* 14,794 4,700 Pediatrix Medical Group Inc* 70,206 93,700 Phycor Inc* 380,655 See accompanying notes to the financial statements. 5 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Health Care -- continued 6,300 Quorum Health Group Inc* 55,519 9,800 Sierra Health Services Inc* 116,375 3,800 Sola International Inc* 60,325 ---------- 1,433,045 ---------- Insurance -- 3.7% 100 Alleghany Corp* 18,075 900 American Financial Group Inc 26,550 700 American National Insurance Co 49,000 1,900 Amerus Life Holdings Inc 45,838 1,000 Argonaut Group Inc 25,250 4,600 ARM Financial Group Inc, Class A 1,150 1,200 Berkley (WR) Corp 27,300 1,400 Capital Re Corp 16,975 800 Commerce Group Inc 17,800 700 Delphi Financial Group Inc* 24,850 1,300 Everest Re Holdings Inc 36,075 3,300 Fidelity National Financial Inc 50,738 2,600 First American Financial Corp 38,675 2,300 Foundation Health Systems Inc, Class A* 29,325 1,700 Fremont General Corp 16,894 1,500 Frontier Insurance Group Inc 18,188 2,700 Harleysville Group Inc 52,481 1,000 HCC Insurance Holdings Inc 14,625 800 Horace Mann Educators Corp 24,100 1,200 Kansas City Life Insurance Co 48,975 7,000 Landamerica Financial Group Inc 161,874 500 Mercury General Corp 15,125 3,300 MMI Companies Inc 43,931 300 National Western Life Insurance, Class A* 27,150 2,000 Ohio Casualty Corp 30,750 2,800 Old Republic International Corp 43,400 1,900 Orion Capital Corp 91,675 1,600 Oxford Health Plans Inc* 24,800 300 PMA Capital Corp, Class A 5,944 1,200 Presidential Life Corp 21,600 700 PXRE Corp 11,856 600 Radian Group Inc 27,788 14,600 Reliance Group Holdings Inc 69,350 600 RLI Corp 20,138 400 SCPIE Holdings Inc 12,125 4,500 Selective Insurance Group 80,156 See accompanying notes to the financial statements. 6 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- continued 5,400 Stewart Information Services Corp 112,388 400 Transatlantic Holding Inc 28,850 1,000 Trenwick Group Inc 21,938 900 Trigon Healthcare Inc* 32,681 ---------- 1,466,383 ---------- Lodging -- 0.0% 300 Boyd Gaming Corp* 1,613 ---------- Machinery -- 1.6% 5,400 Agco Corp 55,688 1,000 Cooper Cameron Corp* 41,625 1,400 Cummins Engine Inc 82,950 1,000 Detroit Diesel Corp 20,438 1,200 Donaldson Co Inc 23,550 1,100 Flowserve Corp 17,394 800 FMC Corp* 46,600 13,400 Harnischfeger Industries Inc 19,263 300 IRI International Corp* 1,406 800 Kaydon Corp 24,550 1,300 Kennametal Inc 34,450 900 Milacron Inc 16,200 900 Mohawk Industries Inc* 20,363 2,800 Oakley Inc* 17,150 2,600 Paxar Corp* 22,588 600 Starrett (LS) Co, Class A 14,663 500 Tecumseh Products Co 28,500 1,000 Tecumseh Products Co, Class B 53,000 2,900 Varco International Inc* 35,888 1,000 York International Corp 41,125 ---------- 617,391 ---------- Manufacturing -- 3.1% 7,100 ACX Technologies Inc* 87,863 1,700 Amcast Industrial Corp 26,988 600 Applied Power Inc, Class A 18,375 400 Armstrong World Industries Inc 19,425 800 Barnes Group Inc 15,850 1,300 Champion Enterprises Inc* 11,050 2,700 Clayton Homes Inc 25,650 1,400 Commercial Intertech Corp 17,500 1,600 Crane Co 38,500 See accompanying notes to the financial statements. 7 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Manufacturing-- continued 1,900 Gibson Greetings Inc* 7,481 15,500 Griffon Corp* 110,438 1,000 Harsco Corp 27,688 1,200 International Game Technology 21,000 500 Lafarge Corp 13,750 13,300 Metals USA Inc* 141,312 300 Mikasa Inc 3,638 300 Mine Safety Appliances 19,200 700 NCI Building Systems Inc* 12,819 17,300 Omnicare Inc 166,512 900 Owens Corning 25,313 800 Standex International Corp 18,300 1,200 Tower Automotive Inc* 24,000 11,200 Trinity Industries Inc 351,399 900 Watts Industries Inc, Class A 19,800 ---------- 1,223,851 ---------- Metals and Mining-- 1.5% 1,700 Arch Coal Inc 22,738 8,800 Asarco Inc 183,699 500 Cleveland Cliffs Inc 16,031 2,900 Commercial Metals Co 88,813 8,000 Cyprus Amax Minerals Co 135,499 1,700 Nacco Industries Inc, Class A 132,387 1,600 Timken Co 28,100 ---------- 607,267 ---------- Oil and Gas-- 9.4% 1,800 Friede Goldman International Inc* 22,050 900 Helmerich & Payne Inc 24,806 77,700 K N Energy Inc 1,583,137 3,600 National-Oilwell Inc* 61,200 16,500 Parker Drilling Co* 82,500 54,700 Pride International Inc* 813,662 500 Seacor Smit Inc* 25,969 24,800 Transocean Offshore Inc 843,199 13,900 Veritas DGC Inc* 248,462 ---------- 3,704,985 ---------- Paper and Allied Products-- 0.6% 1,700 Boise Cascade Office Products* 16,363 See accompanying notes to the financial statements. 8 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Paper and Allied Products-- continued 900 Caraustar Industries Inc 20,419 2,700 Rock-Tenn Co, Class A 38,138 3,300 Schweitzer-Mauduit International 44,756 1,400 Shorewood Packaging Corp* 20,650 2,000 United Stationers Inc* 45,250 1,500 Wausau-Mosinee Paper Corp 20,625 900 Westvaco Corp 23,569 ---------- 229,770 ---------- Pharmaceuticals-- 0.4% 600 Amerisource Health Corp* 15,488 1,100 Bergen Brunswig Corp, Class A 16,981 2,000 Mark IV Industries Inc 39,625 3,300 NBTY Inc* 26,813 10,000 NCS Healthcare Inc, Class A* 36,250 1,700 Nu Skin Enterprises Inc* 18,169 ---------- 153,326 ---------- Primary Materials-- 0.3% 500 Ameron Inc 22,875 500 Carlisle Cos Inc 20,000 700 Carpenter Technology Corp 16,013 500 Centex Construction Products Inc 19,219 1,000 Premark International Inc 33,250 400 West Pharmaceutical Services Inc 15,050 ---------- 126,407 ---------- Primary Processing-- 2.9% 1,400 AK Steel Holding Corp 29,400 900 Belden Inc 21,094 4,900 Bethlehem Steel Corp* 37,669 1,300 Citation Corp* 20,556 200 Intermet Corp 2,306 25,400 LTV Corp 146,049 18,800 National Steel Corp, Class B 152,749 500 NCH Corp 22,250 1,600 Oregon Steel Mills Inc 17,500 600 Precision Castparts Corp 21,300 800 Quanex Corp 20,800 1,000 Ryerson Tull Inc 18,938 1,600 Titanium Metals Corp 13,700 23,000 USX-US Steel Group Inc 620,999 ---------- 1,145,310 ---------- See accompanying notes to the financial statements. 9 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Printing and Publishing-- 0.6% 2,400 American Business Products Inc 36,000 4,900 Merrill Corp 99,838 3,200 World Color Press Inc* 117,600 ---------- 253,438 ---------- Real Estate-- 1.0% 1,400 Lennar Corp 26,600 16,600 Meristar Hospitality Corp, REIT 280,124 700 Parkway Properties Inc, REIT 23,100 1,300 Prime Group Realty Trust 21,531 2,400 Webb (D) Corp 52,200 ---------- 403,555 ---------- Refining-- 0.2% 1,200 Ultramar Diamond Shamrock Corp 31,350 1,200 Valero Energy Corp 25,500 ---------- 56,850 ---------- Retail Trade-- 4.7% 7,600 7 Eleven Inc* 15,675 800 Applebees International Inc 24,850 1,400 Burlington Coat Factory Warehouse 23,100 9,200 CBRL Group Inc 120,749 8,400 Central Garden and Pet Co* 65,100 1,100 Claire's Stores Inc 20,694 2,400 Cone Mills Corp* 14,100 7,100 Dress Barn Inc* 106,944 1,500 Finish Line Inc* 13,406 2,000 Fruit of the Loom Inc, Class A* 14,000 8,100 Goodys Family Clothing Inc* 74,672 10,600 Heilig Meyers Co 56,313 3,700 Homebase Inc* 16,188 2,700 Inacom Corp* 26,325 1,700 Ingles Markets Inc 22,844 600 Jo-ann Stores* 8,213 17,000 Just For Feet Inc* 69,063 28,500 Landry's Seafood Restaurants* 242,249 11,700 Lone Star Steakhouse and Saloon Inc* 89,213 See accompanying notes to the financial statements. 10 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade-- continued 13,300 Micro Warehouse Inc* 162,924 1,500 Neiman Marcus Group Inc* 33,375 1,400 NPC International Inc* 15,838 3,000 OfficeMax Inc* 22,688 600 Payless ShoeSource Inc* 29,925 1,600 Petco Animal Supplies Inc* 20,000 1,600 Phillips Van Heusen 13,600 4,400 Rainforest Cafe Inc* 28,875 16,300 Richfood Holdings Inc 298,493 1,200 Ross Stores Inc 49,950 900 Ruby Tuesday Inc 16,313 900 Ruddick Corp 16,706 600 Shopko Stores Inc* 17,175 2,900 Systemax Inc* 27,006 5,900 Value City Department Stores Inc* 73,750 2,800 Venator Group Inc* 19,950 ---------- 1,870,266 ---------- Services-- 5.6% 2,200 Alternative Resources Corp* 13,338 700 Amerco* 17,588 1,300 Anchor Gaming* 63,172 12,400 Arctic Cat Inc 117,025 800 Avis Rental Car Inc* 17,600 3,000 Aztar Corp* 27,563 2,800 Banta Corp 65,800 1,100 Berlitz International Inc* 20,075 1,600 Bowne and Co Inc 22,200 7,600 Buffets Inc* 85,025 14,500 Building One Services Corp* 188,499 700 Carmike Cinemas Inc, Class A* 9,450 1,800 Dollar Thrifty Automotive Group Inc* 33,863 2,900 Electro Rental Corp* 35,163 5,200 Family Golf Centers Inc* 6,500 18,900 Fleming Cos Inc 227,980 5,000 Franklin Covey Co* 38,750 2,100 Harrahs Entertainment Inc* 47,250 2,000 Interpool Inc 19,000 700 Jacobs Engineering Group* 23,100 700 Kellwood Co 16,713 See accompanying notes to the financial statements. 11 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 3,800 Kelly Services 106,875 800 KingWorld Productions Inc* 30,500 1,500 Manpower Inc 40,500 900 Marcus Corp 10,744 8,400 Modis Professional Services Inc* 132,824 1,500 Nash Finch Co 13,594 1,500 National Processing Inc* 12,938 12,200 Oakwood Homes Corp 73,963 3,800 Olsten Corp 38,950 9,700 Personnel Group of America Inc* 81,238 2,200 Prime Hospitality Corp* 20,488 800 Promus Hotel Corp* 23,250 700 Rent-A-Center Inc* 15,531 1,500 Rollins Truck Leasing Corp 15,563 1,200 RWD Technologies Inc* 9,525 800 Sbarro Inc* 22,000 1,900 Staff Leasing Inc* 17,575 30,300 Staffmark Inc* 294,479 1,400 Supervalu Inc 31,500 2,500 Unifirst Corp 37,813 1,900 Wolverine World Wide Inc 21,494 900 XTRA Corp 40,781 --------- 2,187,779 --------- Technology -- 3.5% 4,200 Analysts International Corp 56,175 2,400 Aspen Technologies Inc* 20,550 1,200 Autodesk Inc 27,600 2,800 Avnet Inc 123,899 900 Caci International Inc* 20,250 2,500 Cirrus Logic Corp* 27,969 29,700 Computer Horizons Corp* 386,099 5,700 Cotelligent Group Inc* 27,431 6,200 Datastream Systems Inc* 75,175 600 Deluxe Corp 20,438 3,900 Esterline Corp* 63,863 1,300 G TECH Holdings Corp* 32,825 900 Gartner Group Inc, Class A 18,844 24,200 GT Interactive Software Corp* 71,088 2,900 Hypercom Corp* 22,475 See accompanying notes to the financial statements. 12 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Technology -- continued 3,200 Hyperion Solutions Corp* 49,000 4,700 Input/Output Inc* 34,663 9,900 Midway Games Inc* 129,937 1,700 MTS Systems Inc 18,700 4,500 Network Equipment Tech Inc* 39,375 1,500 Networks Associates Inc* 25,313 500 Project Software and Development* 21,969 5,000 Saga Systems Inc* 58,750 1,200 Thermo Electron Corp* 19,050 ---------- 1,391,438 ---------- Telecommunications -- 0.9% 12,000 Ameripath Inc* 112,500 40,900 Brightpoint Inc* 144,429 1,100 North Pittsburgh Systems 14,369 2,400 Star Telecommunications Inc* 13,800 4,500 West Teleservices* 47,813 1,800 World Access Inc* 22,388 ---------- 355,299 ---------- Textiles -- 0.6% 1,800 Dan River Inc, Class A* 12,600 8,100 Guilford Mills 76,444 9,500 Interface Flooring Systems Inc 82,531 4,200 Pillowtex Corp 45,938 600 Springs Industries Inc, Class A 22,538 ---------- 240,051 ---------- Transportation -- 2.7% 800 Airborne Freight Corp 20,150 900 Airline Express International Corp 21,994 400 Alaska Airline Group Inc* 17,300 1,100 American West Holdings Corp, Class B* 21,450 1,200 Atlantic Coast Airlines Holdings* 23,850 6,100 Brunswick Corp 155,930 1,500 Comair Holdings Inc 31,688 6,300 Consolidated Freightways Corp* 68,119 700 Continental Airlines Inc, Class B* 28,569 1,200 Fleetwood Enterprises Inc 24,450 6,000 Fritz Companies Inc* 68,250 700 Gatx Corp 23,363 See accompanying notes to the financial statements. 13 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Transportation -- continued 3,600 Halter Marine Group Inc* 19,125 1,400 Heartland Express Inc* 20,825 400 Landstar System Inc* 14,800 12,200 Offshore Logistics Inc* 142,587 500 Pittston Bax Group 4,469 2,200 Ryder System Inc 48,538 6,800 Tidewater Inc 220,999 900 US Freightways Corp 43,650 1,600 Wisconsin Central Transport* 25,500 1,000 Yellow Corp* 15,875 ---------- 1,061,481 ---------- Utilities -- 4.7% 6,100 Citizens Utilities, Class B* 67,100 8,500 CMP Group Inc 225,780 1,700 Connectiv Inc 36,444 2,500 El Paso Electric Co* 22,969 2,200 Hawaiian Electric Industry Inc 78,238 10,100 MCN Corp 180,537 3,000 Niagara Mohawk Holdings Inc* 45,375 8,100 Oneok Inc 251,605 31,900 Public Services Co of New Mexico 600,118 800 Puget Sound Power and Light Co 18,950 4,700 RGS Energy Group Inc 121,612 1,100 Southwestern Energy Co 9,831 1,200 UniSource Energy Corp Holding Co* 14,325 1,100 United Illuminating Co 55,000 100 Western Gas Resources Inc 1,706 4,700 Western Resources Inc 112,213 ---------- 1,841,803 ---------- TOTAL COMMON STOCKS (COST $30,853,301) 29,560,822 ---------- See accompanying notes to the financial statements. 14 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value($) Description Value ($) - -------------------------------------------------------------------------------- SHORT -- TERM INVESTMENTS -- 11.7% U.S. Government-- 1.7% $ 690,000 U.S. Treasury Bill, 4.55%, due 10/21/99(a) 682,273 ---------- Repurchase Agreements -- 10.0% $1,973,499 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $1,973,756 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 7.25%, maturity date of 5/15/16 and market value, including accrued interest, of $2,012,969. $1,973,499 $1,973,499 Morgan Stanley Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $1,973,755, and an effective yield of 4.66%, collateralized by a U.S. Treasury Obligation with a rate of 5.17%, maturity date of 9/15/99, and market value, including accrued interest, of $2,015,641. 1,973,499 ---------- 3,946,998 ---------- TOTAL SHORT-TERM INVESTMENTS (COST $4,632,753) 4,629,271 ---------- TOTAL INVESTMENTS -- 86.7% (COST $35,486,054) 34,190,093 Other Assets and Liabilities (net)-- 13.3% 5,230,810 ---------- TOTAL NET ASSETS-- 100% $39,420,903 =========== Notes to the Schedule of Investments: REIT - Real Estate Investment Trust * Non-income producing security. (a) Security has been segregated to cover margin requirements on open financial futures contracts. See accompanying notes to the financial statements. 15 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $35,486,054) (Note 1) $34,190,093 Cash 5,148,441 Receivable for investments sold 19,800 Dividends and interest receivable 50,020 Receivable for variation margin on open futures contracts 45,000 (Notes 1 and 6) Receivable for expenses waived or borne by Manager (Note 2) 6,293 ----------- Total assets 39,459,647 ----------- Liabilities: Payable to affiliate for (Note 2): Management fee 19,054 Shareholder service fee 5,197 Accrued expenses 14,493 ----------- Total liabilities 38,744 ----------- Net assets $39,420,903 =========== Net assets consist: Paid-in capital $41,150,529 Accumulated undistributed net investment income 79,139 Accumulated undistributed net realized gain 21,628 Net unrealized depreciation (1,830,393) =========== $39,420,903 =========== Net assets attributable to: Class III shares $39,420,903 =========== Shares outstanding: Class III 3,984,279 =========== Net asset value per share: Class III $ 9.89 =========== 16 See accompanying notes to the financial statements. GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Statement of Operations -- For the Period from June 1, 1999 (commencement of operations) through August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends $ 85,145 Interest 53,784 ----------- Total income 138,929 ----------- Expenses: Management fee (Note 2) 42,192 Audit fees 13,320 Custodian and transfer agent fees 3,690 Registration fees 360 Legal fees 270 Trustees fees (Note 2) 90 Miscellaneous 540 Fees waived or borne by Manager (Note 2) (18,270) ----------- 42,192 Shareholder service fee (Note 2) Class III 11,507 ----------- Net expenses 53,699 ----------- Net investment income 85,230 ----------- Realized and unrealized gain (loss): Net realized gain on investments 21,628 ----------- Change in net unrealized appreciation (depreciation) on: Investments (1,295,961) Open futures contracts (534,432) ----------- Net unrealized loss (1,830,393) ----------- Net realized and unrealized loss (1,808,765) ----------- Net decrease in net assets resulting from operations $(1,723,535) =========== See accompanying notes to the financial statements. 17 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from June 1, 1999 (commencement of operations) through August 31, 1999 (Unaudited) -------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 85,230 Net realized gain 21,628 Change in net unrealized appreciation (depreciation) (1,830,393) ----------- Net decrease in net assets resulting from operations (1,723,535) ----------- Distributions to shareholders from: Net investment income Class III (6,091) ----------- Total distributions from net investment income (6,091) ----------- (6,091) ----------- Net share transactions: (Note 5) Class III 41,150,529 ----------- Increase in net assets resulting from net share transactions 41,150,529 ----------- Total increase in net assets 39,420,903 Net assets: Beginning of period -- ----------- End of period (including accumulated undistributed net investment income of $79,139) $39,420,903 ===========
18 See accompanying notes to the financial statements. GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout the period) - -------------------------------------------------------------------------------- Period from June 1, 1999 (commencement of operations) to August 31, 1999 (Unaudited) --------------------- Net asset value, beginning of period $10.00 ------ Income from investment operations: Net investment income 0.02 Net realized and unrealized loss (0.13) ------ Total from investment operations (0.11) ------ Less distributions to shareholders: From net investment income --(a) ------ Total distributions -- ------ Net asset value, end of period $ 9.89 ====== Total Return (b) (1.08)% Ratios/Supplemental Data: Net assets, end of period (000's) $39,421 Net expenses to average daily net assets 0.70%* Net investment income to average daily net assets 1.10%* Portfolio turnover rate 0% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $ 0.01 (a) The per share distribution from net investment income is $0.002. (b) Calculation excludes purchase premiums. 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. 19 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Tax Managed U.S. Small Cap Fund (the "Fund"), which commenced operations on June 1, 1999, 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 to maximize after-tax total return through investment in a portfolio of common stocks of smaller companies principally traded in the U.S. The Fund's current benchmark is the Russell 2500 Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 contracts, or if 20 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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 dividends 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. 21 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .50% of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 1999, the Fund received $157,588 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 .55% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the period ended August 31, 1999 was $90. 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, 1999, aggregated $30,979,973 and $0, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------- ------------------- ------------------- ------------------ $ 35,486,054 $ 2,310,145 $ 3,606,106 $ 1,295,961 22 GMO Tax Managed U.S. Small Cap Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1999, 79.1% 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 June 1, Class III: 1999 (commencement of operations) through August 31, 1999 ------------------------ Shares Amount ----------- ------------ Shares sold 3,983,928 $41,146,883 Shares issued to shareholders in reinvestment of 351 3,646 distributions Shares repurchased -- -- =========== ============ Net increase 3,984,279 $41,150,529 =========== ============ 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Long futures contracts Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation ------------ ------------- ----------------- ---------------- ------------- 40 Russell 2000 September, 1999 $8,568,000 $ (534,432) ============ At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 23 GMO Short-Term Income Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Short-Term Income Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value Description Value ($) - -------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 95.2% Asset Backed Securities -- 68.8% $ 114,668 Americredit Automobile Receivables Trust Series 96-B Class A, 6.50%, due 1/12/02 114,731 1,660,000 Brazos Student Loan Finance Corp Series 96-B Class A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.50%, due 12/01/02 1,655,072 9,000,000 Chevy Chase Master Credit Card Trust Series 96-A Class A, Variable Rate, 1 mo. LIBOR + .15%, 5.42%, due 2/15/05 8,984,179 1,420,155 Constellation 99-1A, 144A, 5.73%, due 4/18/02 1,420,155 2,000,000 Discover Card Master Trust I Series 99-3 Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 9/15/04 1,995,625 1,000,000 Dreamworks Film Trust Series 1 Class A, Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 997,656 5,000,000 Fleet Credit Card Master Trust II Series 99-A Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 9/15/04 4,990,430 5,000,000 MBNA Master Credit Card Trust Series 98-I Class A, Variable Rate, 1 mo. LIBOR + .26%, 5.53%, due 10/15/03 5,009,180 3,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due 2/01/03 2,916,000 2,500,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%, due 6/01/03 2,472,500 2,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A, Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.16%, due 7/30/11 1,929,688 3,500,000 Team Fleet Financing Corp Series 98-3A Class A, 144A, 6.13%, due 10/25/04 3,351,250 ------------ 35,836,466 ------------ Structured Notes -- 0.9% 500,000 Polaris Funding Company, Variable Rate, 1 mo. LIBOR + .30%, 5.51%, due 1/07/05 491,953 ------------ U.S. Government -- 9.9% 5,188,750 U.S. Treasury Inflation Indexed Note, 3.63%, due 7/15/02 5,140,916 ------------ U.S. Government Agency -- 15.6% 315,000 Agency for International Development Floater (Support of Botswana), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.61%, due 10/01/12 305,550 2,025,225 Agency for International Development Floater (Support of C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.61%, due 10/01/12 1,964,468 2,084,158 Agency for International Development Floater (Support of Honduras), Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 5.23%, due 10/01/11 2,011,213 89,854 Agency for International Development Floater (Support of Peru), Series A, Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.56%, due 5/01/14 86,260 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, 1999 (Unaudited) Par Value Description Value ($) - -------------------------------------------------------------------------------- U.S. Government Agency -- continued $1,000,000 Federal Farm Credit Bank, Variable Rate, CPI + 3.00%, 5.07%, due 2/14/02 965,500 2,788,616 Small Business Administration Pool #502320, Variable Rate, Prime - 2.18%, 5.18%, due 8/25/18 2,803,953 ----------- 8,136,944 ----------- TOTAL DEBT OBLIGATIONS (COST $50,096,894) 49,606,279 ----------- SHORT TERM INVESTMENTS -- 5.5% Commercial Paper -- 3.8% $2,000,000 Glencore Assets, 5.40%, due 10/05/99 1,989,800 ----------- Repurchase Agreements -- 1.7% $ 876,101 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $876,215 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $893,623. 876,101 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $2,865,901) 2,865,901 ----------- TOTAL INVESTMENTS -- 100.7% (Cost $52,962,795) 52,472,180 Other Assets and Liabilities (net) -- (0.7)% (374,256) ----------- TOTAL NET ASSETS -- 100% $52,097,924 =========== Notes to the Schedule of Investments: Variable rates - The rates shown on variable rate notes are the current interest rates at August 31, 1999, 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $52,962,795) (Note 1) $52,472,180 Receivable for investments sold 6,739 Interest receivable 288,063 Receivable for expenses waived or borne by Manager (Note 2) 4,029 ----------- Total assets 52,771,011 ----------- Liabilities: Payable for Fund shares repurchased 650,000 Payable to affiliate for (Note 2): Management fee 2,234 Shareholder service fee 6,705 Accrued expenses 14,148 ----------- Total liabilities 673,087 ----------- Net assets $52,097,924 =========== Net assets consist of: Paid-in capital $52,092,689 Accumulated undistributed net investment income 534,375 Accumulated net realized loss (38,525) Net unrealized depreciation (490,615) =========== $52,097,924 =========== Shares outstanding 5,410,777 =========== Net asset value per share $ 9.63 =========== 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $1,444,517 ---------- Total income 1,444,517 ---------- Expenses: Management fee (Note 2) 13,373 Audit fees 13,804 Custodian and transfer agent fees 5,597 Legal fees 829 Registration fees 546 Trustees fees (Note 2) 368 Miscellaneous 1,102 Fees waived or borne by Manager (Note 2) (22,246) ---------- 13,373 Shareholder service fee (Note 2) 40,118 ---------- Net expenses 53,491 ---------- Net investment income 1,391,026 ---------- Realized and unrealized loss: Net realized loss on investments (12,302) ---------- Change in net unrealized appreciation (depreciation) on investments (187,719) ---------- Net realized and unrealized loss (200,021) ---------- Net increase in net assets resulting from operations $1,191,005 ========== 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 Year Ended 31, 1999 February (Unaudited) 28, 1999 --------------- ------------ Increase (decrease) in net assets: Operations: Net investment income $1,391,026 $1,817,518 Net realized loss (12,302) (22,156) Change in net unrealized appreciation (depreciation) (187,719) (360,921) ---------- ----------- Net increase in net assets resulting from operations 1,191,005 1,434,441 ---------- ----------- Distributions to shareholders from: Net investment income (1,195,789) (1,788,988) ---------- ----------- (1,195,789) (1,788,988) ---------- ----------- Fund share transactions: (Note 5) Proceeds from sale of shares 4,844,376 77,435,093 Net asset value of shares issued to shareholders in payment of distributions declared 1,162,059 1,459,945 Cost of shares repurchased (7,291,124) (62,529,846) ---------- ----------- Net increase (decrease) in net assets resulting from Fund share transactions (1,284,689) 16,365,192 ---------- ----------- Total increase (decrease) in net assets (1,289,473) 16,010,645 Net assets: Beginning of period 53,387,397 37,376,752 ---------- ----------- End of period (including accumulated undistributed net investment income of $534,375 and $339,138, respectively) $52,097,924 $53,387,397 =========== ===========
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 August Year Ended February 28/29, 31, 1999 ------------------------------------------------------ (Unaudited) 1999 1998 1997 1996 1995 --------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 9.63 $ 9.81 $ 9.78 $ 9.77 $ 9.56 $ 9.79 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.26 0.57 0.55 0.47 0.57 0.63 Net realized and unrealized gain (loss) (0.04) (0.16) 0.03 0.06 0.20 (0.28) ------- ------- ------- ------- ------- ------- Total from investment operations 0.22 0.41 0.58 0.53 0.77 0.35 ------- ------- ------- ------- ------- ------- Less distributions to shareholders: From net investment income (0.22) (0.59) (0.55) (0.52) (0.56) (0.58) ------- ------- ------- ------- ------- ------- Total distributions (0.22) (0.59) (0.55) (0.52) (0.56) (0.58) ------- ------- ------- ------- ------- ------- Net asset value, end of period $ 9.63 $ 9.63 $ 9.81 $ 9.78 $ 9.77 $ 9.56 ======= ======= ======= ======= ======= ======= Total Return (a) 2.28% 4.29% 6.10% 5.62% 8.32% 3.78% Ratios/Supplemental Data: Net assets, end of period (000's) $52,098 $53,387 $37,377 $40,937 $11,066 $ 8,193 Net expenses to average daily net assets 0.20%* 0.20% 0.20% 0.20% 0.25% 0.25% Net investment income to average daily net assets 5.20%* 5.50% 5.73% 5.88% 6.49% 5.02% Portfolio turnover rate 54% 76% 50% 287% 139% 335% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.02
* Annualized. (a)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. 6 See accompanying notes to the financial statements. GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 to provide current income to the extent consistent with the preservation of capital and liquidity through investment in a portfolio of high-quality fixed income instruments. The Fund's current benchmark is the Salomon Smith Barney 3 Month T-Bill Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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. Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by principal market makers may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements. 7 GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 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, 1999, 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 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 dividends 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 8 GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon the inflation adjusted principal. Additionally, any increase in the principal or face amount of the securities adjusted for inflation is recorded as interest income. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .05% of average daily net assets. The Fund has adopted a Shareholder Service 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 the Fund at the annual rate of .15%. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fees. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .25% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) 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, 1999 was $368. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 9 GMO Short-Term Income Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, aggregated $18,956,445 and $14,818,806, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ ----------------- ------------------ ----------------- $ 52,962,795 $ 1,989 $ 492,604 $ 490,615 4. Principal shareholder At August 31, 1999, 73.5% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder could have a material effect. 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 Year Ended Ended February 28, August 31, 1999 1999 ---------------- ---------------- Shares sold 502,465 8,045,249 Shares issued to shareholders in reinvestment of distributions 121,490 150,962 Shares repurchased (756,990) (6,463,182) ---------------- ---------------- Net increase (decrease) (133,035) 1,733,029 Fund shares: Beginning of period 5,543,812 3,810,783 ---------------- ---------------- End of period 5,410,777 5,543,812 ================ ================ 10 GMO Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Common Stocks -- 93.3% Aerospace -- 1.2% 20,000 Boeing Company 906,250 35,000 Lockheed Martin Corp 1,295,000 10,000 TRW Inc 545,000 ------------ 2,746,250 ------------ Automotive -- 1.3% 25,000 Delphi Automotive Systems* 468,750 12,500 Ford Motor Co 651,563 30,000 General Motors Corp 1,983,750 ------------ 3,104,063 ------------ Banking and Financial Services -- 11.2% 12,500 American Express Co 1,718,750 62,500 Amsouth Bancorp 1,367,188 7,500 Bank of America Corp 453,750 15,000 Bank One Corp 601,875 75,000 Block (HR) Inc 4,171,874 65,000 Chase Manhattan Corp 5,439,687 145,000 Citigroup Inc 6,443,437 50,000 First Union Corp 2,075,000 17,500 PNC Bank Corp 915,469 87,500 Washington Mutual Inc 2,778,125 ------------ 25,965,155 ------------ Chemicals -- 0.4% 5,000 Du Pont (EI) De Nemours & Co 316,875 15,000 Monsanto Co 615,938 ------------ 932,813 ------------ Computer and Office Equipment -- 3.3% 20,000 Electronic Data Systems Corp 1,122,500 2,500 Hewlett Packard Co 263,438 50,000 IBM Corp 6,228,124 ------------ 7,614,062 ------------ Consumer Goods -- 2.4% 65,000 Eastman Kodak Co 4,773,437 37,500 Mattel Co 799,219 ------------ 5,572,656 ------------ See accompanying notes to the financial statements. 1 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- 0.6% 20,000 Emerson Electric Co 1,252,500 2,500 Raytheon Co, Class B 170,313 ------------ 1,422,813 ------------ Food and Beverage -- 4.6% 45,000 Anheuser Busch Cos Inc 3,464,999 125,000 ConAgra Inc 3,062,499 55,000 Nabisco Group Holdings 976,250 7,500 Nestle SA ADR* 740,075 25,000 Pepsico Inc 853,125 17,500 Ralston-Purina Group 481,250 20,000 RJ Reynolds Tobacco Holdings* 548,750 25,000 Sara Lee Corp 554,688 ------------ 10,681,636 ------------ Health Care -- 0.6% 22,500 Becton Dickinson & Co 632,813 12,500 Columbia HCA Healthcare Corp 307,813 5,000 Johnson & Johnson 511,250 ------------ 1,451,876 ------------ Insurance -- 1.1% 2,501 Aetna Life and Casualty Co 194,414 50,000 Allstate Corp 1,640,625 5,000 Loews Corp 392,500 50,000 Reliance Group Holdings Inc 237,500 ------------ 2,465,039 ------------ Machinery -- 1.4% 25,000 Baker Hughes Inc 850,000 5,000 Caterpillar Inc 283,125 25,000 FMC Corp* 1,456,250 30,000 Milacron Inc 540,000 ------------ 3,129,375 ------------ Manufacturing -- 6.5% 50,000 Corning Inc 3,324,999 20,000 General Electric Co 2,246,250 20,000 Minnesota Mining and Manufacturing Co 1,890,000 125,000 Owens Corning 3,515,624 85,000 Tenneco Inc 1,710,625 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Manufacturing -- continued 37,500 United Technologies Corp 2,479,688 ------------ 15,167,186 ------------ Metals and Mining -- 1.2% 37,500 Alcan Aluminum Ltd 1,232,813 22,500 Inco Ltd 461,250 5,000 Newmont Mining Corp 102,188 15,000 Reynolds Metals Co 949,688 ------------ 2,745,939 ------------ Oil and Gas -- 8.5% 22,500 Amerada Hess Corp 1,396,406 5,000 Atlantic Richfield Co 439,688 40,000 Burlington Resources Inc 1,672,500 52,500 Enron Oil & Gas 1,253,438 2,500 Exxon Corp 197,188 15,000 Kerr-McGee Corp 840,000 10,000 Mobil Corp 1,023,750 150,000 Occidental Petroleum Corp 3,253,124 17,500 Questar Corp 330,313 20,000 Texaco Inc 1,270,000 112,500 Union Pacific Resources Group 2,017,969 87,500 Unocal Corp 3,664,062 77,500 USX - Marathon Group 2,412,188 ------------ 19,770,626 ------------ Paper and Allied Products -- 6.3% 5,000 Champion International Corp 275,000 35,000 Fort James Corp 1,128,750 125,000 International Paper Co 5,882,812 112,500 Kimberly Clark Corp 6,405,468 17,500 Weyerhaeuser Co 984,375 ------------ 14,676,405 ------------ Pharmaceuticals -- 2.7% 25,000 American Home Products Corp 1,037,500 10,000 Glaxo Wellcome PLC ADR 529,375 27,500 Lilly (Eli) & Co 2,052,188 67,500 McKesson HBOC Inc 2,100,938 10,000 Smithkline Beecham PLC ADR 637,500 ------------ 6,357,501 ------------ See accompanying notes to the financial statements. 3 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Primary Materials -- 0.3% 25,000 Crown Cork & Seal Inc 664,063 ------------ Primary Processing -- 0.4% 32,500 USX-US Steel Group Inc 877,500 ------------ Printing and Publishing -- 0.3% 25,000 R.R. Donnelley and Sons 784,375 ------------ Real Estate -- 7.7% 25,000 Brandywine Realty Trust 448,438 20,300 Developers Diversified Realty Corp 303,231 22,500 Duke Realty Investments 504,844 165,000 Equity Office Properties 4,217,812 75,000 Equity Residential Properties Trust 3,299,999 100,000 JP Realty Inc 1,937,500 10,000 Liberty Property Trust 245,000 62,500 Mack-Cali Realty Corp 1,773,438 15,000 Simon Property Group Inc 382,500 15,000 Spieker Properties Inc 573,750 100,000 Summit Properties Inc 1,987,500 100,000 United Dominion Realty Trust Inc 1,150,000 50,000 Walden Residential Properties Inc 940,625 ------------ 17,764,637 ------------ Refining -- 1.3% 75,000 Conoco Inc 2,006,250 17,500 Royal Dutch Petroleum Co 1,082,813 ------------ 3,089,063 ------------ Retail Trade -- 5.4% 100,000 Federated Department Stores Inc* 4,599,999 27,500 Saks Inc* 462,344 57,500 Sears Roebuck & Co 2,156,250 162,500 Toys R Us Inc* 2,244,531 67,500 Wal Mart Stores Inc 2,991,094 ------------ 12,454,218 ------------ Services -- 2.4% 45,000 Hilton Hotels Corp 551,250 5,000 Manpower Inc 135,000 2,000 Meredith Corp 69,375 4 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 225,000 Waste Management Inc 4,907,812 ------------ 5,663,437 ------------ Technology -- 3.5% 60,000 Compaq Computer Corp 1,391,250 22,500 Computer Sciences Corp 1,556,719 242,500 Storage Technology Corp* 5,092,499 ------------ 8,040,468 ------------ Telecommunications -- 4.5% 30,000 Bell Atlantic Corp 1,837,500 47,500 GTE Corp 3,259,687 25,000 MediaOne Group Inc* 1,643,750 30,001 SBC Communications 1,440,048 45,000 US West Inc 2,351,250 ------------ 10,532,235 ------------ Tobacco -- 0.3% 25,000 Imperial Tobacco Group PLC ADR 560,938 ------------ Transportation -- 4.5% 15,000 AMR Corp* 879,375 30,000 Burlington Northern Santa Fe Railroad Co 870,000 65,000 Canadian Pacific 1,523,438 5,000 Delta Air Lines Inc 254,063 90,000 FDX Corp* 3,819,374 100,000 Ryder System Inc 2,206,250 32,500 USAir Group Inc* 1,001,406 ------------ 10,553,906 ------------ Utilities -- 9.4% 50,000 Cinergy Corp 1,518,750 25,000 Dominion Resources Inc 1,156,250 27,500 Duke Power Co 1,581,250 80,000 El Paso Energy Corp 2,925,000 20,000 Firstenergy Corp 571,250 100,000 Niagara Mohawk Holdings Inc* 1,512,500 25,000 PacifiCorp 510,938 37,500 PG & E Corp 1,136,719 25,000 Public Service Enterprise Group Inc. 1,025,000 See accompanying notes to the financial statements. 5 GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- Utilities -- continued 12,500 Reliant Energy Inc 346,094 125,000 Sempra Energy 2,789,063 25,000 Southern Co 676,563 92,500 Texas Utilities Co 3,740,468 35,000 TransCanada Pipeline Ltd 498,750 50,000 Unicom Corp 1,931,250 ------------ 21,919,845 ------------ TOTAL COMMON STOCKS (COST $198,584,174) 216,708,080 ------------ PREFERRED STOCKS -- 3.0% Oil and Gas -- 1.1% 45,000 Unocal Corp Convertible 6.25% 144A 2,604,375 ------------ Real Estate -- 0.6% 32,500 Crescent Real Estate 6.75% 513,906 37,500 Reckson Associates Realty Corp 7.625% 761,719 ------------ 1,275,625 ------------ Transportation -- 1.2% 62,500 Union Pacific Capital Trust 6.25% 144A* 2,890,625 ------------ Utilities -- 0.1% 5,000 Texas Utilities Co Convertible 9.25% 260,000 ------------ TOTAL PREFERRED STOCKS (COST $7,295,642) 7,030,625 ------------ DEBT OBLIGATIONS -- 0.8% Electronic Equipment -- 0.8% $2,500,000 Advanced Micro Devices Inc, 6.00% due 5/15/05 1,956,250 ------------ TOTAL DEBT OBLIGATIONS (COST $2,107,797) 1,956,250 ------------ 6 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 8.7% Cash Equivalents -- 5.6% $2,342,958 BankBoston Eurodollar Time Deposit, 5.4325% due 10/29/99(a) 2,342,958 1,733,947 Merrimac Cash Fund Premium Class(a) 1,733,947 $9,000,000 Prudential Securities Group Inc, Master Note, 5.625% due 3/10/2000(a) 9,000,000 ------------ 13,076,905 ------------ Repurchase Agreements -- 3.1% $7,186,360 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $7,187,294 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $7,330,087. 7,186,360 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $20,263,265) 20,263,265 ------------ TOTAL INVESTMENTS -- 105.8% (COST $228,250,878) 245,958,220 Other Assets and Liabilities (net) -- (5.8)% (13,540,575) ------------ TOTAL NET ASSETS -- 100% $232,417,645 ============ 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). See accompanying notes to the financial statements. 7 GMO Value Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $228,250,878) (Note 1) $245,958,220 Receivable for investments sold 1,905,583 Dividends and interest receivable 493,477 Receivable for expenses waived or borne by Manager (Note 2) 7,192 ------------- Total assets 248,364,472 ------------- Liabilities: Payable for investments purchased 2,711,415 Payable upon return of securities loaned (Note 1) 13,076,905 Payable to affiliate for (Note 2): Management fee 91,693 Shareholder service fee 28,325 Accrued expenses 38,489 ------------- Total liabilities 15,946,827 ------------- Net assets $232,417,645 ============= Net assets consist of: Paid-in capital $205,041,303 Accumulated undistributed net investment income 738,511 Accumulated undistributed net realized gain 8,930,489 Net unrealized appreciation 17,707,342 ------------- $232,417,645 ============= Net assets attributable to: Class III shares $232,417,645 ============= Shares outstanding: Class III 22,256,652 ============= Net asset value per share: Class III $ 10.44 ============= 8 See accompanying notes to the financial statements. GMO Value Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $15,570) $2,720,129 Interest (including securities lending income of $15,904) 250,751 ----------- Total income 2,970,880 ----------- Expenses: Management fee (Note 2) 516,456 Custodian and transfer agent fees 26,511 Audit fees 19,690 Legal fees 3,312 Trustees fees (Note 2) 1,104 Registration fees 364 Miscellaneous 1,472 Fees waived or borne by Manager (Note 2) (52,453) ----------- 516,456 Shareholder service fee (Note 2) Class III 168,409 ----------- Net expenses 684,865 ----------- Net investment income 2,286,015 ----------- Realized and unrealized gain: Net realized gain on investments 10,816,586 ----------- Change in net unrealized appreciation (depreciation) on 1,810,534 investments ----------- Net realized and unrealized gain 12,627,120 ----------- Net increase in net assets resulting from operations $14,913,135 ============ See accompanying notes to the financial statements. 9 GMO Value Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ------------------ Increase (decrease) in net assets: Operations: Net investment income $ 2,286,015 $ 4,794,401 Net realized gain 10,816,586 56,251,289 Change in net unrealized appreciation (depreciation) 1,810,534 (51,003,336) ------------ ------------- Net increase in net assets resulting from operations 14,913,135 10,042,354 ------------ ------------- Distributions to shareholders from: Net investment income Class III (1,553,560) (5,045,206) ------------ ------------- Total distributions from net investment income (1,553,560) (5,045,206) ------------ ------------- Net realized gains Class III (15,853,816) (71,266,327) ------------ ------------- Total distributions from net realized gains (15,853,816) (71,266,327) ------------ ------------- (17,407,376) (76,311,533) ------------ ------------- Net share transactions: (Note 5) Class III 32,070,138 (62,992,395) ------------ ------------- Increase (decrease) in net assets resulting from net share transactions 32,070,138 (62,992,395) ------------ ------------- Total increase (decrease) in net assets 29,575,897 (129,261,574) Net assets: Beginning of period 202,841,748 332,103,322 ------------ ------------- End of period (including accumulated undistributed net investment income of $738,511 and $6,056, respectively) $232,417,645 $ 202,841,748 ============ ============= 10 See accompanying notes to the financial statements. 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, 1999 ----------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ---------------- ------- ------- ------- ------- ------- Net asset value, beginning of period $10.40 $14.33 $14.85 $14.25 $12.05 $13.48 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income 0.11 0.26 0.31 0.31 0.39 0.41 Net realized and unrealized 0.77 0.13 3.81 2.47 3.71 0.32 gain ------- ------- ------- ------- ------- ------- Total from investment operations 0.88 0.39 4.12 2.78 4.10 0.73 ------- ------- ------- ------- ------- ------- Less distributions to shareholders: From net investment income (0.08) (0.27) (0.35) (0.32) (0.39) (0.45) From net realized gains (0.76) (4.05) (4.29) (1.86) (1.51) (1.71) ------- ------- ------- ------- ------- ------- Total distributions (0.84) (4.32) (4.64) (2.18) (1.90) (2.16) ------- ------- ------- ------- ------- ------- Net asset value, end of period $10.44 $10.40 $14.33 $14.85 $14.25 $12.05 ======= ======= ======= ======= ======= ======= Total Return (a) 7.97% 2.24% 31.54% 21.26% 35.54% 6.85% Ratios/Supplemental Data: Net assets, end of period $232,418 $202,842 $332,103 $469,591 $317,612 $350,694 (000's) Net expenses to average daily net assets 0.61%* 0.61% 0.61% 0.61% 0.61% 0.61% Net investment income to average daily net assets 2.04%* 1.82% 1.89% 2.17% 2.66% 2.86% Portfolio turnover rate 47% 37% 40% 84% 65% 77% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $0.04 $0.05 $0.04 $0.02 $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) Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Annualized. See accompanying notes to the financial statements. 11 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 long-term capital growth primarily through investment in equity securities. The Fund's current benchmark is the Russell 1000 Value Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 12 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- each day by the board of trade or exchange on which they are traded. As of August 31, 1999 the Fund held no open 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $12,606,142, collateralized by cash in the amount of $13,076,905, 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. The Fund also enters into contracts for differences in which the Fund agrees with the counterparty that its return will be based on the relative performance of two different groups or "baskets" of securities, adjusted by an interest rate payment. 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 will be 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. As of August 31, 1999 the Fund held no open swap agreements. 13 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 are 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 dividends 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 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. Dividends representing a return of capital are reflected as a reduction of cost. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold", as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $11,637 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 .46% of average daily net assets. The Fund has adopted a Shareholder Service 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 14 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Plan, the shareholder service fee is calculated based on the average daily net assets at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .70% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .46% 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, 1999 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, 1999, aggregated $119,279,248 and $100,529,090, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------------- -------------------- -------------------- ------------------- $228,250,878 $32,758,838 $15,051,496 $17,707,342
4. Principal shareholder At August 31, 1999, 58.2% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder could have a material effect. 15 GMO Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 ------------------------------ ----------------------------- Shares Amount Shares Amount -------------- -------------- ------------- -------------- Shares sold 3,370,348 $ 39,853,750 254,879 $ 3,308,655 Shares issued to shareholders in reinvestment of distributions 1,447,972 16,178,422 5,904,295 68,359,733 Shares repurchased (2,071,219) (23,962,034) (9,828,113) (134,660,783) ============== ============== ============= ============== Net increase (decrease) 2,747,101 $ 32,070,138 (3,668,939) $ (62,992,395) ============== ============== ============= ==============
16 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 Gmo Global Ballanced Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value ($)/ Shares Description Value ($) - -------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 517,908 GMO Currency Hedged International Core Fund 5,448,396 1,657,092 GMO Domestic Bond Fund 15,377,812 355,990 GMO Emerging Country Debt Fund 2,563,128 472,419 GMO Emerging Markets Fund 4,407,668 516,552 GMO Evolving Countries Fund 5,072,541 51,398 GMO Growth Fund 224,094 532,280 GMO Inflation Indexed Bond Fund 5,333,446 392,983 GMO International Bond Fund 3,764,773 350,686 GMO International Core Fund 8,125,392 73,803 GMO International Small Companies Fund 923,273 618,734 GMO REIT Fund 5,519,111 248,707 GMO Small Cap Growth Fund 2,947,178 478,970 GMO Small Cap Value Fund 6,035,026 2,529,301 GMO U.S. Bond/Global Alpha A Fund 24,559,518 827,259 GMO U.S. Core Fund 15,428,378 259,839 GMO Value Fund 2,712,718 ------------ TOTAL MUTUAL FUNDS (Cost $116,312,365) 108,442,452 ------------ SHORT-TERM INVESTMENTS -- 0.0% Repurchase Agreements -- 0.0% $ 8,419 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $8,420 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date 8,419 of 8/15/21 and market value, including accrued ------------ interest, of $8,588. TOTAL SHORT-TERM INVESTMENTS (Cost $8,419) 8,419 ------------ TOTAL INVESTMENTS -- 100.0% (Cost $116,320,784) 108,450,871 Other Assets and Liabilities (net) -- (0.0)% (7,424) ------------ TOTAL NET ASSETS-- 100% $108,443,447 ============ 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $116,320,784) (Note 1) $108,450,871 Receivable for expenses waived or borne by Manager (Note 2) 3,659 ------------ Total assets 108,454,530 ------------ Liabilities: Accrued expenses 11,083 ------------ Total liabilities 11,083 ------------ Net assets $108,443,447 ============ Net assets consist of: Paid-in capital $116,912,951 Accumulated undistributed net investment income 1,759,468 Accumulated net realized loss (2,359,059) Net unrealized depreciation (7,869,913) ------------ $108,443,447 ============ Net assets attributable to: Class III shares $108,443,447 ============ Shares outstanding: Class III 10,126,959 ============ Net asset value per share: Class III $ 10.71 ============ 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 1,761,836 Interest 1,482 ----------- Total income 1,763,318 ----------- Expenses: Custodian and transfer agent fees 8,919 Audit fees 8,191 Legal fees 1,931 Trustees fees (Note 2) 736 Registration fees 364 Miscellaneous 920 Fees waived or borne by Manager (Note 2) (21,061) ----------- Net expenses -- ----------- Net investment income 1,763,318 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (3,940,720) Realized gain distributions from investment company shares 1,912,358 ----------- Net realized loss (2,028,362) ----------- Change in net unrealized appreciation (depreciation) on investments 10,091,332 ----------- Net realized and unrealized gain 8,062,970 ----------- Net increase in net assets resulting from operations $ 9,826,288 =========== 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 August 31, 1999 Year Ended (Unaudited) February 28, 1999 ----------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,763,318 $ 3,054,707 Net realized gain (loss) (2,028,362) 11,000,413 Change in net unrealized appreciation (depreciation) 10,091,332 (17,495,459) ------------ ------------ Net increase (decrease) in net assets resulting from operations 9,826,288 (3,440,339) ------------ ------------ Distributions to shareholders from: Net investment income Class III (18,814) (3,054,707) ------------ ------------ Total distributions from net investment income (18,814) (3,054,707) ------------ ------------ In excess of net investment income Class III -- (3,098,321) ------------ ------------ Total distributions in excess of net investment income -- (3,098,321) ------------ ------------ Net realized gains Class III (6,105,103) (5,840,251) ------------ ------------ Total distributions from net realized gains (6,105,103) (5,840,251) ------------ ------------ (6,123,917) (11,993,279) ------------ ------------ Net share transactions: (Note 5) Class III (22,859,348) 27,754,476 ------------ ------------ Increase (decrease) in net assets resulting from net share transactions (22,859,348) 27,754,476 ------------ ------------ Total increase (decrease) in net assets (19,156,977) 12,320,858 Net assets: Beginning of period 127,600,424 115,279,566 ------------ ------------ End of period (including accumulated undistributed net investment income of $1,759,468 and $14,964, $108,443,447 $127,600,424 respectively) ============ ============
4 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 Six Months Ended Year Ended of operations) August 31, 1999 February 28, to February 28, (Unaudited) 1999 1998 - ---------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.51 $ 11.87 $ 11.56 -------- -------- -------- Income from investment operations: Net investment income (b) 0.17 0.31 0.17+ Net realized and unrealized gain (loss) 0.68 (0.54) 1.30 -------- -------- -------- Total from investment operations 0.85 (0.23) 1.47 -------- -------- -------- Less distributions to shareholders: From net investment income --(f) (0.28) (0.33) In excess of net investment income -- (0.29) --(c) From net realized gains (0.65) (0.56) (0.83) -------- -------- -------- Total distributions (0.65) (1.13) (1.16) -------- -------- -------- Net asset value, end of period $ 10.71 $ 10.51 $ 11.87 ======== ======== ======== Total Return (a) 7.93% (2.27)% 13.31% Ratios/Supplemental Data: Net assets, end of period (000's) $108,443 $127,600 $115,280 Net expenses to average daily net 0.00%* 0.00% 0.00%* assets (d) Net investment income to average 2.95%* 2.50% 1.91%* daily net assets (b) Portfolio turnover rate 7% 10% 18% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per --(e) $ 0.01 $ 0.01 share amounts:
(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. (c) The per share distribution in excess of net investment income was $0.001. (d) Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 1. (e) Fees and expenses waived or borne by the Manager were less than $0.01 per share. (f) The per share distribution from net investment income is $0.002. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 5 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global Balanced Allocation 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 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 total return greater than the return of the GMO Global Balanced Index through investment to varying extents in other funds of the Trust. The Fund will pursue its objective by investing in Class III shares of domestic equity, international equity, and fixed income funds of the Trust. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 6 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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. Income dividends and capital gain distributions from underlying funds are 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999 the Fund received $9,129 in purchase premiums and $26,099 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 7 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment risk The Fund is subject to the investment risk associated with an investment in the underlying funds, some of which may invest in foreign securities. 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, including the possible imposition of capital controls 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. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 and shareholder service fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. No shareholder service fee is charged for Class III shares. GMO has contractually agreed to reimburse all expenses directly incurred by the Fund until June 30, 2000 (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, 1999 was $736. 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, 1999 aggregated $8,565,186 and $33,879,100, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Gross Unrealized Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ ---------------- -------------- ---------------- $116,320,784 $1,271,160 $9,141,073 $7,869,913 8 GMO Global Balanced Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1999, 46.3% 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:
Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 ------------------------- ------------------------- Shares Amount Shares Amount ----------- ------------ ----------- ------------ Shares sold 238,334 $ 2,608,163 2,130,109 $ 24,341,942 Shares issued to shareholders in reinvestment of distributions 555,977 6,121,305 1,001,505 11,059,081 Shares repurchased (2,811,453) (31,588,816) (695,474) (7,646,547) =========== ============ =========== ============ Net increase (decrease) (2,017,142) $(22,859,348) 2,436,140 $ 27,754,476 =========== ============ =========== ============
9 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value ($)/ Shares Description Value ($) - -------------------------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 50,995 GMO Currency Hedged International Core Fund 536,465 196,386 GMO Emerging Country Debt Fund 1,413,981 211,180 GMO Emerging Markets Fund 1,970,310 238,387 GMO Evolving Countries Fund 2,340,963 50,322 GMO Growth Fund 219,402 137,841 GMO Inflation Indexed Bond Fund 1,381,162 36,234 GMO International Bond Fund 347,125 221,098 GMO International Core Fund 5,122,832 33,224 GMO International Small Companies Fund 415,630 286,629 GMO REIT Fund 2,556,729 117,629 GMO Small Cap Growth Fund 1,393,898 231,131 GMO Small Cap Value Fund 2,912,247 149,095 GMO U.S. Bond/Global Alpha A Fund 1,447,708 607,018 GMO U.S. Core Fund 11,320,879 146,263 GMO Value Fund 1,526,990 ------------- TOTAL MUTUAL FUNDS (COST $37,125,285) 34,906,321 ------------- SHORT-TERM INVESTMENTS -- 0.0% Repurchase Agreements -- 0.0% $ 9,530 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $9,532 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $9,721. 9,530 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $9,530) 9,530 ------------- TOTAL INVESTMENTS -- 100.0% (Cost $37,134,815) 34,915,851 Other Assets and Liabilities (net) -- 0.0% (5,248) ------------- TOTAL NET ASSETS -- 100% $34,910,603 =============
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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $37,134,815) (Note 1) $ 34,915,851 Receivable for expenses waived or borne by Manager (Note 2) 2,295 ------------ Total assets 34,918,146 ------------ Liabilities: Accrued expenses 7,543 ------------ Total liabilities 7,543 ------------ Net assets $ 34,910,603 ============ Net assets consist of: Paid-in capital $ 37,077,194 Accumulated undistributed net investment income 350,307 Accumulated net realized loss (297,934) Net unrealized depreciation (2,218,964) ============ $ 34,910,603 ============ Net assets attributable to: Class III shares $ 34,910,603 ============ Shares outstanding: Class III 3,668,763 ============ Net asset value per share: Class III $ 9.52 ============ 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, 1999 (Unaudited) - ----------------------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 350,094 Interest 213 ----------- Total income 350,307 ----------- Expenses: Audit fees 8,191 Custodian and transfer agent fees 3,589 Legal fees 552 Registration fees 364 Trustees fees (Note 2) 184 Miscellaneous 736 Fees waived or borne by Manager (Note 2) (13,616) ----------- Net expenses -- ----------- Net investment income 350,307 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (321,535) Realized gain distributions from investment company shares 1,038,303 ----------- Net realized gain 716,768 ----------- Change in net unrealized appreciation (depreciation) on investments 3,147,384 ----------- Net realized and unrealized gain 3,864,152 ----------- Net increase in net assets resulting from operations $ 4,214,459 ===========
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 Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 --------------- ------------------- Increase (decrease) in net assets: Operations: Net investment income $ 350,307 $ 697,497 Net realized gain 716,768 3,942,235 Change in net unrealized appreciation (depreciation) 3,147,384 (6,146,786) ----------- ------------ Net increase (decrease) in net assets resulting from operations 4,214,459 (1,507,054) ----------- ------------ Distributions to shareholders from: Net investment income Class III -- (697,497) ----------- ------------ Total distributions from net investment income -- (697,497) ----------- ------------ In excess of net investment income Class III -- (1,211,441) ----------- ------------ Total distributions in excess of net investment income -- (1,211,441) ----------- ------------ Net realized gains Class III (1,764,798) (3,274,986) ----------- ------------ Total distributions from net realized gains (1,764,798) (3,274,986) ----------- ------------ (1,764,798) (5,183,924) ----------- ------------ Net share transactions: (Note 5) Class III (12,666) (5,936,414) ----------- ------------ Decrease in net assets resulting from net share transactions (12,666) (5,936,414) ----------- ------------ Total increase (decrease) in net assets 2,436,995 (12,627,392) Net assets: Beginning of period 32,473,608 45,101,000 ----------- ------------ End of period (including accumulated undistributed net investment income of $350,307 and $0, respectively) $34,910,603 $32,473,608 ============ =============
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 III share outstanding throughout each period) - -------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended February 28, August 31, 1999 -------------------------------------- (Unaudited) 1999 1998 1997 * ----------- -------- -------- -------- Net asset value, beginning of period $ 8.85 $ 10.48 $ 10.30 $ 10.00 -------- -------- ------- -------- Income from investment operations: Net investment income (a) 0.10 0.16+ 0.26+ 0.12 Net realized and unrealized gain (loss) 1.06 (0.40) 1.83 0.38 -------- -------- ------- -------- Total from investment operations 1.16 (0.24) 2.09 0.50 -------- -------- ------- -------- Less distributions to shareholders: From net investment income -- (0.16) (0.26) (0.12) In excess of net investment income -- (0.40) --(c) -- From net realized gains (0.49) (0.83) (1.65) (0.08) -------- -------- ------- -------- Total distributions (0.49) (1.39) (1.91) (0.20) -------- -------- ------- -------- Net asset value, end of period $ 9.52 $ 8.85 $ 10.48 $ 10.30 ======== ======== ======= ======== Total Return (b) 12.90% (2.84)% 21.86% 5.09% Ratios/Supplemental Data: Net assets, end of period (000's) $34,911 $32,474 $45,101 $30,787 Net expenses to average daily net assets (d) 0.00%** 0.00% 0.00% 0.00%** Net investment income to average daily net assets (a) 1.98%** 1.64% 2.39% 3.21%** Portfolio turnover rate 8% 34% 32% 10% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(e) $ 0.01 $ 0.01 $ 0.01
(a) Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. (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. (c) The per share distribution in excess of net investment income was $0.0009. (d) Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 1. (e) Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Period from November 26, 1996 (commencement of operations) to February 28, 1997. ** Annualized. + Computed using average shares outstanding throughout the period. See accompanying notes to the financial statements. 5 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global (U.S.+) Equity Allocation 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 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 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 in Class III shares of domestic equity, international equity, and fixed income funds of the Trust. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 6 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements - (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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. Income dividends and capital gain distributions from underlying funds are 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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 .47% of the amount invested. In the case of cash redemptions, the fee is .15% of the amount redeemed. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the 7 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements - (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Fund received $3,610 in purchase premiums and $1,636 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. Investment risk The Fund is subject to the investment risk associated with an investment in the underlying funds, some of which may invest in foreign securities. 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, including the possible imposition of capital controls 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. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 and shareholder service fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. No shareholder service fee is charged for Class III shares. GMO has contractually agreed to reimburse all expenses directly incurred by the Fund until June 30, 2000 (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, 1999 was $184. 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, 1999, aggregated $2,831,754 and $3,227,057, respectively. 8 GMO Global (U.S.+) Equity Allocation Fund (A Series of GMO Trust)
Notes to Financial Statements - (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------------------------- At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------------- -------------------- ------------------- ------------------ $ 37,134,815 $ 460,705 $ 2,679,669 $ 2,218,964 4. Principal shareholders At August 31, 1999, 35.7% 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: Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 -------------------------------- ---------------------------------- Shares Amount Shares Amount --------------- ----------------- --------------- ----------------- Shares sold 81,396 $ 768,043 531,374 $ 5,481,883 Shares issued to shareholders in reinvestment of distributions 31,519 311,724 136,208 1,323,898 Shares repurchased (114,630) (1,092,433) (1,298,592) (12,742,195) --------------- ----------------- --------------- ----------------- Net decrease (1,715) $ (12,666) (631,010) $ (5,936,414) --------------- ----------------- --------------- -----------------
9 GMO World Equity Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO World Equity Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value ($)/ Shares Description Value($) - ------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 15,238 GMO Currency Hedged International Core Fund 160,302 61,259 GMO Emerging Country Debt Fund 441,029 90,946 GMO Emerging Markets Fund 848,527 108,947 GMO Evolving Countries Fund 1,069,864 13,830 GMO Growth Fund 60,301 42,470 GMO Inflation Indexed Bond Fund 425,557 26,463 GMO International Bond Fund 253,517 156,474 GMO International Core Fund 3,625,503 16,938 GMO International Small Companies Fund 211,893 51,942 GMO REIT Fund 463,326 22,075 GMO Small Cap Growth Fund 261,587 44,117 GMO Small Cap Value Fund 555,881 24,497 GMO U.S. Bond/Global Alpha A Fund 237,871 81,647 GMO U.S. Core Fund 1,522,728 25,621 GMO Value Fund 267,490 ----------- TOTAL MUTUAL FUNDS (COST $10,068,112) 10,405,376 ----------- SHORT-TERM INVESTMENTS -- 0.1% Repurchase Agreements -- 0.1% $12,320 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $12,322 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $12,567. 12,320 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $12,320) 12,320 ----------- TOTAL INVESTMENTS -- 100.1% (Cost $10,080,432) 10,417,696 Other Assets and Liabilities (net) -- (0.1)% (8,523) ----------- TOTAL NET ASSETS -- 100% $10,409,173 =========== 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $10,080,432) (Note 1) $10,417,696 Receivable for expenses waived or borne by Manager (Note 2) 1,738 ----------- Total assets 10,419,434 ----------- Liabilities: Accrued expenses 10,261 ----------- Total liabilities 10,261 ----------- Net assets $10,409,173 =========== Net assets consist of: Paid-in capital $15,947,906 Accumulated undistributed net investment income 70,644 Accumulated net realized loss (5,946,641) Net unrealized appreciation 337,264 ----------- $10,409,173 =========== Net assets attributable to: Class III shares $10,409,173 =========== Shares outstanding: Class III 1,209,140 =========== Net asset value per share: Class III $ 8.61 =========== 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 70,326 Interest 318 ----------- Total income 70,644 ----------- Expenses: Audit fees 8,468 Custodian and transfer agent fees 2,315 Registration fees 364 Legal fees 279 Trustees fees (Note 2) 93 Miscellaneous 552 Fees waived or borne by Manager (Note 2) (12,071) ----------- Net expenses -- ----------- Net investment income 70,644 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (5,621,984) Realized gain distributions from investment company shares 211,674 ----------- Net realized loss (5,410,310) ----------- Change in net unrealized appreciation (depreciation) on investments 7,698,956 ----------- Net realized and unrealized gain 2,288,646 ----------- Net increase in net assets resulting from operations $ 2,359,290 =========== 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 August 31,1999 Year Ended (Unaudited) February 28, 1999 ----------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 70,644 $ 885,699 Net realized gain (loss) (5,410,310) 1,737,055 Change in net unrealized appreciation (depreciation) 7,698,956 (5,741,678) ------------ ------------ Net increase (decrease) in net assets resulting from operations 2,359,290 (3,118,924) ------------ ------------ Distributions to shareholders from: Net investment income Class III -- (885,699) ------------ ------------ Total distributions from net investment income -- (885,699) ------------ ------------ In excess of net investment income Class III -- (1,377,961) ------------ ------------ Total distributions in excess of net investment income -- (1,377,961) ------------ ------------ Net realized gains Class III (1,505,715) (3,441,070) ------------ ------------ Total distributions from net realized gains (1,505,715) (3,441,070) ------------ ------------ (1,505,715) (5,704,730) ------------ ------------ Net share transactions: (Note 5) Class III (20,026,208) (12,546,195) ------------ ------------ Decrease in net assets resulting from net share transactions (20,026,208) (12,546,195) ------------ ------------ Total decrease in net assets (19,172,633) (21,369,849) Net assets: Beginning of period 29,581,806 50,951,655 ------------ ------------ End of period (including accumulated undistributed net investment income of $70,644 and $0, respectively) $ 10,409,173 $ 29,581,806 ============ ============
4 See accompanying notes to the financial statements. GMO World Equity Allocation Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Year Ended February 28, Six Months Ended ---------------------------------------- August 31, 1999 (Unaudited) 1999 1998 1997* ---------------- -------- ------- -------- Net asset value, beginning of period $ 8.52 $ 10.39 $10.52 $ 10.07 -------- -------- ------- -------- Income from investment operations: Net investment income (a) 0.06 0.18+ 0.29+ 0.11 Net realized and unrealized gain (loss) 1.48 (0.82) 1.03 0.63 -------- -------- ------- -------- Total from investment operations 1.54 (0.64) 1.32 0.74 -------- -------- ------- -------- Less distributions to shareholders: From net investment income -- (0.18) (0.28) (0.11) In excess of net investment income -- (0.33) --(b) -- From net realized gains (1.45) (0.72) (1.17) (0.18) -------- -------- ------- -------- Total distributions (1.45) (1.23) (1.45) (0.29) -------- -------- ------- -------- Net asset value, end of period $ 8.61 $ 8.52 $10.39 $ 10.52 ======== ======== ======= ======== Total Return (c) 17.67% (6.67)% 13.56% 7.51% Ratios/Supplemental Data: Net assets, end of period (000's) $10,409 $29,582 $50,952 $36,746 Net expenses to average daily net assets (d) 0.00%** 0.00% 0.00% 0.00%** Net investment income to average daily net assets (a) 1.03%** 1.91% 2.65% 0.91%** Portfolio turnover rate 6% 17% 49% 31% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01 $ 0.01 $ 0.03
(a) Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. (b) The per share distribution in excess of net investment income was $0.0004. (c) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (d) Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 1. + Computed using average shares outstanding throughout the period. * Period from October 22, 1996 (commencement of operations) to February 28, 1997. ** Annualized. See accompanying notes to the financial statements. 5 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO World Equity Allocation 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 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 total return greater than the return of the GMO World Extended benchmark through investment to varying extents in other Funds of the Trust. The Fund will pursue its objective by investing in Class III shares of domestic equity, international equity, and fixed income funds of the Trust. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 6 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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. Income dividends and capital gain distributions from underlying funds are 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the 7 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Fund received $3,734 in purchase premiums and $33,196 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. Investment risk The Fund is subject to the investment risk associated with an investment in the underlying funds, some of which may invest in foreign securities. 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, including the possible imposition of capital controls 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. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 and shareholder service fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. No shareholder service fee is charged for Class III shares. GMO has contractually agreed to reimburse all expenses directly incurred by the Fund until June 30, 2000 (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, 1999 was $93. 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, 1999, aggregated $980,524 and $22,236,624, respectively. 8 GMO World Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation --------------------- ------------------ -------------------- -------------------- $ 10,080,432 $ 600,482 $ 263,218 $ 337,264
4. Principal shareholders At August 31, 1999, 99.9% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 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, 1999 February 28, 1999 ------------------------------ ------------------------------ Shares Amount Shares Amount ------------- ------------- ------------ ------------- Shares sold 61,132 $ 565,697 497 $ 4,496 Shares issued to shareholders in reinvestment of distributions 170,716 1,505,715 535,862 4,995,646 Shares repurchased (2,495,019) (22,097,620) (1,968,349) (17,546,337) ------------ ------------ ------------ ------------ Net decrease (2,263,171) $(20,026,208) (1,431,990) $(12,546,195) ============ ============ ============ ============
9 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Common Stocks -- 95.3% Advertising-- 0.1% 400 Interpublic Group Inc 15,850 ---------- Aerospace-- 3.2% 5,500 Allied Signal Inc 336,874 200 Cordant Technologies Inc 8,275 ---------- 345,149 ---------- Automotive-- 1.2% 200 Bandag Inc 6,650 100 Borg Warner Automotive Inc 4,738 139 Delphi Automotive Systems* 2,606 300 Eaton Corp 29,400 200 General Motors Corp 13,225 1,300 Genuine Parts Co 37,538 500 Goodyear Tire & Rubber Co 28,063 200 Lear Corp* 8,038 ---------- 130,258 ---------- Banking and Financial Services-- 11.3% 2,500 American Express Co 343,749 565 Bank of America Corp 34,183 810 Bank One Corp 32,501 21 Berkshire Hathaway Inc, Class B* 42,063 700 Countrywide Credit Industries Inc 22,488 400 First Union Corp 16,600 1,200 Franklin Resources Inc 43,125 1,600 Key Corp 46,400 14,800 MBNA Corp 365,374 400 Mercantile Bank Corp 22,075 1,000 MGIC Investment Corp 43,438 1,100 Regions Financial Corp 38,844 200 Republic New York Corp 13,875 200 Student Loan Group 8,000 22 Waddell and Reed Financial Inc, Class A 499 97 Waddell and Reed Financial Inc, Class B 2,213 3,500 Wells Fargo & Co 139,344 ---------- 1,214,771 ---------- Chemicals-- 1.1% 1,100 Engelhard Corp 21,931 See accompanying notes to the financial statements. 1 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Chemicals -- continued 400 Ferro Corp 9,600 600 Great Lakes Chemical Corp 24,713 200 Minerals Technologies Inc 9,900 150 Octel Corp* 1,706 600 PPG Industries Inc 36,038 300 Rohm & Haas Co 11,213 ---------- 115,101 ---------- Computer and Office Equipment -- 0.2% 400 Electronic Data Systems Corp 22,450 ---------- Consumer Goods -- 1.5% 1,200 Fortune Brands Inc 45,000 450 Hasbro Inc 10,997 400 Jones Apparel Group Inc* 10,375 400 Lancaster Colony Corp 13,150 400 Mattel Co 8,525 400 Nautica Enterprises Inc* 5,375 300 Newell Rubbermaid Inc 12,300 600 Nike Inc, Class B 27,750 300 Unifi Inc* 4,050 600 VF Corp 21,600 ---------- 159,122 ---------- Electronic Equipment -- 6.9% 20,300 3 Com Corp* 503,693 600 AVX Corp 17,963 800 Emerson Electric Co 50,100 300 Harris Corp 7,875 2,400 Raytheon Co, Class B 163,499 ---------- 743,130 ---------- Food and Beverage -- 8.8% 1,000 Anheuser Busch Cos Inc 77,000 5,040 Archer Daniels Midland Co 65,520 4,000 McDonald's Corp 165,499 9,800 Pepsico Inc 334,424 1,600 Seagrams Co Ltd 84,900 1,964 Unilever NV 135,271 800 Universal Foods Corp 16,900 1,200 Wendy's International Inc 33,600 See accompanying notes to the financial statements. 2 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- continued 200 Whitman Corp 3,338 400 Wrigley (William Jr) Co 31,325 ---------- 947,777 ---------- Health Care -- 8.5% 300 Arrow International Inc 8,700 8,100 Columbia HCA Healthcare Corp 199,462 400 First Health Group Corp* 8,625 200 Hillenbrand Industries Inc 5,700 400 Invacare Corp 7,475 4,900 Johnson & Johnson 501,024 426 Lifepoint Hospital Inc* 2,929 400 Lincare Holdings Inc* 10,550 300 Mallinckrodt Inc 9,619 1,000 Perrigo Co* 7,938 700 Stryker Corp 40,338 426 Triad Hospitals Inc* 4,766 1,500 United Healthcare Corp 91,219 300 Wellpoint Health Network* 21,863 ---------- 920,208 ---------- Insurance -- 6.9% 430 Aegon N.V. ADR 37,329 700 Aetna Life and Casualty Co 54,425 200 AMBAC Inc 10,563 400 Hartford Financial Services Group Inc 18,175 500 Loews Corp 39,250 400 MBIA Inc 20,750 23,800 Old Republic International Corp 368,899 200 Orion Capital Corp 9,650 100 Progressive Corp 10,200 200 Safeco Corp 7,125 400 Saint Paul Cos Inc 12,825 800 Torchmark Corp 22,800 500 Transatlantic Holding Inc 36,063 2,600 Travelers Property Casualty Corp, Class A 92,300 ---------- 740,354 ---------- Machinery -- 0.4% 500 Case Corp 24,688 600 Donaldson Co Inc 11,775 See accompanying notes to the financial statements. 3 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Machinery -- continued 200 FMC Corp* 11,650 ---------- 48,113 ---------- Manufacturing -- 0.2% 400 American Greetings Corp 11,075 600 International Game Technology 10,500 ---------- 21,575 ---------- Metals and Mining -- 0.3% 600 Phelps Dodge Corp 33,563 ---------- Oil and Gas -- 2.6% 1,700 Atlantic Richfield Co 149,494 595 BP Amoco PLC ADR 66,714 200 Consolidated Natural Gas Co 12,738 800 Phillips Petroleum Co 40,800 200 Texaco Inc 12,700 100 Veritas DGC Inc* 1,788 ---------- 284,234 ---------- Paper and Allied Products -- 0.1% 400 Sonoco Products Co 9,500 ---------- Pharmaceuticals -- 8.7% 8,400 Abbott Laboratories 364,349 6,600 Amgen Inc* 549,037 200 Bristol Myers Squibb Co 14,075 600 Mark IV Industries Inc 11,888 ---------- 939,349 ---------- Primary Materials -- 0.2% 500 A. Schulman Inc 8,969 300 Vulcan Materials Co 12,788 ---------- 21,757 ---------- Primary Processing -- 0.5% 600 Nucor Corp 27,938 400 USX-US Steel Group Inc 10,800 300 Valspar Corp 10,894 ---------- 49,632 ---------- See accompanying notes to the financial statements. 4 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Printing and Publishing -- 0.2% 400 Central Newspapers, Class A 16,925 200 Pulitzer Inc* 8,763 ---------- 25,688 ---------- Real Estate -- 2.7% 3,500 Apartment Investment & Management Co, Class A 143,500 3,400 Mack-Cali Realty Corp 96,475 1,400 Mills Corp 26,863 600 Parkway Properties Inc, REIT 19,800 ---------- 286,638 ---------- Retail Trade -- 2.7% 2,100 Albertsons Inc 100,669 500 Autozone Inc* 11,906 500 Dillard's Inc 11,750 1,400 Federated Department Stores Inc* 64,400 200 Hannaford Brothers Co 14,350 300 Lands End Inc* 15,113 900 Office Depot Inc* 9,394 450 Outback Steakhouse Inc* 13,331 400 Richfood Holdings Inc 7,325 300 Ross Stores Inc 12,488 2,000 Toys R Us Inc* 27,625 ---------- 288,351 ---------- Services -- 2.2% 400 Banta Corp 9,400 200 Catalina Marketing Corp* 18,150 206 Chris Craft Industries Inc* 10,429 600 Hertz Corp 24,188 300 KingWorld Productions Inc* 11,438 400 Lee Enterprises Inc 11,475 4,400 Marriott International Inc, Class A 150,700 ---------- 235,780 ---------- Technology -- 11.1% 500 BMC Software Inc* 26,906 9,200 Cisco Systems Inc* 623,874 4,400 First Data Corp 193,599 400 Grainger (WW) Inc 17,425 See accompanying notes to the financial statements. 5 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Technology-- continued 300 Microsoft Corp* 27,769 8,300 Oracle Corp* 302,949 ---------- 1,192,522 ---------- Telecommunications-- 5.3% 400 Ameritech Corp 25,250 11,500 AT & T Corp 517,499 327 Hearst-Argyle Television Inc* 8,277 600 TV Guide Inc, Class A* 16,650 ---------- 567,676 ---------- Tobacco-- 2.5% 7,300 Philip Morris Cos Inc 273,293 ---------- Transportation-- 1.8% 5,700 Burlington Northern Santa Fe Railroad Co 165,299 500 Galileo International Inc 24,250 ---------- 189,549 ---------- Utilities-- 4.1% 1,600 Citizens Utilities, Class B* 17,600 600 Constellation Energy Group Inc 17,775 700 DTE Energy Co 27,606 2,400 Entergy Corp 71,550 600 General Public Utilities Inc 20,475 692 Keyspan Corp 20,414 9,400 Niagara Mohawk Holdings Inc* 142,175 1,900 Northeast Utilities* 33,369 1,500 PG & E Corp 45,469 300 Pinnacle West Capital Corp 11,400 600 Potomac Electric Power Co 15,900 400 Scana Corp 10,000 300 Western Resources Inc 7,163 ---------- 440,896 ---------- TOTAL COMMON STOCKS (COST $9,850,242) 10,262,286 ---------- See accompanying notes to the financial statements. 6 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 4.0% Repurchase Agreements -- 4.0% $424,042 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $424,097 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with 424,042 a rate of 7.25%, maturity date of 5/15/16 and ---------- market value, including accrued interest, of $432,523. TOTAL SHORT-TERM INVESTMENTS (COST $424,042) 424,042 ---------- TOTAL INVESTMENTS -- 99.3% (COST $10,274,284) 10,686,328 Other Assets and Liabilities (net) -- 0.7% 78,419 ---------- TOTAL NET ASSETS -- 100% $10,764,747 ========== Notes to the Schedule of Investments: ADR - American Depositary Receipt REIT - Real Estate Investment Trust * Non-income producing security. See accompanying notes to the financial statements. 7 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $10,274,284) (Note 1) $10,686,328 Dividends and interest receivable 10,227 Receivable for expenses waived or borne by Manager (Note 2) 3,811 Receivable for Fund shares sold 84,000 ----------- Total assets 10,784,366 ----------- Liabilities: Payable to affiliate for (Note 2): Management fee 3,030 Shareholder service fee 1,377 Accrued expenses and other liabilities 15,212 ----------- Total liabilities 19,619 ----------- Net assets $10,764,747 =========== Net assets consist of: Paid-in capital $10,393,214 Accumulated undistributed net investment income 14,023 Accumulated net realized loss (54,534) Net unrealized appreciation 412,044 =========== $10,764,747 =========== Net assets attributable to: Class III shares $10,764,747 =========== Shares outstanding: Class III 952,264 =========== Net asset value per share: Class III $ 11.30 =========== See accompanying notes to the financial statements. 8 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $4,528) $ 80,397 Interest 9,031 -------- Total income 89,428 -------- Expenses: Management fee (Note 2) 16,971 Audit fees 16,564 Custodian fees 2,574 Registration fees 1,183 Legal fees 184 Trustees fees (Note 2) 60 Miscellaneous 736 Fees waived or borne by Manager (Note 2) (21,301) -------- 16,971 Shareholder service fee (Note 2) Class III 7,714 -------- Net expenses 24,685 -------- Net investment income 64,743 -------- Realized and unrealized gain (loss): Net realized loss on investments (54,534) -------- Change in net unrealized appreciation (depreciation) on investments 481,481 -------- Net realized and unrealized gain 426,947 -------- Net increase in net assets resulting from operations $491,690 ======== See accompanying notes to the financial statements. 9 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from July 23, 1998 Six Months Ended (commencement of August 31, 1999 operations) through (Unaudited) February 28, 1999 ---------------- ------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 64,743 $41,974 Net realized gain (loss) (54,534) 274,006 Change in net unrealized appreciation (depreciation) 481,481 (151,997) ----------- ---------- Net increase in net assets resulting from operations 491,690 163,983 ----------- ---------- Distributions to shareholders from: Net investment income Class III (62,238) (30,456) ----------- ---------- Total distributions from net investment income (62,238) (30,456) ----------- ---------- (62,238) (30,456) ----------- ---------- Net share transactions: (Note 5) Class III 2,219,778 7,981,990 ----------- ---------- Increase in net assets resulting from net share transactions 2,219,778 7,981,990 ----------- ---------- Total increase in net assets 2,649,230 8,115,517 Net assets: Beginning of period 8,115,517 -- ----------- ---------- End of period (including accumulated undistributed net investment income of $14,023 and $11,518, respectively) $10,764,747 $8,115,517 =========== ==========
10 See accompanying notes to the financial statements. GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Period from Six Months Ended July 23, 1998 August 31, 1999 (commencement of operations) (Unaudited) through February 28, 1999 ---------------- ---------------------------- Net asset value, beginning of period $10.67 $10.00 ------ ------ Income from investment operations: Net investment income 0.07 0.09 Net realized and unrealized gain 0.63 0.65 ------ ------ Total from investment operations 0.70 0.74 ------ ------ Less distributions to shareholders: From net investment income (0.07) (0.07) ------ ------ Total distributions (0.07) (0.07) ------ ------ Net asset value, end of period $11.30 $10.67 ====== ====== Total Return (a) 6.57% 7.48% Ratios/Supplemental Data: Net assets, end of period (000's) $10,765 $8,116 Net expenses to average daily net assets 0.48%* 0.48%* Net investment income to average daily net assets 1.26%* 1.30%* Portfolio turnover rate 4% 33% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: $0.02 $0.10
(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. 11 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Tax-Managed U.S. Equities Fund (the "Fund"), which commenced operations on July 23, 1998, 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 after-tax total return primarily through investment in U.S. equity securities. The Fund's current benchmark is the GMO S&P 500 (After Tax). 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into a futures contract, the Fund is required to depositwith its custodian, in a segregated account in the name of the futures broker, an amount of cash or U.S. government and agency 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 12 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. As of August 31, 1999, the Fund held no open 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 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. The Fund also enters into contracts for differences in which the Fund agrees with the counterparty that its return will be based on the relative performance of two different groups or "baskets" of securities, adjusted by an interest rate payment. 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 will be 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. As of August 31, 1999, there were no open swap agreements. 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 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 are withheld in accordance with the applicable country's tax treaty with the United States. 13 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $3,065 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 .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 average daily net assets at the annual rate of .15% for Class III shares. 14 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .525% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $60. 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, 1999, aggregated $2,402,835 and $351,936, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Gross Unrealized Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------- ---------------- ----------------- --------------- $10,274,284 $1,121,998 $709,954 $412,044 4. Principal shareholder At August 31, 1999, 98.3% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 15 GMO Tax-Managed U.S. Equities Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 23, 1998 (commencement of operations) Six Months Ended through February August 31, 1999 28, 1999 -------------------- --------------------- Shares Amount Shares Amount -------- ---------- --------- ---------- Class III: Shares sold 189,032 $ 2,189,362 928,320 $ 9,723,200 Shares issued to shareholders in reinvestment of distributions 2,659 30,416 -- -- Shares repurchased -- -- (167,747) (1,741,210) -------- ---------- --------- ---------- Net increase 191,691 $ 2,219,778 760,573 $ 7,981,990 ======== ========== ========= ========== The Fund was formed with a $100,000 purchase and an initial tax-free contribution of securities in-kind, which had a historical cost of $4,931,640 and unrealized appreciation of $82,560 on the date of contribution. 16 GMO International Equity Allocation Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO International Equity Allocation Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value ($)/ Shares Description Value ($) - -------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 6,877 GMO Domestic Bond Fund 63,821 440,356 GMO Emerging Country Debt Fund 3,170,564 856,542 GMO Emerging Markets Fund 7,991,537 1,114,930 GMO Evolving Countries Fund 10,948,608 194,265 GMO Inflation Indexed Bond Fund 1,946,536 183,097 GMO International Bond Fund 1,754,072 2,243,256 GMO International Core Fund 51,976,242 237,176 GMO International Small Companies Fund 2,967,069 146,062 GMO U.S. Bond/Global Alpha A Fund 1,418,266 ---------- TOTAL MUTUAL FUNDS (COST $75,061,752) 82,236,715 ---------- SHORT-TERM INVESTMENTS -- 0.0% Repurchase Agreements -- 0.0% $ 11,335 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $11,337 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $11,562. 11,335 ---------- TOTAL SHORT-TERM INVESTMENTS (COST $11,335) 11,335 ---------- TOTAL INVESTMENTS -- 100.0% (Cost $75,073,087) 82,248,050 Other Assets and Liabilities (net) -- (0.00)% (9,111) ---------- TOTAL NET ASSETS -- 100% $82,238,939 =========== 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $75,073,087) (Note 1) $ 82,248,050 Receivable for investments sold 58,000 Receivable for expenses waived or borne by Manager (Note 2) 3,100 ------------ Total assets 82,309,150 ------------ Liabilities: Payable for Fund shares repurchased 60,000 Accrued expenses 10,211 ------------ Total liabilities 70,211 ------------ Net assets $ 82,238,939 ============ Net assets consist of: Paid-in capital $ 81,101,204 Accumulated undistributed net investment income 239,205 Accumulated net realized loss (6,276,433) Net unrealized appreciation 7,174,963 ------------ $ 82,238,939 ============ Net assets attributable to: Class III shares $ 82,238,939 ============ Shares outstanding: Class III 8,343,273 ============ Net asset value per share: Class III $ 9.86 ============ 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends from investment company shares $ 238,991 Interest 214 ----------- Total income 239,205 ----------- Expenses: Audit fees 8,191 Custodian and transfer agent fees 6,250 Legal fees 1,470 Trustees fees (Note 2) 459 Registration fees 364 Miscellaneous 643 Fees waived or borne by Manager (Note 2) (17,377) ----------- Net expenses -- ----------- Net investment income 239,205 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (5,764,010) Realized gain distributions from investment company shares 1,085,321 ----------- Net realized loss (4,678,689) ----------- Change in net unrealized appreciation (depreciation) on investments 24,205,720 ----------- Net realized and unrealized gain 19,527,031 ----------- Net increase in net assets resulting from operations $19,766,236 =========== 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 August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 239,205 $ 1,656,149 Net realized gain (loss) (4,678,689) 1,219,443 Change in net unrealized appreciation (depreciation) 24,205,720 (10,858,440) ------------ ------------ Net increase (decrease) in net assets resulting from operations 19,766,236 (7,982,848) ------------ ------------ Distributions to shareholders from: Net investment income Class III -- (1,656,149) ------------ ------------ Total distributions from net investment income -- (1,656,149) ------------ ------------ In excess of net investment income Class III -- (2,114,210) ------------ ------------ Total distributions in excess of net investment income -- (2,114,210) ------------ ------------ Net realized gains Class III (2,308,096) (4,795,515) ------------ ------------ Total distributions from net realized gains (2,308,096) (4,795,515) ------------ ------------ (2,308,096) (8,565,874) ------------ ------------ Net share transactions: (Note 5) Class III (25,380,369) 20,834,383 ------------ ------------ Increase (decrease) in net assets resulting from net share transactions (25,380,369) 20,834,383 ------------ ------------ Total increase (decrease) in net assets (7,922,229) 4,285,661 Net assets: Beginning of period 90,161,168 85,875,507 ------------ ------------ End of period (including accumulated undistributed net investment income of $239,205 and $0, respectively) $ 82,238,939 $ 90,161,168 ============ ============ 4 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 August Year Ended February 28, 31, 1999 -------------------------------- (Unaudited) 1999 1998 1997 * ---------- ------- ------ ------- Net asset value, beginning of period $ 8.28 $ 10.18 $ 10.41 $ 10.00 ------- ------- ------- ------- Income from investment operations: Net investment income (a) 0.03 0.19+ 0.33+ 0.10 Net realized and unrealized gain (loss) 1.83 (1.01) 0.31 0.41 ------- ------- ------- ------- Total from investment operations 1.86 (0.82) 0.64 0.51 ------- ------- ------- ------- Less distributions to shareholders: From net investment income -- (0.19) (0.29) (0.07) In excess of net -- (0.31) --(b) -- investment income From net realized gains (0.28) (0.58) (0.58) (0.03) ------- ------- ------- ------- Total distributions (0.28) (1.08) (0.87) (0.10) ------- ------- ------- ------- Net asset value, end of period $ 9.86 $ 8.28 $ 10.18 $ 10.41 ======= ======= ======= ======= Total Return (c) 22.50% (8.77)% 6.73% 5.11% Ratios/Supplemental Data: Net assets, end of $82,239 $90,161 $85,876 $30,459 period (000's) Net expenses to average daily net assets (d) 0.00%** 0.00% 0.00% 0.01%** Net investment income to average daily net assets (a) 0.52%** 2.06% 3.13% 3.60%** Portfolio turnover rate 4% 36% 16% -- Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(e) $ 0.01 $ 0.01 $ 0.01
(a) Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. (b) The per share distribution in excess of net investment income was $0.001. (c) Calculation excludes purchase premiums and redemption fees. The total returns would have been lower had certain expenses not been waived during the periods shown. (d) Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 1. (e) Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Period from October 11, 1996 (commencement of operations) to February 28, 1997. ** Annualized. + Computed using average shares outstanding throughout the period. See accompanying notes to the financial statements. 5 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO International Equity Allocation 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 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 total return greater than the return of the GMO EAFE Extended benchmark through investment to varying extents in other Funds of the Trust. The Fund will pursue its objective by investing in Class III shares of international equity and fixed income funds of the Trust. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 6 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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. Income dividends and capital gain distributions from underlying funds are 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $311 in purchase premiums and $30,415 in redemption fees. There is no premium for reinvested distributions or in-kind transactions. 7 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment risk The Fund is subject to the investment risk associated with an investment in the underlying funds, some of which may invest in foreign securities. 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, including the possible imposition of capital controls 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. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 and shareholder service fees from the underlying funds in which the Fund invests. The Fund has adopted a Shareholder Service Plan under which the Fund pays GMO a shareholder service fee for client and shareholder service, reporting and other support. No shareholder service fee is charged for Class III shares. GMO has contractually agreed to reimburse all expenses directly incurred by the Fund until June 30, 2000 (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, 1999 was $459. 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, 1999, aggregated $3,913,942 and $30,284,430, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $75,073,087 $7,571,844 $396,881 $7,174,963 8 GMO International Equity Allocation Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholders At August 31, 1999, 56.4% 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: Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 ------------------------ ------------------------ Shares Amount Shares Amount ---------- ------------ ----------- ----------- Shares sold 4,455 $ 38,869 4,350,530 $37,996,130 Shares issued to shareholders in reinvestment of distributions 228,395 2,261,114 770,742 7,138,503 Shares repurchased (2,781,247) (27,680,352) (2,665,394) (24,300,250) ---------- ------------ ----------- ----------- Net increase (decrease) (2,548,397) $(25,380,369) $ 2,455,878 $20,834,383 ========== ============ =========== =========== 9 GMO Intrinsic Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Common Stocks -- 97.3% Aerospace -- 1.9% 8,800 Allied Signal Inc 539,001 1,900 Cordant Technologies Inc 78,614 2,100 Goodrich (BF) Co 77,570 400 Northrop Grumman Corp 29,001 ----------- 724,186 ----------- Automotive -- 6.1% 900 Autonation Inc* 11,644 3,600 Cooper Tire & Rubber Co 68,401 12,800 Ford Motor Co 667,201 21,900 General Motors Corp 1,448,139 200 Genuine Parts Co 5,775 1,800 Goodyear Tire & Rubber Co 101,026 2,500 Meritor Automotive Inc 54,532 ----------- 2,356,718 ----------- Banking and Financial Services -- 9.4% 1,100 American General Corp 78,101 3,300 Astoria Financial Corp 108,489 1,000 Bancwest Corp 41,814 500 Bank One Corp 20,063 7,200 Bear Stearns Cos Inc 299,701 4,700 Chase Manhattan Corp 393,332 1,100 Countrywide Credit Industries Inc 35,339 1,900 Donaldson Lufkin & Jenrette 90,845 4,600 Edwards (AG) Inc 115,576 2,100 Fannie Mae 130,464 300 Financial Security Assurance Holdings Ltd 15,019 2,000 First Union Corp 83,001 6,900 Franklin Resources Inc 247,970 2,600 Golden West Financial Corp 236,114 700 Greenpoint Financial Corp 18,113 5,400 J.P. Morgan & Co Inc 697,614 4,500 Lehman Brothers Holding Inc 241,876 1,400 Leucadia National Corp 29,664 1,000 Liberty Financial Cos 25,751 2,300 MGIC Investment Corp 99,907 4,500 Pacific Century Financial Corp 83,532 3,150 PMI Group Inc 133,876 2,200 Republic New York Corp 152,626 See accompanying notes to the financial statements. 1 GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 4,100 Rowe (T) Price & Associates Inc 126,845 2,400 Sovereign Bancorp Inc 24,076 1,800 Unionbancal Corp 69,076 1,900 Washington Federal Inc 45,364 ----------- 3,644,148 ----------- Chemicals -- 0.7% 2,400 Engelhard Corp 47,851 3,700 IMC Global Inc 58,970 3,200 Millenium Chemicals Inc 73,601 500 PPG Industries Inc 30,032 1,300 Praxair Inc 61,101 1,100 W.R. Grace & Co* 21,038 ----------- 292,593 ----------- Computer and Office Equipment -- 0.4% 400 Electronic Data Systems Corp 22,451 3,000 Reynolds & Reynolds Inc, Class A 65,626 4,100 Silicon Graphics Inc* 46,895 1,400 Sterling Software Inc* 28,176 ----------- 163,148 ----------- Construction -- 0.4% 3,300 Georgia-Pacific Corp 136,539 1,300 McDermott International Inc 29,332 ----------- 165,871 ----------- Consumer Goods -- 2.3% 200 Eastman Kodak Co 14,688 3,100 Fastenal Co 155,389 5,700 Fortune Brands Inc 213,751 1,600 Hon Industries Inc 37,701 6,300 Jones Apparel Group Inc* 163,407 3,500 Lancaster Colony Corp 115,064 1,000 Liz Claiborne Inc 36,751 5,400 Mattel Co 115,089 2,500 Warnaco Group Inc, Class A 55,001 ----------- 906,841 ----------- Electronic Equipment -- 4.2% 2,300 Adaptec Inc* 89,701 9,300 American Power Conversion Corp* 163,332 2 See accompanying notes to the financial statements. GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- continued 6,900 Andrew Corp* 120,751 3,900 Arrow Electronics Inc* 77,514 200 Associated Group Inc, Class B* 11,150 4,100 Emerson Electric Co 256,764 1,700 Harris Corp 44,626 600 Hubbell Inc, Class B 23,289 2,200 National Semiconductor Corp* 62,014 11,400 Raytheon Co, Class B 776,626 ----------- 1,625,767 ----------- Food and Beverage -- 3.3% 17,115 Archer Daniels Midland Co 222,496 4,200 IBP Inc 96,339 16,700 Nabisco Group Holdings 296,426 11,600 Seagrams Co Ltd 615,526 800 Unilever NV 55,101 ----------- 1,285,888 ----------- Health Care -- 1.0% 900 Columbia HCA Healthcare Corp 22,163 3,000 Johnson & Johnson 306,751 1,000 United Healthcare Corp 60,814 ----------- 389,728 ----------- Insurance -- 11.0% 6,300 Aetna Life and Casualty Co 489,826 100 Alleghany Corp* 18,075 2,900 Allmerica Financial Corp 163,851 10,300 Allstate Corp 337,970 500 AMBAC Inc 26,407 900 American Financial Group Inc 26,551 1,200 American National Insurance Co 84,001 200 Chubb Corp 11,438 4,200 Cigna Corp 377,214 6,800 Cincinnati Financial Corp 269,451 1,800 CNA Financial Corp* 65,476 11,600 Conseco Inc 278,401 1,700 Everest Re Holdings Inc 47,176 9,200 Foundation Health Systems Inc, Class A* 117,301 600 Hartford Financial Services Group Inc 27,264 7,800 Lincoln National Corp 365,626 5,500 Loews Corp 431,751 See accompanying notes to the financial statements. 3 GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- continued 800 MBIA Inc 41,501 900 Mercury General Corp 27,226 5,400 Old Republic International Corp 83,701 6,400 Safeco Corp 228,001 9,500 Saint Paul Cos Inc 304,595 3,300 Torchmark Corp 94,051 800 Transatlantic Holding Inc 57,701 5,700 Travelers Property Casualty Corp, Class A 202,351 2,800 Unitrin Inc 100,626 ----------- 4,277,532 ----------- Machinery -- 2.3% 3,700 Baker Hughes Inc 125,801 4,100 Case Corp 202,439 2,600 Cooper Cameron Corp* 108,226 1,600 Cummins Engine Inc 94,801 3,900 Deere and Co 151,614 2,600 FMC Corp* 151,451 1,100 York International Corp 45,239 ----------- 879,571 ----------- Manufacturing -- 2.0% 5,400 Clayton Homes Inc 51,301 2,300 Crane Co 55,345 2,300 International Game Technology 40,251 1,800 Minnesota Mining and Manufacturing Co 170,101 3,600 Rockwell International Corp 212,851 2,900 Temple Inland Inc 179,801 1,700 Trinity Industries Inc 53,339 ----------- 762,989 ----------- Metals and Mining -- 1.7% 5,800 Alcan Aluminum Ltd 190,676 1,200 Cyprus Amax Minerals Co 20,325 4,300 Phelps Dodge Corp 240,532 3,400 Reynolds Metals Co 215,264 ----------- 666,797 ----------- Oil and Gas -- 3.1% 5,200 Amerada Hess Corp 322,726 5,900 Apache Corp 268,451 1,000 BJ Services Co* 34,251 4 See accompanying notes to the financial statements. GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Oil and Gas -- continued 4,200 Diamond Offshore Drilling Inc 160,651 2,200 Ensco International Inc 46,889 2,000 K N Energy Inc 40,751 1,300 Kerr-McGee Corp 72,801 5,300 Nabors Industries Inc* 144,095 800 Noble Drilling Corp* 19,700 1,900 Pioneer Natural Resources Co 21,613 600 Questar Corp 11,325 800 Rowan Cos Inc* 14,900 1,700 Transocean Offshore Inc 57,801 ----------- 1,215,954 ----------- Paper and Allied Products -- 3.6% 2,800 Boise Cascade Corp 101,851 700 Bowater Inc 37,539 5,000 Champion International Corp 275,001 500 Consolidated Papers Inc 13,313 2,000 Ikon Office Solutions Inc 22,250 12,300 International Paper Co 578,870 2,900 Louisiana Pacific Corp 53,651 5,200 Mead Corp 194,026 4,600 Westvaco Corp 120,464 400 Willamette Industries Inc 15,850 ----------- 1,412,815 ----------- Pharmaceuticals -- 4.6% 15,400 Abbott Laboratories 667,976 9,800 Amgen Inc* 815,239 4,000 Bristol Myers Squibb Co 281,501 1,100 ICN Pharmaceuticals Inc 22,826 800 Nu Skin Enterprises Inc* 8,550 ----------- 1,796,092 ----------- Primary Materials -- 0.1% 600 Crown Cork & Seal Inc 15,938 400 Weatherford International Inc 14,250 ----------- 30,188 ----------- Primary Processing -- 1.0% 4,000 Nucor Corp 186,251 7,000 USX-US Steel Group Inc 189,001 ----------- 375,252 ----------- See accompanying notes to the financial statements. 5 GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Real Estate -- 1.1% 2,200 Archstone Communities Trust 47,026 600 Arden Realty Group Inc 13,988 900 Avalonbay Communities Inc 31,726 1,700 Carramercia Realty Corp 39,101 900 Cornerstone Properties Inc 14,344 800 Crescent Real Estate Equities 16,600 1,300 Duke Realty Investments 29,170 1,000 Equity Residential Properties Trust 44,001 600 Highwood Properties Inc 14,888 5,100 HRPT Properties Trust 70,764 500 Mack-Cali Realty Corp 14,188 6,900 Meditrust Corp, REIT 61,670 1,700 Public Storage Inc 44,201 ----------- 441,667 ----------- Refining -- 0.9% 2,600 Ashland Inc 100,264 400 Murphy Oil Corp 20,300 2,800 Tosco Corp 71,401 5,400 Ultramar Diamond Shamrock Corp 141,076 600 Valero Energy Corp 12,750 ----------- 345,791 ----------- Retail Trade -- 3.9% 189 Albertsons Inc 9,060 7,100 Autozone Inc* 169,070 9,100 Bed, Bath & Beyond Inc* 250,251 5,000 Dillard's Inc 117,501 5,500 Federated Department Stores Inc* 253,001 24,500 Kmart Corp* 307,782 1,200 Neiman Marcus Group Inc* 26,701 400 OfficeMax Inc* 3,025 3,800 Outback Steakhouse Inc* 112,576 300 Penney (JC) Co Inc 10,875 1,500 Ross Stores Inc 62,439 12,600 Toys R Us Inc* 174,039 1,700 Venator Group Inc* 12,113 ----------- 1,508,433 ----------- Services -- 1.1% 1,600 AT & T Liberty Media Group* 51,201 6 See accompanying notes to the financial statements. GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 400 BHC Communications Inc, Class A 52,601 900 Chris Craft Industries Inc* 45,564 2,000 Fluor Corp 82,751 1,000 Harrahs Entertainment Inc* 22,501 1,500 KingWorld Productions Inc* 57,189 5,000 Mandalay Resort Group* 102,501 ----------- 414,308 ----------- Technology -- 5.4% 1,000 Adobe Systems Inc 99,626 5,200 Advanced Micro Devices Inc* 107,576 1,400 Autodesk Inc 32,201 1,000 Avnet Inc 44,251 9,200 BMC Software Inc* 495,076 2,200 Cabletron Systems Inc* 36,989 1,600 Cisco Systems Inc* 108,501 500 Gartner Group Inc, Class A 10,469 5,700 Intel Corp 468,470 1,000 Microsoft Corp* 92,564 1,200 Novell Inc* 28,426 10,600 Oracle Corp* 386,901 4,000 Seagate Technology Corp* 132,751 3,000 Thermo Electron Corp* 47,626 ----------- 2,091,427 ----------- Telecommunications -- 6.4% 3,300 Ameritech Corp 208,314 3,300 AT & T Corp 148,501 900 Bell Atlantic Corp 55,126 1,000 Bellsouth Corp 45,251 11,500 GTE Corp 789,189 1,200 MediaOne Group Inc* 78,901 900 SBC Communications 43,201 800 Sprint Corp 35,501 3,700 Telephone and Data Systems Inc 257,151 2,000 United States Cellular Corp* 112,501 16,800 Viacom Inc, Class B* 706,651 ----------- 2,480,287 ----------- Transportation -- 5.1% 4,600 AMR Corp* 269,676 See accompanying notes to the financial statements. 7 GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Transportation -- continued 900 Brunswick Corp 23,007 18,600 Burlington Northern Santa Fe Railroad Co 539,401 5,000 Comair Holdings Inc 105,626 6,300 CSX Corp 275,232 300 Delta Air Lines Inc 15,244 6,900 Laidlaw Inc, Class B 43,126 1,600 Norfolk Southern Corp 41,901 4,600 Tidewater Inc 149,501 2,200 UAL Corp* 142,589 8,000 Union Pacific Corp 389,501 ----------- 1,994,804 ----------- Utilities -- 14.3% 1,400 Allegheny Energy Inc 47,251 2,300 Ameren Corp 92,145 700 American Electric Power Inc 25,420 6,800 Central & South West Corp 153,851 8,600 Citizens Utilities, Class B* 94,601 1,700 Connectiv Inc 36,445 6,300 Consolidated Edison Inc 277,201 5,000 Constellation Energy Group Inc 148,126 7,200 Dominion Resources Inc 333,001 4,500 DTE Energy Co 177,470 8,200 Edison International 208,076 2,200 Energy East Corp 55,001 11,700 Entergy Corp 348,807 8,400 Firstenergy Corp 239,926 4,800 General Public Utilities Inc 163,801 1,900 Illinova Corp 60,564 500 Keyspan Corp 14,750 1,000 Kinder Morgan Energy Partners 44,001 1,400 New England Electric System 73,064 10,000 Niagara Mohawk Holdings Inc* 151,251 7,600 Northeast Utilities* 133,476 3,800 Northern States Power Co 89,539 8,500 PacifiCorp 173,720 13,400 PG & E Corp 406,189 2,000 Pinnacle West Capital Corp 76,001 3,400 Potomac Electric Power Co 90,101 9,200 Public Service Enterprise Group Inc 377,201 600 Puget Sound Power and Light Co 14,213 8,600 Reliant Energy Inc 238,114 8 See accompanying notes to the financial statements. GMO Intrinsic Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- Utilities -- continued 1,500 Scana Corp 37,501 10,100 Southern Co 273,332 9,800 Texas Utilities Co 396,289 9,000 Unicom Corp 347,626 3,000 Western Resources Inc 71,626 2,500 Wisconsin Energy Corp 61,095 ----------- 5,530,775 ----------- TOTAL COMMON STOCKS (COST $39,903,249) 37,779,570 ----------- SHORT-TERM INVESTMENTS -- 4.7% U.S. Government -- 0.2% $ 75,000 U.S. Treasury Bill, 4.54%, due 10/21/99/(a)/ 74,160 ----------- Repurchase Agreements -- 4.5% $1,737,698 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $1,737,924 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 7.25%, maturity date of 5/15/16 and market value, including accrued interest, of $1,772,452. 1,737,698 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $1,812,237) 1,811,858 ----------- TOTAL INVESTMENTS -- 102.0% (COST $41,715,486) 39,591,428 Other Assets and Liabilities (net) -- (2.0)% (791,582) ----------- TOTAL NET ASSETS -- 100% $38,799,846 =========== Notes to the Schedule of Investments: * Non-income producing security. /(a)/ Security has been segregated to cover margin requirements on open financial futures contracts. See accompanying notes to the financial statements. 9 GMO Intrinsic Value Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $41,715,486) (Note 1) $ 39,591,428 Receivable for investments sold 54,699 Dividends and interest receivable 66,884 Receivable for expenses waived or borne by Manager (Note 2) 7,840 ------------ Total assets 39,720,851 ------------ Liabilities: Payable to affiliate for (Note 2): Management fee 9,988 Shareholder service fee 4,540 Payable for investments purchased 898,844 Payable for variation margin on open futures contracts (Notes 1 and 6) 143 Accrued expenses 7,490 ------------ Total liabilities 921,005 ------------ Net assets $ 38,799,846 ============ Net assets consist of: Paid-in capital $ 40,935,023 Accumulated undistributed net investment income 68,123 Accumulated net realized loss (74,385) Net unrealized depreciation (2,128,915) ============ $ 38,799,846 ============ Net assets attributable to: Class III shares $ 38,799,846 ============ Shares outstanding: Class III 3,976,761 ============ Net asset value per share: Class III $ 9.76 ============ 10 See accompanying notes to the financial statements. GMO Intrinsic Value Fund (A Series of GMO Trust) Statement of Operations -- Period from August 2, 1999 (commencement of operations) through August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $418) $ 75,074 Interest 7,577 ----------- Total income 82,651 ----------- Expenses: Management fee (Note 2) 9,988 Audit fees 5,068 Custodian and transfer agent fees 1,596 Registration fees 672 Legal fees 112 Trustees fees (Note 2) 56 Miscellaneous 336 Fees waived or borne by Manager (Note 2) (7,840) ----------- 9,988 Shareholder service fee (Note 2) Class III 4,540 ----------- Net expenses 14,528 ----------- Net investment income 68,123 ----------- Realized and unrealized loss: Net realized loss on: Investments (69,179) Closed futures contracts (5,206) ----------- Net realized loss (74,385) ----------- Change in net unrealized appreciation (depreciation) on: Investments (956,646) Open futures contracts (4,857) ----------- Net unrealized loss (961,503) ----------- Net realized and unrealized loss (1,035,888) ----------- Net decrease in net assets resulting from operations $ (967,765) =========== See accompanying notes to the financial statements. 11 GMO Intrinsic Value Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Period from August 2, 1999 (commencement of operations) through August 31, 1999 (Unaudited) ---------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 68,123 Net realized loss (74,385) Change in net unrealized appreciation (depreciation) (961,503) ------------ Net decrease in net assets resulting from operations (967,765) ------------ Net share transactions: (Note 5) Class III 39,767,611 ------------ Increase in net assets resulting from net share transactions 39,767,611 ------------ Total increase in net assets 38,799,846 Net assets: Beginning of period -- ------------ End of period (including accumulated undistributed net investment income of $68,123) $ 38,799,846 ============
12 See accompanying notes to the financial statements. GMO Intrinsic Value Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - -------------------------------------------------------------------------------- Period from August 2, 1999 (commencement of operations) through August 31, 1999 (Unaudited) ---------------------------- Net asset value, beginning of period $ 10.00 ------- Income from investment operations: Net investment income 0.02 Net realized and unrealized loss (0.26) ------- Total from investment operations (0.24) ------- Net asset value, end of period $ 9.76 ======= Total Return (a) (2.40)% Ratios/Supplemental Data: Net assets, end of period (000's) $38,800 Net expenses to average daily net assets 0.48%* Net investment income to average daily net assets 2.25%* Portfolio turnover rate 8% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amount: --(b) (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) Fees and expenses waived or borne by the Manager were less than $0.01 per share. * Annualized. See accompanying notes to the financial statements. 13 GMO Intrinsic Value Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Intrinsic Value Fund (the "Fund"), which commenced operations on August 2, 1999, 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 25, 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 in equity securities. The Fund's current benchmark is the Russell 1000 Value Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 contracts, or if 14 GMO Intrinsic Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund no securities on loan. 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 may enter into interest rate and total return swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments 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. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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. The Fund did not have any open swap agreements as of August 31, 1999. 15 GMO Intrinsic Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14% of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the period ended August 31, 1999, the Fund did not collect any purchase premiums. There is no premium for cash redemptions, reinvested distributions or in-kind transactions. 16 GMO Intrinsic Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the period ended August 31, 1999 was $56. 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, 1999, aggregated $42,769,486 and $2,797,059, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------- ------------------- ------------------- ------------------ $ 41,715,486 $ 793,509 $ 2,917,567 $ 2,124,058 17 GMO Intrinsic Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholder At August 31, 1999, 100% of the outstanding shares of the Fund were held by one shareholder. Investment activities of this shareholder could have a material effect. 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 August 2, 1999 Class III: (commencement of operations) through August 31, 1999 ------------------------ Shares Amount --------- -------------- Shares sold 3,976,761 $ 39,767,611 Shares issued to shareholders in reinvestment of -- -- distributions Shares repurchased -- -- =========== ============== Net increase 3,976,761 $ 39,767,611 =========== ============== The Fund was formed with an initial tax-free contribution of securities-in-kind, which had a historical cost of $36,907,073 and unrealized depreciation of $1,167,412 on the date of contribution. 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Long futures contracts Net Number of Unrealized Contracts Type Expiration Date Contract Value Depreciation ------------ ------------- ----------------- ---------------- ------------ 1 S & P 500 September 1999 $329,950 $ (4,857) ============ At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 18 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value Description Value ($) - -------------------------------------------------------------------------------- Debt Obligations -- 103.6% New Zealand-- 1.1% NZD 1,000,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 511,758 ----------- United States -- 102.5% Asset Backed Securities -- 3.1% USD 1,420,155 Constellation 99-1A, 144A, 5.73%, due 4/18/02 1,420,155 ----------- Corporate Debt -- 2.3% USD 1,200,000 JP Morgan and Co. Series A, Variable Rate, CPI + 4.00%, 6.09%, due 2/15/12 1,053,000 ----------- U.S. Government-- 51.2% USD 4,881,480 U.S. Treasury Inflation Indexed Bond, 3.63%, due 4/15/28 4,545,436 USD 6,572,085 U.S. Treasury Inflation Indexed Bond, 3.88%, due 4/15/29 6,395,854 USD 12,495,345 U.S. Treasury Inflation Indexed Note, 3.88%, due 1/15/09(a) 12,321,582 ----------- 23,262,872 ----------- U.S. Government Agency -- 45.9% USD 8,625,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.24%, due 2/15/02 8,232,563 USD 13,620,686 Tennessee Valley Authority (Indexed Principal), 3.38%, due 1/15/07 12,616,889 ----------- 20,849,452 =========== Total United States 46,585,479 =========== TOTAL DEBT OBLIGATIONS (COST $47,828,731) 47,097,237 ----------- Short-Term Investments -- 0.0% Repurchase Agreements -- 0.0% USD 13,588 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $13,590 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $13,860. 13,588 =========== TOTAL SHORT-TERM INVESTMENTS (COST $13,588) 13,588 ----------- Total Investments -- 103.6% (Cost $47,842,319) 47,110,825 Other Assets and Liabilities (net) -- (3.6)% (1,639,360) ----------- TOTAL NET ASSETS -- 100% $45,471,465 =========== See accompanying notes to the financial statements. 1 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Notes to the Schedule of Investments: Variable rates - The rates shown on variable rate notes are the current interest rates at August 31, 1999, which are subject to change based on the terms of the security. Currency Abbreviations NZD - New Zealand Dollar USD - United States Dollar (a) All or a portion of this security has been segregated to cover collateral requirements on reverse repurchase agreements. 2 See accompanying notes to the financial statements. GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $47,842,319) (Note 1) $47,110,825 Interest receivable 314,918 Net receivable for open forward foreign currency contracts 10,559 (Notes 1 and 6) Receivable for expenses waived or borne by Manager (Note 2) 3,578 ----------- Total assets 47,439,880 ----------- Liabilities: Payable to affiliate for (Note 2): Management fee 3,820 Shareholder service fee 5,629 Payable for reverse repurchase agreements (Notes 1 and 6) 1,946,498 Accrued expenses and other liabilities 12,468 ----------- Total liabilities 1,968,415 ----------- Net assets $45,471,465 =========== Net assets consist of: Paid-in capital $45,567,028 Accumulated undistributed net investment income 1,131,919 Accumulated net realized loss (506,268) Net unrealized depreciation (721,214) =========== $45,471,465 =========== Net assets attributable to: Class III shares $45,471,465 =========== Shares outstanding: Class III 4,540,329 =========== Net asset value per share: Class III $ 10.02 =========== See accompanying notes to the financial statements. 3 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $1,292,878 ---------- Total income 1,292,878 ---------- Expenses: Management fee (Note 2) 17,530 Interest expense (Notes 1 and 6) 102,979 Audit fees 14,356 Custodian and transfer agent fees 5,429 Registration fees 616 Legal fees 368 Trustees fees (Note 2) 184 Miscellaneous 480 Fees waived or borne by Manager (Note 2) (21,433) ---------- 120,509 Shareholder service fee (Note 2) Class III 26,295 ---------- Net expenses 146,804 ---------- Net investment income 1,146,074 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (256,400) Foreign currency, forward contracts and foreign currency related transactions 9,340 ---------- Net realized loss (247,060) ---------- Change in net unrealized appreciation (depreciation) on: Investments (473,923) Foreign currency, forward contracts and foreign currency related transactions (3,413) ---------- Net unrealized loss (477,336) ---------- Net realized and unrealized loss (724,396) ---------- Net increase in net assets resulting from operations $ 421,678 ========== 4 See accompanying notes to the financial statements. GMO Inflation Indexed Bond Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ------------------ --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 1,146,074 $ 1,498,147 Net realized loss (247,060) (208,075) Change in net unrealized depreciation (477,336) (23,506) ----------- ----------- Net increase in net assets resulting from operations 421,678 1,266,566 ----------- ----------- Distributions to shareholders from: Net investment income Class III (107,609) (1,437,398) ----------- ----------- Total distributions from net investment income (107,609) (1,437,398) ----------- ----------- (107,609) (1,437,398) ----------- ----------- Net share transactions: (Note 5) Class III 20,009,986 (341,835) ----------- ----------- Increase (decrease) in net assets resulting from net share transactions 20,009,986 (341,835) ----------- ----------- Total increase (decrease) in net assets 20,324,055 (512,667) Net assets: Beginning of period 25,147,410 25,660,077 ----------- ----------- End of period (including accumulated undistributed net investment income of $1,131,919 and $93,454, respectively) $45,471,465 $25,147,410 =========== ===========
See accompanying notes to the financial statements. 5 GMO Inflation Indexed Bond Fund (A Series of GMO Trust)
Statement of Cash Flows -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Cash flows from operating activities: Net investment income $ 1,146,074 Net accretion (384,560) ----------- 761,514 ----------- Investments purchased (63,638,712) Investments sold 41,242,013 ----------- (22,396,699) ----------- Other gain (loss): Foreign currency, forward contracts and foreign currency related transactions 9,340 Futures contracts 0 Swap contracts 0 ----------- 9,340 ----------- Changes in assets and liabilities: (Increase) decrease in interest receivable (210,389) (Increase) decrease in receivable for expenses waived or borne by Manager 2,826 (Increase) decrease in receivable for fund shares sold 585 Increase (decrease) in payable to affiliate for Management fee (1,497) Increase (decrease) in payable to affiliate for Shareholder service fee 2,540 Increase (decrease) in accrued expenses and other liabilities (8,095) ----------- Total changes in assets and liabilities (214,030) ----------- Net cash provided by (used in) operating activities (21,839,875) ----------- Cash flows from financing activities: Proceeds from shares sold 21,391,288 Net asset value of shares reinvested 79,033 Cost of shares repurchased (1,460,335) Cash distributions paid (107,609) Reverse repurchase agreements 1,946,498 ----------- Net cash provided by (used in) financing activities 21,848,875 ----------- Net cash provided (used) 9,000 Cash at beginning of period (9,000) ----------- Cash at end of period $ 0 ===========
6 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 each period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28, August 31, 1999 --------------------------- (Unaudited) 1999 1998* ---------------- --------- ---------- Net asset value, beginning of period $ 9.88 $ 10.04 $ 10.00 ------- ------- ------- Income from investment operations: Net investment income 0.33+ 0.61 0.42+ Net realized and unrealized loss (0.16) (0.18) (0.04) ------- ------- ------- Total from investment operations 0.17 0.43 0.38 ------- ------- ------- Less distributions to shareholders: From net investment income (0.03) (0.59) (0.30) In excess of net investment income -- -- (0.02) From net realized gains -- -- --(a) From tax return of capital -- -- (0.02) ------- ------- ------- Total distributions (0.03) (0.59) (0.34) ------- ------- ------- Net asset value, end of period $ 10.02 $ 9.88 $ 10.04 ======= ======= ======= Total Return (b) 1.69% 4.28% 3.77% Ratios/Supplemental Data: Net assets, end of period (000's) $45,471 $25,147 $25,660 Net operating expenses to average daily net assets 0.25%** 0.25% 0.25%** Interest expense to average daily net assets 0.59%** -- -- Total net expenses to average daily net assets 0.84%** 0.25% 0.25%** Net investment income to average daily net assets 6.54%** 4.93% 4.48%** Portfolio turnover rate 107% 94% 9% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.04 $ 0.04
* Period from March 31, 1997 (commencement of operations) to February 28, 1998. ** Annualized. + Computed using average shares outstanding throughout the period. (a) The per share distribution from net realized gains was $.002. (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. See accompanying notes to the financial statements. 7 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Inflation Indexed 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 of shares into classes. The Fund seeks high total return through investment in government bonds that are indexed or otherwise "linked" to general measures of inflation in the country of issue ("inflation indexed bonds"). The Fund's current benchmark is the Lehman Brothers Treasury Inflation Notes Index. Inflation indexed securities issued by the U.S. Treasury are fixed income securities whose principal value is periodically adjusted according to the rate of U.S. inflation. Inflation indexed bonds issued by a foreign government are generally adjusted to reflect a comparable local inflation index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 arise from changes in the market value of investments. Such fluctuations are included with net realized 8 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 currency 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 a currency contract as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to 9 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- repurchase under the agreement. At August 31, 1999, the Fund had entered into a reverse repurchase agreement having a market value of $2,769,000, collateralized by a security with a market value of $2,830,898. See Note 6 for a summary of open reverse repurchase agreements as of August 31, 1999. 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, 1999, 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 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. Income dividends 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 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. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon the inflation adjusted principal. Additionally, any increase in the principal or face amount of the securities adjusted for inflation is recorded as interest income. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 10 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases and fee on redemptions of Fund shares is .10% of the amount invested or redeemed. These fees will be reduced by 50% with respect to any portion of a purchase or redemption that is offset by a corresponding redemption or purchase, respectively, occurring on the same day. In addition, the purchase premium or redemption fee for the Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $21,391 in purchase premiums and $1,449 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 .10% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .25% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .10% 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, 1999 was $184. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 11 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------ ------------------ U.S. Government securities $ 44,950,382 $ 36,649,450 Investments (non-U.S. Government securities) 18,688,330 4,000,000
At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------------- --------------------- ---------------------- ------------------ $47,842,319 -- $731,494 $731,494
4. Principal shareholders At August 31, 1999, 44.4% 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, including the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 ------------------------------- ----------------------------- Shares Amount Shares Amount --------------- --------------- ------------- --------------- Shares sold 2,134,698 $ 21,391,288 1,673,497 $ 16,929,247 Shares issued to shareholders in reinvestment of distributions 7,879 79,033 99,325 980,335 Shares repurchased (146,290) (1,460,335) (1,785,715) (18,251,417) --------------- --------------- ------------- --------------- Net increase (decrease) 1,996,287 $ 20,009,986 (12,893)$ (341,835) =============== =============== ============= ===============
12 GMO Inflation Indexed Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contract Settlement Units of Net Unrealized Date Deliver Currency Value Appreciation ------------- ----------- --------------- -------------- --------------- Sale 10/22/99 NZD 1,000,000 $ 517,331 $ 10,559 ===============
Reverse repurchase agreement Face Value Description Market Value ---------- ----------- ------------ $ 1,946,498 J.P. Morgan, 5.13%, dated 8/25/99, to be repurchased at $1,981,964 on 12/31/99. $ 1,946,498 ============ Average balance outstanding................................................... $ 5,019,593 Average interest rate......................................................... 4.90% Maximum balance outstanding................................................... $ 9,476,874 Average shares outstanding.................................................... 3,642,147 Average balance per share outstanding......................................... $ 1.38
Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund had entered into reverse repurchase agreements. 13 GMO U.S. Sector Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO U.S. Sector Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value ($)/ Shares Description Value($) - -------------------------------------------------------------------------------- MUTUAL FUNDS -- 100.0% 205,107 GMO REIT Fund 1,829,556 80,512 GMO Small Cap Growth Fund 954,061 157,611 GMO Small Cap Value Fund 1,985,902 565,322 GMO U.S. Core Fund 10,543,253 ----------- TOTAL MUTUAL FUNDS (COST $16,189,953) 15,312,772 ----------- SHORT-TERM INVESTMENTS -- 0.1% Repurchase Agreements -- 0.1% $13,551 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $13,553 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $13,822. 13,551 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $13,551) 13,551 ----------- TOTAL INVESTMENTS -- 100.1% (COST $16,203,504) 15,326,323 Other Assets and Liabilities (net) -- (0.1)% (12,582) ----------- TOTAL NET ASSETS -- 100% $15,313,741 ===========
See accompanying notes to the financial statements. 1 GMO U.S. Sector Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $16,203,504) (Note 1) $ 15,326,323 Receivable for expenses waived or borne by Manager (Note 2) 6,526 ------------ Total assets 15,332,849 ------------ Liabilities: Payable to affiliate for (Note 2): Management fee 4,335 Accrued expenses 14,773 ------------ Total liabilities 19,108 ------------ Net assets $ 15,313,741 ============ Net assets consist of: Paid-in capital $ 15,987,934 Accumulated undistributed net investment income 174,090 Accumulated net realized gain 28,898 Net unrealized depreciation (877,181) ------------ $ 15,313,741 ============ Net assets attributable to: Class III shares $15,313,741 =========== Shares outstanding: Class III 3,082,840 =========== Net asset value per share Class III $ 4.97 =========== 2 See accompanying notes to the financial statements. GMO U.S. Sector Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Investment Income: Dividends from investment company shares $ 173,833 Interest 257 ----------- Total income 174,090 ----------- Expenses: Management fee (Note 2) 26,035 Audit fees 9,388 Custodian and transfer agent fees 1,933 Registration fees 364 Legal fees 184 Trustees fees (Note 2) 93 Miscellaneous 1,196 Fees waived or borne by Manager (Note 2) (39,193) ----------- Net expenses -- ----------- Net investment income 174,090 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (217,017) Realized gain distributions from investment company shares 698,513 ----------- Net realized gain 481,496 ----------- Change in net unrealized appreciation (depreciation) on investments 463,440 ----------- Net realized and unrealized gain 944,936 ----------- Net increase in net assets resulting from operations $1,119,026 ===========
See accompanying notes to the financial statements. 3 GMO U.S. Sector Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, Year Ended 1999 February 28, (Unaudited) 1999 ----------------- ---------------- Increase (decrease) in net assets: Operations: Net investment income $ 174,090 $ 366,640 Net realized gain 481,496 5,068,304 Change in net unrealized appreciation (depreciation) 463,440 (2,256,138) ----------- ----------- Net increase in net assets resulting from operations 1,119,026 3,178,806 ----------- ----------- Distributions to shareholders from: Net investment income Class III -- (366,924) ----------- ----------- Total distributions from net investment income -- (366,924) ----------- ----------- In excess of net investment income Class III -- (347,888) ----------- ----------- Total distributions in excess of net investment income -- (347,888) ----------- ----------- Net realized gains Class III -- (8,557,355) ----------- ----------- Total distributions from net realized gains -- (8,557,355) ----------- ----------- In excess of net realized gains Class III -- (619,626) ----------- ----------- Total distributions in excess of net realized gains -- (619,626) ----------- ----------- -- (9,891,793) ----------- ----------- Net share transactions: (Note 5) Class III (2,635,287) (47,279,849) ----------- ----------- Decrease in net assets resulting from net share transactions (2,635,287) (47,279,849) ----------- ----------- Total decrease in net assets (1,516,261) (53,992,836) Net assets: Beginning of period 16,830,002 70,822,838 ----------- ----------- End of period (including accumulated undistributed net investment income of $174,090 and $0, respectively) $15,313,741 $16,830,002 =========== ===========
See accompanying notes to the financial statements. 4 GMO U.S. Sector Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, Year Ended February 28/29, 1999 -------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 --------------- ------- -------- --------- --------- --------- Net asset value, beginning of period $ 4.63 $ 8.53 $ 13.03 $ 13.63 11.06 $ 11.26 ------- -------- -------- --------- --------- --------- Income from investment operations: Net investment income (a) 0.06 0.10+ 0.29+ 0.26 0.29 0.28 Net realized and unrealized gain 0.28 0.27 2.61 2.20 3.90 0.49 ------- -------- -------- --------- --------- --------- Total from investment operations 0.34 0.37 2.90 2.46 4.19 0.77 ------- -------- -------- --------- --------- --------- Less distributions to shareholders: From net investment income -- (0.10) (0.40) (0.22) (0.29) (0.27) In excess of net investment income -- (0.15) (0.01) -- -- -- From net realized gains -- (3.75) (6.99) (2.84) (1.33) (0.70) In excess of net realized gains -- (0.27) -- -- -- -- ------- -------- -------- --------- --------- --------- Total distributions -- (4.27) (7.40) (3.06) (1.62) (0.97) ------- -------- -------- --------- --------- --------- Net asset value, end $ 4.97 $ 4.63 $ 8.53 $ 13.03 $ 13.63 $ 11.06 of period ======= ======== ======== ========= ========= ========= Total Return (b) 7.34% 3.13% 29.61% 20.88% 38.90% 7.56% Ratios/Supplemental Data: Net assets, end of period $15,314 $16,830 $70,823 $226,711 $211,319 $207,291 (000's) Net expenses to average daily net assets (c) 0.00%* 0.00% 0.27% 0.48% 0.48% 0.48% Net investment income to average daily net 2.21%* 1.51% 2.53% 1.99% 2.27% 2.61% assets (a) Portfolio turnover rate 6% 16% 150% 104% 84% 101% Fees and expenses voluntarily waived or borne by the Manager consisted of the $ 0.01 $ 0.04 $ 0.04 $ 0.02 $ 0.01 $ 0.01 following per share amounts:
(a) Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. (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. (c) On August 20, 1997, the Fund began to invest a substantial portion of its assets in other funds of GMO Trust and revised its voluntary expense waiver. Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 2. + Computed using average shares outstanding throughout the period. * Annualized. See accompanying notes to the financial statements. 5 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 total return greater than that of the S&P 500 through investment in common stocks, either directly or through investment in other Funds of the Trust ("underlying Funds"). 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 Shares of underlying Funds are valued at their net asset value as reported on each business day. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 net 6 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements--(Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 are 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 dividends 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. Income dividends and capital gain distributions from underlying funds are recorded on the ex-dividend 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. Dividends representing a return of capital are reflected as a reduction of cost. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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. In the case of cash redemptions, the fee is .18% of the amount redeemed. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $4,749 in redemption fees and no purchase premiums. There is no premium for reinvested distributions or in-kind transactions. 7 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 average daily net assets at the annual rate of .15% for Class III shares. The Fund will invest in Class III shares of each underlying Fund being offered. Like the management fee (as described below), the shareholder service fee 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 entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (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 the management fee. Because GMO will not reimburse expenses incurred indirectly to the extent they exceed .33%, 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 .33% of the Fund's average daily net assets. For the six months ended August 31, 1999, operating expenses (excluding shareholder service fees and fund expenses) incurred indirectly by the Fund were .36% of the Fund's average daily net assets. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .49% of average daily net assets. GMO had agreed to waive a portion of its fee (but not below zero) and bear other expenses 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 exceeded .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, 1999 was $93. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 8 GMO U.S. Sector Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, aggregated $872,346 and $2,643,614, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ----------------------- ------------------- ------------------ ------------------- $16,203,504 $215,113 $1,092,294 $877,181
4. Principal shareholders At August 31, 1999, 99.3% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 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, 1999 February 28, 1999 ------------------------------------------------------------ Shares Amount Shares Amount ------------- -------------- -------------- ---------------- Shares sold -- $ -- -- $ -- Shares issued to shareholders in reinvestment of distributions -- -- 1,801,919 9,891,793 Shares repurchased (553,311) (2,635,287) (6,465,314) (57,171,642) ------------- -------------- -------------- ---------------- Net decrease (553,311) $ (2,635,287) (4,663,395) $ (47,279,849) ============= ============== ============== ================
9 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 113.3% Australia -- 2.7% GBP 2,500,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 4,383,810 12/07/06 ------------- Brazil -- 1.1% USD 10,000,000 Brazil Discount Bond, Principal Strip, due 4/15/24(a) 1,857,847 ------------- Bulgaria -- 0.6% USD 5,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(a) 928,924 ------------- Cayman Islands -- 3.7% CAD 1,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 712,371 USD 2,792,308 Great Point CBO Ltd. Series 98-1A Class A1, 144A, Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due 10/15/10 2,768,748 USD 3,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, 2,715,000 due 5/15/10 ------------- 6,196,119 ------------- Chile -- 0.4% USD 750,000 Banco Santander, 6.50%, due 11/01/05 711,563 ------------- Japan -- 0.5% USD 800,000 Japan Development Bank, 6.88%, due 12/16/99 801,600 ------------- United States -- 104.3% Asset Backed Securities -- 77.7% USD 13,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A, Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due 5/15/24 12,908,085 USD 6,000,000 American Express Credit Account Master Trust Series 99-5 Class A, Variable Rate, 1 mo. LIBOR + .24%, 5.52%, due 2/15/07 5,994,844 USD 10,000,000 Anfield Road I Ltd., Variable Rate, 6 mo. LIBOR + .25%, 5.83%, due 11/06/06 9,832,813 USD 3,000,000 Augusta Funding Ltd X, 144A, Variable Rate, 3 mo. LIBOR + .25%, 5.58%, due 6/30/17 2,837,813 USD 5,000,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 4,738,281 USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR +.25%, 5.61%, due 4/25/03 4,912,500 USD 5,385,000 Brazos Student Loan Finance Corp Series 96-B Class A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.50%, due 12/01/02 5,369,013 USD 3,000,000 Chevy Chase Master Credit Card Trust Series 98-A Class A, Variable Rate, 1 mo. LIBOR + .15%, 5.42%, due 10/16/06 2,987,813
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 10,000,000 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due 1/15/10 9,570,313 USD 2,130,231 Constellation 99-1A, 144A, 5.73%, due 4/18/02 2,130,231 USD 3,500,000 Discover Card Master Trust I Series 99-3 Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 9/15/04 3,492,344 USD 10,000,000 Discover Card Trust I Series 97-3 Class A, Variable Rate, 1 mo. LIBOR + .13%, 5.40%, due 4/16/07 9,936,718 USD 5,000,000 Dreamworks Film Trust Series 1 Class A, Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 4,988,281 USD 6,000,000 EMAC Series 98-1 Class A2, 144A, 6.38%, due 4/15/07 5,681,250 USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .73%, 6.07%, due 11/25/21 1,951,170 USD 3,000,000 MBNA Master Credit Card Trust Series 95-J Class A, Variable Rate, 1 mo. LIBOR + .23%, 5.50%, due 4/15/05 3,001,758 USD 3,000,000 MBNA Master Credit Card Trust Series 96-A Class A, Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due 7/15/05 3,000,000 USD 8,450,000 MBNA Master Credit Card Trust Series 97-J Class A, Variable Rate, 1 mo. LIBOR + .12%, 5.39%, due 2/15/07 8,397,188 USD 4,000,000 MBNA Master Credit Card Trust Series 98-A Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 8/15/05 3,984,375 USD 8,037,321 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due 7/15/09 7,842,667 USD 373,506 Resolution Trust Corp 94-C1 Class A1, Variable Rate, 1 mo. LIBOR + .45%, 5.64%, due 6/25/26 373,447 USD 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Variable Rate, Step Up, 6.33%, due 9/15/09 5,073,438 USD 5,000,000 SHYPPCO Finance Company Series 1I Class A-2B, 6.64%, due 6/15/10 4,647,500 USD 2,620,000 SMS Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .75%, 5.91%, due 10/25/23 2,621,572 USD 2,000,000 Team Fleet Financing Corp Series 98-3A Class A, 144A, 6.13%, due 10/25/04 1,915,000 ------------- 128,188,414 ------------- U.S. Government -- 3.2% USD 10,100,000 U.S. Treasury 0.00% Receipts, due 8/15/13(a) 3,824,781 USD 1,500,000 U.S. Treasury Note, 6.38%, due 8/15/02 1,520,157 ------------- 5,344,938 -------------
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- U.S. Government Agency -- 23.4% USD 1,450,000 Agency for International Development Floater (Support of Belize), Variable Rate, 6 mo. U.S. Treasury Bill + .50%, 5.71%, due 1/01/14 1,413,750 USD 4,500,501 Agency for International Development Floater (Support of C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.61%, due 10/01/12 4,365,486 USD 4,000,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 3,818,000 USD 10,000,000 Government National Mortgage Association, TBA, 7.50% 9,909,374 USD 10,000,000 Government National Mortgage Association, TBA, 6.50% 9,415,625 USD 10,000,000 Government National Mortgage Association, TBA, 7.00% 9,671,875 ------------- 38,594,110 ------------- Total United States 172,127,462 ------------- TOTAL DEBT OBLIGATIONS (COST $191,146,804) 187,007,325 ============= Principal Amount ---------- CALL OPTIONS PURCHASED -- 0.1% Options on Currency -- 0.1% USD 5,712,000 Euro, Expires 5/03/00, Strike 1.12 69,115 USD 600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 5,580 ============= 74,695 ============= TOTAL CALL 0PTIONS PURCHASED (COST $160,412) 74,695 ------------- PUT OPTIONS PURCHASED -- 0.1% Options on Currency -- 0.1% USD 5,457,000 Euro, Expires 5/03/00, Strike 1.07 175,715 USD 600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 31,260 ------------- 206,975 -------------
See accompanying notes to the financial statements. 3 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- TOTAL PUT OPTIONS PURCHASED (COST $155,208) 206,975 ------------- SHORT-TERM INVESTMENTS -- 9.9% Cash Equivalents -- 4.0% USD 5,138,864 BankBoston Eurodollar Time Deposit, 5.4325%, due 5,138,864 10/29/99(c) 1,501,136 Merrimac Cash Fund Premium Class(c) 1,501,136 ------------- 6,640,000 ------------- Commercial Paper -- 5.9% USD 7,900,000 GE Capital, 5.30%, due 10/05/99 7,860,456 USD 1,833,000 Merrill Lynch, 5.55%, due 9/01/99 1,833,000 ------------- 9,693,456 ------------- Repurchase Agreements -- 0.0% USD 997 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $997 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $1,017. 997 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $16,334,453) 16,334,453 ------------- TOTAL INVESTMENTS -- 123.4% (COST $207,796,877) 203,623,448 Other Assets and Liabilities (net) -- (23.4)% (38,563,724) ------------- TOTAL NET ASSETS-- 100% $ 165,059,724 =============
4 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, 1999 (Unaudited) Notes to the Schedule of Investments: EMTN - Euromarket Medium Term Note TBA - To Be Announced (Note 1) 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, 1999, which are subject to change based on the terms of the security, including varying reset dates. Currency Abbreviations AUD - Australian Dollar BEF - Belgian Franc CAD - Canadian Dollar CHF - Swiss Franc EUR - Euro GBP - British Pound ITL - Italian Lira JPY - Japanese Yen SEK - Swedish Krona USD - United States Dollar (a) Valued by management (Note 1). (b) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). (c) Represents investments of security lending collateral (Note 1). See accompanying notes to the financial statements. 5 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $207,796,877) (Note 1) $203,623,448 Cash at interest on deposit at brokers (Note 1) 806,126 Interest receivable 1,268,087 Receivable for variation margin on open futures contracts (Notes 1 and 6) 15,130 Receivable for expenses waived or borne by Manager (Note 2) 12,028 ------------ Total assets 205,724,819 ------------ Liabilities: Payable for investments purchased 32,292,225 Payable upon return of securities loaned (Note 1) 6,640,000 Written options outstanding, at value (premiums $82,764) (Notes 1 and 6) 31,920 Net payable for open forward foreign currency contracts (Notes 1 and 6) 502,115 Payable to affiliate for (Note 2): Management fee 28,019 Shareholder service fee 19,522 Payable for open swap contracts (Notes 1 and 6) 1,094,751 Interest payable for open swap contracts (Note 1) 8,844 Due to custodian 18,556 Accrued expenses 29,143 ------------ Total liabilities 40,665,095 ------------ Net assets $165,059,724 ============ Net assets consist of: Paid-in capital $170,701,396 Accumulated undistributed net investment income 3,517,992 Accumulated net realized loss (3,407,212) Net unrealized depreciation (5,752,452) ------------ $165,059,724 ============ Net assets attributable to: Class III shares $165,059,724 ============ Shares outstanding: Class III 23,437,401 ============ Net asset value per share: Class III $ 7.04 ============ 6 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $2,389) $ 4,670,991 ----------- Total income 4,670,991 =========== Expenses: Management fee (Note 2) 159,461 Custodian and transfer agent fees 37,840 Audit fees 21,898 Legal fees 1,921 Trustees fees (Note 2) 641 Registration fees 364 Miscellaneous 1,195 Fees waived or borne by Manager (Note 2) (63,859) ----------- 159,461 Shareholder service fee (Note 2) Class III 119,593 ----------- Net expenses 279,054 ----------- Net investment income 4,391,937 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (1,417,653) Closed futures contracts (384,479) Closed swap contracts (1,733,832) Foreign currency, forward contracts and foreign currency related transactions 140,174 ----------- Net realized loss (3,395,790) ----------- Change in net unrealized appreciation (depreciation) on: Investments (3,520,897) Open futures contracts 39,468 Open swap contracts (384,462) Written options 39,900 Foreign currency, forward contracts and foreign currency related transactions (389,489) ----------- Net unrealized loss (4,215,480) ----------- Net realized and unrealized loss (7,611,270) ----------- Net decrease in net assets resulting from operations $(3,219,333) =========== See accompanying notes to the financial statements. 7 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 4,391,937 $ 10,596,718 Net realized gain (loss) (3,395,790) 514,377 Change in net unrealized appreciation (depreciation) (4,215,480) (2,439,559) ------------- --------------- Net increase (decrease) in net assets resulting from operations (3,219,333) 8,671,536 ------------- --------------- Distributions to shareholders from: Net investment income Class III -- (15,078,084) ------------- --------------- Total distributions from net investment income -- (15,078,084) ------------- --------------- In excess of net investment income Class III -- (3,785,552) ------------- --------------- Total distributions in excess of net investment income -- (3,785,552) ------------- --------------- Net realized gains Class III -- (1,159,070) ------------- --------------- Total distributions from net realized gains -- (1,159,070) ------------- --------------- In excess of net realized gains Class III -- (1,427,853) ------------- --------------- Total distributions in excess of net realized gains -- (1,427,853) ------------- --------------- -- (21,450,559) ------------- --------------- Net share transactions: (Note 5) Class III 30,132,817 (229,679,318) ------------- --------------- Increase (decrease) in net assets resulting from net share transactions 30,132,817 (229,679,318) ------------- --------------- Total increase (decrease) in net assets 26,913,484 (242,458,341) Net assets: Beginning of period 138,146,240 380,604,581 ============= =============== End of period (including accumulated undistributed net investment income of $3,517,992 and distributions in excess of net investment income of $873,945, respectively) $ 165,059,724 $ 138,146,240 ============= =============== 8 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from July 29, 1997 August 31, 1999 Year Ended (commencement of operations) (Unaudited) February 28, 1999 to February 28, 1998 ------------ ----------------- ----------------------- Net asset value, beginning of period $ 7.18 $ 10.14 $ 10.00 ------- -------- ------- Income from investment operations: Net investment income 0.20 0.59 + 0.35+ Net realized and unrealized gain (loss) (0.34) (0.19) 0.06 ------- -------- ------- Total from investment operations (0.14) 0.40 0.41 ------- -------- ------- Less distributions to shareholders: From net investment income -- (2.36)(a) (0.21) In excess of net investment income -- (0.59)(a) -- From net realized gains -- (0.18) (0.06) In excess of net realized gains -- (0.23) -- ------- -------- ------- Total distributions -- (3.36) (0.27) ------- -------- ------- Net asset value, end of period $ 7.04 $ 7.18 $ 10.14 ======= ======== ======= Total Return (b) (1.81)% 3.42% 4.15% Ratios/Supplemental Data: Net assets, end of period (000's) $165,060 $138,146 $380,605 Net expenses to average daily net assets 0.35%* 0.35% 0.35%* Net investment income to average daily net assets 5.51%* 5.96% 5.88%* Portfolio turnover rate 38% 134% 27% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(c) $ 0.03 $ 0.02
(a)The amount shown for a share outstanding does not correspond with the aggregate distributions to shareholders for the year ended February 28, 1999 due to the timing of purchases and redemptions of Fund shares in relation to the declaration of distributions to shareholders. (b)Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (c)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 U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO U.S. Bond/Global Alpha B 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 seeks a high total return relative to its performance benchmark through investment in U.S. investment grade securities. The Fund achieves exposure to international bond and currency markets by investing in a combination of foreign bond and currency derivatives, effectively adding to or subtracting from the U.S. bond return the performance of the Fund's international bond and currency investments. The Fund's current benchmark is the Lehman Brothers Aggregate Bond Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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. 10 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by principal market makers may differ from the value that would be realized if the securities were sold 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 entering into 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 and agency 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 as of August 31, 1999. 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 11 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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 and credit risk. The Fund may enter into interest rate, total return and credit default swap agreements. Interest rate swap agreements 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 12 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- principal. Total return swap agreements involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent 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. Credit default swaps involve the payment of a specified rate based on the notional amount. The Fund receives payment upon a default of the underlying security. In connection with these agreements, cash or securities may be set aside as collateral by the Fund's custodian in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral, which is paid by the counterparty. At August 31, 1999, $806,126 in cash has been set aside. 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. Net payments of interest on interest rate swaps agreements are recorded as interest income. 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 will be 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, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had not entered into a reverse repurchase agreement. 13 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 fail financially. The Fund receives compensation for lending its securities. At August 31, 1999, the Fund loaned securities having a market value of $6,503,340 collateralized by cash in the amount of $6,640,000 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 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. Income dividends 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. Dividend income is recorded on the ex-dividend date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any increase in principal or face amount of the securities adjusted for inflation is recorded as interest income. The Fund may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to invest at less advantageous prices. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 14 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. The premium will be reduced by 50% with respect to any portion of a purchase that is offset by a corresponding redemption occurring on the same day. In addition, the purchase premium for this Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $45,205 in purchase premiums. There is no premium for 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, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .20% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at an annual rate of .40% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .20% 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, 1999 was $641. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 15 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows: Purchases Sales -------------- ------------- U.S. Government securities $ 78,488,282 $ 48,380,079 Investments (non-U.S. Government 45,325,621 14,883,619 securities) At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ ------------------- ------------------- ---------------- $207,796,877 $193,287 $4,366,716 $4,173,429 4. Principal shareholders At August 31, 1999, 95.4% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 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, 1999 February 28, 1999 ----------------------- ------------ ------------- Shares Amount Shares Amount ----------- ----------- ------------ ------------ Shares sold 4,187,338 $30,136,852 18,651,438 $158,378,340 Shares issued to shareholders in reinvestment of distributions 2,639,708 20,620,609 Shares repurchased (569) (4,035) (39,582,432) (408,678,267) ----------- ----------- ------------ -------------- Net increase (decrease) 4,186,769 $30,132,817 (18,291,286) $(229,679,318) =========== =========== ============ ============== 16 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) ----------- --------------- ------------ ----------- ---------------- Buys 9/16/99 AUD 5,300,000 $ 3,378,093 $ (164,089) 9/30/99 CAD 19,500,000 13,074,788 (180,594) 10/15/99 EUR 5,300,000 5,618,397 (46,533) 9/23/99 GBP 8,400,000 13,510,741 32,300 9/09/99 JPY 370,000,000 3,379,275 189,793 --------------- $ (169,123) =============== Sales 9/16/99 AUD 10,800,000 $ 6,883,661 $ 155,880 9/30/99 CAD 8,400,000 5,632,216 (6,233) 10/15/99 EUR 7,400,000 7,844,555 24,220 9/23/99 GBP 11,000,000 17,692,638 (356,634) 9/09/99 JPY 260,000,000 2,374,625 (143,880) --------------- $ (326,647) =============== Forward cross currency contracts Net Settlement Unrealized Date Deliver/Units of Receive/In Exchange Appreciation Currency For (Depreciation) ----------- --------------------- --------------------- --------------- 11/05/99 CHF 1,433,295 EUR 900,000 $ 1,775 10/29/99 EUR 1,300,000 SEK 11,330,150 (2,210) 10/29/99 SEK 10,524,000 EUR 1,200,000 (5,910) -------------- $ (6,345) ============== 17 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Futures contracts
Net Number Unrealized of Expiration Contract Appreciation Contracts Type Date Value (Depreciation) --------- --------------------------- ---------- -------- -------------- Buys 22 Australian Government Bond 10 Yr. September 1999 $2,012,235 $ (12,380) 1 Canadian Government Bond December 1999 81,506 (1,180) 8 German Government Bond September 1999 910,596 (4,712) 31 Swedish Government 10 Yr. September 1999 3,749,922 (145,579) ============ $ (163,851) ============ Sales 5 Australian Government Bond 3 Yr September 1999 $ 384,639 $ (1,368) 4 Japanese Government Bond 10 Yr. September 1999 4,462,087 (9,351) 28 Swiss Government Bond September 1999 2,223,027 35,777 11 Swiss Government Bond December 1999 874,098 8,113 28 U.K.Gilt December 1999 4,930,069 5,851 50 U.S. Long Bond December 1999 5,698,438 28,782 65 U.S. Treasury Note 5 Yr December 1999 7,015,938 7,078 152 U.S. Treasury Note 10 Yr December 1999 16,622,625 58,524 ============ $ 133,406 ============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. 18 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Written option transactions
Puts Calls Principal Amount Principal Amount of Contracts of Contracts (000's omitted) Premiums (000's omitted) Premiums --------------- ------------ -------------- ------------- Outstanding, beginning of period 600 $ 37,764 600 $ 45,000 Options written -- -- -- -- Options exercised -- -- -- -- Options expired -- -- -- -- Options sold -- -- -- -- ============== ============ ============= ============= Outstanding, end of period 600 $ 37,764 600 $ 45,000 ============== ============ ============= ============= Summary of written options outstanding Principal Amount of Contracts Exercise Expiration (000's omitted) Price Date Value --------------- ------------ -------------- ------------- USD Put/JPY Call 600 USD 112.7 JPY 11/16/99 $ 24,960 USD Call/JPY Put 600 USD 112.7 JPY 11/16/99 6,960 ------------- $ 31,920 =============
19 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Swap agreements Net Expiration Unrealized Notional Amount Date Description Depreciation ---------------- ---------- ----------------------------------- -------------- Credit Default Swaps 49,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust $ (25,135) Company dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Italy, the notional amount times the difference between the par value and the then-market value of Italy BTP, 6.00% due 11/01/07. 1,058,750,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust (26,068) Company dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Belgium, the notional amount times the difference between the par value and the then-market value of Kingdom of Belgium, 5.75% due 3/28/08. Interest Rate Swaps 5,000,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust (3,784) Company dated 6/09/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 9,000,000 USD 7/29/06 Agreement with Morgan Guaranty Trust (114,260) Company dated 7/27/99 to receive the notional amount multiplied by 6.664% and to pay the notional amount multiplied by 3 LIBOR adjusted by a specific spread.
20 GMO U.S. Bond/Global Alpha B Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Expiration Unrealized Notional Amount Date Description Depreciation ---------------- ---------- ----------------------------------- -------------- Total Return Swaps 25,000,000 USD 11/30/99 Agreement with Morgan Guaranty Trust $ (540,462) Company dated 11/24/98 to receive (pay) the notional amount multiplied by the return on the Lehman Aggregate Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. + 75,000,000 USD 8/1/00 Agreement with Goldman Sachs (385,042) International dated 7/13/99 to receive (pay) the notional amount multiplied by the return on the Lehman Aggregate Index and to pay the notional amount multiplied by 1 month LIBOR adjusted by a specific spread. + ------------- $(1,094,751) =============
See Notes to the Schedule of Investments for definitions of currency abbreviations. + This swap agreement is valued by management (Note 1). 21 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Debt Obligations -- 111.8% Albania -- 2.3% USD 15,681,227 Republic of Albania Par Bond, Zero Coupon, due 8/31/25 2,783,418 -------------- Austria -- 0.8% GBP 500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 917,123 -------------- Brazil -- 0.6% USD 1,000,000 Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 660,000 -------------- Bulgaria -- 0.2% USD 2,000,000 Bulgaria Discount Series B Interest Strips, Basket 2, 0.00%, due 7/28/24 229,000 -------------- Cayman Islands -- 3.7% USD 5,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, due 5/15/10 4,525,000 -------------- Germany -- 1.7% GBP 2,000,000 Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06 2,096,832 -------------- Jordan -- 0.1% USD 250,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 142,500 -------------- Mexico -- 7.1% FRF 44,500,000 Mexico Par Bond, 6.63%, due 12/31/19 5,625,247 CHF 8,000,000 Mexico Par Bond, 3.75%, due 12/31/19 3,036,103 -------------- 8,661,350 -------------- Nigeria -- 0.4% USD 987,181 Central Bank of Nigeria Par Bond, Variable Rate, Step Up, 6.25%, due 11/15/20 523,206 -------------- Russia -- 0.0% USD 189,099 Russia Vnesheconombank IAN, Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due 12/15/15* 27,301 -------------- Supra National -- 0.8% AUD 11,800,000 European Bank for Reconstruction and Development, Zero Coupon, due 2/10/28 966,938 --------------
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- United States -- 94.1% Asset Backed Securities -- 61.1% USD 9,000,000 American Express Credit Account Master Trust Series 99-5 Class A, Variable Rate, 1 mo. LIBOR + .24%, 5.52%, due 2/15/07 8,992,266 USD 688,008 Americredit Automobile Receivables Trust Series 96-B Class A, 6.50%, due 1/12/02 688,385 USD 1,000,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 947,656 USD 20,500,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR + .25%, 5.61%, due 4/25/03 20,141,249 USD 7,945,000 Brazos Student Loan Finance Corp Series 96-B Class A4, Variable Rate, 3 mo. U.S. Treasury Bill + .50%, 5.50%, due 12/01/02 7,921,413 USD 2,800,000 Cigna CBO Ltd Series 96-1 Class A2, 144A, 6.46%, due 11/15/08 2,793,875 USD 6,000,000 Dreamworks Film Trust Series 1 Class A, Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 5,985,938 USD 4,841,760 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due 7/15/09 4,724,498 USD 3,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due 2/01/03 2,916,000 USD 3,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Variable Rate, Step Up, 6.33%, due 9/15/09 3,044,063 USD 10,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due 6/15/10 9,295,000 USD 3,832,768 Signet Student Loan Trust Series 96-A Class A-1, Variable Rate, 1 mo. LIBOR + .09%, 5.25%, due 1/25/05 3,832,768 USD 3,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A, Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.83%, due 7/30/11 2,894,531 ------------- 74,177,642 ------------- Structured Notes -- 2.4% USD 3,000,000 Polaris Funding Company, Variable Rate, 1 mo. LIBOR + .30%, 5.51%, due 1/07/05 2,951,719 ------------- U.S. Government -- 11.0% USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/10(a) 4,933,891 USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/12(a) 4,271,141 USD 10,100,000 U.S. Treasury 0.00% Receipts, due 8/15/12(a) 4,115,792 ------------- 13,320,824 -------------
2 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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- U.S. Government Agency -- 19.6% USD 5,000,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 4,772,500 USD 10,000,000 Government National Mortgage Association, TBA, 6.50% 9,415,625 USD 10,000,000 Government National Mortgage Association, TBA, 7.00% 9,671,875 ------------- 23,860,000 ------------- Total United States 114,310,185 ------------- TOTAL DEBT OBLIGATIONS (COST $141,637,225) 135,842,853 ------------- LOAN ASSIGNMENTS -- 0.5% Russia -- 0.5% USD 5,500,000 Russia Vnesh Restructured Loan Agreements, due 12/15/20* 611,875 ------------- TOTAL LOAN ASSIGNMENTS (COST $3,541,183) 611,875 ------------- Principal Amount ---------- CALL OPTIONS PURCHASED -- 0.1% Options on Currency -- 0.1% USD 8,848,000 Euro, Expires 5/03/00, Strike 1.12 107,061 USD 5,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 52,080 ------------- 159,141 ------------- TOTAL CALL OPTIONS PURCHASED (COST $543,430) 159,141 ------------- PUT OPTIONS PURCHASED -- 0.5% Options on Currency -- 0.5% USD 8,453,000 Euro, Expires 5/03/00, Strike 1.07 272,187 USD 5,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 291,760 ------------- 563,947 ------------- TOTAL PUT OPTIONS PURCHASED (COST $339,903) 563,947 -------------
See accompanying notes to the financial statements. 3 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------- RIGHTS AND WARRANTS -- 0.0% Mexico -- 0.0% 13,079,000 United Mexican States Warrants, Expires 6/30/03** -- -------------- Nigeria -- 0.0% 987 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20** -- -------------- TOTAL RIGHTS AND WARRANTS (COST $0) -- -------------- Par Value SHORT-TERM INVESTMENTS -- 1.8% ---------- Commercial Paper -- 1.8% USD 2,220,000 Merrill Lynch, 5.55%, due 9/01/99 2,220,000 -------------- Repurchase Agreements -- 0.0% USD 1,186 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $1,186 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $1,209. 1,186 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $2,221,186) 2,221,186 -------------- TOTAL INVESTMENTS -- 114.7% (COST $148,282,927) 139,399,002 Other Assets and Liabilities (net) -- (14.7)% (17,877,574) -------------- TOTAL NET ASSETS -- 100% $ 121,521,428 ==============
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, 1999 (Unaudited) Notes to the Schedule of Investments: EMTN -- Euromarket Medium Term Note IAN -- Interest Arrears Note TBA -- To Be Announced (Note 1) 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, 1999 which are subject to change based on the terms of the security, including varying reset dates. Currency Abbreviations AUD - Australian Dollar BEF - Belgian Franc CAD - Canadian Dollar CHF - Swiss Franc EUR - Euro FRF - French Franc GBP - British Pound ITL - Italian Lira JPY - Japanese Yen SEK - Swedish Krona USD - United States Dollar (a) Valued by management (Note 1). (b) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). * Non-performing. Borrower not currently paying interest. ** 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $148,282,927) (Note 1) $139,399,002 Cash (Note 1) 1,600,000 Interest receivable 801,771 Receivable for open swap contracts (Notes 1 and 6) 235,105 Receivable for expenses waived or borne by Manager (Note 2) 10,757 ------------ Total assets 142,046,635 ------------ Liabilities: Payable for investments purchased 19,218,750 Written options outstanding, at value (premiums $772,464) (Notes 1 and 6) 297,920 Net payable for open forward foreign currency contracts (Notes 1 and 6) 432,189 Payable to affiliate for (Note 2): Management fee 26,321 Shareholder service fee 15,045 Interest payable for open swap contracts (Note 1) 425,575 Payable for variation margin on open futures contracts (Notes 1 and 6) 53,773 Accrued expenses 55,634 ------------ Total liabilities 20,525,207 ------------ Net assets $121,521,428 ============ Net assets consist of: Paid-in capital $127,947,143 Accumulated undistributed net investment income 4,238,335 Accumulated net realized loss (1,982,648) Net unrealized depreciation (8,681,402) ------------ $121,521,428 ============ Net assets attributable to: Class III shares $121,521,428 ============ Shares outstanding: Class III 12,520,187 ============ Net asset value per share: Class III $ 9.71 ============ 6 See accompanying notes to the financial statements. GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest $ 4,059,730 Dividends 132,700 ----------- Total income 4,192,430 ----------- Expenses: Management fee (Note 2) 158,141 Custodian and transfer agent fees 48,613 Audit fees 24,298 Legal fees 2,028 Trustees fees (Note 2) 647 Registration fees 364 Miscellaneous 1,197 Fees waived or borne by Manager (Note 2) (77,147) ----------- 158,141 Shareholder service fee (Note 2) Class III 94,882 ----------- Net expenses 253,023 ----------- Net investment income 3,939,407 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (1,229,675) Closed futures contracts 1,550,189 Closed swap contracts (4,077,573) Foreign currency, forward contracts and foreign currency related transactions 822,847 ----------- Net realized loss (2,934,212) ----------- Change in net unrealized appreciation (depreciation) on: Investments (5,102,208) Open futures contracts (805,003) Open swap contracts 2,780,557 Written options 372,400 Foreign currency, forward contracts and foreign currency related transactions 25,900 ----------- Net unrealized loss (2,728,354) ----------- Net realized and unrealized loss (5,662,566) ----------- Net decrease in net assets resulting from operations $(1,723,159) =========== See accompanying notes to the financial statements. 7 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 3,939,407 $ 13,927,844 Net realized loss (2,934,212) (4,990,111) Change in net unrealized appreciation (depreciation) (2,728,354) (6,000,013) ------------ ------------ Net increase (decrease) in net assets resulting from operations (1,723,159) 2,937,720 ------------ ------------ Distributions to shareholders from: Net investment income Class III (2,990,521) (2,920,291) ------------ ------------ Total distributions from net investment income (2,990,521) (2,920,291) ------------ ------------ Net realized gains Class III (1,232,734) (5,164,180) ------------ ------------ Total distributions from net realized gains (1,232,734) (5,164,180) ------------ ------------ (4,223,255) (8,084,471) ------------ ------------ Net share transactions: (Note 5) Class III (16,235,057) (79,536,376) ------------ ------------ Decrease in net assets resulting from net share transactions (16,235,057) (79,536,376) ------------ ------------ Total decrease in net assets (22,181,471) (84,683,127) Net assets: Beginning of period 143,702,899 228,386,026 ------------ ------------ End of period (including accumulated undistributed net investment income of $4,238,335 and $3,289,449, respectively) $121,521,428 $143,702,899 ============ ============
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 Six Months Ended (commencement of August 31, 1999 Year Ended operations) (Unaudited) February 28, 1999 to February 28, 1998 ---------------- ----------------- -------------------------- Net asset value, beginning of period $ 10.23 $ 10.60 $ 10.00 -------- -------- -------- Income from investment operations: Net investment income 0.32+ 0.64+ 0.55+ Net realized and unrealized gain (loss) (0.47) (0.58) 0.66 -------- -------- -------- Total from investment operations (0.15) 0.06 1.21 -------- -------- -------- Less distributions to shareholders: From net investment income (0.26) (0.12) (0.27) From net realized gains (0.11) (0.31) (0.34) -------- -------- -------- Total distributions (0.37) (0.43) (0.61) -------- -------- -------- Net asset value, end of period $ 9.71 $ 10.23 $ 10.60 ======== ======== ======== Total Return(a) (1.52)% 0.44% 12.16% Ratios/Supplemental Data: Net assets, end of period (000's) 121,521 143,703 228,386 Net expenses to average daily net assets 0.40%* 0.40% 0.40%* Net investment income to average daily net assets 6.21%* 5.97% 6.05%* Portfolio turnover rate 75% 113% 58% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 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. + Computed using average shares outstanding throughout the period. * Annualized. 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 August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO U.S. Bond/Global Alpha A 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 seeks a high total return relative to its performance benchmark through investment in U.S. investment grade securities. The Fund achieves exposure to international bond and currency markets by investing in a combination of foreign bond and currency derivatives, effectively adding to or subtracting from the U.S. bond return the performance of the Fund's international bond and currency investments. The Fund's current benchmark is the Lehman Brothers Aggregate Bond Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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. 10 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by principal market makers may differ from the value that would be realized if the securities were sold 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 entering into 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 and agency 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 as of August 31, 1999. 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 11 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against 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, 1999. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 12 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 and credit risk. The Fund may enter into interest rate, total return and credit default swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent 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. Credit default swaps involve the payment of a specified rate based on the notional amount. The Fund receives payment upon a default of the underlying security. In connection with these agreements, cash or securities may be set aside as collateral by the Fund's custodian in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral, which is paid by the counterparty. At August 31, 1999, $1,600,000 in cash has been set aside. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had not entered into a reverse repurchase agreement. 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 fail financially. The Fund receives compensation for lending its securities. At August 31, 1999, 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 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. Income dividends 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. 14 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Dividend income is recorded on the ex-dividend date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any increase in principal or face amount of the securities adjusted for inflation is recorded as interest income. The Fund may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to invest at less advantageous prices. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. The premium will be reduced by 50% with respect to any portion of a purchase that is offset by a corresponding redemption occurring on the same day. In addition, the purchase premium for the Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $16,841 in purchase premiums. There is no premium for 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, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 Service 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 at the annual rate of .15% for Class III shares. 15 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .40% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .25% 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, 1999 was $647. 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, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows: Purchases Proceeds ------------- --------------- U.S. Government securities $ 68,370,312 $ 48,380,078 Investments (non-U.S. Government 35,676,952 52,452,800 securities) At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ ------------------- ------------------- ---------------- $148,282,927 $282,326 $9,166,251 $8,883,925 4. Principal shareholders At August 31, 1999, 42.9% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 16 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 --------------------------------------------------- Shares Amount Shares Amount ----------- ------------ ------------ ------------- Shares sold 1,143,898 $ 11,360,633 7,957,888 $ 84,927,873 Shares issued to shareholders in reinvestment of distributions 323,604 3,193,974 596,366 6,299,415 Shares repurchased (2,995,247) (30,789,664)(16,055,030) (170,763,664) ========== =========== ========== ============= Net decrease (1,527,745) $(16,235,057) (7,500,776) $(79,536,376) ========== =========== =========== ============= 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) ----------- --------------- ------------- --------------- -------------- Buys 9/16/99 AUD 5,600,000 $ 3,569,306 $ (173,386) 9/30/99 CAD 26,100,000 17,500,100 (267,785) 10/15/99 EUR 1,000,000 1,060,075 3,975 9/23/99 GBP 8,300,000 13,349,899 20,177 9/09/99 JPY 410,000,000 3,744,602 205,728 ============ $ (211,291) ============ Sales 9/16/99 AUD 14,300,000 $ 9,114,477 $ 216,988 9/30/99 CAD 7,800,000 5,229,915 20,075 10/15/99 EUR 11,400,000 12,084,854 33,963 9/23/99 GBP 10,500,000 16,888,427 (359,645) 9/09/99 JPY 260,000,000 2,374,626 (139,169) ------------ $ (227,788) ============ 17 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Forward cross currency contracts Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) ---------------------------------- ----------------------- ----------------- 11/05/99 CHF 9,714,555 EUR 6,100,000 $ 12,038 10/29/99 EUR 1,000,000 SEK 8,715,500 (1,700) 10/29/99 SEK 6,139,000 EUR 700,000 (3,448) =============== $ 6,890 =============== Futures contracts Net Number Unrealized of Expiration Contract Appreciation Contracts Type Date Value (Depreciation) ---------------------------------------------------------------------------- Buys 9 Australian Government Bond September 1999 $ 671,641 $ 2,256 3 yr. 2 Canadian Government Bond December 1999 164,227 (2,359) 46 Swedish Government Bond 10 September 1999 5,746,797 (221,455) yr. 50 Swiss Government Bond September 1999 4,061,118 (153,086) 99 Swiss Government Bond December 1999 7,951,495 (79,203) ----------- $ (453,847) =========== Sales 20 Australian Government Bond September 1999 $1,799,651 $ 20,313 10 yr. 50 German Government Bond September 1999 5,697,159 205,226 6 Japanese Government Bond March 2000 7,058,051 (14,027) 10 yr. 27 U.K. Gilt December 1999 4,768,339 5,949 45 U.S. Long Bond December 1999 5,128,594 28,222 70 U.S. Treasury Note 5 yr. December 1999 7,555,625 9,537 315 U.S. Treasury Note 10 yr. December 1999 34,448,203 127,482 ----------- $ 382,702 ============= At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on these contracts. 18 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Written option transactions Puts Calls Principal Principal Amount of Amount of Contracts Contracts (000's (000's omitted) Premiums omitted) Premiums --------------- ------------ -------------- ------------ Outstanding, beginning of period 5,600 $ 352,464 5,600 $ 420,000 Options written -- -- -- -- Options exercised -- -- -- -- Options expired -- -- -- -- Options sold -- -- -- -- ============= ========== ============ ============ Outstanding, end of period 5,600 $ 352,464 5,600 $ 420,000 ============= =========== ============ ============ Summary of written options outstanding Principal Amount of Expiration Contracts Exercise Date Value (000's Price omitted) --------------- ------------ --------------- ------------ USD Put/JPY Call 5,600 USD 112.7 JPY 11/16/99 $ 232,960 USD Call/JPY Put 5,600 USD 112.7 JPY 11/16/99 64,960 ----------- $ 297,920 =========== 19 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements Net Unrealized Expiration Appreciation/ Notional Amount Date Description (Depreciation) ----------------- -------- ----------------------------------- ------------ Credit Default Swaps 378,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty $ (193,900) Trust Company dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Italy, the notional amount times the difference between the par value and the then-market value of Italy BTP, 6.00% due 11/01/07. 7,922,250,000 BEF 3/31/03 Agreement with Morgan Guaranty (195,059) Trust Company dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Belgium, the notional amount times the difference between the par value and the then-market value of Kingdom of Belgium, 5.75% due 3/28/08. Interest Rate Swaps 11,200,000 CHF 6/05/05 Agreement with Morgan Guaranty (5,941) Trust Company dated 6/03/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 15,000,000 CHF 6/10/05 Agreement with Credit Suisse 10,558 Financial Products dated 6/08/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 20 GMO U.S. Bond/Global Alpha A Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued Net Unrealized Expiration Appreciation/ Notional Amount Date Description (Depreciation) ----------------- -------- ----------------------------------- ------------ 19,200,000 CHF 6/10/05 Agreement with Credit Suisse $ 210,289 Financial Products dated 10/01/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 10,600,000 CHF 6/11/05 Agreement with Morgan Guaranty (8,021) Trust Company dated 6/09/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 3,300,000 CHF 9/16/05 Agreement with Morgan Guaranty 21,855 Trust Company dated 9/14/98 to pay the notional amount multiplied by 3.1175% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 14,000,000 USD 7/29/06 Agreement with Morgan Guaranty (177,738) Trust Company dated 7/27/99 to receive the notional amount multiplied by 6.664% and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specific spread. Total Return Swap 75,000,000 USD 11/12/00 Agreement with Morgan Guaranty 573,062 Trust Company dated 11/09/98 to receive (pay) the notional amount multiplied by the return on the Lehman Aggregate Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. + ----------- $ 235,105 =========== See Notes to the Schedule of Investments for definitions of currency abbreviations. + This swap agreement is valued by management (Note 1). 21 GMO Small Cap Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 94.8% Advertising -- 0.1% 1,100 Grey Advertising Inc 408,100 ---------- Aerospace -- 0.7% 23,100 Cordant Technologies Inc 955,762 12,000 Curtiss Wright Corp 396,750 16,300 Gencorp Inc 350,450 25,400 Kaman Corp, Class A 331,788 27,200 Kellstrom Industries Inc* 279,224 ---------- 2,313,974 ---------- Automotive -- 2.0% 13,200 Arvin Industries Inc 471,900 14,200 Bandag Inc 472,150 19,700 Borg Warner Automotive Inc 933,287 44,600 Cooper Tire & Rubber Co 847,399 18,100 Dura Automotive Systems Inc* 468,338 35,200 Meritor Automotive Inc 767,799 24,000 Modine Manufacturing Co 713,999 27,050 Monaco Coach Corp* 784,449 20,650 Smith (AO) Corp, Class B 560,130 19,500 Superior Industries International Inc 545,999 25,600 Wabash National Corp 537,599 ---------- 7,103,049 ---------- Banking and Financial Services -- 5.4% 27,400 Advanta Corp, Class A 539,437 58,800 Amresco Inc* 393,225 13,700 Astoria Financial Corp 450,388 24,700 Baldwin and Lyons Inc, Class B 524,875 26,200 Bancwest Corp 1,095,487 23,832 BOK Financial Corporation 513,878 31,200 CFS Bancorp Inc 333,450 36,800 Comdisco Inc 775,099 20,500 Commercial Federal Corp 476,625 9,600 Corus Bancshares Inc 274,800 8,300 Dain Rauscher Corp 411,888 21,816 Downey Financial Corp 463,590 11,800 Eaton Vance Corp 359,900 10,200 Financial Security Assurance Holdings Ltd 510,638 18,100 First Bancorp Puerto Rico 373,313 6,800 First Citizens Bancshares, Class A 532,099 See accompanying notes to the financial statements. 1 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Banking and Financial Services -- continued 24,200 First Federal Financial Corp* 369,050 20,900 Heller Financial Inc 478,088 39,900 Imperial Credit Industries Inc* 216,956 12,500 Jeffries Group Inc* 309,375 7,400 JSB Financial 393,125 17,800 Leucadia National Corp 377,138 31,300 Liberty Financial Cos 805,974 36,200 Long Beach Financial Corp* 545,262 14,800 Metris Companies Inc 407,925 27,525 Morgan Keegan Inc 466,205 49,300 Pacific Century Financial Corp 915,130 25,650 PMI Group Inc 1,090,124 32,175 Raymond James Financial Corp 629,422 46,900 Resource America Inc 469,000 21,500 Riggs National Corp 400,438 31,800 Roslyn Bancorp Inc 540,599 56,696 Sovereign Bancorp Inc 568,734 11,400 Student Loan Group 456,000 10,110 UMB Financial Corp 429,675 11,600 Value Line Inc 432,100 32,564 Washington Federal Inc 777,465 ---------- 19,106,477 ---------- Chemicals -- 2.8% 17,000 Albemarle Corp 294,313 22,600 Cytec Industries Inc* 526,862 12,400 Dexter Corp 451,825 29,600 Engelhard Corp 590,149 16,650 Ferro Corp 399,600 18,900 Geon Co 564,637 12,000 Great Lakes Chemical Corp 494,250 39,600 Hanna (MA) Co 542,024 38,400 IMC Global Inc 611,999 59,700 Kaiser Aluminum Corp* 533,568 24,500 Lubrizol Corp 621,687 34,800 Millenium Chemicals Inc 800,399 28,800 Mississippi Chemical Corp 217,800 15,300 Nalco Chemical Co 786,037 35,800 Olin Corp 507,913 22,000 Stepan Co 540,374 37,000 W.R. Grace & Co* 707,624 2 See accomapnying 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, 1999 (Unaudited) Shares Description Value($) - -------------------------------------------------------------------------------- Chemicals -- continued 37,400 Wellman Inc 628,787 ---------- 9,819,848 ---------- Computer and Office Equipment-- 2.3% 13,100 CDW Computer Centers Inc* 581,312 9,900 Everex Systems Inc(a) -- 61,300 Exabyte Corp* 229,875 81,400 Maxtor Corp* 521,473 16,300 Micros Systems Inc* 550,124 24,900 Quantum Corp-DLT and Storage* 455,981 12,450 Quantum Corp-Hard Disk Drive* 88,706 43,700 Reynolds & Reynolds Inc, Class A 955,937 9,000 Safeguard Scientifics Inc* 605,249 8,400 Sandisk Corp* 708,749 27,900 Sequent Computer Inc* 491,738 64,700 Silicon Graphics Inc* 740,005 31,400 SMART Modular Technologies Inc* 653,512 32,400 Sterling Software Inc* 652,049 15,800 Zebra Technologies Corp* 742,599 ---------- 7,977,309 ---------- Construction-- 1.3% 28,200 Bridge & Toll Road Brothers Inc* 571,049 17,200 Centex Corp 483,750 43,600 Foster Wheeler Corp 564,074 43,200 Horton (DR) Inc 629,099 25,900 Kaufman & Broad Home Corp 529,330 25,000 McDermott International Inc 564,062 31,200 Pulte Corp 721,499 19,700 Texas Industries Inc 630,399 ---------- 4,693,262 ---------- Consumer Goods-- 5.2% 79,900 Agribiotech Inc* 312,113 16,200 Bassett Furniture Industries Inc 330,075 10,734 Block Drug Co Inc, Class A 431,373 20,500 Brown Shoe Co Inc 356,188 59,200 Burlington Industries Inc* 336,700 52,400 Callaway Golf Co 520,725 21,900 Coleman Co Inc* 201,206 80,600 Compucom Systems Inc* 292,175 16,700 Department 56 Inc* 467,600 3 See accompanying notes to the financial statements GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 14,400 Enesco Group Inc 248,400 19,800 Fastenal Co 992,474 17,500 Footstar Inc* 568,749 25,800 Furniture Brands International Inc* 517,613 26,700 Hon Industries Inc 629,118 27,281 Jones Apparel Group Inc* 707,600 33,900 Justin Industries 484,136 28,600 Kimball International, Class B 552,337 19,100 Knoll Inc* 510,925 22,900 La-Z-Boy Chair Co 502,369 21,115 Lancaster Colony Corp 694,155 23,900 Liz Claiborne Inc 878,324 54,200 Moore Corp Ltd 504,738 12,000 National Service Industries 384,000 15,150 Oneida Ltd 361,706 28,100 Osh Kosh B Gosh, Class A 453,113 18,900 Pittston Brinks Group 450,056 24,100 Polo Ralph Lauren Corp* 466,938 44,000 Reebok International Ltd* 519,750 26,300 Russell Corp 440,525 7,400 Scholastic Corp* 293,225 82,800 Sunbeam Corp* 512,325 20,900 Technology Data Corp* 774,605 75,900 Terra Industries Inc 170,775 37,800 Unifi Inc* 510,300 57,220 US Industries Inc 922,672 30,000 Wallace Computer Services 641,249 25,900 Warnaco Group Inc, Class A 569,799 ----------- 18,510,131 ----------- Electronic Equipment -- 7.5% 32,000 3DFX Interactive Inc* 356,000 34,700 Adaptec Inc* 1,353,299 28,800 American Power Conversion Corp* 505,800 42,600 Andrew Corp* 745,499 66,700 Arrow Electronics Inc* 1,325,662 41,200 Aspect Telecommunications Corp* 455,775 38,900 Atmel Corp* 1,529,255 30,800 AVX Corp 922,074 23,100 C-Cube Microsystems Inc* 642,468 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- continued 23,000 Ciena Corp* 807,874 13,600 CTS Corp 647,699 20,800 Cypress Semiconductor Corp* 481,000 12,500 Dallas Semiconductor Corp 631,249 20,200 Diebold Inc 537,824 5,300 Franklin Electric Inc 373,650 12,000 Hadco Corp* 498,750 9,000 Harman International Industries 382,500 23,600 Hussmann International Inc 401,200 18,100 Imation Corp* 510,194 50,300 International Rectifier Corp* 811,087 11,200 Jabil Circuit Inc 501,900 29,600 Kemet Corp* 764,049 8,100 Lattice Semiconductor Corp* 499,163 19,700 Lincoln Electric Holdings Inc 398,925 10,600 Litton Industries* 678,399 15,800 Marshall Industries* 579,662 32,700 MEMC Electronic Materials Inc* 649,912 27,000 Methode Electronics, Class A 486,000 10,000 Microchip Technology Inc* 547,499 62,700 National Semiconductor Corp* 1,767,355 76,600 Oak Technology Inc* 363,850 10,200 Pittway Corp, Class A 335,963 22,000 SCI Systems Inc* 1,095,874 49,400 Sensormatic Electronics Corp* 577,362 38,000 Silicon Valley Group Inc* 451,250 10,700 Thomas & Betts Corp 481,500 27,000 Valmont Industries Inc 428,625 56,637 Vishay Intertechnology Inc 1,214,155 16,600 Watkins Johnson 549,874 54,728 Zilog Inc(b)* 136,393 ----------- 26,426,569 ----------- Entertainment & Leisure -- 0.1% 21,300 Metro Goldwyn Mayer Inc* 426,000 ----------- Food and Beverage -- 3.3% 6,700 Agribrands International Inc* 325,788 11,600 Coors (Adolph) Co, Class B 661,924 25,100 Corn Product Interest Inc 817,318 23,700 Darden Restaurants Inc 370,313 See accompanying notes to the financial statements. 5 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- continued 12,600 Dean Foods Co 507,150 3,500 Farmer Brothers Co 693,874 20,900 Great Atlantic & Pacific Tea Co 734,112 12,300 Hormel (Geo A) and Co 495,075 70,900 IBP Inc 1,626,268 14,400 International Multifoods Corp 326,700 20,000 Interstate Bakeries Corp 478,750 16,300 Luby's Cafeteria Inc 218,013 16,600 Michael Foods Inc 459,613 18,400 Pilgrims Pride Corp 195,500 9,200 Pilgrims Pride Corp, Class A* 74,750 46,300 Ryan's Family Steak Houses Inc* 448,531 1,100 Seaboard Corp 272,800 21,000 Smithfield Foods Inc* 616,874 14,100 Suiza Foods Corp* 449,438 22,200 Universal Corp 629,924 27,950 Universal Foods Corp 590,443 28,200 Wendy's International Inc 789,599 ----------- 11,782,757 ----------- Health Care -- 3.8% 29,700 Alterra Healthcare Corp* 297,000 27,900 Apria Healthcare Group* 470,813 18,200 Arrow International Inc 527,799 23,700 Ballard Medical Products 580,649 8,300 Bard (CR) 386,988 91,600 Beverly Enterprises Inc* 458,000 17,533 Bindley Western Industries Inc 293,678 50,300 Coventry Health Care Inc* 506,144 17,000 Dentsply International Inc 421,813 9,900 Express Scripts Inc, Class A* 667,012 34,900 First Health Group Corp* 752,530 19,000 Haemonetics Corp* 371,688 15,600 HCR Manor Care Inc* 305,175 28,100 Invacare Corp 525,118 168,300 Laboratory Corporation of America Holdings* 483,863 25,400 Lincare Holdings Inc* 669,924 27,700 Mallinckrodt Inc 888,130 93,900 Mariner Post-Acute Network Inc* 52,819 25,000 Mentor Corp 584,374 53,600 Mid Atlantic Medical Services Inc* 452,250 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Health Care -- continued 20,900 Ocular Sciences Inc* 343,544 76,600 Phycor Inc* 311,188 14,200 Quest Diagnostics Inc* 375,413 57,100 Quorum Health Group Inc* 503,194 29,500 RightCHOICE Managed Care, Class A* 318,969 21,950 Sierra Health Services Inc* 260,656 36,100 Sola International Inc* 573,087 34,300 Sunrise Medical Inc* 240,100 103,300 Vivus Inc* 332,502 18,100 Wesley Jessen Visioncare Inc* 555,443 ----------- 13,509,863 ----------- Insurance -- 5.6% 2,157 Alleghany Corp* 389,878 22,200 American Financial Group Inc 654,899 10,000 American National Insurance Co 699,999 22,700 Argonaut Group Inc 573,174 61,200 ARM Financial Group Inc, Class A 15,300 20,700 Berkley (WR) Corp 470,925 25,700 Capital Re Corp 311,613 20,600 Commerce Group Inc 458,350 16,968 Delphi Financial Group Inc* 602,363 31,400 Everest Re Holdings Inc 871,349 25,070 Fidelity National Financial Inc 385,451 25,850 First American Financial Corp 384,519 54,110 Foundation Health Systems Inc, Class A* 689,902 39,530 Fremont General Corp 392,829 35,100 Frontier Insurance Group Inc 425,588 9,300 Gallagher (Arthur J) and Co 508,013 25,800 Harleysville Group Inc 501,488 24,700 HCC Insurance Holdings Inc 361,238 19,600 Horace Mann Educators Corp 590,449 21,900 Kansas City Life Insurance Co 893,793 10,000 Liberty Corp 480,625 25,500 Life USA Holdings Inc 524,344 15,400 Mercury General Corp 465,850 48,100 Ohio Casualty Corp 739,537 19,100 Orion Capital Corp 921,574 36,800 Oxford Health Plans Inc* 570,399 28,400 Presidential Life Corp 511,200 15,600 Radian Group Inc 722,474 See accompanying notes to the financial statements. 7 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- continued 117,900 Reliance Group Holdings Inc 560,024 13,043 RLI Corp 437,756 29,700 Selective Insurance Group 529,030 7,100 Transatlantic Holding Inc 512,088 13,650 Trenwick Group Inc 299,447 20,100 Trigon Healthcare Inc* 729,880 25,200 UICI* 663,074 44,000 Vesta Insurance Group 211,750 13,725 X1 Captial Limited 690,538 ----------- 19,750,710 ----------- Lodging -- 0.2% 154,900 Wyndham International Inc, Class A 551,830 ----------- Machinery -- 5.3% 60,900 Agco Corp 628,030 30,000 Case Corp 1,481,249 23,600 Cooper Cameron Corp* 982,349 31,700 Cummins Engine Inc 1,878,224 24,800 Detroit Diesel Corp 506,850 29,200 Donaldson Co Inc 573,049 25,700 Flowserve Corp 406,381 18,900 FMC Corp* 1,100,924 19,700 Kaydon Corp 604,543 29,700 Kennametal Inc 787,049 16,500 Kulicke & Soffa Industries* 339,281 12,300 Lam Research Corp* 694,180 21,300 Milacron Inc 383,400 22,200 Mohawk Industries Inc* 502,275 10,200 Nordson Corp 501,394 11,500 Novellus System Inc* 620,280 66,200 Oakley Inc* 405,475 17,600 Smith International Inc* 821,699 13,700 Starrett (LS) Co, Class A 334,794 11,700 Tecumseh Products Co 666,899 23,400 Tecumseh Products Co, Class B 1,240,199 13,200 Toro Co 485,100 35,600 Ultratech Stepper Inc* 476,150 59,300 Varco International Inc* 733,837 24,200 Varian Medical Systems Inc 523,325 24,300 York International Corp 999,337 ----------- 18,676,273 ----------- 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Manufacturing -- 3.8% 37,900 ACX Technologies Inc* 469,013 40,500 Amcast Industrial Corp 642,937 17,800 American Greetings Corp 492,838 14,900 Applied Power Inc, Class A 456,313 9,700 Armstrong World Industries Inc 471,056 15,300 Ball Corp 687,543 18,300 Barnes Group Inc 362,569 31,200 Champion Enterprises Inc* 265,200 64,212 Clayton Homes Inc 610,013 37,750 Crane Co 908,358 7,100 CSS Industries Inc* 147,325 33,800 General Cable Corp 490,100 44,800 Gibson Greetings Inc* 176,400 19,700 Global Industrial Technologies Inc* 219,163 7,400 Greif Brothers Corp 179,450 44,400 Griffon Corp* 316,350 23,000 Harsco Corp 636,812 27,800 International Game Technology 486,500 12,300 Lafarge Corp 338,250 17,300 Lydall Inc* 187,056 7,000 Mine Safety Appliances 448,000 16,200 NCI Building Systems Inc* 296,663 21,200 Owens Corning 596,249 8,000 Sequa Corp, Class A* 540,999 14,400 Snap-On Inc 486,900 18,400 Standex International Corp 420,900 29,600 Tower Automotive Inc* 591,999 29,400 Trinity Industries Inc 922,424 21,500 Watts Industries Inc, Class A 473,000 ----------- 13,320,380 ----------- Metals and Mining -- 1.3% 40,100 Arch Coal Inc 536,337 31,500 Asarco Inc 657,562 10,900 Cleveland Cliffs Inc 349,481 15,800 Commercial Metals Co 483,875 70,900 Cyprus Amax Minerals Co 1,200,868 6,900 Nacco Industries Inc, Class A 537,337 38,900 Timken Co 683,180 ----------- 4,448,640 ----------- See accompanying notes to the financial statements. 9 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Oil and Gas -- 3.8% 31,500 BJ Services Co* 1,078,874 14,600 Cal Dive International Inc* 549,324 34,100 Ensco International Inc 726,755 20,200 Equitable Resources Inc 742,349 43,900 Friede Goldman International Inc* 537,774 45,100 Global Industries Limited* 504,556 33,400 Global Marine Inc* 592,849 22,100 Helmerich & Payne Inc 609,130 26,400 K N Energy Inc 537,899 43,800 KCS Energy Inc 41,063 18,400 Kerr-McGee Corp 1,030,399 29,200 Mitchell Energy, Class B 576,699 41,900 Nabors Industries Inc* 1,139,155 33,200 National-Oilwell Inc* 564,399 47,400 Newpark Resources Inc* 426,600 69,100 Ocean Energy Inc* 699,637 12,700 Peoples Energy Corp 462,756 24,500 Pogo Producing Co 511,438 60,600 Pride International Inc* 901,424 11,900 Seacor Smit Inc* 618,055 27,700 Veritas DGC Inc* 495,138 ----------- 13,346,273 ----------- Paper and Allied Products -- 2.4% 25,000 Boise Cascade Corp 909,374 8,800 Bowater Inc 471,900 22,300 Caraustar Industries Inc 505,931 68,400 Ikon Office Solutions Inc 760,949 24,100 Louisiana Pacific Corp 445,850 22,000 Mail-Well Inc* 313,500 8,100 Media General Inc, Class A 396,900 14,000 Pentair Inc 636,999 15,200 Potlatch Corp 587,099 35,300 Rock-Tenn Co, Class A 498,613 32,400 Shorewood Packaging Corp* 477,900 38,421 Smurfit-Stone Container Corp* 814,044 18,000 TJ International Inc 524,250 36,300 Wausau-Mosinee Paper Corp 499,125 21,400 Westvaco Corp 560,412 ----------- 8,402,846 ----------- 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Pharmaceuticals -- 0.9% 15,400 Amerisource Health Corp* 397,513 25,650 Bergen Brunswig Corp, Class A 395,972 28,800 ICN Pharmaceuticals Inc 597,599 41,475 Mark IV Industries Inc 821,722 79,000 NBTY Inc* 641,874 40,100 Nu Skin Enterprises Inc* 428,569 ----------- 3,283,249 ----------- Primary Materials -- 1.6% 27,300 A. Schulman Inc 489,694 11,300 Ameron Inc 516,975 11,100 Carlisle Cos Inc 444,000 16,800 Carpenter Technology Corp 384,300 12,600 Centex Construction Products Inc 484,313 12,100 Florida Rock Industries 483,244 24,200 Premark International Inc 804,649 18,100 Tupperware Corp 408,381 10,900 USG Corp 534,099 22,700 Weatherford International Inc 808,687 10,500 West Pharmaceutical Services Inc 395,063 ----------- 5,753,405 ----------- Primary Processing -- 3.0% 33,200 AK Steel Holding Corp 697,199 19,400 Belden Inc 454,688 114,800 Bethlehem Steel Corp* 882,524 30,800 Citation Corp* 487,025 30,300 Howmet International Inc.* 541,612 36,600 Lone Star Technologies Inc* 731,999 98,100 LTV Corp 564,074 6,200 Maxxam Inc* 353,400 13,500 Mueller Industries Inc* 418,500 54,500 National Steel Corp, Class B 442,813 11,000 NCH Corp 489,500 37,500 Oregon Steel Mills Inc 410,156 13,200 Precision Castparts Corp 468,600 19,700 Quanex Corp 512,200 24,200 Rouge Industries Inc, Class A 175,450 See accompanying notes to the financial statements. 11 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Primary Processing -- continued 22,300 Ryerson Tull Inc 422,306 18,700 Superior Telecom Inc 492,044 37,500 Titanium Metals Corp 321,094 38,300 USX-US Steel Group Inc 1,034,099 14,000 Valspar Corp 508,375 ----------- 10,407,658 ----------- Printing and Publishing -- 0.4% 15,200 American Business Products Inc 228,000 35,500 Hollinger International Inc 381,625 25,200 World Color Press Inc* 926,099 ----------- 1,535,724 ----------- Real Estate -- 1.0% 32,600 Lennar Corp 619,399 49,400 Meditrust Corp, REIT 441,513 23,800 Meristar Hospitality Corp, REIT 401,625 16,500 Parkway Properties Inc, REIT 544,499 34,800 Price Enterprises Inc, REIT* 269,700 51,600 Prison Realty Trust Inc, REIT 674,024 25,700 Security Capital Group, Class B, REIT* 361,406 16,900 Webb (D) Corp 367,575 ----------- 3,679,741 ----------- Refining -- 0.7% 12,500 Holly Corp 176,563 24,000 Lyondell Petro Chemical Co 349,500 12,500 Murphy Oil Corp 634,374 27,492 Ultramar Diamond Shamrock Corp 718,228 29,200 Valero Energy Corp 620,499 ----------- 2,499,164 ----------- Retail Trade -- 6.5% 180,100 7 Eleven Inc* 371,456 12,500 Ames Department Stores Inc* 367,188 13,500 AnnTaylor Stores Corp* 447,188 18,400 Applebees International Inc 571,549 18,100 BJ's Wholesale Club Inc 511,325 35,300 Borders Group Inc* 469,931 33,040 Burlington Coat Factory Warehouse 545,159 43,900 Cash American Investments Inc 315,531 25,600 CBRL Group Inc 336,000 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade -- continued 32,900 Central Garden and Pet Co* 254,975 78,800 Charming Shoppes Inc* 438,325 24,700 Claire's Stores Inc 464,669 57,300 Cone Mills Corp* 336,638 19,400 Consolidated Stores Corp* 312,825 16,200 CPI Corp 526,499 21,200 Dave and Busters Inc* 249,100 27,400 Dress Barn Inc* 412,713 18,600 Foodmaker Inc* 428,963 47,300 Fruit of the Loom Inc, Class A* 331,100 56,900 Goodys Family Clothing Inc* 524,550 9,300 Hannaford Brothers Co 667,274 78,100 Heilig Meyers Co 414,906 54,000 Inacom Corp* 526,499 40,400 Ingles Markets Inc 542,874 15,800 Lands End Inc* 795,924 49,800 Lone Star Steakhouse and Saloon Inc* 379,725 23,400 Michaels Stores Inc* 718,087 30,900 Micro Warehouse Inc* 378,525 34,100 Neiman Marcus Group Inc* 758,724 33,300 NPC International Inc* 376,706 70,200 OfficeMax Inc* 530,887 28,000 Outback Steakhouse Inc* 829,499 15,000 Payless ShoeSource Inc* 748,124 37,000 Petco Animal Supplies Inc* 462,500 38,400 Phillips Van Heusen 326,400 48,300 Pier 1 Imports Inc 262,631 71,000 Rainforest Cafe Inc* 465,938 26,900 Ross Stores Inc 1,119,712 21,400 Ruby Tuesday Inc 387,875 21,000 Ruddick Corp 389,813 204,700 Service Merchandise Co* 57,582 13,800 Shopko Stores Inc* 395,025 59,600 Spiegel Inc, Class A* 532,674 34,700 The Pep Boys 505,319 36,700 Value City Department Stores Inc* 458,750 66,100 Venator Group Inc* 470,963 14,700 Weismarkets Inc 520,931 16,100 Whitehall Jewellers Inc* 452,813 See accompanying notes to the financial statements. 13 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade -- continued 11,700 Zale Corp* 405,844 ----------- 23,098,208 ----------- Services -- 7.2% 51,900 Alternative Resources Corp* 314,644 13,200 Amerco* 331,650 12,000 Anchor Gaming* 583,125 31,925 Arctic Cat Inc 301,292 35,000 Avid Technology Inc* 441,875 18,800 Avis Rental Car Inc* 413,600 43,500 Aztar Corp* 399,656 26,250 Banta Corp 616,874 20,200 Berlitz International Inc* 368,650 37,000 Bowne and Co Inc 513,375 45,200 Buffets Inc* 505,675 37,100 Building One Services Corp* 482,300 15,800 Carmike Cinemas Inc, Class A* 213,300 9,600 Catalina Marketing Corp* 871,199 12,000 Chemed Corp 364,500 10,800 Chris Craft Industries Inc* 546,749 25,800 Dollar Thrifty Automotive Group Inc* 485,363 42,500 Electro Rental Corp* 515,313 45,900 Fleming Cos Inc 553,668 25,000 Franklin Covey Co* 193,750 49,800 Harrahs Entertainment Inc* 1,120,499 25,500 Hollywood Entertainment Corp* 345,844 24,000 Interim Services Inc* 442,500 36,500 Interpool Inc 346,750 17,400 Jacobs Engineering Group* 574,199 17,200 Kellwood Co 410,650 28,900 Kelly Services 812,812 19,600 KingWorld Productions Inc* 747,249 51,400 Mandalay Resort Group* 1,053,699 34,500 Manpower Inc 931,499 20,550 Marcus Corp 245,316 56,500 Modis Professional Services Inc* 893,405 2,000 Oakwood Homes Corp 12,125 89,700 Olsten Corp 919,424 51,200 Prime Hospitality Corp* 476,800 18,300 Promus Hotel Corp* 531,843 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 15,800 Rent-A-Center Inc* 350,563 19,600 Res-Care Inc* 369,950 36,100 Rollins Truck Leasing Corp 374,538 71,600 Romac International Inc* 519,100 18,600 Sbarro Inc* 511,500 47,400 Staff Leasing Inc* 438,450 46,400 Staffmark Inc* 450,952 28,000 Station Casinos Inc* 566,999 11,800 Stone & Webster Inc 303,113 31,800 Supervalu Inc 715,499 54,500 U.S. Oncology Inc* 558,624 17,048 United Water Resources Inc 571,107 32,900 Veterinary Centers of America Inc* 366,013 45,600 Wolverine World Wide Inc 515,850 ----------- 25,493,430 ----------- Technology -- 4.3% 60,000 Acclaim Entertainment Inc* 423,750 7,400 Adobe Systems Inc 737,224 32,200 Advanced Micro Devices Inc* 666,137 48,000 Aspen Technologies Inc* 411,000 27,600 Autodesk Inc 634,799 26,100 Avnet Inc 1,154,924 45,000 Cabletron Systems Inc* 756,562 60,000 Cirrus Logic Corp* 671,249 14,100 Cognex Corp* 425,644 31,300 Computer Horizons Corp* 406,900 40,700 Datastream Systems Inc* 493,488 13,400 Deluxe Corp 456,438 11,800 Dionex Corp* 469,788 12,800 Electronics For Imaging Inc* 750,399 18,700 Esterline Corp* 306,213 30,300 G TECH Holdings Corp* 765,074 22,400 Gartner Group Inc, Class A 469,000 117,400 Inprise Corp* 495,287 10,100 KLA Instruments Corp* 634,405 18,600 Mettler-Toledo International Inc* 495,225 40,700 MTS Systems Inc 447,700 63,300 Renaissance Worldwide Inc* 308,588 14,700 Synopsys Inc* 822,280 See accompanying notes to the financial statements. 15 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Technology -- continued 23,750 Tektronix Inc 789,687 11,800 Teradyne Inc* 803,137 27,300 Thermo Electron Corp* 433,388 ----------- 15,228,286 ----------- Telecommunications -- 0.9% 13,580 Adtran Inc* 517,738 69,500 Brightpoint Inc* 245,425 8,600 Premiere Technologies Inc* 56,169 8,200 Telephone and Data Systems Inc 569,899 47,100 TV Guide Inc, Class A* 1,307,024 43,700 World Access Inc* 543,518 ----------- 3,239,773 ----------- Textiles -- 0.5% 4,200 Crystal Brands Inc(a) -- 25,650 Guilford Mills 242,072 44,800 Shaw Industries Inc 895,999 13,500 Springs Industries Inc, Class A 507,094 ----------- 1,645,165 ----------- Transportation -- 4.3% 20,500 Airborne Freight Corp 516,344 22,250 Airline Express International Corp 543,733 70,700 Airtran Holdings Inc* 391,063 10,700 Alaska Airline Group Inc* 462,775 23,700 American Freightways Corp* 497,700 26,500 American West Holdings Corp, Class B* 516,750 28,200 Atlantic Coast Airlines Holdings* 560,474 47,900 Brunswick Corp 1,224,443 12,000 CNF Transportation Inc 467,250 36,100 Comair Holdings Inc 762,612 16,300 Continental Airlines Inc, Class B* 665,243 18,800 Expeditors International Washington Inc 607,474 21,900 Fleetwood Enterprises Inc 446,213 29,400 Frontier Airlines Inc* 369,338 17,400 Gatx Corp 580,724 86,500 Halter Marine Group Inc* 459,531 32,100 Heartland Express Inc* 477,488 47,700 Laidlaw Inc, Class B 298,125 10,300 Landstar System Inc* 381,100 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Transportation -- continued 11,500 Navistar International Corp* 559,187 39,300 Ryder System Inc 867,055 19,800 Swift Transportation Co 412,088 33,800 Tidewater Inc 1,098,499 20,500 US Freightways Corp 994,249 37,700 Wisconsin Central Transport* 600,843 23,700 Yellow Corp* 376,238 ----------- 15,136,539 ----------- Utilities -- 6.6% 18,200 Alliant Energy Corp 526,662 31,400 Avista Corp 541,649 8,800 Calpine Corp* 797,499 11,900 Central Hudson Gas & Electric 502,775 5,700 Cilcorp Inc 367,294 60,900 Citizens Utilities, Class B* 669,899 13,400 Cleco Corp 445,550 22,800 CMP Group Inc 605,624 13,700 Commonwealth Energy Systems 599,374 48,050 Connectiv Inc 1,030,071 13,500 DQE Inc 522,281 34,700 Dynegy Inc 815,449 16,400 Eastern Utilities Associates 490,975 59,800 El Paso Electric Co* 549,412 26,900 Energen Corp 507,738 28,500 Energy East Corp 712,499 12,400 Hawaiian Electric Industry Inc 440,975 29,900 Illinova Corp 953,062 31,000 Keyspan Corp 914,499 23,600 LG&E Energy Corp 542,799 27,000 MCN Corp 482,625 29,800 Midamerican Energy Holdings Co* 853,024 10,100 New England Electric System 527,093 69,700 Niagara Mohawk Holdings Inc* 1,054,212 78,000 Northeast Utilities* 1,369,874 16,100 Nui Corporation 412,563 25,800 Oneok Inc 801,412 38,900 Public Services Co of New Mexico 731,805 18,300 Puget Sound Power and Light Co 433,481 21,800 RGS Energy Group Inc 564,074 3,403 Sierra Pacific Resources* 82,956 See accompanying notes to the financial statements. 17 GMO Small Cap Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Par Value($) Description Value ($) - -------------------------------------------------------------------------------- Utilities -- continued 13,600 TNP Enterprises Inc 508,300 28,140 UniSource Energy Corp Holding Co* 335,921 9,100 United Illuminating Co 455,000 32,900 Utilicorp United Inc 762,868 33,300 Western Gas Resources Inc 568,180 28,400 Western Resources Inc 678,049 ------------ 23,157,523 ------------ TOTAL COMMON STOCKS (COST $351,198,772) 334,732,156 ------------ SHORT-TERM INVESTMENTS -- 9.2% Cash Equivalents -- 3.7% $2,670,567 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(c) 2,670,567 4,777,537 Merrimac Cash Fund Premium Class(c) 4,777,537 $5,500,000 Prudential Securities Group Inc, Master Note, 5.625%, due 3/10/2000(c) 5,500,000 ------------ 12,948,104 ------------ U.S. Government -- 1.0% $3,570,000 U.S. Treasury Bill, 4.69%, due 10/21/99(d) 3,532,169 ------------ Repurchase Agreements -- 4.5% $16,023,662 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $16,025,745 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $16,344,135. 16,023,662 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $32,519,126) 32,503,935 ------------ TOTAL INVESTMENTS -- 104.0% (COST $383,717,898) 367,236,091 Other Assets and Liabilities (net) -- (4.0)% (14,268,873) ------------ TOTAL NET ASSETS -- 100% $352,967,218 ============ 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, 1999 (Unaudited) Notes to the Schedule of Investments: REIT - Real Estate Investment Trust * Non-income producing security. (a) Bankrupt issuer. (b) Valued by management (Note 1). (c) Represents investments of security lending collateral (Note 1). (d) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $383,717,898) (Note 1) $367,236,091 Receivable for investments sold 3,543,333 Dividends and interest receivable 372,630 Receivable for open swap contracts (Notes 1 and 6) 929,020 Receivable for variation margin on open futures contracts (Notes 1 and 6) 54,075 Receivable for expenses waived or borne by Manager (Note 2) 13,670 ------------ Total assets 372,148,819 ------------ Liabilities: Payable for investments purchased 6,046,896 Payable upon return of securities loaned (Note 1) 12,948,104 Payable to affiliate for (Note 2): Management fee 99,578 Shareholder service fee 41,691 Accrued expenses 45,332 ------------ Total liabilities 19,181,601 ------------ Net assets $352,967,218 ============ Net assets consist of: Paid-in capital $367,502,241 Accumulated undistributed net investment income 548,936 Accumulated undistributed net realized gain 616,967 Net unrealized depreciation (15,700,926) ------------ $352,967,218 ============ Net assets attributable to: Class III shares $352,967,218 ============ Shares outstanding: Class III 28,002,470 ============ Net asset value per share: Class III $ 12.60 ============ 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $1,742) $ 2,625,346 Interest (including securities lending income of $35,378) 302,639 ----------- Total income 2,927,985 ----------- Expenses: Management fee (Note 2) 603,142 Custodian and transfer agent fees 52,915 Audit fees 20,333 Legal fees 5,520 Trustees fees (Note 2) 1,935 Registration fees 354 Miscellaneous 1,941 Fees waived or borne by Manager (Note 2) (82,998) ----------- 603,142 Shareholder service fee (Note 2) Class III 274,155 ----------- Net expenses 877,297 ----------- Net investment income 2,050,688 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 6,992,686 Closed futures contracts 406,714 Closed swap contracts (4,670,941) ----------- Net realized gain 2,728,459 ----------- Change in net unrealized appreciation (depreciation) on: Investments 27,088,759 Open futures contracts 76,827 Open swap contracts 2,334,147 ----------- Net unrealized gain 29,499,733 ----------- Net realized and unrealized gain 32,228,192 ----------- Net increase in net assets resulting from operations $34,278,880 =========== 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 August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 2,050,688 $ 5,029,707 Net realized gain 2,728,459 83,696,862 Change in net unrealized appreciation (depreciation) 29,499,733 (162,379,486) ------------ ------------- Net increase (decrease) in net assets resulting from operations 34,278,880 (73,652,917) ------------ ------------- Distributions to shareholders from: Net investment income Class III (2,053,818) (5,866,332) ------------ ------------- Total distributions from net investment income (2,053,818) (5,866,332) ------------ ------------- Net realized gains Class III (4,626,726) (102,038,674) ------------ ------------- Total distributions from net realized gains (4,626,726) (102,038,674) ------------ ------------- (6,680,544) (107,905,006) ------------ ------------- Net share transactions: (Note 5) Class III (22,314,785) (240,370,696) ------------ ------------- Decrease in net assets resulting from net share transactions (22,314,785) (240,370,696) ------------ ------------- Total increase (decrease) in net assets 5,283,551 (421,928,619) Net assets: Beginning of period 347,683,667 769,612,286 ------------ ------------- End of period (including accumulated undistributed net investment income of $548,936 and $552,066, respectively) $352,967,218 $347,683,667 ============ =============
22 See accompanying notes to the financial statements. 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, 1999 ---------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 11.69 $ 18.28 $ 15.89 $ 13.89 $ 13.61 $ 14.31 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income 0.07 0.18 0.27 0.28 0.23 0.20 Net realized and unrealized gain (loss) 1.08 (2.50) 4.85 2.32 3.20 0.34 -------- -------- -------- -------- -------- -------- Total from investment operations 1.15 (2.32) 5.12 2.60 3.43 0.54 -------- -------- -------- -------- -------- -------- Less distributions to shareholders: From net investment income (0.07) (0.19) (0.29) (0.27) (0.23) (0.20) From net realized gains (0.17) (4.08) (2.44) (0.33) (2.92) (1.04) -------- -------- -------- -------- -------- -------- Total distributions (0.24) (4.27) (2.73) (0.60) (3.15) (1.24) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 12.60 $ 11.69 $ 18.28 $ 15.89 $ 13.89 $ 13.61 ======== ======== ======== ======== ======== ======== Total Return (a) 9.86% (14.74)% 34.43% 19.12% 27.18% 4.48% Ratios/Supplemental Data: Net assets, end of period (000's) $352,967 $347,684 $769,612 $655,373 $231,533 $235,781 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48% Net investment income to average daily net assets 1.12%* 0.99% 1.51% 2.15% 1.67% 1.55% Portfolio turnover rate 24% 49% 56% 58% 135% 54% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.04 $ 0.04 $ 0.03 $ 0.02 $ 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) 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) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Small Cap 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 growth of capital. The Fund's current benchmark is GMO Russell 2500 Value + Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 24 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $12,230,669, collateralized by cash in the amount of $12,948,104, 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. The Fund also enters into contracts for differences in which the Fund agrees with the counterparty that its return will be based on the relative performance of two different groups or "baskets" of securities, adjusted by an interest rate payment. 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 will be 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, 1999. 25 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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 also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 26 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $49,995 in purchase premiums and $143,290 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 .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the accrual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $1,935. 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, 1999, aggregated $85,486,754 and $119,405,605, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ----------------------- ----------------------- ------------------------ ---------------------- $ 383,717,898 $ 36,876,859 $ 53,358,666 $ 16,481,807
27 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 4. Principal shareholder At August 31, 1999, 11.3% 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 Class III: August 31, 1999 February 28, 1999 ---------------------------- ----------------------------- Shares Amount Shares Amount ------------- -------------- ------------- --------------- Shares sold 766,347 $ 10,010,943 6,086,481 $ 84,771,299 Shares issued to shareholders in reinvestment of distributions 442,301 5,865,811 7,418,240 103,948,872 Shares repurchased (2,940,086) (38,191,539) (25,867,398) (429,090,867) ----------- ------------- ----------- ------------- Net decrease (1,731,438) $ (22,314,785) (12,362,677) $ (240,370,696) =========== ============= =========== =============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation --------------- --------------- --------------------- ------------------- --------------- 43 Russell 2000 September 1999 $9,210,600 $ (148,139) ===============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 28 GMO Small Cap Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited)
- -------------------------------------------------------------------------------------------------------- Swap agreements Net Notional Amount Expiration Unrealized Fund/Counterparty Date Description Appreciation ------------------ --------------- ------------------------------------------------ --------------- $ 12,727,535/ 7/21/00 Agreement with Lehman Brothers Finance $ 465,381 13,369,200 S.A. dated 7/16/99 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 3 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 3 month LIBOR adjusted by a specified spread. 24,993,827/ 7/21/00 Agreement with Deutsche Bank AG dated 463,639 24,993,827 7/20/99 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 3 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 3 month LIBOR adjusted by a specified spread. --------------- $ 929,020 ===============
29 GMO Fundamental Value Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 87.9% Banking and Financial Services -- 7.5% 500 Washington Mutual Inc 15,889 -------- Food and Beverage -- 14.7% 500 ConAgra Inc 12,264 1,000 Pepsi Bottling Group Inc* 18,952 -------- 31,216 -------- Manufacturing -- 4.0% 300 Owens Corning 8,451 -------- Oil and Gas -- 8.3% 2,500 Gulf Canada Resources Ltd 10,013 400 Questar Corp 7,563 -------- 17,576 -------- Paper and Allied Products -- 20.1% 200 International Paper Co 9,426 500 Kimberly Clark Corp 28,483 200 St. Joe Co 4,688 -------- 42,597 -------- Real Estate -- 6.7% 500 Mack-Cali Realty Corp 14,202 -------- Retail Trade -- 11.3% 1,500 Office Depot Inc* 15,464 500 Saks Inc* 8,419 -------- 23,883 -------- Services -- 5.1% 500 Waste Management Inc 10,920 -------- Technology -- 5.0% 500 Storage Technology Corp* 10,513 -------- Utilities -- 5.2% 300 El Paso Energy Corp 10,983 -------- TOTAL COMMON STOCKS (Cost $201,549) 186,230 -------- See accompanying notes to the financial statements. 1 GMO Fundamental Value Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 10.0% Repurchase Agreements -- 10.0% $10,609 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $10,610 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $10,821. 10,609 $10,609 Morgan Stanley Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $10,610 and an effective yield of 4.66%, collateralized by a U.S. Treasury Obligation with a rate of 5.17%, maturity date of 9/15/99, and market value, including accrued interest, of $19,957. 10,609 -------- 21,218 -------- TOTAL SHORT-TERM INVESTMENTS (COST $21,218) 21,218 -------- TOTAL INVESTMENTS -- 97.9% (COST $222,767) 207,448 Other Assets and Liabilities (net)-- 2.1% 4,342 -------- TOTAL NET ASSETS -- 100% $211,790 ======== Notes to the Schedule of Investments: * Non-income producing security. 2 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $222,767) (Note 1) $ 207,448 Cash 30,344 Receivable for investments sold 18,334 Dividends and interest receivable 6,567 Receivable for expenses waived or borne by Manager (Note 2) 786 ------------ Total assets 263,479 ------------ Liabilities: Payable for investments purchased 27,281 Payable to affiliate for (Note 2): Management fee 107 Shareholder service fee 25 Accrued expenses 24,276 ------------ Total liabilities 51,689 ------------ Net assets $ 211,790 ============ Net assets consist of: Paid-in capital $(20,634,795) Accumulated undistributed net investment income 79,350 Accumulated undistributed net realized gain 20,782,464 Net unrealized depreciation (15,229) ------------ $ 211,790 ============ Net assets attributable to: Class III shares $ 211,790 ============ Shares outstanding: Class III 29,719 ============ Net asset value per share: Class III $ 7.13 ============ See accompanying notes to the financial statements. 3 GMO Fundamental Value Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $8,345) $ 799,575 Interest 62,535 ----------- Total income 862,110 ----------- Expenses: Management fee (Note 2) 181,636 Audit fees 14,448 Custodian fees 10,146 Legal fees 1,071 Registration fees 1,026 Trustees fees (Note 2) 366 Miscellaneous 1,164 Fees waived or borne by Manager (Note 2) (28,221) ----------- 181,636 Shareholder service fee (Note 2) Class III 45,409 ----------- Net expenses 227,045 ----------- Net investment income 635,065 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 21,134,588 Foreign currency and foreign currency related transactions (229) ----------- Net realized gain 21,134,359 ----------- Change in net unrealized appreciation (depreciation) on: Investments (11,775,255) Foreign currency and foreign currency related transactions 21 ----------- Net unrealized loss (11,775,234) ----------- Net realized and unrealized gain 9,359,125 ----------- Net increase in net assets resulting from operations $ 9,994,190 =========== 4 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 Year Ended 31, 1999 February 28, (Unaudited) 1999 ---------------- ---------------- Increase (decrease) in net assets: Operations: Net investment income $ 635,065 $ 1,653,398 Net realized gain 21,134,359 28,697,755 Change in net unrealized appreciation (depreciation) (11,775,234) (26,005,231) ------------ ------------ Net increase in net assets resulting from operations 9,994,190 4,345,922 ------------ ------------ Distributions to shareholders from: Net investment income Class III (735,485) (1,820,272) ------------ ------------ Total distributions from net investment income (735,485) (1,820,272) ------------ ------------ Net realized gains Class III (4,135,387) (43,849,538) ------------ ------------ Total distributions from net realized gains (4,135,387) (43,849,538) ------------ ------------ (4,870,872) (45,669,810) ------------ ------------ Net share transactions: (Note 5) Class III (86,973,355) (3,650,568) ------------ ------------ Decrease in net assets resulting from net share transactions (86,973,355) (3,650,568) ------------ ------------ Total decrease in net assets (81,850,037) (44,974,456) Net assets: Beginning of period 82,061,827 127,036,283 ------------ ------------ End of period (including accumulated undistributed net investment income of $79,350 and $179,770, respectively) $ 211,790 $ 82,061,827 ============ ============
See accompanying notes to the financial statements. 5 GMO Fundamental Value Fund (A Series of GMO Trust)
Financial Highlights (For a Class III share outstanding throughout each period) - ------------------------------------------------------------------------------------------------- Six Months Year Ended February 28/29, Ended August --------------------------------------------------- 31, 1999 (Unaudited) 1999 1998 1997 1996 1995 ----------- ------- --------- --------- --------- --------- Net asset value, beginning of period $ 7.07 $ 11.92 $ 16.33 $ 15.04 $ 12.54 $ 12.49 ------- -------- --------- --------- --------- --------- Income from investment operations: Net investment income 0.08+ 0.18 0.35 0.33 0.37 0.34 Net realized and unrealized gain 1.01 0.19 3.90 2.53 3.26 0.55 ------- -------- --------- --------- --------- --------- Total from investment operations 1.09 0.37 4.25 2.86 3.63 0.89 ------- -------- --------- --------- --------- --------- Less distributions to shareholders: From net investment income (0.13) (0.20) (0.38) (0.32) (0.37) (0.32) From net realized gains (0.90) (5.02) (8.28) (1.25) (0.76) (0.52) ------- -------- --------- --------- --------- --------- Total distributions (1.03) (5.22) (8.66) (1.57) (1.13) (0.84) ------- -------- --------- --------- --------- --------- Net asset value, end $ 7.13 $ 7.07 $ 11.92 $ 16.33 $ 15.04 $ 12.54 of period ======= ======== ========= ========= ========= ========= Total Return (a) 15.60% 2.30% 30.43% 20.03% 29.95% 7.75% Ratios/Supplemental Data: Net assets, end of period $ 212 $ 82,062 $ 127,036 $ 232,583 $ 212,428 $ 182,871 (000's) Net expenses to average daily net assets 0.75%* 0.75% 0.75% 0.75% 0.75% 0.75% Net investment income to average daily net 2.10%* 1.67% 1.84% 2.15% 2.61% 2.84% assets Portfolio turnover rate 23% 34% 21% 25% 34% 49% Fees and expenses voluntarily waived or borne by the Manager consisted of the --(b) $ 0.02 $ 0.04 $ 0.02 $ 0.01 $ 0.01 following per share amounts:
(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. * Annualized. + Computed using average shares outstanding throughout the period. 6 See accompanying notes to the financial statements. GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 primarily through investment in equity securities. The Fund's current benchmark is the S&P 500 Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 7 GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Security lending The Fund may lend its securities to 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, 1999, 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 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 are 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 dividends 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. Dividends representing a return of capital are reflected as a reduction of cost. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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 by the Fund as paid-in capital. For the six 8 GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- months ended August 31, 1999, the Fund did not have any 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 .60% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $366. 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, 1999, aggregated $12,147,097 and $100,753,587, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------ ---------------- ---------------- --------------- $222,767 $1,768 $17,087 $15,319
4. Principal shareholders At August 31, 1999, 73.8% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 9 GMO Fundamental Value Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 --------------------------- --------------------------- Shares Amount Shares Amount ------------- ------------ ------------ ------------- Shares sold -- $ -- 2,272 $ 16,500 Shares issued to shareholders in reinvestment of distributions 590,407 4,138,761 5,275,741 43,852,942 Shares repurchased (12,174,944) (91,112,116) (4,319,130) (47,520,010) ------------- ------------- ------------ ------------- Net increase (decrease) (11,584,537) $(86,973,355) 958,883 $ (3,650,568) ============= ============= ============ =============
6. Subsequent Event On September 29, 1999, the Fund's Board of Trustees approved the following changes to the Fund's investment policies: (a) the Fund must invest at least 65% of its total assets in common stocks and securities convertible into common stocks (previously 90%); (b) the Fund may invest up to 15% of its total assets in securities of foreign issuers and securities traded principally outside the U.S. (previously 25%); (c) the Fund may hold cash for short periods of time pending reinvestment after securities transactions (previously limited to 5% of assets); and (d) (subject to shareholder approval) the Fund's subclassification under the 1940 Act changed from diversified to non-diversified. 10 GMO Growth Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- COMMON STOCKS -- 92.2% Aerospace -- 1.2% 27,600 Allied Signal Inc 1,690,499 5,500 Cordant Technologies Inc 227,563 1,500 Northrop Grumman Corp 108,750 ----------- 2,026,812 ----------- Automotive -- 0.4% 3,300 General Motors Corp, Class H* 169,950 5,850 Genuine Parts Co 168,919 800 Goodyear Tire & Rubber Co 44,900 4,900 Lear Corp* 196,919 3,300 Meritor Automotive Inc 71,981 ----------- 652,669 ----------- Banking and Financial Services -- 3.1% 7,100 American Express Co 976,250 1,700 Bank of America Corp 102,850 5,035 Bear Stearns Cos Inc 209,582 34,600 Charles Schwab & Co Inc 1,366,699 500 Chase Manhattan Corp 41,844 15,517 Citigroup Inc 689,537 1,000 City National Corp 33,188 7,200 Comdisco Inc 151,650 8,000 Countrywide Credit Industries Inc 257,000 8,300 Dime Bancorp Inc 152,513 900 Edwards (AG) Inc 22,613 9,200 Freddie Mac 473,800 400 Golden West Financial Corp 36,325 400 Greenpoint Financial Corp 10,350 4,100 Hibernia Corporation, Class A 53,044 100 Household International Inc 3,775 1,100 J.P. Morgan & Co Inc 142,106 1,800 Lehman Brothers Holding Inc 96,750 450 Liberty Financial Cos 11,588 900 Morgan Stanley Dean Witter & Co 77,231 3,200 National City Corp 88,400 4,500 PMI Group Inc 191,250 2,400 Unionbancal Corp 92,100 ----------- 5,280,445 ----------- See accompanying notes to the financial statements. 1 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Chemicals -- 1.1% 900 Cabot Corporation 20,756 3,100 Eastman Chemical Co 143,956 7,300 Engelhard Corp 145,544 5,000 Monsanto Co 205,313 13,000 Praxair Inc 611,000 8,123 Rohm & Haas Co 303,597 900 Sherwin Williams Co 21,938 6,000 Union Carbide Corp 341,250 800 W.R. Grace & Co* 15,300 2,600 Wellman Inc 43,713 ---------- 1,852,367 ---------- Communications -- 0.3% 6,100 NTL Inc* 598,944 ---------- Computer and Office Equipment -- 6.5% 2,200 CDW Computer Centers Inc* 97,625 2,400 Computer Associates International Inc 135,600 3,050 Comverse Technology Inc* 237,900 1,200 Concord EFS Inc* 44,550 26,200 Electronic Data Systems Corp 1,470,474 47,000 EMC Corp* 2,819,999 2,900 Gateway Inc* 281,119 36,600 Hewlett Packard Co 3,856,724 4,200 Lexmark International Group Inc* 330,750 4,900 Micron Electronics Inc* 47,469 16,500 Micron Technology Inc* 1,230,280 7,100 Rational Software Corp* 192,144 4,400 Reynolds & Reynolds Inc, Class A 96,250 5,700 Silicon Graphics Inc* 65,194 3,400 Sterling Software Inc* 68,425 2,750 Symbol Technologies Inc 95,734 2,300 Western Digital Corp* 14,088 ---------- 11,084,325 ---------- Construction -- 1.8% 49,900 Home Depot Inc 3,050,137 ---------- Consumer Goods -- 2.2% 1,800 Department 56 Inc* 50,400 2 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Consumer Goods -- continued 5,400 Eastman Kodak Co 396,563 900 Fisher Scientific International Inc* 16,200 4,000 Furniture Brands International Inc* 80,250 2,650 Hasbro Inc 64,759 2,700 Hon Industries Inc 63,619 5,200 Johnson Controls 355,550 10,900 Jones Apparel Group Inc* 282,719 3,600 Knoll Inc* 96,300 4,700 Kohls Corp* 334,875 4,500 Lancaster Colony Corp 147,938 3,900 Liz Claiborne Inc 143,325 13,491 Newell Rubbermaid Inc 553,131 11,800 Nike Inc, Class B 545,750 200 Patterson Dental Company* 8,200 1,300 Polo Ralph Lauren Corp* 25,188 2,200 Procurenet(a)* -- 1,300 Reebok International Ltd* 15,356 2,700 Steelcase Inc 39,319 2,300 Technology Data Corp* 85,244 3,700 Terra Industries Inc 8,325 7,100 VF Corp 255,600 500 Wallace Computer Services 10,688 4,000 Warnaco Group Inc, Class A 88,000 1,500 Whirlpool Corp 106,031 ---------- 3,773,330 ---------- Electronic Equipment -- 7.6% 19,300 3 Com Corp* 478,881 6,800 Adaptec Inc* 265,200 9,800 ADC Telecommunications Inc* 363,213 8,300 Altera Corp* 349,638 300 Amphenol Corp, Class A* 14,044 600 Analog Devices Inc* 30,900 1,200 Andrew Corp* 21,000 100 Antec Corp* 4,556 13,300 Atmel Corp* 522,856 1,300 Dallas Semiconductor Corp 65,650 2,600 EchoStar Communications Corp* 217,425 8,400 Emerson Electric Co 526,050 See accompanying notes to the financial statements. 3 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Electronic Equipment -- continued 15,900 General Instrument Corp* 782,081 3,500 Hubbell Inc, Class B 135,844 8,000 Jabil Circuit Inc 358,500 4,400 Linear Technology Corp 276,925 3,000 Litton Industries* 192,000 4,000 LSI Logic Corp* 227,000 3,300 Maxim Integrated Products Inc* 222,131 3,700 Microchip Technology Inc* 202,575 5,650 Molex Inc 181,153 19,300 Motorola Inc 1,780,424 5,800 National Semiconductor Corp* 163,488 2,100 Nortel Networks Corp 86,231 3,500 PMC-Sierra Inc* 325,500 5,300 Qualcomm Inc* 1,018,593 10,900 Raytheon Co, Class B 742,563 200 Read Rite Corp* 1,125 3,100 Sanmina Corp* 232,500 3,300 Scientific Atlanta Inc 169,125 13,900 Tellabs Inc* 827,919 17,400 Texas Instruments Inc 1,427,887 1,243 Vishay Intertechnology Inc 26,647 2,200 Vitesse Semiconductor Corp* 149,600 6,500 Xilinx Inc* 454,594 ---------- 12,843,818 ---------- Food and Beverage -- 2.2% 3,000 Anheuser Busch Cos Inc 231,000 4,620 Archer Daniels Midland Co 60,060 25,300 Coca Cola Co 1,513,255 3,600 Coca Cola Enterprises Inc 102,375 6,300 ConAgra Inc 154,350 1,300 Dole Food Co 32,744 5,900 IBP Inc 135,331 1,900 McDonald's Corp 78,613 20,900 Nabisco Group Holdings 370,975 4,100 Pepsico Inc 139,913 1,900 Pioneer Hi Bred International Inc 74,338 1,166 RJ Reynolds Tobacco Holdings* 31,992 1,700 Seagrams Co Ltd 90,206 4,200 Sysco Corp 137,025 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Food and Beverage -- continued 2,600 Universal Corp 73,775 4,000 Wendy's International Inc 112,000 5,000 Wrigley (William Jr) Co 391,563 ---------- 3,729,515 ---------- Health Care -- 3.7% 2,400 Bard (CR) 111,900 7,300 Becton Dickinson & Co 205,313 10,400 BioMet Inc 371,800 11,400 Boston Scientific Corp* 386,888 42,200 Columbia HCA Healthcare Corp 1,039,174 6,100 Dentsply International Inc 151,356 600 Express Scripts Inc, Class A* 40,425 1,900 Forest Laboratories Inc* 92,031 3,800 HCR Manor Care Inc* 74,338 1,700 Hillenbrand Industries Inc 48,450 8,600 Integrated Health Services Inc* 26,338 14,700 Johnson & Johnson 1,503,074 1,200 Lincare Holdings Inc* 31,650 4,400 Mallinckrodt Inc 141,075 6,500 Mariner Post-Acute Network Inc* 3,656 5,300 Novacare Corp* 5,963 100 Pharmacia & Upjohn Inc 5,225 6,100 Quorum Health Group Inc* 53,756 5,300 Stryker Corp 305,413 27,700 Tenet Healthcare Corp* 483,019 3,600 United Healthcare Corp 218,925 1,300 Universal Health Services, Class B* 43,388 4,800 Visx Inc* 434,400 7,500 Wellpoint Health Network* 546,563 ---------- 6,324,120 ---------- Insurance -- 1.9% 1,867 Aegon N.V. ADR 162,079 9,900 Aetna Life and Casualty Co 769,725 200 AFLAC Corp 8,988 400 Allstate Corp 13,125 900 AMBAC Inc 47,531 1,100 American National Insurance Co 77,000 2,300 CNA Financial Corp* 83,663 See accompanying notes to the financial statements. 5 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Insurance -- continued 600 Commerce Group Inc 13,350 1,373 Conseco Inc 32,952 1,400 Erie Indemnity Company - Class A 37,800 6,900 Foundation Health Systems Inc, Class A* 87,975 12,400 Humana Inc* 112,375 5,500 Loews Corp 431,750 3,400 MBIA Inc 176,375 1,500 Nationwide Financial Service, Class A 54,750 2,000 Old Republic International Corp 31,000 6,100 Oxford Health Plans Inc* 94,550 1,500 Pacificare Health Systems, Class A* 90,000 2,100 Safeco Corp 74,813 14,300 Saint Paul Cos Inc 458,494 2,400 Torchmark Corp 68,400 2,400 Transatlantic Holding Inc 173,100 1,300 Trigon Healthcare Inc* 47,206 ---------- 3,147,001 ---------- Machinery -- 1.0% 4,200 American Standard Co* 172,200 16,800 Applied Materials Inc* 1,193,849 1,200 Lam Research Corp* 67,725 1,200 Mohawk Industries Inc* 27,150 2,700 Novellus System Inc* 145,631 300 Tecumseh Products Co, Class B 15,900 800 York International Corp 32,900 ---------- 1,655,355 ---------- Manufacturing -- 2.3% 4,400 American Greetings Corp 121,825 1,200 Champion Enterprises Inc* 10,200 6,200 Corning Inc 412,300 1,100 Crane Co 26,469 3,500 Danaher Corp 205,625 1,200 Gentex Corp* 22,950 400 Illinois Tool Works Inc 31,175 12,100 International Game Technology 211,750 10,000 Leggett & Platt Inc 221,250 1,100 Minnesota Mining and Manufacturing Co 103,950 8,800 Owens Illinois Inc* 217,800 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Manufacturing -- continued 1,900 Rockwell International Corp 112,338 10,086 Tyco International Ltd 1,021,837 17,600 United Technologies Corp 1,163,799 ---------- 3,883,268 ---------- Metals and Mining -- 0.1% 5,900 Freeport-McMoRan Copper & Gold Inc* 94,769 ---------- Oil and Gas -- 2.6% 4,200 Apache Corp 191,100 7,800 Atlantic Richfield Co 685,913 2,300 Burlington Resources Inc 96,169 7,000 Columbia Energy Group 413,438 2,400 Consolidated Natural Gas Co 152,850 716 Devon Energy Corp* 27,656 1,000 Diamond Offshore Drilling Inc 38,250 7,600 Enron Corp 318,250 1,300 Enron Oil & Gas 31,038 1,000 Ensco International Inc 21,313 4,700 Kerr-McGee Corp 263,200 14,200 Occidental Petroleum Corp 307,963 10,000 Phillips Petroleum Co 510,000 3,900 Questar Corp 73,613 1,700 Santa Fe Snyder Corp* 16,575 2,000 Sonat Inc 72,250 11,200 Union Pacific Resources Group 200,900 11,300 Unocal Corp 473,188 10,800 USX - Marathon Group 336,150 1,800 Vastar Resources Inc 119,925 ---------- 4,349,741 ---------- Paper and Allied Products -- 0.2% 2,800 Ikon Office Solutions Inc 31,150 2,700 Mead Corp 100,744 9,650 Sonoco Products Co 229,188 600 Westvaco Corp 15,713 ---------- 376,795 ---------- Pharmaceuticals -- 7.6% 56,608 Abbott Laboratories 2,455,371 900 Alza Corp* 45,338 See accompanying notes to the financial statements. 7 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Pharmaceuticals -- continued 48,800 Amgen Inc* 4,059,549 7,050 Bergen Brunswig Corp, Class A 108,834 16,400 Biogen Inc* 1,258,699 6,200 Genzyme Corp - General Division* 349,913 2,400 Immunex Corp* 161,550 2,730 Mark IV Industries Inc 54,088 9,000 Merck & Co Inc 604,688 5,100 Nu Skin Enterprises Inc* 54,506 76,236 Pfizer Inc 2,877,908 10,400 Schering Plough Corp 546,650 2,800 Sepracor Inc* 209,650 3,800 Sigma-Aldrich Corp 122,550 200 Watson Pharmaceutical Inc* 7,175 ---------- 12,916,469 ---------- Primary Materials -- 0.2% 7,300 Crown Cork & Seal Inc 193,906 1,900 Sealed Air Corp* 111,625 1,600 Tupperware Corp 36,100 1,900 Weatherford International Inc 67,688 ---------- 409,319 ---------- Primary Processing -- 0.3% 700 Dow Chemical Co 79,538 300 Mueller Industries Inc* 9,300 7,200 Nucor Corp 335,250 2,100 Worthington Industries Inc 31,500 ---------- 455,588 ---------- Printing and Publishing -- 0.1% 1,100 Houghton Mifflin Co 52,525 2,800 John Wiley and Sons Inc, Class A 45,500 ---------- 98,025 ---------- Refining-- 0.2% 2,400 Ashland Inc 92,550 10,000 Tosco Corp 255,000 600 Ultramar Diamond Shamrock Corp 15,675 ---------- 363,225 ---------- 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Retail Trade -- 5.7% 16,942 Albertsons Inc 812,157 7,400 Autozone Inc* 176,213 3,300 Bed, Bath & Beyond Inc* 90,750 5,000 Best Buy Co Inc* 351,250 500 Blair Corp 10,250 1,400 Circuit City Stores Inc 60,200 7,700 Dillard's Inc 180,950 2,400 Federated Department Stores Inc* 110,400 13,600 Food Products Lion Inc 109,650 1,700 Fruit of the Loom Inc, Class A* 11,900 35,550 Gap Inc 1,390,893 1,200 Hannaford Brothers Co 86,100 7,100 Kmart Corp* 89,194 15,000 Kroger Co* 346,875 4,800 Neiman Marcus Group Inc* 106,800 7,650 Office Depot Inc* 79,847 4,400 Outback Steakhouse Inc* 130,350 1,100 Payless ShoeSource Inc* 54,863 400 Pier 1 Imports Inc 2,175 2,600 Ross Stores Inc 108,225 3,926 Safeway Inc* 182,804 3,500 Sears Roebuck & Co 131,250 10,100 Staples Inc* 219,675 4,200 Starbucks Corp* 96,075 22,300 Toys R Us Inc* 308,019 200 Value City Department Stores Inc* 2,500 98,800 Wal Mart Stores Inc 4,378,074 ---------- 9,627,439 ---------- Services -- 1.7% 1,500 Catalina Marketing Corp* 136,125 48,300 Disney Walt Co 1,340,324 3,300 Fluor Corp 136,538 5,500 Harrahs Entertainment Inc* 123,750 3,200 Hertz Corp 129,000 2,600 Icos Corp* 82,713 500 Mandalay Resort Group* 10,250 2,900 Manpower Inc 78,300 6,400 Marriott International Inc, Class A 219,200 See accompanying notes to the financial statements. 9 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Services -- continued 300 Omnicom Group 22,613 2,400 Promus Hotel Corp* 69,750 1,400 Speedway Motorsports Inc* 52,238 10,800 Supervalu Inc 243,000 3,600 Time Warner Inc 213,525 1,700 Total System Services Inc 26,350 900 UnitedGlobal.Com Inc, Class A* 65,925 ----------- 2,949,601 ----------- Technology -- 28.8% 6,300 Adobe Systems Inc 627,638 7,100 Advanced Micro Devices Inc* 146,881 2,000 Affiliated Computer Services Inc* 85,500 29,400 America Online Inc 2,684,587 3,300 American Management Systems Inc* 94,463 24,400 Automatic Data Processing Inc 959,225 900 Avnet Inc 39,825 1,000 Beckman Coulter Inc 47,375 1,600 Bisys Group Inc* 76,000 6,200 Ceridian Corp* 173,600 115,600 Cisco Systems Inc* 7,839,124 4,100 CMG Information Services Inc* 344,144 45,661 Compaq Computer Corp 1,058,763 12,700 Computer Sciences Corp 878,681 28,500 Dell Computer Corp* 1,391,155 3,600 Electronics For Imaging Inc* 211,050 21,800 First Data Corp 959,200 400 G TECH Holdings Corp* 10,100 2,200 Grainger (WW) Inc 95,838 10,000 Informix Corp* 72,813 107,304 Intel Corp 8,819,047 3,000 Intuit Inc* 268,688 5,800 JDS Uniphase Corp* 615,163 1,400 KLA Instruments Corp* 87,938 2,300 Macromedia Inc* 91,138 300 Mercury Interactive Corp* 14,325 122,500 Microsoft Corp* 11,338,905 1,400 National Data Corp 53,550 41,300 Novell Inc* 978,293 10 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, 1999 (Unaudited) Shares Description Value ($) - -------------------------------------------------------------------------------- Technology -- continued 58,550 Oracle Corp* 2,137,074 6,600 PE Corp - Biosystems Group 454,163 4,400 Policy Management System Corp* 134,475 1,500 Psinet Inc* 71,813 15,300 Seagate Technology Corp* 507,769 400 Shared Medical Systems Corp 22,475 15,700 Solectron Corp* 1,228,524 9,000 Storage Technology Corp* 189,000 43,700 Sun Microsystems Inc 3,474,149 4,700 Synopsys Inc* 262,906 3,900 Teradyne Inc* 265,444 ---------- 48,810,801 ---------- Telecommunications -- 5.3% 7,100 Alltel Corp 480,138 3,700 AT & T Corp 166,500 7,100 Bell Atlantic Corp 434,875 900 Cablevision Systems Corp* 63,563 2,000 Century Communications Corp* 93,250 3,825 Centurytel Inc 150,370 4,200 Comsat Corp 145,950 26,500 GTE Corp 1,818,562 5,400 Lucent Technologies Inc 345,938 49,590 MCI Worldcom Inc* 3,756,442 500 Telephone and Data Systems Inc 34,750 3,700 TV Guide Inc, Class A* 102,675 3,800 United States Cellular Corp* 213,750 9,000 US West Inc 470,250 18,300 Viacom Inc, Class B* 769,744 ---------- 9,046,757 ---------- Textiles -- 0.2% 10,800 Shaw Industries Inc 216,000 3,200 Westpoint Stevens Inc 76,800 ---------- 292,800 ---------- Tobacco -- 2.6% 117,284 Philip Morris Cos Inc 4,390,819 ---------- See accompanying notes to the financial statements. 11 GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------- Transportation -- 1.0% 10,200 Brunswick Corp 260,738 21,400 Burlington Northern Santa Fe Railroad Co 620,600 11,800 CSX Corp 515,513 4,800 FDX Corp* 203,700 900 Southwest Airlines Inc 15,019 900 Swift Transportation Co 18,731 1,000 Tidewater Inc 32,500 ----------- 1,666,801 ----------- Utilities -- 0.3% 7,800 Coastal Corp 337,838 1,700 El Paso Energy Corp 62,156 1,300 Oneok Inc 40,381 ----------- 440,375 ----------- TOTAL COMMON STOCKS (COST $111,498,926) 156,191,430 ----------- SHORT-TERM INVESTMENTS -- 12.8% Cash Equivalents -- 4.4% $2,418,009 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(b) 2,418,009 $5,000,000 Prudential Securities Group Inc, Master Note, 5.625%, due 3/10/2000(b) 5,000,000 ----------- 7,418,009 ----------- U.S. Government -- 0.4% $765,000 U.S. Treasury Bill, 4.70%, due 10/21/99(c) 756,893 ----------- Repurchase Agreements -- 8.0% $8,449,254 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $8,450,352 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $8,618,239. 8,449,254 $5,141,562 Morgan Stanley Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $5,142,228, and an effective yield of 4.66%, collateralized by a U.S. Treasury Obligation with a rate of 5.17%, maturity date of 9/15/99, and market value, including accrued interest, of $5,248,649. 5,141,562 ----------- 13,590,816 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $21,768,983) 21,765,718 ----------- 12 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Value ($) ------------- TOTAL INVESTMENTS -- 105.0% (COST $133,267,909) 177,957,148 Other Assets and Liabilities (net) -- (5.0)% (8,530,472) ------------ TOTAL NET ASSETS -- 100% $169,426,676 ============ Notes to the Schedule of Investments: * Non-income producing security. (a) Pending corporate action. (b) Represents investments of security lending collateral (Note 1). (c) Security has been segregated to cover margin requirements on open financial futures contracts (Note 6). See accompaning notes to the financial statements 13 GMO Growth Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $133,267,909) (Note 1) $177,957,148 Receivable for investments sold 251,099 Dividends and interest receivable 98,393 Receivable for variation margin on open futures contracts (Notes 1 and 6) 375 Receivable for expenses waived or borne by Manager (Note 2) 8,866 ------------ Total assets 178,315,881 ------------ Liabilities: Payable for investments purchased 1,333,050 Payable upon return of securities loaned (Note 1) 7,418,009 Payable to affiliate for (Note 2): Management fee 46,888 Shareholder service fee 20,898 Payable for open swap contracts (Note 1 and 6) 44,546 Accrued expenses 25,814 ------------ Total liabilities 8,889,205 ------------ Net assets $169,426,676 ============ Net assets consist of: Paid-in capital $106,182,757 Accumulated undistributed net investment income 87,966 Accumulated undistributed net realized gain 18,966,808 Net unrealized appreciation 44,189,145 ------------ $169,426,676 ============ Net assets attributable to: Class III shares $169,426,676 ============ Shares outstanding: Class III 38,820,453 ============ Net asset value per share: Class III $ 4.36 ============ 14 See accompanying notes to the financial statements. GMO Growth Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Dividends (net of withholding taxes of $264) $ 542,236 Interest (including securities lending income of $12,715) 267,291 ----------- Total income 809,527 ----------- Expenses: Management fee (Note 2) 277,508 Custodian and transfer agent fees 25,164 Audit fees 18,404 Legal fees 2,578 Trustees fees (Note 2) 920 Registration fees 364 Miscellaneous 1,195 Fees waived or borne by Manager (Note 2) (48,625) ----------- 277,508 Shareholder service fee (Note 2) Class III 126,140 ----------- Net expenses 403,648 ----------- Net investment income 405,879 ----------- Realized and unrealized gain (loss): Net realized gain on: Investments 18,727,797 Closed futures contracts 84,768 Closed swap contracts 341,443 ----------- Net realized gain 19,154,008 ----------- Change in net unrealized appreciation (depreciation) on: Investments 379,205 Open futures contracts (341,993) Open swap contracts (84,335) ----------- Net unrealized loss (47,123) ----------- Net realized and unrealized gain 19,106,885 ----------- Net increase in net assets resulting from operations $19,512,764 =========== See accompanying notes to the financial statements. 15 GMO Growth Fund (A Series of GMO Trust) Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 405,879 $ 1,101,856 Net realized gain 19,154,008 35,847,656 Change in net unrealized appreciation (depreciation) (47,123) (1,539,965) ------------ ------------ Net increase in net assets resulting from operations 19,512,764 35,409,547 ------------ ------------ Distributions to shareholders from: Net investment income Class III (411,113) (1,131,539) ------------ ------------ Total distributions from net investment income (411,113) (1,131,539) ------------ ------------ Net realized gains Class III (10,657,405) (37,976,729) ------------ ------------ Total distributions from net realized gains (10,657,405) (37,976,729) ------------ ------------ (11,068,518) (39,108,268) ------------ ------------ Net share transactions: (Note 5) Class III 2,898,189 (41,140,532) ------------ ------------ Increase (decrease) in net assets resulting from net share transactions 2,898,189 (41,140,532) ------------ ------------ Total increase (decrease) in net assets 11,342,435 (44,839,253) Net assets: Beginning of period 158,084,241 202,923,494 ------------ ------------ End of period (including accumulated undistributed net investment income of $87,966 and $93,200, respectively) $169,426,676 $158,084,241 ============ ============
16 See accompanying notes to the financial statements. 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, 1999 ---------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 4.14 $ 4.38 $ 5.18 $ 5.65 $ 4.45 $ 4.14 --------- --------- --------- --------- --------- --------- Income from investment operations: Net investment income 0.01 0.03 0.04 0.07 0.08 0.06 Net realized and unrealized gain 0.51 0.89 1.41 1.03 1.54 0.38 --------- --------- --------- --------- --------- --------- Total from investment operations 0.52 0.92 1.45 1.10 1.62 0.44 --------- --------- --------- --------- --------- --------- Less distributions to shareholders: From net investment (0.01) (0.03) (0.06) (0.08) (0.07) (0.06) income From net realized gains (0.29) (1.13) (2.19) (1.49) (0.35) (0.07) --------- --------- --------- --------- --------- --------- Total distributions (0.30) (1.16) (2.25) (1.57) (0.42) (0.13) --------- --------- --------- --------- --------- --------- Net asset value, end of period $ 4.36 $ 4.14 $ 4.38 $ 5.18 $ 5.65 $ 4.45 ========= ========= ========= ========= ========= ========= Total Return (a) 12.58% 22.90% 36.37% 21.64% 37.77% 10.86% Ratios/Supplemental Data: Net assets, end of period (000's) $169,427 $158,084 $202,923 $244,183 $391,366 $239,006 Net expenses to average daily net assets 0.48%* 0.48% 0.48% 0.48% 0.48% 0.48% Net investment income to average daily net assets 0.48%* 0.64% 0.79% 1.21% 1.54% 1.50% Portfolio turnover rate 24% 50% 60% 100% 76% 139% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(b) $ 0.01 $ 0.01 $ 0.01 --(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. * Annualized. See accompanying notes to the financial statements. 17 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. The Fund's current benchmark is the Russell 1000 Growth Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Futures contracts The Fund may purchase and sell futures contracts on 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 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 entering into 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 and agency 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 18 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- price established each day by the board of trade or exchange on which they are traded. See Note 6 for all open futures contracts as of August 31, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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 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, 1999, the Fund loaned securities having a market value of $7,161,900, collateralized by cash in the amount of $7,418,009, 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. The Fund also enters into contracts for differences in which the Fund agrees with the counterparty that its return will be based on the relative performance of two different groups or "baskets" of securities, adjusted by an interest rate payment. 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 will be 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 all open swap agreements as of August 31, 1999. 19 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 are 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 dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .14 % of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $2,198 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 .33% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. 20 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999 was $920. 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, 1999, aggregated $37,591,188 and $51,572,480, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ---------------- ---------------- --------------- $133,267,909 $50,764,749 $6,075,510 $44,689,239 4. Principal shareholders At August 31, 1999, 81.4% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 21 GMO Growth Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 ----------------------------- ------------------------------ Shares Amount Shares Amount ------------- -------------- ------------- -------------- Shares sold 350,212 $ 1,570,109 735,556 $ 3,204,280 Shares issued to shareholders in reinvestment of 2,503,580 11,040,782 9,514,574 39,000,762 distributions Shares repurchased (2,194,997) (9,712,702) (18,430,431) (83,345,574) ============= ============== ============= ============== Net increase (decrease) 658,795 $ 2,898,189 (8,180,301) $ (41,140,532) ============= ============== ============= ==============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Long futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Depreciation --------------- --------------- ---------------- -------------------- ----------------- 23 Russell 2000 September 1999 $ 4,926,600 $ (178,823) 18 S&P 500 September 1999 5,939,100 (276,725) ================= $ (455,548) =================
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. 22 GMO Domestic Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Domestic Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------ DEBT OBLIGATIONS -- 103.2% Asset Backed Securities -- 37.1% $15,000,000 Augusta Funding Ltd X, 144A, Variable Rate, 3mo. LIBOR + .25%, 5.58%, due 6/30/17 14,189,063 1,420,155 Constellation 99-1A, 144A, 5.73%, due 4/18/02 1,420,155 2,792,308 Great Point CBO Ltd. Series 98-1A Class A1, 144A, Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due 10/15/10 2,768,748 10,000,000 JC Penney Master Credit Card Trust Series E Class A, 5.50%, due 6/15/07(a) 9,436,328 4,841,760 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due 7/15/09 4,724,498 17,000,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%, due 6/01/03 16,813,000 243,767 Resolution Trust Corp 94-C1 Class A1, Variable Rate, 1 mo. LIBOR + .45%, 5.64%, due 6/25/26 243,728 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Variable Rate, Step Up, 6.33%, due 9/15/09 5,073,438 2,637,000 SMS Student Loan Trust 94-B Certificates, Variable Rate, 1 mo. LIBOR + .75%, 5.91%, due 10/25/23 2,638,582 4,932,000 SMS Student Loan Trust 95-A Certificates, Variable Rate, 1 mo. LIBOR + .65%, 5.99%, due 4/25/25 4,921,150 8,000 Society Student Loan Trust 93-A Class B, Variable Rate, 1 mo. LIBOR + .75%, 5.93%, due 7/25/03 8,014 -------------- 62,236,704 -------------- Corporate Debt -- 1.1% 1,000,000 Banco Santander, 6.50%, due 11/01/05 948,750 1,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, due 5/15/10 905,000 -------------- 1,853,750 -------------- Foreign Government Obligations -- 4.9% 25,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(b) 4,644,618 20,000,000 Republic of Ecuador Discount Bond Series A Receipts, Zero Coupon, due 2/28/25(b) 3,574,318 -------------- 8,218,936 -------------- U.S. Government -- 0.3% 506,705 U.S. Treasury Inflation Indexed Note, 3.88%, due 1/15/09(c) 499,659 -------------- U.S. Government Agency -- 59.8% 10,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.41%, due 2/01/27 9,800,000 7,750,000 Agency for International Development Floater (Support of Jamaica), Variable Rate, 6 mo. LIBOR + .30%, 6.19%, due 12/01/14 7,691,875
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, 1999 (Unaudited)
Par Value Description Value ($) - ----------------------------------------------------------------------------------------------- U.S. Government Agency -- continued $6,288,667 Agency for International Development Floater (Support of Jamaica), Variable Rate, 6 mo. U.S. Treasury Bill + .75%, 5.96%, due 3/30/19 6,241,502 15,000,000 Agency for International Development Floater (Support of Morocco), Variable Rate, 6 mo. LIBOR + .15%, 6.05%, due 10/29/26 14,737,500 20,000,000 Agency for International Development Floater (Support of Morocco), Variable Rate, 6 mo. LIBOR - .015%, 5.88%, due 2/01/25 19,200,000 25,000,000 Agency for International Development Floater (Support of Portugal), Variable Rate, 6 mo. LIBOR, 5.89%, due 1/01/21 24,968,749 9,035,000 Agency for International Development Floater (Support of Sri Lanka), Variable Rate, 6 mo. LIBOR + .20%, 6.09%, due 6/15/12 8,967,238 9,166,668 Agency for International Development Floater (Support of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.14%, due 1/01/12 8,800,001 ------------- 100,406,865 ------------- TOTAL DEBT OBLIGATIONS (COST $176,194,123) 173,215,914 ------------- Shares PREFERRED STOCKS -- 5.1% ----------- Preferred Stocks-- 5.1% 10,000 Home Ownership Funding 2 Preferred 144A, 13.338% 8,564,270 ------------- TOTAL PREFERRED STOCKS (COST $10,008,080) 8,564,270 ------------- Shares/ Par Value ($) SHORT-TERM INVESTMENTS -- 4.6% -------------- Cash Equivalents -- 3.2% $1,452,632 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(d) 1,452,632 3,937,368 Merrimac Cash Fund Premium Class(d) 3,937,368 ------------- 5,390,000 ------------- Commercial Paper -- 1.3% $2,222,000 Merrill Lynch, 5.55%, due 9/01/99 2,222,000 ------------- Repurchase Agreements -- 0.1% $ 94,089 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $94,101 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $95,971. 94,089 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $7,706,089) 7,706,089 -------------
2 See accompanying notes to the financial statements. GMO Domestic Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Value ($) --------- TOTAL INVESTMENTS -- 112.9% (Cost $193,908,292) 189,486,273 Other Assets and Liabilities (net) -- (12.9)% (21,719,618) ------------ TOTAL NET ASSETS-- 100% $167,766,655 ============ Notes to the Schedule of Investments: Variable Rates -- The rates shown on variable rate notes are the current interest rates at August 31, 1999, which are subject to change based on the terms of the security, including varying reset dates. 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 has been segregated to cover collateral requirements on reverse repurchase agreements (Note 6). (b) Valued by management (Note 1). (c) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). (d) Represents investments of security lending collateral (Note 1). See accompanying notes to the financial statements. 3 GMO Domestic Bond Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $193,908,292) (Note 1) $189,486,273 Dividends and interest receivable 1,567,345 Receivable for variation margin on open futures contracts (Notes 1 and 6) 24,801 Receivable for expenses waived or borne by Manager (Note 2) 6,120 ------------ Total assets 191,084,539 ------------ Liabilities: Payable for investments purchased 14,776,967 Payable upon return of securities loaned (Note 1) 5,390,000 Payable to affiliate for (Note 2): Management fee 14,444 Shareholder service fee 21,524 Due to custodian 258 Payable for reverse repurchase agreements (Notes 1 and 6) 2,769,000 Payable for open swap contracts (Note 1 and 6) 313,600 Accrued expenses and other liabilities 32,091 ------------ Total liabilities 23,317,884 ------------ Net assets $167,766,655 ============ Net assets consist of: Paid-in capital $174,381,375 Accumulated undistributed net investment income 1,372,414 Accumulated net realized loss (3,289,300) Net unrealized depreciation (4,697,834) ------------ $167,766,655 ============ Net assets attributable to: Class III shares $167,766,655 ============ Shares outstanding: Class III 18,086,863 ============ Net asset value per share: Class III $ 9.28 ============
4 See accompanying notes to the financial statements. GMO Domestic bond Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $989) $ 4,525,616 Dividends 998,650 ----------- Total income 5,524,266 ----------- Expenses: Management fee (Note 2) 85,794 Interest expense (Notes 1 and 6) 170,401 Audit fees 19,049 Custodian and transfer agent fees 16,792 Legal fees 2,669 Trustees fees (Note 2) 829 Registration fees 364 Miscellaneous 1,292 Fees waived or borne by Manager (Note 2) (40,995) ----------- 256,195 Shareholder service fee (Note 2) Class III 128,685 ----------- Net expenses 384,880 ----------- Net investment income 5,139,386 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (421,098) Closed futures contracts 1,293,452 Closed swap contracts 1,248,182 ----------- Net realized gain 2,120,536 ----------- Change in net unrealized appreciation (depreciation) on: Investments (2,771,370) Open futures contracts (334,029) Open swap contracts (5,342,878) ----------- Net unrealized loss (8,448,277) ----------- Net realized and unrealized loss (6,327,741) ----------- Net decrease in net assets resulting from operations $(1,188,355) =========== See accompanying notes to the financial statements. 5 GMO Domestic Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ----------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 5,139,386 $ 16,849,450 Net realized gain 2,120,536 1,274,151 Change in net unrealized appreciation (depreciation) (8,448,277) (2,987,171) ------------- ------------- Net increase (decrease) in net assets resulting from operations (1,188,355) 15,136,430 ------------- ------------- Distributions to shareholders from: Net investment income Class III (5,087,220) (18,501,522) ------------- ------------- Total distributions from net investment income (5,087,220) (18,501,522) ------------- ------------- Net realized gains Class III (326,983) (4,552,278) ------------- ------------- Total distributions from net realized gains (326,983) (4,552,278) ------------- ------------- In excess of net realized gains Class III -- (5,488,875) ------------- ------------- Total distributions in excess of net realized gains -- (5,488,875) ------------- ------------- (5,414,203) (28,542,675) ------------- ------------- Net share transactions: (Note 5) Class III (701,457) (242,933,466) ------------- ------------- Decrease in net assets resulting from net share transactions (701,457) (242,933,466) ------------- ------------- Total decrease in net assets (7,304,015) (256,339,711) Net assets: Beginning of period 175,070,670 431,410,381 ------------- ------------- End of period (including accumulated undistributed net investment income of $1,372,414 and $1,320,248, respectively) $ 167,766,655 $ 175,070,670 ============= =============
6 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, 1999 ----------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995* ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 9.65 $ 10.26 $ 10.18 $ 10.40 $ 10.13 $ 10.00 --------- --------- --------- --------- --------- --------- Income from investment operations: Net investment income 0.29 0.68 0.67 0.58 0.66 0.24 Net realized and unrealized gain (loss) (0.35) (0.15) 0.38 (0.09) 0.58 0.07 --------- --------- --------- --------- --------- --------- Total from investment operations (0.06) 0.53 1.05 0.49 1.24 0.31 --------- --------- --------- --------- --------- --------- Less distributions to shareholders: From net investment income (0.29) (0.68) (0.70) (0.60) (0.60) (0.18) From net realized gains (0.02) (0.21) (0.27) (0.08) (0.37) -- In excess of net realized gains -- (0.25) -- (0.03) -- -- --------- --------- --------- --------- --------- --------- Total distributions (0.31) (1.14) (0.97) (0.71) (0.97) (0.18) --------- --------- --------- --------- --------- --------- Net asset value, end of period $ 9.28 $ 9.65 $ 10.26 $ 10.18 $ 10.40 $ 10.13 ========= ========= ========= ========= ========= ========= Total Return (a) (0.59)% 5.03% 10.71% 4.93% 12.50% 3.16% Ratios/Supplemental Data: Net assets, end of period (000's) $ 167,767 $ 175,071 $ 431,410 $ 570,862 $ 310,949 $ 209,377 Net operating expenses to average daily net 0.25%** 0.25% 0.25% 0.25% 0.25% 0.25%** assets Interest expense to average daily net 0.20%** 0.02% -- -- -- -- assets Total net expenses to average daily net 0.45%** 0.27% 0.25% 0.25% 0.25% 0.25%** assets Net investment income to average daily net 5.99%** 6.21% 6.14% 6.15% 6.52% 6.96%** assets Portfolio turnover rate 16% 17% 59% 25% 70% 65% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per --(b) $ 0.02 $ 0.02 $ 0.02 $ 0.01 $ 0.01 share amounts:
(a) 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. * For the period from August 18, 1994 (commencement of operations) to February 28, 1995. ** Annualized. See accompanying notes to the financial statements. 7 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. investment grade securities. The Fund's current benchmark is the Lehman Brothers Government Bond Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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. Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by principal market makers may differ from the value that would be realized if the securities were sold and the differences could be material to the financial statements. 8 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 entering into 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 and agency 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 as of August 31, 1999. Options The Fund may write call and put options on securities it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999, the Fund had no written option contracts outstanding. 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 9 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had entered into reverse repurchase agreements having a market value of $2,769,000, collateralized by securities with a market value of $2,830,898. See Note 6 for a summary of open reverse repurchase agreements as of August 31, 1999. 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. Security lending The Fund may lend its securities to 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, 1999, the Fund loaned securities having a market value of $5,218,455, collateralized by cash in the amount of $5,390,000, which was invested in short-term instruments. 10 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 may enter into interest rate and total return swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments 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. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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 the open swap agreement as of August 31, 1999. 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 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 dividends 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. 11 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Dividend income is recorded on the ex-dividend date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any increase in the principal or face amount of the securities adjusted for inflation is recorded as interest income. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .10% of average daily net assets. The Fund has adopted a Shareholder Service 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 average daily net assets at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .25% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .10% 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, 1999, was $829. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 12 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 3. Purchases and sales of securities For the six months ended August 31, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------ ----------------- U.S. Government securities $ 1,002,341 $ 1,004,246 Investments (non-U.S. Government securities) 33,560,141 27,149,242
At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation --------------------- ----------------------- --------------------- -------------------- $193,908,292 $549,099 $4,971,118 $4,422,019
4. Principal shareholders At August 31, 1999, 28.4% 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, 1999 February 28, 1999 ------------------------------ ------------------------------ Class III: Shares Amount Shares Amount -------------- -------------- ------------- --------------- Shares sold 1,112,259 $ 10,571,743 7,444,098 $ 76,654,884 Shares issued to shareholders in reinvestment of 436,592 4,105,769 2,308,399 23,190,329 distributions Shares repurchased (1,612,823) (15,378,969) (33,636,371) (342,778,679) -------------- -------------- ------------- --------------- Net decrease (63,972) $ (701,457) (23,883,874) $(242,933,466) ============== ============== ============= ===============
13 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Short futures contracts
Number of Net Unrealized Contracts Type Expiration Date Contract Value Appreciation ----------- ------------------------ ------------------ ----------------- ---------------- 316 U.S. Treasury Bond 5 Yr. December 1999 $ 34,108,250 $ 37,447 1 U.S. Treasury Note 10 Yr. December 1999 109,359 338 --------------- $ 37,785 ===============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any commitments or margin on open futures contracts. Reverse repurchase agreements
Face Value Description Market Value ---------- ----------- ------------ $ 2,769,000 Bear Stearns, 5.40%, dated 8/25/99, to be repurchased at $2,772,333 on 9/02/99. $ 2,769,000 =============== Average balance outstanding................................................ $ 12,271,932 Average interest rate...................................................... 5.12% Maximum balance outstanding................................................ $ 17,267,632 Average shares outstanding................................................. 17,842,280 Average balance per share outstanding...................................... $ .69
Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund had entered into reverse repurchase agreements. 14 GMO Domestic Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Total return swap agreements
Net Unrealized Notional Expiration Appreciation/ Amount Date Description (Depreciation) --------------- ------------- ---------------------------------------------- --------------- $25,000,000 11/12/00 Agreement with Morgan Guaranty Trust Company $ 191,020 dated 11/09/98 to receive (pay) the notional amount multiplied by the return on the Lehman Aggregate Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. 100,000,000 6/01/01 Agreement with Lehman Brothers Special (504,620) Financing Inc. dated 5/20/99 to receive (pay) the notional amount multiplied by the return on the Lehman Brothers US Government Bond Index and to pay the notional amount multiplied by 1 month LIBOR adjusted by a specified spread. -------------- $ (313,600) ==============
15 GMO Emerging Country Debt Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ----------------------------------------------------------------------------------------------------------------------- Debt Obligations -- 76.4% Argentina -- 7.5% ARS 4,400,000 Provincia Corrientes Series 1, PIK, Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/09 1,375,138 ARS 2,500,000 Provincia Corrientes Series 2, PIK, Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/09 781,328 ARS 27,323,800 Republic of Argentina Bocon Pro 1, PIK, Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/07(a) 17,310,725 USD 6,500,000 Republic of Argentina Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/31/23 4,403,750 DEM 3,830,000 Republic of Argentina Discount Bond, Variable Rate, 6 mo. DEM LIBOR + .81%, 3.44%, due 3/31/23 1,303,153 ARS 27,436,201 Republic of Argentina Certificates, 6.00%, due 4/15/06 14,885,628 ARS 35,134,370 Republic of Argentina Pro 1 Co-Participation Rights, Variable Rate, 1 mo. Peso Deposit Rate, 2.77%, due 4/01/07 16,479,667 USD 2,000,000 Republic of Argentina Pro 4, Variable Rate, 1 mo. LIBOR, 5.36%, due 12/28/10 1,602,000 ------------- 58,141,389 ------------- Bosnia & Herzegovina -- 0.3% DEM 25,244,000 Bosnia & Herzegovina Series A, Step Up, 2.00%, due 12/11/17 2,385,901 DEM 12,335,000 Bosnia & Herzegovina Series B, Zero Coupon, due 12/11/17 133,237 ------------- 2,519,138 ------------- Brazil -- 15.0% USD 7,555,166 Brazil Capitalization Bond, PIK, 8.00%, due 4/15/14 4,533,099 USD 24,000,000 Brazil DCB (Bearer), Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/12 13,680,000 USD 525,000 Brazil Discount ZL Bond, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 4/15/24 313,688 USD 13,000,000 Brazil FLIRB (Bearer), Variable Rate, Step Up, 5.00%, due 4/15/09 7,280,000 USD 52,320,000 Brazil FLIRB (Registered), Variable Rate, Step Up, 5.00%, due 4/15/09 29,299,200 USD 11,966,415 Brazil MYDFA Trust Certificates, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 9/15/07 7,748,254 USD 81,000,000 Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 53,459,999 ------------- 116,314,240 -------------
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, 1999 (Unaudited)
Par Value Description Value ($) - ---------------------------------------------------------------------------------------------------------------------------- Bulgaria -- 4.0% USD 6,551,707 Bulgaria Discount Bond Series B, Variable Rate, 6 mo. LIBOR + 1.31%, 7.00%, due 7/28/24 4,389,644 USD 18,000,000 Bulgaria Discount Series B Interest Strips, Basket 2, 0.00%, due 7/28/24 2,061,000 USD 39,844,572 Bulgaria FLIRB Series B, Variable Rate, Step Up, 3.25%, due 7/28/12 24,105,966 USD 5,000,000 Bulgaria Par Bond, Series B Strips, Tranche B, 0.00%, due 7/28/24 572,500 ------------- 31,129,110 ------------- Costa Rica -- 0.1% USD 1,000,000 Central Bank of Costa Rica Principal Bond Series A, 6.25%, due 5/21/10 820,000 ------------- Dominican Republic -- 1.4% USD 17,957,000 Dominican Republic Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 8/30/24 10,774,200 ------------- Ecuador -- 4.9% USD 43,465,000 Republic of Ecuador Discount Bond (Global Registered), Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/28/25 15,104,088 USD 24,000,000 Republic of Ecuador Par Bond, Variable Rate, Step Up, 4.00%, due 2/28/25 7,500,000 USD 26,430,745 Republic of Ecuador PDI (Global Bearer Capitalization Bond), PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/27/15 6,079,071 USD 40,789,509 Republic of Ecuador PDI (Registered), PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/27/15 9,381,587 ------------- 38,064,746 ------------- Ivory Coast -- 3.8% FRF 25,000,000 Ivory Coast Discount Bond, Variable Rate, Step Up, 3.00%, due 3/31/28 1,368,771 FRF 538,720,000 Ivory Coast FLIRB, Variable Rate, Step Up, 2.00%, due 3/29/18 17,350,221 FRF 263,649,750 Ivory Coast PDI, Variable Rate, Step Up, 1.90%, due 3/29/18 11,038,565 ------------- 29,757,557 ------------- Jordan -- 3.7% USD 8,894,737 Hashemite Kingdom of Jordan IAB, 144A, Variable Rate, 6 mo. LIBOR + .81%, 6.19%, due 12/23/05 8,135,835
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, 1999 (Unaudited)
Par Value Description Value ($) - ---------------------------------------------------------------------------------------------------------------------------- Jordan -- continued USD 25,780,215 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 5.50%, due 12/23/23 14,436,920 USD 11,000,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 6,270,000 ------------- 28,842,755 ------------- Macedonia -- 1.2% USD 23,179,272 Macedonia Capitalization Bond, PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.39%, due 7/02/12 9,387,606 ------------- Mexico -- 14.6% USD 19,000 Mexico Discount Bond Series A, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 12/31/19 14,773 USD 26,500,000 Mexico Discount Bond Series D, Variable Rate, 6 mo. LIBOR + .81%, 6.07%, due 12/31/19 21,995,000 DEM 30,000,000 Mexico Discount Bond, Variable Rate, 6 mo. DEM LIBOR + .81%, 3.49%, due 12/31/19 11,827,700 FRF 335,250,000 Mexico Par Bond, 6.63%, due 12/31/19 42,378,965 CHF 72,000,000 Mexico Par Bond, 3.75%, due 12/31/19 27,324,929 USD 3,000,000 Mexico Par Bond, Series A, 6.25%, due 12/31/19 2,145,000 USD 10,659,000 Mexico Par Bond, Series B, 6.25%, due 12/31/19 7,613,235 ------------- 113,299,602 ------------- Nigeria -- 3.4% USD 28,750,000 Central Bank of Nigeria Par Bond, Variable Rate, Step Up, 6.25%, due 11/15/20 16,675,000 USD 17,835,440 Nigeria Odd Lot, Variable Rate, 6.25%, due 11/15/20(a) 9,452,781 ------------- 26,127,781 ------------- Peru -- 2.2% USD 4,325,000 Peru Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/08/27 2,573,375 USD 7,775,000 Peru FLIRB, Variable Rate, Step Up, 3.75%, due 3/07/17 3,955,531 USD 5,150,000 Peru FLIRB, Variable Rate, Step Up, 144A, 3.75%, due 3/07/17 2,620,063 USD 14,000,000 Peru Par Bond, Variable Rate, Step Up, 3.00%, due 3/07/27 6,020,000 USD 3,200,000 Peru PDI, Variable Rate, Step Up, 4.50%, due 3/07/17 1,860,000 ------------- 17,028,969 -------------
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, 1999 (Unaudited)
Par Value Description Value ($) - ---------------------------------------------------------------------------------------------------------------------------- Qatar -- 0.3% USD 2,000,000 State of Qatar, 9.50%, due 5/21/09 2,035,000 ------------- Russia -- 0.3% RUB 17,435,150 Russia Federal Loan Bond Series 25021, 15.00%, due 1/17/01 34,752 RUB 107,450,000 Russia Federal Loan Bond Series 25023, 14.00%, due 9/12/01 214,172 RUB 35,910,546 Russia Federal Loan Bond Series 26003, 10.00%, due 3/15/05 271,995 USD 9,623,679 Russia Vnesheconombank IAN, Variable Rate, 6 mo. LIBOR + .81%, due 12/15/15* 1,389,419 ------------- 1,910,338 ------------- South Korea -- 0.8% USD 6,000,000 Export Import Bank of Korea, 7.10%, due 3/15/07 5,829,600 ------------- Supra National -- 0.8% ZAR 250,000,000 International Bank for Reconstruction and Development, Zero Coupon, due 5/14/12 6,449,359 ------------- Tunisia -- 1.0% JPY 200,000,000 Banque Centrale De Tunisie, 4.35%, due 8/15/17 1,532,218 JPY 800,000,000 Banque National Development Touristique, 4.75%, due 6/09/17 6,055,908 ------------- 7,588,126 ------------- United States -- 3.9% Asset Backed Securities -- 2.6% USD 715,164 Americredit Automobile Receivables Trust 97-C Class A2, Variable Rate, 1 mo. LIBOR + .10%, 5.31%, due 3/05/01 714,807 USD 15,000,000 Dreamworks Film Trust Series 1 Class A, Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 14,964,844 USD 5,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due 6/15/10 4,647,500 ------------- 20,327,151 ------------- U.S. Government Agency -- 1.3% USD 1,125,125 Agency for International Development Floater (Support of C.A.B.E.I.), Variable Rate, 6 mo. U.S. Treasury Bill + .40%, 5.61%, due 10/01/12 1,091,371 USD 9,000,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 8,590,500 ------------- 9,681,871 ------------- Total United States 30,009,022 -------------
See accompanying notes to the financial statements. 4 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------- Venezuela -- 6.0% USD 1,753,423 Republic of Venezuela DCB DL Odd Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/08 1,231,780 USD 1,192,035 Republic of Venezuela DCB IL, Odd Lot Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/08 807,604 USD 16,852,032 Republic of Venezuela DCB IL, Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/08 11,417,252 USD 5,000,000 Republic of Venezuela Discount Bond Series A, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 3/31/20 3,100,000 USD 464,001 Republic of Venezuela FLIRB Series A, Variable Rate, 6 mo. LIBOR + .88%, 6.00%, due 3/31/07 314,277 USD 288,001 Republic of Venezuela FLIRB Series B Odd Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.00%, due 3/31/07 197,856 CHF 30,476,192 Republic of Venezuela FLIRB, Variable Rate, 6 mo. CHF LIBOR + .88%, 2.19%, due 3/31/07 12,618,121 USD 9,498,223 Republic of Venezuela New Money Bond Series A Odd Lot, Variable Rate, 6 mo. LIBOR + 1%, 6.44%, due 12/18/05 6,553,774 USD 6,653,064 Republic of Venezuela New Money Bond Series A, Variable Rate, 6 mo. LIBOR + 1%, 6.44%, due 12/18/05 4,590,614 USD 919,578 Republic of Venezuela New Money Bond Series B Odd Lot, Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/05 634,508 DEM 1,180,000 Republic of Venezuela New Money Bond Series B, Variable Rate, 6 mo. LIBOR + .88%, 3.56%, due 12/18/05 407,867 FRF 39,175,000 Republic of Venezuela Par Bond, 7.71%, due 3/31/20 4,179,331 ============= 46,052,984 ============= Vietnam -- 1.2% USD 3,000,000 Vietnam Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 5.94%, due 3/13/28 1,500,000 USD 19,000,000 Vietnam Par Bond, Variable Rate, Step Up, 3.00%, due 3/12/28 5,391,250 USD 6,591,000 Vietnam PDI, Variable Rate, Step Up, 3.50%, due 3/14/16 2,669,355 ============= 9,560,605 ------------- TOTAL DEBT OBLIGATIONS (Cost $665,138,613) 591,642,127 =============
See accompanying notes to the financial statements. 5 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------- LOAN ASSIGNMENTS -- 13.4% Algeria -- 4.9% JPY 376,793,704 Algeria Tranche 1, JPY 6 mo. LIBOR + .8125%, (1.125%) 1,443,325 USD 3,342,857 Algeria Tranche 2, 6 mo. LIBOR + .8125%, (6.00%) 2,223,000 FRF 90,564,324 Algeria Tranche 3, FRF 6 mo. LIBOR + 8.125%, (3.9375%) 5,979,335 JPY 8,431,773,548 Algeria Tranche 3, JPY LIBOR + .8125%, (1.125%) 28,453,247 ------------- 38,098,907 ------------- Cameroon -- 0.0% FRF 18,396,841 Republic of Cameroon Tranche B* 325,873 ------------- 325,873 ------------- Congo Republic -- 0.4% EUR 8,195,761 Republic of Congo Loan Agreement* 822,432 USD 4,179,127 Republic of Congo Loan Agreement* 438,808 FRF 102,097,964 Republic of Congo Loan Agreement* 1,561,898 USD 1,116,117 Republic of Congo Loan Agreement* 117,192 ------------- 2,940,330 ------------- Morocco -- 2.1% JPY 2,522,692,281 Morocco Restructuring and Consolidating Agreement Tranche A, Long Term Prime + .1175% (2.3175%) 15,932,915 ------------- 15,932,915 ------------- Russia -- 6.0% DEM 15,000,000 International Bank For Economic Cooperation Loan Agreement* 567,082 EUR 5,000,000 International Bank For Economic Cooperation Loan Agreement* 475,335 DEM 5,208,190 Russia Foreign Trade Obligations(a)* 214,478 USD 406,440,310 Russia Vnesh Restructured Loan Agreements* 45,216,483 ------------- 46,473,378 ------------- Yugoslavia -- 0.0% USD 1,400,368 Yugoslavia New Financing Agreement Tranche A* 70,018 USD 1,499,573 Yugoslavia New Financing Agreement Tranche C* 74,978 ------------- 144,996 ------------- TOTAL Loan Assignments (Cost $256,299,334) 103,916,399 -------------
6 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------ LOAN PARTICIPATIONS -- 3.5% Algeria -- 0.1% JPY 118,636,364 Algeria Tranche 1. JPY 6 mo. LIBOR + .8125%, (1.125%), (Participation with Bank of America) 454,442 ------------- Cameroon -- 0.2% NLG 28,052,902 Cameroon Loan Agreement, (Participation with Bank of America and Salomon)* 1,479,120 ------------- Indonesia -- 0.4% USD 1,600,000 Republic of Indonesia Loan Agreement, LIBOR + .625%, (5.6875%), (Participation with Salomon) 1,032,000 USD 1,900,000 Republic of Indonesia Loan Agreement, LIBOR + .625%, (5.6875%), (Participation with Salomon) 1,206,500 USD 1,860,000 Republic of Indonesia Loan Agreement, LIBOR + .625%, (5.6875%), (Participation with Salomon) 1,162,500 ------------- 3,401,000 ------------- Jamaica -- 0.5% USD 4,687,500 Jamaica Refinancing Agreement Tranche B, LIBOR + .8125%, (5.8125), (Participation with Chase Manhattan Bank and Salomon) 3,750,000 ------------- Morocco -- 2.2% JPY 2,350,901,665 Morocco Restructuring and Consolidating Agreement Tranche A, Long Term Prime + .1175%, (2.3175%), (Participation with J.P. Morgan and Chase Manhattan Bank) 14,847,913 JPY 347,700,763 Morocco Restructuring and Consolidating Agreement Tranche A, Long Term Prime + .2175%, (3.0175%), (Participation with J.P. Morgan) 2,196,022 ------------- 17,043,935 ------------- Russia -- 0.1% CHF 1,500,000 International Bank For Economic Cooperation Loan Agreement, (Participation with Oppenheimer)* 59,402 DEM 3,500,000 International Bank For Economic Cooperation Loan Agreement, (Participation with Salomon)* 132,319 JPY 900,000,000 International Investment Bank Loan Agreement, (Participation with Bank of America)* 738,748 ------------- 930,469 -------------
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, 1999 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------------ Yugoslavia -- 0.0% USD 2,100,416 Yugoslavia New Financing Agreement Tranche B, (Participation with Chase Manhattan Bank)* 105,021 USD 352,431 Yugoslavia New Financing Agreement Tranche C, (Participation with Chase Manhattan Bank)* 17,622 ------------- 122,643 ------------- TOTAL LOAN PARTICIPATIONS (Cost $31,694,333) 27,181,609 ------------- PROMISSORY NOTES -- 0.9% Kenya -- 0.6% GBP 5,058,280 Republic of Kenya Promissory Notes, 0.00%, due 7/30/01 -1/30/03(a) 4,917,477 ------------ Nigeria -- 0.2% USD 3,000,000 Nigeria Promissory Notes, 5.09%, due 1/05/10 1,140,000 ------------- Romania -- 0.1% USD 1,242,873 Romania Trade Finance Promissory Notes, 0.00%, due 6/05/01 - 12/05/01(a) 749,995 ------------- TOTAL PROMISSORY NOTES (Cost $8,144,138) 6,807,472 ------------- Shares ------------ RIGHTS AND WARRANTS -- 0.3% Argentina-- 0.0% 38,500 Republic of Argentina Warrants, Expires 2/25/00** 231,000 ------------- Mexico-- 0.3% 32,500 United Mexican States Warrants, Expires 2/18/00** 2,356,250 164,946,000 United Mexican States Warrants, Expires 6/30/03** -- ------------- 2,356,250 -------------
8 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - ----------------------------------------------------------------------------------------------- Nigeria -- 0.0% 44,255 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20** -- ------------- Venezuela -- 0.0% 74,355 Republic of Venezuela Recovery Warrants, Expires 04/15/20** -- ------------- TOTAL RIGHTS AND WARRANTS (Cost $2,416,250) 2,587,250 ------------- SHORT-TERM INVESTMENTS -- 0.5% Cash Equivalents -- 0.3% USD 113,303 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(c) 113,303 184,969 Merrimac Cash Fund Premium Class(c) 184,969 USD 2,000,000 Prudential Securities Group Inc, Master Note, 5.625%, due 3/10/00(c) 2,000,000 ------------- 2,298,272 ------------- Commercial Paper -- 0.2% USD 1,645,000 Merrill Lynch & Co., Inc., 5.55%, due 9/01/99 1,645,000 ------------- Repurchase Agreements -- 0.0% USD 1,032 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $1,032 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $1,052. 1,032 ------------- TOTAL SHORT-TERM INVESTMENTS (Cost $3,944,304) 3,944,304 ------------- TOTAL INVESTMENTS-- 95.0% (Cost $967,636,972) 736,079,161 Other Assets and Liabilities (net) -- 5.0% 38,394,735 ------------- TOTAL NET ASSETS -- 100% $ 774,473,896 =============
See accompanying notes to the financial statements. 9 GMO Emerging Country Debt Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited) Notes to the Schedule of Investments: DCB - Debt Conversion Bond FLIRB - Front Loaded Interest Reduction Bond IAB - Interest Arrears Bond IAN - Interest Arrears Note PIK - Payment In Kind PDI - Past Due Interest 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, 1999, which are subject to change based on the terms of the security, including varying reset dates. Currency Abbreviations: ARS - Argentinian Peso JPY - Japanese Yen CHF - Swiss Franc NLG - Netherlands Guilder DEM - German Mark RUB - Russian Ruble EUR - Euro TRL - Turkish Lira FRF - French Franc USD - United States Dollar GBP - British Pound ZAR - South African Rand (a) Valued by management (Note 1). (b) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). (c) Represents investments of security lending collateral (Note 1). * Non-performing. Borrower not currently paying interest. ** Non-income producing security. 10 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A Series of GMO Trust) Statement of Assets and Liabilities -- August 31, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $967,636,972) (Note 1) $736,079,161 Cash at interest on deposit at brokers (Note 1) 6,222,366 Receivable for open swap contracts (Notes 1 and 6) 23,876,168 Receivable for investments sold 692,092 Interest receivable 14,141,022 Receivable for expenses waived or borne by Manager (Note 2) 22,753 Receivable for closed swap contracts (Notes 1 and 6) 8,253 ------------ Total assets 781,041,815 ------------ Liabilities: Payable for investments purchased 487,500 Payable upon return of securities loaned (Note 1) 2,298,272 Net payable for open forward foreign currency contracts (Notes 1 and 6) 3,256,511 Payable for variation margin on open futures contracts (Notes 1 and 6) 12,893 Payable for Fund shares repurchased 68,275 Payable to affiliate for (Note 2): Management fee 228,919 Shareholder service fee 83,735 Accrued expenses and other liabilities 131,814 ------------ Total liabilities 6,567,919 ------------ Net assets $774,473,896 ============ Net assets consist of: Paid-in capital $953,957,676 Accumulated undistributed net investment income 28,688,862 Accumulated net realized gain 2,693,353 Net unrealized depreciation (210,865,995 ------------ $774,473,896 ============ Net assets attributable to: Class III shares $485,295,457 ============ Class IV shares $289,178,439 ============ Shares outstanding: Class III 67,373,696 ============ Class IV 40,144,106 ============ Net asset value per share: Class III $ 7.20 ============ Class IV $ 7.20 ============
See accompanying notes to the financial statements. 11 GMO Emerging Country Debt Fund (A Series of GMO Trust) Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $7,634) $ 49,652,189 ------------ Total income 49,652,189 ------------ Expenses: Management fee (Note 2) 1,446,875 Custodian fees 246,229 Audit fees 41,582 Legal fees 22,787 Transfer agent fees 17,664 Trustees fees (Note 2) 4,687 Registration fees 637 Miscellaneous 2,851 Fees waived or borne by Manager (Note 2) (90,208) ------------ 1,693,104 Shareholder service fee (Note 2) Class III 360,928 Class IV 172,765 ------------ Net expenses 2,226,797 ------------ Net investment income 47,425,392 ------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (1,470,482) Closed futures contracts 397,160 Closed swap contracts 3,835,129 Written options (10,985,695) Foreign currency, forward contracts and foreign currency related transactions 12,398,441 ------------ Net realized gain 4,174,553 ------------ Change in net unrealized appreciation (depreciation) on: Investments 14,744,996 Open futures contracts 531,971 Open swap contracts 2,709,187 Written options 10,871,437 Foreign currency, forward contracts and foreign currency related transactions (9,594,527) ------------ Net unrealized gain 19,263,064 ------------ Net realized and unrealized gain 23,437,617 ------------ Net increase in net assets resulting from operations $ 70,863,009 ============
See accompanying notes to the financial statements. 12 GMO Emerging Country Debt Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ----------------------- --------------------- Increase (decrease) in net assets: Operations: Net investment income $ 47,425,392 $ 80,159,030 Net realized gain (loss) 4,174,553 (59,206,097) Change in net unrealized appreciation (depreciation) 19,263,064 (318,647,695) --------------- --------------- Net increase (decrease) in net assets resulting from operations 70,863,009 (297,694,762) --------------- --------------- Distributions to shareholders from: Net investment income Class III (19,870,056) (7,987,181) Class IV (13,280,962) (9,997,511) --------------- --------------- Total distributions from net investment income (33,151,018) (17,984,692) --------------- --------------- Net realized gains Class III (784,344) (33,861,250) Class IV (522,530) (42,566,783) --------------- --------------- Total distributions from net realized gains (1,306,874) (76,428,033) --------------- --------------- In excess of net realized gains Class III -- (58,659) Class IV -- (73,741) --------------- --------------- Total distributions in excess of net realized gains -- (132,400) --------------- --------------- (34,457,892) (94,545,125) --------------- --------------- Net share transactions: (Note 5) Class III 15,512,306 168,649,238 Class IV (51,064,487) 226,245,142 --------------- --------------- Increase (decrease) in net assets resulting from net share transactions $ (35,552,181) $ 394,894,380 --------------- --------------- Total increase in net assets 852,936 2,654,493 Net assets: Beginning of period 773,620,960 770,966,467 --------------- --------------- End of period (including accumulated undistributed net investment income of $28,688,862 and $14,414,488, respectively) $ 774,473,896 $ 773,620,960 =============== ===============
See accompanying notes to the financial statements. 13 GMO Emerging Country Debt Fund (A series of GMO Trust) Financial Highlights (For Class III shares outstanding throughout the period) - --------------------------------------------------------------------------------
Six Months Ended Year Ended February 28/29, August 31, 1999 --------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995* ---------------- ------- --------- --------- --------- --------- Net asset value, beginning of period $ 6.89 $ 11.64 $ 14.09 $ 11.76 $ 8.39 $ 10.00 --------- --------- --------- --------- --------- --------- Income from investment operations: Net investment income 0.42+ 0.92+ 1.13+ 1.48 1.35 0.48 Net realized and unrealized gain (loss) 0.20 (4.41) 1.51 6.40 3.84 (1.59) --------- --------- --------- --------- --------- --------- Total from investment operations 0.62 (3.49) 2.64 7.88 5.19 (1.11) --------- --------- --------- --------- --------- --------- Less distributions to shareholders: From net investment income (0.30) (0.23) (0.84) (1.58) (1.17) (0.40) From net realized gains (0.01) (1.03) (4.25) (3.97) (0.65) -- In excess of net realized gains -- --(a) -- -- -- (0.10) --------- --------- --------- --------- --------- --------- Total distributions (0.31) (1.26) (5.09) (5.55) (1.82) (0.50) --------- --------- --------- --------- --------- --------- Net asset value, end of period $ 7.20 $ 6.89 $ 11.64 $ 14.09 $ 11.76 $ 8.39 ========= ========= ========= ========= ========= ========= Total Return (b) 8.96% (32.94)% 22.27% 74.32% 63.78% (11.65)% Ratios/Supplemental Data: Net assets, end of period (000's) $485,295 $450,336 $460,387 $555,452 $615,485 $243,451 Net expenses to average daily net assets 0.56%** 0.56% 0.53% 0.57% 0.50% 0.50%** Net investment income to average daily net 11.38%** 10.99% 8.62% 8.35% 12.97% 10.57%** assets Portfolio turnover rate 49% 272% 255% 152% 158% 104% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per --(c) 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.01 share amounts:
* For the period from April 19, 1994 (commencement of operations) to February 28, 1995. ** Annualized. + Computed using average shares outstanding throughout the period. (a) The distribution in excess of net realized gains was $.002. (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. (c) Fees and expenses waived or borne by the Manager were less than $0.01 per share. 14 See accompanying notes to the financial statements. GMO Emerging Country Debt Fund (A series of GMO Trust) Financial Highlights (For a Class IV share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended February 28, --------------- ------------------------ (Unaudited) 1999 1998 ** --------------- ---------- --------- Net asset value, beginning of period $ 6.90 $ 11.63 $ 10.99 -------- ------- -------- Income from investment operations: Net investment income 0.43+ 0.91+ 0.10+ Net realized and unrealized gain (loss) 0.19 (4.37) 0.54 -------- ------- -------- Total from investment operations 0.62 (3.46) 0.64 -------- ------- -------- Less distributions to shareholders: From net investment income (0.31) (0.24) -- From net realized gains (0.01) (1.03) -- In excess of net realized gains -- --(b) -- -------- ------- -------- Total distributions (0.32) (1.27) -- -------- ------- -------- Net asset value, end of period $ 7.20 $ 6.90 $ 11.63 ======== ======= ======== Total Return (a) 8.97% (32.82)% 5.82% Ratios/Supplemental Data: Net assets, end of period (000's) $289,178 $323,285 $310,580 Net expenses to average daily net assets 0.51%* 0.51% 0.50%* Net investment income to average daily net assets 11.60%* 10.87% 7.17%* Portfolio turnover rate 49% 272% 255% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: --(c) $ 0.02 --(c)
* Annualized. ** Period from January 9, 1998 (commencement of operations) to February 28, 1998. + 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) The distribution in excess of net realized gains was $.002. (c) Fees and expenses waived or borne by the Manager were less than $0.01 per share. See accompanying notes to the financial statements. 15 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 to earn high total return through investment in sovereign debt of developing countries in Asia, Latin America, the Middle East, Africa and Europe. The Fund's current benchmark is the J.P. Morgan Emerging Markets Bond Index Plus. The Fund offers two classes of shares: Class III and Class IV. 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 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 16 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by principal market makers may differ from the value that would be realized if the securities were sold 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 entering into 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 and agency 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 as of August 31, 1999. 17 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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 18 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 and credit risk. The Fund may enter into interest rate, total return and credit default swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent 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. Credit default swaps involve the payment of a specified rate based on the notional amount. The Fund receives payment upon a default of the underlying security. In connection with these agreements, cash or securities may be set aside as collateral by the Fund's custodian in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral, which is paid by the counterparty. At August 31, 1999, $6,222,366 in cash has been set aside. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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, 1999. 19 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had not entered into a reverse repurchase agreement. 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, 1999, the Fund loaned securities having a market value of $2,159,563 collateralized by cash in the amount of $2,298,272, 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 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. 20 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 dividends 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. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any increase in the principal or face amount of these securities adjusted for inflation is recorded as interest income. 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 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 of shares of the Fund 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. These fees will be reduced by 50% with respect to any portion of a purchase or redemption that is offset by a corresponding redemption or purchase, respectively, occurring on the same day. In addition, the purchase premium or redemption fee for the Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. These fees are allocated relative to each class' net assets on the share transaction date. Purchase premiums are included as part of each class' "shares sold" and redemption fees are included as part of each class' "shares repurchased", respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $308,785 in purchase premiums and $301,327 in redemption fees. There is no premium for reinvested distributions. 21 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 .35% of average daily net assets. The Fund has adopted a Shareholder Service 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 .15% for Class III shares and .10% for Class IV shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding custody fees, brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .35% 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, 1999, was $4,687. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 22 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, aggregated $378,254,653 and $391,606,022, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------- ------------------ ------------------ ---------------- $ 967,636,972 $ 23,313,939 $ 254,871,750 $ 231,557,811 4. Principal shareholders At August 31, 1999, 33.7% 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, including a class' portion of the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended August 31, 1999 February 28, 1999 ----------------------------- ----------------------------- Class III: Shares Amount Shares Amount -------------- -------------- -------------- -------------- Shares sold 7,722,221 $ 59,284,171 45,405,396 $ 367,745,404 Shares issued to shareholders in reinvestment of distributions 2,011,190 14,902,922 3,380,175 32,138,997 Shares repurchased (7,676,300) (58,674,787) (23,019,717) (231,235,163) -------------- -------------- -------------- -------------- Net increase 2,057,111 $ 15,512,306 25,765,854 $ 168,649,238 ============== ============== ============== ============== Six Months Ended Year Ended August 31, 1999 February 28, 1999 ----------------------------- ----------------------------- Class IV: Shares Amount Shares Amount -------------- -------------- -------------- -------------- Shares sold 4,699,412 $ 35,002,726 21,916,084 $ 239,168,023 Shares issued to shareholders in reinvestment of distributions 1,780,755 13,195,400 5,400,677 51,286,039 Shares repurchased (13,221,257) (99,262,613) (7,130,859) (64,208,920) -------------- -------------- -------------- -------------- Net increase (decrease) (6,741,090) $ (51,064,487) 20,185,902 $ 226,245,142 ============== ============== ============== ==============
23 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Short forward currency contracts
Net Unrealized Settlement Appreciation Date Deliver Units of Currency Value (Depreciation) --------------- ------------------ -------------------- --------------- ----------------- 10/14/99 CHF 66,400,000 $ 44,071,225 $ 945,724 10/15/99 EUR 92,500,000 98,056,933 1,195,567 9/23/99 GBP 1,500,000 2,412,632 (56,342) 9/09/99 JPY 8,000,000,000 73,065,400 (5,268,790) 10/07/99 ZAR 35,000,000 5,711,465 (72,670) ---------------- $ (3,256,511) ================ Short futures contracts Number Net Unrealized of Contract Appreciation Contracts Type Expiration Date Value (Depreciation) ----------- ------------------------------- ---------------- -------------- ---------------- 95 German Government Bond September 1999 $ 10,824,601 $ 621,636 6 Japanese Government Bond 10 yr March 2000 7,058,051 (14,027) ------------- $ 607,609 =============
At August 31, 1999, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 24 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Written option transactions
Puts Principal Amount of Contracts (000's omitted) Premiums ------------------ ---------------- Outstanding, beginning of period $ 17,500 $ 713,125 Options written -- -- Options exercised -- -- Options expired (17,500) (713,125) Options sold -- -- ------------------ ---------------- Outstanding, end of period $ -- $ -- ================== ================ Calls Principal Amount of Contracts (000's omitted) Premiums ------------------ ---------------- Outstanding, beginning of period $ 17,500 $ 836,938 Options written -- -- Options exercised -- -- Options expired -- -- Options sold (17,500) (836,938) ------------------ ---------------- Outstanding, end of period $ -- $ -- ================== ================
25 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- Credit Default Swaps 10,000,000 USD 9/15/00 Agreement with Morgan Guaranty Trust Company $ (286,611) dated 9/10/98 to pay 2.20% per year times the notional amount. The Fund receives payment only upon a default event in Poland, the notional amount times the difference between the par value and the then-market value of Republic of Poland Past Due Interest "PDI" Bond due 10/27/14. 15,000,000 USD 11/03/00 Agreement with Credit Suisse Financial (179,201) Products dated 10/29/97 to pay 3.45% per year times the notional amount. The Fund receives payment only upon a default event in Bulgaria, the notional amount times the difference between the purchase cost of 59.50 USD and the then-market value of Bulgaria FLIRB Note Series A due 7/28/12. 10,000,000 USD 11/07/00 Agreement with Credit Suisse Financial (51,220) Products dated 11/04/97 to pay 3.50% per year times the notional amount. The Fund receives payment only upon a default event in Brazil, the notional amount times the difference between the purchase cost of 74.75 USD and the then-market value of Brazil Debt Conversion "DCB" Bond due 4/15/12.
26 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 10,000,000 USD 12/18/00 Agreement with Morgan Guaranty Trust Company $ (193,469) dated 12/11/98 to pay 6.50% per year times the notional amount. The Fund receives payment only upon a default event in Argentina, the notional amount times the difference between the par value and the then-market value of Republic of Argentina Floating Rate Bond due 3/31/05. 20,000,000 USD 3/01/01 Agreement with Morgan Guaranty Trust Company (665,153) dated 2/24/99 to pay 4.60% per year times the notional amount. The Fund receives payment only upon a default event in Bulgaria, the notional amount times the difference between the par value and the then-market value of Bulgaria IAB Floating Rate Bond due 7/28/11. 21,500,000 USD 5/29/01 Agreement with Credit Suisse Financial 12,153,413 Products 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 the par value and the then-market value of Republic of Ecuador Past Due Interest "PDI" Floating Rate Note due 2/27/15. 47,000,000 USD 5/29/01 Agreement with Credit Suisse Financial 12,556,050 Products 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 the purchase cost of 60.25 USD and the then-market value of the Republic of Ecuador Past Due Interest "PDI" Floating Rate Note due 2/27/15.
27 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 25,000,000 USD 9/10/01 Agreement with Credit Suisse Financial $ 1,426,088 Products dated 9/05/97 to pay 1.75% per year times the notional amount. The Fund receives payment only upon a default event in Brazil, the notional amount times the difference between the purchase cost of 83.625 USD and the then-market value of Brazil Debt Conversion "DCB" Bond due 4/15/12. 15,000,000 USD 6/05/02 Agreement with Lehman Brothers International (442,721) (Europe) dated 5/25/99 to pay 3.75% per year times the notional amount. The Fund receives payment only upon a default event in Mexico, the notional amount times the difference between the purchase cost of 96.25 USD and the then-market value of United Mexican States, 9.875% due 1/15/07. 10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 5/12/98 227,681 to pay .75% per year times the notional amount. The Fund receives payment only upon a default event, the notional amount times the difference between the par value and the then-market value of any series of Banco Latinoamericano de Exportaciones S.A. Euro Medium Term Notes. 10,000,000 USD 5/15/03 Agreement with Banque Paribas dated 10/01/98 (539,967) to pay 3.50% per year times the notional amount. The Fund receives payment only upon a default event, the notional amount times the difference between the par value and the then-market value of any series of Banco Latinoamericano de Exportaciones S.A. Euro Medium Term Notes.
28 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 15,000,000 USD 6/20/03 Agreement with Goldman Sachs International $ 1,927,726 dated 1/14/99 to receive 11.60% per year times the notional amount. The Fund pays only upon a default event in Colombia, the notional amount times the difference between the par value and the then-market value of Republic of Colombia, 7.625% due 2/15/07. Interest Rate Swaps 2,400,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company (1,273) dated 6/03/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 3,300,000 CHF 6/10/05 Agreement with Credit Suisse Financial 2,323 Products dated 6/08/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 2,500,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company 218,620 dated 6/09/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 13,500,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company (10,076) dated 9/30/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread.
29 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- Total Return Swaps 16,818,200 USD/ 9/03/99 Agreement with Morgan Guaranty Trust Company $ 27,105 24,600,000 USD dated 6/01/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina Discount L Floating Rate Note due 3/31/23 and to pay initial market value multiplied by 3 month LIBOR adjusted by a specified spread. 15,677,924 USD/ 9/07/99 Agreement with Morgan Guaranty Trust Company 541,707 14,500,000 USD dated 8/2/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of United Mexican States, 11.50% due 5/15/26 and to pay initial market value multiplied by 2 month LIBOR adjusted by a specified spread. 10,024,743 USD/ 9/07/99 Agreement with Morgan Guaranty Trust Company 548,348 11,000,000 USD dated 8/3/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina, 11.75% due 4/07/09 and to pay initial market value multiplied by 2 month LIBOR adjusted by a specified spread. 24,239,854 USD/ 9/07/99 Agreement with Morgan Guaranty Trust Company (166,848) 26,000,000 USD dated 8/02/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina, 12.125% due 2/25/19 and to pay initial market value multiplied by 2 month LIBOR adjusted by a specified spread.
30 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 6,480,278 USD/ 9/15/99 Agreement with Morgan Guaranty Trust Company $ (73,654) 10,000,000 USD dated 8/11/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Venezuela, 9.25% due 9/15/27 and to pay initial market value multiplied by 5.25%. 7,462,292 USD/ 9/15/99 Agreement with Morgan Guaranty Trust Company (101,522) 7,000,000 USD dated 6/10/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Korea Republic, 8.875% due 4/15/08 and to pay initial market value multiplied by 3 month LIBOR adjusted by a specified spread. 4,407,968 USD/ 9/27/99 Agreement with Morgan Guaranty Trust Company 74,674 6,000,000 USD dated 8/24/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Brazilian Capitalization Floating Rate Note due 4/15/14 and to pay initial market value multiplied by 1 month LIBOR adjusted by a specified spread. 10,289,049 USD/ 9/27/99 Agreement with Deutsche Bank AG dated (17,953) 11,000,000 USD 8/24/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina, 11.75% due 4/07/09 and to pay initial market value multiplied by 1 month LIBOR adjusted by a specified spread.
31 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 11,511,889 USD/ 9/27/99 Agreement with Deutsche Bank AG dated $ 237,950 19,000,000 USD 8/24/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Bulgaria FLIRB Series A Floating Rate Note due 7/28/12 and to pay initial market value multiplied by 1 month LIBOR adjusted by a specified spread. 16,806,417 USD/ 10/01/99 Agreement with Morgan Guaranty Trust Company (673,678) 23,500,000 USD dated 6/24/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina Discount L Floating Rate Note due 3/31/23 and to pay initial market value multiplied by 4 month LIBOR adjusted by a specified spread. 11,050,948 USD/ 10/20/99 Agreement with Morgan Guaranty Trust Company 4,668 13,000,000 USD dated 8/18/99 to receive (pay) the notional amount multiplied by the change in market value (including accured interest) of Mexico Discount Floating Rate Note Series A due 12/31/19 and to pay initial market value multiplied by 1 month LIBOR adjusted by a specified spread. 4,694,227 USD/ 11/26/99 Agreement with Bank of America dated (2,701,112) 900,000,000,000 TRL 11/25/97 to receive the notional amount multiplied by the change in market value (including accrued interest) of Turkey Indexed Linked Bond due 11/26/99 and to pay initial market value multiplied by 3 month LIBOR adjusted by a specified spread.
32 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 14,010,944 USD/ 1/19/00 Agreement with Morgan Guaranty Trust Company $ (482,379) 22,000,000 USD dated 7/08/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Brazil Discount ZL Floating Rate Note due 4/15/24 and to pay initial market value multiplied by 6 month LIBOR adjusted by a specified spread. 15,427,083 USD/ 2/09/00 Agreement with Morgan Guaranty Trust Company 27,542 25,000,000 USD dated 8/11/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Brazil Discount ZL Floating Rate Note due 4/15/24 and to pay initial market value multiplied by 5.95%. 10,017,500 USD/ 2/14/00 Agreement with Morgan Guaranty Trust Company 352,698 15,000,000 USD dated 8/11/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina Discount L Floating Rate Note due 3/31/23 and to pay initial market value multiplied by 5.95%. 7,549,667 USD/ 2/18/00 Agreement with Morgan Guaranty Trust Company 61,901 11,000,000 USD dated 8/17/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Republic of Argentina Discount L Floating Rate Note due 3/31/23 and to pay initial market value multiplied by 6 month LIBOR adjusted by a specified spread.
33 GMO Emerging Country Debt Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements -- continued
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- ---------------------------------------------- --------------- 4,326,073 USD/ 2/29/00 Agreement with Morgan Guaranty Trust Company $ -- 7,000,000 USD dated 8/31/99 to receive (pay) the notional amount multiplied by the change in market value (including accrued interest) of Brazil Discount ZL Floating Rate Note due 4/15/24 and to pay initial market value multiplied by 1 month LIBOR adjusted by a specified spread. 15,000,000 USD 5/25/00 Agreement with Morgan Guaranty Trust Company 74,511 dated 5/25/99 to pay the notional amount multiplied by the return on the Merrill Lynch High Yield Corporate Index and to receive the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. --------------- $ 23,876,168 ===============
See Notes to the Schedule of Investments for definitions of currency abbreviations. 34 GMO International Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Debt Obligations -- 99.0% Argentina -- 0.7% USD 500,000 Republic of Argentina, 12.13%, due 2/25/19 463,750 USD 1,000,000 Republic of Argentina Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/31/23 677,500 -------------- 1,141,250 -------------- Australia -- 4.5% GBP 2,000,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 3,507,048 12/07/06 AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 9/14/07 1,809,699 USD 2,500,000 Westralia Airports Corp, 144A, 6.48%, due 4/01/10 2,324,500 -------------- 7,641,247 -------------- Brazil -- 1.4% USD 3,500,000 Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 2,310,000 -------------- Bulgaria -- 1.8% USD 1,000,000 Bulgaria Discount Bond Series B, Variable Rate, 6 mo. LIBOR + 1.31%, 7.00%, due 7/28/24 670,000 USD 5,000,000 Bulgaria Discount Series B Interest Strips, Basket 2, 0.00%, due 7/28/24 572,500 USD 10,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(a) 1,857,847 -------------- 3,100,347 -------------- Canada -- 8.7% CAD 750,000 Government of Canada, 10.25%, due 3/15/14 716,677 CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 3,848,412 CAD 3,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 2,192,079 CAD 2,000,000 Province of British Columbia, 7.88%, due 11/30/23 1,544,029 GBP 3,500,000 Province of Quebec, 8.62%, due 11/04/11 6,508,218 -------------- 14,809,415 -------------- Cayman Islands -- 7.3% GBP 2,000,000 BA Credit Card Corp Series 97-1, 7.13%, due 9/15/02 3,234,974 GBP 2,000,000 Chester Asset Receivables, Inc., Deal 2, Variable Rate, 3 mo. GBP LIBOR + .10%, 5.24%, due 6/15/01 3,211,498 CAD 2,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 1,424,742 USD 5,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, due 5/15/10 4,525,000 -------------- 12,396,214 --------------
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Chile -- 1.9% USD 3,500,000 Banco Santander, 6.50%, due 11/01/05 3,320,625 -------------- Ecuador -- 0.4% USD 2,000,000 Republic of Ecuador Par Bond, Variable Rate, Step Up, 4.00%, due 2/28/25 625,000 -------------- France -- 1.4% FRF 14,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 2,457,347 -------------- Germany -- 1.8% GBP 3,000,000 Schweiz Bankgesellschaft, Zero Coupon, due 3/31/06 3,145,248 -------------- Japan -- 9.0% GBP 2,000,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,429,864 GBP 2,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 3,563,328 2/16/05 USD 1,030,000 Japan Highway Public Corporation, 7.63%, due 9/22/04 1,063,475 GBP 4,000,000 Kobe City, 9.50%, due 10/20/04 7,190,975 -------------- 15,247,642 -------------- Jordan -- 0.5% USD 1,000,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 5.50%, due 12/23/23 560,000 USD 500,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 285,000 -------------- 845,000 -------------- Mexico -- 3.8% FRF 15,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,896,151 CHF 12,000,000 Mexico Par Bond, 3.75%, due 12/31/19 4,554,155 -------------- 6,450,306 -------------- New Zealand -- 2.0% NZD 6,800,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 3,479,952 -------------- Nigeria -- 0.4% USD 1,228,385 Central Bank of Nigeria Par Bond, Variable Rate, Step Up, 6.25%, due 11/15/20 651,044 -------------- Norway -- 0.5% SEK 6,300,000 A/S Eksportfinans, 7.50%, due 8/16/01 796,749 --------------
2 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Russia -- 0.0% USD 331,679 Russia Vnesheconombank IAN, Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due 12/15/15* 47,886 -------------- Supra National -- 3.2% AUD 14,000,000 European Bank for Reconstruction and Development, Zero Coupon, due 2/10/28 1,147,215 CAD 700,000 European Investment Bank, 8.50%, due 8/30/05 520,239 GBP 2,000,000 International Bank for Reconstruction and Development, 11.50%, due 11/09/03 3,801,312 -------------- 5,468,766 -------------- Sweden -- 7.1% SEK 20,000,000 Government of Sweden Index Linked Bond, 4.00%, due 2,422,085 12/01/20 SEK 76,600,000 Kingdom of Sweden, 6.00%, due 2/09/05 9,588,215 -------------- 12,010,300 -------------- United States -- 42.2% Asset Backed Securities -- 34.0% USD 5,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A, Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due 5/15/24 4,964,648 USD 3,000,000 American Express Credit Account Master Trust Series 98-1A, Variable Rate, 1 mo. LIBOR + .09%, 5.36%, due 1/17/06 2,984,414 USD 5,000,000 Augusta Funding Ltd X, 144A, Variable Rate, 3 mo. LIBOR + .25%, 5.58%, due 6/30/17 4,729,688 USD 5,000,000 Big Flower Receivables Master Trust 96-2 Class A, Variable Rate, LIBOR + .25%, 5.61%, due 4/25/03 4,912,500 USD 6,000,000 Circuit City Credit Card Master Trust 96-1 Class A, Variable Rate, 1 mo. LIBOR + .17%, 5.48%, due 10/15/06 5,973,516 USD 3,500,000 Discover Card Master Trust I Series 99-3 Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 9/15/04(b) 3,492,344 USD 5,000,000 Dreamworks Film Trust Series 1 Class A, Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 4,988,281 USD 4,841,760 Northstar CBO Ltd. Series 97-2 Class A2, 144A, 6.62%, due 7/15/09 4,724,498 USD 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Variable Rate, Step Up, 6.33%, due 9/15/09 5,073,438 USD 5,966,000 SMS Student Loan Trust 94-A Certificates, Variable Rate, 1 mo. LIBOR + .70%, 5.88%, due 7/26/21 5,961,227 USD 5,000,000 Society Student Loan Trust 93-A Class B, Variable Rate, 1 mo. LIBOR + .75%, 5.93%, due 7/25/03 5,009,000
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 5,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A, Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.83%, due 7/30/11 4,824,219 -------------- 57,637,773 -------------- Corporate Debt -- 1.0% SEK 14,000,000 Toyota Motor Credit, 7.50%, due 8/06/01 1,763,434 -------------- U.S. Government Agency -- 7.2% USD 2,500,990 Agency for International Development Floater (Support of Honduras), Variable Rate, 3 mo. U.S. Treasury Bill x 117%, 5.23%, due 10/01/11 2,413,455 USD 1,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.41%, due 2/01/27 980,000 USD 1,737,241 Agency for International Development Floater (Support of Morocco), Variable Rate, 6 mo. U.S. Treasury Bill + .45%, 5.66%, due 11/15/14 1,689,467 USD 3,276,433 Agency for International Development Floater (Support of Peru), Series A, Variable Rate, 6 mo. U.S. Treasury Bill + .35%, 5.56%, due 5/01/14 3,145,375 USD 166,667 Agency for International Development Floater (Support of Peru), Variable Rate, 3 mo. U.S. Treasury Bill x 114%, 5.21%, due 2/01/02 165,834 USD 4,000,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(c) 3,818,000 -------------- 12,212,131 -------------- Total United States 71,613,338 -------------- Venezuela -- 0.4% USD 1,000,000 Republic of Venezuela Discount Bond Series B, Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/31/20 620,000 -------------- TOTAL DEBT OBLIGATIONS (COST $174,636,068) 168,177,676 --------------
4 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- LOAN ASSIGNMENTS -- 0.7% Russia -- 0.7% USD 9,646,950 Russia Vnesh Restructured Loan Agreements* 1,073,223 -------------- TOTAL LOAN ASSIGNMENTS (COST $4,624,582) 1,073,223 -------------- Principal Amount ---------------- CALL OPTIONS PURCHASED -- 0.1% Options on Currency -- 0.1% USD 12,880,000 Euro, Expires 5/03/00, Strike 1.12 155,848 USD 6,300,000 Japanese Yen, Expires 11/16/99, Strike 112.70 58,590 -------------- 214,438 -------------- TOTAL CALL OPTIONS PURCHASED (COST $674,121) 214,438 -------------- PUT OPTIONS PURCHASED -- 0.4% Options on Currency -- 0.4% USD 12,305,000 Euro, Expires 5/03/00, Strike 1.07 396,221 USD 6,300,000 Japanese Yen, Expires 11/16/99, Strike 112.70 328,230 -------------- 724,451 -------------- TOTAL PUT OPTIONS PURCHASED (COST $455,351) 724,451 -------------- Shares ------ RIGHTS AND WARRANTS -- 0.0% Argentina -- 0.0% 1,000 Republic of Argentina Warrants, Expires 2/25/00** 6,000 -------------- Mexico -- 0.0% 10,614,000 United Mexican States Warrants, Expires 6/30/03** -- -------------- Nigeria -- 0.0% 1,227 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20** -- --------------
See accompanying notes to the financial statements. 5 GMO International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Venezuela -- 0.0% 7,140 Republic of Venezuela Recovery Warrants, Expires 04/15/20** -- -------------- TOTAL RIGHTS AND WARRANTS (COST $28,221) 6,000 -------------- SHORT-TERM INVESTMENTS -- 1.6% Cash Equivalents -- 0.3% USD 392,419 BankBoston Eurodollar Time Deposit, 5.4325%, due 392,419 10/29/99(d) 104,953 Merrimac Cash Fund Premium Class(d) 104,953 -------------- 497,372 -------------- Commercial Paper -- 1.3% USD 2,124,000 Merrill Lynch, 5.55%, due 9/01/99 2,124,000 -------------- Repurchase Agreements -- 0.0% USD 449 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $449 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $457. 449 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $2,621,821) 2,621,821 -------------- TOTAL INVESTMENTS -- 101.8% (Cost $183,040,164) 172,817,609 Other Assets and Liabilities (net)-- (1.8)% (2,979,952) -------------- TOTAL NET ASSETS-- 100% $ 169,837,657 ==============
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, 1999 (Unaudited)
Notes to the Schedule of Investments: CPI - Consumer Price Index EMTN - Euromarket Medium Term Note IAN - Interest Arrears Note 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, 1999, which are subject to change based on the terms of the security, including varying reset dates.
Currency Abbreviations AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc ITL - Italian Lira CAD - Canadian Dollar JPY - Japanese Yen CHF - Swiss Franc NZD - New Zealand Dollar EUR - Euro SEK - Swedish Krona FRF - French Franc USD - United States Dollar
(a) Valued by management (Note 1). (b) All or a portion of this security has been segregated to cover collateral requirements on the reverse repurchase agreement (Note 6). (c) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). (d) Represents investments of security lending collateral (Note 1). * Non-performing. Borrower not currently paying interest. ** Non-income producing security. See accompanying notes to the financial statements. 7 GMO International Bond Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $183,040,164) (Note 1) $172,817,609 Cash at interest on deposit at brokers (Note 1) 1,773,574 Foreign currency, at value (cost $40,067) (Note 1) 39,876 Interest receivable 3,570,862 Receivable for variation margin on open futures contracts (Notes 1 and 6) 99,323 Net receivable for open forward foreign currency contracts (Notes 1 and 6) 1,544,833 Receivable for expenses waived or borne by Manager (Note 2) 15,133 ------------ Total assets 179,861,210 ------------ Liabilities: Payable for investments purchased 4,925,278 Payable upon return of securities loaned (Note 1) 497,372 Written options outstanding, at value (premiums $869,022) (Notes 1 and 6) 335,160 Payable for open swap contracts (Notes 1 and 6) 456,864 Payable to affiliate for (Note 2): Management fee 35,895 Shareholder service fee 20,345 Interest payable for open swap contracts (Note 1) 255,158 Payable for reverse repurchase agreement (Notes 1 and 6) 3,394,000 Accrued expenses and other liabilities 103,481 ------------ Total liabilities 10,023,553 ------------ Net assets $169,837,657 ============ Net assets consist of: Paid-in capital $180,364,689 Accumulated undistributed net investment income 7,289,569 Accumulated net realized loss (7,826,133) Net unrealized depreciation (9,990,468) ============ $169,837,657 ============ Net assets attributable to: Class III shares $169,837,657 ============ Shares outstanding: Class III 17,732,326 ============ Net asset value per share: Class III $ 9.58 ============
8 See accompanying notes to the financial statements. GMO International Bond Fund (A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $311) $ 5,784,472 Dividends 165,875 ---------- Total income 5,950,347 ---------- Expenses: Management fee (Note 2) 218,596 Custodian and transfer agent fees 70,169 Interest expense (Notes 1 and 6) 43,596 Audit fees 27,422 Legal fees 2,950 Trustees fees (Note 2) 1,015 Registration fees 364 Miscellaneous 1,472 Fees waived or borne by Manager (Note 2) (103,392) ---------- 262,192 Shareholder service fee (Note 2) Class III 131,155 ---------- Net expenses 393,347 ---------- Net investment income 5,557,000 ---------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments Closed futures contracts (2,628,785) Closed swap contracts 270,990 Foreign currency, forward contracts and foreign currency related (263,732) transactions (5,230,637) ---------- Net realized loss (7,852,164) ---------- Change in net unrealized appreciation (depreciation) on: Investments Open futures contracts (4,291,435) Open swap contracts (833,003) Written options 900,670 Foreign currency, forward contracts and foreign currency related 418,950 transactions 3,617,619 ---------- Net unrealized loss (187,199) ---------- Net realized and unrealized loss (8,039,363) ---------- Net decrease in net assets resulting from operations $(2,482,363) ==========
See accompanying notes to the financial statements. 9 GMO International Bond Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ---------------------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 5,557,000 $ 17,115,565 Net realized gain (loss) (7,852,164) 11,107,758 Change in net unrealized appreciation (depreciation) (187,199) (16,558,967) ----------- ------------ Net increase (decrease) in net assets resulting from operations (2,482,363) 11,664,356 ----------- ------------ Distributions to shareholders from: Net investment income Class III (2,630,046) (8,308,647) ----------- ------------ Total distributions from net investment income (2,630,046) (8,308,647) ----------- ------------ In excess of net investment income Class III -- (1,994,554) ----------- ------------ Total distributions in excess of net investment income -- (1,994,554) ----------- ------------ Net realized gains Class III (3,231,690) (5,508,618) ----------- ------------ Total distributions from net realized gains (3,231,690) (5,508,618) ----------- ------------ (5,861,736) (15,811,819) ----------- ------------ Net share transactions: (Note 5) Class III (3,647,140) (107,045,783) ----------- ------------ Decrease in net assets resulting from net share transactions (3,647,140) (107,045,783) ----------- ------------ Total decrease in net assets (11,991,239) (111,193,246) Net assets: Beginning of period 181,828,896 293,022,142 ----------- ------------ End of period (including accumulated undistributed net investment income of $7,289,569 and $4,362,615, respectively) $169,837,657 $181,828,896 ============ ============
10 See accompanying notes to the financial statements. 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, 1999 -------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ----------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.06 $ 10.45 $ 10.78 $ 10.92 $ 9.64 $ 9.96 ---------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income 0.32 0.71 0.59 0.71 0.62 0.98 Net realized and unrealized gain (loss) (0.46) (0.42) 0.08 0.65 1.55 (0.21) ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations (0.14) 0.29 0.67 1.36 2.17 0.77 ---------- ---------- ---------- ---------- ---------- ---------- Less distributions to shareholders: From net investment income (0.15) (0.36) (0.54) (0.81) (0.59) (0.75) In excess of net investment income -- (0.09) -- -- -- -- From net realized gains (0.19) (0.23) (0.10) (0.54) (0.30) (0.34) In excess of net realized gains -- -- (0.36) (0.15) -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total distributions (0.34) (0.68) (1.00) (1.50) (0.89) (1.09) ---------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.58 $ 10.06 $ 10.45 $ 10.78 $ 10.92 $ 9.64 ========== ========== ========== ========== ========== ========== Total Return (a) (1.29)% 2.48% 6.32% 12.39% 22.72% 8.23% Ratios/Supplemental Data: Net assets, end of period (000's) $ 169,838 $ 181,829 $ 293,022 $ 235,783 $ 193,920 $ 151,189 Net operating expenses to average daily net assets 0.40%* 0.40% 0.40% 0.40% 0.40% 0.40% Interest expense to average daily net assets 0.05%* -- -- -- -- -- Total net expenses to average daily net assets 0.45%* 0.40% 0.40% 0.40% 0.40% 0.40% Net investment income to average daily net assets 6.36%* 6.45% 6.24% 6.93% 8.17% 7.51% Portfolio turnover rate 31% 106% 105% 95% 99% 141% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03 $ 0.02 $ 0.02 $ 0.01 $ 0.02
(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. 11 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 through investment in foreign bond and currency markets. The Fund's current benchmark is the J.P. Morgan Non-U.S. Government Bond Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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. Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by principal market makers may differ from the value that 12 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- would be realized if the securities were sold 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 entering into 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 and agency 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 as of August 31, 1999. 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 13 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 14 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 and credit risk. The Fund may enter into interest rate, total return, and credit default swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent 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. Credit default swaps involve the payment of a specified rate based on the notional amount. The Fund receives payment upon a default of the underlying security. In connection with these agreements, cash or securities may be set aside as collateral by the Fund's custodian in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral, which is paid by the counterparty. At August 31, 1999, $1,773,574 in cash has been set aside. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 15 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had entered into reverse repurchase agreements having a market value of $3,394,000, collateralized by securities with a market value of $3,492,344. See Note 6 for a summary of open reverse repurchase agreements as of August 31, 1999. 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, 1999, the Fund loaned securities having a market value of $480,193 collateralized by cash in the amount of $497,372, 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 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. Income dividends 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. Dividend income is recorded on the ex-dividend date. In 16 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any increase in the principal or face amount of these securities adjusted for inflation is recorded as interest income. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. The premium will be reduced by 50% with respect to any portion of a purchase that is offset by a corresponding redemption occurring on the same day. In addition, the purchase premium for the Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $6,651 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, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. 17 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Prior to March 1, 1999, GMO earned a management fee at the annual rate of .40% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .25% 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, 1999, was $1,015. 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, 1999, aggregated $54,058,261 and $61,553,784, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------------- ----------------------- ---------------------- -------------------- $ 183,040,164 $ 2,610,880 $ 12,833,435 $ 10,222,555
4. Principal shareholders At August 31, 1999, 49.3% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 18 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 ---------------------------------- ---------------------------------- Class III: Shares Amount Shares Amount ------------- ------------- ------------- ------------- Shares sold 441,381 $ 4,434,084 5,484,951 $ 57,695,554 Shares issued to shareholders in reinvestment of distributions 541,178 5,054,601 1,255,142 13,253,099 Shares repurchased (1,315,750) (13,135,825) (16,723,091) (177,994,436) ------------- ------------- ------------- ------------- Net decrease (333,191) $ (3,647,140) (9,982,998) $(107,045,783) ============= ============= ============= =============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) -------------- ------------------ -------------------- ----------------- ------------------ Buys 9/16/99 AUD 8,400,000 $ 5,353,958 $ (259,556) 9/30/99 CAD 22,400,000 15,019,243 (209,544) 10/15/99 EUR 79,500,000 84,275,959 (1,005,571) 9/23/99 GBP 10,900,000 17,531,795 22,714 9/09/99 JPY 5,880,000,000 53,703,069 3,601,169 ----------------- $ 2,149,212 =================
19 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Forward currency contracts -- continued
Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) -------------- ----------------- ------------------- ----------------- ------------------ Sales 9/16/99 AUD 19,300,000 $ 12,301,357 $ 236,805 9/30/99 CAD 5,300,000 3,553,660 (1,323) 10/15/99 EUR 12,200,000 12,932,914 49,475 9/23/99 GBP 25,800,000 41,497,277 (917,917) 9/09/99 JPY 260,000,000 2,374,626 (2,818) 10/22/99 NZD 6,800,000 3,519,209 71,803 -------------- $ (563,975) ==============
Forward cross currency contracts
Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) ------------- ------------------------------- ----------------------------- ----------------- 11/05/99 CHF 12,103,380 EUR 7,600,000 $ 14,998 10/29/99 EUR 1,300,000 SEK 11,330,150 (2,210) 10/29/99 SEK 94,716,000 EUR 10,800,000 (53,192) --------------- $ (40,404) ===============
Futures contracts
Net Unrealized Number of Expiration Contract Appreciation Contracts Type Date Value (Depreciation) ---------- ------------------------------------ ------------- ----------- --------------- Buys 30 Australian Government Bond 3 yr September 1999 $ 2,238,803 $ 7,520 378 German Government Bond September 1999 43,070,519 (1,662,261) 18 Japanese Government Bond March 2000 21,174,153 43,439 10 Swedish Government Bond 10 yr September 1999 1,249,304 (30,565) 1 Swiss Government Bond September 1999 81,222 28 1 Swiss Government Bond December 1999 80,318 (800) ------------- $ (1,642,639) =============
20 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Futures contracts -- continued
Net Number of Expiration Contract Unrealized Contracts Type Date Value Appreciation ------------ ------------------------------------ ------------- ------------ --------------- Sales 32 Australian Government Bond 10 yr September 1999 $ 2,879,443 $ 29,109 66 Canadian Government Bond 10 yr September 1999 5,464,616 110,955 80 U.K. Gilt December 1999 14,128,316 23,697 103 U.S. Long Bond December 1999 11,738,781 62,776 243 U.S. Treasury Note 10 yr December 1999 26,574,328 98,194 ------------ $ 324,731 ============
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any margin requirements on open futures contracts. Written option transactions
Puts Calls Principal Principal Amount of Amount of Contracts Contracts (000's omitted) Premiums (000's omitted) Premiums --------------- ------------ --------------- ------------ Outstanding, beginning of period 6,300 $ 396,522 6,300 $ 472,500 Options written -- -- -- -- Options closed -- -- -- -- Options exercised -- -- -- -- Options expired -- -- -- -- --------------- ------------- --------------- ------------ Outstanding, end of period 6,300 $ 396,522 6,300 $ 472,500 =============== ============= =============== =============
21 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Summary of written options outstanding
Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value --------------- -------------- ------------- ---------------- USD Call/JPY Put 6,300 USD 112.7 JPY 11/16/99 $ 73,080 USD Put/JPY Call 6,300 USD 112.7 JPY 11/16/99 262,080 ---------------- $ 335,160 ================
Reverse repurchase agreement
Face Value Description Market Value ---------- ----------- ------------ $ 3,394,000 Bear Stearns, 4.95%, dated 6/25/99, to be repurchased at $ 3,394,000 $3,482,202 on 12/31/99. Average balance outstanding ...................................................... $ 517,733 Average interest rate ............................................................ 4.96% Maximum balance outstanding ...................................................... $ 4,793,000 Average shares outstanding ....................................................... 17,618,545 Average balance per share outstanding ............................................ $ .20
Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund had entered into reverse repurchase agreements. 22 GMO International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements
Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ---------------------- ----------- --------------------------------------------- ---------------- Credit Default Swaps 270,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust $ (138,500) Company dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Italy, the notional amount times the difference between the par value and the then-market value of Italy BTP, 6.00% due 11/01/07. 5,658,750,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust (139,328) Company dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Belgium, the notional amount times the difference between the par value and the then-market value of Kingdom of Belgium, 5.75% due 3/28/08. Interest Rate Swaps 16,800,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust (8,911) Company dated 6/03/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 14,500,000 CHF 6/10/05 Agreement with Credit Suisse Financial 10,206 Products dated 6/08/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread.
23 GMO Global Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ----------------------------------------------------------------------------------------------- Debt Obligations -- 102.8% Argentina -- 0.5% USD 1,000,000 Republic of Argentina, 12.13%, due 2/25/19 927,500 ------------ Australia -- 1.2% USD 2,500,000 Westralia Airports Corp, 144A, 6.48%, due 4/01/10 2,324,500 ------------ Brazil -- 1.2% USD 1,000,000 Brazil Discount ZL Bond, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 4/15/24 597,500 USD 2,500,000 Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 1,650,000 ------------ 2,247,500 ------------ Bulgaria -- 0.3% USD 2,000,000 Bulgaria Discount Series B Interest Strips, Basket 2, 0.00%, due 7/28/24 229,000 USD 500,000 Bulgaria FLIRB Series B, Variable Rate, Step Up, 3.25%, due 7/28/12 302,500 ------------ 531,500 ------------ Canada -- 0.8% CAD 2,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 1,539,365 ------------ Cayman Islands -- 7.2% USD 7,446,154 Great Point CBO Ltd. Series 98-1A Class A1, 144A, Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due 10/15/10 7,383,327 USD 7,000,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, due 5/15/10 6,335,000 ------------ 13,718,327 ------------ Chile -- 1.0% USD 2,000,000 Banco Santander, 6.50%, due 11/01/05 1,897,500 ------------ Ecuador -- 0.1% USD 500,000 Republic of Ecuador Par Bond, Variable Rate, Step Up, 4.00%, due 2/28/25 156,250 ------------ France -- 2.1% FRF 23,650,000 Credit Foncier, 6.50%, due 10/13/08 4,036,909 ------------ Jordan -- 0.1% USD 500,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 144A, 5.50%, due 12/23/23 285,000 ------------
See accompanying notes to the financial statements. 1 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments--(Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ----------------------------------------------------------------------------------------------- Mexico -- 4.3% FRF 5,000,000 Mexico Par Bond, 6.63%, due 12/31/19 632,050 CHF 20,000,000 Mexico Par Bond, 3.75%, due 12/31/19 7,590,258 ------------ 8,222,308 ------------ New Zealand -- 1.2% NZD 4,500,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 2,302,909 ------------ Nigeria -- 0.3% USD 1,206,672 Central Bank of Nigeria Par Bond, Variable Rate, Step Up, 6.25%, due 11/15/20 664,537 ------------ Russia -- 0.0% USD 68,763 Russia Vnesheconombank IAN, Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due 12/15/15* 9,928 ------------ Supra National -- 1.2% AUD 4,600,000 European Bank for Reconstruction and Development, Zero Coupon, due 2/10/28 376,942 GBP 1,000,000 International Bank for Reconstruction and Development, 11.50%, due 11/09/03 1,900,656 ------------ 2,277,598 ------------ Sweden -- 1.6% SEK 5,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 605,521 SEK 20,000,000 Kingdom of Sweden, 6.00%, due 2/09/05 2,503,451 ------------ 3,108,972 ------------ United States -- 79.5% Asset Backed Securities -- 70.5% USD 5,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A, Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due 5/15/24 4,964,648 USD 5,000,000 Augusta Funding Ltd X, 144A, Variable Rate, 3 mo. LIBOR + .25%, 5.58%, due 6/30/17 4,729,688 USD 4,000,000 Chase Credit Card Master Trust 98-6 Class A, Variable Rate, 1 mo. LIBOR + .26%, 5.53%, due 9/15/04 4,005,156 USD 20,800,000 Chevy Chase Master Credit Card Trust Series 98-A, Variable Rate, 1 mo. LIBOR + .15%, 5.42%, due 10/16/06 20,715,499 USD 4,000,000 Circuit City Credit Card Master Trust 96-1 Class A, Variable Rate, 1 mo. LIBOR + .17%, 5.48%, due 3,982,344 10/15/06 USD 2,130,231 Constellation 99-1A, 144A, 5.73%, due 4/18/02 2,130,231 USD 16,045,000 Discover Card Master Trust I Series 94-2 Class A, Variable Rate, 1 mo. LIBOR + .35%, 5.62%, due 16,091,379 10/16/04(a)
2 See accompanying notes to financial statements. GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments--(Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ----------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 3,000,000 Eagle Pier Corp BV, Variable Rate, 6 mo. LIBOR + .25%, 5.31%, due 10/03/01 3,001,500 USD 5,000,000 First Deposit Master Trust Series 96-1 Class A, Variable Rate, 1 mo. LIBOR +.17%, 5.44%, due 8/15/07 4,979,102 USD 5,000,000 First USA Credit Card Master Trust Series 98-5 Class A, Variable Rate, 1 mo. LIBOR + .10%, 5.38%, due 4/18/06 4,974,805 USD 15,000,000 Fleet Credit Card Master Trust II Series 99-A Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 9/15/04 14,971,289 USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A, Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due 10/15/02 4,997,070 USD 3,000,000 MBNA Master Credit Card Trust Series 95-J Class A, Variable Rate, 1 mo. LIBOR + .23%, 5.50%, due 3,001,758 4/15/05 USD 4,000,000 MBNA Master Credit Card Trust Series 96-A Class A, Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due 7/15/05 4,000,000 USD 3,000,000 MBNA Master Credit Card Trust Series 98-A Class A, Variable Rate, 1 mo. LIBOR + .11%, 5.38%, due 8/15/05 2,988,281 USD 10,000,000 MBNA Master Credit Card Trust Series 98-I Class A, Variable Rate, 1 mo. LIBOR + .26%, 5.53%, due 10/15/03 10,018,359 USD 5,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due 2/01/03 4,860,000 USD 10,000,000 Pacific Life CBO Series 98-1A Class A2A, Variable Rate, Step Up, 6.56%, due 2/15/10 9,434,375 USD 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Variable Rate, Step Up, 6.33%, due 9/15/09 5,073,438 USD 3,166,423 SMS Student Loan Trust 94-B Class A2, Variable Rate, 1 mo. LIBOR + .30%, 5.46%, due 4/25/16 3,169,273 USD 3,000,000 Starvest Emerging Markets CBO-I Series 1A, Class A, Variable Rate, 6 mo. LIBOR + .19%, 144A, 5.83%, due 7/30/11 2,894,531 ------------ 134,982,726 ------------ Structured Notes -- 4.3% USD 5,000,000 Federal Home Loan Bank, Variable Rate, (10.00% - 6 mo. LIBOR), 4.94%, due 9/22/03(b) 4,775,000 USD 3,500,000 Polaris Funding Company, Variable Rate, 1 mo. LIBOR + .30%, 5.51%, due 1/07/05 3,443,672 ------------ 8,218,672 ------------ U.S. Government Agency -- 4.7% USD 4,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.41%, due 2/01/27 3,920,000 USD 2,000,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(b) 1,909,000 USD 1,158,000 Ship Co 668, Series A, 8.50%, due 5/11/02 1,158,000
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, 1999 (Unaudited)
Par Value Description Value ($) - ----------------------------------------------------------------------------------------------- U.S. Government Agency -- continued USD 2,000,000 Small Business Administration Series 95-C, 6.88%, due 9/01/05 1,976,000 ------------ 8,963,000 ============ Total United States 152,164,398 ------------ Venezuela -- 0.2% USD 500,000 Republic of Venezuela Discount Bond Series A, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 3/31/20 310,000 ------------ Total Debt Obligations (Cost $201,924,124) 196,725,001 ============ Loan Assignments -- 0.1% Russia -- 0.1% USD 2,000,000 Russia Vnesh Restructured Loan Agreements* 222,500 ------------ Total Loan Assignments (Cost $1,278,949) 222,500 ------------ Principal Amount ------------------ Call Options Purchased -- 0.1% Options on Currency -- 0.1% USD 13,888,000 Euro, Expires 5/03/00, Strike 1.12 168,045 USD 3,500,000 Japanese Yen, Expires 11/16/99, Strike 112.70 32,550 ------------ 200,595 ============ Total Call Options Purchased (Cost $518,923) 200,595 ------------ Put Options Purchased -- 0.3% Options on Currency -- 0.3% USD 13,268,000 Euro, Expires 5/03/00, Strike 1.07 427,230 USD 3,500,000 Japanese Yen, Expires 11/16/99, Strike 112.70 182,350 ------------ 609,580 ============ Total Put Options Purchased (Cost $420,845) 609,580 ------------
4 See accompanying notes to the financial statements. GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - ------------------------------------------------------------------------------------------ Rights And Warrants -- 0.0% Argentina -- 0.0% 1,000 Republic of Argentina Warrants, Expires 2/25/00** 6,000 ------------ Mexico -- 0.0% 14,211,000 United Mexican States Warrants, Expires 6/30/03** -- ------------ Nigeria -- 0.0% 1,206 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20** -- ------------ Venezuela -- 0.0% 3,570 Republic of Venezuela Recovery Warrants, Expires 04/15/20** -- ------------ Total Rights And Warrants (Cost $28,221) 6,000 ------------ Short-Term Investments -- 2.9% Cash Equivalents -- 0.5% USD 747,605 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(c) 747,605 199,947 Merrimac Cash Fund Premium Class(c) 199,947 ------------ 947,552 ------------ Commercial Paper -- 2.4% USD 4,450,000 Liquidity Management System, 5.35%, due 9/02/99 4,449,339 ------------ Repurchase Agreements -- 0.0% USD 137,147 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $137,164 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $139,889. 137,147 ------------ Total Short-Term Investments (COST $5,534,038) 5,534,038 ------------
See accompanying notes to financial statements. 5 GMO Global Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Value ($) ------------ Total Investments -- 106.2% (Cost $209,705,100) 203,297,714 Other Assets and Liabilities (net) -- (6.2)% (11,929,756 ------------ TOTAL NET ASSETS -- 100% $191,367,958 ============ Notes to the Schedule of Investments: CPI - Consumer Price Index IAN - Interest Arrears Note FLIRB - Front Loaded Interest Reduction Bond 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, 1999, which are subject to change based on the terms of the security, including varying reset dates. Currency Abbreviations AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc ITL - Italian Lira CAD - Canadian Dollar JPY - Japanese Yen CHF - Swiss Franc NZD - New Zealand Dollar EUR - Euro SEK - Swedish Krone FRF - French Franc USD - United States Dollar (a) All or a portion of this security has been segregated to cover collateral requirements on the reverse repurchase agreement (Note 6). (b) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). (c) Represents investments of security lending collateral (Note 1). * Non-performing. Borrower not currently paying interest. ** 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, 1999 (Unaudited)
- ----------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $209,705,100) (Note 1) $203,297,714 Cash at interest on deposit at brokers (Note 1) 1,252,800 Interest receivable 1,787,398 Receivable for variation margin on open futures contracts (Notes 1 and 6) 25,339 Net receivable for open forward foreign currency contracts (Notes 1 and 6) 1,454,438 Receivable for expenses waived or borne by Manager (Note 2) 15,994 ------------- Total assets 207,833,683 ------------- Liabilities: Payable for investments purchased 4,925,278 Payable upon return of securities loaned (Note 1) 947,552 Written options outstanding, at value (premiums $482,790) (Notes 1 and 6) 186,200 Payable to affiliate for (Note 2): Management fee 30,726 Shareholder service fee 24,200 Payable for open swap contracts (Notes 1 and 6) 326,640 Interest payable for open swap contracts (Note 1) 206,658 Payable for reverse repurchase agreement (Notes 1 and 6) 9,754,500 Accrued expenses and other liabilities 63,971 ------------ Total liabilities 16,465,725 ------------ Net assets $191,367,958 ============ Net assets consist of: Paid-in capital $200,269,759 Accumulated undistributed net investment income 5,057,741 Accumulated net realized loss (7,831,990) Net unrealized depreciation (6,127,552) ============ $191,367,958 ============ Net assets attributable to: Class III shares $191,367,958 ============ Shares outstanding: Class III 19,679,036 ============ Net asset value per share: Class III $ 9.72 ============
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, 1999 (Unaudited)
- ----------------------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $456) 6,125,860 ---------- Total income 6,125,860 ---------- Expenses: Management fee (Note 2) 184,942 Interest expense (Notes 1 and 6) 232,230 Custodian and transfer agent fees 59,954 Audit fees 26,035 Legal fees 2,849 Trustees fees (Note 2) 1,011 Registration fees 364 Miscellaneous 1,011 Fees waived or borne by Manager (Note 2) (91,224) ---------- 417,172 Shareholder service fee (Note 2) Class III 146,003 ---------- Net expenses 563,175 ---------- Net investment income 5,562,685 ---------- Net realized gain (loss) on: Net realized loss on: Investments (1,472,059) Closed futures contracts (3,075,613) Closed swap contracts (122,438) Foreign currency, forward contracts and foreign currency related transactions (3,360,809) ----------- Net realized loss (8,030,919) ---------- Change in net unrealized appreciation (depreciation) on: Investments (3,648,710) Open futures contracts (253,368) Open swap contracts 401,230 Written options 232,750 Foreign currency, forward contracts and foreign currency related transactions 2,889,142 ---------- Net unrealized loss (378,956) ----------- Net realized and unrealized loss (8,409,875) ---------- Net decrease in net assets resulting from operations $(2,847,190) ===========
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, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ------------------ Increase (decrease) in net assets: Operations: Net investment income $ 5,562,685 $ 8,148,695 Net realized gain (loss) (8,030,919) 362,534 Change in net unrealized appreciation (depreciation) (378,956) (6,074,290) ----------- ----------- Net increase (decrease) in net assets resulting from operations (2,847,190) 2,436,939 ------------ ------------ Distributions to shareholders from: Net investment income Class III -- (5,497,905) ------------ ------------ Total distributions from net investment income -- (5,497,905) ------------ ------------ In excess of net investment income Class III -- (1,386,848) ------------ ------------ Total distributions in excess of net investment -- (1,386,848) income ------------ ------------ Net realized gains Class III -- (793,938) ------------ ------------ Total distributions from net realized gains -- (793,938) ------------ ------------ In excess of net realized gains Class III -- (907,937) ------------ ------------ Total distributions in excess of net realized gains -- (907,937) ------------ ------------ -- (8,586,628) ------------ ------------ Net share transactions: (Note 5) Class III 31,004,654 64,308,107 ----------- ------------ Increase in net assets resulting from net share transactions 31,004,654 64,308,107 ----------- ------------ Total increase in net assets 28,157,464 58,158,418 Net assets: Beginning of period 163,210,494 105,052,076 ----------- ------------ End of period (including accumulated undistributed net investment income of $5,057,741 and distributions in excess of net investment income of $504,944, respectively) $191,367,958 $163,210,494 ============ ============
See accompanying notes to financial statements. 9 GMO Global Bond Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended February 28/29, ----------------------------------------------- (Unaudited) 1999 1998 1997 1996 * --------- --------- -------- ------- ------ Net asset value, beginning of $ 9.87 $ 10.15 $ 10.16 $ 9.89 $10.00 period -------- -------- ------- ------ ------ Income from investment operations: Net investment income 0.29 0.55 0.65+ 0.61 0.05 Net realized and unrealized gain (loss) (0.44) (0.25) 0.36 0.59 (0.16) -------- -------- ------- ------ ------ Total from investment (0.15) 0.30 1.01 1.20 (0.11) operations ------- ------- ------ ------ ------ Less distributions to shareholders: From net investment income -- (0.37) (0.56) (0.57) -- In excess of net investment income -- (0.09) -- -- -- From net realized gains -- (0.06) (0.28) (0.36) -- In excess of net realized gains -- (0.06) (0.18) -- -- -------- -------- ------- ------ ------ Total distributions -- (0.58) (1.02) (0.93) -- --------- --------- -------- ------- ------- Net asset value, end of period $ 9.72 $ 9.87 $ 10.15 $10.16 $ 9.89 ========= ========= ======== ======= ======= Total Return (a) (1.42)% 2.69% 10.19% 12.01% (1.10)% Ratios/Supplemental Data: Net assets, end of period (000's) $191,368 $163,210 $105,052 $70,768 $31,072 Net operating expenses to average daily net assets 0.34%** 0.34% 0.34% 0.34% 0.34%** Interest expense to average daily net assets 0.24%** -- -- -- -- Total net expenses to average daily net assets 0.58%** 0.34% 0.34% 0.34% 0.34%** Net investment income to average daily net assets 5.71%** 5.86% 6.21% 6.31% 6.16%** Portfolio turnover rate 23% 75% 103% 72% -- Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03 $ 0.04 $ 0.04 $ 0.01 * Period from December 28, 1995 (commencement of operations) to February 29, 1996. ** 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) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 through investment in global bond and currency markets. The Fund's current benchmark is the J.P. Morgan Global Government Bond Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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. 11 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by the principal market makers may differ from the value that would be realized if the securities were sold 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 entering into 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 and agency 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 as of August 31, 1999. 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, 12 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 13 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 and credit risk. The Fund may enter into interest rate, total return, and credit default swap agreements. Interest rate swap agreements 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. Total return swap agreements involve commitments to pay interest in exchange for a market-linked return based on a notional amount. To the extent 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. Credit default swaps involve the payment of a specified rate based on the notional amount. The Fund receives payment upon a default of the underlying security. In connection with these agreements, cash or securities may be set aside as collateral by the Fund's custodian in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral, which is paid by the counterparty. At August 31, 1999, $1,252,800 in cash has been set aside. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 14 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had entered into reverse repurchase agreements having a market value of $9,754,500, collateralized by securities with a market value of $10,028,906. See Note 6 for a summary of open reverse repurchase agreements as of August 31, 1999. 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 fail financially. The Fund receives compensation for lending its securities. At August 31, 1999, the Fund loaned securities having a market value of $917,009, collateralized by cash in the amount of $947,552, 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 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. 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. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any 15 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- increase in the principal or face amount of the securities adjusted for inflation is recorded as interest income. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. The premium will be reduced by 50% with respect to any portion of a purchase that is offset by a corresponding redemption occurring on the same day. In addition, the purchase premium for the Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $81,216 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, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .19% of average daily net assets. The Fund has adopted a Shareholder Service 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 average daily net assets at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain 16 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceeded .19% 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, 1999, was $1,011. 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, 1999, aggregated $88,503,908 and $45,160,566, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------------- --------------------- --------------------- --------------------- $209,705,100 $909,266 $7,316,652 $6,407,386
4. Principal shareholders At August 31, 1999, 65.8% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 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 August 31, 1999 February 28, 1999 ------------------------------ ------------------------------- Class III: Shares Amount Shares Amount -------------- ----------------- ------------- --------------- Shares sold 5,449,840 $ 54,143,952 8,321,672 $ 86,437,108 Shares issued to shareholders in reinvestment of -- -- 780,362 8,048,789 distributions Shares repurchased (2,307,117) (23,139,298) (2,915,212) (30,177,790) ============== ================= ============= =============== Net increase 3,142,723 $ 31,004,654 6,186,822 $ 64,308,107 ============== ================= ============= ===============
17 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows:
Forward currency contracts Net Unrealized Settlement Units of Appreciation Date Deliver/Receive Currency Value (Depreciation) ------------- ----------------- ---------------- ------------ ------------------ Buys 9/16/99 AUD 9,300,000 $ 5,927,597 $ (287,135) 9/30/99 CAD 36,600,000 24,540,371 (358,330) 10/15/99 EUR 65,900,000 69,858,939 (802,751) 9/23/99 GBP 19,700,000 31,685,905 301,455 9/09/99 JPY 4,770,000,000 43,565,245 2,800,681 ================= $ 1,653,920 ================= Sales 9/16/99 AUD 17,800,000 $ 11,345,293 $ 180,986 9/30/99 CAD 5,400,000 3,620,711 (5,122) 10/15/99 EUR 12,800,000 13,568,959 31,267 9/23/99 GBP 13,700,000 22,035,376 (460,536) 9/09/99 JPY 230,000,000 2,100,630 (2,492) 10/22/99 NZD 4,500,000 2,328,888 47,517 ================= $ (208,380) ================= Forward cross currency contracts Net Settlement Unrealized Date Deliver/Units of Currency Receive/In Exchange For Appreciation (Depreciation) -------------- --------------------------- -------------------------- --------------- 11/05/99 CHF 17,518,050 EUR 11,000,000 $ 21,707 10/29/99 EUR 2,900,000 SEK 25,274,950 (4,929) 10/29/99 SEK 14,032,000 EUR 1,600,000 (7,880) =============== $ 8,898 ===============
18 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Futures contracts Net Unrealized Number of Expiration Contract Appreciation Contracts Type Date Value (Depreciation) ---------- ------------------------------- ------------- ------------- ------------------ Buys 28 Australian Government Bond 3 Yr. September 1999$ 2,089,550 $ 7,032 28 Australian Government Bond 10 Yr. September 1999 2,519,512 (16,068) 27 Canadian Government Bond December 1999 2,217,069 (31,847) 308 German Government Bond 10 Yr September 1999 35,094,497 (1,088,926) 14 Japanese Government Bond 10Yr March 2000 16,468,786 38,878 67 Swedish Government Bond 10 Yr. September 1999 8,370,335 (311,109) 38 U.K. Gilt December 1999 6,710,950 (2,533) 201 U.S. Long Bond December 1999 22,907,719 (143,502) ================= $ (1,548,075) ================= Sales 3 Japanese Government Bond March 2000 $ 3,532,309 $ 251 152 Swiss Government Bond September 1999 12,345,799 356,518 55 Swiss Government Bond December 1999 4,417,497 40,449 207 U.S. 10 Yr. Note December 1999 22,637,391 83,656 ================= $ 480,874 =================
At August 31, 1999, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 19 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Written option transactions Puts Calls Principal Amount Principal Amount of Contracts of Contracts (000's omitted) Premiums (000's omitted) Premiums ----------------- --------------- ----------------- --------------- Outstanding, beginning of period 3,500 $ 220,290 3,500 $ 262,500 Options written -- -- -- -- Options closed -- -- -- -- Options exercised -- -- -- -- Options expired -- -- -- -- =============== ============= =============== ============= Outstanding, end of period 3,500 $ 220,290 3,500 $ 262,500 =============== ============= =============== ============= Summary of written options outstanding Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value ------------------ --------------- ------------------ ---------------- USD Call/JPY Put 3,500 USD 112.7 JPY 11/16/99 $ 40,600 USD Put/JPY Call 3,500 USD 112.7 JPY 11/16/99 145,600 =========== $ 186,200 ===========
20 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Reverse repurchase agreement Face Value Description Market Value ---------- ----------- ------------ $ 9,754,500 Bear Stearns, 5.03%, dated 8/27/99, to be repurchased at $ 9,754,500 $9,926,337 on 12/31/99. Average balance outstanding................................................... $ 11,646,542 Average interest rate......................................................... 7.24% Maximum balance outstanding................................................... $ 21,454,500 Average shares outstanding.................................................... 19,725,807 Average balance per share outstanding......................................... $ .59 Average balance outstanding was calculated based on daily balances outstanding during the period that the Fund had entered into reverse repurchase agreements. Swap agreements Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) --------------------------------------------------------------------------------- --------------- Credit Default Swaps 108,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company $ (55,400) dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Italy, the notional amount times the difference between the par value and the then-market value of Italy BTP, 6.00% due 11/01/07. 2,263,500,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company (55,731) dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Belgium, the notional amount times the difference between the par value and the then-market value of Kingdom of Belgium, 5.75% due 3/28/08. 21
GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------ Swap agreements -- continued Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ------------------------- -------------------------- --------------------- ------------------------- Interest Rate Swaps 7,100,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company $ (3,766) dated 6/03/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 7,400,000 CHF 6/10/05 Agreement with Credit Suisse Financial 5,208 Products dated 6/08/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 2,300,000 CHF 6/10/05 Agreement with Credit Suisse Financial 23,910 Products dated 10/01/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 3,900,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company (2,951) dated 6/09/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 6,800,000 CHF 9/16/05 Agreement with Morgan Guaranty Trust Company 72,080 dated 9/14/98 to pay the notional amount multiplied by 3.1175% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread.
22 GMO Global Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------ Swap agreements -- continued Net Unrealized Notional Amount Expiration Appreciation Fund/Counterparty Date Description (Depriciation) - ---------------------- -------------- -------------------------------------------- -------------- 22,000,000 USD 7/29/06 Agreement with Morgan Guaranty Trust Company $ (279,302) dated 7/27/99 to receive the notional amount multiplied by 6.664% and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specific spread. Total Return Swap 30,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company (30,688) dated 7/1/99 to receive (pay) the notional amount multiplied by the return on the JP Morgan Non-U.S. Traded Total Return Government Bond Index and to pay the notional amount multiplied by 1 month LIBOR adjusted by a specified spread. ---------------- $ (326,640) ================ See Notes to the Schedule of Investments for definitions of currency abbreviations. 23
GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- DEBT OBLIGATIONS -- 95.2% Argentina -- 0.2% USD 1,000,000 Republic of Argentina Discount Bond, Variable Rate, 6 mo. LIBOR + .81%, 6.00%, due 3/31/23 677,500 ------------ Australia -- 5.7% GBP 8,700,000 Commonwealth Bank Australia Series EMTN, 8.13%, due 12/07/06 15,255,659 AUD 2,620,000 Queensland Treasury Corp, 8.00%, due 9/14/07 1,809,699 ------------ 17,065,358 ------------ Austria -- 2.7% GBP 4,500,000 Bank Austria AG Series EMTN, 8.38%, due 11/04/11 8,254,105 ------------ Brazil -- 1.5% USD 3,000,000 Brazil Discount ZL Bond, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 4/15/24 1,792,500 USD 4,000,000 Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + .88%, 5.94%, due 4/15/09 2,640,000 ------------ 4,432,500 ------------ Bulgaria -- 1.5% USD 10,000,000 Bulgaria Discount Series B Interest Strips, Basket 2, 0.00%, due 7/28/24 1,145,000 USD 15,000,000 Bulgaria Discount Strips, 0.00%, due 7/28/24(a) 2,786,771 USD 1,000,000 Bulgaria FLIRB Series B, Variable Rate, Step Up, 3.25%, due 7/28/12 605,000 ------------ 4,536,771 ------------ Canada -- 8.1% CAD 3,750,000 Government of Canada, 10.25%, due 3/15/14 3,583,384 CAD 8,000,000 Government of Canada Real Return, 4.25%, due 12/01/21 6,157,459 CAD 5,000,000 Government of Canada Real Return, 4.25%, due 12/01/26 3,653,465 GBP 6,000,000 Province of Quebec, 8.62%, due 11/04/11 11,156,947 ------------ 24,551,255 ------------ Cayman Islands -- 6.8% GBP 2,000,000 BA Credit Card Corp Series 97-1, 7.13%, due 9/15/02 3,234,974 GBP 3,000,000 Chester Asset Receivables, Inc., Deal 2, Variable Rate, 3 mo. GBP LIBOR + .10%, 5.24%, due 6/15/01 4,817,246 CAD 4,000,000 Government of Canada (Cayman), 7.25%, due 6/01/08 2,849,484 USD 3,723,077 Great Point CBO Ltd. Series 98-1A Class A1, 144A, Variable Rate, 6 mo. LIBOR + .30%, 5.34%, due 10/15/10 3,691,663
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Cayman Islands -- continued USD 6,650,000 Pemex Finance Ltd Series 1A Class A2, 144A, 6.30%, due 5/15/10 6,018,250 ------------ 20,611,617 ------------ Chile -- 1.5% USD 4,750,000 Banco Santander, 6.50%, due 11/01/05 4,506,563 ------------ Denmark -- 0.5% DKK 9,680,000 Kingdom of Denmark Bullet, 8.00%, due 3/15/06 1,591,216 ------------ Ecuador -- 0.0% USD 557,621 Republic of Ecuador PDI (Registered), PIK, Variable Rate, 6 mo. LIBOR + .81%, 6.75%, due 2/27/15 128,253 ------------ France -- 2.9% FRF 21,000,000 Auxiliare Credit Foncier, 10.00%, due 4/20/01 3,686,020 FRF 30,000,000 Auxiliare Credit Foncier, 6.25%, due 3/28/03 5,072,505 ------------ 8,758,525 ------------ Japan -- 6.6% GBP 2,300,000 Export Import Bank of Japan, 10.75%, due 5/15/01 3,944,344 GBP 3,000,000 Japan Finance Corp Municipal Enterprises, 9.13%, due 2/16/05 5,344,992 GBP 6,000,000 Kobe City, 9.50%, due 10/20/04 10,786,464 ------------ 20,075,800 ------------ Jordan -- 0.2% USD 1,000,000 Hashemite Kingdom of Jordan Par Bond, Variable Rate, Step Up, 5.50%, due 12/23/23 560,000 ------------ Mexico -- 3.2% FRF 10,000,000 Mexico Par Bond, 6.63%, due 12/31/19 1,264,100 CHF 22,000,000 Mexico Par Bond, 3.75%, due 12/31/19 8,349,284 ------------ 9,613,384 ------------ New Zealand -- 1.1% NZD 6,200,000 New Zealand Index Linked Bond, 4.50%, due 2/15/16 3,172,897 ------------ Nigeria -- 0.3% USD 1,603,625 Central Bank of Nigeria Par Bond, Variable Rate, Step Up, 6.25%, due 11/15/20 849,922 ------------ Norway -- 0.6% SEK 13,700,000 A/S Eksportfinans, 7.50%, due 8/16/01 1,732,613 ------------
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Russia -- 0.0% USD 488,893 Russia Vnesheconombank IAN, Variable Rate, 6 mo. LIBOR + .81%, 0.00%, due 12/15/15(b) 70,584 ------------ Supra National -- 3.0% AUD 16,100,000 European Bank for Reconstruction and Development, Zero Coupon, due 2/10/28 1,319,297 CAD 2,700,000 European Investment Bank, 8.50%, due 8/30/05 2,006,635 GBP 3,000,000 International Bank for Reconstruction and Development, 11.50%, due 11/09/03 5,701,968 ------------ 9,027,900 ------------ Sweden -- 4.7% SEK 35,000,000 Government of Sweden Index Linked Bond, 4.00%, due 12/01/20 4,238,649 SEK 44,300,000 Kingdom of Sweden, 6.00%, due 2/09/05 5,545,143 SEK 6,100,000 Kingdom of Sweden, 6.50%, due 10/25/06 784,011 SEK 24,800,000 Kingdom of Sweden, 8.00%, due 8/15/07 3,483,831 ------------ 14,051,634 ------------ United States -- 43.1% Asset Backed Securities -- 32.8% USD 17,000,000 Aircraft Finance Trust Series 99-1A Class A1, 144A, Variable Rate, 1 mo. LIBOR + .48%, 5.75%, due 5/15/24 16,879,804 USD 4,000,000 American Express Credit Account Master Trust Series 98-1A, Variable Rate, 1 mo. LIBOR + .09%, 5.36%, due 1/17/06 3,979,219 USD 10,000,000 American Express Credit Account Master Trust Series 99-5 Class A, Variable Rate, 1 mo. LIBOR + .24%, 5.52%, due 2/15/07 9,991,406 USD 2,000,000 Augusta Funding Ltd X, 144A, Variable Rate, 3mo. LIBOR + .25%, 5.58%, due 6/30/17 1,891,875 USD 7,500,000 BEA CBO Series 98-1A Class A2A, 6.72%, due 6/15/10 7,107,422 USD 5,000,000 Chyps CBO Series 97-1A Class A2A, 144A, 6.72%, due 1/15/10 4,785,156 USD 1,500,000 Discover Card Master Trust I Series 94-2 Class A, Variable Rate, 1 mo. LIBOR + .35%, 5.62%, due 10/16/04 1,504,336 USD 5,000,000 Dreamworks Film Trust Series 1 Class A, Variable Rate, 3 mo. LIBOR + .22%, 5.53%, due 10/15/06 4,988,281 USD 5,000,000 Honda Auto Lease Trust Series 99-A Class A4, 6.45%, due 9/16/02 4,977,734 USD 5,000,000 MBNA Master Credit Card Trust Series 95-G Class A, Variable Rate, 1 mo. LIBOR + .21%, 5.48%, due 10/15/02 4,997,070 USD 5,000,000 Navistar Financial Dealer Note Master Trust Series 97-1 Class A, Variable Rate, 1 mo. LIBOR + .15%, 5.49%, due 8/25/03 4,972,852 USD 3,000,000 NPF VI, Inc. Series 99-1 Class A, 144A, 6.25%, due 2/01/03 2,916,000
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Asset Backed Securities -- continued USD 5,500,000 NPF XII, Inc. Series 99-2 Class A, 144A, 7.05%, due 6/01/03 5,439,500 USD 5,000,000 Rhyno CBO Delaware Corp Series 97-1 Class A-2, 144A, Variable Rate, Step Up, 6.33%, due 9/15/09 5,073,438 USD 10,000,000 SHYPPCO Finance Company Series B Class A-2B, 6.64%, due 6/15/10 9,295,000 USD 5,000,000 Student Loan Marketing Association Series 96-4 Class A2, Variable Rate, 3 mo. U.S. Treasury Bill + .64%, 5.29%, due 7/25/09 4,887,500 USD 2,000,000 Team Fleet Financing Corp Series 98-3A Class A, 144A, 6.13%, due 10/25/04 1,915,000 USD 3,465,000 TMS Auto Grantor Trust Series 96-1 Class CTFS, 7.10%, due 12/20/02 3,471,237 ------------ 99,072,830 ------------ Corporate Debt -- 4.8% USD 9,995,713 Continental Airlines Series 99-1A, 6.55%, due 2/02/19 9,096,099 SEK 44,000,000 Toyota Motor Credit, 7.50%, due 8/06/01 5,542,221 ------------ 14,638,320 ------------ U.S. Government -- 1.6% USD 10,100,000 U.S. Treasury 0.00% Receipts, due 2/15/14 3,688,859 USD 1,013,410 U.S. Treasury Inflation Indexed Note, 3.88%, due 1/15/09(c) 999,317 ------------ 4,688,176 ------------ U.S. Government Agency -- 3.9% USD 5,000,000 Agency for International Development Floater (Support of India), Variable Rate, 3 mo. LIBOR + .10%, 5.41%, due 2/01/27 4,900,000 USD 2,083,334 Agency for International Development Floater (Support of Zimbabwe), Variable Rate, 3 mo. U.S. Treasury Bill x 115%, 5.14%, due 1/01/12 2,000,000 USD 5,000,000 Federal Home Loan Bank, Variable Rate, CPI + 3.15%, 5.29%, due 2/15/02(c) 4,772,500 ------------ 11,672,500 ------------ Total United States 130,071,826 ------------ Venezuela -- 1.0% USD 500,000 Republic of Venezuela, 9.25%, due 9/15/27 300,000 USD 2,271,725 Republic of Venezuela DCB IL, Variable Rate, 6 mo. LIBOR + .88%, 6.31%, due 12/18/08 1,539,094
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, 1999 (Unaudited)
Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- Venezuela -- continued USD 2,000,000 Republic of Venezuela Discount Bond Series A, Variable Rate, 6 mo. LIBOR + .81%, 5.88%, due 3/31/20 1,240,000 ------------ 3,079,094 ------------ TOTAL DEBT OBLIGATIONS (COST $297,917,370) 287,419,317 ------------ LOAN ASSIGNMENTS -- 0.6% Russia -- 0.6% USD 15,750,278 Russia Vnesh Restructured Loan Agreements* 1,752,218 ------------ 1,752,218 ------------ TOTAL LOAN ASSIGNMENTS (COST $10,049,552) 1,752,218 Principal Amount ---------------- CALL OPTIONS PURCHASED -- 0.1% Options on Currency -- 0.1% USD 22,176,000 Euro, Expires 5/03/00, Strike 1.12 268,330 USD 8,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 79,980 ------------ 348,310 ------------ TOTAL CALL OPTIONS PURCHASED (COST $1,018,765) 348,310 ------------ PUT OPTIONS PURCHASED -- 0.4% Options on Currency -- 0.4% USD 21,186,000 Euro, Expires 5/03/00, Strike 1.07 682,189 USD 8,600,000 Japanese Yen, Expires 11/16/99, Strike 112.70 448,060 ------------ 1,130,249 ------------ TOTAL PUT OPTIONS PURCHASED (COST $736,135) 1,130,249 ------------
See accompanying notes to the financial statements. 5 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Schedule of Investments -- (Continued) (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - -------------------------------------------------------------------------------------------------- RIGHTS AND WARRANTS -- 0.0% Mexico-- 0.0% 16,414,000 United Mexican States Warrants, Expires 6/30/03** -- ------------ Nigeria -- 0.0% 1,602 Central Bank of Nigeria Payment Adjusted Warrants, Expires 11/15/20** -- ------------ Venezuela-- 0.0% 14,280 Republic of Venezuela Recovery Warrants, Expires 04/15/20** -- ------------ TOTAL RIGHTS AND WARRANTS (COST $0) -- ------------ SHORT-TERM INVESTMENTS -- 2.8% Cash Equivalents -- 0.0% USD 36,802 BankBoston Eurodollar Time Deposit, 5.4325%, due 10/29/99(d) 36,802 9,843 Merrimac Cash Fund Premium Class(d) 9,843 ------------ 46,645 ------------ Commercial Paper -- 2.8% USD 4,300,000 GE Capital, 5.30%, due 10/05/99 4,278,476 USD 4,000,000 Glencore Assets, 5.40%, due 10/05/99 3,979,600 ------------ 8,258,076 ------------ Repurchase Agreements -- 0.0% USD 107,085 Salomon Smith Barney Inc. Repurchase Agreement, dated 8/31/99, due 9/1/99, with a maturity value of $107,099 and an effective yield of 4.68%, collateralized by a U.S. Treasury Obligation with a rate of 8.125%, maturity date of 8/15/21 and market value, including accrued interest, of $109,227. 107,085 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $8,411,806) 8,411,806 ------------ TOTAL INVESTMENTS -- 99.1% (COST $318,133,628) 299,061,900 Other Assets and Liabilities (net) -- 0.9% 2,852,174 ------------ TOTAL NET ASSETS -- 100% $301,914,074 ============
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, 1999 (Unaudited) Notes to the Schedule of Investments: DCB -- Debt Conversion Bond EMTN -- Euromarket Medium Term Note FLIRB -- Front Loaded Interest Reduction Bond IAN -- Interest Arrears Notes PDI -- Past Due Interest PIK -- Payment In Kind CPI -- Consumer Price Index 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, 1999, which are subject to change based on the terms of the security, including varying reset dates. Currency Abbreviations: AUD - Australian Dollar GBP - British Pound BEF - Belgian Franc ITL - Italian Lira CAD - Canadian Dollar JPY - Japanese Yen CHF - Swiss Franc NZD - New Zealand Dollar DKK - Danish Krone SEK - Swedish Krona EUR - Euro USD - United States Dollar FRF - French Franc (a) Valued by management (Note 1). (b) Security is in default. (c) All or a portion of this security has been segregated to cover margin requirements on open financial futures contracts (Note 6). (d) Represents investments of security lending collateral (Note 1). * Non-performing. Borrower not currently paying interest. ** Non-income producing security. See accompanying notes to the financial statements. 7 GMO Currency Hedged International Bond Fund (A Series of GMO Trust)
Statement of Assets and Liabilities -- August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $318,133,628) (Note 1) $299,061,900 Cash at interest on deposit at brokers (Note 1) 2,643,649 Foreign currency, at value (cost $154,190) (Note 1) 153,801 Interest receivable 6,113,664 Receivable for variation margin on open futures contracts (Notes 1 and 6) 187,332 Receivable for expenses waived or borne by Manager (Note 2) 21,886 ------------ Total assets 308,182,232 ------------ Liabilities: Payable for investments purchased 1,970,338 Payable upon return of securities loaned (Note 1) 46,645 Written options outstanding, at value (premiums $1,186,284) (Notes 1 and 6) 457,520 Net payable for open forward foreign currency contracts (Notes 1 and 6) 2,086,208 Payable for open swap contracts (Notes 1 and 6) 592,821 Interest payable for open swap contracts (Note 1) 468,390 Payable for Fund shares repurchased 458,000 Payable to affiliate for (Note 2): Management fee 64,130 Shareholder service fee 37,209 Accrued expenses 86,897 ------------ Total liabilities 6,268,158 ------------ Net assets $301,914,074 ============ Net assets consist of: Paid-in capital $313,882,752 Accumulated undistributed net investment income 9,290,283 Accumulated undistributed net realized gain 2,679,404 Net unrealized depreciation (23,938,365) ============ $301,914,074 ============ Net assets attributable to: Class III shares $301,914,074 ============ Shares outstanding: Class III 31,384,881 ============ Net asset value per share: Class III $ 9.62 ============
8 See accompanying notes to the financial statements. GMO Currency Hedged International Bond Fund (A Series of GMO Trust)
Statement of Operations -- Six Months Ended August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------- Investment Income: Interest (including securities lending income of $785) $10,522,209 Dividends 331,750 ----------- Total income 10,853,959 ----------- Expenses: Management fee (Note 2) 405,345 Custodian and transfer agent fees 103,289 Audit fees 30,730 Legal fees 5,886 Trustees fees (Note 2) 2,034 Registration fees 364 Miscellaneous 1,830 Fees waived or borne by Manager (Note 2) (144,133) ----------- 405,345 Shareholder service fee (Note 2) Class III 243,202 ----------- Net expenses 648,547 ----------- Net investment income 10,205,412 ----------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (3,099,403) Closed futures contracts 2,332,272 Closed swap contracts (274,828) Foreign currency, forward contracts and foreign currency related transactions 3,939,362 ----------- Net realized gain 2,897,403 ----------- Change in net unrealized appreciation (depreciation) on: Investments (8,805,706) Open futures contracts (2,049,075) Open swap contracts 1,450,068 Written options 571,900 Foreign currency, forward contracts and foreign currency related transactions (2,216,285) ----------- Net unrealized loss (11,049,098) ----------- Net realized and unrealized loss (8,151,695) ----------- Net increase in net assets resulting from operations $ 2,053,717 ===========
See accompanying notes to the financial statements. 9 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ------------------ ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 10,205,412 $ 24,198,721 Net realized gain 2,897,403 7,292,715 Change in net unrealized appreciation (depreciation) (11,049,098) (20,892,066) ------------ ------------ Net increase in net assets resulting from operations 2,053,717 10,599,370 ------------ ------------ Distributions to shareholders from: Net investment income Class III (20,481,830) (6,307,979) ------------ ------------ Total distributions from net investment income (20,481,830) (6,307,979) ------------ ------------ Net realized gains Class III (3,563,277) (14,428,617) ------------ ------------ Total distributions from net realized gains (3,563,277) (14,428,617) ------------ ------------ (24,045,107) (20,736,596) ------------ ------------ Net share transactions: (Note 5) Class III 194,164 12,943,319 ------------ ------------ Increase in net assets resulting from net share transactions 194,164 12,943,319 ------------ ------------ Total increase (decrease) in net assets (21,797,226) 2,806,093 Net assets: Beginning of period 323,711,300 320,905,207 ------------ ------------ End of period (including accumulated undistributed net investment income of $9,290,283 and $19,566,701, respectively) $301,914,074 $323,711,300 ============ ============
10 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 August Year Ended February 28/29, 31, 1999 ------------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 * ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 10.47 $ 10.66 $ 12.16 $ 10.92 $ 9.99 $ 10.00 ----------- ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income 0.33+ 0.74 0.88 0.66 1.05 0.24 Net realized and unrealized gain (loss) (0.32) (0.39) 0.73 2.07 1.62 (0.09) ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations .01 0.35 1.61 2.73 2.67 0.15 ----------- ----------- ----------- ----------- ----------- ----------- Less distributions to shareholders: From net investment income (0.73) (0.16) (0.88) (0.60) (1.04) (0.16) From net realized gains (0.13) (0.38) (2.23) (0.45) (0.42) -- In excess of net realized gains -- -- -- (0.44) (0.28) -- ----------- ----------- ----------- ----------- ----------- ----------- Total distributions (0.86) (0.54) (3.11) (1.49) (1.74) (0.16) ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 9.62 $ 10.47 $ 10.66 $ 12.16 $ 10.92 $ 9.99 =========== =========== =========== =========== =========== =========== Total Return (a) 0.04% 3.20% 14.44% 25.57% 27.36% 1.49% Ratios/Supplemental Data: Net assets, end of period (000's) $ 301,914 $ 323,711 $ 320,905 $ 468,979 $ 236,162 $ 238,664 Net expenses to average daily net assets 0.40%** 0.40% 0.40% 0.40% 0.40% 0.40%** Net investment income to average daily net assets 6.29%** 6.30% 6.50% 6.86% 8.54% 8.46%** Portfolio turnover rate 54% 116% 135% 90% 85% 64% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per $ 0.01 $ 0.04 $ 0.05 $ 0.03 $ 0.03 $ 0.01 share amounts:
* 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. 11 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 through investment in foreign bond and currency markets. The Fund's current benchmark is the J.P. Morgan Non-U.S. Government Bond Index (Hedged). 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. Some fixed income securities and options thereon are valued at the closing bid for such securities as supplied by a primary pricing source chosen by the Manager. The Manager evaluates such primary pricing sources on an ongoing basis, and may change any pricing source at any time. The Manager is kept informed of erratic or unusual movements (including unusual inactivity) in the prices supplied for a security and has the power to override any price supplied by a source (by taking a price supplied by another source) because the Manager has reasons to suspect that a price supplied may not be reliable. 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 Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Certain investments in securities held by the Fund were valued on the basis of a price provided by a principal market maker. The prices provided by the principal market makers may differ from the value that would be realized if the securities were sold 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 entering into 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 and agency 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 as of August 31, 1999. 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, 13 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 14 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 and credit risk. The Fund may enter into interest rate, total return and credit default swap agreements. Interest rate swap agreements 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 national amount of principal. Total return swap agreements involve commitments to pay interest in exchange for a market-linked return based on a national amount. To the extent 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. Credit default swaps involve the payment of a specified rate based on the national amount. The Fund receives payment upon a default of the underlying security. In connection with these agreements, cash or securities may be set aside as collateral by the Fund's custodian in accordance with the terms of the swap agreement. The Fund earns interest on cash set aside as collateral, which is paid by the counterparty. At August 31, 1999, $2,643,649 in cash has been set aside. 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. Net payments of interest on interest rate swap agreements are recorded as interest income. 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 will be 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, 1999. 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. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the Fund and the counterparty. 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. 15 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Reverse repurchase agreements The Fund may enter into reverse repurchase agreements with certain banks and broker/dealers whereby the Fund sells portfolio assets concurrent with an agreement by the Fund to repurchase the same assets at a later date at a fixed price. In connection with these agreements, the Fund establishes segregated accounts with its custodian in which the Fund maintains cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its obligations in respect of reverse repurchase agreements. Reverse repurchase agreements involve the risk that the market value of the securities retained by the Fund may decline below the price of the securities the Fund has sold but is obligated to repurchase under the agreement. At August 31, 1999, the Fund had not entered into a reverse repurchase agreement. 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 fail financially. The Fund receives compensation for lending its securities. At August 31, 1999, the Fund loaned securities having a market value of $43,181, collateralized by cash in the amount of $46,645, 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 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. Income dividends 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. 16 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Dividend income is recorded on the ex-dividend date. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis. Interest income on U.S. Treasury inflation indexed securities is accrued daily based upon an inflation adjusted principal. Additionally, any increase in the principal or face amount of the securities adjusted for inflation is recorded as interest income. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .15% of the amount invested. The premium will be reduced by 50% with respect to any portion of a purchase that is offset by a corresponding redemption occurring on the same day. In addition, the purchase premium for the Fund will be reduced by 50% if the purchaser makes an in-kind purchase of Fund shares or if the purchase or redemption is part of a transfer from or to another Fund where the Manager is able to transfer securities among the Funds to effect the transaction. All purchase premiums are paid to and recorded by the Fund as paid-in capital. For the six months ended August 31, 1999, the Fund received $103,533 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, including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be more volatile than securities of comparable U.S. companies and U.S. securities markets. The risks described above apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and developed foreign markets. 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 Service 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 average daily net assets at the annual rate of .15% for Class III shares. 17 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .50% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .25% 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, 1999, was $2,034. 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, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds ------------------ ------------------- U.S. Government securities $ 2,004,682 $ 2,008,492 Investments (non-U.S. Government securities) 159,419,344 162,169,587
At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ------------------------ ----------------------- ---------------------- -------------------- $318,133,628 $3,704,227 $22,775,955 $19,071,728
4. Principal shareholders At August 31, 1999, 85.1% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 18 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 February 28, 1999 ------------------------------ ------------------------------- Class III: Shares Amount Shares Amount ------------- ------------- ------------ -------------- Shares sold 6,559,977 $ 69,021,750 12,392,112 $ 135,897,894 Shares issued to shareholders in reinvestment of distributions 2,387,142 23,298,514 1,908,812 20,116,214 Shares repurchased (8,481,317) (92,126,100) (13,476,925) (143,070,789) ------------- ------------- ------------ -------------- Net increase 465,802 $ 194,164 823,999 $ 12,943,319 ============= ============= ============ ==============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows:
Forward currency contracts Net Unrealized Settlement Appreciation Date Deliver/Receive Units of Currency Value (Depreciation) -------------- ---------------- --------------------- --------------- ------------------- Buys 9/16/99 AUD 14,200,000 $ 9,050,739 $ (439,210) 9/30/99 CAD 39,600,000 26,551,877 (385,236) 10/15/99 EUR 3,600,000 3,816,270 14,310 9/23/99 GBP 19,700,000 31,685,905 55,100 9/09/99 JPY 1,070,000,000 9,772,497 547,422 ------------------- $ (207,614) =================== Sales 9/16/99 AUD 37,000,000 $ 23,582,912 $ 572,143 9/30/99 CAD 21,900,000 14,683,992 22,743 10/15/99 EUR 48,100,000 50,989,605 332,628 9/23/99 GBP 65,800,000 105,834,141 (2,404,412) 9/09/99 JPY 710,000,000 6,484,554 (374,779) 10/22/99 NZD 6,300,000 3,260,444 66,523 ------------------- $ (1,785,154) ===================
19 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Forward cross currency contracts Net Unrealized Settlement Appreciation Date Deliver/Units of Currency Receive/In Exchange For (Depreciation) -------------- ----------------------------- ----------------------------- ------------------- 11/05/99 CHF 25,321,545 EUR 15,900,000 31,377 10/29/99 EUR 3,600,000 SEK 31,375,800 (6,120) 10/29/99 SEK 211,357,000 EUR 24,100,000 (118,697) ------------------- (93,440) =================== Futures contracts Net Unrealized Number of Expiration Contract Appreciation Contracts Type Date Value (Depreciation) -------------- ---------------------------------- ----------------- --------------- ----------------- Buys 54 Australian Government Bond 3 yr. September 1999 $ 4,029,845 $ 13,536 713 German Government Bond September 1999 81,241,481 (3,348,935) 34 Japanese Government Bond 10 yr. March 2000 39,995,622 86,628 44 Swedish Government Bond 10 yr. September 1999 5,496,937 (147,017) ---------------- $ (3,395,788) ================ Sales 95 Canadian Government Bond 10 yr. September 1999 $ 7,865,735 $ 164,660 1 Japanese Government Bond March 2000 1,177,436 84 35 Swiss Government Bond September 1999 2,842,783 51,394 12 Swiss Government Bond December 1999 963,818 8,829 181 U.K. Gilt December 1999 31,965,316 56,604 45 U.S. Treasury Note 5yr. December 1999 4,857,187 5,332 552 U.S. Treasury Note 10yr. December 1999 60,366,750 223,076 187 U.S. Long Bond December 1999 21,312,156 116,675 ---------------- $ 626,654 ================
At August 31, 1999, the Fund has sufficient cash and/or securities to cover any margin requirements on open futures contracts. 20 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Written option transactions Puts Calls Principal Principal Amount Amount of of Contracts Contracts (000's omitted) Premiums (000's omitted) Premiums ------------------ --------------- ----------------- --------------- Outstanding, beginning of period 8,600 $ 541,284 8,600 $ 645,000 Options written -- -- -- -- Options closed -- -- -- -- Options exercised -- -- -- -- Options expired -- -- -- -- ================== =============== ================= =============== Outstanding, end of period 8,600 $ 541,284 8,600 $ 645,000 ================== =============== ================= ===============
Summary of written options outstanding Principal Amount of Contracts Expiration (000's omitted) Exercise Price Date Value ------------------ --------------- ------------------ --------------- USD Call/JPY Put 8,600 USD 112.7 JPY 11/16/99 $ 99,760 USD Put/JPY Call 8,600 USD 112.7 JPY 11/16/99 357,760 --------------- $ 457,520 ===============
21 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Swap agreements Net National Unrealized Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ----------------------- ------------ ------------------------------------------------ -------------- Credit Default Swaps 288,000,000,000 ITL 3/31/03 Agreement with Morgan Guaranty Trust Company $ (147,733) dated 3/26/98 to pay .07% per year times the national amount. The Fund receives payment only upon a default event in Italy, the notional amount times the difference between the par value and the then-market value of Italy BTP, 6.00% due 11/01/07. 6,036,000,000 BEF 3/31/03 Agreement with Morgan Guaranty Trust Company (148,616) dated 3/26/98 to pay .07% per year times the notional amount. The Fund receives payment only upon a default event in Belgium, the notional amount times the difference between the par value and the then-market value of Kingdom of Belgium, 5.75% due 3/28/08. Interest Rate Swaps 27,300,000 CHF 6/05/05 Agreement with Morgan Guaranty Trust Company (14,480) dated 6/03/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 23,700,000 CHF 6/10/05 Agreement with Credit Suisse Financial 16,682 Products dated 6/08/98 to pay the notional amount multiplied by 3.2625% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread.
22 GMO Currency Hedged International Bond Fund (A Series of GMO Trust) Notes to Financial Statements -- (Continued) August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Swap agreements -- continued Net Notional Unrealized Amount Expiration Appreciation Fund/Counterparty Date Description (Depreciation) ----------------------- ------------ ------------------------------------------------ -------------- 14,200,000 CHF 6/11/05 Agreement with Morgan Guaranty Trust Company $ (10,746) dated 6/09/98 to pay the notional amount multiplied by 3.245% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 10,700,000 CHF 9/16/05 Agreement with Morgan Guaranty Trust Company 233,136 dated 9/14/98 to pay the notional amount multiplied by 3.1175% and to receive the notional amount multiplied by 6 month Floating Rate Swiss LIBOR adjusted by a specified spread. 35,000,000 USD 7/29/06 Agreement with Morgan Guaranty Trust Company (444,345) dated 7/27/99 to receive the notional amount multiplied by 6.664% and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specific spread. Total Return Swap 75,000,000 USD 7/25/01 Agreement with Morgan Guaranty Trust Company (76,719) dated 7/1/99 to receive (pay) the notional amount multiplied by the return on the JP Morgan Non-U.S. Traded Total Return Government Bond Index and to pay the notional amount multiplied by 1 month LIBOR adjusted by a specified spread. -------------- $ (592,821) ==============
See Notes to the Schedule of Investments for definitions of currency abbreviations. 23 GMO Japan Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------- COMMON STOCKS - 95.1% Automotive - 5.2% 7,000 Fuji Heavy Industries Ltd 55,671 4,000 Honda Motor Co Ltd 160,518 19,000 Mitsubishi Motors 103,105 53,000 Nissan Motor Co 308,395 10,000 Suzuki Motor Corp 168,726 ------------- 796,415 ------------- Banking - 11.6% 22,000 Asahi Bank 134,434 5,000 Dai-Ichi Kangyo Bank 52,488 32,000 Daiwa Bank 101,856 37,000 Fuji Bank 381,322 20,000 Industrial Bank of Japan 203,384 10,000 Mitsubishi Trust & Banking 104,884 28,000 Mitsui Trust & Banking Co Ltd 57,714 60,000 Sakura Bank Ltd 317,388 2,000 Sumitomo Bank 27,361 20,000 Sumitomo Trust & Banking 133,157 23,000 Tokai Bank 145,998 11,000 Toyo Trust & Banking Co Ltd 46,851 28,000 Yasuda Trust & Banking * 48,009 ------------- 1,754,846 ------------- Chemicals - 4.1% 39,000 Daicel Chemical Industries Ltd 160,062 8,000 Dainippon Ink & Chemicals Inc 31,009 32,000 Mitsui Petrochemical Industries Ltd 233,481 15,000 Sekisui Chemical 83,451 2,000 Shin-Etsu Chemical Co Ltd 81,353 4,000 Sumitomo Bakelite Co Ltd 41,735 ------------- 631,091 ------------- Construction - 9.8% 164,000 Aoki Corp * 92,736 5,300 Daito Trust Construction Co Ltd 68,881 17,000 Daiwa House Industry Co Ltd 170,550 5,000 INAX Corp 36,846 16,000 Kajima Corp 69,023 39,000 Maeda Corp 152,948 77,000 Marubeni Corp 181,887 5,000 Nishimatsu Construction 28,957 8,000 Obayashi Corp 43,121 15,000 Okumura Corp 56,774
See accompanying notes to the financial statements. 1 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------- Construction - continued 22,000 Onoda Cement Co Ltd 57,586 63,000 Sato Kogyo Co Ltd 45,392 20,000 Sekisui House Ltd 214,693 10,000 Shimizu Corp 44,598 10,000 Sumitomo Realty and Development Co Ltd 40,038 12,000 Taisei Corp 26,814 8,000 Tostem Corp 164,166 ------------- 1,495,010 ------------- Consumer Goods - 4.3% 14,000 Ezaki Glico Co Ltd 76,739 1,000 Fuji Photo Film Co Ltd 36,481 11,000 Itochu Corp 33,608 2,900 Nintendo Co Ltd 502,531 ------------- 649,359 ------------- Electric - 3.9% 7,000 Furukawa Electric Co Ltd 39,582 4,000 Matsushita Electric Industrial Co Ltd 78,800 60,000 Mitsubishi Electric Corp 303,160 37,000 Oki Electric Industry 172,101 ------------- 593,643 ------------- Electronics - 6.3% 300 Advantest Corp 40,631 3,000 Aiwa Co 86,461 4,000 Canon Inc 116,740 2,900 Fanuc Co 174,563 7,000 Fuji Electric Co 31,985 1,000 Hirose Electric Co. Ltd 125,861 2,300 Kyocera Corp 151,033 5,000 Nichicon Corp 98,044 9,000 Sanyo Electric Company 38,989 11,000 Toshiba Corp 97,615 ------------- 961,922 ------------- Financial Services - 5.7% 1,000 Acom Ltd 101,327 2,000 Credit Saison Co 45,054 21,000 Daiwa Securities Co Ltd 189,807 34,000 New Japan Securities Co Ltd * 107,912 15,000 Nikko Securities 129,691 400 Orix Corp 38,451 3,000 Promise Co 248,985 ------------- 861,227 -------------
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, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------- Food and Beverage - 2.9% 5,000 House Foods Corp 75,471 1,000 Ito-Yokado 73,510 9,000 Kirin Brewery Co Ltd 109,171 7,000 Nippon Meat Packers Inc 95,764 700 Q.P. Corp 4,916 18,000 Snow Brand Milk Products Co Ltd 82,247 ------------- 441,079 ------------- Health Care - 1.4% 6,000 Sankyo Co Ltd 166,902 3,000 Shiseido Co Ltd 41,862 ------------- 208,764 ------------- Leisure - 0.8% 4,000 Heiwa Corp 121,118 ------------- Machinery - 4.7% 21,000 Amada Co Ltd 176,205 57,000 Ishikawajima-Harima Heavy Industries 111,770 47,000 Kawasaki Heavy Industries Ltd 107,164 15,000 Kubota Corp 47,335 55,000 Mitsubishi Heavy Industries 239,272 5,000 NHK Spring Co Ltd 29,276 ------------- 711,022 ------------- Manufacturing - 0.8% 5,000 Toyo Seikan Kaisha 116,284 ------------- Metals and Mining - 5.5% 6,000 Fujikara Ltd 38,415 157,000 Kobe Steel Ltd 137,462 20,000 Mitsubishi Material 56,364 6,000 Nitto Denko Corp 165,808 194,000 NKK Corp 180,473 6,000 NSK Ltd 38,524 111,000 Sumitomo Metal Industries 148,817 77,000 Tomen Corp 78,654 ------------- 844,517 ------------- Oil and Gas - 3.0% 58,000 Cosmo Oil Co Ltd 105,796 50,900 Nippon Oil Co Ltd 225,149 19,600 Showa Shell Sekiyu 131,924 ------------- 462,869 -------------
See accompanying notes to the financial statements. 3 GMO Japan Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------- Paper and Allied Products - 1.0% 8,000 New Oji Paper Co Ltd 55,452 12,000 Sumitomo Forestry Co Ltd 94,997 ------------- 150,449 ------------- Pharmaceuticals - 2.7% 10,000 Chugai Pharmaceutical Co Ltd 110,356 9,000 Daiichi Seiyaku Co Ltd 138,803 4,000 Taisho Pharmaceutical Co Ltd 168,179 ------------- 417,338 ------------- Retail Trade - 0.5% 1,000 Aoyama Trading 37,302 2,000 Jusco Co Ltd 38,488 ------------- 75,790 ------------- Services - 3.3% 9,000 Canon Sales Co Inc 142,907 1,400 CSK Corp 39,582 7,000 Nippon Shinpan Co 24,260 111,000 Nissho Iwai Corp 120,471 1,000 Secom Co Ltd 136,349 6,000 Sumitomo Corp 42,683 ------------- 506,252 ------------- Technology - 7.1% 76,000 Hitachi Ltd 770,085 700 Keyence Corp 158,648 1,200 TDK Corp 145,561 ------------- 1,074,294 ------------- Telecommunications - 0.5% 5,000 Tokyo Broadcasting System Inc 80,943 ------------- Textiles - 1.3% 27,000 Nisshinbo Industries Inc 140,608 6,000 Tokyo Style Co Ltd 64,572 ------------- 205,180 ------------- Tobacco - 2.3% 25 Japan Tobacco Inc 346,573 ------------- Transportation - 1.6% 55,000 Kawasaki Kisen 111,861 18,000 Seino Transportation Co Ltd 114,588 5,000 Toei Co Ltd 18,606 ------------- 245,055 -------------
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, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - ---------------------------------------------------------------------------------- Utilities - 4.8% 4,600 Chubu Electric Power Co Inc 85,795 1,400 Hokkaido Electric Power 21,757 800 Hokuriku Electric Power 13,024 3,000 Kokusai Denshin Denwa 233,937 12,500 Kyushu Electric Power Co Inc 199,508 1,300 Shikoku Electric Power 20,867 9,500 Tohoku Electric Power Co Inc 150,759 ------------- 725,647 ------------- TOTAL COMMON STOCKS (Cost $11,505,185) 14,476,687 ------------- SHORT-TERM INVESTMENTS - 2.6% Cash Equivalents - 2.6% $ 400,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 400,000 ------------- TOTAL SHORT-TERM INVESTMENTS (Cost $400,000) 400,000 ------------- TOTAL INVESTMENTS - 97.7% (Cost $11,905,185) 14,876,687 Other Assets and Liabilities (net) - 2.3% 349,008 ------------- TOTAL NET ASSETS - 100.0% $ 15,225,695 =============
* Non-income producing security. See accompanying notes to the financial statements. 5 GMO Japan Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - ----------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $11,905,185) (Note 1) $ 14,876,687 Foreign currency, at value (cost $293,069) (Note 1) 318,267 Cash 61,102 Dividends and interest receivable 17,201 Receivable for variation margin on open futures contracts (Notes 1 and 6) 4,378 Receivable for expenses waived or borne by Manager (Note 2) 15,593 ------------- Total assets 15,293,228 ------------- Liabilities: Payable to affiliate for (Note 2): Management fee 6,282 Shareholder service fee 1,848 Accrued expenses 59,403 ------------- Total liabilities 67,533 ------------- Net assets $ 15,225,695 ============= Net assets consist of: Paid-in capital $ 57,806,852 Undistributed net investment income 351,107 Accumulated net realized loss (45,934,903) Net unrealized appreciation 3,002,639 ------------- $ 15,225,695 ============= Net assets attributable to Class III Shares $ 15,225,695 ============= Shares outstanding - Class III 1,752,961 ============= Net asset value per share - Class III $ 8.69 =============
6 See accompanying notes to the financial statements. GMO Japan Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------ Investment income: Dividends (net of foreign tax expense of $97,825) $ 554,339 Interest 55,508 -------------- Total income 609,847 -------------- Expenses: Management fee (Note 2) 184,419 Custodian fees 70,508 Audit fees 24,842 Transfer agent fees 14,166 Legal fees 1,751 Trustees fees (Note 2) 645 Registration fees 364 Miscellaneous 643 Fees waived or borne by Manager (Note 2) (112,919) -------------- 184,419 Shareholder service fee - Class III (Note 2) 51,228 -------------- Net expenses 235,647 -------------- Net investment income 374,200 -------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 15,177,576 Closed futures contracts 1,497,701 Foreign currency and foreign currency related transactions (127,201) -------------- Net realized gain 16,548,076 -------------- Change in net unrealized appreciation (depreciation) on: Investments 8,776,597 Open futures contracts (31,096) Foreign currency and foreign currency related transactions 18,202 -------------- Net unrealized gain 8,763,703 -------------- Net realized and unrealized gain 25,311,779 -------------- Net increase in net assets resulting from operations $ 25,685,979 ==============
See accompanying notes to the financial statements. 7 GMO Japan Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - -------------------------------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 -------------------- -------------------- Increase (decrease) in net assets: Operations: Net investment income $ 374,200 $ 350,253 Net realized gain (loss) 16,548,076 (26,170,871) Change in net unrealized appreciation (depreciation) 8,763,703 20,479,042 -------------------- -------------------- Net increase (decrease) in net assets resulting from operations 25,685,979 (5,341,576) -------------------- -------------------- Net share transactions - Class III (Note 5) (138,849,756) (15,421,445) -------------------- -------------------- Total decrease in net assets (113,163,777) (20,763,021) Net assets: Beginning of period 128,389,472 149,152,493 -------------------- -------------------- End of period (including undistributed net investment income of $351,107 and distributions in excess of net investment income of $23,093, respectively) $ 15,225,695 $ 128,389,472 ==================== ====================
8 See accompanying notes to the financial statements. GMO Japan 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, 1999 ------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ------------------- --------- --------- --------- ------------ --------- Net asset value, beginning of period $ 6.20 $ 6.36 $ 7.02 $ 8.52 $ 9.12 $ 11.13 ------------------- --------- --------- --------- ------------ --------- Income (loss) from investment operations: Net investment income (loss) 0.04 (c) 0.01 0.01 - (c) (0.01)(c) - (c) Net realized and unrealized gain (loss) 2.45 (0.17) (0.67) (1.50) 0.79 (1.08) ------------------- --------- --------- --------- ------------ --------- Total from investment operations 2.49 (0.16) (0.66) (1.50) 0.78 (1.08) ------------------- --------- --------- --------- ------------ --------- Less distributions to shareholders: From net investment income - - - - - - In excess of net investment income - - - (0.00) - - From net realized gains - - - - (1.38) (0.93) ------------------- --------- --------- --------- ------------ --------- Total distributions - - - (0.00) (1.38) (0.93) ------------------- --------- --------- --------- ------------ --------- Net asset value, end of period $ 8.69 $ 6.20 $ 6.36 $ 7.02 $ 8.52 $ 9.12 =================== ========= ========= ========= ============ ========= Total Return (a) 40.16% (2.52%) (9.40%) (17.69%) 8.29% (10.62%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 15,226 $ 128,389 $ 149,152 $ 218,797 $ 126,107 $ 60,123 Net expenses to average daily net assets 0.69% * 0.69% 0.69% 0.70% (d) 0.92% 0.83% Net investment income (loss) to average daily net assets 1.10% * 0.25% 0.21% 0.01% (0.13%) (0.02%) Portfolio turnover rate 30% 102% 128% 4% 23% 60% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.01 $ - (b)
* 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 waived or borne by the Manager were less than $.01 per share. (c) Based on average month end shares outstanding. (d) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximate .01% of average daily net assets. See accompanying notes to the financial statements. 9 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 high total return through investment in equity securities of Japanese companies. The Fund's current benchmark is the MSCI Japan Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 10 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 forward foreign currency contracts outstanding as of August 31, 1999. 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 given date. The Fund may use futures contracts to manage its exposure to the stock market. 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 entering into 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 and agency 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 as of August 31, 1999. 11 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 total return 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. Total return 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 will be 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 outstanding as of August 31, 1999. 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, 1999, the Fund had no securities out 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 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. At February 28, 1999, the Fund had a capital loss carryforward available to offset future capital gains, if any, of $43,013, $22,345,866 and $34,928,863, expiring in 2005, 2006 and 2007, respectively. 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 dividends 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. 12 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases and fee on redemptions of Fund shares is .20% of the amount invested or redeemed. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" and redemption fees are included as part of "shares repurchased", respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $6,438 in purchase premiums and $123,280 in redemption fees. There is no premium for reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a purchase premium of up to .10% may be charged on certain 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .54% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. 13 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999 GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999, was $645. 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, 1999, aggregated $18,940,361 and $152,191,791, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $11,905,185 $3,141,346 $169,844 $2,971,502 4. Principal shareholders At August 31, 1999, 82% of the outstanding shares of the Fund were held by three shareholders, each holding in excess of 10% of the Fund's outstanding shares. Investment activities of these shareholders could have a material effect. 14 GMO Japan Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, including the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 --------------------------------- ------------------------------- Shares Amount Shares Amount --------------- ---------------- -------------- --------------- Shares sold 870,012 $ 6,178,489 7,008,018 $ 42,026,700 Shares repurchased (19,833,678) (145,028,245) (9,737,557) (57,448,145) --------------- ---------------- -------------- --------------- Net decrease (18,963,666) $ (138,849,756) (2,729,539) $ (15,421,445) =============== ================ ============== ===============
6. Financial instruments A summary of outstanding futures contracts purchased at August 31, 1999 is as follows: Number of Net Unrealized Contracts Type Expiration Date Contract Value Appreciation ----------- ------- ----------------- ----------------- ---------------- 3 TOPIX September 1999 $ 360,198 $ 4,378 ================ At August 31, 1999, the Fund had cash and/or securities to cover any margin requirements on open futures contracts. 15 GMO International Small Companies Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ COMMON STOCKS - 94.4% Austria - 1.9% 747 Allgemeine Baugesellschaft AG 66,278 18,523 Austrian Airlines 431,406 1,721 Bau Holdings AG 60,079 15,810 Boehler Uddeholm (Bearer) 759,652 6,789 Brau Union AG 325,917 2,070 BWT AG 385,906 3,089 Interunfall Versicherung AG 329,538 1,203 Oesterreichische Brau Beteiligungs AG 54,893 12,238 Radex-Heraklith AG 347,203 3,175 Universale Bau AG 107,315 226 Wiener Allianz Versicherungs AG 32,704 2,510 Wolford AG 125,931 -------------- 3,026,822 -------------- Canada - 4.8% 24,990 Air Canada Inc * 151,561 9,750 Alberta Energy Ltd 300,563 19,590 Anderson Exploration Ltd * 282,258 16,690 BCE Mobile Communications * 647,042 1,969 BCT Telus Communications Inc Class A (Non Voting) 42,555 16,690 CAE Industries Inc 99,545 11,480 Cameco Corp 214,644 11,580 Canadian Natural Resources * 287,133 12,740 Canadian Tire Corp Ltd Class A 325,287 8,200 Cominco Ltd 141,502 20,460 Cott Corp * 74,041 14,860 Dofasco Inc 253,443 28,180 Domtar Inc 307,823 24,600 Donohue Inc Class A 398,130 58,000 Echo Bay Mines Ltd * 77,738 18,960 Ipsco Inc 393,888 8,680 Loewen Group Inc * 6,108 14,570 Mackenzie Financial Corp 142,556 21,910 Macmillan Bloedel Ltd 331,102 24,410 Methanex Corp * 71,977 17,270 Mitel Corp * 119,207 10,710 Molson Co Ltd Class A 183,381 2,100 Molson Co Ltd Class B 35,887 13,900 Moore Corporation Ltd 130,877 27,210 National Bank of Canada Montreal 330,050 28,200 Nexfor Inc 172,919
See accompanying notes to the financial statements. 1 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Canada - continued 14,200 NS Power Holdings Inc 156,065 5,110 Quebecor Inc Class B 128,418 16,846 Ranger Oil Ltd * 76,768 9,360 Rio Algom Ltd 142,702 6,470 Rogers Communications Class B * 113,817 10,520 Sears Canada Inc 227,715 5,736 Sobeys Inc * 69,768 21,330 Stelco Inc Class A 163,670 9,070 Torstar Corp Class B 97,252 18,140 Transalta Corp 240,700 200 TVA Group Inc Class B 2,553 42,070 TVX Gold Inc * 33,268 5,980 United Dominion Industries Ltd 141,064 15,250 Westcoast Energy Inc 297,907 -------------- 7,412,884 -------------- Denmark - 0.0% 800 Hafnia Holdings (Registered) Class A (c) * 1 -------------- Finland - 1.1% 3,000 Asko Oyj 50,637 1,200 Finnilines 33,209 800 Huhtamaki Oyj Class I 27,716 175 Instrumentarium Oyj Class A 6,562 6,000 Kemira Oyj 34,096 4,200 Kesko Oyj 51,549 250 Kone Corp Class B 31,027 3,400 Metra AB Class B 61,051 9,374 Metso Oyj * 118,815 3,000 Orion-Yhtyma Oyj Class B 72,501 3,600 Oyj Hartwall Abp 48,672 2,500 Pohjola Group Insurance Class B 121,733 15,400 Raisio Group Plc Class V 155,505 8,310 Rautaruukki Oyj 59,687 3,200 Sampo Insurance Co Ltd Class A 104,780 2,000 Stockmann AB Class B 28,624 3,800 Tieto Corp 128,440 14,623 Tietoenator Oyj * 486,902 -------------- 1,621,506 -------------- France - 10.1% 7,620 BIC SA 399,212 1,200 Cap Gemini SA 205,969 3,800 Casino Guichard-Perrachon SA 400,171
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ France - continued 1,260 Castorama Dubois Investment 328,726 6,750 Club Mediterranee SA * 698,709 12,630 Compagnie Generale d'Industrie et de Participations 624,332 3,280 Compagnie Parisienne de Reescompte 148,974 9,270 Credit Commercial de France 1,162,244 2,020 Eridania Beghin-Say SA 267,130 2,230 Essilor International 744,318 4,179 Gaz Et Eaux 214,744 730 Groupe Andre 108,720 2,530 Hermes International 276,584 4,330 Imetal 689,693 11,190 Moulinex * 109,093 3,450 Pathe SA 400,847 9,660 Pechiney SA Class A 562,206 5,630 Pernod Ricard 431,730 6,725 Peugeot SA 1,235,971 670 Sagem SA 173,737 17,316 Sanofi-Synthelabo SA * 720,627 2,210 Seb SA 168,187 18,140 Seita 988,675 3,550 Simco Union Habit (Registered) 312,161 799 Societe Eurafrance 490,331 5,140 Sodexho Alliance 844,229 5,140 Technip SA 567,886 5,560 TV Francaise 1,385,969 1,749 Unibail (Bearer) 241,083 46,270 Usinor Sacilor 715,985 -------------- 15,618,243 -------------- Germany - 7.4% 6,080 Adidas Salomon AG 565,136 4,290 Altana AG 283,207 1,210 Ava Allgemeine Handelsgesellschaft der Verbraucher AG 451,156 6,950 Axa Colonia Konzern AG 675,366 290 Axel Springer Verlag AG 346,133 22,870 Bankgesellschaft Berlin AG 406,794 6,170 Beiersdorf AG (Bearer) 415,137 30,070 Berliner Kraft & Licht AG Class A 457,365 23,550 BHF Bank AG 1,111,899 5,450 Bilfinger & Berger 131,250 24,960 Buderus AG 421,824 22,580 Continental AG 519,933 857 DBV-Winterthur Holding AG 403,722
See accompanying notes to the financial statements. 3 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Germany - continued 6,250 Degussa-Huels AG * 241,617 4,290 Douglas Holdings AG 185,784 9,790 FAG Kugelfischer 102,890 7,910 Gehe AG 380,150 1,740 Hamburgische Electricitaets-Werke AG 38,595 7,045 Heidelberg Port-Zement 710,642 4,730 Hochtief AG 205,338 630 Holzmann (Philipp) * 111,794 14,470 IWKA AG 267,469 870 Karstadt AG 411,684 1,800 Linde AG 109,892 17,400 MAN AG 588,120 12,830 Metallgesellschaft 290,006 1,400 Preussag AG 79,705 770 Schmalbach-Lubeca 105,487 3,520 Schwarz Pharma AG 144,444 2,220 SGL Carbon AG 161,796 13,610 SKW Trostberg AG 310,512 720 Suedzucker AG 292,640 7,496 Thyssen Krupp AG * 174,980 7,720 Vereins Und Westbank 225,465 8,840 Wella AG 210,088 -------------- 11,538,020 -------------- Hong Kong - 1.7% 18,000 Asia Satellite Telecom 44,043 131,000 Associated International Hotels 52,298 188,000 Chinese Estates Holdings Ltd 30,748 66,000 Cross Harbour Tunnel Co Ltd 56,097 48,400 Dah Sing Financial Services 192,599 59,000 Great Eagle Holdings Ltd 86,618 572,000 Guangdong Investment Ltd 117,123 40,000 Guoco Group 118,736 108,000 Hang Lung Development Co Ltd 123,784 135,000 Henderson Investment Ltd 93,012 134,400 HKR International Ltd 103,849 85,500 Hong Kong Aircraft Engineering Co Ltd 151,948 54,000 Hong Kong & Shanghai Hotels 42,768 138,000 Hopewell Holdings Ltd 94,190 96,000 Hysan Development Co Ltd 124,866 100,000 Kumagai Gumi Ltd 48,937 434,000 Lai Sun Garment International Ltd 25,710 26,000 New World Infrastructure * 36,496
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Hong Kong - continued 27,100 Realty Development Corp Ltd Class A 51,128 300,000 Regal Hotels International Ltd 32,066 66,000 Shangri La Asia 74,796 840,000 South China Morning Post Ltd 530,061 24,000 Television Broadcasting Ltd 107,557 664,000 Top Glory International Holdings 65,843 96,101 Tsim Sha Tsui Properties Ltd 63,117 14,000 Varitronix International 30,830 108,000 Wheelock and Co Ltd 139,778 14,000 Wing On International Holdings Ltd 12,891 125,500 Winsor Properties Holdings Ltd 34,748 -------------- 2,686,637 -------------- Italy - 2.1% 716,220 Banca Nazionale dell'Agricultura (BNA) (Non Convertible) 821,567 53,490 Finmeccanica SPA (Non Convertible) * 40,059 102,000 Fornara SPA (c) * - 213,400 Grassetto SPA (c) * 1 3,500 Recordati Industria Chimica e Farmaceutica SPA 29,944 51,140 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 230,651 69,713 Reno de Medici SPA 231,212 45,350 Rinascente 198,789 308,800 Snia BPD SPA (Non Convertible) 241,366 333,464 Unicem Di Risp 1,482,852 -------------- 3,276,441 -------------- Japan - 25.1% 89,000 Amada Co Ltd 746,774 23,000 Amano Corp 178,303 221,000 Aoki Corp * 124,967 9,000 Aoki International 41,124 20,800 Aoyama Trading 775,886 83,000 Atsugi Nylon Industrial 96,138 13,000 Bandai Co 207,488 46,000 Canon Sales Co Inc 730,412 2,000 Chudenko Corp 34,292 70,000 Citizen Watch Co 601,395 202,000 Cosmo Oil Co Ltd 368,462 16,700 CSK Corp 472,160 43,000 Daicel Chemical Industries Ltd 176,479 90,000 Daido Steel Co Ltd 155,958 17,000 Dainippon Pharmaceutical Co Ltd 104,501 22,000 Daio Paper Corp 153,094 46,900 Daito Trust Construction Co Ltd 609,535
See accompanying notes to the financial statements. 5 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Japan - continued 94,000 Denki Kagaku Kogyo 220,329 3,000 Denny's Japan Co Ltd 73,328 39,000 Ezaki Glico Co Ltd 213,772 23,000 Fujitec Co 240,184 61,000 Fukuyama Transporting Co Ltd 350,495 45,000 Furukawa Co Ltd 69,771 111,000 Gakken Co Ltd 168,051 89,000 General Sekiyu (KK) 262,183 44,000 Hankyu Department Stores Inc 305,787 8,000 Hanwa Co Ltd 11,017 165,000 Haseko Corp * 112,864 24,000 Hitachi Maxell Ltd 590,998 96,000 Hitachi Metals Ltd 656,665 27,000 Hokuetsu Paper Mills 183,456 15,000 House Foods Corp 226,413 25,000 Hyogo Bank Ltd (c) 2 66,000 INAX Corp 486,370 35,000 Intec Inc 478,499 12,000 Itoham Foods Inc 47,061 28,000 Izumiya Co Ltd 259,200 22,000 Japan Airport Terminal Co Ltd 262,848 64,000 Japan Steel Works Ltd 79,967 99,000 Japan Synthetic Rubber Co Ltd 827,069 46,000 JGC Corp 124,183 33,000 Joshin Denki Co Ltd 122,495 25,000 Kamigumi Co Ltd 150,486 34,000 Kandenko Co 201,249 78,000 Kaneka Corp 889,233 10,000 Katokichi Co Ltd 188,335 155,000 Keihin Electric Express Railway Co Ltd 555,566 194,000 Keio Teito Electric Railway Co Ltd 769,666 20,000 Kikkoman Corp 163,984 14,000 Kissei Pharmaceutical Co Ltd 274,522 5,000 Kokuyo Co Ltd 88,923 22,000 Komori Corp 471,522 48,000 Koyo Seiko Co Ltd 446,094 108,000 Kurabo Industries Ltd 132,975 207,000 Kureha Chemical Industry Co Ltd 613,571 10,000 Kyowa Exeo Corp 97,588 6,000 Kyudenko Corp 30,261 69,000 Lion Corp 264,308 55,000 Maeda Corp 215,696
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Japan - continued 35,000 Maeda Road Construction 225,044 51,000 Makino Milling Machine Co Ltd 378,157 45,000 Makita Corp 533,540 25,000 Matsushita Refrigeration Co 91,431 51,000 Mitsubishi Belting 138,611 152,000 Mitsubishi Gas Chemical Co Inc 436,682 27,000 Mori Seiki Co Ltd 446,942 12,000 Nagase & Co 57,458 36,000 Nagoya Railroad Co Ltd 107,365 34,000 Nankai Electric Railway Co Ltd 139,541 10,000 NHK Spring Co Ltd 58,553 23,000 Nichicon Corp 451,001 3,000 Nihon Unisys Ltd 90,839 101,000 Nippon Chemi-Con Corp 491,897 33,000 Nippon Hodo Co 210,981 45,000 Nippon Meat Packers Inc 615,623 900 Nippon Oil Co Ltd 3,981 23,000 Nippon Paint Co 58,735 88,000 Nippon Sheet Glass Co Ltd 409,321 22,000 Nippon Shokubai Corp 131,625 54,000 Nippon Suisan Kaisha Ltd 105,887 38,000 Nissan Fire & Marine Insurance Co Ltd 117,488 31,000 Nisshin Oil Mills Ltd 122,705 259,000 Nisshin Steel Co Ltd 368,498 41,000 Nisshinbo Industries Inc 213,516 55,000 Nitto Boseki Co Ltd 126,910 41,000 Nitto Denko Corp 1,133,020 35,000 Okamoto Industries Inc 80,761 31,000 Olympus Optical Co Ltd 461,134 255,600 Onoda Cement Co Ltd 669,043 51,000 Onward Kashiyama Co Ltd 778,640 2,000 Oyo Corp 37,393 22,000 Q.P. Corp 154,499 273,000 Renown Inc * 373,478 5,000 Rinnai Corp 121,073 45,000 Royal Co Ltd 586,073 5,000 Ryosan Co 128,141 20,000 Sanden Corp 173,287 69,000 Sankyo Aluminum Industry Co Ltd * 64,818 20,000 Sanrio Co Ltd 946,692 145,000 Sanyo Securities Co Ltd (c) * 1,322 47,000 Seino Transportation Co Ltd 299,202
See accompanying notes to the financial statements. 7 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Japan - continued 6,000 Shimachu Co 111,086 89,000 Shionogi and Co Ltd 763,008 325,000 Showa Denko 444,617 33,000 Showa Electric Wire & Cable 51,466 124,000 Showa Shell Sekiyu 834,621 5,000 Skylark Co Ltd 131,333 61,000 Stanley Electric Co Ltd 258,142 43,000 Sumitomo Bakelite Co Ltd 448,648 24,000 Taiyo Yuden Co Ltd 514,387 27,895 Takara Standard Co 177,325 63,000 Tanabe Seiyaku Co Ltd 422,892 69,000 Teikoku Oil Co Ltd 254,239 95,000 Toda Corp 521,592 52,000 Tokai Carbon Co Ltd 105,285 42,000 Tokuyama Corp 173,524 14,000 Tokyo Broadcasting System Inc 226,641 107,000 Tokyo Construction Co Ltd * 94,660 76,000 Tokyo Electric Co Ltd 285,576 88,000 Tokyo Ink Manufacturing Co Ltd 195,029 38,000 Tokyo Rope Manufacturing Co Ltd 72,434 30,000 Tokyo Style Co Ltd 322,860 24,000 Toshiba Tungaloy Co Ltd 73,765 17,000 Toyo Engineering Corp 18,140 10,000 Toyo Suisan Kaisha 109,444 36,000 Tsubakimoto Chain 208,491 162,000 Victor Co of Japan Ltd 1,233,709 49,000 Wacoal Corp 518,400 10,000 Yamatake Honeywell 112,180 62,000 Yodogawa Steel Works 275,380 18,000 Yokogawa Electric Corp 125,587 89,000 Yokohama Rubber Co 231,338 -------------- 38,960,660 -------------- Malaysia - 0.1% 81,000 Guinness Anchor Berhad 90,379 357,000 Promet Berhad * 27,245 312,000 Rekapacific Berhad * 37,768 -------------- 155,392 -------------- Norway - 0.0% 1 SAS Norge ASA Class B 10 --------------
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Singapore - 1.8% 141,000 Asia Food & Properties Ltd * 82,485 1,263,000 Chuan Hup Holdings Ltd 1,064,810 30,000 Datacraft Asia Ltd 115,800 16,000 Elec & Eltek International Co Ltd 57,920 30,000 Fraser & Neave 113,994 70,000 Hotel Properties Ltd 64,418 7,000 Jurong Shipyard 31,586 60,500 Keppel FELS Energy & Infrastructure * 48,851 102,000 Keppel Land Ltd 156,849 65,000 Natsteel Electronics 324,170 41,000 Parkway Holdings Ltd 86,172 28,000 Singapore Land Ltd 67,826 77,000 United Industrial Corp Ltd 44,116 31,000 Venture Manufacturing 296,325 67,000 Want Want Holdings 120,600 146,000 Wing Tai Holdings 156,896 -------------- 2,832,818 -------------- Sweden - 5.1% 13,900 AGA AB Class A 234,780 14,570 AGA AB Class B 246,097 10,330 Atlas Copco AB 297,680 6,370 Atlas Copco AB Class B 181,636 31,650 Avesta Sheffield AB 155,970 16,622 Celsius Industrier AB Class B 193,209 19,270 Gambro AB Class A 199,490 11,160 Gambro AB Class B 115,532 34,034 Industrivarden AB Class A 581,038 16,210 Kinnevik Investment Class B 294,406 25,670 Mo Och Domsjo AB Class B 783,247 2,100 Modern Times Group AB * 58,482 6,370 Sandivik AB Class B 174,695 13,700 Scancem AB Class A 655,225 37,830 Securitas AB Class B 540,494 11,770 SKF AB Class B 267,921 17,370 SSAB Swedish Steel Class A 241,863 233,084 Stena Line AB Class B 285,040
See accompanying notes to the financial statements. 9 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Sweden - continued 9,937 Svedala Industries 208,149 13,535 Svenska Kullagerfabriken AB 288,432 50,080 Sydkraft AB Class A 1,000,509 40,488 Sydkraft AB Class C 750,050 8,398 Tryggtia Compulsory Acq Shs 248,107 -------------- 8,002,052 -------------- Switzerland - 3.1% 80 Ares-Serono SA Class B (Bearer) 120,916 260 Ascom Holding AG (Registered) 98,673 150 Baloise Holdings 125,437 270 Banque Cantonale Vaudoise (Bearer) 84,648 1,900 BK Vision AG (Bearer) * 405,056 60 Bobst AG (Registered) 35,839 40 Bobst SA (Bearer) 47,786 1,250 Clariant AG (Registered) 600,620 50 Ems-Chemie Holding AG (Bearer) * 242,558 190 Forbo Holdings AG (Registered) 75,243 210 Helvetia Patria Holding 171,870 300 Hero AG * 39,601 280 Hilti AG (Participating Certificate) 191,275 180 Intershop Holdings AG (Bearer) 106,924 60 Jelmoli (Bearer) 60,788 190 Jelmoli (Registered) 39,126 40 Julius Baer Holdings (Bearer) 123,292 45 Kuoni Reisen Holdings AG (Registered) 179,840 50 Motor-Columbus (Bearer) 96,363 140 Movenpick Holdings (Bearer) 61,910 1,540 Oerlikon-Buhrle (Registered) 223,616 90 Pargesa Holdings SA (Bearer) 142,565 190 Pharma Vision * 131,674 300 Rieter Holdings AG (Registered) 189,096 1,340 Sairgroup Zuerich (Registered) 281,691 190 Saurer Group Holdings (Registered) * 88,912 60 Schindler-Holding AG (Participant Certificates) 91,400 100 Schindler-Holding AG (Registered) 161,706
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ Switzerland - continued 170 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 105,359 320 Sika Finanz AG (Bearer) 96,416 90 Societe Generale de Surveillance Holding SA (Registered) 24,058 370 Sulzer Gebrueder AG (Registered) * 232,242 80 Vontobel Holding AG Class B 132,004 60 Zellweger Luwa AG (Bearer) 36,354 -------------- 4,844,858 -------------- United Kingdom - 30.1% 140,600 AMEC 607,019 113,680 Arjo Wiggins Appleton Plc 395,744 163,660 Associated British Ports 890,787 111,540 Barratt Development 581,096 124,200 Beazer Holmes Plc 368,460 87,052 Berisford International 420,626 217,900 BICC Group 395,921 69,390 Blue Circle Industries 478,102 68,710 Bowthorpe Holdings 663,998 131,240 BPB Industries Plc 796,628 129,790 British Land Co 1,087,305 198,925 Bunzl Co 1,034,752 204,000 Caradon Plc 569,118 140,660 Carillion Plc * 312,120 23,870 Charter Plc (Registered) 147,194 43,710 Christian Salvesen Plc 93,828 47,908 Cobham Group Plc 658,638 68,800 Cordiant Communications Group 214,063 132,331 Debenhams Plc 834,104 65,330 Delta Plc 171,752 180,450 Electrocomponents Plc 1,468,182 213,574 Elementis Plc 401,797 51,962 Express Dairies Plc 105,276 80,580 First Leisure Plc 318,739 46,170 Glynwed International 174,833 79,810 Great Portland Estates Plc 289,385 99,891 Greenalls Group Plc 604,733 127,896 Hammerson Plc 1,023,111 102,310 Hazlewood Foods 215,507 91,670 Hepworth Plc 336,074 34,063 Hyder Plc 307,816 29,069 Inchcape Plc 181,123 109,820 Johnson Matthey 1,081,584
See accompanying notes to the financial statement. 11 GMO International Small Companies Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------ United Kingdom - continued 628,787 Ladbroke Group 2,403,791 46,130 Laird Group 226,604 680,817 Lasmo Plc 1,674,921 73,980 Lex Service 735,149 186,776 Lonrho Africa Plc 141,153 173,646 Lonrho Plc 1,591,520 50,998 Meyer International 369,010 260,260 MFI Furniture Group 196,688 111,550 Mirror Group Plc 455,592 120,430 Morgan Crucible 603,205 286,460 NFC Plc 1,013,349 95,425 Northern Foods Plc 201,772 56,262 Ocean Group Plc 915,973 247,720 Pilkington 430,187 112,130 Premier Farnell Plc 515,656 89,355 Provident Financial Plc 1,149,427 142,920 Racal Electronics 865,228 148,911 Rexam Plc 702,761 219,340 Rugby Group 389,720 19,130 Saatchi & Saatchi Plc 71,056 176,600 Scottish Hydro-Electric Plc 1,621,434 259,097 Securicor Plc 2,447,613 58,960 Slough Estates 345,089 131,810 Smith (WH) Group Plc 1,221,857 38,036 Southwest Water 655,941 183,250 St James's Place Capital 605,520 206,742 Storehouse Plc 380,633 140,660 Tarmac Plc * 1,144,442 52,770 Tate & Lyle 341,952 653,480 Taylor Woodrow Plc 1,938,658 121,770 Telewest Communications Plc * 473,347 25,616 Thames Water Plc 368,232 56,199 Transport Development Group Plc 235,401 52,590 Unigate 322,182 206,610 United Biscuits Plc 644,504 110,760 Wilson (Connolly) Holdings 316,121 402,435 Wimpey (George) 983,585 135,780 Yorkshire Water 897,326 -------------- 46,826,014 --------------
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, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - ------------------------------------------------------------------------------------ United States - 0.0% 2,125 Ultramar Diamond Shamrock Corp 55,516 -------------- TOTAL COMMON STOCKS (Cost $146,805,840) 146,857,874 -------------- PREFERRED STOCKS - 1.2% Germany - 1.2% 4,290 Fresenius Medical Care AG (Non Voting) 715,947 480 Friedrich Grohe AG (Non Voting) 137,144 4,340 GEA AG 144,400 7,200 MAN AG 155,522 290 Porsche AG (Non Voting) 730,555 -------------- 1,883,568 -------------- TOTAL PREFERRED STOCKS (Cost $1,845,181) 1,883,568 -------------- RIGHTS & WARRANTS - 0.0% Singapore - 0.0% 1,650 Haw Par Brothers International Ltd Warrants 7/18/2001 * 960 -------------- TOTAL RIGHTS & WARRANTS (Cost $3,322) 960 -------------- SHORT-TERM INVESTMENTS - 5.3% Cash Equivalents - 3.4% $ 3,700,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 3,700,000 1,578,247 The Boston Global Investment Trust (b) 1,578,247 -------------- 5,278,247 -------------- U.S. Government - 1.9% $ 3,025,000 U. S. Treasury Bill, 4.61% due 1/06/2000 (a) 2,973,777 -------------- TOTAL SHORT-TERM INVESTMENTS (Cost $8,256,601) 8,252,024 -------------- TOTAL INVESTMENTS - 100.9% (Cost $156,910,944) 156,994,426 Other Assets and Liabilities (net) - (0.9%) (1,452,652) -------------- TOTAL NET ASSETS - 100.0% $ 155,541,774 ==============
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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments (a) This security is held as collateral for open futures contracts (Note 6). (b) Represents investment of security lending collateral (Note 1). (c) Bankrupt issuer. * Non-income producing security. 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Construction 11.4% Services 10.3 Machinery 8.3 Consumer Goods 7.5 Electronic Equipment 5.5 Conglomerates 5.0 Retail Trade 4.7 Chemicals 4.2 Health Care 3.9 Metals and Mining 3.8 Utilities 3.3 Transportation 3.0 Banking 3.0 Oil and Gas 2.9 Real Estate 2.8 Financial Services 2.7 Paper and Allied Products 2.6 Communications 2.4 Textiles 2.2 Insurance 1.4 Food and Beverage 1.4 Automotive 1.3 Aerospace 1.0 Telecommunications 0.9 Computers 0.2 Miscellaneous 4.3 ======= 100.0% ======= See accompanying notes to the financial statements. 15 GMO International Small Companies Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - ----------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $156,910,944) (Note 1) $ 156,994,426 Foreign currency, at value (cost $240,532) (Note 1) 241,875 Cash 10,761 Receivable for variation margin on open futures contracts (Notes 1 and 6) 4,820 Dividends and interest receivable 193,263 Receivable for investments sold 148,911 Foreign withholding taxes receivable 119,315 Receivable for expenses waived or borne by Manager (Note 2) 37,163 -------------- Total assets 157,750,534 -------------- Liabilities: Net payable for open forward foreign currency contracts (Notes 1 and 6) 474,577 Accrued Malaysian repatriation taxes (Note 1) 12,958 Payable upon return of securities loaned (Note 1) 1,578,247 Payable to affiliate for (Note 2): Management fee 79,504 Shareholder service fee 19,877 Accrued expenses 43,597 -------------- Total liabilities 2,208,760 -------------- Net assets $ 155,541,774 ============== Net assets consist of: Paid-in capital $ 156,559,565 Accumulated undistributed net investment income 4,711,835 Accumulated net realized loss (4,939,995) Net unrealized depreciation (789,631) -------------- $ 155,541,774 ============== Net assets attributable to Class III Shares $ 155,541,774 ============== Shares outstanding - Class III 12,436,699 ============== Net asset value per share - Class III $ 12.51 ==============
16 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $307,859) $ 2,591,538 Interest (including securities lending income of $11,731) 270,899 ------------- Total income 2,862,437 ------------- Expenses: Management fee (Note 2) 480,522 Custodian fees 134,547 Audit fees 27,604 Transfer agent fees 14,534 Legal fees 2,578 Trustees fees (Note 2) 829 Registration fees 364 Miscellaneous 1,379 Fees waived or borne by Manager (Note 2) (181,835) ------------- 480,522 Shareholder service fee - Class III (Note 2) 120,132 ------------- Net expenses 600,654 ------------- Net investment income 2,261,783 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 2,613,388 Closed futures contracts (1,755,932) Foreign currency, forward contracts and foreign currency related transactions (2,523,557) ------------- Net realized loss (1,666,101) ------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 20,992,371 Open futures contracts (127,125) Foreign currency, forward contracts and foreign currency related transactions 543,321 ------------- Net unrealized gain 21,408,567 ------------- Net realized and unrealized gain 19,742,466 ------------- Net increase in net assets resulting from operations $ 22,004,249 =============
See accompanying notes to the financial statements. 17 GMO International Small Companies Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - --------------------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 --------------------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 2,261,783 $ 3,486,990 Net realized gain (loss) (1,666,101) 8,155,069 Change in net unrealized appreciation (depreciation) 21,408,567 (20,794,784) ----------------- ------------------ Net increase (decrease) in net assets resulting from operations 22,004,249 (9,152,725) ----------------- ------------------ Distributions to shareholders from: Net investment income - Class III (1,936,570) (3,362,663) Net realized gains - Class III - (6,450,138) ----------------- ------------------ (1,936,570) (9,812,801) ----------------- ------------------ Net share transactions - Class III (Note 5) (22,667,439) (57,047,497) ----------------- ------------------ Total decrease in net assets (2,599,760) (76,013,023) Net assets: Beginning of period 158,141,534 234,154,557 ----------------- ------------------ End of period (including accumulated undistributed net investment income of $4,711,835 and $4,386,622, respectively) $ 155,541,774 $ 158,141,534 ================= ==================
18 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, 1999 ---------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ------------------- --------- --------- --------- --------- --------- Net asset value, beginning of period $ 11.02 $ 12.22 $ 13.46 $ 12.95 $ 11.95 $ 14.45 ------------------- --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income 0.17 + 0.55 0.27 0.23 0.18 0.18 Net realized and unrealized gain (loss) 1.47 (1.15) 0.42 0.55 1.16 (1.52) ------------------- --------- --------- --------- --------- --------- Total from investment operations 1.64 (0.60) 0.69 0.78 1.34 (1.34) ------------------- --------- --------- --------- --------- --------- Less distributions to shareholders from: Net investment income (0.15) (0.21) (0.26) (0.07) (0.17) (0.20) In excess of net investment income - - - - (0.02) - Net realized gains - (0.39) (1.67) (0.20) (0.15) (0.96) In excess of net realized gains - - - (0.00) - - ------------------- --------- --------- --------- --------- --------- Total distributions (0.15) (0.60) (1.93) (0.27) (0.34) (1.16) ------------------- --------- --------- --------- --------- --------- Net asset value, end of period $ 12.51 $ 11.02 $ 12.22 $ 13.46 $ 12.95 $ 11.95 =================== ========= ========= ========= ========= ========= Total Return (a) 14.93% (5.06%) 6.92% 5.99% 11.43% (9.66%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 155,542 $ 158,142 $ 234,155 $ 235,653 $ 218,964 $ 186,185 Net expenses to average daily net assets 0.75% * 0.75% 0.75% 0.76% (b) 0.76% (b) 0.76% (b) Net investment income to average daily net assets 2.82% * 1.67% 1.93% 1.75% 1.84% 1.45% Portfolio turnover rate 2% 8% 79% 13% 13% 58% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.27 $ 0.12 $ 0.10 $ 0.07 $ 0.08
+ Computed using average shares outstanding throughout the period. * 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) 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. 19 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements February 28, 1999 - -------------------------------------------------------------------------------- 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, 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 equity securities of non-U.S. issuers. The Fund's current benchmark is the Salomon Smith Barney EMI World ex-U.S. Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, currency gains and losses realized between the trade and settlement dates on securities transactions and 20 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 sell is shown under Note 6, and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1999. 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 given date. The Fund may use futures contracts to manage its exposure to the stock market. 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 entering into 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 and agency 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 as of August 31, 1999. 21 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 enters into swap agreements to manage its exposure to the equity markets. The Fund enters into total return 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. Total return 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 will be 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, 1999, there were no open swap agreements. 22 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, the Fund loaned securities having a market value of $1,488,845 collateralized by cash in the amount of $1,578,247, 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 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. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $12,958 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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. Income dividends 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. 23 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. 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. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" and redemption fees are included as part of "shares repurchased," respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $550 in purchase premiums and $143,917 in redemption fees. There is no premium for reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a premium of up to .10% may be charged on certain 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .60% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. 24 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Prior to March 1, 1999, GMO earned a management fee at the annual rate of 1.25% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999, was $829. 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, 1999, aggregated $3,338,861 and $30,764,023, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $156,910,944 $25,054,388 $24,970,906 $83,482 4. Principal shareholders At August 31, 1999, 32.6% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 25 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, including the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1998 ------------------------------- ------------------------------- Shares Amount Shares Amount -------------- --------------- -------------- --------------- Shares sold 4,888 $ 55,000 816,456 $ 9,903,936 Shares issued to shareholders in reinvestment of distributions 92,333 1,120,000 718,062 8,300,432 Shares repurchased (2,005,850) (23,842,439) (6,353,000) (75,251,865) -------------- --------------- -------------- --------------- Net decrease (1,908,629) $ (22,667,439) (4,818,482) $ (57,047,497) ============== =============== ============== ===============
26 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts
Net Unrealized Settlement Units Appreciation Date Deliver/Receive of Currency Value (Depreciation) ------------------ ----------------- --------------- --------------- ---------------- Buys 10/08/99 AUD 8,960,240 $ 5,712,494 $ 19,345 10/08/99 CAD 4,511,826 3,025,545 35,713 03/03/00 CHF 7,669,015 5,173,721 9,401 03/03/00 EUR 27,847,774 29,834,384 (31,413) 03/03/00 GBP 5,396,253 8,694,888 17,467 10/08/99 HKD 20,538,100 2,642,253 1,609 10/08/99 JPY 2,439,596,634 22,374,251 1,758,400 03/03/00 NOK 78,836,028 10,037,223 (99,291) 10/08/99 NZD 800,156 413,991 (36,009) 03/03/00 SEK 33,284,868 4,077,125 4,106 10/08/99 SGD 1,290,723 768,791 (2,618) ---------------- $ 1,676,710 ================ Sales 10/08/99 AUD 1,190,635 $ 759,075 $ 9,353 10/08/99 CAD 5,066,036 3,397,187 (10,899) 03/03/00 CHF 8,177,182 5,516,544 (30,124) 03/03/00 EUR 3,271,501 3,504,884 58,151 03/03/00 GBP 19,696,272 31,736,255 (41,591) 10/08/99 HKD 5,437,486 699,540 (510) 10/08/99 JPY 3,398,625,035 31,169,780 (2,184,308) 03/03/00 NOK 51,361,244 6,539,196 68,419 03/03/00 SEK 25,212,875 3,088,372 (16,505) 10/08/99 SGD 1,290,723 768,791 (3,273) ---------------- $ (2,151,287) ================
27 GMO International Small Companies Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Currency Abbreviations: AUD Australian Dollar JPY Japanese Yen CAD Canadian Dollar NOK Norwegian Kroner CHF Swiss Franc NZD New Zealand Dollar EUR Euro SEK Swedish Krona GBP British Pound SGD Singapore Dollar HKD Hong Kong Dollar Futures contracts
Net Unrealized Number of Appreciation Contracts Type Expiration Date Contract Value (Depreciation) ----------- ----------- ----------------- ---------------- ---------------- Buys 190 ALL ORDS September 1999 $ 8,943,197 $ (96,012) 69 HANG SENG September 1999 6,046,825 (63,913) 23 MIB30 September 1999 4,097,868 (121,545) 1 OMX September 1999 10,168 (90) ---------------- $ (281,560) ================ Sells 30 CAC40 September 1999 $ 1,458,258 $ 128 8 DAX September 1999 1,117,195 35,341 69 FTSE 100 September 1999 6,917,086 278,618 7 TSE September 1999 931,879 10,178 43 TOPIX September 1999 5,759,086 (431,302) ---------------- $ (107,037) ================
At August 31, 1999, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 28 GMO International Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- COMMON STOCKS - 92.9% Australia - 4.2% 625,600 Amcor Ltd 3,254,577 525,075 Australia and New Zealand Banking Group Ltd 3,409,080 9,800 Bank of Western Australia 21,417 1,283,267 Boral Ltd 1,962,321 42,500 Broken Hill Proprietary Ltd 456,279 165,969 Caltex Australia Ltd 332,046 885,087 Coles Myer Ltd 4,929,340 1,179,500 Colonial Ltd 4,425,692 220,187 Commonwealth Bank of Australia 3,459,043 393,296 Consolidated Rutile Ltd * 170,400 10,500 CRA Ltd 179,963 46,100 CSL Ltd 548,005 1,704,496 CSR Ltd 4,344,079 538,500 Cultus Petroleum * 288,208 171,700 David Jones Ltd 134,560 839,654 Delta Gold 1,181,248 255,000 Email Ltd 454,925 30,482 Energy Resources of Australia Class A 44,670 30,696 Foodland Associated 188,734 504,572 Fosters Brewing Group Ltd 1,475,630 843,728 General Property Trust Units 1,429,966 60,200 GIO Australia Holdings Ltd 97,080 3,026,831 Goodman Fielder Ltd 2,777,105 75,847 Harvey Norman Holdings 794,285 166,000 Jupiters Ltd 386,049 3,200 Leighton Holdings 12,759 461,779 MIM Holdings Ltd 361,894 310,808 National Australia Bank Ltd 4,691,362 868,973 National Food Ltd 1,478,289 1,040,000 National Mutual Holdings 1,583,700 121,400 Newcrest Mining Ltd * 286,195 3,238,307 News Corp Ltd 23,624,640 2,374,711 Normandy Mining Ltd 1,694,613 183,100 North Broken Hill Peko Ltd 403,651 1,100,660 Pacific Dunlop Ltd 1,633,995 1,224,217 Pioneer International Ltd 3,120,039 388,921 PMP Communications Ltd 676,497 1,990,379 Qantas Airways Ltd 6,404,258 41,500 QCT Resources Ltd 27,764
See accompanying notes to the financial statements. 1 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Australia - continued 506,000 Resolute Ltd 183,767 63,007 Rothmans Holdings Ltd 656,369 657,892 Santos Ltd 1,961,743 977,139 Schroders Property 1,581,364 4,200 Stockland Trust Group 9,631 56,800 Suncorp Metway Ltd 308,702 10,000 Tabcorp Holdings 68,175 85,900 Telstra Corporation 446,059 934,667 Western Mining Corp Holdings Ltd 4,113,278 21,500 Westfarmers Ltd 193,152 2,088,908 Westfield Trust Units 4,245,723 1,281,691 Westpac Banking Corp 7,757,980 ----------------- 104,270,301 ----------------- Austria - 3.2% 2,023 Austria Mikro Systeme International 76,177 19,512 Austria Tabakwerke AG 1,063,453 30,969 Austrian Airlines 721,278 55,452 Boehler Uddeholm (Bearer) 2,664,403 82,962 Brau Union AG 3,982,720 18,385 EA-Generali AG 3,145,903 694 Energie-Versorgung Niederoesterreich AG 97,567 124,537 Erste Bank Der Oesterreichischen Sparkassen AG 6,905,966 7,847 Flughafen Wien AG 310,400 7,655 Interunfall Versicherung AG 816,645 9,192 Leykam-Muerztaler Papier und Zellstoff AG 195,832 28,861 Mayr-Melnhof Karton AG (Bearer) 1,383,993 44,545 Oesterreichische Brau Beteiligungs AG 2,032,588 55,388 Oesterreichische Elektrizitaetswirtschafts AG 8,307,508 343,330 Oesterreichische Laenderbank AG 18,222,776 31,770 OMV AG 3,186,243 209,276 Radex-Heraklith AG 5,937,343 1,968 Universale Bau AG 66,518 642,248 Voest-Alpine Stahl AG 20,961,771 ----------------- 80,079,084 ----------------- Belgium - 1.3% 25,250 Almanij NV 1,493,538 7,650 Arbed SA 763,590 2,460 Bekaert SA 1,139,647 9,275 CBR Cimenteries NPV 843,497
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Belgium - continued 36,302 Compagnie Benelux Paribas SA 2,281,467 2,050 Compagnie Maritime Belge SA 87,046 28,399 Credit Commercial Dexia 4,148,508 24,566 Electrabel SA 8,207,301 23,800 Electrafina NPV 2,961,345 8,113 Fortis (B) 278,504 3,550 Glaverbel NPV 363,720 18,400 Groupe Bruxelles Lambert NPV 3,515,792 60,238 Solvay Et Cie 4,240,699 5,150 Tessenderlo Chemie 240,434 39,000 Union Miniere NPV 1,561,655 ----------------- 32,126,743 ----------------- Canada - 1.8% 82,900 Air Canada Inc * 502,778 900 Alcan Aluminum Ltd 29,614 72,400 Bank of Montreal 2,547,246 226,700 Bank of Nova Scotia 4,922,316 14,900 Biochem Pharma Inc * 385,431 139,899 Boliden Ltd SDR * 328,616 243,400 Bombardier Inc Class B 3,792,421 11,575 Canadian Hunter Exploration Ltd * 188,107 6,400 Canadian Marconi Co 70,982 900 Canadian Pacific Ltd 21,170 700 Cominco Ltd 12,079 2,800 Co-Steel Inc 26,645 51,700 Dofasco Inc 881,762 139,650 Donohue Inc Class A 2,260,118 45,800 Enbridge Inc 979,105 1,700 Fairfax Financial Holdings Ltd * 283,675 800 Falconbridge Ltd 12,492 40,807 Fletcher Challenge Ltd Class A 445,754 125,502 Gulf Canada Resources Ltd 513,043 3,400 Hollinger Inc 34,406 75,010 Hudsons Bay Co 980,227 700 Imperial Oil Ltd 14,730 1,700 Ivaco Inc Class A 5,309 28,300 Magna International Class A 1,405,328 176,980 Methanex Corp * 521,855 32,000 Molson Co Ltd Class A 547,916
See accompanying notes to the financial statements. 3 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Canada - continued 25,541 Nexfor Inc 156,615 52,700 NS Power Holdings Inc 579,199 41,720 PanCanadian Petroleum Ltd 684,989 96,600 Petro Canada 1,453,337 39,100 Potash Corp of Saskatchewan 2,182,703 66,500 Quebecor Inc Class B 1,671,190 95,954 Rogers Cantel Mobile Communications Class B * 2,089,871 66,366 Seagram Ltd 3,524,665 30,440 Shell Canada Ltd Class A 646,661 83,960 Stelco Inc Class A 644,245 113,000 Transalta Corp 1,499,397 384,874 Transcanada Pipelines Ltd 5,429,297 104,300 Westcoast Energy Inc 2,037,492 ----------------- 44,312,786 ----------------- Denmark - 0.0% 3,440 Topdanmark AS 627,978 ----------------- Finland - 0.6% 41,700 Amer Group Class A 742,169 274,300 Enso OY Class R 3,650,590 82,500 Finnair Class A 413,918 200 Huhtamaki OY Class I 6,929 26,238 Instrumentarium OY Class A 983,843 171,800 Kesko OY 2,108,609 6,650 Kone Corp Class B 825,327 92,000 Merita Ltd Class A 485,875 25,200 Metra AB Class A 454,361 6,200 Metra AB Class B 111,329 19,042 Metso OY * 241,357 38,500 Outokumpu Class A 503,034 83,800 Partek OY 1,035,611 185,901 Rautaruukki OY 1,335,234 33,200 Sampo Insurance Co Ltd Class A 1,087,093 42,250 Stockmann AB Class A 758,652 19,400 Stockmann AB Class B 277,656 29,000 UPM-Kymmene OY 1,003,173 ----------------- 16,024,760 -----------------
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- France - 12.0% 110 Accor SA 26,468 42,220 Air France * 730,018 21,134 Air Liquide Class L 3,241,269 510 Alcatel Alsthom Cie Generale d'Electricite SA 78,110 200,101 Assurances Generales De France (Bearer) 10,329,001 3,110 Axa SA 386,966 191,170 Banque Nationale de Paris 14,619,248 176,930 Banque Paribas Class A 18,819,049 4,427 Bongrain 1,688,043 8,458 Cap Gemini SA 1,451,736 26,392 Christian Dior 4,237,236 400 Clarins 39,335 89,013 Compagnie Generale d'Industrie et de Participations 4,400,135 20,940 Credit Commercial de France 2,625,392 26,090 Credit Local de France SA 3,397,847 287,901 Credit Lyonnais * 8,192,331 56,084 Elf Aquitaine SA 9,833,628 83,045 Eridania Beghin-Say SA 10,982,078 1,004 Fromageries Bel SA 840,957 47,082 Groupe Danone 11,646,851 28,210 Imetal 4,493,359 2,040 Labinal 288,090 173,869 Lafarge Coppee SA 18,677,117 27,325 Lagardere Groupe 1,108,302 330 LVMH (Louis Vuitton Moet Hennessy) 100,421 55,534 Lyonnaise Des Eaux 9,262,065 39,750 Michelin SA Class B 1,721,843 21,440 Pechiney SA Class A 1,247,795 96,889 Pernod Ricard 7,429,812 124,765 Peugeot SA 22,930,247 87,741 Remy Cointreau SA * 1,682,077 387,850 Renault SA 20,892,995 46,720 Rhodia SA 1,046,178 411,120 Rhone Poulenc SA Class A 19,940,553 132,002 Saint-Gobain 25,515,162 4,410 Seb SA 335,613 5,390 Skis Rossignol 80,103 14,156 Societe Eurafrance 8,687,272 160,433 Societe Generale Paris 31,400,448
See accompanying notes to the financial statements. 5 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- France - continued 112,090 SPIE Batignolles 7,518,086 70,883 Thomson CSF 2,590,508 287,316 Usinor Sacilor 4,445,946 800 Vivendi 61,770 ----------------- 299,021,460 ----------------- Germany - 7.5% 113,545 AGIV AG 2,458,604 15,800 Axa Colonia Konzern AG 1,535,365 100 Axel Springer Verlag AG 119,356 16,100 Bankgesellschaft Berlin AG 286,375 529,500 BASF AG 23,993,300 422,949 Bayer AG 18,383,346 18,050 Bayerische Hypotheken und Wechsel-Bank AG 324,110 66,300 Bayerische Motoren Werke AG 2,104,383 38,687 Bayerische Vereinsbank 2,292,422 176,780 Berliner Kraft & Licht AG Class A 2,688,824 12,500 BHF Bank AG 590,180 700 Bilfinger & Berger 16,858 6,500 Buderus AG 109,850 102,600 Commerzbank AG 3,673,785 243,197 Continental AG 5,599,915 102,856 Deutsche Bank AG 7,029,115 322,534 Deutsche Telekom AG 14,274,347 114,400 Douglas Holdings AG 4,954,235 54,899 Dresdner Bank 2,528,236 44,328 FAG Kugelfischer 465,873 23,650 Fresenius Medical Care AG 1,721,144 79,697 Heidelberg Port-Zement 8,039,186 2,300 Hochtief AG 99,847 181,963 Klockner Humboldt Deutz * 1,289,651 1,500 Leirheit AG 46,739 73,000 Linde AG 4,456,741 108,500 MAN AG 3,667,300 93,088 Meto AG * 710,079 12,100 Phoenix AG 184,041 22,259 Schering AG 2,473,364 100 Schmalbach-Lubeca 13,700 10,900 Schwarz Pharma AG 447,285 464,221 Siemens AG 39,038,063
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Germany - continued 97,442 SKW Trostberg AG 2,223,139 950 Suedzucker AG 386,123 453,920 Thyssen Krupp AG * 10,595,911 263,452 Veba AG 16,779,752 ----------------- 185,600,544 ----------------- Hong Kong - 4.1% 497,000 Amoy Properties Ltd 489,630 4,150,000 Cathay Pacific Airways Ltd 7,054,597 1,459,000 Cheung Kong Holdings 12,729,600 2,646,122 Chinese Estates Holdings Ltd 432,777 1,437,000 CLP Holdings Ltd 6,791,614 689,000 Dairy Farm International 685,555 363,300 Dao Heng Bank 1,656,223 766 Dickson Concept International Ltd 710 906,300 Elec & Eltek International Holdings Ltd 158,731 1,096,128 Great Eagle Holdings Ltd 1,609,223 565,700 Guoco Group 1,679,219 2,703,700 Hang Lung Development Co Ltd 3,098,836 3,713,000 Henderson Investment Ltd 2,558,167 225,000 Henderson Land Development Co Ltd 1,188,000 1,099,200 Hong Kong Aircraft Engineering Co Ltd 1,953,466 2,223,800 Hong Kong Electric Holdings Ltd 7,317,063 598,700 Hong Kong Ferry Co Ltd 678,488 1,906,421 Jardine Matheson Holdings Ltd 9,112,692 3,832,911 Jardine Strategic Holdings Ltd 8,815,695 368,622 Kumagai Gumi Ltd 180,391 700 Lai Sun Garment International Ltd 41 2,735,462 Mandarin Oriental ADR 1,846,437 657,017 Mount Batten Corp 1,269 1,314,800 New Asia Realty & Trust Class A 2,099,576 153,000 New World Development Co Ltd 368,454 200 Paul Y ITC Construction Holdings Ltd 18 42,000 Realty Development Corp Ltd Class A 79,239 30,291,371 Regal Hotels International Ltd 3,237,779 10,000 San Miguel Brewery Ltd 1,674 1,349,000 Shun Tak Holdings Ltd 284,909 2,296,000 Sino Land 1,153,152 5,360,000 South China Morning Post Ltd 3,382,291 1,382,000 Sun Hung Kai Properties Ltd 11,746,328
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Hong Kong - continued 149,000 Swire Pacific Ltd Class A 767,532 268,000 Wharf Holdings Ltd 728,228 3,649,800 Wheelock and Co Ltd 4,723,732 404 Wing Lung Bank 1,670 18,000 Winsor Properties Holdings Ltd 4,984 1,054,200 Yue Yuen Industrial Holdings 3,041,033 ----------------- 101,659,023 ----------------- Ireland - 0.0% 2,200 Independent News & Media Plc 10,736 ----------------- Italy - 3.8% 461,315 Alitalia Linee Aeree 1,232,778 92,500 Alleanza Assicurazioni-RNC 618,461 2,885 Assicurazioni Generali SPA 97,361 1,594,000 Banca Commerciale Italiana SPA 10,842,787 6,817,500 Banca di Roma 9,260,466 343,000 Banca Intesa SPA 1,449,175 139,200 Banca Popolare di Bergamo Credit 2,852,382 450,000 Banca Popolare di Milano 3,260,644 1,632,000 Banco Ambrosiano Veneto SPA (Non Convertible) 3,309,696 950,000 Banco di Napoli di Risp 1,184,056 205,300 Burgo (Cartiere) SPA 1,498,421 510,000 Ciga SPA * 363,614 7,800 Compart SPA * 10,636 46,000 Credito Fondiario * 99,119 152,000 Credito Italiano (Non Convertible) 539,448 2,076,700 Dalmine SPA * 478,186 23,150 Ericsson SPA 745,792 203,600 Falck Acciaierie and Ferriere Lombarde 1,483,862 415,390 Fiat SPA 13,382,048 158,672 Fiat SPA (Non Convertible) 2,544,127 2,334,000 Finmeccanica SPA * 1,962,369 96,750 Fondiaria SPA 522,202 588,000 Grassetto SPA (c) * 3 1,750,570 HPI SPA 1,050,254 219,500 IFIL-Finanziaria di Partecipazioni SPA 1,400,355 381,925 IFIL-Finanziaria di Partecipazioni SPA (Non Convertible) 1,637,838 831,100 Industriali Riunite SPA 1,236,012 30,800 Industrie Natuzzi SPA ADR 569,800
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Italy - continued 796,899 Istituto Nazionale Delle Assicurazioni 1,919,132 274,650 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 1,377,971 61,750 Italcementi SPA 841,382 37,300 Italmobiliare SPA 917,582 187,470 Magneti Marelli SPA 491,078 2,000 Marzotto & Figli SPA 16,055 173,898 Mediobanca SPA 1,803,735 2,920,481 Montedison SPA 4,395,780 973,728 Montedison SPA (Non Convertible) 1,151,920 405,000 Parmalat Finanziaria SPA 526,171 766,975 Pirelli & Co 1,490,616 383,069 RAS SPA 3,601,088 295,750 RAS SPA (Non Convertible) 2,467,849 88,000 SAI di Risp 443,372 140,206 San Paolo IMI SPA 1,882,257 215,000 Sirti SPA 1,110,488 982,472 SMI (Societa Metallurgica Italy) 591,510 345,000 SNIA SPA 388,093 77,500 Sopaf SPA * 47,478 137,000 Sorin Biomedica SPA 422,542 543,329 Telecom Italia SPA (Non Convertible) 3,110,491 36,500 Toro Assicurazioni 461,866 3,419,792 Unione Immobiliaer SPA 1,639,919 ----------------- 94,730,267 ----------------- Japan - 22.7% 39,000 Acom Ltd 3,951,753 371,000 Amada Co Ltd 3,112,955 15,000 Anritsu Corp 138,857 1,507,000 Aoki Corp * 852,150 65,600 Aoki International 299,746 13,600 Arabian Oil Co Ltd 223,266 627,000 Asahi Bank 3,831,365 183,000 Ashikaga Bank Ltd 375,530 372,000 Atsugi Nylon Industrial 430,881 37,000 Autobacs Seven 1,957,226 86,000 Bandai Co 1,372,612 167,000 Bank of Yokohama 517,853 72,000 Best Denki Co Ltd 689,498 86,000 Brother Industries Ltd 250,992
See accompanying notes to the financial statements. 9 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Japan - continued 5,000 Canon Inc 145,925 257,000 Canon Sales Co Inc 4,080,779 67,000 Chiba Bank 251,147 160,800 Chubu Electric Power Co Inc 2,999,097 44,000 Chudenko Corp 754,435 111,200 Chugoku Electric Power Co Inc 1,829,585 1,402,000 Cosmo Oil Co Ltd 2,557,344 9,000 Credit Saison Co 202,745 656,000 Daicel Chemical Industries Ltd 2,692,325 145,000 Daido Steel Co Ltd 251,265 150,000 Daiei Inc 638,880 186,000 Daiichi Seiyaku Co Ltd 2,868,585 147,000 Daikyo Inc * 496,055 350,000 Dainippon Pharmaceutical Co Ltd 2,151,489 149,000 Dainippon Screen Manufacturing Co Ltd 1,019,198 107,000 Daio Paper Corp 744,594 44,000 Daishowa Paper Manufacturing * 179,780 145,200 Daito Trust Construction Co Ltd 1,887,090 2,064,000 Daiwa Bank 6,569,711 791,000 Daiwa House Industry Co Ltd 7,935,610 105,000 Daiwa Kosho Lease Co Ltd 482,649 1,372,000 Daiwa Securities Co Ltd 12,400,493 260,000 Ezaki Glico Co Ltd 1,425,145 300 Familymart 15,377 79,500 Fanuc Co 4,785,444 1,254,000 Fuji Bank 12,923,708 600 Fuji Photo Film Co Ltd 21,889 955,000 Fujita Corp 740,344 216,000 Fukuyama Transporting Co Ltd 1,241,096 393,000 Furukawa Co Ltd 609,330 258,000 Gakken Co Ltd 390,606 258,000 General Sekiyu (KK) 760,035 219,000 Gunze Ltd 575,238 238,000 Hankyu Corp 844,380 127,500 Heiwa Corp 3,860,641 111,000 Heiwa Real Estate Co Ltd 343,189 229,000 Hino Motors 916,877 1,000 Hirose Electric Co. Ltd 125,861 3,432,300 Hitachi Ltd 34,778,470
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Japan - continued 54,000 Hitachi Maxell Ltd 1,329,746 540,000 Hitachi Metals Ltd 3,693,739 157,900 Hokkaido Electric Power 2,453,934 113,000 Hokuetsu Paper Mills 767,796 72,000 Hokuriku Bank 145,123 10,200 Hokuriku Electric Power 166,054 58,000 Honda Motor Co Ltd 2,327,512 221,000 House Foods Corp 3,335,811 6,000 Hyogo Bank Ltd (c) * 1 92,000 INAX Corp 677,970 639,000 Industrial Bank of Japan 6,498,108 148,000 Intec Inc 2,023,366 466,000 Ishikawajima-Harima Heavy Industries 913,767 1,048,000 Itochu Corp 3,201,970 98,000 Itoham Foods Inc 384,331 14,000 Ito-Yokado 1,029,140 42,000 JACCS Co 184,249 107,000 Japan Airport Terminal Co Ltd 1,278,398 127,000 Japan Aviation Electronics 523,544 53,000 Japan Energy Co Ltd 67,673 213,000 Japan Radio Co 2,453,546 118,000 Japan Securities Finance Co 714,597 124,000 Japan Steel Works Ltd 154,936 374,000 Japan Synthetic Rubber Co Ltd 3,124,484 1,647 Japan Tobacco Inc 22,832,231 73,000 JGC Corp 197,072 209,000 Joshin Denki Co Ltd 775,804 844,000 Kajima Corp 3,640,950 237,000 Kamigumi Co Ltd 1,426,604 188,000 Kandenko Co 1,112,791 43,000 Kanematsu NNK Corp 120,790 148,000 Kankaku Securities Co Ltd * 372,548 8,000 Kansai Electric Power 153,222 28,000 Katokichi Co Ltd 527,338 801,000 Kawasaki Heavy Industries Ltd 1,826,349 460,000 Kawasaki Kisen 935,565 701,000 Keio Teito Electric Railway Co Ltd 2,781,112 22,000 Keisei Electric Railway 70,227 19,500 Keyence Corp 4,419,490
See accompanying notes to the financial statements. 11 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Japan - continued 46,000 Kikkoman Corp 377,163 43,000 Kinden Corp 431,392 29,000 Kirin Brewery Co Ltd 351,772 157,000 Kissei Pharmaceutical Co Ltd 3,078,572 1,714,000 Kobe Steel Ltd 1,500,698 46,000 Kokusai Denshin Denwa 3,587,031 157,000 Kokusai Electric 2,408,445 506,000 Komatsu Ltd 3,230,425 140,000 Konica Corp 563,090 77,000 Koyo Seiko Co Ltd 715,609 424,000 Kubota Corp 1,337,991 806,000 Kumagai Gumi Co Ltd * 845,365 403,000 Kurabo Industries Ltd 496,192 115,000 Kyowa Hakko Kogyo Co Ltd 870,537 327,200 Kyushu Electric Power Co Inc 5,222,308 1,000 Kyushu Matsushita Electric 9,759 452,000 Maeda Corp 1,772,630 110,000 Maeda Road Construction 707,283 102,000 Makita Corp 1,209,357 1,676,000 Marubeni Corp 3,958,995 120,000 Marudai Food Co Ltd 257,194 32,000 Maruichi Steel Tube 395,750 68,000 Matsushita Electric Industrial Co Ltd 1,339,596 67,000 Meidensha Corp 135,656 44,000 Misawa Homes 170,550 9,000 Mitsubishi Belting 24,461 2,389,000 Mitsubishi Electric Corp 12,070,829 179,000 Mitsubishi Gas Chemical Co Inc 514,251 3,351,000 Mitsubishi Heavy Industries 14,578,202 830,000 Mitsubishi Material 2,339,094 655,000 Mitsubishi Motors 3,554,426 102,000 Mitsubishi Paper Mills Ltd 183,264 275,000 Mitsubishi Steel Manufacturing 288,431 188,000 Mitsubishi Trust & Banking 1,971,818 40,000 Mitsui Engineering & Shipbuilding * 43,048 86,000 Mitsui Mining Co Ltd * 100,397 1,054,000 Mitsui Petrochemical Industries Ltd 7,690,273 2,737,000 Mitsui Trust & Banking Co Ltd 5,641,498 58,000 Mitsui-Soko 193,078
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, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------- Japan - continued 2,000 Mochida Pharmaceutical Co Ltd 14,228 23,000 MOS Food Services 360,591 49,000 Nagase & Co 234,621 208,000 Nagoya Railroad Co Ltd 620,329 200 Namco Ltd 7,533 38,000 National House Industrial 311,916 371,000 New Japan Securities Co Ltd* 1,177,509 122,000 New Oji Paper Co Ltd 845,638 106,000 Nichicon Corp 2,078,526 630,000 Nichii Co Ltd 3,792,239 78,000 Nichimen Corp 100,306 467,000 Nichirei 1,277,760 1,320,000 Nikko Securities 11,412,832 6,000 Nikon Corp 101,564 84,100 Nintendo Co Ltd 14,573,396 72,000 Nippon Chemical 219,326 239,000 Nippon Express Co Ltd 1,824,461 66,000 Nippon Hodo Co 421,962 44,000 Nippon Kayaku Co Ltd 252,816 326,000 Nippon Light Metal 448,958 150,000 Nippon Meat Packers Inc 2,052,077 112,000 Nippon Metal Industries 146,071 2,343,975 Nippon Oil Co Ltd 10,368,260 54,000 Nippon Paint Co 137,900 166,000 Nippon Paper Industries 1,090,063 421,000 Nippon Shinpan Co 1,459,072 232,000 Nippon Suisan Kaisha Ltd 454,923 35,000 Nippon Synthetic Chemical 77,249 2,100 Nippon Television Network 1,149,163 252,000 Nishimatsu Construction 1,459,437 2,337,000 Nissan Motor Co 13,598,486 271,000 Nisshin Oil Mills Ltd 1,072,680 588,000 Nisshin Steel Co Ltd 836,591 1,001,000 Nisshinbo Industries Inc 5,212,924 2,373,000 Nissho Iwai Corp 2,575,466 4,000 Nitto Denko Corp 110,539 4,036,000 NKK Corp 3,754,590 56,000 NOF Corp 136,367 163,000 Obayashi Corp 878,590
See accompanying notes to the financial statements. 13 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Japan - continued 14,000 Odakyu Electric Railway 44,945 1,027,000 Oki Electric Industry 4,776,962 339,000 Okumura Corp 1,283,095 257,000 Omron Corp 5,238,679 34,000 Ono Pharmaceutical Co Ltd 1,110,128 650,000 Onoda Cement Co Ltd 1,701,400 144,000 Onward Kashiyama Co Ltd 2,198,513 214,000 Orient Corp 620,658 2,600 Orix Corp 249,934 64,000 Penta Ocean Construction 112,071 56,000 Promise Co 4,647,727 200,000 Q.P. Corp 1,404,533 900,000 Renown Inc * 1,231,246 58,500 Rinnai Corp 1,416,549 29,000 Rohm Co Ltd 5,765,881 166,000 Royal Co Ltd 2,161,959 83,000 Ryosan Co 2,127,138 290,000 Sagami Railway Co Ltd 785,535 3,434,000 Sakura Bank Ltd 18,165,169 106,000 Sankyo Co Ltd 2,948,607 5,000 Sanwa Bank Ltd 68,403 83,000 Sanwa Shutter Corp 405,746 554,000 Sanyo Electric Company 2,400,018 370,000 Sato Kogyo Co Ltd 266,588 4,500 Secom Co Ltd 613,571 636,000 Seino Transportation Co Ltd 4,048,776 553,000 Sekisui Chemical 3,076,565 893,000 Sekisui House Ltd 9,586,037 62,000 Sharp Corp 944,320 326,200 Shikoku Electric Power 5,236,098 478,000 Shimizu Corp 2,131,807 435,000 Shionogi and Co Ltd 3,729,308 15,300 Sho Bond Construction Co 376,761 923,000 Showa Denko 1,262,711 383,000 Showa Shell Sekiyu 2,577,901 86,000 Skylark Co Ltd 2,258,927 379,000 Snow Brand Milk Products Co Ltd 1,731,762 251,000 Stanley Electric Co Ltd 1,062,192 4,000 Sumitomo Bakelite Co Ltd 41,735
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Japan - continued 1,020,000 Sumitomo Corp 7,256,145 7,000 Sumitomo Electric 95,125 116,000 Sumitomo Forestry Co Ltd 918,309 701,000 Sumitomo Metal Industries 939,824 1,304,000 Sumitomo Trust & Banking 8,681,837 332,000 Suzuki Motor Corp 5,601,715 664,000 Taisei Corp 1,483,697 95,000 Taisho Pharmaceutical Co Ltd 3,994,254 123,000 Takara Standard Co 781,896 163,000 Takuma Corp 1,748,260 401,000 Tanabe Seiyaku Co Ltd 2,691,742 900 TDK Corp 109,171 15,000 Teijin Ltd 63,614 1,140,000 Teikoku Oil Co Ltd 4,200,465 33,000 TOA Corp 57,486 5,000 Toda Corp 27,452 318,000 Toei Co Ltd 1,183,310 276,200 Tohoku Electric Power Co Inc 4,383,127 449,000 Tokai Bank 2,850,144 98,000 Tokuyama Corp 404,889 27,000 Tokyo Broadcasting System Inc 437,092 315,000 Tokyo Construction Co Ltd * 278,672 264,000 Tokyo Electric Co Ltd 992,001 100 Tokyo Electric Power 2,326 145,000 Tokyo Ink Manufacturing Co Ltd 321,355 384,400 Tokyo Steel Manufacturing Co 1,795,000 71,000 Tokyo Style Co Ltd 764,102 93,000 Tokyu Department Store Co Ltd 117,899 522,000 Tomen Corp 533,212 129,000 Tostem Corp 2,647,180 2,000 Toto Limited 14,775 218,000 Toyo Seikan Kaisha 5,069,999 126,000 Toyo Suisan Kaisha 1,378,996 1,238,000 Toyobo Co Ltd 1,975,922 60,000 Tsugami Corp * 148,297 86,000 Tsumura and Co 360,801 36,000 Uniden Corp 387,761 90,000 Victor Co of Japan Ltd 685,394 92,000 Wacoal Corp 973,323
See accompanying notes to the financial statements. 15 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Japan - continued 115,000 Yakult Honsha Co Ltd 1,667,655 53,000 Yamaha Corp 580,054 188,000 Yamazaki Baking Co Ltd 2,486,205 2,152,000 Yasuda Trust & Banking * 3,689,872 9,000 Yodogawa Steel Works 39,974 21,200 Yoshitomi Pharmaceutical Industries Ltd 298,728 ----------------- 559,885,384 ----------------- Malaysia - 1.0% 212,000 Aluminum Co of Malaysia 92,053 1,151,000 Arab Malaysian Finance (Foreign Registered) 981,379 109,000 Carlsberg Brew Malaysia 321,263 627,000 Cement Industries of Malaysia Berhad 544,500 551,800 Edaran Otomobil Berhad 2,032,947 183,200 Esso Berhad 145,596 1,541,000 Golden Hope Plantations Berhad 1,265,242 1,096,000 Highlands and Lowlands Berhad 666,253 48,000 Jaya Tiasa Holdings Berhad 89,684 2,295,000 Kumpulan Guthrie Berhad 1,226,013 212,000 Malaysian International Shipping 387,737 1,143,600 Malaysian International Shipping (Foreign Registered) 1,745,495 59,000 Malaysian Oxygen Berhad 123,434 67,000 Malaysian Pacific Industries 239,789 42,710 Matsushita Electric Co Berhad 160,724 511,000 MBF Holdings Berhad * 27,567 75,000 Nestle Malaysia 290,132 1,864,600 Oriental Holdings Berhad 4,097,213 127,600 Pan Malaysia Cement 49,361 434,500 Perlis Plantations 455,082 2,740,000 Perusahaan Otomobil Nasional Berhad 5,443,947 49,000 Petaling Garden Berhad 30,561 264,000 Petronas Gas Berhad 590,526 751,000 Promet Berhad * 57,313 605,400 Shell Refinery Co 777,461 36,540 Silverstone * 433 1,298,000 Tan Chong Motor Holdings Berhad 771,968 581,000 UMW Holdings Berhad 1,253,737 234,000 Westmont Industries Berhad (c) * 616 ----------------- 23,868,026 -----------------
16 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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Netherlands - 0.3% 9,000 ASR Verzekeringsgroep NV 586,536 7,100 Gamma Holdings NV 326,223 24,800 Hoogovens & Staalf CVA 1,434,176 15,300 KLM-Konin Luchtvaart Mij NV 420,176 62,600 Kon Bolswessanen 767,007 54,950 Koninklijke Pakhoed 1,413,297 27,100 Koninklijke Volker Wessels 542,432 27,200 Nedlloyd 775,710 45,700 Stork NV 987,134 18,800 VIB NV 530,195 4,200 Wereldhave NV 206,507 ----------------- 7,989,393 ----------------- New Zealand - 0.2% 224,600 Air New Zealand Class B 406,414 3,300,200 Brierley Investment Ltd * 784,854 902,200 Carter Holt Harvey Ltd 1,068,142 23,200 Fisher and Paykel Industries Ltd 68,368 108,400 Fletcher Challenge Energy 281,794 62,800 Fletcher Challenge Energy 160,715 524,900 Lion Nathan Ltd 1,166,905 3,800 Wharehouse Group Ltd 14,538 ----------------- 3,951,730 ----------------- Norway - 0.8% 39,400 Aker RGI ASA Class A 604,995 89,400 Bergesen d.y. ASA Class A 1,338,579 25,600 Bergesen d.y. ASA Class B 373,520 701,000 Christiania Bank OG Kreditkasse 2,974,616 1,114,637 Den Norske Bank Class A 4,445,765 17,300 Dyno Industrier AS 365,951 58,400 Elkem AS Class A 1,041,860 91,500 Fred Olsen Energy * 880,312 115,100 Kvaerner Industrier AS 2,552,074 9,900 Leif Hoegh and Co AS 114,801 24,300 Norsk Hydro AS 1,012,565 35,850 Norske Skogindustrier AS Class A 1,498,414 42,600 Petroleum Geo-Services * 852,271 65,500 SAS Norge ASA Class B 625,996 ----------------- 18,681,719 -----------------
See accompanying notes to the financial statements. 17 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Portugal - 0.3% 67,532 Banco Espirito Santo e Commercial de Lisboa (Registered) 1,712,650 16,933 Cimpor Cimentos de Portugal SA (Registered) 289,208 258,615 Electricidade de Portugal 4,370,594 ----------------- 6,372,452 ----------------- Singapore - 5.2% 558,461 Asia Food & Properties Ltd * 326,700 356,000 Cerebos Pacific Ltd 828,546 3,648,000 Comfort Group 1,841,002 442,950 Creative Technology Ltd 4,391,893 314,000 Cycle & Carriage Ltd 1,771,062 166,048 DBS Bank Ltd 1,902,705 4,030,096 DBS Land Ltd 9,188,131 1,018,700 Development Bank of Singapore (Foreign Registered) 11,673,045 479,309 First Capital Corp Ltd 665,905 128,000 Fraser & Neave 486,374 889,000 Goldtron * 139,871 1,138,037 Hai Sun Hup Group Ltd 506,755 1,067,203 Haw Par Brothers International Ltd 1,774,131 1,901,104 Hotel Properties Ltd 1,749,517 11,000 Inchcape Berhad 14,890 481,000 Keppel Bank Ltd 1,022,371 1,095,000 Keppel Corp 3,543,163 1,405,000 Keppel Land Ltd 2,160,512 27,000 Marco Polo Developments Ltd 40,397 37,600 Metro Holdings Ltd 46,434 412,000 Natsteel Ltd 875,711 2,343,556 Neptune Orient Lines Ltd * 3,033,279 1,177,000 Overseas Chinese Banking (Foreign Registered) 8,245,918 2,327,300 Overseas Union Bank Ltd (Foreign Registered) 12,159,497 208,508 Prima Ltd 455,566 694,308 Robinson and Co Ltd 2,184,784 375,699 Shangri-La Hotel Ltd 838,703 3,315,000 Singapore Airlines Ltd (Foreign Registered) 31,097,192 757,000 Singapore Land Ltd 1,833,735 593,789 Singapore Press Holdings 9,871,218 1,285,000 Singapore Telecom 2,281,155 1,990,168 Straits Trading Co Ltd 2,363,199 558,000 Times Publishing Ltd 1,093,273 43,000 United Engineers 44,167
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Singapore - continued 5,039,960 United Industrial Corp Ltd 2,887,586 1,136,000 United Overseas Land 1,058,909 156,900 Wearne Brothers Ltd 196,556 3,083,000 Wing Tai Holdings 3,313,086 ----------------- 127,906,938 ----------------- Spain - 1.5% 50,400 Aceralia SA 689,926 148,569 Acerinox SA 4,921,200 27,400 Aumar-Autopistas del Mare 561,460 45,294 Banco Popular Espanol 3,317,828 8,100 Compania Espanola de Petroleos 97,705 31,600 Corporacion Mapfre (Registered) 595,788 6,620 Cristaleria Espanola SA 334,935 7,500 Endesa 150,516 115,956 FENOSA SA 1,653,460 200 Fomento de Construcciones y Contratas SA 11,862 94,800 Grupo Dragados SA 1,164,541 29,500 Hidro Cantabrico 417,224 4,600 Iberdrola SA 66,079 1,168,353 Repsol SA 24,471,665 ----------------- 38,454,189 ----------------- Sweden - 3.2% 324,634 Assi Doman 6,269,418 913,758 Avesta Sheffield AB 4,502,960 5,100 Custos AB Class B 115,165 31,600 Drott AB Class B 273,568 53,788 Esselte AB Class A 442,860 39,300 Esselte AB Class B 330,712 176,900 Foreningssparbanken AB Class A 2,655,963 168,282 Gambro AB Class A 1,742,113 104,851 Gambro AB Class B 1,085,454 37,596 Industrivarden AB Class A 641,850 2,400 Investor AB 29,205 577,223 Mo Och Domsjo AB Class B 17,612,325 202,600 Nordbanken Holdings AB 1,140,683 19,200 Perstorp AB Class B 216,201 22,600 Scancem AB Class A 1,080,881 441,500 Skandinaviska Enskilda Banken Class A 4,570,559 187,946 Skanska AB Class B 7,350,352
See accompanying notes to the financial statements. 19 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Sweden - continued 148,000 SKF AB Class B 3,368,931 299,300 Ssab Swedish Steel Class A 4,167,514 73,600 Ssab Swedish Steel Class B 1,006,998 262,763 Stena Line AB Class B 321,335 340,377 Svenska Cellulosa Class B 9,891,086 119,600 Svenska Handelsbanken Class A 1,658,094 3,600 Svenska Handelsbanken Class B 46,204 124,400 Svenska Kullagerfabriken AB 2,650,975 419,882 Trelleborg AB Class B 3,762,110 72,500 Volvo AB Class A 2,040,955 31,700 Volvo AB Class B 886,633 ----------------- 79,861,104 ----------------- Switzerland - 0.7% 420 Ascom Holding AG (Bearer) 790,047 1,860 Baloise Holdings 1,555,422 3,000 BK Vision AG (Bearer) * 639,562 17,420 CIBA Specialty Chemicals Holdings (Registered) 1,379,711 3,882 CS Holdings (Registered) 732,791 10 Financiere Richemont AG Class A 19,009 3,730 Fischer (Georg) AG (Registered) 1,144,776 400 Helvetia Patria Holding 327,371 560 Holderbank Financiere Glarus AG (Bearer) 689,327 1,050 Jelmoli (Bearer) 1,063,791 6,220 Merkur Holding AG (Registered) 1,568,240 4,000 Oerlikon-Buhrle (Registered) 580,820 460 Pargesa Holdings SA (Bearer) 728,665 1,270 Pharma Vision * 880,140 1,140 Rieter Holdings AG (Registered) 718,566 6,040 SAirGroup (Registered) 1,269,712 460 Saurer Group Holdings (Registered) * 215,260 240 Schindler-Holding AG (Participant Certificates) 365,600 680 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 421,438 1,130 Sika Finanz AG (Bearer) 340,469 1,950 Sulzer Gebrueder AG (Registered) * 1,223,979 115 Swiss Reinsurance (Bearer) 224,292 2,298 UBS AG (Registered) 648,403 1,660 Zurich Allied 974,022 ----------------- 18,501,413 -----------------
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- United Kingdom - 18.5% 29,200 3i Group Plc 387,355 65,300 Abbey National 1,121,391 355,987 Allied Domecq Plc 3,288,491 428,200 Allied Zurich Plc 5,236,226 626,280 AMEC 2,703,867 258,300 Anglian Water Plc 3,073,468 55,330 Arcadia Group 205,071 834,000 Arjo Wiggins Appleton Plc 2,903,331 927,357 Associated British Food 6,359,728 48,800 BAA 510,042 175,070 Barclays Plc 5,207,820 729,721 Barratt Development 3,801,670 688,084 Bass Plc 9,255,075 774,000 Beazer Holmes Plc 2,296,201 3,213,985 BG Plc 19,340,967 79,000 Blue Circle Industries 544,315 4,400 BPB Industries Plc 26,708 2,079,744 British Airways Plc 13,618,946 457,844 British Energy Plc 3,813,466 511,082 British Energy Plc Class A * 464,314 1,201,711 British Steel Plc 3,154,465 7,200 British Telecom Plc 110,331 281,125 BTR Siebe Plc 1,435,211 55,096 Cable & Wireless 632,544 554,828 Carillion Plc * 1,231,147 3,000,307 Centrica Plc 7,996,350 174,100 Christian Salvesen Plc 373,725 1,905,093 Coats Viyella 1,615,888 259,400 Commercial Union Plc 3,864,452 29,700 Courtaulds Textiles Plc 80,708 218,500 Dawson International 126,481 839,140 Elementis Plc 1,578,675 1,902,500 Eurotunnel SA Units (Registered) * 2,921,464 143,100 First Leisure Plc 566,040 13,000 Great Portland Estates Plc 47,137 37,400 Great Universal Stores Plc 377,061 364,278 Greenalls Group Plc 2,205,314 522,200 Halifax Group Plc 5,831,519 151,900 Hammerson Plc 1,215,132
See accompanying notes to the financial statements. 21 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- United Kingdom - continued 1,600 Hanson Plc 13,610 37,300 Hazlewood Foods 78,569 1,371,330 HSBC Holdings Plc 16,967,706 270,485 Hyder Plc 2,444,286 271,999 Inchcape Plc 1,694,773 72,200 Johnson Matthey 711,076 357,400 Kingfisher Plc 4,301,490 19,746 Laing (John) 107,634 97,600 Laird Group 479,439 430,420 Land Securities 6,052,361 1,800 Laporte Plc 19,696 16,200 Laporte Plc Class B * 260 161,908 Legal & General Group Plc 444,531 738,611 Lonrho Africa Plc 558,195 1,065,481 Lonrho Plc 9,765,469 1,355,000 Marks & Spencer 9,052,799 22,060 Meggitt 75,199 755,264 MEPC Plc 6,357,524 51,700 Meyer International 374,090 63,800 MFI Furniture Group 48,216 2,379,925 National Power 16,933,592 22,900 National Westminster Bank 470,954 1,506,400 Northern Foods Plc 3,185,214 552,500 Norwich Union Plc 3,775,668 1,115,600 Peninsular & Oriental Steam Navigation Co 18,306,025 344,032 Pilkington 597,441 1,588,037 Powergen Plc 15,869,904 494,322 Railtrack Group Plc 9,466,605 488,519 Reuters Holdings Plc 7,159,961 716,180 Rio Tinto Plc 12,897,714 247,182 RMC Group 4,052,067 721,839 Royal Bank of Scotland Group 14,995,999 137,411 Royal & Sun Alliance Insurance Group 1,144,521 1,953,200 Safeway Plc 8,102,872 2,405,500 Sainsbury (J) 16,593,393 1,211,988 Scottish Hydro-Electric Plc 11,127,740 2,223,705 Scottish Power Plc 20,470,347 189,190 Selfridges Plc 825,925 632,715 Severn Trent Plc 9,207,235
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, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- United Kingdom - continued 2,100 Shell Transport & Trading (Registered) 16,748 2,766,924 Signet Group Plc 2,358,010 392,100 Slough Estates 2,294,937 89,700 Southwest Water 1,546,900 405,500 Storehouse Plc 746,567 554,828 Tarmac Plc * 4,514,207 203,500 Tate & Lyle 1,318,688 1,349,091 Taylor Woodrow Plc 4,002,305 87,600 Telewest Communications Plc * 340,520 2,817,900 Tesco 8,348,445 731,787 Thames Water Plc 10,519,492 337,156 Thistle Hotels Plc 924,332 558,354 TI Group Plc 4,504,738 21,800 Transport Development Group Plc 91,314 125,100 Unigate 766,399 1,259,336 Unilever Plc 11,886,440 2,086,550 United Biscuits Plc 6,508,832 1,459,095 United Utilities 17,326,331 4,200 Vodafone Group Plc 84,688 825,094 Whitbread Plc Class A 11,396,438 107,400 Wilson (Connolly) Holdings 306,532 2,077,200 Wimpey (George) 5,076,851 526,700 Woolwich Plc 2,847,726 1,201,643 Yorkshire Water 7,941,267 ----------------- 459,920,903 ----------------- United States - 0.0% 43,712 Homestake Mining Co 364,849 ----------------- Zimbabwe - 0.0% 77,171 Zimbabwe Platinum Mines Ltd * 27,043 ----------------- TOTAL COMMON STOCKS (Cost $2,156,646,178) 2,304,248,825 ----------------- PREFERRED STOCKS - 0.8% Austria - 0.0% 3,288 Allgemeine Baugesellschaft AG 197,958 1,304 Bau Holdings AG (Non Voting) 44,351 ----------------- 242,309 -----------------
See accompanying notes to the financial statements. 23 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ----------------------------------------------------------------------------------------------------- Germany - 0.5% 7,250 Fresenius Medical Care AG (Non Voting) 1,209,934 60,100 Henkel KGAA 4,348,423 550 Hugo Boss 65,355 31,500 MAN AG 680,410 1,116 Porsche AG (Non Voting) 2,811,378 121,900 RWE 3,888,458 400 Villeroy & Boch (Non-Voting) 37,603 15,100 Volkswagen AG 521,545 ----------------- 13,563,106 ----------------- Italy - 0.3% 268,170 Fiat SPA 4,209,163 72,700 IFI-Istituto Finanziario 1,912,055 115,000 Compagnia Assicuratrice Unipol 256,906 ----------------- 6,378,124 ----------------- TOTAL PREFERRED STOCKS (Cost $19,648,895) 20,183,539 ----------------- RIGHTS & WARRANTS - 0.0% France - 0.0% 1,096,728 Eurotunnel SA Paris Warrants 10/31/01 * 46,337 1,096,728 Eurotunnel SA Paris Warrants 10/31/03 * 127,426 24,647 Generale Des Eaux Warrants 5/02/01 * 56,753 ----------------- 230,516 ----------------- Hong Kong - 0.0% 206,725 Century City International Warrants 12/31/99 * 1,225 104,212 Chinese Estates Holdings Ltd Warrants 11/24/99 * 3,825 104,212 Chinese Estates Holdings Ltd Warrants 11/24/00 * 6,039 225 Denway Investment Warrants 11/30/99 * 2 293,200 Gold Peak Industries Ltd Warrants 8/06/00 * 3,776 323,924 Kumagai Gumi Warrants 12/31/99 * 23,778 ----------------- 38,645 ----------------- Malaysia - 0.0% 7,942,500 Malayan Cement Berhad Rights 12/31/49 * 135,859 44,875 YTL Corp Berhad Rights 12/31/49 * 1,771 ----------------- 137,630 ----------------- Singapore - 0.0% 101,959 Asia Food & Properties Ltd Warrants 7/12/02 * 47,921 139,475 Haw Par Brothers International Ltd Warrants 7/18/01 * 81,153 ----------------- 129,074 -----------------
24 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - ----------------------------------------------------------------------------------------------------- United Kingdom - 0.0% 4,622,000 Eurotunnel SA Warrants 10/31/03 * 445,917 ----------------- TOTAL RIGHTS & WARRANTS (Cost $1,263,962) 981,782 ----------------- SHORT-TERM INVESTMENTS - 10.3% Cash Equivalents - 9.5% $ 100,000,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 100,000,000 110,574,535 The Boston Global Investment Trust (b) 110,574,535 $ 26,300,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 26,300,000 ----------------- 236,874,535 ----------------- U.S. Government - 0.8% $ 20,000,000 U. S. Treasury Bill, 4.61% due 1/06/00 (a) 19,661,333 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $256,563,240) 256,535,868 ----------------- TOTAL INVESTMENTS - 104.0% (Cost $2,434,122,275) 2,581,950,014 Other Assets and Liabilities (net) - (4.0%) (98,608,652) ----------------- TOTAL NET ASSETS - 100.0% $ 2,483,341,362 =================
Notes to the Schedule of Investments ADR American Depositary Receipt SDR Swedish Depository Receipt (a) All or a portion of this security is held as collateral for open futures contracts (Note 5). (b) Represents investment of security lending collateral (Note 1). (c) Bankrupt issuer. * Non-income producing security. See accompanying notes to the financial statements. 25 GMO International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Banking 15.1% Utilities 9.0 Construction 5.7 Electronic Equipment 5.3 Transportation 5.0 Consumer Goods 4.9 Conglomerates 4.9 Automotive 4.8 Chemicals 4.5 Metals and Mining 4.5 Services 3.7 Real Estate 3.4 Retail Trade 3.4 Machinery 3.3 Oil and Gas 3.1 Financial Services 3.0 Food and Beverage 2.7 Paper and Allied Products 2.4 Insurance 1.9 Communications 1.8 Health Care 1.4 Telecommunications 1.2 Textiles 0.9 Aerospace 0.4 Computers 0.1 Miscellaneous 3.6 ========= 100.0% ========= 26 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $2,434,122,275) (Note 1) $ 2,581,950,014 Foreign currency, at value (cost $8,742,904) (Note 1) 8,739,182 Cash 58,228 Receivable for Fund shares sold 77,771 Receivable for investments sold 11,780,440 Dividends and interest receivable 3,292,612 Foreign withholding taxes receivable 2,358,461 Receivable for expenses waived or borne by Manager (Note 2) 142,842 ---------------- Total assets 2,608,399,550 ---------------- Liabilities: Payable upon return of securities loaned (Note 1) 110,574,535 Payable for investments purchased 2,444,840 Accrued Malaysian repatriation taxes (Note 1) 1,944,438 Net payable for open forward foreign currency contracts (Notes 1 and 5) 5,635,951 Payable for variation margin on open futures contracts (Notes 1 and 5) 2,167,669 Payable for Fund shares repurchased 324,598 Payable to affiliate for (Note 2): Management fee 1,130,224 Shareholder service fee 294,592 Accrued expenses 541,341 ---------------- Total liabilities 125,058,188 ---------------- Net assets $ 2,483,341,362 ================ Net assets consist of: Paid-in capital $ 2,337,953,470 Accumulated undistributed net investment income 46,841,842 Accumulated net realized loss (47,263,489) Net unrealized appreciation 145,809,539 ---------------- $ 2,483,341,362 ================ Net assets attributable to: Class II Shares $ 29,559,959 ================ Class III Shares $ 2,036,009,668 ================ Class IV Shares $ 417,771,735 ================ Shares outstanding: Class II 1,279,353 ================ Class III 87,872,308 ================ Class IV 18,038,012 ================ Net asset value per share: Class II $ 23.11 ================ Class III $ 23.17 ================ Class IV $ 23.16 ================
See accompanying notes to the financial statements. 27 GMO International Core Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $4,684,839) $ 46,292,255 Interest (including securities lending income of $383,770) 4,711,086 ---------------- Total income 51,003,341 ---------------- Expenses: Management fee (Note 2) 6,883,046 Custodian fees 966,066 Legal fees 41,315 Audit fees 37,728 Transfer agent fees 27,325 Trustees fees (Note 2) 14,356 Registration fees 819 Miscellaneous 8,195 Fees waived or borne by Manager (Note 2) (1,095,804) ---------------- 6,883,046 Shareholder service fee (Note 2) Class II 23,694 Class III 1,529,237 Class IV 219,944 ---------------- Net expenses 8,655,921 ---------------- Net investment income 42,347,420 ---------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 14,296,899 Closed futures contracts (2,456,045) Foreign currency, forward contracts and foreign currency related transactions (35,625,843) ---------------- Net realized loss (23,784,989) ---------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 346,097,669 Open futures contracts 5,457,344 Foreign currency, forward contracts and foreign currency related transactions 7,400,330 ---------------- Net unrealized gain 358,955,343 ---------------- Net realized and unrealized gain 335,170,354 ---------------- Net increase in net assets resulting from operations $ 377,517,774 ================
28 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 --------------------- -------------------- Increase (decrease) in net assets: Operations: Net investment income $ 42,347,420 $ 61,654,740 Net realized gain (loss) (23,784,989) 328,403,926 Change in net unrealized appreciation (depreciation) 358,955,343 (400,000,792) --------------------- -------------------- Net increase (decrease) in net assets resulting from operations 377,517,774 (9,942,126) --------------------- -------------------- Distributions to shareholders from: Net investment income Class II - (178,442) Class III - (24,881,986) Class IV - (7,130,973) --------------------- -------------------- Total distributions from net investment income - (32,191,401) --------------------- -------------------- In excess of net investment income Class II - (173,986) Class III - (24,260,672) Class IV - (6,952,911) --------------------- -------------------- Total distributions in excess of net investment income - (31,387,569) --------------------- -------------------- Net realized gains Class II (463,070) (1,663,218) Class III (41,355,298) (244,048,618) Class IV (7,026,513) (68,183,244) --------------------- -------------------- Total distributions from net realized gains (48,844,881) (313,895,080) --------------------- -------------------- Net share transactions: (Note 4) Class II 8,630,641 8,149,764 Class III (221,446,367) (758,532,071) Class IV (216,477,387) (20,202,197) --------------------- -------------------- Decrease in net assets from net fund share transactions (429,293,113) (770,584,504) --------------------- -------------------- Total decrease in net assets (100,620,220) (1,158,000,680) Net assets: Beginning of period 2,583,961,582 3,741,962,262 --------------------- -------------------- End of period (including accumulated undistributed net investment income of $46,841,842 and of $4,494,422, respectively) $ 2,483,341,362 $ 2,583,961,582 ===================== ====================
See accompanying notes to the financial statements. 29 GMO International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Period from September 26, 1996 Six Months Ended (commencement of August 31,1999 Year Ended Year Ended operations) to (Unaudited) February 28, 1999 February 28, 1998 February 28, 1997 ----------------- ----------------- ----------------- -------------------- Net asset value, beginning of period $ 20.33 $ 23.16 $ 24.36 $ 24.60 ----------------- ----------------- ----------------- -------------------- Income (loss) from investment operations: Net investment income 0.35 (c) 0.39 (c) 0.52 (c) 0.14 Net realized and unrealized gain (loss) 2.90 (0.46) 1.94 0.96 ----------------- ----------------- ----------------- -------------------- Total from investment operations 3.25 (0.07) 2.46 1.10 ----------------- ----------------- ----------------- -------------------- Less distributions to shareholders: From net investment income - (0.24) (0.74) (0.27) In excess of net investment income - (0.24) - - From net realized gains (0.47) (2.28) (2.92) (1.07) ----------------- ----------------- ----------------- ------------------- Total distributions (0.47) (2.76) (3.66) (1.34) ----------------- ----------------- ----------------- ------------------- Net asset value, end of period $ 23.11 $ 20.33 $ 23.16 $ 24.36 ================= ================= ================= =================== Total Return (a) 16.06% (0.76%) 11.60% 4.51% Ratios/Supplemental Data: Net assets, end of period (000's) $ 29,560 $ 18,295 $ 12,500 $ 25,302 Net expenses to average daily net assets 0.76% * 0.76% 0.76% 0.80% * (b) Net investment income to average daily net assets 3.13% * 1.71% 2.14% 0.98% * Portfolio turnover rate 27% 60% 68% 97% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.06 $ 0.07 $ 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 approximate .04% of average daily net assets. (c) Computed using average shares outstanding throughout the period. 30 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, 1999 --------------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 --------------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 20.38 $ 23.20 $ 24.37 $ 24.62 $ 22.32 $ 25.56 -------------- ----------- ----------- ----------- ----------- ----------- Income (loss) from investment operations: Net investment income 0.36 (c) 0.42 (c) 0.54 (c) 0.59 0.36 0.27 Net realized and unrealized gain (loss) 2.90 (0.47) 1.96 1.02 3.09 (1.57) -------------- ----------- ----------- ----------- ----------- ----------- Total from investment operations 3.26 (0.05) 2.50 1.61 3.45 (1.30) -------------- ----------- ----------- ----------- ----------- ----------- Less distributions to shareholders: From net investment income - (0.25) (0.75) (0.33) (0.39) (0.35) In excess of net investment income - (0.24) - - - - From net realized gains (0.47) (2.28) (2.92) (1.53) (0.76) (1.59) -------------- ----------- ----------- ----------- ----------- ----------- Total distributions (0.47) (2.77) (3.67) (1.86) (1.15) (1.94) -------------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 23.17 $ 20.38 $ 23.20 $ 24.37 $ 24.62 $ 22.32 ============== =========== =========== =========== =========== =========== Total Return (a) 16.06% (0.68%) 11.71% 6.72% 15.72% (5.31%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,036,010 $ 1,998,447 $ 3,046,510 $ 4,232,937 $ 4,538,036 $ 2,591,646 Net expenses to average daily net assets 0.69% * 0.69% 0.69% 0.71% (b) 0.71% (b) 0.70% (b) Net investment income to average daily net assets 3.27% * 1.84% 2.19% 2.34% 1.93% 1.48% Portfolio turnover rate 27% 60% 68% 97% 14% 53% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.06 $ 0.07 $ 0.06 $ 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 approximate .02% of average daily net assets. (c) Computed using average shares outstanding throughout the period. See accompanying notes to the financial statements. 31 GMO International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class IV share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from January 9, 1998 August 31, 1999 Year Ended (commencement of operations) (Unaudited) February 28, 1999 to February 28, 1998 ---------------- ----------------- -------------------- Net asset value, beginning of period $ 20.37 $ 23.19 $ 20.61 --------------- ---------------- -------------- Income (loss) from investment operations: Net investment income 0.39 (b) 0.42 (b) 0.02 (b) Net realized and unrealized gain (loss) 2.87 (0.46) 2.56 --------------- ---------------- -------------- Total from investment operations 3.26 (0.04) 2.58 --------------- ---------------- -------------- Less distributions to shareholders: From net investment income - (0.25) - In excess of net investment income - (0.25) - From net realized gains (0.47) (2.28) - --------------- ---------------- -------------- Total distributions (0.47) (2.78) - --------------- ---------------- -------------- Net asset value, end of period $ 23.16 $ 20.37 $ 23.19 =============== ================ ============== Total Return (a) 16.07% (0.60%) 12.52% Ratios/Supplemental Data: Net assets, end of period (000's) $ 417,772 $ 567,219 $ 682,952 Net expenses to average daily net assets 0.63% * 0.63% 0.63% * Net investment income to average daily net assets 3.53% * 1.85% 0.68% * Portfolio turnover rate 27% 60% 68% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.06 $ 0.01
* Annualized (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Computed using average shares outstanding throughout the period. 32 See accompanying notes to the financial statements. GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 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 equity securities of non-U.S. issuers. The Fund's current benchmark is the MSCI EAFE Index. 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. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 33 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- represent gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 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 given date. The Fund may use futures contracts to manage its exposure to the stock market. 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 entering into a futures contract, the Fund is required to deposit with its custodian and agency, in a segregated account in the name of the futures broker, an amount of cash or U.S. government and agency 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 5 for all open futures contracts as of August 31, 1999. 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, 1999. 34 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 total return 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. Total return 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 will be 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, 1999, there were no open swap agreements. 35 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, the Fund loaned securities having a market value of $101,666,047 collateralized by cash in the amount of $110,574,535 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 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. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $1,944,438 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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 dividends 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. 36 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 of shares of the Fund 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. All purchase premiums are paid to and recorded by the Fund as paid-in capital. These fees are allocated relative to each class' net assets on the share transaction date. Purchase premiums are included as part of each class' "shares sold" as summarized in Note 4. For the period ended August 31, 1999, the fund received $488,684 in purchase premiums. There is no premium for cash redemptions or reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a premium of up to .10% may be charged on certain 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .54% of average daily net assets. The Fund has adopted a Shareholder Service 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 .22% for Class II shares, .15% for Class III shares, and .09% for Class IV shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. 37 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Prior to March 1, 1999, GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999, was $14,356. 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, 1999, aggregated $642,119,197 and $1,071,988,599, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $2,434,122,275 $312,915,728 $165,087,989 $147,827,739 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, including a class' portion of the purchase premiums received by the Fund, were as follows:
Six Months Ended Year Ended August 31, 1999 February 28, 1999 ----------------------------- ------------------------------- Class II: Shares Amount Shares Amount ------------- -------------- -------------- --------------- Shares sold 362,180 $ 8,246,226 885,462 $ 19,191,959 Shares issued to shareholders in reinvestment of distributions 17,499 391,803 73,790 1,596,701 Shares repurchased (342) (7,388) (598,960) (12,638,896) ------------- -------------- -------------- --------------- Net increase 379,337 $ 8,630,641 360,292 $ 8,149,764 ============= ============= ============== ===============
38 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Share transactions - continued
Six Months Ended Year Ended August 31, 1999 February 28, 1999 --------------------------------- ------------------------------------ Class III: Shares Amount Shares Amount --------------- ---------------- --------------- ------------------ Shares sold 5,056,193 $ 112,090,675 11,023,810 $ 257,852,698 Shares issued to shareholders in reinvestment of distributions 1,836,572 41,231,031 12,569,888 274,662,387 Shares repurchased (17,083,941) (374,768,073) (56,861,371) (1,291,047,156) -------------- --------------- -------------- ----------------- Net decrease (10,191,176) $ (221,446,367) (33,267,673) $ (758,532,071) ============== =============== ============== ================= Six Months Ended Year Ended August 31, 1999 February 28, 1999 --------------------------------- ------------------------------------ Class IV: Shares Amount Shares Amount --------------- ---------------- --------------- ------------------ Shares sold 5,114,794 $ 114,499,367 6,658,423 $ 166,390,526 Shares issued to shareholders in reinvestment of distributions 313,124 7,026,513 3,674,092 80,195,331 Shares repurchased (15,239,721) (338,003,267) (11,932,488) (266,788,054) --------------- --------------- --------------- ----------------- Net decrease (9,811,803) $ (216,477,387) (1,599,973) $ (20,202,197) =============== =============== =============== =================
39 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 5. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts
Net Unrealized Settlement Units Appreciation Date Deliver/Receive of Currency Value (Depreciation) --------------- ----------------- ------------------ ---------------- --------------- Buys 10/08/99 AUD 116,079,325 $ 74,004,980 $ (1,589,812) 10/08/99 CAD 107,141,992 71,847,384 568,168 03/03/00 CHF 35,820,360 24,165,365 102,167 03/03/00 EUR 340,056,468 364,315,473 (26,555) 03/03/00 GBP 41,417,378 66,735,089 123,483 10/08/99 HKD 124,296,800 15,990,943 (9,057) 10/08/99 JPY 20,403,239,302 187,124,051 12,765,467 03/03/00 NOK 618,357,845 78,727,907 (560,340) 03/03/00 SEK 396,905,468 48,617,686 (197,276) 10/08/99 SGD 47,591,020 28,346,548 461,937 -------------- $ 11,638,182 ============== Sales 10/08/99 AUD 219,035,337 $ 139,643,351 $ (513,289) 10/08/99 CAD 40,562,905 27,200,713 199,287 03/03/00 CHF 17,940,022 12,102,814 736 03/03/00 EUR 69,679,452 74,650,256 (187,253) 03/03/00 GBP 49,247,133 79,351,036 (121,555) 10/08/99 HKD 882,767,002 113,569,108 (259,666) 10/08/99 JPY 27,137,192,235 248,883,095 (16,688,115) 03/03/00 NOK 533,012,687 67,861,956 750,311 03/03/00 SEK 294,018,128 36,014,825 (186,032) 10/08/99 SGD 47,591,020 28,346,548 (268,557) -------------- $ (17,274,133) ==============
40 GMO International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Currency Abbreviations: AUD Australian Dollar HKD Hong Kong Dollar CAD Canadian Dollar JPY Japanese Yen CHF Swiss Franc NOK Norwegian Kroner EUR Euro SEK Swedish Krona GBP British Pound SGD Singapore Dollar Futures contracts
Net Unrealized Number of Appreciation Contracts Type Expiration Date Contract Value (Depreciation) ------------ -------------- ----------------- ---------------- ---------------- Buys 445 HANG SENG September 1999 $ 38,997,637 $ (407,903) 1,067 TOPIX September 1999 142,905,696 6,148,386 -------------- $ 5,740,483 ============== Sales 363 ALL ORDS September 1999 $ 17,086,214 $ 244,523 54 DAX September 1999 7,541,067 13,460 40 FTSE 100 September 1999 4,009,905 (30,160) 32 IBEX 35 September 1999 3,319,834 (67,096) 371 MATIF CAC 40 September 1999 18,033,792 (587,119) 9 MIB 30 September 1999 1,603,514 11,071 303 OMX September 1999 3,080,812 13,819 147 TSE 35 September 1999 19,569,461 208,276 -------------- $ (193,226) ==============
At August 31, 1999, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 41 GMO Asia Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Asia Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- COMMON STOCKS - 74.6% China - 9.7% 2,024,000 Beijing Datang Power Generation Co Ltd Class H 540,852 710,000 China Merchants Holdings Co Ltd 598,894 4,324,000 China Overseas Land & Investment Ltd 517,868 558,000 China Resources Enterprise 916,209 1,306,000 China Telecom Ltd * 4,053,315 452,000 Cosco Pacific Ltd 395,820 1,162,000 Guangdong Electric Power Development Co Ltd Class B 619,522 2,736,000 Guangdong Investment Ltd 560,226 5,339,000 Guangshen Railway Co Class H 687,559 10,000 Huaneng Power International ADR 125,000 1,306,000 Huaneng Power International Inc Class H 420,468 2,460,000 Qingling Motor Co Ltd Class H 548,064 602,474 Shanghai Chlor-Alkali Chemical Class B * 87,961 181,000 Shanghai Industrial Holdings 432,387 3,100,000 Shanghai Petrochemical Co Class H 666,697 1,632,000 Yizheng Chemical Fibre Co Class H * 483,391 ----------------- 11,654,233 ----------------- Indonesia - 14.9% 3,897,500 Astra International * 1,371,107 2,642,000 Gudang Garam 6,368,339 50,820 Gulf Resources Ltd ADR * 524,082 1,131,000 HM Sampoerna * 2,350,417 5,953,500 Indah Kiat Pulp & Paper * 2,171,961 1,202,500 International Nickel * 877,394 2,150,000 Kalbe Farma * 882,410 7,528,000 Matahari Putra Prima Tbk * 760,156 76,500 PT Indofood Sukses Makmur Tbk * 81,733 404,000 PT Indosat (Persero) Tbk 627,713 2,140,000 PT Pabrik Kertas Tjiwi Kimia * 613,420 580,000 Semen Gresik 1,133,550 500 Tambang Timah Persero (Foreign Registered) 329 54,000 Telekomunikasi Indonesia ADR Class B 415,125 ----------------- 18,177,736 ----------------- Korea - 13.1% 4,730 Cheil Jedang Corp 374,634 105,840 Daewoo Corp 165,865 117,840 Hanwha Corp * 763,639 27,000 Hanwha Energy Co Ltd * 203,558
See accompanying notes to the financial statements. 1 GMO Asia Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Korea - continued 23,200 Housing & Commercial Bank 542,414 60,760 Hyundai Cement Co 813,222 17,000 Hyundai Heavy Industries 953,325 14,800 Hyundai Securities Co 349,784 9,400 Korea Chemical 738,941 36,880 Korea Telecommunications * 2,311,834 34,900 Korean Air Lines 694,748 13,010 LG Electronics Co 551,038 6,390 Lotte Confectionery Co 882,313 9,150 Pohang Iron & Steel (b) 1,236,897 8,000 Pohang Iron & Steel ADR 294,000 8,729 Samsung Electronics GDR (1/2 Voting) 811,361 10,300 Samsung Securities 403,973 43,700 SK Corporation 1,055,019 271 SK Telecom (b) 271,115 42,230 SK Telecom ADR 477,727 224,000 Ssangyong Motor Co * 354,833 32,500 Ssangyong Oil Refining 806,650 53,500 Tai Han Electric Wire 738,712 ----------------- 15,795,602 ----------------- Malaysia - 13.6% 2,699,000 Arab Malaysian Corp * 1,370,808 227,000 Berjaya Sports Toto 525,684 65,000 Carlsberg Brew Malaysia 191,579 213,000 Edaran Otomobil Berhad 784,737 395,000 Genting Berhad 1,455,263 699,000 Golden Hope Plantations Berhad 573,916 272,000 Guinness Anchor Berhad 303,495 1,575,000 Kumpulan Guthrie Berhad 841,382 645,000 Magnum Corp Berhad 566,921 1,573,000 Malaysian International Shipping (Foreign Registered) 2,400,895 26,000 Nestle Malaysia 100,579 203,000 Nylex (Malaysia) Berhad 137,292 383,600 Rothmans of Pall Mall Berhad 2,675,105 214,000 Sime Darby Berhad 281,579 8,594,000 Tan Chong International Ltd 2,379,490 3,118,000 Tan Chong Motor Holdings Berhad 1,854,389 ----------------- 16,443,114 ----------------- Phillippines - 8.8% 11,509,170 Aboitiz Equity Ventures Inc 702,009 3,735,200 Ayala Corp 1,012,058
2 See accompanying notes to the financial statements. GMO Asia Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Phillippines - continued 191,275 Equitable Banking Corp 409,789 3,936,000 Filinvest Land * 312,499 4,493,500 International Container Terminal * 481,345 263,557 Ionics Circuits Inc 93,001 41,800 La Tondena Distillers Inc 42,142 82,000 Metropolitan Bank & Trust Co 676,875 6,655,000 Petron Corp 595,469 72,840 Philippine Commercial International Bank 468,159 84,570 Philippine Long Distance Telephone 2,003,675 176,000 Philippine National Bank * 581,122 5,655,000 Robinsons Land Corp Class B 427,599 719,650 San Miguel Corp Class B 1,169,941 640,000 Security Bank Corp * 516,194 6,168,000 SM Prime Holdings 1,134,881 ----------------- 10,626,758 ----------------- Singapore - 0.6% 123,500 Cycle & Carriage Ltd 696,580 ----------------- Thailand - 13.9% 40,000 ABN Amro Asia Securities Pcl (Foreign Registered)* 94,903 128,500 Advanced Info Service Public Co Ltd (Foreign Registered) 1,762,247 157,600 Ban Pu Coal Public Co Ltd (Foreign Registered) * 330,773 1,187,500 Bangkok Bank Pcl (Foreign Registered) * 3,018,674 50,200 Bangkok Insurance (Foreign Registered) 191,089 1,190,700 Bank of Ayudhya Pcl (Foreign Registered) * 535,512 64,600 BEC World Public Co Ltd (Foreign Registered) 400,855 306,500 CP Feedmill Public Co Ltd (Foreign Registered) (b) 934,963 222,432 Delta Electronics Public Co Ltd (Foreign Registered) 1,762,986 302,000 Electricity Generating Public Co Ltd (Foreign Registered) 472,429 2,236,000 Industrial Finance Corp of Thailand (Foreign Registered) 1,107,652 884,700 Jasmine International Public Co (Foreign Registered) * 409,423 93,700 KCE Electronics Pcl (Foreign Registered) (b) * 195,144 159,300 Land & House Public Co Ltd (Foreign Registered) * 240,892 158,152 Shinawatra Computer Public Co Ltd (Foreign Registered) * 721,590 206,525 Shinawatra Satellite (Foreign Registered) * 125,191 1,273,000 Siam Commercial Bank Pcl (Foreign Registered) * 1,427,167 1,000,000 Telecomasia (Foreign Registered) * 958,154 254,500 Thai Airways International (Foreign Registered) * 447,888 212,000 Thai Farmers Bank Pcl (Foreign Registered) * 304,002 1,309,000 Thai Petrochemical (Foreign Registered) * 648,442
See accompanying notes to the financial statements. 3 GMO Asia Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - --------------------------------------------------------------------------------------------------- Thailand - continued 820,700 Thai Telephone & Telecommunications (Foreign Registered) * 190,437 233,630 United Broadcasting Pcl (Foreign Registered) * 149,236 346,800 United Communication Industries (Foreign Registered) * 311,944 ----------------- 16,741,593 ----------------- TOTAL COMMON STOCKS (Cost $85,714,983) 90,135,616 ----------------- FULLY PAID SWAPS - 4.6% Singapore - 4.6% 268,800 Development Bank of Singapore Local Share Swap (a) 3,041,615 260,000 Oversea Chinese Banking Corp Local Share Swap (a) 1,707,297 166,100 Overseas Union Bank Local Share Swap (a) 779,071 ----------------- 5,527,983 ----------------- TOTAL FULLY PAID SWAPS (Cost $3,363,634) 5,527,983 ----------------- PREFERRED STOCKS - 3.8% Korea - 3.8% 32,600 Samsung Electronics (Non Voting) 4,639,390 ----------------- TOTAL PREFERRED STOCKS (Cost $457,013) 4,639,390 ----------------- DEBT OBLIGATIONS - 3.1% China - 0.0% $ 100,000 Qingling Motor Co CV, 3.50% due 1/22/02 36,000 ----------------- Thailand - 0.0% $ 2,000 Tipco Asphalt Public Co, 2.75% due 9/19/06 1,920 ----------------- U.S. Government - 3.1% $ 3,844,622 U.S. Treasury Inflation Indexed Note, 3.375% due 1/15/07 3,677,623 ----------------- TOTAL DEBT OBLIGATIONS (Cost $3,798,939) 3,715,543 ----------------- RIGHTS & WARRANTS - 0.5% Phillippines - 0.3% 1,022,900 Jolliebee FDS Warrants 3/24/03 * 451,185 -----------------
4 See accompanying notes to the financial statements. GMO Asia Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - --------------------------------------------------------------------------------------------------- Thailand - 0.2% 212,000 Thai Farmers Bank Rights 12/31/49 * 193,456 ----------------- TOTAL RIGHTS & WARRANTS (Cost $754,500) 644,641 ----------------- SHORT-TERM INVESTMENTS - 9.5% Cash Equivalents - 9.5% $ 11,500,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 11,500,000 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $11,500,000) 11,500,000 ----------------- TOTAL INVESTMENTS - 96.1% (Cost $105,589,069) 116,163,173 Other Assets and Liabilities (net) - 3.9% 4,665,421 ----------------- TOTAL NET ASSETS - 100.0% $ 120,828,594 =================
Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt (a) A derivative security whose price is linked to the return on the underlying security. (b) Valued by management (Note 1). * Non-income producing security. See accompanying notes to the financial statements. 5 GMO Asia Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Food and Beverage 10.5% Telecommunications 10.2 Real Estate 8.6 Electronic Equipment 8.5 Financial Services 6.9 Banking 6.9 Automotive 6.4 Transportation 4.5 Consumer Goods 4.2 Oil and Gas 3.5 Paper and Allied Products 2.7 Services 2.4 Utilities 2.3 Chemicals 2.2 Construction 2.1 Conglomerates 1.6 Metals and Mining 1.5 Health Care 1.3 Machinery 1.1 Retail Trade 0.7 Communications 0.5 Computers 0.5 Textiles 0.5 Insurance 0.2 Miscellaneous 10.2 ------- 100.0% ======= 6 See accompanying notes to the financial statements. GMO Asia Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $105,589,069) (Note 1) $ 116,163,173 Foreign currency, at value (cost $266,522) (Note 1) 266,752 Cash 38,742 Receivable for Fund shares sold 5,000,000 Receivable for open swap contracts (Notes 1 and 6) 888,064 Receivable for investments sold 242,732 Dividends and interest receivable 134,814 Receivable for expenses waived or borne by Manager (Note 2) 6,604 -------------- Total assets 122,740,881 -------------- Liabilities: Payable for investments purchased 1,078,390 Accrued capital gain and repatriation taxes payable (Note 1) 3,172 Accrued Malaysian repatriation taxes (Note 1) 698,383 Payable to affiliate for (Note 2): Management fee 78,274 Shareholder service fee 14,495 Accrued expenses 39,573 -------------- Total liabilities 1,912,287 -------------- Net assets $ 120,828,594 ============== Net assets consist of: Paid-in capital $ 105,016,584 Distributions in excess of net investment income (23,638) Accumulated undistributed net realized gain 5,074,805 Net unrealized appreciation 10,760,843 -------------- $ 120,828,594 ============== Net assets attributable to Class III Shares $ 120,828,594 ============== Shares outstanding - Class III 10,027,927 ============== Net asset value per share - Class III $ 12.05 ==============
See accompanying notes to the financial statements. 7 GMO Asia Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $89,571) $ 480,813 Interest 171,131 -------------- Total income 651,944 -------------- Expenses: Management fee (Note 2) 424,303 Custodian fees 109,910 Audit fees 21,900 Transfer agent fees 13,812 Legal fees 1,468 Trustees fees (Note 2) 458 Registration fees 360 Miscellaneous 1,288 Fees waived or borne by Manager (Note 2) (39,286) -------------- 534,213 Shareholder service fee - Class III (Note 2) 78,575 -------------- Net expenses 612,788 -------------- Net investment income 39,156 -------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 13,803,427 Closed swap contracts 1,521,591 Foreign currency, forward contracts and foreign currency related transactions (102,054) -------------- Net realized gain 15,222,964 -------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 26,478,517 Open swap contracts (674,554) Foreign currency, forward contracts and foreign currency related transactions (56,273) -------------- Net unrealized gain 25,747,690 -------------- Net realized and unrealized gain 40,970,654 -------------- Net increase in net assets resulting from operations $ 41,009,810 ==============
8 See accompanying notes to the financial statements. GMO Asia Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ------------------ ------------------- Increase (decrease) in net assets: Operations: Net investment income $ 39,156 $ 767,337 Net realized gain (loss) 15,222,964 (10,861,319) Change in net unrealized appreciation (depreciation) 25,747,690 (15,400,922) ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 41,009,810 (25,494,904) ------------------ ------------------ Distributions to shareholders from: Net investment income - Class III (220,569) (877,511) In excess of net investment income - Class III - (673,683) ------------------ ------------------ (220,569) (1,551,194) ------------------ ------------------ Net share transactions - Class III (Note 5) 2,635,332 64,289,234 ------------------ ------------------ Total increase in net assets 43,424,573 37,243,136 Net assets: Beginning of period 77,404,021 40,160,885 ------------------ ------------------ End of period (including distributions in excess of net investment income of $23,638 and accumulated undistributed net investment income of $157,775, respectively) $ 120,828,594 $ 77,404,021 ================== ==================
See accompanying notes to the financial statements. 9 GMO Asia Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from February 18, 1998 August 31, 1999 Year Ended (commencement of operations) (Unaudited) February 28, 1999 to February 28, 1998 --------------- --------------- ----------------------- Net asset value, beginning of period $ 7.67 $ 10.44 $ 10.00 --------------- --------------- ----------------------- Income (loss) from investment operations: Net investment income 0.00 (b) ** 0.08 (b) 0.01 (b) Net realized and unrealized gain (loss) 4.40 (2.69) 0.43 --------------- --------------- ----------------------- Total from investment operations 4.40 (2.61) 0.44 --------------- --------------- ----------------------- Less distributions to shareholders from: Net investment income (0.02) (0.08) - In excess of net investment income - (0.08) - --------------- --------------- ----------------------- (0.02) (0.16) - --------------- --------------- ----------------------- Net asset value, end of period $ 12.05 $ 7.67 $ 10.44 =============== =============== ======================= Total Return (a) 57.25% (25.03%) 4.40% Ratios/Supplemental Data: Net assets, end of period (000's) $ 120,829 $ 77,404 $ 40,161 Net expenses to average daily net assets 1.17% * 1.26% 2.52% * Net investment income to average daily net assets 0.07% * 1.04% 2.86% * Portfolio turnover rate 122% 61% 1% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.00 + $0.02 $ 0.01
* Annualized ** The net investment income per share was $0.004. + Fees and expenses voluntarily waived or borne by the Manager were less than $.01 per share. (a) Calculation excludes subscription and redemption fees. The total return would have been lower had certain expenses not been waived during the periods shown. (b) Computed using average shares outstanding throughout the period. 10 See accompanying notes to the financial statements. GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Asia Fund (the "Fund"), which commenced operations on February 18, 1998, 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 Asia Fund seeks high total return through investment in equity securities traded in the Asian securities markets. The Fund's current benchmark is the GMO Asia 7 Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 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. 11 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. There were no forward foreign currency contracts outstanding as of August 31, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 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 12 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- instruments. Upon entering into a futures contract, the Fund is required to deposit with its custodian and agency, in a segregated account in the name of the futures broker, an amount of cash or U.S. government and agency 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. As of August 31, 1999, there were no outstanding futures contracts. 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 the equity markets. The Fund enters into total return 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. Total return 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 will be 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 agreements as of August 31, 1999. 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 13 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, the Fund did not have any 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 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. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded an accrual in the amount of $3,172 for potential capital gains and repatriation taxes at August 31, 1999. The accrual for capital gains and repatriation taxes is included in net realized and unrealized gain in the Statement of Operations. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $698,383 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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. Income dividends 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. 14 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is 1.20% of the amount invested. In the case of cash redemptions, the fee is .40% of the amount redeemed. These fees will be reduced by 50% with respect to any portion of a purchase or redemption that is offset by a corresponding redemption or purchase, respectively, occurring on the same day. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" and redemption fees are included as part of "shares repurchased," respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $124,456 in purchase premiums and $13,873 in redemption fees. There is no premium for reinvested distributions. Normally, no purchase premium is charged with respect to in-kind purchases of Fund shares. A purchase premium of up to .20% may be charged on certain in-kind transactions. 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. The securities markets of emerging countries are generally smaller and less developed than the securities markets of the U.S. and developed foreign markets. 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. 15 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 2. Fees and other transactions with affiliates GMO earns a management fee paid monthly at the annual rate of .81% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding custody fees, brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of 1.00% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .81% of average daily net assets. 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, 1999, was $458. 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, 1999, cost of purchases and proceeds from sales of investments, other than short term obligations, were as follows: Purchases Proceeds --------- -------- U.S. Government Securities $ 1,545,675 $ - Investments (non-U.S. Government 119,887,330 132,203,749 securities) 16 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $105,589,069 $18,698,024 $8,123,920 $10,574,104 4. Principal shareholders At August 31, 1999, 73.9% 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, including the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended August 31, 1999 February 28, 1999 ------------------------------- ------------------------------- Class III: Shares Amount Shares Amount -------------- -------------- -------------- -------------- Shares sold 870,684 $ 10,371,352 6,185,511 $ 63,691,637 Shares issued to shareholders in reinvestment of distributions 8,920 121,402 113,130 916,087 Shares repurchased (946,068) (7,857,422) (49,533) (318,490) -------------- -------------- -------------- -------------- Net increase (decrease) (66,464) $ 2,635,332 6,249,108 $ 64,289,234 ============== ============== ============== ==============
17 GMO Asia Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Swap agreements Notional Expiration Net Unrealized Amount Date Description Appreciation - ------------ ---------- -------------------------------------- -------------- $ 2,198,336 3/02/00 Agreement with Indosuez W.I. Carr Ltd. $ 541,771 Dated 3/02/99 to receive (pay) the notional amount multiplied by the return on the Thailand SET Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 1,448,969 3/03/00 Agreement with Indosuez W.I. Carr Ltd. 346,293 Dated 3/03/99 to receive (pay) the notional amount multiplied by the return on the Thailand SET Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. -------------- $ 888,064 ============== 18 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ COMMON STOCKS - 93.8% Australia - 4.9% 9,700 Amcor Ltd 50,463 6,000 Australia and New Zealand Banking Group Ltd 38,955 7,500 Bank of Western Australia 16,391 99,200 Boral Ltd 151,693 6,200 Broken Hill Proprietary Ltd 66,563 30,100 Burswood Ltd 17,069 1,600 Coca Cola Amatil Ltd 5,767 7,500 Commonwealth Bank of Australia 117,822 4,700 Consolidated Rutile Ltd * 2,036 28,200 CSR Ltd 71,871 53,300 Email Ltd 95,088 102,200 MIM Holdings Ltd 80,094 71,100 National Australia Bank Ltd 1,073,189 17,000 News Corp Ltd 124,021 2,800 Normandy NFM Ltd 5,388 21,800 North Broken Hill Peko Ltd 48,059 5,000 OPSM Protector Ltd 8,410 16,000 Pioneer International Ltd 40,778 39,300 PMP Communications Ltd 68,359 1,654 Publishing & Broadcasting Ltd 9,716 98,500 QCT Resources Ltd 65,897 82,900 Resolute Ltd 30,107 81,100 Santos Ltd 241,829 120,000 Schroders Property 194,203 283,300 Telstra Corporation 1,471,112 1,700 Weston (George) Foods Ltd 7,257 ----------------- 4,102,137 ----------------- Austria - 0.6% 300 Austria Tabakwerke AG 16,351 1,000 Boehler Uddeholm (Bearer) 48,049 200 Brau Union AG 9,601 150 Oesterreichische Brau Beteiligungs AG 6,845 4,400 Oesterreichische Laenderbank AG 233,537 7,000 Voest-Alpine Stahl AG 228,467 ----------------- 542,850 ----------------- Belgium - 0.6% 2,900 Arbed SA 289,465 2,400 Compagnie Benelux Paribas SA 150,833 2,200 Compagnie Maritime Belge SA 93,415 ----------------- 533,713 -----------------
See accompanying notes to the financial statements. 1 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Brazil - 0.6% 2,940 Embratel Participacoes SA ADR 31,421 4,000,000 Metalurgica Gerdau SA 83,663 9,700 Tele Centro Oeste Celular ADR 32,738 970 Tele Centro Sul Participacoes ADR 53,047 1,000 Tele Leste Celular Participacoes ADR * 25,750 1,649 Tele Nordeste Celular Participacoes ADR 41,019 3,020 Tele Norte Leste Participacoes ADR 48,320 530 Telesp Celular Participacoes SA ADR 12,256 1,100 Telesp Participacoes SA ADR * 17,944 4,080 Unibanco GDR 71,400 41,500 Usinas Sider de Minas Gerais SA 64,776 ----------------- 482,334 ----------------- China - 0.1% 16,000 China Telecom Ltd Class H * 49,658 ----------------- Denmark - 0.4% 1,200 Aarhus Oliefabrik Class A 31,538 100 Codan Forsikring 9,802 200 DFDS AS 133,540 80 Kapital Holding AS 2,841 4,300 Korn-OG Foderstofkomp 97,740 1,175 Unidanmark AS Class A (Registered) 77,119 ----------------- 352,580 ----------------- Finland - 0.7% 24,900 Finnair Class A 124,928 19,100 Kemira OY 108,538 39,200 Rautaruukki OY 281,554 3,300 Stora Enso OY Class A 44,965 ----------------- 559,985 ----------------- France - 9.4% 300 Axa SA 37,328 1,630 Banque Nationale de Paris 124,650 3,330 Banque Paribas Class A 354,193 320 Bongrain 122,018 2,000 Brocacef Holding 32,744 38 Cap Gemini SA 6,522 4,440 Chargeurs International SA 264,971 2,170 Christian Dior 348,394 40 Colas SA 7,795 405 Compagnie Generale d'Industrie et de Participations 20,020
2 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ France - continued 5,970 Compagnie Parisienne de Reescompte 271,150 820 Credit Local de France SA 106,793 1,880 Credit National 126,889 100 Damart SA 8,239 2,440 Eiffage SA 178,346 910 Elf Gabon 95,446 8,000 Eramet 409,656 3,440 Eridania Beghin-Say SA 454,914 3,540 Esso S.A.F. 294,830 5,300 France Telecom SA 412,582 10 Fromageries Bel SA 8,376 4,945 Gaz Et Eaux 254,107 10 Guyenne Et Gascogne 5,434 1,480 Imetal 235,738 13,100 Michelin SA Class B 567,450 40 Nord-Est 1,077 14,700 Pechiney SA Class A 855,531 850 Pernod Ricard 65,181 1,400 Renault SA 75,416 3,500 Saint-Gobain 676,528 4,400 Sommer Allibert 119,952 3,590 Sylea (Bearer) 219,553 57,290 Usinor Sacilor 886,509 5,920 Vallourec 237,677 ----------------- 7,886,009 ----------------- Germany - 6.1% 62,300 Bankgesellschaft Berlin AG 1,108,146 17,950 BASF AG 813,371 2,700 Bayer AG 117,355 1,150 Bilfinger & Berger 27,695 14,100 DaimlerChrysler AG 1,063,369 14,000 Deutsche Telekom AG 619,596 200 Escada AG 25,984 9,400 FAG Kugelfischer 98,791 800 Heidelberg Port-Zement 80,698 8,800 IWKA AG 162,663 100 Leirheit AG 3,116 1,600 Schmalbach-Lubeca 219,193 10,800 SKW Trostberg AG 246,402 150 Suedzucker AG 60,967
See accompanying notes to the financial statements. 3 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Germany - continued 20,200 Thyssen Krupp AG * 471,531 6 Walter Bau AG 602 ----------------- 5,119,479 ----------------- Hong Kong -3.9% 115,000 Amoy Properties Ltd 113,295 71,000 Chinese Estates Holdings Ltd 11,612 104,000 Goldlion Holdings Ltd 18,483 54,000 Hang Lung Development Co Ltd 61,892 4,000 Hang Seng Bank 45,202 10,000 Henderson Land Development Co Ltd 52,800 20,000 Hong Kong Land Holdings 29,600 215 Hong Kong Telecommunications 487 9,000 Hutchison Whampoa 87,796 228,000 Jardine International Motor Holdings Ltd 140,203 235,800 Jardine Matheson Holdings Ltd 1,127,124 417,000 Jardine Strategic Holdings Ltd 959,100 226,000 Kumagai Gumi Ltd 110,597 50,000 Mandarin Oriental ADR 33,750 55,000 New Asia Realty & Trust Class A 87,828 274,000 Oriental Press Group 35,286 566,000 Regal Hotels International Ltd 60,499 150,000 San Miguel Brewery Ltd 25,112 84,000 Sime Darby 32,453 212 Sino Land 106 18,000 Swire Pacific Ltd Class A 92,722 107,000 Tai Cheung Holdings Ltd 26,181 111,000 Wheelock and Co Ltd 143,661 ----------------- 3,295,789 ----------------- Hungary - 0.2% 7,300 Danubius Hotel & Spa * 151,906 ----------------- India - 0.1% 10,000 Indian Rayon & Industries GDR 45,250 30,000 Indo Gulf Fertilizers GDR 49,500 ----------------- 94,750 -----------------
4 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Indonesia - 0.1% 50,000 Astra International * 17,590 350,000 Matahari Putra Prima Tbk * 35,342 88,000 PT Daya Guna Samudera * 35,544 28,000 PT Indofood Sukses Makmur Tbk * 29,915 ----------------- 118,391 ----------------- Ireland - 0.0% 29,100 Crean (James) 13,832 29,100 Oakhill Group Plc * 15,368 ----------------- 29,200 ----------------- Italy - 3.9% 3,000 Banco Ambrosiano Veneto SPA (Non Convertible) 6,084 4,000 Burgo (Cartiere) SPA 29,195 13,000 Caffaro 13,319 14,700 Danieli & Co Di Risp (Non Convertible) 45,960 221,000 ENI SPA 1,328,224 7,540 Fiat SPA 120,895 3,800 Fila Holding SPA ADR 45,838 46,600 IFIL-Finanz di Part SPA 199,838 5,750 Luxottica Group ADR 95,594 10,000 Pirelli & Co 19,435 2,000 Pirelli & Co di Risp 2,979 280 Reno de Medici SPA 929 1,000 Rinascente 4,383 5,090 San Paolo IMI SPA 68,333 4,000 Sirti SPA 20,660 5,000 Sorin Biomedica SPA 15,421 218,000 Telecom Italia Mobile SPA 1,268,746 2,000 Unicem Di Risp 8,894 ----------------- 3,294,727 ----------------- Japan - 20.7% 3,000 77 Bank Ltd 29,304 43,000 Aida Engineering 195,695 20,300 Aoki International 92,757 18,000 Atsugi Nylon Industrial 20,849 9,000 Bandai Co 143,645 103,000 Bank Of Tokyo-Mitsubishi 1,535,911 226,000 Cosmo Oil Co Ltd 412,240 149,000 Daido Steel Co Ltd 258,197 4,000 Dainippon Pharmaceutical Co Ltd 24,588 51,000 Daio Paper Corp 354,900 3,000 Daito Trust Construction Co Ltd 38,989
See accompanying notes to the financial statements. 5 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Japan - continued 7,000 Dowa Mining Co 17,876 3,000 Ezaki Glico Co Ltd 16,444 1,000 Fanuc Co 60,194 18,000 Fuji Bank 185,508 26,000 Fukuyama Transporting Co Ltd 149,391 87,000 Furukawa Co Ltd 134,890 4,000 Heiwa Corp 121,118 21,000 Hitachi Ltd 212,787 59,000 Hitachi Metals Ltd 403,575 19,000 Hokuriku Bank 38,296 14,000 Honda Motor Co Ltd 561,813 16,000 Itoham Foods Inc 62,748 9,000 Izumiya Co Ltd 83,314 42,000 JACCS Co 184,249 13,000 Japan Radio Co 149,747 2,000 Joshin Denki Co Ltd 7,424 20,000 Kamigumi Co Ltd 120,389 28,000 Kandenko Co 165,735 44,000 Kansai Paint Co 120,790 6,000 Kawasaki Heavy Industries Ltd 13,681 1,000 Kissei Pharmaceutical Co Ltd 19,609 1,000 Kokusai Denshin Denwa 77,979 78,000 Konica Corp 313,722 18,000 Kubota Corp 56,802 98,000 Kurabo Industries Ltd 120,662 37,000 Kyudenko Corp 186,611 1,000 Kyushu Electric Power Co Inc 15,961 31,000 Maeda Road Construction 199,325 124,000 Marubeni Corp 292,909 16,000 Matsushita Electric Industrial Co Ltd 315,199 7,000 Meiji Milk Products 26,303 65,000 Meiji Seika Kaisha Ltd 486,114 34,000 Misawa Homes 131,789 32,000 Mitsubishi Belting 86,972 11,000 Mitsubishi Corp 91,395 22,000 Mitsubishi Heavy Industries 95,709 140,000 Mitsubishi Material 394,546 68,000 Mitsubishi Paper Mills Ltd 122,176 28,000 Mitsui OSK Lines Ltd 53,628
6 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Japan - continued 14,000 Mitsui Trust & Banking Co Ltd 28,857 52,000 Mizuno Corporation 172,156 1,000 MOS Food Services 15,678 22,000 Nachi Fujikoshi Co 37,320 65,000 Nagase & Co 311,232 6,000 Nichirei 16,417 2,000 Nintendo Co Ltd 346,573 76,000 Nippon Beet Sugar 138,629 6,000 Nippon Express Co Ltd 45,802 5,000 Nippon Flour Mills Co Ltd 14,000 49,000 Nippon Hodo Co 313,275 26,000 Nippon Oil Co Ltd 115,008 95,000 Nippon Paint Co 242,601 14,000 Nippon Shinpan Co 48,520 124,000 Nippon Suisan Kaisha Ltd 243,148 39,000 Nippon Synthetic Chemical 86,078 3,000 Nisshin Oil Mills Ltd 11,875 287,000 Nisshin Steel Co Ltd 408,336 437,000 NKK Corp 406,530 96,000 NOF Corp 233,773 35,000 Okumura Corp 132,473 95,000 Onoda Cement Co Ltd 248,666 125,000 Orient Corp 362,534 1,000 Orix Corp 96,128 1,000 Rohm Co Ltd 198,823 9,000 Ryosan Co 230,653 5,000 Sankyo Co Ltd 139,085 22,000 Sanyo Electric Company 95,308 59,000 Seino Transportation Co Ltd 375,594 39,000 Sekisui Chemical 216,973 5,000 Sekisui House Ltd 53,673 1,000 Seven-Eleven Japan Co 72,689 1,000 Seven-Eleven Japan Co (New Shares) 73,419 3,000 Shikoku Electric Power 48,155 6,000 Shionogi and Co Ltd 51,439 7,000 Showa Shell Sekiyu 47,116 8,000 Snow Brand Milk Products Co Ltd 36,554 4,000 Stanley Electric Co Ltd 16,927 5,000 Sumitomo Corp 35,569
See accompanying notes to the financial statements. 7 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Japan - continued 10,000 Sumitomo Osaka Cement Co Ltd 18,879 2,000 Suzuki Motor Corp 33,745 2,000 Takara Standard Co 12,714 3,000 Takeda Chemical Industries Ltd 150,486 69,000 Tanabe Seiyaku Co Ltd 463,168 62,000 Tekken Construction 102,914 50,000 TOA Corp 87,099 88,000 Toagosei Co Ltd 178,978 97,000 Tobishima Corp * 77,851 13,000 Tokyo Gas Co 32,012 117,000 Tokyo Ink Manufacturing Co Ltd 259,300 25,000 Toshiba Tungaloy Co Ltd 76,839 4,000 Toyo Seikan Kaisha 93,028 3,000 Toyo Suisan Kaisha 32,833 30,000 Toyobo Co Ltd 47,882 17,000 Toyota Motor Corp 500,798 14,000 Uniden Corp 150,796 5,000 Yakult Honsha Co Ltd 72,507 6,000 Yamaha Motor Co 53,901 17,000 Yodogawa Steel Works 75,507 33,000 Yokogawa Bridge Corp 114,971 9,000 Yokohama Rubber Co 23,394 ----------------- 17,431,643 ----------------- Korea - 1.1% 470 Cheil Jedang Corp 37,226 900 Chosun Brewery Co Ltd 28,132 3,300 Dongwon Securities 80,508 8,150 Housing & Commercial Bank 190,546 4,938 Hyundai Industrial Development 76,967 4,200 Kookmin Bank 58,704 1,100 Korea Electric Power Corp 41,000 7,500 Korea Electric Terminal Co 85,451 190 Lotte Confectionery Co 26,235 2,100 Pacific Chemical Corp 52,300 660 Pohang Iron & Steel 89,219 183 Samsung Electronics 34,724 550 Shinsegae Department Store 43,283 45 SK Telecom 45,019 3,780 SK Telecom ADR 42,761 ----------------- 932,075 -----------------
8 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Malaysia - 2.9% 20,000 Berjaya Group Berhad 5,842 2,000 Cement Industries of Malaysia Berhad 1,737 15,000 Edaran Otomobil Berhad 55,263 19,000 Genting Berhad 70,000 6,000 Golden Hope Plantations Berhad 4,926 125,000 IJM Corp Berhad Class A 100,658 22,000 Malayan Banking Berhad 72,368 1,000 Oriental Holdings Berhad 2,197 6,990,000 Tan Chong International Ltd 1,935,378 93,000 Tan Chong Motor Holdings Berhad 55,311 70,000 YTL Corp 142,763 ----------------- 2,446,443 ----------------- Mexico - 0.1% 13,000 Grupo Industrial Bimbo Class A 27,333 660 Grupo Televisa SA GDR * 24,008 2,650 TV Azteca SA ADR 13,416 ----------------- 64,757 ----------------- Netherlands - 3.7% 5,400 Boskalis Westminster CVA 93,827 880 Buhrmann NV Maastricht 15,523 2,800 DSM NV (Bearer) 329,318 1,200 Gamma Holdings NV 55,136 7,400 Hollandsche Beton Groep NV 87,542 8,000 Hoogovens & Staalf CVA 462,638 3,700 KLM-Koninklijke Luchtvaart Mij 101,611 4,900 Kon Bolswessanen 60,037 2,700 Koninklijke KPN NV 120,920 2,600 Koninklijke Pakhoed 66,871 1,200 Koninklijke Ten Cate 41,194 6,600 Nedlloyd 188,224 22,100 Royal Dutch Petroleum 1,358,570 3,100 Stork NV 66,961 600 Van Ommeren (Koninklijke) (Participating Certificate) 20,597 400 Wereldhave NV 19,667 ----------------- 3,088,636 ----------------- New Zealand - 0.5% 83,000 Air New Zealand Class B 150,189 200,000 Brierley Investment Ltd * 47,564 105,400 Fletcher Challenge Buildings 146,038 10,000 Telecom Corp of New Zealand 44,824
See accompanying notes to the financial statements. 9 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ New Zealand - continued 165,000 Trans Tasman Properties Ltd 26,445 19,000 Tranz Rail Holdings Ltd 30,353 ----------------- 445,413 ----------------- Norway - 0.5% 93,100 Christiania Bank OG Kreditkasse 395,060 6,500 Den Norske Bank Class A 25,925 ----------------- 420,985 ----------------- Portugal - 1.0% 570 Cimpor-Cimentos de Portugal SGPS SA (Registered) 9,735 342 Cimpor-Cimentos de Portugal SGPS SA (New Shares) 5,841 43,200 Electricidade de Portugal 730,080 1,400 Inapa-Invest Particip Gesta 12,821 5,000 Mota & Co SA 56,509 2,800 Portucel Industrial Empresa 18,928 500 Salvador Caetano 10,298 ----------------- 844,212 ----------------- Russia - 0.1% 2,000 Lukoil Holding Co ADR 59,000 ----------------- Singapore - 3.7% 399,900 Asia Food & Properties Ltd * 233,942 105,000 Chuan Hup Holdings Ltd 88,523 1,500 Creative Technology Ltd 14,873 17,000 Cycle & Carriage Ltd 95,886 652 DBS Bank Ltd 7,471 4,000 Development Bank of Singapore (Foreign Registered) 45,835 43,500 Fraser & Neave 165,291 1,018,000 Goldtron * 160,167 74,000 Hai Sun Hup Group Ltd 32,951 100,000 Haw Par Brothers International Ltd 166,241 278,500 Hotel Properties Ltd 256,293 66,900 Inchcape Berhad 90,561 15,000 Overseas Chinese Banking (Foreign Registered) 105,088 14,300 Overseas Union Bank Ltd (Foreign Registered) 74,714 31,700 Singapore Airlines Ltd (Foreign Registered) 297,370 456,100 Singapore Telecom 809,677 241,400 Straits Trading Co Ltd 286,647 9,100 Times Publishing Ltd 17,829
10 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Singapore - continued 18,000 United Overseas Bank (Foreign Registered) 133,587 208,000 Van Der Horst Ltd * 57,424 ----------------- 3,140,370 ----------------- Spain - 2.9% 44,700 Aceralia SA 611,898 9,100 Acerinox SA 301,428 3,000 Banco Bilbao Vizcaya SA 39,990 3,100 Cristaleria Espanola SA 156,843 100 Empresa Nacional de Celulosas SA 2,007 20,414 Endesa 409,683 2,000 Europistas Concesionaria Espanola SA * 15,020 200 Fabricacion de Automoviles Renault de Espana SA 7,542 6,600 FENOSA SA 94,112 16,000 Hidro Cantabrico 226,291 17,400 Repsol SA 364,451 8,700 Tableros Defibras Class B 98,786 ----------------- 2,328,051 ----------------- Sweden - 1.3% 2,800 Mo Och Domsjo AB Class B 85,434 6,400 Skanska AB Class B 250,297 18,900 Ssab Swedish Steel Class A 263,167 9,700 Ssab Swedish Steel Class B 132,716 1,600 Svenska Cellulosa Class B 46,495 32,800 Trelleborg AB Class B 293,885 ----------------- 1,071,994 ----------------- Switzerland - 2.9% 200 Bobst AG (Registered) 119,464 110 Bobst SA (Bearer) 131,410 100 Financiere Richemont AG Class A 190,086 60 Hilti AG (Participating Certificate) 40,987 200 Merkur Holding AG (Registered) 50,426 160 Nestle AG (Registered) 315,755 200 Novartis AG (Registered) 287,770 420 Pargesa Holdings SA (Bearer) 665,303 500 Rieter Holdings AG (Registered) 315,161 400 Sika Finanz AG (Bearer) 120,520 50 Societe Generale de Surveillance Holding SA (Registered) 13,365 160 Swatch Group AG (Bearer) 117,642 20 Swiss Reinsurance (Bearer) 39,007 ----------------- 2,406,896 -----------------
See accompanying notes to the financial statements. 11 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ Thailand - 0.1% 24,000 Bangkok Bank Pcl (Foreign Registered) * 61,009 50,000 Quality House Co Ltd * 20,806 ----------------- 81,815 ----------------- United Kingdom - 20.7% 19,100 Anglian Water Plc 227,268 78,200 Arjo Wiggins Appleton Plc 272,231 5,649 AstraZeneca Plc 220,926 30,000 Bass Plc 403,515 29,800 Beazer Holmes Plc 88,407 18,000 Berkley Group 227,927 48,900 BICC Group 88,850 75,900 Billiton Plc 309,075 34,324 British Airways Plc 224,766 21,100 British Petroleum Co Plc 391,865 263,100 British Steel Plc 690,632 26,300 British Telecom Plc 403,015 61,295 BTR Siebe Plc 312,926 17,200 Christian Salvesen Plc 36,922 69,200 Coats Viyella 58,695 48,200 Courtaulds Textiles Plc 130,980 68,800 Delta Plc 180,875 234,165 Elementis Plc 440,535 32,400 Glynwed International 122,690 284,400 Greenalls Group Plc 1,721,738 700 Hambros Plc Class A * (a) 2,026 23,400 Hepworth Plc 85,787 17,400 HSBC Holdings Plc 215,293 4,500 Hyder Plc 40,665 41,900 Inchcape Plc 261,071 16,500 Johnson Matthey 162,503 41,000 Laird Group 201,404 40,000 Lonrho Plc 366,613 290,800 MFI Furniture Group 219,768 7,200 Morgan Crucible 36,063 11,000 National Power 78,267 4,300 National Westminster Bank 88,432 47,100 Northern Foods Plc 99,591 227,200 Pilkington 394,552 27,100 Powergen Plc 270,821 18,000 Rank Group Plc 74,746
12 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------ United Kingdom - continued 40,400 Rexam Plc 190,661 3,300 RMC Group 54,097 66,800 Royal & Sun Alliance Insurance Group 556,382 12,300 Rugby Group 21,854 12,700 Safeway Plc 52,686 28,300 Scottish Power Plc 260,516 6,100 Severn Trent Plc 88,767 8,300 Signet Group Plc 7,073 119,100 Smithkline Beecham Plc 1,552,163 74,891 Smiths Industries Plc 1,121,721 3,200 Somerfield Plc 11,937 20,200 Storehouse Plc 37,190 5,892 Sun Life & Province Holding 45,452 7,400 Tate & Lyle 47,952 27,100 Taylor Woodrow Plc 80,397 7,700 Tesco 22,812 7,316 Thames Water Plc 105,168 28,200 Thistle Hotels Plc 77,312 414,100 TI Group Plc 3,340,913 1,900 Unigate 11,640 10,714 Unilever Plc 101,126 3,200 United Biscuits Plc 9,982 13,800 United Utilities 163,871 21,600 Vickers Plc 61,475 4,000 Vodafone Group Plc 80,655 37,800 Wilson (Connolly) Holdings 107,885 14,000 Wimpey (George) 34,217 27,800 Yorkshire Water 183,721 ----------------- 17,581,065 ----------------- TOTAL COMMON STOCKS (Cost $74,585,919) 78,956,863 ----------------- PREFERRED STOCKS - 2.1% Brazil - 0.2% 3,000,000 Cemig 46,202 174,000 Itaubanco SA (Registered) 80,572 ----------------- 126,774 ----------------- Germany - 1.3% 6,300 Draegerwerk AG 66,011 12,000 Dyckerhoff AG (Non Voting) 405,600
See accompanying notes to the financial statements. 13 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - ------------------------------------------------------------------------------------------ Germany - continued 200 Escada AG 27,674 3,200 Krones AG 105,118 11,300 MAN AG 244,084 1,700 Villeroy & Boch (Non-Voting) 159,811 559 Walter Bau AG 59,044 ----------------- 1,067,342 ----------------- Italy - 0.5% 1,000 Banca Nazionale dell'Agricoltura 1,310 12,610 Fiat SPA 197,925 6,150 IFI-Istituto Finanziario Industries 161,749 ----------------- 360,984 ----------------- Korea - 0.2% 1,300 Samsung Electronics (Non Voting) 185,006 ----------------- TOTAL PREFERRED STOCKS (Cost $1,657,384) 1,740,106 ----------------- CONVERTIBLE SECURITIES - 0.1% Poland - 0.1% DEM 140,000 Elektrim SA, 2.00% due 5/30/04 90,729 ----------------- TOTAL CONVERTIBLE SECURITIES (Cost $96,905) 90,729 ----------------- RIGHTS & WARRANTS - 0.0% Hong Kong - 0.0% 5,100 Chinese Estates Holdings Ltd Warrants 11/24/00 * 296 5,100 Chinese Estates Holdings Ltd Warrants 11/24/99 * 187 ----------------- 483 ----------------- Malaysia - 0.0% 10,000 Berjaya Group Berhad Rights 12/31/49 * 1,868 17,500 YTL Corp Warrants 12/31/49 * 10,592 ----------------- 12,460 ----------------- TOTAL RIGHTS & WARRANTS (Cost $2,586) 12,943 -----------------
14 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Par Value Description Value ($) - ------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS - 1.3% Cash Equivalents - 1.3% $ 1,100,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 1,100,000 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $1,100,000) 1,100,000 ----------------- TOTAL INVESTMENTS - 97.3% (Cost $77,442,794) 81,900,641 Other Assets and Liabilities (net) - 2.7% 2,301,266 ----------------- TOTAL NET ASSETS - 100.0% $ 84,201,907 =================
Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt (a) Bankrupt issuer. * Non-income producing security. See accompanying notes to the financial statements. 15 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited) At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Metals and Mining 10.9% Conglomerates 10.4 Banking 8.6 Telecommunications 7.3 Machinery 6.8 Construction 6.3 Oil and Gas 6.1 Automotive 5.9 Consumer Goods 5.9 Chemicals 4.7 Services 4.5 Health Care 3.5 Utilities 3.1 Transportation 2.5 Financial Services 2.2 Electronic Equipment 1.6 Paper and Allied Products 1.6 Textiles 1.1 Retail Trade 1.0 Real Estate 0.9 Insurance 0.9 Food and Beverage 0.5 Communications 0.3 Miscellaneous 3.4 ------- 100.0% ======= 16 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $77,442,794) (Note 1) $ 81,900,641 Foreign currency, at value (cost $2,144,962) (Note 1) 2,193,502 Cash 68,906 Dividends and interest receivable 144,474 Foreign withholding taxes receivable 46,563 Receivable for expenses waived or borne by Manager (Note 2) 12,315 ---------------------- Total assets 84,366,401 ---------------------- Liabilities: Net payable for open forward foreign currency contracts 86,994 Accrued capital gain and repatriation taxes payable (Note 1) 2,574 Accrued Malaysian repatriation taxes (Note 1) 1,074 Payable to affiliate for (Note 2): Management fee 38,461 Shareholder service fee 10,684 Accrued expenses 24,707 ---------------------- Total liabilities 164,494 ---------------------- Net assets $ 84,201,907 ====================== Net assets consist of: Paid-in capital $ 79,571,133 Accumulated undistributed net investment income 619,101 Accumulated net realized loss (405,219) Net unrealized appreciation 4,416,892 ---------------------- $ 84,201,907 ====================== Net assets attributable to: Class III Shares $ 84,201,907 ====================== Shares outstanding: Class III 7,385,745 ====================== Net asset value per share: Class III $ 11.40 ======================
See accompanying notes to the financial statements. 17 GMO Tax-Managed International Equities Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $71,696) $ 696,095 Interest 44,966 ------------------ Total income 741,061 ------------------ Expenses: Management fee (Note 2) 117,306 Custodian fees 48,300 Audit fees 19,965 Transfer agent fees 13,707 Registration fees 1,365 Legal fees 380 Trustees fees (Note 2) 184 Miscellaneous 555 Fees waived or borne by Manager (Note 2) (84,456) ------------------ 117,306 Shareholder service fee - Class III (Note 2) 32,585 ------------------ Net expenses 149,891 ------------------ Net investment income 591,170 ------------------ Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (375,504) Foreign currency, forward contracts and foreign currency related transactions (6,500) ------------------ Net realized loss (382,004) ------------------ Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 4,426,762 Foreign currency, forward contracts and foreign currency related transactions 38,797 ------------------ Net unrealized gain 4,465,559 ------------------ Net realized and unrealized gain 4,083,555 ------------------ Net increase in net assets resulting from operations $ 4,674,725 ==================
18 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Period from July 29, 1998 August 31, 1999 (commencement of operations) (Unaudited) through February 28, 1999 ------------------ ------------------------------- Increase (decrease) in net assets: Operations: Net investment income $ 591,170 $ 59,031 Net realized loss (382,004) (44,913) Change in net unrealized appreciation (depreciation) 4,465,559 (48,667) -------------------- -------------------- Net increase (decrease) in net assets resulting from operations 4,674,725 (34,549) -------------------- -------------------- Distributions to shareholders from: Net investment income - Class III - (58,701) In excess of net investment income - Class III - (8,556) -------------------- -------------------- - (67,257) -------------------- -------------------- Net share transactions - Class III (Note 5) 60,998,109 18,630,879 -------------------- -------------------- Total increase in net assets 65,672,834 18,529,073 Net assets: Beginning of period 18,529,073 - -------------------- -------------------- End of period (including accumulated undistributed net investment income of $619,101 and $27,931, respectively) $ 84,201,907 18,529,073 ==================== ====================
See accompanying notes to the financial statements. 19 GMO Tax-Managed International Equities Fund (A Series of GMO Trust)
Financial Highlights (For a Class III share outstanding throughout each period) - ------------------------------------------------------------------------------------------------------------- Six Months Ended Period from July 29, 1998 August 31, 1999 (commencement of operations) (Unaudited) through February 28, 1999 ----------------- ----------------------------- Net asset value, beginning of period $ 9.71 $ 10.00 ---------------- -------------- Income (loss) from investment operations: Net investment income 0.15 (b) 0.04 Net realized and unrealized gain (loss) 1.54 (0.28) ---------------- -------------- Total from investment operations 1.69 (0.24) ---------------- -------------- Less distributions to shareholders: From net investment income - (0.04) In excess of net investment income - (0.01) ---------------- -------------- Total distributions - (0.05) ---------------- -------------- Net asset value, end of period $ 11.40 $ 9.71 ================ ============== Total Return (a) 17.40% (2.44%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 84,202 $ 18,529 Net expenses to average daily net assets 0.69% * 0.69% * Net investment income to average daily net assets 2.73% * 0.87% * Portfolio turnover rate 8% 20% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.12
* Annualized (a) Calculation excludes purchase premiums. The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Computed using average shares outstanding throughout the period. 20 See accompanying notes to the financial statements. GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Tax-Managed International Equities Fund (the "Fund"), which commenced operations on July 29, 1998, 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 after-tax total return primarily through investment in non-U.S. equity securities. The Fund's current benchmark is the GMO EAFE (After Tax). 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 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. 21 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. 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 given date. The Fund may use futures contracts to manage its exposure to the stock market. 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 entering into 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 and agency 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. At August 31, 1999, there were no open futures contracts. 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 total return 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 22 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. Total return 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 will be 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, 1999, there were no open swap agreements. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 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. 23 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded an accrual in the amount of $2,574 for potential capital gains and repatriation taxes at August 31, 1999. The accrual for capital gains and repatriation taxes is included in net realized and unrealized gain (loss) in the Statement of Operations. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $1,074 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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. Income dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 24 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .60% of the amount invested. All purchase premiums are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $274,177 in purchase premiums. There is no premium for cash redemptions or reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a purchase premium of up to .10% may be charged on certain 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .54% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999, was $184. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 25 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, aggregated $62,414,356 and $3,332,593, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows:
Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ----------------- ------------------ ------------------ ---------------- $77,442,794 $7,400,730 $2,942,883 $4,457,847
4. Principal shareholders At August 31, 1999, 63.2% 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, including the purchase premiums received by the Fund, were as follows:
Period from July 29, 1998 Six Months Ended (commencement of operations) August 31, 1999 to February 28, 1999 ------------------------------------- ----------------------------------- Class III: Shares Amount Shares Amount ----------------- ----------------- ---------------- ---------------- Shares sold 5,477,816 $ 60,998,109 2,083,735 $ 20,337,787 Shares issued to shareholders in reinvestment of distributions - - 835 8,274 Shares repurchased - - (176,641) (1,715,182) ----------------- ----------------- ---------------- ---------------- Net increase 5,477,816 $ 60,998,109 1,907,929 $ 18,630,879 ================= ================= ================ ================
26 GMO Tax-Managed International Equities Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Short forward currency contract
Settlement Units Net Unrealized Date Deliver/Receive of Currency Value Depreciation --------------- ----------------- ---------------- ----------- ------------------ 10/21/99 HKD 2,986,756 $ 384,111 $ (8,111) ==================
Forward cross currency contract
Settlement Net Unrealized Date Deliver/Units of Currency Receive/In Exchange For Depreciation - ------------------ ------------------------- ----------------------- ------------ 4/13/00 JPY 56,398,518 DEM 826,837 $ (78,883) ==================
Currency Abbreviations: DEM German Mark HKD Hong Kong Dollar JPY Japanese Yen 27 GMO Global Hedged Equity Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Global Hedged Equity Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - ------------------------------------------------------------------------------------------------------------------- MUTUAL FUNDS - 86.6% United States - 86.6% 335,014 GMO Emerging Markets Fund 3,125,682 317,946 GMO Evolving Countries Fund 3,122,233 741,013 GMO International Core Fund 17,169,272 91,383 GMO International Small Companies Fund 1,143,196 238,606 GMO REIT Fund 2,128,361 120,524 GMO Small Cap Growth Fund 1,428,214 225,863 GMO Small Cap Value Fund 2,845,868 800,717 GMO U.S. Core Fund 14,933,369 ----------------- TOTAL MUTUAL FUNDS (Cost $45,622,676) 45,896,195 ----------------- COMMON STOCKS - 0.0% Italy - 0.0% 12,500 Grassetto SPA (b) - ----------------- United Kingdom - 0.0% 17,870 Viglen Technology Plc (Entitlement Letters)* - ----------------- TOTAL COMMON STOCKS (Cost $7,040) - ----------------- DEBT OBLIGATIONS - 4.6% U.S. Government Agency - 4.6% $ 2,500,000 Federal Farm Credit Bank Floating Rate Note, CPI + 3.00%, 5.72% due 2/14/02 2,413,750 ----------------- TOTAL DEBT OBLIGATIONS (Cost $2,427,740) 2,413,750 ----------------- SHORT-TERM INVESTMENTS - 8.6% Cash Equivalents - 6.0% $ 3,200,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 3,200,000 ----------------- U.S. Government - 2.6% $ 1,400,000 U. S. Treasury Bill, 4.54% due 1/06/2000 (a) 1,376,293 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $4,578,165) 4,576,293
See accompanying notes to the financial statements. 1 GMO Global Hedged Equity Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS - 99.8% (Cost $52,635,621) 52,886,238 Other Assets and Liabilities (net) - 0.2% 135,480 ----------------- TOTAL NET ASSETS - 100.0% $ 53,021,718 ================= Notes to the Schedule of Investments. (a) This security is held as collateral for open futures contracts (Note 6). (b) Bankrupt issuer. * Non-income producing security.
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, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------ Assets: Investments, at value (cost $52,635,621) (Note 1) $ 52,886,238 Foreign currency, at value (cost $45,315) (Note 1) 45,787 Cash 96,205 Interest receivable 10,604 Receivable for variation margin on open futures contracts (Notes 1 and 6) 534,960 Receivable for expenses waived or borne by Manager (Note 2) 23,941 -------------- Total assets 53,597,735 -------------- Liabilities: Net payable for open forward foreign currency contracts (Notes 1 and 6) 505,457 Payable to affiliate for (Note 2): Management fee 22,481 Shareholder service fee 935 Accrued expenses 47,144 -------------- Total liabilities 576,017 -------------- Net assets $ 53,021,718 ============== Net assets consist of: Paid-in capital $ 86,692,607 Accumulated undistributed net investment income 176,167 Accumulated net realized loss (33,587,029) Net unrealized depreciation (260,027) -------------- $ 53,021,718 ============== Net assets attributable to Class III Shares $ 53,021,718 ============== Shares outstanding - Class III 6,525,778 ============== Net asset value per share - Class III $ 8.12 ==============
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, 1999 (Unaudited) - -------------------------------------------------------------------------------------------- Investment income: Dividends from investment company shares $ 240,856 Interest 175,579 ------------- Total income 416,435 ------------- Expenses: Management fee (Note 2) 130,835 Custodian fees 34,799 Audit fees 14,724 Transfer agent fees 14,077 Legal fees 829 Registration fees 637 Trustees fees (Note 2) 277 Miscellaneous 645 Fees waived or borne by Manager (Note 2) (142,981) ------------- 53,842 Shareholder service fee - Class III (Note 2) 4,232 ------------- Net expenses 58,074 ------------- Net investment income 358,361 ------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (1,681,651) Realized gain distributions from investment company shares 1,377,743 Closed futures contracts (3,272,444) Closed swap contracts (226,070) Foreign currency, forward contracts and foreign currency related transactions 330,650 ------------- Net realized loss (3,471,772) ------------- Change in net unrealized appreciation (depreciation) on: Investments 7,081,371 Open futures contracts 723,874 Open swap contracts (4,764) Foreign currency, forward contracts and foreign currency related transactions (681,827) ------------- Net unrealized gain 7,118,654 ------------- Net realized and unrealized gain 3,646,882 ------------- Net increase in net assets resulting from operations $ 4,005,243 =============
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, 1999 Year Ended (Unaudited) February 28, 1999 ---------------- ----------------- Increase (decrease) in net assets: Operations: Net investment income $ 358,361 $ 2,739,761 Net realized loss (3,471,772) (24,490,653) Change in net unrealized appreciation (depreciation) 7,118,654 10,006,930 ---------------- ----------------- Net increase (decrease) in net assets resulting from operations 4,005,243 (11,743,962) ---------------- ----------------- Distributions to shareholders from: Net investment income - Class III (504,794) (2,739,761) In excess of net investment income - Class III -- (2,683,188) ---------------- ----------------- (504,794) (5,422,949) ---------------- ----------------- Net share transactions - Class III (Note 5) (1,149,433) (102,868,056) ---------------- ----------------- Total increase (decrease) in net assets 2,351,016 (120,034,967) Net assets: Beginning of period 50,670,702 170,705,669 ---------------- ----------------- End of period (including accumulated undistributed net investment income of $176,167 and $322,600, respectively) $ 53,021,718 $ 50,670,702 ================ ================= 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, 1999 ---------------------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995* ---------------- ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 7.59 $ 8.72 $ 10.69 $ 10.64 $ 10.12 $ 10.00 ---------------- ------------ ------------ ------------ ------------ ------------ Income from investment operations: Net investment income (c) 0.06 0.17 (c) 0.35 0.24 0.21 0.11 Net realized and unrealized gain (loss) 0.55 (0.88) (0.52) 0.01 0.55 0.08 ---------------- ------------ ------------ ------------ ------------ ------------ Total from investing operations 0.61 (0.71) (0.17) 0.25 0.76 0.19 ---------------- ------------ ------------ ------------ ------------ ------------ Less distributions to shareholders: From net investment income (0.08) (0.21) (0.35) (0.20) (0.24) (0.07) In excess of net investment income - (0.21) - - - - From net realized gains - - (1.05) - - - In excess of net realized gains - - (0.40) - - - ---------------- ------------ ------------ ------------ ------------ ------------ Total distributions (0.08) (0.42) (1.80) (0.20) (0.24) (0.07) ---------------- ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 8.12 $ 7.59 $ 8.72 $ 10.69 $ 10.64 $ 10.12 ================ ============ ============ ============ ============ ============ Total Return (a) 8.14% (8.13)% (1.63)% 2.34% 7.54% 1.92% Ratios/Supplemental Data: Net assets, end of period (000's) $53,022 $50,671 $170,706 $296,702 $382,934 $214,638 Net expenses to average daily net assets (d) 0.22% ** 0.17% 0.58% 0.91% (b) 0.78% 0.92% ** Net investment income to average daily net assets (e) 1.37% ** 1.99% 2.93% 1.99% 2.44% 2.85% ** Portfolio turnover rate 5% 21% 277% 463% 214% 184% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.05 $ 0.04 $ 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) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximate .02% of average daily net assets. (c) Computed using average shares outstanding throughout the period. (d) On August 20, 1997, the Fund began to invest a substantial portion of its assets in other funds of GMO Trust and revised its voluntary waiver. Net expenses exclude expenses incurred indirectly through investment in underlying funds. See Note 2. (e) Recognition of net investment income is affected by the timing of the declaration of dividends by the underlying funds in which the fund invests. 6 See accompanying notes to the financial statements. GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 high total return consistent with minimal exposure to general equity market risk. On August 20, 1997, the Fund began to invest a substantial portion of its assets in other Funds of the Trust ("underlying Funds"). The Fund's current benchmark is Salomon Smith Barney 3 Month T-Bill Index. 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. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 7 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, forward foreign exchange contracts 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 given date. The Fund may use futures contracts to manage its exposure to the stock. 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 entering into a futures contract, the Fund is required to deposit with its custodian and agency, in a segregated account in the name of the futures broker, an amount of cash or U.S. government and agency 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 as of August 31, 1999. 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 8 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 total return 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. Total return 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 will be no liquid 9 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. 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 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. At February 28, 1999, the Fund had a capital loss carryforward available to offset future capital gains, if any, of $10,447,067, expiring in 2007. 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 dividends 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. 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). 10 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Purchases and redemptions of Fund shares The premium on cash purchases of Fund shares is .51% 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 are recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" and redemption fees are included as part of "shares repurchased," respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $722 in purchase premiums and $181 in redemption fees. There is no premium for reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a purchase premium of up to .10% may be charged on certain 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .50% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. The Fund will invest in Class III shares of each underlying Fund being offered. Like the management fee (as described below), the shareholder service fee 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 entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (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 fees and fund expenses (as defined above) incurred indirectly by the Fund through investment in underlying Funds exceed the management fee. Because GMO will not reimburse expenses incurred indirectly to the extent they exceed .50%, 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. For the six months 11 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- ended August 31, 1999, operating expenses (excluding shareholder service fees and fund expenses) incurred indirectly by the Fund were .47% of the Fund's average daily net assets. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .65% of average daily net assets. GMO had agreed to waive a portion of its fee (but not below zero) and bear other expenses 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) exceeded .50% 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, 1999, was $277. 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, 1999, were as follows:
Purchases Proceeds -------------- --------------- U.S. Government securities $ - $ - Investments (non-U.S. Government securities) 2,400,361 6,091,673 At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation - ----------------------- ------------------- ------------------ ---------------- $52,635,621 $1,635,576 $1,384,959 $250,617
4. Principal shareholders At August 31, 1999, 54.4% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the Fund's outstanding shares. 12 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, including the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended August 31, 1999 February 28, 1999 -------------------------------- ------------------------------------- Class III: Shares Amount Shares Amount --------------- -------------- ---------------- ----------------- Shares sold 17,273 $ 141,473 977,477 $ 8,484,590 Shares issued to shareholders in reinvestment of distributions 49,025 398,574 613,717 4,694,941 Shares repurchased (219,271) (1,689,480) (14,483,783) (116,047,587) --------------- -------------- ---------------- ----------------- Net decrease (152,973) $ (1,149,433) (12,892,589) $ (102,868,056) =============== ============== ================ ================= 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Futures contracts Net Unrealized Number of Appreciation Contracts Type Expiration Date Contract Value (Depreciation) ------------ -------------- ------------------ ----------------- ------------------- Sales 53 MATIF CAC 40 September 1999 $ 2,576,256 (39,820) 18 DAX September 1999 2,513,689 35,316 57 FTSE 100 September 1999 5,714,115 240,374 8 HANG SENG September 1999 701,081 (34,338) 8 IBEX September 1999 829,959 (16,788) 6 MIB30 September 1999 1,069,009 31,606 63 OMX September 1999 640,565 (2,721) 15 ALL ORDS September 1999 706,042 11,390 74 S&P 500 September 1999 24,416,300 208,130 52 TOPIX September 1999 6,964,476 (438,469) =================== $ (5,320) ===================
At August 31, 1999, the Fund had cash and/or securities to cover any margin requirements on open futures contracts. 13 GMO Global Hedged Equity Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Forward currency contracts
Net Unrealized Settlement Units Appreciation Date Deliver/Receive of Currency Value (Depreciation) ----------------- ----------------- -------------------- ---------------- ---------------- Buys 10/08/99 AUD 543,852 $ 346,726 $ (4,871) 10/08/99 HKD 3,493,490 449,442 407 10/08/99 JPY 176,220,200 1,616,167 108,085 ----------------- $ 103,621 ================= Sales 10/08/99 AUD 1,493,735 $ 952,313 $ 3,665 03/03/00 CHF 2,097,918 1,415,311 (8,254) 03/03/00 DKK 1,413,740 203,294 (520) 03/03/00 EUR 7,255,965 7,773,593 (22,608) 03/03/00 GBP 2,868,048 4,621,236 (4,132) 10/08/99 HKD 7,526,829 968,336 (776) 10/08/99 JPY 769,679,910 7,058,959 (571,853) 03/03/00 NOK 790,000 100,581 766 03/03/00 SEK 4,130,378 505,938 (2,233) 10/08/99 SGD 341,040 203,133 (3,133) ----------------- $ (609,078) =================
Currency Abbreviations: AUD Australian Dollar HKD Hong Kong Dollar CHF Swiss Franc JPY Japanese Yen DKK Danish Krona NOK Norwegian Kroner EUR Euro SEK Swedish Krona GBP British Pound SGD Singapore Dollar 14 GMO Emerging Markets Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- COMMON STOCKS - 78.8% Argentina - 0.0% 42,993 Nobelza Piccardo 118,243 ----------------- Brazil - 3.5% 4,400,000 Belgo Mineira (Registered) 119,043 9,350,000 Coelba ON 288,478 1,676,280,000 Companhia de Acos Especiais Itabira-Acesita 409,912 212,248,500 Companhia Siderurgica Nacional SA 5,133,940 417,700,000 Electrobras 6,498,039 89,600 Embratel Participacoes SA ADR 957,600 2,000,000 Ericsson Telecom 18,314 144,894 Itausa-Investimentos Itau SA 66,341 22,890,000 Light Servicos Electricidade SA 1,309,923 277,300 Tele Centro Oeste Celular ADR 935,888 35,000 Tele Centro Sul Participacoes ADR 1,914,063 33,600 Tele Leste Celular Participacoes ADR * 865,200 55,300 Tele Nordeste Celular Participacoes ADR 1,375,588 106,000 Tele Norte Leste Participacoes ADR 1,696,000 53,800 Telebras Holders ADR 3,991,288 268,194,000 Telebras SA 6,977 268,194,000 Telecomunicacoes Brasileiras SA * 11,022,187 64,658 Unibanco GDR 1,131,515 ----------------- 37,740,296 ----------------- Chile - 2.5% 41,300 Banco de Edward ADR 624,663 55,800 Banco Santander ADR 934,650 83,900 Banco Santiago ADR 1,761,900 92,500 Chilectra SA ADR 1,803,750 83,600 Chilquinta ADR 575,168 125,200 Chilquinta ADR 144A 861,376 12,000 Compania Cervecerias 314,250 60,100 Compania de Telefones de Chile ADR 1,352,250 69,200 Cristalerias de Chile SA ADR 947,175 23,800 Distribucion y Servicio ADR 392,700 231,548 Empresa Natl de Electricidad ADR 2,865,407 71,581 Enersis SA ADR 1,606,099 219,663 Gener SA ADR 4,022,579 36,600 Laboratorio Chile SA ADR 677,100 26,000 Madeco SA ADR 276,250 197,100 Masisa SA ADR 1,934,044 381,190 Quinenco SA ADR 3,788,076 37,800 Soc Quimica Y Minera de Chile ADR 1,136,363 578,200 Telex Chile ADR * 614,338 6,600 Vina Concha Y Toro SA ADR 256,575 ----------------- 26,744,713 ----------------- China - 3.3% 4,760,000 Beijing Datang Power Generation Co Ltd Class H 1,271,965 9,878,000 China Eastern Airlines * 1,233,931 411,832 China International Containers 286,924
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- China - continued 1,760,000 China Merchants Holdings Co Ltd 1,484,582 10,914,000 China Overseas Land & Investment Ltd 1,307,125 1,463,000 China Resources Enterprise 2,402,175 1,025,234 China Southern Glass Co Ltd Class B * 159,756 15,400 China Telecom (Hong Kong) Ltd ADR * 957,683 3,669,000 China Telecom Ltd Class H * 11,387,146 1,474,000 Cosco Pacific Ltd 1,290,793 242,000 Guangdong Electric Power Development Co Ltd Class B 129,023 6,406,000 Guangdong Investment Ltd 1,311,699 8,039,000 Guangshen Railway Co 1,035,267 115,700 Guangshen Railway Co ADR 715,894 116,300 Huaneng Power International ADR 1,453,750 9,098,000 Jilin Chemical Industrial Co 1,124,779 12,656,000 Maanshan Iron & Steel * 1,075,698 5,930,000 Qingling Motor Co Ltd Class H 1,321,146 1,472,000 Shanghai Chlor-Alkali Chemical * 214,912 487,000 Shanghai Industrial Holdings 1,163,384 4,999,944 Shanghai Lujiazui Finance & Trade Class B * 1,559,983 453,725 Shenzhen Seg Group Co Ltd Class B * 168,865 3,602,000 Yizheng Chemical Fibre Co * 1,066,895 4,970,000 Zhejiang Expressway Co 883,254 1,017,900 Zhejiang Southeast Electric Power 339,979 ----------------- 35,346,608 ----------------- Colombia - 0.0% 24,300 Banco Ganadero SA ADR 426,769 ----------------- Czech Republic - 0.2% 323,988 SP Vseobecny 799,832 75,300 SPT Telecom AS * 1,279,105 ----------------- 2,078,937 ----------------- Egypt - 0.9% 10,000 Al Ahram Beverage Co GDR 144A * 298,500 3,000 Al Ahram Beverage Co * 183,659 77,700 Al Ahram Beverages Co GDR (Reg S) * 2,319,345 148,454 Eastern Tobacco Co 3,425,778 7,500 Egypt Gas Co 266,593 28,800 Egyptian International Pharmaceuticals Industries Co 1,316,041 39,270 Miraco 678,506 36,000 Oriental Weavers Co 695,805 46,000 Suez Cement Co GDR 640,550 22,681 Suez Cement Co GDR 144A 315,833 ----------------- 10,140,610 ----------------- Greece - 0.3% 4,930 Alpha Credit Bank 370,149 18,052 Alpha Leasing (Registered) 946,416 11,400 Aluminum of Greece (Registered) 667,177 11,508 Bank of Piraeus 327,550 4,386 Commercial Bank of Greece 425,116 8,940 Econ Viomihanies (b) * 6,597
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Greece - continued 3,480 EFG Eurobank 132,330 1,700 Ergo Bank 154,045 2,400 National Bank of Greece 177,087 ----------------- 3,206,467 ----------------- Hungary - 0.0% 28,151 Fotex (Registered) 10,661 ----------------- India - 3.5% 55,000 Amara Raja Batteries Ltd 265,653 190 Aptech Ltd 3,265 105 Aptech Ltd 1,812 2,405 Aptech Ltd 41,939 170 Arvind Mills Ltd 126 360 Arvind Mills Ltd 267 145,000 Asea Brown Boveri Ltd India * 1,512,797 112,800 Ashok Leyland Ltd 348,514 112,200 Ashok Leyland Ltd * 346,660 100 Bank of India 49 1,100 BFL Software Ltd * 21,563 500 BFL Software Ltd * 9,802 80,000 Bharat Heavy Electricals Ltd 584,345 7,450 BSES Ltd 37,818 1,761 BSES Ltd 8,939 1,050 Cipla Ltd 66,598 250 Cipla Ltd 15,857 400 CMC Ltd 4,757 19,600 CMC Ltd 233,076 70,000 Container Corp of India 563,640 130,000 Container Corp of India * 1,046,759 4 Core Healthcare Ltd * 2 10,610 Escorts Ltd 43,936 190,850 Escorts Ltd 790,315 112,100 Eveready Industries Ltd 193,678 65,900 Eveready Industries Ltd 113,857 588 Glaxo India Ltd 9,416 3 Glaxo India Ltd 48 51,275 Godfrey Phillips India 849,324 233,082 Grasim Co * 2,306,020 625 Great Eastern Shipping Co 381 840 Great Eastern Shipping Co 512 250 HCL Hewlett Packard Ltd 2,743 2,740 HCL Infosytems Ltd * 30,068 2,375,000 Himachal Futuristic Communications 11,433,111 20 India Cements 47 102,700 Indian Aluminium Co Ltd * 265,211 194,942 Indian Rayon & Industries 304,965 1,230,000 Indo Gulf Corporation Ltd 1,980,790
See accompanying notes to the financial statements. 3 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- India - continued 100 Industrial Development Bank of India 87 400 Industrial Development Bank of India 350 300 ITC Ltd 6,971 100 ITC Ltd * 2,324 317,550 KEC International Ltd 440,884 240,187 Larsen & Toubro 2,138,434 291,800 Mcdowell & Co Ltd 696,480 447,183 National Aluminum 640,413 200 NIIT Ltd 9,777 275 NIIT Ltd (New shares) * 13,397 100 NIIT Ltd (New shares) * 4,880 400 Pentafour Software & Export 5,080 400 Pentafour Software & Export Ltd (New shares) * 5,043 363 Pfizer Inc 8,059 37 Pfizer Ltd 821 7,982 Reliance Industries 35,514 3,551 Reliance Industries 15,799 800 Reliance Petroleum Ltd * 727 5,600 Reliance Petroleum Ltd * 5,089 297,700 RPG Cables Ltd 264,021 500 Satyam Computer Service 9,984 3,370 Satyam Computer Service (New shares) 67,156 600 Satyam Computer Service (New shares) 11,957 100 Software Solutions Integrated Ltd * 1,096 100 Software Solutions Integrated 1,104 150 State Bank of India 825 50 State Bank of India 275 2 Sterlite Industries Ltd 17 418 Sterlite Industries Ltd * 3,623 5,836 Sun Pharmaceuticals Industries Ltd 100,159 16,364 Sun Pharmaceuticals Industries Ltd 280,843 380,277 Tata Iron & Steel 1,454,444 150 Tata Iron & Steel 574 240 Tata Power Company Ltd 501 68,110 Tata Power Company Ltd * 142,198 1,850 Trent Ltd 10,629 44,098 TVS Suzuki Ltd 720,299 83,000 United Breweries Ltd 133,663 10 Videocon International Ltd 22 1,105 Videocon International Ltd * 2,415 461,000 Vikas WSP Ltd 5,260,390 10,100 Visualsoft (India) Ltd * 458,906 72,500 VST Industries Ltd 193,478 200 Wockhardt Ltd 2,283 49,800 Wockhardt Ltd 595,755 100 Zee Telefilms Ltd 7,270 1,900 Zee Telefilms Ltd 142,060 ----------------- 37,334,736 -----------------
4 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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Indonesia - 4.9% 7,108,100 Astra International * 2,500,569 7,822,000 Bakrie & Bros. * 254,788 5,761,500 Barito Pacific Timber * 356,575 3,155,000 Ciputra Development * 184,984 9,750,000 Dharmala Intiland (Foreign Registered) 254,072 1,875,000 Dynaplast * 250,407 12,752,000 Gajah Tunggal Tbk * 1,121,511 6,019,500 Gudang Garam 14,509,544 78,100 Gulf Resources Ltd ADR * 805,406 2,588,100 HM Sampoerna * 5,378,527 925,000 Indah Kiat Pulp & Paper * 337,459 1,625,000 Indorama Synthetics * 275,244 3,072,000 International Nickel * 2,241,459 24,482,000 Matahari Putra Prima Tbk * 2,472,124 16,100,000 Multipolar Corp * 576,873 10,020,500 PT Asuransi Lippo Life Tbk 228,480 2,582,800 PT Daya Guna Samudera * 1,043,216 3,323,000 PT Indofood Sukses Makmur Tbk * 3,550,306 696,000 PT Indosat (Persero) Tbk 1,081,407 140,000 PT Indosat (Persero) Tbk ADR Class B 2,161,250 3,072,500 PT Pabrik Kertas Tjiwi Kimia * 880,717 5,813,000 Ramayana Lestari 3,408,274 1,075,000 Semen Gresik 2,100,977 4,607,280 Telekomunikasi Indonesia 1,770,876 138,240 Telekomunikasi Indonesia ADR Class B 1,062,720 3,485,000 Tempo Scan Pacific 1,838,990 117 Unggul Indah Corp * 28 6,723,500 United Tractors * 2,606,178 ----------------- 53,252,961 ----------------- Israel - 0.0% 1 Machteshim Agan Industries * 2 ----------------- Korea - 18.7% 3,220 BYC Co Ltd 285,040 63,403 Cheil Jedang Corp 5,021,754 81,839 Chosun Brewery Co Ltd 2,558,119 197,880 Daelim Industrial Co. Ltd 3,042,374 1,482,000 Daewoo Corp 2,322,490 234,000 Daewoo Electronics * 430,140 211,000 Dong-Ah Construction 1,921,432 100,198 Dongbu Steel Co 695,996 40,680 Halla Climate Control Corp 2,198,546 126,420 Hankuk Glass 2,993,172 465,989 Hanwha Corp * 3,019,751 190,000 Housing & Commercial Bank 4,442,186 21,175 Housing & Commercial Bank Korea GDR 144A 481,731 26,410 Hyundai Cement Co 353,476 121,819 Hyundai Electronics Industries * 3,869,727 446,434 Hyundai Engineering & Construction * 3,970,823
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Korea - continued 84,011 Hyundai Heavy Industries 4,711,163 204,891 Hyundai Industrial Development 3,193,557 25,717 Hyundai Motor Service Co 797,325 20,650 Keum Kang Ltd 1,145,765 699,180 Kohap Co Ltd * 2,961,372 467,100 Kookmin Bank 6,528,717 255,345 Kookmin Bank GDR (Registered) 3,415,239 34,660 Korea Chemical 2,724,649 185,000 Korea Data Systems Co * 2,546,590 117,500 Korea Electric Power Corp 4,379,500 41,000 Korea Electric Power Corp ADR 738,000 202,900 Korea Telecommunications ADR * 6,594,250 470,300 Korean Air Lines 9,362,177 188,620 LG Cable & Machinery Ltd 4,314,053 75,000 LG Information & Communication 6,702,668 130,000 LG Semicon 2,813,638 18,300 Lotte Confectionery Co 2,526,811 263,576 Pohang Iron & Steel (d) 35,630,206 32,000 Pohang Iron & Steel ADR 1,176,000 38 S1 Corporation 6,567 3 Sam Yang 40 51,599 Samsung Display Devices 2,985,355 74,293 Samsung Electro Mechanics 3,901,877 32,473 Samsung Electronics 6,161,755 50,000 Samsung Fire & Marine Insurance 2,469,293 156,579 Samsung Securities 6,141,133 263,000 Shinhan Bank 2,829,394 197,782 Shinsegae Department Store 15,564,547 4,090 SK Telecom (d) 4,091,732 269,010 SK Telecom ADR 3,043,176 951,643 Ssangyong Cement 4,240,273 126,770 Ssangyong Oil Refining 3,146,430 450,090 Tai Han Electric Wire 6,214,712 ----------------- 200,664,721 ----------------- Lebanon - 0.4% 217,064 Banque Libanaise 2,626,474 139,000 Solidere GDR (Reg S) * 1,171,075 ----------------- 3,797,549 ----------------- Malaysia - 6.9% 170,000 AMMB Holdings Berhad 304,211 309,000 Asas Dunia Berhad 171,576 1,782,000 Berjaya Sports Toto 4,126,737 333,000 Carlsberg Brew Malaysia 981,474 974,000 Cement Industries of Malaysia Berhad 845,842 1,623,900 Cold Storage 811,950 1,129,000 Commerce Asset Holdings 2,599,671 329,000 Edaran Otomobil Berhad 1,212,105 376,000 Esso Berhad 298,821 697,000 Faber Group Berhad * 190,758
6 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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Malaysia - continued 1,177,700 Genting Berhad 4,338,895 2,165,700 Golden Hope Plantations Berhad 1,778,154 944,000 Guinness Anchor Berhad 1,053,305 1,920,000 Hicom Holdings Berhad 1,424,842 781,000 Highlands and Lowlands Berhad 474,766 2,069,000 Hong Leong Properties Berhad 647,924 1,152,500 IGB Corp Berhad 524,691 1,064,000 IJM Corp Berhad Class A 856,800 4,723,800 IOI Corporation Berhad 2,871,573 229,000 Kemayan Corporation Berhad 29,830 414,000 Kumpulan Guthrie Berhad 221,163 168,000 Land & General Berhad * 95,937 4,278,100 Magnum Corp Berhad 3,760,225 1,137,400 Malakoff Berhad 3,023,089 576,000 Malayan Banking Berhad 1,894,737 2,035,000 Malaysian International Shipping (Foreign Registered) 3,106,053 265,000 Malaysian Resources Corp 237,105 727,000 Malaysian Tobacco Co Berhad 753,784 658,000 Multi Purpose Holdings * 398,263 328,000 Nestle Malaysia 1,268,842 1,183,000 Nylex (Malaysia) Berhad 800,082 1,676,900 Oriental Holdings Berhad 3,684,767 2,157,000 Pilecon Engineering Berhad 851,447 217,000 Rashid Hussain Berhad * 161,037 1,947,600 Resorts World Berhad 4,945,879 781,600 Rothmans of Pall Mall Berhad 5,450,632 770,000 Sarawak Enterprises Corp 555,211 109,620 Silverstone * 1,298 2,393,000 Sime Darby Berhad 3,148,684 1,020,000 TA Enterprise Berhad 426,789 14,130,000 Tan Chong International Ltd 3,912,288 3,802,700 Tan Chong Motor Holdings Berhad 2,261,606 1,416,700 Tanjong 3,280,779 287,000 Technology Resources Industries 197,124 277,000 Tiong Nam Transport Holdings Berhad 215,039 124,000 Tractors Holdings Berhad 69,832 357,000 UMW Holdings Berhad 770,368 906,000 United Engineers * 1,704,711 3,491,700 Westmont Industries Berhad (b) (d) * 9,189 503,000 Wijaya Baru Global Berhad * 202,524 824,000 YTL Corp 1,680,526 ----------------- 74,632,935 ----------------- Mexico - 4.0% 430,100 Alfa SA Class A 1,627,951 2,666,415 Altos Hornos De Mexico * 716,427 24,000 Carso Global Telecom Class A 132,807 220,000 Cemex SA Class B 975,797 818,000 Cifra SA de CV * 1,353,594 181,915 Controladora Coml Mexicana Classes B and C 170,685
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Mexico - continued 1,601,680 Cydsa SA Class A 2,288,358 312,000 Dina (Consorcio Grupo Dina) * 69,193 203,400 Empresas ICA Sociedad Controladora ADR 750,038 19,000 Empresas La Moderna SA de CV Class A * 108,988 644,600 Grupo Carso SA de CV Class A 2,498,263 1,500,000 Grupo Casa Autrey 527,775 893,705 Grupo Financiero Banamex Acciva Class O * 1,715,182 103,529 Grupo Financiero Banamex Class L * 155,641 7,089,795 Grupo Financiero Bancomer SA * 1,723,503 8,697,700 Grupo Financiero Probursa SA de CV Class B * 927,359 139,432 Grupo Financiero Santander Class B * 63,926 8,232,755 Grupo Financiero Serfin SA de CV Class B (b) * 8,778 3,918,820 Grupo Gigante SA Class B * 1,412,263 554,818 Grupo Mexico Class B 2,398,749 80,200 Grupo Mexico Desarollo Class B ADR * 12,531 500,500 Grupo Radio Centro SA ADR 2,439,938 6,255,000 Grupo Situr SA de CV Class B * 120,045 5,800 Grupo Televisa SA GDR * 210,975 1,997,500 Grupo Tribasa SA ADR * 1,373,281 136,400 Herdez Class BCP 41,302 163,100 Telefonos de Mexico ADR Class L 12,130,563 665,700 TV Azteca SA ADR 3,370,106 1,020,800 Vitro SA ADR 4,147,000 ----------------- 43,471,018 ----------------- Netherlands - 0.0% 10,000 Ispat International NV Class A (Registered) 103,750 ----------------- Pakistan - 0.7% 1,002,000 Fauji Fertilizer 990,893 157,166 Hub Power Co Ltd GDR 1,304,478 500 Karachi Electric Supply * 92 106,880 Lever Brothers Pakistan Ltd 1,771,890 498,840 Pakistan State Oil 1,202,024 6,174,600 Pakistan Telecom Corp Ltd Class A 2,499,597 6,600 Pakistan Telecom Corp Ltd GDR * 257,400 297 Sui Southern Gas Pipelines Ltd * 56 ----------------- 8,026,430 ----------------- Peru - 0.0% 127,604 Cervecerias 43,403 730 Milpo Minera Class T * 311 ----------------- 43,714 ----------------- Phillippines - 3.6% 21,683,000 Aboitiz Equity Ventures Inc 1,322,567 1,459,000 Alsons Cement 117,676 12,373,920 Ayala Corp 3,352,732 10,400,000 Ayala Land Inc 2,595,085 9,825,000 Belle Corporation * 928,639 29,290,400 Cosmos Bottling Corp 1,845,646 22,832,000 Digital Telecommunications * 817,176
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Phillippines - continued 3,544,297 DMCI Holdings Inc * 134,000 13,139,500 EEI Corporation * 351,049 23,602,000 Empire East Land Holding Inc * 398,572 665,850 Equitable Banking Corp 1,426,522 533,390 Far East Bank & Trust 826,805 14,052,000 Filinvest Land * 1,115,660 1,814,000 International Container Terminal * 194,316 1,909,543 Ionics Circuits Inc 673,815 8,925,000 JG Summit Holdings Inc Class B 753,592 2,638,500 La Tondena Distillers Inc 2,660,113 491,920 Manila Electric Class B 1,463,051 245,670 Metro Bank & Trust Co 2,027,900 9,719,000 Metro Pacific Corp * 352,750 8,723,000 Petron Corp 780,508 255,680 Philippine Commercial International Bank 1,643,312 247,070 Philippine Long Distance Telephone 5,853,706 150,000 Philippine National Bank * 495,274 823,000 Robinsons Land Corp Class B 62,231 2,145,440 San Miguel Corp Class B 3,487,861 371,200 Security Bank Corp * 299,393 9,474,000 SM Prime Holdings 1,743,168 4,248,000 Universal Robina Corp 760,197 ----------------- 38,483,316 ----------------- Poland - 0.2% 92,650 Agora SA GDR 144A * 1,019,150 234,502 Okocimskie Zaklady Piwowarskie SA * 1,160,143 ----------------- 2,179,293 ----------------- Russia - 3.2% 37,000 Trade House GUM ADR 59,200 2,649,789 Chelabinsky Tube Work (d) * 26,498 17,100 Dalmoreproduct * 342 272,800 Electrocila (d) * 463,760 29,221 Elisb (d) * 10,227 472,700 Irkutskelectrosviaz (d) * 56,724 3,368,100 Irkutskenergo ADR 14,585,894 4,931,400 Irkutskenergo (Registered) (d) 443,826 89,030 Kirovsky Plant (d) * 124,642 274,500 Komineft (d) 288,225 237,725 Lukoil Holding Co ADR 7,012,888 2,290,387 Norilsk Nickel (Registered) (d) * 6,151,521 135,000 Russia Petroleum (d) * 44,550 10,000 Seversky Tube Works ADR * 91,894 785,700 St Petersburg Telephone (d) 204,282 500,000 Sun Interbrew Ltd GDR * 2,000,000 811,380 Uralmash Zavody (d) 973,656 1,360,200 Uralmash Zavody ADR (Registered) * 1,632,240 450,000 Uralmash Zavody ADR 144A * 540,000 ----------------- 34,710,369 -----------------
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- South Africa - 10.6% 657,100 AECI Ltd 1,761,054 783,637 Amalgamated Bank of South Africa 4,032,857 321,618 Anglo American Corp Plc 17,704,325 77,845 Anglo Gold Ltd 3,903,769 1,229,000 Anglovaal Industries Inc 828,494 240,600 Anglovaal Ltd 1,855,334 399,800 Comparex Holding Ltd 2,478,208 6,929,404 Consolidated African Mines * 1,207,690 665,880 De Beers Centenary Link Units 18,174,298 311,750 De Beers Consolidated Mines Ltd ADR 8,475,703 2,477,200 Del Monte Royal Foods Ltd 1,893,946 90,000 Ellerine Holdings Ltd 355,146 9,386,795 ISCOR 3,503,457 246,008 Liberty International Plc 1,840,408 527,640 Liberty Life Association of Africa Ltd 6,185,586 2,135,615 Mawenzi Resources Ltd 175,568 1,725,940 Murray & Roberts Holdings Ltd 1,274,165 2,560,500 Premier Group Ltd * 1,751,345 342,720 Randfontein Estates 507,149 164,000 Randgold Resources Ltd GDR * 606,800 309,500 Randgold & Exploration Co * 366,393 1,112,570 Rembrandt Group Ltd 8,341,531 5,472,400 Safmarine & Rennies Holdings 3,437,121 588,200 Sage Group Ltd 1,740,809 240,968 Sappi Ltd 2,222,674 1,746,910 Sasol Ltd 12,695,400 570,280 Standard Bank Investment Corp 1,781,539 16,200,260 Sun International Ltd 3,675,824 25,900 Western Areas Gold Mining Co Ltd * 72,394 ----------------- 112,848,987 ----------------- Sri Lanka - 0.0% 4,590,170 Blue Diamonds Jewelry Ltd * 38,398 333,600 Lanka Walltile Ltd 30,232 404,200 Lion Brewery Ceylon Ltd 146,521 ----------------- 215,151 ----------------- Taiwan - 2.8% 4,021,290 Ambassador Hotel * 1,906,932 60,000 Asustek Computer Inc 644,422 10,823,400 Chia Hsin Food & Synthetic * 3,551,999 1,816,000 China Manmade Fibers * 712,884 855,550 China Steel 666,331 3,347,769 China Trust Commercial Bank * 3,343,301 2,325,000 Chung Shing Textile * 576,823 4,367,000 Chuntex Electronic Co Ltd * 740,576 222,130 First Bank * 348,097 2,357,680 Formosa Taffeta Co 1,466,030 1,315,650 Great Wall Enterprise Co 487,546 2,334,000 Hualon Co Ltd * 670,679 473,000 International Bills Finance Corp * 202,019
10 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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Taiwan - continued 1,283,700 International Commercial Bank Of China 1,479,525 1,149,000 Megamedia Corp * 624,251 14,430,000 Pacific Construction * 3,851,927 2,202,000 Right Way Industrial Co Ltd 705,359 2,280,900 Taipei Business Bank * 2,700,477 2,928,342 Taitung Business Bank * 514,995 2,835,000 Taiwan Fluorescent Lamp Co * 765,675 2,294,000 Taiwan Pulp and Paper Co * 940,149 528,228 Taiwan Semiconductor * 2,239,484 248,000 United Microelectronics * 630,855 637,000 Wan Yu Paper (b) (d) * 200 3,181,000 Yieh Loong Co * 849,132 ----------------- 30,619,668 ----------------- Thailand - 7.3% 100,700 ABN Amro Asia Securities Pcl * 238,918 593,900 Advanced Info Service Public Co Ltd (Foreign Registered) 8,144,737 1,098,500 Ban Pu Coal Public Co Ltd (Foreign Registered) * 2,305,547 6,719,900 Bangchak Petroleum Public Co Ltd (Foreign Registered) * 1,971,031 4,722,800 Bangkok Bank Pcl (Foreign Registered) * 12,005,553 90,800 Bangkok Insurance (Foreign Registered) 345,634 4,257,600 Bangkok Rubber Public Co Ltd (Foreign Registered) * 910,242 4,320,000 Bank of Ayudhya Pcl (Foreign Registered) * 1,942,902 354,900 BEC World Public Co Ltd (Foreign Registered) 2,202,221 1,215,970 CP Feedmill Public Co Ltd (Foreign Registered) (d) 3,709,255 964,160 Delta Electronics Public Co Ltd (Foreign Registered) 7,641,889 1,306,460 Electricity Generating Public Co Ltd (Foreign Registered) 2,043,739 7,668,959 Industrial Finance Corp of Thailand (Foreign Registered) 3,798,989 154,510 Italian-Thai Development Public Co. Ltd (d) * 239,530 333,900 Jasmine International Public Co (Foreign Registered) * 154,523 631,000 Krung Thai Bank Public Co Ltd * 246,774 1,837,200 Land & House Public Co Ltd (Foreign Registered) * 2,778,193 151,100 Lanna Lignite Pcl (Foreign Registered) 144,777 203,519 PTT Exploration and Production Public Co Ltd (Foreign Registered) * 1,602,470 1,859,000 Ruang Khao Fund (Foreign Registered) * 310,197 677,500 Saha Pathana International Holdings Pcl (Foreign Registered) 763,965 2,230,500 Saha Union Public Co Ltd (Foreign Registered) 799,619 483,092 Shinawatra Computer Public Co Ltd (Foreign Registered) * 2,204,174 70,687 Siam Cement Pcl (Foreign Registered) * 1,828,223 4,024,300 Siam Commercial Bank Pcl (Foreign Registered) * 4,511,665 399,000 Siam Pulp & Paper (Foreign Registered) * 853,031 201,512 Singer Pcl (Foreign Registered) 367,771 3,108,050 Star Block Co Ltd (Foreign Registered) * 8,103 4,671,213 Telecomasia (Foreign Registered) * 4,475,742 1,007,000 Thai Airways International (Foreign Registered) * 1,772,194 2,002,300 Thai Farmers Bank Pcl (Foreign Registered) * 2,871,242 1,540,850 Thai German Ceramics Industry (Foreign Registered) * 441,907 5,397,880 Thai Petrochemical (Foreign Registered) * 2,673,960 105,200 Thai Plastic & Chemical (Foreign Registered) 208,453 3,138,800 Thai Telephone & Telecommunications (Foreign Registered) * 728,336
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, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------- Thailand - continued 966,778 United Broadcasting Pcl (Foreign Registered) * 617,548 1,159,700 United Communication Industries (Foreign Registered) * 1,043,140 ----------------- 78,906,194 ----------------- Turkey - 0.3% 395,561,705 Bekoteknik 2,885,044 ----------------- Venezuela - 1.0% 2,164,473 Banco Provincial 1,729,986 160,606 Ceramica Carabobo Class B ADR * 104,394 187,800 Compania Anonima Nacional Telefonos de Venezuela (CANTV) ADR 3,744,263 10,243,115 Electricidad De Caracas 2,941,026 63,500 Electricidad De Caracas ADR 904,875 778 International Briquettes Holding 1,507 40,181 Mantex SA Class A Sponsored ADR * 271,222 160,000 Manufacturas de Papel CA ADR 160,000 125,000 Mercantil Servicios Financieros ADR * 343,750 23 Siderurgica Venezolana (Sivensa) Class B 1 164,766 Siderurgica Venezolana (Sivensa) Registered ADR Class A 288,341 723,926 Venepal SA Class B GDR 144A 7,239 1,107,354 Venezolana de Cementes 312,587 292,673 Venezolana de Cementes Tipo II 82,617 ----------------- 10,891,808 ----------------- TOTAL COMMON STOCKS (Cost $870,015,464) 848,880,950 ----------------- PREFERRED STOCKS - 11.0% Brazil - 5.6% 7,831,000 Acos Villares SA * 77,414 22,920,000 Alpargatas de Sao Paolo 834,755 951,285,231 Banco Bradesco SA 3,761,586 67,516,200 Banco Estado Sao Paulo 2,090,473 148,940,000 Banco Nacional (b) * 775 33,080,000 Belgo Mineira (Registered) 1,066,925 412,825,003 Bombril SA 1,116,904 5,108,000 Brahma PN 2,702,828 47,500,000 Caemi Mineracao e Metalurgica SA 1,507,544 60,942,827 Cemig 938,558 167,200,000 Cia Energetica de Sao Paolo SA (Registered) 690,722 34,000,000 Cia Energetica Perna Class A 88,450 1,123,059,000 Companhia de Acos Especiais Itabira-Acesita 333,061 167,200,000 Companhia de Geracao de Energia Eletrica Paranapanema 604,599 167,200,000 Companhia de Geracao de Energia Eletrica Tiete * 537,615 167,200,000 Companhia de Transmissao de Energia Eletrica Paulista 221,831 13,889,000 Copene-Petroquimica do Nordeste SA Class A 2,153,445 5,700 Cosipa PN Class B 43,002 195,099,710 Electrobras Class B (Registered) 3,080,789 162,100,000 Elektro 421,696 594,000,000 Fertilizantes Fosfatados 1,869,771 659,062,710 Gerasul 462,921
12 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - --------------------------------------------------------------------------------------------------- Brazil - continued 17,500,000 Gerdau SA 264,048 3,187,000 Industrias Klabin de Papel e Celulose SA 1,508,933 6,482,353 Investimentos Itau SA 2,967,593 1,336,261 Iochpe Maxion * 21,560 559,080,000 Iparanga Brasil de Petroleo 3,196,821 12,680,000 Itaubanco SA (Registered) 5,871,592 353,450,328 Lojas Americanas (Registered) 902,935 42,420,000 Mesbla (Registered) * 3,752 335,746,000 Olvebra * 59,393 199,400,000 Petrobras Distribuidora SA 1,344,549 61,346,000 Petroleo Brasileiro SA (Petrobras) 8,202,873 980,000 Sadia Frigobras SA (Registered) 596,566 415,600,000 Siderurgica de Tubarao 3,675,963 220,000 Suzano (Registered) 224,350 49,522,000 Telebras SA Preferred (Registered) 1,546 49,522,000 Telecomunicacoes Brasileiras SA * 3,692,249 10,500,000 Telesp SA 920,416 6,520,152 Unipar 1,662,266 350,540 Usinas Siderurgicas de Minas Gerais SA (Usiminas) 1,012,225 499,000 Varig (Registered) 233,663 13,100,000 Votorantim Celulose e Papel SA 408,949 ----------------- 61,377,906 ----------------- Korea - 5.2% 125,240 Dongbu Steel Co 561,219 391,263 Samsung Electronics (Non Voting) 55,681,647 ----------------- 56,242,866 ----------------- Russia - 0.1% 100,800 Krasny Red Oct 144A (d) 40,320 129,200 Lukoil Holding Sponsored ADR (d) 759,050 30 Rostelecom (d) 12 ----------------- 799,382 ----------------- Thailand - 0.1% 550,000 Siam Commercial Bank Ltd * 623,778 ----------------- TOTAL PREFERRED STOCKS (Cost $111,061,988) 119,043,932 ----------------- DEBT OBLIGATIONS - 2.6% India - 0.0% INR 8 National Aluminum Co of India, 14.50% due 12/31/25 184 ----------------- U.S. Government - 2.6% $ 24,546,834 U.S. Treasury Inflation Indexed Note, 3.375% due 1/15/07 (c) 23,480,593 $ 4,357,663 U.S. Treasury Inflation Indexed Note, 3.875% due 1/15/09 (c) 4,297,745 ----------------- 27,778,338 ----------------- TOTAL DEBT OBLIGATIONS (Cost $28,164,147) 27,778,522 -----------------
See accompanying notes to the financial statements. 13 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - --------------------------------------------------------------------------------------------------- INVESTMENT FUNDS - 2.3% Brazil - 0.1% 76,400 Brazil Fund Inc 955,000 ----------------- Chile - 0.2% 22,000 Chile Fund Inc 240,625 241,900 Five Arrows Chile Investment Trust Ltd 529,205 474,600 Five Arrows Chile Investment Trust Ltd Convertible Units * 1,070,223 ----------------- 1,840,053 ----------------- India - 0.0% 100 Uti Masterplus 1991 Unit * 56 10,400 UTI Masterplus 1991 * 5,826 ----------------- 5,882 ----------------- Kazakhstan - 0.1% 450,000 Kazakhstan Investment Fund (d) (e) * 1,237,500 ----------------- Poland - 1.2% 603,111 CHP Investors (d) (e) * 513,670 4,102,132 OBP Investors (d) (e) 5,163,353 5,500,000 Polimex Investment Fund (d) (e) 5,500,000 1,964,434 Templeton Emerging European Fund (d) (e) * 1,736,953 ----------------- 12,913,976 ----------------- Romania - 0.1% 4,500 Romanian Investment Fund (d) (e) * 1,575,000 ----------------- Russia - 0.4% 10,000,000 New Century Holdings LP (d) (e) * 4,648,000 ----------------- Thailand - 0.1% 1,500,000 Ruam Pattana Fund (Registered) (d) * 234,650 70 Thailand International Fund IDR 674,100 ----------------- 908,750 ----------------- Ukraine - 0.0% 16,667 Societe Generale Thalmann Ukraine Fund (d) (e) * 433,342 ----------------- United States - 0.1% 71,400 Morgan Stanley Emerging Markets Fund 798,788 ----------------- TOTAL INVESTMENT FUNDS (Cost $39,900,023) 25,316,291 ----------------- EQUITY LINKED SECURITIES - 1.6% Chile - 1.5% $ 12,779,671 Citibank-Nassau Chilean Equity Time Deposit, 3.50% due 4/03/00 (e) (f) * 13,133,668 $ 3,389,966 Citibank-Nassau Chilean Equity Time Deposit, 3.50% due 4/27/00 (e) (f) * 3,445,222 ----------------- 16,578,890 -----------------
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, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - --------------------------------------------------------------------------------------------------- Russia - 0.1% 32,787 Renaissance Sberbank Note (d) (e) (g) * 935,754 ----------------- TOTAL EQUITY LINKED SECURITIES (Cost $28,348,528) 17,514,644 ----------------- CONVERTIBLE SECURITIES - 0.8% Indonesia - 0.4% $ 26,000,000 APP Finance (VI) Convertible, 0.00% due 11/18/12 4,420,000 $ 500,000 APP Finance (VII) Convertible, 3.50% due 4/30/03 311,900 ----------------- 4,731,900 ----------------- Korea - 0.0% $ 500,000 Daewoo Corp Convertible, Zero Coupon, due 12/31/07 275,000 ----------------- Poland - 0.0% DEM 25,000 Elektrim SA, 2.00% due 5/30/04 16,202 ----------------- South Africa - 0.1% $ 1,100,000 Randgold Finance Convertible, 7.00% due 10/03/01 625,680 ----------------- Thailand - 0.3% $ 5,030,000 Bangkok Bank Public Co Convertible, 3.25% due 3/3/04 2,565,300 $ 358,000 Bangkok Land Cayman Island Convertible, 4.50% due 10/13/03 32,220 $ 1,814,000 MDX Public Co Ltd Convertible, 4.75% due 9/17/03 181,400 CHF 2,800,000 NTS Steel Group Convertible, 1.00% due 12/17/03 73,923 $ 630,000 Somprasong Land Co Convertible, 3.88% due 1/21/04 6,300 ----------------- 2,859,143 ----------------- TOTAL CONVERTIBLE SECURITIES (Cost $14,409,411) 8,507,925 ----------------- RIGHTS & WARRANTS - 0.3% Brazil - 0.0% 84,234,574 Mesbla Preferred Rights 12/31/25 * 4 ----------------- Greece - 0.0% 4,386 Commercial Bank of Greece Rights 10/01/99 * 100,282 ----------------- Indonesia - 0.0% 226,076 Indah Kiat Pulp & Paper Warrants 4/13/01 * 55,967 ----------------- Malaysia - 0.0% 98,666 Amsteel Corp Warrants 5/19/00 * 11,424 43,600 UMW Holding Berhad Warrants 1/26/05 * 35,109 206,000 YTL Corp Warrants 6/26/09 * 124,684 ----------------- 171,217 ----------------- Mexico - 0.0% 38,886 Grupo Mexico Class B Warrants 8/9/01 * 148,222 ----------------- Phillippines - 0.1% 2,523,700 Jolliebee FDS Warrants 3/24/03 * 1,113,163 -----------------
See accompanying notes to the financial statements. 15 GMO Emerging Markets Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - --------------------------------------------------------------------------------------------------- South Africa - 0.0% 2,461 Randfontein Estates Warrants 7/01/02 * 546 ----------------- Thailand - 0.2% 550,000 Siam Commercial Bank Ltd Warrants 5/10/02 * 247,360 2,002,300 Thai Farmers Bank Rights 12/31/49 * 1,827,154 ----------------- 2,074,514 ----------------- TOTAL RIGHTS & WARRANTS (Cost $3,038,855) 3,663,915 ----------------- FULLY PAID SWAPS - 0.1% India - 0.1% $ 1,035,000 Garden Silk Mills Swap (h) 299,794 $ 369,750 India Cements Swap (h) 856,803 $ 215,000 Sanghi Polyester Swap (h) 23,445 ----------------- 1,180,042 ----------------- TOTAL FULLY PAID SWAPS (Cost $471,402) 1,180,042 ----------------- SHORT-TERM INVESTMENTS - 3.7% Cash Equivalents - 3.3% $ 15,100,000 First National Bank of Chicago Time Deposit 5.50% due 9/01/99 15,100,000 20,225,300 The Boston Global Investment Trust (a) 20,225,300 ----------------- 35,325,300 ----------------- U.S. Government - 0.4% $ 3,825,000 U.S. Treasury Bill, 4.66% due 10/14/99 (c) 3,804,304 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $39,129,582) 39,129,604 ----------------- TOTAL INVESTMENTS - 101.2% (Cost $1,134,539,400) 1,091,015,825 Other Assets and Liabilities (net) - (1.2%) (13,451,089) ----------------- TOTAL NET ASSETS - 100.0% $ 1,077,564,736 =================
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, 1999 (Unaudited) - -------------------------------------------------------------------------------- Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt CHF Swiss Franc DEM German Mark INR Indian Rupiah (a) Represents investment of security lending collateral (Note 1). (b) Bankrupt issuer. (c) Security, or a portion thereof, has been segregated to cover margin requirements on open swap contracts (Note 6). (d) Valued by management (Note 1). (e) Security is restricted as to public resale. The aggregate market value of restricted securities is $38,322,462 or 3.6% 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 basket of Russian securities. (h) A derivative security whose price is linked to the return on the underlying 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. * Non-income producing security. 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, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Telecommunications 10.2% Electronic Equipment 10.0 Banking 8.1 Metals and Mining 8.0 Conglomerates 6.2 Utilities 5.4 Consumer Goods 5.4 Financial Services 4.9 Food and Beverage 4.5 Construction 4.5 Oil and Gas 4.4 Real Estate 3.3 Transportation 2.2 Automotive 2.1 Paper and Allied Products 2.0 Services 1.9 Chemicals 1.9 Machinery 1.3 Communications 1.3 Textiles 1.2 Insurance 0.9 Retail Trade 0.7 Health Care 0.4 Computers 0.1 Miscellaneous 9.1 ======== 100.0% ======== 18 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------------- Assets: Investments, at value (cost $1,134,539,400) (Note 1) $ 1,091,015,825 Foreign currency, at value (cost $14,826,884) (Note 1) 14,879,307 Receivable for investments sold 8,225,963 Receivable for open swap contracts (Notes 1 and 6) 3,923,892 Foreign withholding taxes receivable 1,263,684 Dividends and interest receivable 3,746,269 Receivable for expenses waived or borne by Manager (Note 2) 17,555 ---------------- Total assets 1,123,072,495 ---------------- Liabilities: Due to Custodian 247,628 Payable for investments purchased 19,816,350 Payable upon return of securities loaned (Note 1) 20,225,300 Payable for Fund shares redeemed 25,000 Accrued capital gain and repatriation taxes payable (Note 1) 1,623,846 Accrued Malaysian repatriation taxes (Note 1) 2,416,739 Payable to affiliate for (Note 2): Management fee 726,411 Shareholder service fee 122,003 Accrued expenses 304,482 ---------------- Total liabilities 45,507,759 ---------------- Net assets $ 1,077,564,736 ================ Net assets consist of: Paid-in capital $ 1,474,881,135 Accumulated undistributed net investment income 3,901,186 Accumulated net realized loss (357,654,436) Net unrealized depreciation (43,563,149) ---------------- $ 1,077,564,736 ================ Net assets attributable to: Class III Shares $ 748,460,242 ================ Class IV Shares $ 329,104,494 ================ Shares outstanding: Class III 80,189,201 ================ Class IV 35,283,859 ================ Net asset value per share: Class III $ 9.33 ================ Class IV $ 9.33 ================
See accompanying notes to the financial statements. 19 GMO Emerging Markets Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - ----------------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $1,492,550) $ 11,100,764 Interest (including security lending income of $77,940) 2,287,075 -------------- Total income 13,387,839 -------------- Expenses: Management fee (Note 2) 4,126,443 Custodian fees 947,136 Audit fees 37,930 Legal fees 24,251 Transfer agent fees 22,905 Trustees fees (Note 2) 4,962 Registration fee 364 Miscellaneous 43,590 Fees waived or borne by Manager (Note 2) (94,092) -------------- 5,113,489 Shareholder service fee (Note 2) Class III 513,038 Class IV 176,057 -------------- Net expenses 5,802,584 -------------- Net investment income 7,585,255 -------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments (23,563,995) Closed swap contracts 28,790,720 Foreign currency, forward contracts and foreign currency related transactions (2,991,712) -------------- Net realized gain 2,235,013 -------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 349,778,847 Open swap contracts 3,393,581 Foreign currency, forward contracts and foreign currency related transactions (514,293) -------------- Net unrealized gain 352,658,135 -------------- Net realized and unrealized gain 354,893,148 -------------- Net increase in net assets resulting from operations $ 362,478,403 ==============
20 See accompanying notes to the financial statements. GMO Emerging Markets Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - ------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 -------------------- -------------------- Increase (decrease) in net assets: Operations: Net investment income $ 7,585,255 $ 31,085,801 Net realized gain (loss) 2,235,013 (323,752,478) Change in net unrealized appreciation (depreciation) 352,658,135 (201,053,937) -------------------- -------------------- Net increase (decrease) in net assets resulting from operations 362,478,403 (493,720,614) -------------------- -------------------- Distributions to shareholders from: Net investment income Class III - (16,087,702) Class IV - (9,786,346) -------------------- -------------------- Total distributions from net investment income - (25,874,048) -------------------- -------------------- Net realized gains Class III - (10,825,261) Class IV - (8,023,682) -------------------- -------------------- Total distributions from net realized gains - (18,848,943) -------------------- -------------------- In excess of net realized gains Class III - (49,311) Class IV - (36,550) -------------------- -------------------- Total distributions in excess of net realized gains - (85,861) -------------------- -------------------- - (44,808,852) -------------------- -------------------- Net share transactions: (Note 5) Class III (15,936,970) (77,844,893) Class IV (54,904,890) (183,333,072) -------------------- -------------------- Decrease in net assets resulting from net share transactions (70,841,860) (261,177,965) -------------------- -------------------- Total increase (decrease) in net assets 291,636,543 (799,707,431) Net assets: Beginning of period 785,928,193 1,585,635,624 -------------------- -------------------- End of period (including accumulated undistributed net investment income of $3,901,186 and distributions in excess of net investment income of $3,684,069, respectively) $ 1,077,564,736 $ 785,928,193 ==================== =====================
See accompanying notes to the financial statements. 21 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, 1999 ---------------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ----------------- ---------- ---------- ---------- --------- --------- Net asset value, beginning of period $ 6.31 $ 9.56 $ 12.49 $ 10.54 $ 9.52 $ 12.13 ----------------- ---------- ---------- ---------- --------- --------- Income (loss) from investment operations: Net investment income 0.06 0.25 0.16 + 0.13 0.10 0.05 Net realized and unrealized gain (loss) 2.96 (3.19) (1.76) 1.96 1.06 (2.37) ----------------- ---------- ---------- ---------- --------- --------- Total from investment operations 3.02 (2.94) (1.60) 2.09 1.16 (2.32) ----------------- ---------- ---------- ---------- --------- --------- Less distributions to shareholders from: Net investment income - (0.19) (0.25) (0.14) (0.01) (0.07) Net realized gains - (0.12) (0.71) - (0.13) (0.22) In excess of net realized gains - (0.00)(d) (0.37) - - - ----------------- ---------- ---------- ---------- --------- --------- Total distributions - (0.31) (1.33) (0.14) (0.14) (0.29) ----------------- ---------- ---------- ---------- --------- --------- Net asset value, end of period $ 9.33 $ 6.31 $ 9.56 $ 12.49 $ 10.54 $ 9.52 ================= ========== ========== ========== ========= ========= Total Return (a) 47.86% (30.96%) (12.94%) 19.98% 12.24% (19.51%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 748,460 $ 524,741 $ 913,615 $1,725,651 $ 907,180 $ 384,259 Net expenses to average daily net assets 1.15% * 1.16% 1.24% (c) 1.24% (c) 1.35% 1.58% Net investment income to average daily net assets 1.47% * 2.75% 1.30% 1.40% 1.31% 0.85% Portfolio turnover rate 42% 76% 88% 41% 35% 50% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ - (b) $ 0.02 $ 0.03 $ 0.02 $ - (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 voluntarily waived or borne by the Manager were less than $.01 per share. (c) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximate .06% and .035% of average daily net assets for the years ended February 28, 1997 and 1998, respectively. (d) The distribution in excess of net realized gains was $0.0005. 22 See accompanying notes to the financial statements GMO Emerging Markets Fund (A Series of GMO Trust) Financial Highlights (For a Class IV share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended Period from January 9, 1998 August 31, 1999 Year Ended (commencement of operations) (Unaudited) February 28, 1999 to February 28, 1998 ------------------ ------------------- -------------------- Net asset value, beginning of period $ 6.31 $ 9.56 $ 8.62 ------------------ ------------------- -------------------- Income (loss) from investment operations: Net investment income 0.07 + 0.28 0.01 + Net realized and unrealized gain (loss) 2.95 (3.21) 0.93 ------------------ ------------------- -------------------- Total from investment operations 3.02 (2.93) 0.94 ------------------ ------------------- -------------------- Less distributions to shareholders from: Net investment income - (0.20) - Net realized gains - (0.12) In excess of net realized gains - (0.00)(d) - ------------------ ------------------- -------------------- Total distributions - (0.32) - ------------------ ------------------- -------------------- Net asset value, end of period $ 9.33 $ 6.31 $ 9.56 ================== =================== ==================== Total Return (a) 48.10% (31.01%) 10.90% Ratios/Supplemental Data: Net assets, end of period (000's) $ 329,104 $ 261,187 $ 672,020 Net expenses to average daily net assets 1.11% * 1.12% 1.22% * (c) Net investment income to average daily net assets 1.53% * 2.87% 0.65% * Portfolio turnover rate 42% 76% 88% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ - (b) $ 0.02 $ - (b)
* Annualized + 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. (b) Fees and expenses voluntarily waived or borne by the Manager were less than $.01 per share. (c) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximate .04% of average daily net assets. (d) The distribution in excess of net realized gains was $0.0005. See accompanying notes to the financial statements 23 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 Emerging Markets Fund seeks high total return through investment in equity securities traded in the securities markets of developing countries in Asia, Latin America, the Middle East, Africa, and Europe ("Emerging Markets"). The Fund's current benchmark is the IFC Investable Index. 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. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. 24 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, currency gains and losses realized between the trade and settlement dates on securities transaction 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 forward foreign currency contracts outstanding as of August 31, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instruments. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. 25 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 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 entering into 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 and agency 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. As of August 31, 1999, there were no outstanding futures contracts. 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 the equity markets. The Fund enters into total return 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. Total return swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as 26 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 will be 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 all open swap agreements as of August 31, 1999. 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, 1999, the Fund loaned securities having a market value of $19,472,370 collateralized by cash in the amount of $20,225,300 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 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. At February 28, 1999, the Fund had a capital loss carryforward available to offset future capital gains, if any, of $252,511,867, expiring in 2007. 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. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded an accrual in the amount of $1,623,846 for potential capital gains and repatriation taxes at August 31, 1999. The accrual for capital gains and repatriation taxes is included in net realized and unrealized gain in the Statement of Operations. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $2,416,739 for potential 27 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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 dividends 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 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 of shares of the Fund 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. These fees will be reduced by 50% with respect to any portion of a purchase or redemption that is offset by a corresponding redemption or purchase, respectively, occurring on the same day. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. These fees are allocated relative to each class' net assets on the share transaction date. Purchase premiums are included as part of each class' "shares sold" and redemption fees are included as part of each class' "shares repurchased", respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $760,154 in purchase premiums and $379,265 in redemption fees. There is no premium for reinvested distributions. While no purchase 28 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- premium is normally charged with respect to in-kind purchases of Fund shares, a purchase premium of up to .20% may be charged on certain in-kind transactions. Investment risk Investments in securities of emerging countries present certain risks that are not inherent in many other investments. Many emerging countries present elements of political and/or economic instability. The securities markets of emerging countries are generally smaller and less developed than the securities markets of the U.S. and developed foreign markets. 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 .81% of average daily net assets. The Fund has adopted a Shareholder Service 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 .15% for Class III shares and .105% for Class IV shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding custody fees, brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of 1.00% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .81% of average daily net assets. 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, 1999, was $4,962. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 29 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, were as follows:
Purchases Proceeds -------------- ------------- U.S. Government securities $ 12,757,237 $ 13,659,787 Investments (non-U.S. Government securities) 387,086,743 413,611,242
At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ---------------- ------------------ ------------------ ---------------- $1,134,539,400 $233,424,047 $(276,947,622) $(43,523,575) 4. Principal shareholder At August 31, 1999, 14.8% 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, including a class' portion of the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended August 31, 1999 February 28, 1999 -------------------------------- -------------------------------- Class III: Shares Amount Shares Amount -------------- ---------------- --------------- --------------- Shares sold 7,037,835 $ 62,971,129 16,151,855 $ 124,491,194 Shares issued to shareholders in reinvestment of distributions - - 3,383,887 22,834,853 Shares repurchased (9,956,477) (78,908,099) (31,966,910) (225,170,940) -------------- ---------------- --------------- --------------- Net decrease (2,918,642) $ (15,936,970) (12,431,168) $ (77,844,893) ============== ================ =============== ===============
30 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Share transactions - continued
Six Months Ended Year Ended August 31, 1999 February 28, 1999 ------------------------------- -------------------------------- Class IV: Shares Amount Shares Amount -------------- --------------- --------------- -------------- Shares sold 1,997,126 $ 15,238,070 1,052,163 $ 11,220,974 Shares issued to shareholders in reinvestment of distributions - - 1,540,180 10,691,678 Shares repurchased (8,114,276) (70,142,960) (31,493,803) (205,245,724) -------------- --------------- --------------- --------------- Net decrease (6,117,150) $ (54,904,890) (28,901,460) $ (183,333,072) ============== =============== =============== ===============
6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Swap agreements
Notional Expiration Net Unrealized Amount Date Description Appreciation ------------ ---------- ----------------------------------------------------------- --------------- $ 307,199 11/02/99 Agreement with Credit Suisse First Boston dated 11/02/98 $ 86,556 to receive (pay) the change in market value of a basket of selected securities (including dividends) and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 5,000,000 2/25/00 Agreement with Credit Suisse Financial Products dated 1,813,108 2/23/99 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 12 month LIBOR adjusted by a specified spread.
31 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements - continued
Notional Expiration Net Unrealized Amount Date Description Appreciation --------- ---------- ----------------------------------------------------------- --------------- $2,526,029 3/13/00 Agreement with Credit Agricole Indosuez (W.I. Carr) dated $ 159,764 3/12/99 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread. 3,735,370 3/16/00 Agreement with Credit Agricole Indosuez (W.I. Carr) dated 146,943 3/16/99 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. 3,810,744 3/17/00 Agreement with Credit Agricole Indosuez (W.I. Carr) dated 7,533 3/17/99 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. 6,050,866 4/28/00 Agreement with Goldman Sachs International dated 4/12/99 874,695 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 12 month LIBOR adjusted by a specified spread. 6,312,063 4/28/00 Agreement with Goldman Sachs International dated 4/29/99 821,467 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 6 month LIBOR adjusted by a specified spread.
32 GMO Emerging Markets Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Swap agreements - continued
Notional Expiration Net Unrealized Amount Date Description Appreciation --------- ---------- ----------------------------------------------------------- --------------- $4,000,000 8/30/00 Agreement with Lehman Brothers Finance S.A. dated 8/17/99 $ 13,826 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. ----------------- $ 3,923,892 =================
33 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- COMMON STOCKS - 91.3% Australia - 4.3% 35,800 Amcor Ltd 186,243 7,600 AMP Ltd 75,584 33,795 Australia and New Zealand Banking Group Ltd 219,416 21,500 Bank of Western Australia 46,987 71,700 Boral Ltd 109,641 6,334 Broken Hill Proprietary Ltd 68,002 12,600 Caltex Australia Ltd 25,208 32,698 Coles Myer Ltd 182,106 94,100 Colonial Ltd 353,080 11,756 Commonwealth Bank of Australia 184,682 119,563 CSR Ltd 304,718 14,300 David Jones Ltd 11,207 78,100 Delta Gold 109,873 26,500 Email Ltd 47,277 41,929 Fosters Brewing Group Ltd 122,622 36,900 General Property Trust Units 62,539 5,000 GIO Australia Holdings Ltd 8,063 27,700 Goodman Fielder Ltd 25,415 23,700 Harvey Norman Holdings 248,191 4,400 Jupiters Ltd 10,233 7,100 Leighton Holdings 28,310 27,900 MIM Holdings Ltd 21,865 30,229 National Australia Bank Ltd 456,279 81,700 National Food Ltd 138,987 75,500 National Mutual Holdings 114,971 10,100 Newcrest Mining Ltd * 23,810 154,603 News Corp Ltd 1,127,886 168,315 Normandy Mining Ltd 120,111 16,749 North Broken Hill Peko Ltd 36,924 61,500 Pacific Dunlop Ltd 91,300 94,552 Pioneer International Ltd 240,975 21,674 PMP Communications Ltd 37,700 139,635 Qantas Airways Ltd 449,291 91,535 QCT Resources Ltd 61,238 42,200 Resolute Ltd 15,326 552 Rothmans Holdings Ltd 5,750 27,797 Schroders Property 44,986 9,100 Stockland Trust Group 20,867 49,900 Western Mining Corp Holdings Ltd 219,600
See accompanying notes to the financial statements. 1 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Australia - continued 101,765 Westfield Trust Units 206,838 79,050 Westpac Banking Corp 478,484 ----------------- 6,342,585 ----------------- Austria - 3.0% 622 Austria Mikro Systeme International 23,422 1,118 Boehler Uddeholm (Bearer) 53,719 5,515 Brau Union AG 264,756 723 EA-Generali AG 123,714 611 Energie-Versorgung Niederoesterreich AG 85,899 7,598 Erste Bank Der Oesterreichischen Sparkassen AG 421,333 1,096 Flughafen Wien AG 43,354 155 Leykam-Muerztaler Papier und Zellstoff AG 3,302 7,346 Oesterreichische Brau Beteiligungs AG 335,198 46 Oesterreichische Elektrizitaetswirtschafts AG 6,899 17,842 Oesterreichische Laenderbank AG 946,992 2,963 OMV AG 297,162 6,378 Radex-Heraklith AG 180,949 4,334 Universale Bau AG 146,489 46,594 Voest-Alpine Stahl AG 1,520,741 ----------------- 4,453,929 ----------------- Belgium - 1.4% 1,400 Almanij NV 82,810 550 Arbed SA 54,899 2,698 Compagnie Benelux Paribas SA 169,561 2,351 Credit Commercial Dexia 343,433 1,559 Electrabel SA 520,849 400 Electrafina NPV 49,771 7,029 Fortis (B) 241,292 250 Glaverbel NPV 25,614 1,700 Groupe Bruxelles Lambert NPV 324,829 3,342 Solvay Et Cie 235,274 1,350 Union Miniere NPV 54,057 ----------------- 2,102,389 ----------------- Canada - 2.3% 6,900 Air Canada Inc * 41,848 4,100 Bank of Montreal 144,250 12,700 Bank of Nova Scotia 275,754 2,300 Biochem Pharma Inc * 59,496 9,268 Boliden Ltd ADR * 21,770
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Canada - continued 13,100 Bombardier Inc Class B 204,111 14,200 Canadian Marconi Co 157,492 1,389 Cominco Ltd 23,969 4,700 Donohue Inc Class A 76,066 2,500 Enbridge Inc 53,445 100 Fairfax Financial Holdings Ltd * 16,687 1,869 Falconbridge Ltd 29,184 4,200 Hudsons Bay Co 54,885 350 Ipsco Inc 7,271 4,600 Magna International Class A 228,428 19,100 Methanex Corp * 56,320 6,400 Molson Co Ltd Class A 109,583 2,100 Nexfor Inc 12,877 4,700 NS Power Holdings Inc 51,655 3,200 PanCanadian Petroleum Ltd 52,540 5,400 Petro Canada 81,242 4,000 Potash Corp of Saskatchewan 223,294 3,800 Quebecor Inc Class B 95,497 4,846 Rogers Cantel Mobile Communications Class B * 105,546 6,334 Seagram Ltd 336,396 2,700 Shell Canada Ltd Class A 57,358 6,900 Stelco Inc Class A 52,945 5,800 Transalta Corp 76,960 36,930 Transcanada Pipelines Ltd 520,960 5,800 Westcoast Energy Inc 113,303 ----------------- 3,341,132 ----------------- Finland - 0.1% 2,600 Enso OY Class R 34,603 300 Instrumentarium OY Class A 11,249 800 Kesko OY 9,819 8,000 Merita Ltd Class A 42,250 800 Metra AB Class A 14,424 250 Stockmann AB Class A 4,489 2,000 UPM-Kymmene OY 69,184 ----------------- 186,018 ----------------- France - 11.9% 231 Accor SA 55,582 1,705 Air Liquide Class L 261,492 1,120 Alcatel Alsthom Cie Generale d'Electricite SA 171,535
See accompanying notes to the financial statements. 3 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- France - continued 13,099 Assurances Generales De France (Bearer) 676,156 800 Axa SA 99,541 11,582 Banque Nationale de Paris 885,705 9,500 Banque Paribas Class A 1,010,462 215 Bongrain 81,981 482 Cap Gemini SA 82,731 750 Christian Dior 120,413 890 Clarins 87,520 5,077 Compagnie Generale d'Industrie et de Participations 250,969 2,660 Credit Commercial de France 333,502 2,130 Credit Local de France SA 277,402 18,206 Credit Lyonnais * 518,059 2,866 Elf Aquitaine SA 502,517 3,447 Eridania Beghin-Say SA 455,840 90 Fromageries Bel SA 75,385 2,858 Groupe Danone 706,994 10,308 Lafarge Coppee SA 1,107,292 290 Louis Vuitton Moet Hennessy 88,249 3,278 Lyonnaise Des Eaux 546,711 1,900 Metaleurop SA * 12,503 3,700 Michelin SA Class B 160,272 2,110 Pechiney SA Class A 122,801 4,793 Pernod Ricard 367,545 7,162 Peugeot SA 1,316,286 1,700 Remy Cointreau SA * 32,591 15,850 Renault SA 853,820 15,033 Rhone Poulenc SA Class A 729,146 9,234 Saint-Gobain 1,784,874 11,870 Skis Rossignol 176,405 812 Societe Eurafrance 498,309 9,859 Societe Generale Paris 1,929,634 7,220 SPIE Batignolles 484,259 2,400 Thomson CSF 87,711 28,304 Usinor Sacilor 437,978 690 Vallourec 27,702 ----------------- 17,417,874 -----------------
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Germany - 5.5% 250 Axel Springer Verlag AG 298,391 1,950 Bankgesellschaft Berlin AG 34,685 18,000 BASF AG 815,636 16,501 Bayer AG 717,211 2,100 Bayerische Hypotheken und Wechsel-Bank AG 37,708 900 Bayerische Vereinsbank 53,330 2,000 BHF Bank AG 94,429 2,050 Bilfinger & Berger 49,369 13,000 Buderus AG 219,700 10,150 Commerzbank AG 363,440 7,959 Continental AG 183,266 6,644 Deutsche Bank AG 454,047 10,166 Deutsche Telekom AG 449,915 2,801 Dresdner Bank 128,993 8,400 FAG Kugelfischer 88,281 700 Fresenius Medical Care AG 50,943 18,850 Hamburgische Electricitaets-Werke AG 418,117 2,713 Heidelberg Port-Zement 273,665 3,350 Leirheit AG 104,384 3,500 Lufthansa AG 67,653 300 Schmalbach-Lubeca 41,099 19,779 Siemens AG 1,662,969 172 Suedzucker AG 69,909 34,388 Thyssen Krupp AG * 802,723 8,548 Veba AG 544,438 ----------------- 8,024,301 ----------------- Hong Kong - 4.1% 140,500 Amoy Properties Ltd 138,417 57,000 Cheung Kong Holdings 497,318 108,500 CLP Holdings Ltd 512,798 133 Dickson Concept International Ltd 123 425,000 Elec & Eltek International Holdings Ltd 74,435 53,281 Great Eagle Holdings Ltd 78,222 6,700 Guoco Group 19,888 105,300 Hang Lung Development Co Ltd 120,689 19,000 Henderson Land Development Co Ltd 100,320 768 HKR International Ltd 593 100,700 Hong Kong Aircraft Engineering Co Ltd 178,961 149,500 Hong Kong Electric Holdings Ltd 491,906
See accompanying notes to the financial statements. 5 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Hong Kong - continued 43,000 Hong Kong Ferry Co Ltd 48,731 400 Hong Kong Telecommunications 907 600 Hysan Development Co Ltd 780 114,441 Jardine Matheson Holdings Ltd 547,028 181,500 Jardine Strategic Holdings Ltd 417,450 27,127 Kumagai Gumi Ltd 13,275 1,400 Lai Sun Garment International Ltd 83 796 Leading Spirit Conrowa Electric * 13 297,400 Mandarin Oriental ADR 200,745 87,600 New Asia Realty & Trust Class A 139,887 19,815 New World Development Co Ltd 47,718 1,000 Oriental Press Group 129 100 Realty Development Corp Ltd Class A 189 2,939,000 Regal Hotels International Ltd 314,143 900 Shaw Brothers Ltd 800 332,972 South China Morning Post Ltd 210,113 84,000 Sun Hung Kai Properties Ltd 713,959 74,500 Swire Pacific Ltd Class A 383,766 167,000 Wharf Holdings Ltd 453,784 208,200 Wheelock and Co Ltd 269,462 80 Wing Lung Bank 331 52,000 Yue Yuen Industrial Holdings 150,004 ----------------- 6,126,967 ----------------- Ireland - 0.0% 4,800 Independent News & Media Plc 23,423 ----------------- Italy - 4.3% 18,436 Alitalia Linee Aeree 49,267 86,700 Banca Commerciale Italiana SPA 589,755 410,000 Banca di Roma 556,918 8,000 Banca Intesa SPA 33,800 11,600 Banca Popolare di Bergamo Credit 237,699 46,200 Banca Popolare di Milano 334,759 113,300 Banco Ambrosiano Veneto SPA (Non Convertible) 229,772 87,297 Banco di Napoli di Risp 108,805 12,000 Burgo (Cartiere) SPA 87,584 18,200 Compart SPA * 24,818 8,000 Credito Fondiario * 17,238 24,769 Fiat SPA 797,949
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Italy - continued 13,017 Fiat SPA (Non Convertible) 208,713 167,500 Finmeccanica SPA * 140,830 368,580 HPI SPA 221,130 23,350 IFIL-Finanziaria di Partecipazioni SPA 148,967 29,250 IFIL-Finanziaria di Partecipazioni SPA (Non Convertible) 125,435 50,000 Industriali Riunite SPA 74,360 2,200 Industrie Natuzzi SPA ADR 40,700 44,485 Istituto Nazionale Delle Assicurazioni 107,131 25,850 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 129,694 6,200 Italcementi SPA 84,479 1,600 Italmobiliare SPA 39,360 5,000 Magneti Marelli SPA 13,098 8,402 Mediobanca SPA 87,149 198,934 Montedison SPA 299,427 107,304 Montedison SPA (Non Convertible) 126,941 45,000 Parmalat Finanziaria SPA 58,463 54,700 Pirelli & Co 106,309 20,981 RAS SPA 197,235 16,800 RAS SPA (Non Convertible) 140,186 4,000 Rinascente 17,534 11,000 SAI di Risp 55,421 8,268 San Paolo IMI SPA 110,997 21,650 Sirti SPA 111,824 35,000 SNIA SPA 39,372 11,643 Telecom Italia Mobile SPA (Non Convertible) 40,337 45,870 Telecom Italia SPA (Non Convertible) 262,600 7,700 Toro Assicurazioni 97,435 338,592 Unione Immobiliaer SPA 162,368 ----------------- 6,315,859 ----------------- Japan - 22.1% 4,000 Acom Ltd 405,308 3,000 Anritsu Corp 27,771 55,000 Aoki Corp * 31,100 4,200 Arabian Oil Co Ltd 68,950 31,000 Asahi Bank 189,430 61,000 Atsugi Nylon Industrial 70,655 2,000 Autobacs Seven 105,796 3,000 Bandai Co 47,882 12,000 Brother Industries Ltd 35,022
See accompanying notes to the financial statements. 7 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Japan - continued 4,000 Canon Inc 116,740 21,000 Canon Sales Co Inc 333,449 7,800 Chubu Electric Power Co Inc 145,479 16,000 Chugai Pharmaceutical Co Ltd 176,570 5,500 Chugoku Electric Power Co Inc 90,492 115,000 Cosmo Oil Co Ltd 209,768 1,000 Credit Saison Co 22,527 26,000 Daicel Chemical Industries Ltd 106,708 17,000 Daido Steel Co Ltd 29,459 8,000 Dai-Ichi Kangyo Bank 83,980 14,000 Daiichi Seiyaku Co Ltd 215,915 24,000 Daishowa Paper Manufacturing * 98,062 2,000 Daito Trust Construction Co Ltd 25,993 157,000 Daiwa Bank 499,731 69,000 Daiwa House Industry Co Ltd 692,234 8,000 Daiwa Kosho Lease Co Ltd 36,773 71,000 Daiwa Securities Co Ltd 641,716 13,000 Ezaki Glico Co Ltd 71,257 6,700 Fanuc Co 403,302 80,000 Fuji Bank 824,479 5,000 Fuji Heavy Industries Ltd 39,765 800 Fuji Photo Film Co Ltd 29,185 48,000 Fujita Corp 37,211 12,000 Fukuyama Transporting Co Ltd 68,950 20,000 Gakken Co Ltd 30,280 28,000 General Sekiyu (KK) 82,484 1,000 Heiwa Corp 30,280 52,000 Hino Motors 208,199 186,000 Hitachi Ltd 1,884,682 3,700 Hokkaido Electric Power 57,502 14,000 Hokuriku Bank 28,218 3,000 Honda Motor Co Ltd 120,389 3,000 House Foods Corp 45,283 3,000 INAX Corp 22,108 30,000 Industrial Bank of Japan 305,075 8,000 Intec Inc 109,371 18,000 Ishikawajima-Harima Heavy Industries 35,296 39,000 Itochu Corp 119,157 12,000 Itoham Foods Inc 47,061
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Japan - continued 8,000 Japan Airport Terminal Co Ltd 95,581 117,000 Japan Energy Co Ltd 149,391 21,000 Japan Radio Co 241,899 5,000 Japan Securities Finance Co 30,280 6,000 Japan Synthetic Rubber Co Ltd 50,125 93 Japan Tobacco Inc 1,289,252 52,000 Kajima Corp 224,324 5,000 Kandenko Co 29,596 10,400 Kansai Electric Power 199,188 37,000 Kawasaki Heavy Industries Ltd 84,363 16,000 Kawasaki Kisen 32,541 76,000 Keio Teito Electric Railway Co Ltd 301,519 500 Keyence Corp 113,320 4,000 Kirin Brewery Co Ltd 48,520 4,000 Kissei Pharmaceutical Co Ltd 78,435 146,000 Kobe Steel Ltd 127,831 1,000 Kokusai Denshin Denwa 77,979 110,000 Kubota Corp 347,120 55,000 Kumagai Gumi Co Ltd * 57,686 44,000 Kurabo Industries Ltd 54,175 2,000 Kyocera Corp 131,333 50,000 Kyowa Hakko Kogyo Co Ltd 378,494 26,100 Kyushu Electric Power Co Inc 416,572 24,000 Maeda Corp 94,122 3,000 Maeda Road Construction 19,290 117,000 Marubeni Corp 276,374 17,000 Marudai Food Co Ltd 36,436 6,000 Meiji Milk Products 22,545 124,000 Mitsubishi Electric Corp 626,531 210,000 Mitsubishi Heavy Industries 913,585 66,000 Mitsubishi Material 186,000 49,000 Mitsubishi Motors 265,904 8,000 Mitsubishi Trust & Banking 83,907 54,000 Mitsui Petrochemical Industries Ltd 393,999 198,000 Mitsui Trust & Banking Co Ltd 408,117 4,000 Mochida Pharmaceutical Co Ltd 28,455 6,000 MOS Food Services 94,067 14,000 New Japan Securities Co Ltd * 44,434 12,000 New Oji Paper Co Ltd 83,178
See accompanying notes to the financial statements. 9 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Japan - continued 33,000 Nichii Co Ltd 198,641 93,000 Nichirei 254,458 64,000 Nikko Securities 553,349 4,800 Nintendo Co Ltd 831,775 15,000 Nippon Carbon Co Ltd 23,120 6,000 Nippon Chemi-Con Corp 29,222 11,000 Nippon Express Co Ltd 83,971 13,000 Nippon Hodo Co 83,114 22,000 Nippon Light Metal 30,298 10,000 Nippon Meat Packers Inc 136,805 128,550 Nippon Oil Co Ltd 568,624 35,000 Nippon Shinpan Co 121,301 19,000 Nishimatsu Construction 110,037 156,000 Nissan Motor Co 907,729 16,000 Nisshin Oil Mills Ltd 63,332 41,000 Nisshin Steel Co Ltd 58,334 68,000 Nisshinbo Industries Inc 354,125 185,000 Nissho Iwai Corp 200,784 322,000 NKK Corp 299,549 19,000 Obayashi Corp 102,412 31,000 Odakyu Electric Railway 99,521 76,000 Oki Electric Industry 353,504 17,000 Okumura Corp 64,344 3,000 Ono Pharmaceutical Co Ltd 97,952 32,000 Onoda Cement Co Ltd 83,761 15,000 Onward Kashiyama Co Ltd 229,012 26,000 Orient Corp 75,407 12,000 Penta Ocean Construction 21,013 6,000 Promise Co 497,971 6,000 Q.P. Corp 42,136 71,000 Renown Inc * 97,132 5,000 Royal Co Ltd 65,119 6,000 Ryosan Co 153,769 38,000 Sagami Railway Co Ltd 102,932 214,000 Sakura Bank Ltd 1,132,017 1,000 Sankyo Co Ltd 27,817 33,000 Sanyo Electric Company 142,961 34,000 Sato Kogyo Co Ltd 24,497 500 Secom Co Ltd 68,175
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Japan - continued 40,000 Seino Transportation Co Ltd 254,640 46,000 Sekisui Chemical 255,917 59,000 Sekisui House Ltd 633,344 25,200 Shikoku Electric Power 404,505 40,000 Shimizu Corp 178,394 3,000 Shionogi and Co Ltd 25,719 32,000 Showa Shell Sekiyu 215,386 4,000 Skylark Co Ltd 105,066 22,000 Snow Brand Milk Products Co Ltd 100,524 30,000 Stanley Electric Co Ltd 126,955 1,000 Sumitomo Electric 13,589 4,000 Sumitomo Forestry Co Ltd 31,666 138,000 Sumitomo Metal Industries 185,015 75,000 Sumitomo Trust & Banking 499,339 12,000 Suzuki Motor Corp 202,472 62,000 Taisei Corp 138,538 8,000 Taisho Pharmaceutical Co Ltd 336,358 6,000 Takara Standard Co 38,141 10,000 Takuma Corp 107,255 8,000 Tanabe Seiyaku Co Ltd 53,701 700 TDK Corp 84,910 34,000 Teijin Ltd 144,193 58,000 Teikoku Oil Co Ltd 213,708 9,000 TOA Corp 15,678 53,000 Toei Co Ltd 197,218 8,900 Tohoku Electric Power Co Inc 141,238 27,000 Tokai Bank 171,389 4,000 Tokyo Steel Manufacturing Co 18,678 76,000 Tomen Corp 77,632 7,000 Tostem Corp 143,645 5,000 Toto Limited 36,937 16,000 Toyo Seikan Kaisha 372,110 5,000 Toyo Suisan Kaisha 54,722 13,000 Toyo Trust & Banking Co Ltd 55,370 144,000 Toyobo Co Ltd 229,833 5,000 Yakult Honsha Co Ltd 72,507 211,000 Yasuda Trust & Banking * 361,786 ----------------- 31,931,610 -----------------
See accompanying notes to the financial statements. 11 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Malaysia - 0.3% 128,000 DMIB Berhad 40,758 55,000 Highlands and Lowlands Berhad 33,434 199,000 Kumpulan Guthrie Berhad 106,308 154,000 Malaysian International Shipping 281,658 ----------------- 462,158 ----------------- Netherlands - 0.5% 8,800 ABN Amro Holdings NV 214,250 1,700 Hoogovens & Staalf CVA 98,310 1,400 KLM-Koninklijke Luchtvaart Mij 38,448 5,500 Kon Bolswessanen 67,389 2,550 Koninklijke Pakhoed 65,585 3,000 Nedlloyd 85,556 3,850 Stork NV 83,161 1,400 VIB NV 39,483 ----------------- 692,182 ----------------- New Zealand - 0.2% 14,600 Air New Zealand Class B 26,419 257,000 Brierley Investment Ltd * 61,120 58,100 Carter Holt Harvey Ltd 68,786 3,500 Fisher and Paykel Industries Ltd 10,314 2,900 Fletcher Challenge Energy 7,422 36,700 Lion Nathan Ltd 81,588 ----------------- 255,649 ----------------- Norway - 0.9% 4,300 Aker RGI ASA Class A 66,027 4,700 Bergesen d.y. ASA Class A 70,373 1,700 Bergesen d.y. ASA Class B 24,804 54,900 Christiania Bank OG Kreditkasse 232,962 91,563 Den Norske Bank Class A 365,202 1,700 Dyno Industrier AS 35,961 1,200 Elkem AS Class A 21,408 7,000 Fred Olsen Energy * 67,346 9,350 Kvaerner Industrier AS 207,314 200 Leif Hoegh and Co AS 2,319 2,050 Norsk Hydro AS 85,422 2,650 Norske Skogindustrier AS Class A 110,761 2,800 Petroleum Geo-Services * 56,018 ----------------- 1,345,917 ----------------- Portugal - 0.2% 14,880 Electricidade de Portugal 251,472 -----------------
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Singapore - 5.3% 41,000 Cerebos Pacific Ltd 95,422 252,000 Comfort Group 127,174 24,000 Creative Technology Ltd 237,962 3,000 Cycle & Carriage Ltd 16,921 9,599 DBS Bank Ltd 109,993 212,000 DBS Land Ltd 483,334 58,890 Development Bank of Singapore (Foreign Registered) 674,807 12,000 First Capital Corp Ltd 16,672 10,000 Fraser & Neave 37,998 59,564 Haw Par Brothers International Ltd 99,020 69,000 Hotel Properties Ltd 63,498 24,308 Inchcape Berhad 32,905 31,000 Keppel Bank Ltd 65,891 69,000 Keppel Corp 223,268 75,000 Keppel Land Ltd 115,330 58,000 Marco Polo Developments Ltd 86,778 39,000 Natsteel Ltd 82,895 34,000 Overseas Chinese Banking (Foreign Registered) 238,200 196,600 Overseas Union Bank Ltd (Foreign Registered) 1,027,180 49,100 Robinson and Co Ltd 154,503 30,000 Shangri-La Hotel Ltd 66,971 205,000 Singapore Airlines Ltd (Foreign Registered) 1,923,054 69,000 Singapore Land Ltd 167,144 37,426 Singapore Press Holdings 622,174 92,000 Singapore Telecom 163,320 147,000 Straits Trading Co Ltd 174,553 27,000 Times Publishing Ltd 52,900 79,000 United Industrial Corp Ltd 45,262 188,000 United Overseas Land 175,242 275,000 Wing Tai Holdings 295,523 ----------------- 7,675,894 ----------------- Spain - 2.0% 9,921 Acerinox SA 328,623 2,206 Banco Popular Espanol 161,592 17,400 Compania Espanola de Petroleos 209,885 2,400 Corporacion Mapfre (Registered) 45,250 18,000 Endesa 361,238 1,900 FENOSA SA 27,093
See accompanying notes to the financial statements. 13 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Spain - continued 6,450 Grupo Dragados SA 79,233 9,996 Iberdrola SA 143,593 74,227 Repsol SA 1,554,717 ----------------- 2,911,224 ----------------- Sweden - 3.2% 23,577 Assi Doman 455,325 44,742 Avesta Sheffield AB 220,487 3,600 Drott AB Class B 31,166 10,450 Foreningssparbanken AB Class A 156,896 4,574 Gambro AB Class A 47,352 5,107 Gambro AB Class B 52,869 5,000 Investor AB 60,843 34,577 Mo Och Domsjo AB Class B 1,055,019 11,300 Nordbanken Holdings AB 63,622 5,100 Scancem AB Class A 243,916 29,300 Skandinaviska Enskilda Banken Class A 303,324 2,055 Skanska AB Class B 80,369 5,200 SKF AB Class B 118,368 11,200 Ssab Swedish Steel Class A 155,951 3,300 Ssab Swedish Steel Class B 45,151 26,295 Svenska Cellulosa Class B 764,112 15,200 Svenska Handelsbanken Class A 210,728 5,000 Svenska Kullagerfabriken AB 106,550 25,618 Trelleborg AB Class B 229,535 2,900 Volvo AB Class A 81,638 6,500 Volvo AB Class B 181,802 ----------------- 4,665,023 ----------------- Switzerland - 1.0% 50 Ascom Holding AG (Bearer) 94,053 250 Baloise Holdings 209,062 340 BK Vision AG (Bearer) * 72,484 1,370 CIBA Specialty Chemicals Holdings (Registered) 108,508 60 Clariant Namen AG 28,830 318 CS Holdings (Registered) 60,028 30 Financiere Richemont AG Class A 57,026 360 Fischer (George) AG (Registered) 110,488 50 Helvetia Patria Holding 40,921 50 Holderbank Financiere Glarus AG (Bearer) 61,547 40 Jelmoli (Bearer) 40,525
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Switzerland - continued 310 Merkur Holding AG (Registered) 78,160 300 Oerlikon-Buhrle (Registered) 43,561 50 Pargesa Holdings SA (Bearer) 79,203 110 Pharma Vision * 76,233 130 Sairgroup Zuerich (Registered) 27,328 80 Schweizerische Industrie-Gesellschaft Holding AG (Registered) 49,581 130 Sika Finanz AG (Bearer) 39,169 210 Sulzer Gebrueder AG (Registered) * 131,813 15 Swiss Reinsurance (Bearer) 29,255 132 UBS AG (Registered) 37,245 100 Zurich Allied 58,676 ----------------- 1,533,696 ----------------- United Kingdom - 18.7% 8,900 3i Group Plc 118,064 8,000 Abbey National 137,383 32,933 Allied Domecq Plc 304,224 41,900 Allied Zurich Plc 512,372 15,400 AMEC 66,487 17,400 Anglian Water Plc 207,040 12,440 Arcadia Group 46,107 51,000 Arjo Wiggins Appleton Plc 177,542 49,646 Associated British Food 340,468 10,000 BAA 104,517 6,800 Bank of Scotland 84,794 10,980 Barclays Plc 326,623 24,999 Barratt Development 130,239 34,416 Bass Plc 462,912 177,407 BG Plc 1,067,591 9,600 BPB Industries Plc 58,272 93,540 British Airways Plc 612,535 17,036 British Energy Plc 141,896 19,018 British Energy Plc Class A * 17,278 261,489 British Steel Plc 686,403 9,211 British Telecom Plc 141,147 51,418 BTR Siebe Plc 262,501 17,104 Cable & Wireless 196,367 29,126 Carillion Plc * 64,630 48,012 Centrica Plc 127,960 123,700 Coats Viyella 104,922
See accompanying notes to the financial statements. 15 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- United Kingdom - continued 17,300 Commercial Union Plc 257,729 6,800 Cookson Group 25,258 65,500 Courtaulds Textiles Plc 177,992 51,800 Diageo Plc 524,738 41,908 Elementis Plc 78,842 28,500 Great Portland Estates Plc 103,339 2,100 Great Universal Stores Plc 21,172 26,133 Greenalls Group Plc 158,207 60,600 Halifax Group Plc 676,733 19,600 Hammerson Plc 156,791 3,400 Hanson Plc 28,921 82,212 Hazlewood Foods 173,173 13,100 Hyder Plc 118,380 23,617 Inchcape Plc 147,153 5,600 Johnson Matthey 55,153 27,900 Kingfisher Plc 335,791 38,700 Laird Group 190,106 47,580 Land Securities 669,047 15,992 Legal & General Group Plc 43,907 72,331 Lonrho Plc 662,936 102,800 Marks & Spencer 686,810 40,422 MEPC Plc 340,257 140,500 MFI Furniture Group 106,181 129,758 National Power 923,251 17,500 Northern Foods Plc 37,003 45,800 Norwich Union Plc 312,987 22,100 Peninsular & Oriental Steam Navigation Co 362,642 70,331 Powergen Plc 702,846 14,303 Railtrack Group Plc 273,912 14,254 Reuters Holdings Plc 208,913 15,250 Rio Tinto Plc 274,638 18,208 RMC Group 298,485 25,096 Royal Bank of Scotland Group 521,362 51,315 Royal & Sun Alliance Insurance Group 427,412 131,308 Safeway Plc 544,733 148,900 Sainsbury (J) 1,027,128 64,066 Scottish Hydro-Electric Plc 588,215 124,235 Scottish Power Plc 1,143,638 2,800 Scottish & Newcastle Plc 27,621
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- United Kingdom - continued 44,030 Severn Trent Plc 640,722 35,000 Slough Estates 204,853 19,909 Smithkline Beecham Plc 259,463 5,800 Southwest Water 100,023 2,521 Standard Chartered 37,010 31,430 Storehouse Plc 57,866 29,126 Tarmac Plc * 236,976 53,300 Taylor Woodrow Plc 158,123 15,400 Telewest Communications Plc * 59,863 213,100 Tesco 631,340 39,904 Thames Water Plc 573,623 17,186 Thistle Hotels Plc 47,116 47,947 Transport Development Group Plc 200,836 68,045 Unilever Plc 642,254 92,617 United Biscuits Plc 288,912 99,855 United Utilities 1,185,749 9,102 Vodafone Group Plc 183,530 39,791 Whitbread Plc Class A 549,605 231,269 Wilson (Connolly) Holdings 660,067 38,000 Woolwich Plc 205,456 77,277 Yorkshire Water 510,699 ----------------- 27,347,762 ----------------- TOTAL COMMON STOCKS (Cost $125,332,341) 133,407,064 ----------------- PREFERRED STOCKS - 0.7% Austria - 0.1% 2,873 Bau Holdings AG (Non Voting) 97,714 ----------------- Germany - 0.2% 550 Hugo Boss 65,355 1,900 MAN AG 41,041 900 Villeroy & Boch (Non-Voting) 84,606 3,100 Volkswagen AG 107,072 ----------------- 298,074 -----------------
See accompanying notes to the financial statements. 17 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - ------------------------------------------------------------------------------------------------- Italy - 0.4% 22,480 Fiat SPA 352,843 7,500 IFI-Istituto Finanziario Industries 197,255 18,000 Unipol SA (CIA Assicuratri) 40,211 ----------------- 590,309 ----------------- TOTAL PREFERRED STOCKS (Cost $1,200,039) 986,097 ----------------- RIGHTS & WARRANTS - 0.0% Australia - 0.0% 1,770 Franked Income Fund Warrants 12/31/02 * 361 ----------------- France - 0.0% 155,500 Eurotunnel SA Paris Warrants 10/31/01 * 6,570 155,500 Eurotunnel SA Paris Warrants 10/31/03 * 18,067 3,420 Generale Des Eaux Warrants 5/02/01 * 7,875 ----------------- 32,512 ----------------- Hong Kong - 0.0% 38,275 Century City International Warrants 12/31/99 * 227 9,400 Gold Peak Industries Ltd Warrants 8/06/00 * 121 24,025 Kumagai Gumi Warrants 12/31/99 * 1,764 450 Wharf Holdings Ltd Warrants 12/31/99 * 278 ----------------- 2,390 ----------------- Singapore - 0.0% 113,800 Asia Food & Properties Ltd Warrants 7/12/02 * 53,486 9,500 Haw Par Brothers International Ltd Warrants 7/18/01 * 5,528 ----------------- 59,014 ----------------- TOTAL RIGHTS & WARRANTS (Cost $41,303) 94,277 ----------------- SHORT-TERM INVESTMENTS - 11.2% Cash Equivalents - 9.5% 3,769,473 The Boston Global Investment Trust (b) 3,769,473 $ 10,000,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 10,000,000 ----------------- 13,769,473 ----------------- U.S. Government - 1.7% $ 2,600,000 U. S. Treasury Bill, 4.61% due 1/06/00 (a) 2,555,973 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $16,329,638) 16,325,446 -----------------
18 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Value ($) - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS - 103.2% (Cost $142,903,321) 150,812,884 Other Assets and Liabilities (net) - (3.2%) (4,662,986) ----------------- TOTAL NET ASSETS - 100.0% $ 146,149,898 =================
Notes to the Schedule of Investments ADR American Depositary Receipt (a) This security is held as collateral for open futures contracts (Note 6). (b) Represents investment of security lending collateral (Note 1). * Non-income producing security. See accompanying notes to the financial statements. 19 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Banking 15.5% Utilities 8.5 Construction 6.2 Conglomerates 5.4 Electronic Equipment 4.6 Consumer Goods 4.3 Metals and Mining 4.3 Transportation 4.2 Automotive 4.0 Services 4.0 Real Estate 3.8 Financial Services 3.6 Oil and Gas 3.4 Food and Beverage 3.3 Retail Trade 3.2 Chemicals 3.1 Machinery 3.1 Insurance 2.5 Paper and Allied Products 2.4 Communications 1.8 Health Care 1.3 Telecommunications 1.2 Textiles 1.1 Aerospace 0.4 Computers 0.1 Miscellaneous 4.7 ======= 100.0% ======= 20 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, 1999 (Unaudited) - ----------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $142,903,321) (Note 1) $ 150,812,884 Foreign currency, at value (cost $391,135) (Note 1) 389,303 Cash 53,905 Receivable for investments sold 129,188 Dividends and interest receivable 241,354 Foreign withholding taxes receivable 207,184 Receivable for expenses waived or borne by Manager (Note 2) 56,377 --------------- Total assets 151,890,195 --------------- Liabilities: Accrued Malaysian repatriation taxes (Note 1) 35,954 Payable upon return of securities loaned (Note 1) 3,769,473 Net payable for open forward foreign currency contracts (Notes 1 and 6) 1,508,720 Payable for variation margin on open futures contracts (Notes 1 and 6) 192,726 Payable to affiliate for (Note 2): Management fee 65,987 Shareholder service fee 14,678 Accrued expenses 152,759 --------------- Total liabilities 5,740,297 --------------- Net assets $ 146,149,898 =============== Net assets consist of: Paid-in capital $ 137,468,283 Accumulated undistributed net investment income 2,350,909 Accumulated net realized loss (221,013) Net unrealized appreciation 6,551,719 --------------- $ 146,149,898 =============== Net assets attributable to: Class III Shares $ 83,607,194 =============== Class IV Shares $ 62,542,704 =============== Shares outstanding: Class III 7,943,919 =============== Class IV 5,947,137 =============== Net asset value per share: Class III $ 10.52 =============== Class IV $ 10.52 ===============
See accompanying notes to the finacial statements. 21 GMO Currency Hedged International Core Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - ---------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $388,935) $ 3,710,936 Interest (including securities lending income of $22,509) 361,876 ------------- Total income 4,072,812 ------------- Expenses: Management fee (Note 2) 520,714 Custodian fees 275,313 Audit fees 27,790 Transfer agent fees 21,435 Legal fees 3,312 Trustees fees (Note 2) 1,104 Registration fees 637 Miscellaneous 1,517 Fees waived or borne by Manager (Note 2) (331,108) ------------- 520,714 Shareholder service fee - (Note 2) Class III 66,421 Class IV 46,933 ------------- Net expenses 634,068 ------------- Net investment income 3,438,744 ------------- Realized and unrealized gain (loss): Net realized gain on: Investments 3,973,813 Closed futures contracts 1,537,680 Foreign currency, forward contracts and foreign currency related transactions 4,684,690 ------------- Net realized gain 10,196,183 ------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 23,486,396 Open futures contracts (517,018) Foreign currency, forward contracts and foreign currency related transactions (2,866,674) ------------- Net unrealized gain 20,102,704 ------------- Net realized and unrealized gain 30,298,887 ------------- Net increase in net assets resulting from operations $ 33,737,631 =============
22 See accompanying notes to the finacial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust)
Statement of Changes in Net Assets - -------------------------------------------------------------------------------------------------------------------- Six Months Ended August 31, 1999 Year Ended Increase (decrease) in net assets: (Unaudited) February 28, 1999 ------------------- -------------------- Operations: Net investment income $ 3,438,744 $ 7,386,370 Net realized gain 10,196,183 31,666,041 Change in net unrealized appreciation (depreciation) 20,102,704 (30,470,928) ------------------- -------------------- Net increase in net assets resulting from operations 33,737,631 8,581,483 ------------------- -------------------- Distributions to shareholders from: Net investment income Class III (23,250) (1,029,703) Class IV (82,267) (1,302,562) ------------------- -------------------- Total distributions from net investment income (105,517) (2,332,265) ------------------- -------------------- In excess of net investment income Class III - (2,513,584) Class IV - (3,179,653) ------------------- -------------------- Total distributions in excess of net investment income - (5,693,237) ------------------- -------------------- Net realized gains Class III (2,379,277) (28,178,223) Class IV (3,607,975) (33,629,347) ------------------- -------------------- Total distributions from net realized gains (5,987,252) (61,807,570) ------------------- -------------------- (6,092,769) (69,833,072) ------------------- -------------------- Net share transactions - (Note 5) Class III (25,425,846) (78,616,879) Class IV (62,475,178) (224,207,117) ------------------- -------------------- Decrease in net assets resulting from net share transactions (87,901,024) (302,823,996) ------------------- -------------------- Total decrease in net assets (60,256,162) (364,075,585) Net assets: Beginning of period 206,406,060 570,481,645 ------------------- -------------------- End of period (including accumulated undistributed net investment income of $2,350,909 and distributions in excess of net investment income of $982,318, respectively) $ 146,149,898 $ 206,406,060 =================== ====================
See accompanying notes to the finacial statements. 23 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 Year Ended February 28/29 August 31, 1999 ----------------------------------------------------------- (Unaudited) 1999 1998 1997 1996* -------------- ----------- ----------- ------------- ----------- Net asset value, beginning of period $ 9.28 $ 11.92 $ 12.68 $ 11.54 $ 10.00 -------------- ----------- ----------- ------------- ----------- Income from investment operations: Net investment income 0.17 + 0.23 + 0.27 + 0.22 0.23 Net realized and unrealized gain (loss) 1.38 (0.36)(c) 1.72 1.63 1.44 -------------- ----------- ----------- ------------- ----------- Total from investment operations 1.55 (0.13) 1.99 1.85 1.67 -------------- ----------- ----------- ------------- ----------- Less distributions to shareholders from: Net investment income - (d) (0.08) (0.27) (0.28) (0.06) In excess of net investment income - (0.21) - - - Net realized gains (0.31) (2.22) (2.48) (0.43) (0.07) -------------- ----------- ----------- ------------- ----------- Total distributions (0.31) (2.51) (2.75) (0.71) (0.13) -------------- ----------- ----------- ------------- ----------- Net asset value, end of period $ 10.52 $ 9.28 $ 11.92 $ 12.68 $ 11.54 ============== =========== =========== ============= =========== Total Return (a) 16.80% (1.84%) 17.98% 16.55% 16.66% Ratios/Supplemental Data: Net assets, end of period (000's) $ 83,607 $ 97,450 $ 207,653 $ 581,099 $ 407,227 Net expenses to average daily net assets 0.69% ** 0.69% 0.69% 0.72% (b) 0.69% ** Net investment income to average daily net assets 3.36% ** 2.07% 2.15% 2.25% 1.89% ** Portfolio turnover rate 39% 68% 96% 84% 7% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.05 $ 0.05 $ 0.04 $ 0.05
* Period from June 30, 1995 (commencement of operations) to February 29, 1996. ** 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) Includes stamp duties and transfer taxes not waived or borne by the Manager, which approximate .03% of average daily net assets. (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, 1999 due to the timing of purchases and redemptions of Fund shares in relation to fluctuating market values of the investments of the Fund. (d) The per share distribution from net investment income is $0.003. 24 See accompanying notes to the financial statements. GMO Currency Hedged International Core Fund (A Series of GMO Trust) Financial Highlights (For a Class IV share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended February 28 -------------------------------- (Unaudited) 1999 1998* --------------- ------------- ------------- Net asset value, beginning of period $ 9.27 $ 11.92 $ 10.87 --------------- ------------- ------------- Income from investment operations: Net investment income 0.19 + 0.24 + 0.01 + Net realized and unrealized gain (loss) 1.38 (0.36)(b) 1.04 --------------- ------------- ------------- Total from investment operations 1.57 (0.12) 1.05 --------------- ------------- ------------- Less distributions to shareholders from: Net investment income (0.01) (0.09) - In excess of net investment income - (0.22) - Net realized gains (0.31) (2.22) - --------------- ------------- ------------- Total distributions (0.32) (2.53) - --------------- ------------- ------------- Net asset value, end of period $ 10.52 $ 9.27 $ 11.92 =============== ============= ============= Total Return (a) 16.86% (1.79%) 9.66% Ratios/Supplemental Data: Net assets, end of period (000's) $ 62,543 $ 108,956 $ 362,829 Net expenses to average daily net assets 0.63% ** 0.63% 0.63% ** Net investment income to average daily net assets 3.74% ** 2.17% 0.72% ** Portfolio turnover rate 39% 68% 96% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.02 $ 0.05 $ 0.01
* Period from January 9, 1998 (commencement of operations) to February 28, 1998. ** 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) 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, 1999 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. 25 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 high total return through investment in equity securities of non-U.S. issuers and through management of the Fund's foreign currency positions. The Fund's current benchmark is the MSCI EAFE Index (Hedged). 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. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 26 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 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 given date. The Fund may use futures contracts to manage its exposure to the stock market. 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 entering into 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 and agency 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 as of August 31, 1999. 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 27 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 total return 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. Total return 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 will be 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, 1999, there were no open swap agreements. 28 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999, the Fund loaned securities having a market value of $3,549,781 collateralized by cash in the amount of $3,769,473 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 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. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $35,954 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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 dividends 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. 29 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 of shares of the Fund 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. All purchase premiums are paid to and recorded by the Fund as paid-in capital. These fees are allocated relative to each class' net assets on the share transaction date. Purchase premiums are included as part of each class' "shares sold" as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $1 in purchase premiums. There is no premium for cash redemptions or reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a purchase premium of up to .10% may be charged on certain in-kind purchases. 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .54% of average daily net assets. The Fund has adopted a Shareholder Service 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 .15% for Class III shares and .09% for Class IV shares. 30 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- GMO has entered into a binding agreement effective until February 29, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999, 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, 1999, aggregated $65,828,096 and $143,790,211, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $142,903,321 $16,420,166 $8,510,603 $7,909,563 4. Principal shareholders At August 31, 1999, 52% of the outstanding shares of the Fund were held by two shareholders, each holding in excess of 10% of the outstanding shares of the Fund. Investment activities of these shareholders could have a material effect. 31 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, including a class' portion of the purchase premiums received by the Fund, were as follows:
Six Months Ended Year Ended Class III: August 31, 1999 February 28, 1999 ---------------------------------- ------------------------------------ Shares Amount Shares Amount ---------------- ---------------- ----------------- ----------------- Shares sold 982,782 $ 9,741,058 563,792 $ 5,359,120 Shares issued to shareholders in reinvestment of distributions 227,021 2,397,345 3,031,071 31,219,975 Shares repurchased (3,771,423) (37,564,249) (10,514,340) (115,195,974) ---------------- ---------------- ----------------- ----------------- Net decrease (2,561,620) $ (25,425,846) (6,919,477) $ (78,616,879) ================ ================ ================= ================= Six Months Ended Year Ended Class IV: August 31, 1999 February 28, 1999 ---------------------------------- ------------------------------------ Shares Amount Shares Amount ---------------- ---------------- ----------------- ----------------- Shares sold _ $ _ _ $ 6,173 Shares issued to shareholders in reinvestment of distributions 345,951 3,649,790 3,403,005 35,243,016 Shares repurchased (6,151,178) (66,124,968) (22,085,761) (259,456,306) ---------------- ---------------- ----------------- ----------------- Net decrease (5,805,227) $ (62,475,178) (18,682,756) $ (224,207,117) ================ ================ ================= =================
32 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts
Net Unrealized Settlement Units Appreciation Date Deliver/Receive of Currency Value (Depreciation) -------------- ------------------ ----------------- ------------- ---------------- Buys 10/8/99 AUD 13,976,952 $ 8,910,838 $ (194,654) 10/8/99 CAD 21,438,607 14,376,323 25,614 3/3/00 CHF 16,862,576 11,375,941 (148,895) 3/3/00 DKK 39,573,415 5,690,612 9,424 3/3/00 EUR 61,616,969 66,012,611 140,431 3/3/00 GBP 24,420,475 39,348,280 158,242 10/8/99 HKD 160,591,346 20,660,283 51,162 10/8/99 JPY 4,150,668,644 38,066,991 2,845,386 3/3/00 NOK 169,722,980 21,608,742 (196,125) 10/8/99 NZD 17,451,314 9,029,083 (295,922) 3/3/00 SEK 291,626,583 35,721,880 182,594 10/8/99 SGD 6,393,025 3,807,865 26,447 ================= $ 2,603,704 ================= Sales 10/8/99 AUD 24,821,142 $ 15,824,421 $ (84,061) 10/8/99 CAD 17,174,526 11,516,911 (87,484) 3/3/00 CHF 27,758,969 18,726,936 (76,530) 3/3/00 DKK 46,875,824 6,740,690 (16,396) 3/3/00 EUR 96,840,786 103,749,230 422,359 3/3/00 GBP 46,008,300 74,132,361 (110,622) 10/8/99 HKD 216,665,326 27,874,273 (74,668) 10/8/99 JPY 7,517,021,805 68,940,797 (4,588,086) 3/3/00 NOK 141,851,551 18,060,215 139,883 10/8/99 NZD 17,721,119 9,168,677 352,159 3/3/00 SEK 292,798,554 35,865,437 145,300 10/8/99 SGD 14,581,078 8,684,900 (134,278) ================= $ (4,112,424) =================
33 GMO Currency Hedged International Core Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Currency Abbreviations: AUD Australian Dollar HKD Hong Kong Dollar CAD Canadian Dollar JPY Japanese Yen CHF Swiss Franc NOK Norwegian Kroner DKK Danish Krona NZD New Zealand Dollar EUR Euro SEK Swedish Krona GBP British Pound SGD Singapore Dollar Futures contracts
Net Unrealized Number of Contract Appreciation Contracts Type Expiration Date Value (Depreciation) ------------- ------------- ----------------- ------------- ----------------- Buys 14 DAX September 1999 $ 1,955,091 $ (26,128) 62 TOPIX September 1999 8,303,799 299,508 ================= $ 273,380 ================= Sales 22 ALL ORDS September 1999 $ 1,035,528 $ 13,657 33 CAC40 September 1999 1,604,084 (112,020) 5 TSE 35 September 1999 665,628 8,792 2 OMX STOCK September 1999 20,335 (110) ----------------- $ (89,681) =================
At August 31, 1999, the Fund has cash and/or securities to cover any margin requirements on open futures contracts. 34 GMO Foreign Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- COMMON STOCKS - 88.0% Australia - 3.5% 363,591 Australia and New Zealand Banking Group Ltd 2,360,636 1,365,296 Boral Ltd 2,087,756 501,000 Burswood Ltd 284,099 229,100 Caltex Australia Ltd 458,349 383,140 Capral Aluminum Ltd 566,353 651,991 Email Ltd 1,163,165 490,510 Foodland Associated 3,015,900 2,232,358 Goodman Fielder Ltd 2,048,180 3,365,000 Menzies Gold NL * 160,801 1,201,718 MIM Holdings Ltd 941,780 296,888 Newcrest Mining Ltd * 699,900 2,920,091 Oil Search Ltd 4,148,995 800,000 Orogen Minerals Ltd 942,982 54,000 Orogen Minerals Ltd GDR 144A 634,500 4,818,371 Pasminco Ltd 5,142,292 370,081 Publishing & Broadcasting Ltd 2,174,049 1,130,898 Qantas Airways Ltd 3,638,786 548,362 Rothmans Holdings Ltd 5,712,508 1,101,276 Western Mining Corp Holdings Ltd 4,846,490 549,994 Westpac Banking Corp 3,329,072 ----------------- 44,356,593 ----------------- Austria - 0.3% 4,827 Oesterreichische Brau Beteiligungs AG 220,256 42,920 Oesterreichische Laenderbank AG 2,278,046 7,170 Radex-Heraklith AG 203,419 1,991 Universale Bau AG 67,296 4,264 VA Technologie AG (Bearer) 376,071 26,160 Wienerberger Baustoffindustrie AG 621,432 ----------------- 3,766,520 ----------------- Belgium - 2.2% 18,144 Almanij NV 1,073,218 6,164 CBR Cimenteries NPV 560,573 25,192 Cie Francois De Enterprises 4,177,621 8,264 Credit Commercial Dexia 1,207,200 19,398 Electrabel SA 6,480,714 96,135 Fortis (B) 3,300,134 100,135 Fortis (B) Strip 1,058 17,437 GIB Holdings Ltd 814,621 5,649 Groupe Bruxelles Lambert NPV 1,079,386 15,883 Kredietbank NPV 889,150 25,972 Solvay Et Cie 1,828,404
See accompanying notes to the financial statements. 1 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Belgium - continued 20,719 Tractebel 3,783,820 62,409 UCB SA 2,643,372 ----------------- 27,839,271 ----------------- Brazil - 0.4% 112,000 CIA Paranaense de Energia ADR 770,000 25,000 Companhia Brasileira de Distrib ADR 515,625 219,200 Tele Norte Leste Participacoes ADR 3,507,200 ----------------- 4,792,825 ----------------- Canada - 1.1% 98,720 Abitibi Consolidated Inc 1,177,601 137,100 Air Canada Inc * 831,494 26,100 Alcan Aluminum Ltd 858,806 81,893 Alliance Forest Products Inc (d) * 1,007,061 295,000 Boliden Ltd * 674,139 100,000 Cambior Inc 271,411 55,157 Cambridge Shopping Centres Ltd * 279,075 82,500 Canadian Hotel Income Properties 505,881 63,000 Canadian Occidental Petroleum Ltd 1,161,037 73,264 Concord Pacific Group * 36,823 43,000 Falconbridge Ltd 671,425 101,500 Iamgold (International African Mining Gold) * 227,868 90,000 Inco Ltd * 1,848,613 220,100 KAP Resources Ltd * 8,113 200,000 Meridian Gold Inc * 1,052,138 67,137 Oxford Properties Group * 715,372 633,600 Semi-Tech Class A * 29,723 38,800 St Laurent Paperboard * 501,836 124,300 Tembec Inc Class A * 1,128,713 25,640 Trizec Hahn Corp (Sub-Voting) 501,734 192,000 TVX Gold Inc * 151,830 ----------------- 13,640,693 ----------------- Finland - 0.5% 21,900 Huhtamaki OY Class I 758,726 46,500 Metra AB Class B 834,966 67,500 Metsa Serla OY 638,820 58,000 Metso OY * 735,150 94,850 Oyj Hartwall Abp 1,282,372 49,000 UPM-Kymmene OY 1,695,017 ----------------- 5,945,051 ----------------- France - 6.7% 4,312 Accor SA 1,037,526 29,853 Alcatel Alsthom Cie Generale d'Electricite SA 4,572,174 16,390 Axa SA 2,039,346 43,041 Banque Nationale de Paris 3,291,453
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- France - continued 53,495 BIC SA 2,802,603 3,788 Bouygues 1,044,281 5,883 Cap Gemini SA 1,009,832 5,442 Chargeurs International SA 324,768 6,170 Christian Dior 990,594 15,281 Club Mediterranee SA * 1,581,775 3,351 Colas SA 653,037 61,921 Compagnie Generale d'Industrie et de Participations 3,060,933 7,679 Dollfus-Mieg and Cie * 41,122 66,499 Elf Aquitaine SA 11,659,768 3,073 Elf Gabon 322,314 7,764 Eridania Beghin-Say SA 1,026,731 661,570 Eurotunnel SA Units (Bearer) * 1,006,248 20,107 France Telecom SA 1,565,242 17,482 Gaz Et Eaux 898,340 8,750 Groupe Andre 1,303,148 6,789 Groupe Danone 1,679,420 2,299 Guyenne Et Gascogne 1,249,370 6,694 Imetal 1,066,237 8,290 Labinal SA 1,170,719 9,780 Lafarge Coppee SA 1,050,574 58,910 Lagardere Groupe 2,389,390 2,441 Louis Vuitton Moet Hennessy 742,810 41,831 Lyonnaise Des Eaux 6,976,653 43,484 Michelin SA Class B 1,883,588 26,833 Pechiney SA Class A 1,561,664 17,367 Pernod Ricard 1,331,767 19,292 Peugeot SA 3,545,628 9,740 Pinault Printemps Redoute 1,687,212 14,600 Renault SA 786,484 53,242 Rhone Poulenc SA Class A 2,582,397 10,530 Saint-Gobain 2,035,383 28,177 Seita 1,535,717 5,565 Sidel (Bearer) 615,430 18,442 Sophia SA 769,435 35,745 SPIE Batignolles 2,397,484 6,315 Sylea (Bearer) 386,206 62,544 Thomson CSF 2,285,749 22,098 Total SA 2,847,604 101,550 Usinor Sacilor 1,571,391 9,260 Vallourec 371,771 24,686 Worms et Compagnie SA 363,741 ----------------- 85,115,059 -----------------
See accompanying notes to the financial statements 3 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Germany - 6.3% 60,300 Adidas Salomon AG 5,604,885 128,500 Bankgesellschaft Berlin AG 2,285,662 43,990 Bayer AG 1,912,012 65,500 BHF Bank AG 3,092,542 28,700 Brau und Brunnen * 1,849,177 9,945 Cologne Reinsurance (Registered) 9,611,532 148,000 Commerzbank AG 5,299,418 182,810 Continental AG 4,209,429 94,555 Deutsche Bank AG 6,461,830 185,940 Dresdner Bank 8,563,002 12,740 Holzmann (Philipp) * 2,260,713 3,331 Koelnische Rueckversicherungs-Gesellschaft AG 3,219,307 165,750 K&S AG 2,535,063 168,500 Lufthansa AG 3,257,000 55,000 Rheinmetall AG 1,161,875 137,360 RWE AG 5,926,784 268,000 Stinnes AG * 4,231,971 136,600 Veba AG 8,700,310 ----------------- 80,182,512 ----------------- Greece - 0.1% 83,000 Hellenic Telecommunications ADR 855,938 ----------------- Hong Kong - 3.4% 1,792,400 Amoy Properties Ltd 1,765,820 470,000 CLP Holdings Ltd 2,221,335 3,355,052 Dairy Farm International 3,338,277 293,000 Goldlion Holdings Ltd 52,071 1,444,800 Hang Lung Development Co Ltd 1,655,953 1,265,000 HKR International Ltd 977,444 2,796,587 Hong Kong Electric Holdings Ltd 9,201,728 4,191,641 Hong Kong Land Holdings 6,203,629 1,044,358 Hysan Development Co Ltd 1,358,379 302,000 Jardine International Motor Holdings Ltd 185,708 6,440,000 Lai Sun Development 447,847 1,110,266 Liu Chong Hing Bank Ltd 1,265,379 1,173,000 National Mutual Asia Ltd 823,275 530,000 New World Development Co Ltd 1,276,344 220,000 Orient Overseas International Ltd 99,869 7,704,073 Regal Hotels International Ltd 823,472 7,460,882 Semi Tech (Global) Co Ltd * 220,988 5,827,000 South China Morning Post Ltd 3,676,980
4 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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Hong Kong - continued 681,500 Swire Pacific Ltd Class A 3,510,557 2,844,500 Swire Pacific Ltd Class B 2,234,529 1,079,000 Wheelock and Co Ltd 1,396,489 ----------------- 42,736,073 ----------------- India - 1.4% 111,353 Asian Paints Ltd 1,019,578 248,950 Bharat Heavy Electricals Ltd 1,818,407 156,100 Bharat Petrol Corp 991,168 154,000 Container Corp of India 1,240,007 100,000 Container Corp of India * 805,199 145,300 Corporation Bank 353,326 597,350 Corporation Bank 1,413,411 182,105 Hindustan Petroleum 1,060,141 548,071 Indo Gulf Corporation Ltd 882,613 14,700 Indo Gulf Fertilizers 23,673 629,097 Industrial Credit & Investment Corp of India Ltd 1,165,061 980,177 Industrial Development Bank of India 856,887 59,007 Mahindra & Mahindra GDR (Reg S) (d) 687,432 238,491 Reliance Industries 1,061,118 115,000 Videsh Sanchar Nigam GDR 144A 1,627,250 141,800 Videsh Sanchar Nigam Ltd 3,239,861 ----------------- 18,245,132 ----------------- Indonesia - 0.2% 1,401,000 Indah Kiat Pulp & Paper * 511,114 35,700 Indosat ADR Class B 551,119 9,600,000 Matahari Putra Prima Tbk * 969,381 690,404 PT Daya Guna Samudera * 278,860 300,000 Tambang Timah Persero (Foreign Registered) 197,394 ----------------- 2,507,868 ----------------- Ireland - 0.1% 117,335 Allied Irish Banks Plc 1,516,966 80,000 Eircom Plc * 364,449 ----------------- 1,881,415 ----------------- Italy - 4.5% 93,061 Assicurazioni Generali SPA 3,140,547 328,328 Banca Commerciale Italiana SPA 2,233,369 65,113 Banca di Legano SPA 361,760 140,039 Banca Nazionale Del Lavora SPA * 455,582 236,958 Banca Toscana 1,033,685 534,369 Banco Ambrosiano Veneto SPA (Non Convertible) 1,083,700 758,012 Credito Italiano 3,498,841 168,447 Danieli & Co Di Risp (Non Convertible) 526,650 228,852 Edison SPA 1,909,627 389,652 ENI SPA 2,341,833
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Italy - continued 31,984 Ericsson SPA 1,030,385 146,530 Falck Acciaierie and Ferriere Lombarde 1,067,929 24,290 Fiat SPA 782,518 2,907 Fiat SPA (Non Convertible) 46,610 72,520 Gruppo Editoriale L' Express 1,160,479 86,303 IFIL Finanziaria di Partecipazoni SPA (Non Convertible) 370,100 650,940 Industriali Riunite SPA 968,078 1,094,404 Istituto Nazionale Delle Assicurazioni 2,635,598 165,256 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 829,120 549,422 Italgas SPA 2,280,685 154,999 Magneti Marelli SPA 406,020 231,101 Mediaset SPA 2,040,680 43,386 Mediobanca SPA 450,016 536,081 Montedison SPA 634,184 54,425 Montefibre SPA 37,251 462,667 Olivetti and Co SPA * 1,075,122 58,000 Pagnossin SPA 232,798 199,293 RAS SPA 1,873,479 76,677 Rinascente per l'Esercizio di Grandi Magazzini SPA 612,285 122,196 SAI di Risp 615,662 93,292 San Paolo IMI SPA 1,252,439 2,399,372 Seat Pagine Gialle Di Risp 2,012,263 131,669 Sirti SPA 680,079 1,276,706 Telecom Italia Mobile SPA (Non Convertible) 4,423,148 648,492 Telecom Italia SPA 6,527,761 734,162 Telecom Italia SPA (Non Convertible) 4,202,986 72,569 Toro Assicurazioni 918,279 159,857 Unicem Di Risp 710,854 1,697,304 Unione Immobiliaer SPA 813,921 ----------------- 57,276,323 ----------------- Japan - 24.2% 30,240 Aiful Corp 5,242,942 151,000 Ajinomoto Co Inc 1,722,842 300 Akita Bank 1,122 127,000 Alps Electric Co Ltd 3,683,342 63,000 Arisawa Manufacturing 1,631,812 297,000 Asahi Breweries Ltd 4,507,346 343,000 Asahi Chemical Industry Co 1,830,042 294,000 Bridgestone Corp 8,312,281 243,000 Canon Inc 7,091,979 38,300 Chubu Electric Power Co Inc 714,337 115,000 Chugai Pharmaceutical Co Ltd 1,269,096 54,580 Circle K Japan Co Ltd 2,324,671 197,000 Cosmo Oil Co Ltd 359,342
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Japan - continued 262,000 Dainippon Ink & Chemicals Inc 1,015,550 104,000 Dainippon Printing Co Ltd 1,697,843 260,000 Daiwa Securities Co Ltd 2,349,948 592 East Japan Railway Co 3,579,698 455,000 Fuji Electric Co 2,079,028 180,000 Fuji Photo Film Co Ltd 6,566,647 166,000 Fujitec Co 1,733,504 388,000 Fujitsu Ltd 11,359,205 20,000 H I S Co Ltd 674,905 66,000 Hitachi Credit Corp 1,453,691 66,000 Hitachi Information Systems 1,896,119 25,312 Hokkaido Electric Power 393,375 380,000 Honda Motor Co Ltd 15,249,213 158,000 Hosiden Corp 4,164,531 95,000 INAX Corp 700,078 26,500 Internet Initiative Japan Inc ADR * 1,368,063 72,000 Japan Airport Terminal Co Ltd 860,231 129 Japan Tobacco Inc 1,788,317 107,650 Kansai Electric Power 2,061,790 266,000 Kao Corp 7,544,895 33,000 Kinden Corp 331,068 911,000 Marubeni Corp 2,151,936 89,000 Matsushita Electric Industrial Co Ltd 1,753,295 594,000 Minebea Co Ltd 7,151,078 334,000 Minolta Co Ltd 1,861,225 218,000 Mitsubishi Corp 1,811,282 479,000 Mitsui Petrochemical Industries Ltd 3,494,915 353,000 Mitsui & Co 2,482,220 132,000 Nihon Unisys Ltd 3,996,899 37,400 Nintendo Co Ltd 6,480,916 700 Nippon Electric Glass Co 8,619 130,000 Nippon Express Co Ltd 992,385 82,000 Nippon Meat Packers Inc 1,121,802 98,000 Nippon Mining & Metals Co Ltd 759,725 25,000 Nippon Shinpan Co 86,643 419 Nippon Telegraph & Telephone 4,700,351 3,510 Nippon Television Network 1,920,744 24,600 Nitta Corp 190,033 79,000 NSK Ltd 507,237 171 NTT Mobile Communication Network Inc 2,838,433 684 NTT Mobile Communication Network * 11,291,349 130,000 Onward Kashiyama Co Ltd 1,984,769 111,500 Orix Corp 10,718,318 40,788 Paris Miki Inc 3,348,005
See accompanying notes to the financial statements. 7 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Japan - continued 90,000 Pioneer Electronics Corp 1,594,054 28,000 Rinnai Corp 678,006 61,000 Rohm Co Ltd 12,128,232 1,104,000 Sakura Bank Ltd 5,839,938 48,000 Sanrio Co Ltd 2,272,060 108,000 Sekisui House Ltd 1,159,342 159,000 Shibusawa Warehouse 500,296 36,000 Shimachu Co 666,515 167,750 Shin-Etsu Chemical Co Ltd 6,823,521 111,000 Shionogi and Co Ltd 951,617 68,000 Showa Corp 354,745 24,500 SMC 3,731,588 68,500 Sony Corp 8,858,863 79,000 Sumitomo Bakelite Co Ltd 824,260 268,000 Sumitomo Trust & Banking 1,784,304 358,000 Suzuki Motor Corp 6,040,403 217,000 Takeda Chemical Industries Ltd 10,885,129 101,000 TDK Corp 12,251,357 297,000 Terumo Corp 9,480,596 26,000 Tokyo Broadcasting System Inc 420,904 80,000 Tokyo Seimitsu Co Ltd 7,879,976 53,000 Toppan Printing Co Ltd 676,729 617,000 Toshiba Corp 5,475,316 112,000 Tsubaki Nakashima Co Ltd 1,661,945 15,000 Unicharm Corp 778,421 208,000 UNY Co Ltd 2,845,547 100,000 Ushio Inc 1,285,968 226 West Japan Railway Co 896,621 145,000 Yamaha Corp 1,586,940 307,000 Yamanouchi Pharmaceutical Co Ltd 13,663,733 111,000 Yamatake Honeywell 1,245,200 114,000 Yamato Kogyo Co 725,724 ----------------- 305,178,882 ----------------- Korea - 1.4% 390 Daehan Flour Mill 25,769 264,350 Daewoo Corp 414,272 7,022 Daewoo Securities 129,079 57,929 Hana Bank GDR 566,256 15,671 Hansol Paper Manufacturing Ltd 212,398 28,288 Hyundai Motor Co GDR * 62,799 41,000 Hyundai Motor Service Co GDR 144A 362,850 65,000 Kookmin Bank GDR (Registered) 144A 869,375 7,440 Korea Chemical 584,864 50,000 Korea Data Systems Co * 688,268
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Korea - continued 82,000 Korea Telecommunications ADR * 2,665,000 68 Korea Trust * 464,440 48,946 LG Electronics Co 2,073,105 7,290 LG Securities Co Ltd 126,595 22,290 Nhong Shim 1,382,150 42,890 Pacific Chemical Corp 1,068,163 102,000 Pantech Co Ltd 959,085 162,578 Samsung Corp 2,864,568 178,373 Shinhan Bank 1,918,964 6,880 Sindoricom Co Ltd 268,090 ----------------- 17,706,090 ----------------- Malaysia - 0.4% 750,800 Genting Berhad 2,766,105 315,000 New Straits Times 688,026 407,000 Resorts World Berhad 1,033,566 477,000 Tanjong 1,104,632 ----------------- 5,592,329 ----------------- Mexico - 0.2% 1,540,000 Controladora Coml Mexicana Classes B and C 1,444,930 89,400 Nuevo Grupo Iusacell SA ADR * 1,005,750 ----------------- 2,450,680 ----------------- Netherlands - 4.5% 137,263 ABN Amro Holdings NV 3,341,882 50,929 Aegon NV 4,454,123 77,312 Akzo Nobel NV 3,597,158 555,358 ASM International NV * 4,095,765 14,410 Bam Groep 776,249 68,964 Dordtsche Petroleum 3,587,529 95,422 Elsevier NV 1,098,605 13,329 Fugro NV 441,369 56,682 Hal Trust Class B 1,089,641 66,932 Hal Trust (Participating Units) 1,265,475 43,865 Hunter Douglas NV 1,378,389 26,360 ING Groep NV 1,445,039 44,664 Kon Bolswessanen 547,246 73,531 Koninklijke KPN NV 3,293,086 12,285 Koninklijke Pakhoed 315,966 23,173 Koninklijke Philips Electronics ADR * 2,382,474 82,743 Koninklijke Philips Electronics * 8,525,606 83,507 Koninklijke Volker Wessels 1,671,471 96,930 Laurus NV 2,175,624 86 Moeara Enim Petroleum 2,016,593 20,560 Nedlloyd 586,346 51,843 Royal Dutch Petroleum 3,186,984
See accompanying notes to the financial statements. 9 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Netherlands - continued 62,692 TNT Post Group NV 1,546,200 11,683 Unilever NV * 812,600 17,833 Van Ommeren (Koninklijke) (Participating Certificate) 612,173 30,122 Vendex NV 789,046 61,000 Wegener Arcade NV 844,049 29,107 Wereldhave NV 1,431,146 ----------------- 57,307,834 ----------------- New Zealand - 1.4% 461,000 Air New Zealand Class B 834,180 6,853,617 Brierley Investment Ltd * 1,629,927 1,843,825 Carter Holt Harvey Ltd 2,182,960 38,750 DB Group Ltd 46,478 105,248 Fisher and Paykel Industries Ltd 310,155 1,324,019 Fletcher Challenge Buildings 1,834,508 1,275,433 Fletcher Challenge Energy 3,264,024 2,395,891 Fletcher Challenge Ltd * 1,151,968 2,270,521 Fletcher Challenge Paper 1,643,403 204,200 Independent Newspapers Ltd * 786,507 273,307 Lion Nathan Ltd 607,589 503,450 Telecom Corp of New Zealand 2,256,659 7,039,327 Trans Tasman Properties Ltd 1,128,193 485,082 Wrightson Ltd 95,299 ----------------- 17,771,850 ----------------- Norway - 0.4% 33,800 Dyno Industrier AS 714,979 25,900 Elkem AS Class A 462,058 30,000 Norsk Data AS Class B ADR (b) * 300 5,400 Norske Skogindustrier AS Class A 225,702 214,500 Petroleum Geo-Services * 4,291,367 ----------------- 5,694,406 ----------------- Russia - 0.0% 5,215,000 Irkutskenergo (Registered) (c) 469,350 ----------------- Singapore - 0.4% 383,712 Jardine Matheson Holdings Ltd 1,834,143 723,263 Jardine Strategic Holdings Ltd 1,663,505 755,000 Singapore Land Ltd 1,828,890 ----------------- 5,326,538 ----------------- South Africa - 1.6% 20,300 Anglo Gold Ltd 1,018,004 460,700 Barlow Ltd 2,348,191 433,000 C.G. Smith Ltd 1,153,338 1,232,606 Goldfields Ltd 4,255,956 250,700 Johnnies Industrial Corp 1,710,630
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- South Africa - continued 277,853 Liberty Life Association of Africa Ltd 3,257,303 2,535,100 Murray & Roberts Holdings Ltd 1,871,522 2,960,000 Sanlam Limited 3,528,445 1,300,814 Sun International Ltd 295,153 290,500 Western Areas Gold Mining Co Ltd * 811,986 ----------------- 20,250,528 ----------------- Spain - 2.7% 13,800 Acerinox SA 457,111 624 Aguas de Barcelona * 10,315 55,000 Argentaria Corporacion Bancaria de Espana SA 1,251,920 225,066 Banco Bilbao Vizcaya SA 3,000,102 23,115 Banco Popular Espanol 1,693,195 496,292 Banco Santander Central Hispano 4,985,222 26,392 Bankinter SA 1,075,756 12,107 Corporacion Mapfre (Registered) 228,266 186,548 Endesa 3,743,785 129,580 FENOSA SA 1,847,730 10,000 Ferrovial SA * 209,138 186,643 Iberdrola SA 2,681,127 7,550 Metrovacesa SA 162,285 14,298 Midesa 312,466 158,580 Repsol SA 3,321,527 19,000 Tabacalera SA Class A 364,649 495,164 Telefonica de Espana SA 7,897,556 15,000 Transportes Azkar SA 157,645 39,451 Vallehermoso SA 368,781 ----------------- 33,768,576 ----------------- Sweden - 0.3% 109,000 Castellum AB 1,016,225 36,000 Diligentia AB 268,071 132,400 Munksjo AB 1,050,030 32,900 Svenska Cellulosa Class B 956,048 ----------------- 3,290,374 ----------------- Switzerland - 2.8% 2,298 Banque Cantonale Vaudoise (Bearer) 720,448 2,186 Belimo Automation AG 735,833 379 Bobst SA (Bearer) 452,769 31,322 CS Holdings (Registered) 5,912,542 1,825 Fischer (George) AG (Registered) 560,112 291 Flughafen Immobilien 561,795 3,197 Forbo Holdings AG (Registered) 1,266,055 5,230 Geberit International AG * 1,353,152 19,660 Hero AG * 2,595,208 847 Holderbank Financiere Glarus AG (Bearer) 1,042,608
See accompanying notes to the financial statements. 11 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- Switzerland - continued 3,526 Jelmoli (Registered) 726,099 1,703 Keramik (Bearer) * 639,566 6,545 Kraftwerk Laufenberg (Bearer) 1,049,723 2,149 Merkur Holding AG (Registered) 541,824 1,781 Nestle AG (Registered) 3,514,745 2,696 Novartis AG (Registered) 3,879,137 416 Societe Generale de Surveillance Holding SA (Bearer) 473,083 1,554 Sulzer Gebrueder AG (Registered) * 975,417 2,368 Sulzer Medica AG 450,125 4,003 Swatch Group AG (Bearer) 2,943,266 168 Swiss Insurance Co 316,019 627 Swiss Reinsurance (Bearer) 1,222,880 3,835 Zellweger Luwa AG (Bearer) 2,323,629 2,591 Zurich Allied 1,520,295 ----------------- 35,776,330 ----------------- Taiwan - 0.1% 2,347,000 Pacific Electric Wire & Cable * 1,208,787 530,000 Standard Foods Taiwan Ltd * 452,728 ----------------- 1,661,515 ----------------- Thailand - 0.1% 428,900 First Bangkok City (Foreign Registered) (b) * 112 645,900 Jasmine International Public Co (Foreign Registered) * 298,911 9,000 Telecomasia Corp Public Co Ltd GDR 144A * 82,827 487,700 Thai Telephone & Telecommunications (Foreign Registered) * 113,167 204,800 Total Access Communication * 458,752 ----------------- 953,769 ----------------- United Kingdom - 16.7% 137,441 Allied Domecq Plc 1,269,635 208,321 Allied Zurich Plc 2,547,445 163,777 Anglian Water Plc 1,948,755 440,000 Arjo Wiggins Appleton Plc 1,531,733 118,084 BAA 1,234,176 190,056 Bank of Scotland 2,369,932 182,277 Barclays Plc 5,422,208 124,000 Bass Plc 1,667,862 240,613 Berkley Group 3,046,788 803,347 BG Plc 4,834,344 865,000 Billiton Plc 3,522,395 186,000 Blue Circle Industries 1,281,552 144,325 BOC Group Plc 3,040,083 135,200 Boots Co 1,669,592 226,953 BPB Industries Plc 1,377,607 286,115 British Airways Plc 1,873,589 219,821 British American Tobacco 1,850,369
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, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- United Kingdom - continued 399,350 British Energy Plc 3,326,258 501,600 British Energy Plc Class A * 455,699 145,000 British Land Co 1,214,726 532,499 British Petroleum Co Plc 9,889,477 1,091,250 British Steel Plc 2,864,508 1,024,655 British Telecom Plc 15,701,571 360,000 British-Borneo Oil & Gas Plc 1,259,025 650,468 BTR Siebe Plc 3,320,796 281,000 Cable & Wireless 3,226,094 133,375 Capital Shopping Centres Plc 931,830 408,800 Caradon Plc 1,140,467 179,371 Carillion Plc * 398,019 958,074 Centrica Plc 2,553,437 216,381 Commercial Union Plc 3,223,570 380,000 Cookson Group 1,411,459 432,916 Diageo Plc 4,385,476 51,000 Dixons Group 960,284 292,000 Enterprise Oil 2,112,846 315,000 FKI Plc 1,076,322 38,927 Flextech Plc * 575,540 702,000 Gallaher Group Plc 4,740,880 265,000 General Electric Plc 2,650,384 133,219 Glaxo Wellcome Plc 3,504,467 276,948 Granada Group Plc 2,473,744 410,586 Great Portland Estates Plc 1,488,755 224,139 Great Universal Stores Plc 2,259,735 172,008 Hanson Plc 1,463,110 799,467 HSBC Holdings Plc 9,891,945 220,136 Imperial Chemical Industries Plc 2,502,552 137,816 Imperial Tobacco Group Plc 1,555,641 180,000 Johnson Matthey 1,772,765 118,060 Ladbroke Group 451,332 726,000 Lasmo Plc 1,786,079 112,762 Liberty International Plc 843,583 340,000 Marks & Spencer 2,271,551 306,140 Mirror Group Plc 1,250,335 369,600 National Power 2,629,770 203,924 National Westminster Bank 4,193,836 143,000 Norwich Union Plc 977,232 334,000 Nycomed Amersham Plc 2,170,628 711,000 Old Mutual Plc * 1,502,195 160,107 Peninsular & Oriental Steam Navigation Co 2,627,217 109,086 Powergen Plc 1,090,141 205,000 Prudential Corp 3,060,612
See accompanying notes to the financial statements. 13 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- United Kingdom - continued 2,148,935 Raglan Property Plc 993,422 105,630 Railtrack Group Plc 2,022,887 235,831 Rolls-Royce 937,583 306,506 Royal & Sun Alliance Insurance Group 2,552,944 227,799 Safeway Plc 945,027 154,000 Sainsbury (J) 1,062,308 195,000 Scottish Hydro-Electric Plc 1,790,372 350,000 Scottish Power Plc 3,221,930 153,771 Scottish & Newcastle Plc 1,516,916 95,000 Securicor Plc 897,437 160,593 Severn Trent Plc 2,336,941 1,045,000 Shell Transport & Trading (Registered) 8,334,326 350,000 Smith (David S.) Holdings Plc 1,027,078 180,991 Smithkline Beecham Plc 2,358,753 53,825 Standard Chartered 790,182 130,000 Sun Life & Province Holding 1,002,838 179,371 Tarmac Plc * 1,459,403 171,000 Tate & Lyle 1,108,087 249,746 Taylor Woodrow Plc 740,913 138,263 Thames Water Plc 1,987,541 226,228 TI Group Plc 1,825,182 284,000 Tomkins Plc 1,242,109 379,642 Unilever Plc 3,583,294 256,000 United Assurance Group Plc 1,646,541 194,904 United Utilities 2,314,429 189,721 Viglen Technology Plc 198,290 149,000 Whitbread Plc Class A 2,058,031 91,762 Williams Plc 520,847 119,146 Wolseley 950,241 ----------------- 211,099,810 ----------------- United States - 0.1% 116,000 Freeport-McMoran Copper & Gold * 1,863,250 ----------------- TOTAL COMMON STOCKS (Cost $895,035,815) 1,115,303,384 ----------------- PREFERRED STOCKS - 1.3% Brazil - 0.0% 6,439,529 Gerdau SA 97,163 2,809,994 Metalurgica Gerdau SA 82,604 ----------------- 179,767 ----------------- France - 0.1% 15,155 Casino Guichard Perrachon 992,463 -----------------
14 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - ------------------------------------------------------------------------------------------------- Germany - 0.8% 46,800 Bayerische Motoren Werke AG 756,317 36,410 Dyckerhoff AG (Non Voting) 1,230,658 52,800 GEA AG 1,756,755 29,772 Metro AG Class I 951,262 23,144 Rheinmetall AG 367,910 5,150 Villeroy & Boch (Non-Voting) 484,132 146,700 Volkswagen AG 5,066,926 ----------------- 10,613,960 ----------------- Italy - 0.1% 36,213 Fiat SPA 568,395 20,541 IFI Istituto Finanziario Industries 540,241 ----------------- 1,108,636 ----------------- Korea - 0.1% 22,000 Daewoo Securities Ltd 279,543 27,310 Dongwon Securities Co 348,171 68,540 Jinro Ltd * 231,660 30,000 LG Securities Co 282,084 27,230 Shinyoung Securities 317,164 ----------------- 1,458,622 ----------------- Thailand - 0.2% 2,300,000 Siam Commercial Bank Ltd * 2,608,526 ----------------- TOTAL PREFERRED STOCKS (Cost $16,304,061) 16,961,974 ----------------- CONVERTIBLE BONDS - 0.4% Hong Kong - 0.1% USD 860,000 Sino Land Co, 5.00% due 2/26/01 (d) 847,100 ----------------- Japan - 0.2% USD 2,200,000 SB Treasury Co, 9.40% due 6/30/08 (d) 2,211,000 ----------------- Korea - 0.0% KRW 19,462 Shinhan Bank, 15.00% due 12/2/48 (e) 253,888 ----------------- Mexico - 0.0% USD 870,000 Grupo Financiero Invermexico, 7.50% due 6/16/01 69,600 ----------------- Singapore - 0.1% USD 1,830,000 Keppel Corp, 2.00% due 8/12/02 144A 1,862,025 ----------------- TOTAL CONVERTIBLE BONDS (Cost $5,181,266) 5,243,613 -----------------
See accompanying notes to the financial statements. 15 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ------------------------------------------------------------------------------------------------- INVESTMENT FUNDS - 0.4% Chile - 0.1% 85,050 Five Arrows Chile Investment Trust Ltd 186,064 56,700 Five Arrows Chile Investment Trust Ltd Convertible Units 127,859 ----------------- 313,923 ----------------- India - 0.1% 157,150 India Fund Class A 795,971 40,000 India Liberalisation (c) (d) * 644,400 ----------------- 1,440,371 ----------------- Japan - 0.1% 2,360 Shohkoh Fund 1,706,854 ----------------- Korea - 0.0% 39,500 Korea Investment Fund 286,375 ----------------- Russia - 0.1% 180,000 First Russian Frontiers Trust Plc 1,041,952 38,000 First Russian Frontiers Trust Plc Warrants 6/3/2001 32,079 ----------------- 1,074,031 ----------------- United States - 0.0% 11,000 Morgan Stanley India Fund Inc * 136,813 ----------------- TOTAL INVESTMENT FUNDS (Cost $6,455,703) 4,958,367 ----------------- RIGHTS & WARRANTS - 0.1% Canada - 0.0% 116,600 KAP Resources Ltd Class A Warrants 8/5/00 * 781 ----------------- Italy - 0.0% 667 Olivetti SPA Rights * 88 5,456 Toro Assicurazioni Warrants 12/31/00 * 27,201 ----------------- 27,289 ----------------- Thailand - 0.1% 645,900 Jasmine International Pcl Warrants 6/15/04 * 214,711 2,300,000 Siam Commercial Bank Ltd Warrants 5/10/02 * 1,034,415 ----------------- 1,249,126 ----------------- TOTAL RIGHTS & WARRANTS (Cost $356,977) 1,277,196 -----------------
16 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - ------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 7.9% Cash Equivalents - 7.9% $ 60,900,000 First National Bank of Chicago Time Deposit, 5.50% due 9/01/99 60,900,000 39,403,337 The Boston Global Investment Trust (a) 39,403,337 ----------------- 100,303,337 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $100,303,337) 100,303,337 ----------------- TOTAL INVESTMENTS - 98.1% (Cost $1,023,637,159) 1,244,047,871 Other Assets and Liabilities (net) - 1.9% 23,472,184 ----------------- TOTAL NET ASSETS - 100.0% $ 1,267,520,055 =================
Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt KRW Korean Won USD United States 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 $5,396,993 or .43% of net assets. (e) Warrants included in position of 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. * Non-income producing security. See accompanying notes to the financial statements. 17 GMO Foreign Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's investments was as follows: Industry Sector Banking 10.1% Consumer Goods 7.8 Telecommunications 7.4 Utilities 6.2 Electronic Equipment 6.1 Oil and Gas 6.0 Conglomerates 5.1 Insurance 4.7 Health Care 3.8 Machinery 3.7 Chemicals 3.7 Construction 3.6 Metals and Mining 3.5 Retail Trade 3.4 Food and Beverage 3.3 Financial Services 2.9 Automotive 2.9 Services 2.9 Real Estate 2.5 Transportation 2.4 Computers 2.0 Paper and Allied Products 1.9 Communications 1.7 Aerospace 0.4 Textiles 0.3 Miscellaneous 1.7 ------ 100.0% ====== 18 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $1,023,637,159) (Note 1) $ 1,244,047,871 Foreign currency, at value (cost $32,909,530) (Note 1) 33,089,992 Cash 8,668 Receivable for investments sold 25,209,798 Receivable for fund shares sold 5,000,000 Dividends and interest receivable 2,104,238 Foreign withholding taxes receivable 989,607 Receivable for expenses waived or borne by Manager (Note 2) 99,169 ---------------- Total assets 1,310,549,343 ---------------- Liabilities: Payable upon return of securities loaned (Note 1) 39,403,337 Payable for investments purchased 1,769,660 Payable for fund shares repurchased 350,000 Accrued capital gains taxes payable (Note 1) 325,821 Accrued Malaysian repatriation taxes (Note 1) 276,528 Payable to affiliate for (Note 2): Management fee 634,566 Shareholder service fee 154,846 Accrued expenses 114,530 ---------------- Total liabilities 43,029,288 ---------------- Net assets $ 1,267,520,055 ================ Net assets consist of: Paid-in capital $ 962,689,744 Accumulated undistributed net investment income 7,489,133 Accumulated undistributed net realized gain 77,199,631 Net unrealized appreciation 220,141,547 ---------------- $ 1,267,520,055 ================ Net assets attributable to: Class II Shares $ 50,649,235 ================ Class III Shares $ 1,084,463,710 ================ Class IV Shares $ 132,407,110 ================ Shares outstanding: Class II 3,650,749 ================ Class III 78,087,085 ================ Class IV 9,530,420 ================ Net asset value per share: Class II $ 13.87 ================ Class III $ 13.89 ================ Class IV $ 13.89 ================
See accompanying notes to the financial statements. 19 GMO Foreign Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $1,700,029) $ 17,154,494 Interest (including security lending income of $155,832) 1,037,777 -------------- Total income 18,192,271 -------------- Expenses: Management fee (Note 2) 3,599,193 Custodian fees 449,525 Audit fees 27,050 Transfer agent fees 24,654 Legal fees 17,848 Trustees fees (Note 2) 6,347 Registration fees 728 Miscellaneous 2,944 Fees waived or borne by Manager (Note 2) (529,096) -------------- 3,599,193 Shareholder service fee (Note 2) Class II 49,087 Class III 763,052 Class IV 61,992 -------------- Net expenses 4,473,324 -------------- Net investment income 13,718,947 -------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 80,684,559 Foreign currency, forward contracts and foreign currency related transactions (1,327,841) -------------- Net realized gain 79,356,718 -------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 118,793,673 Foreign currency, forward contracts and foreign currency related transactions 491,561 -------------- Net unrealized gain 119,285,234 -------------- Net realized and unrealized gain 198,641,952 -------------- Net increase in net assets resulting from operations $ 212,360,899 ==============
20 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, 1999 Year Ended Operations: (Unaudited) February 28, 1999 ------------------- ------------------ Net investment income $ 13,718,947 $ 18,297,050 Net realized gain 79,356,718 31,609,905 Change in net unrealized appreciation (depreciation) 119,285,234 (47,678,215) ------------------- ------------------ Net increase in net assets resulting from operations 212,360,899 2,228,740 ------------------- ------------------ Distributions to shareholders from: Net investment income Class II (24,351) (1,237,030) Class III (760,382) (18,110,163) Class IV (114,460) (3,254,066) ------------------- ------------------ Total distributions from net investment income (899,193) (22,601,259) ------------------- ------------------ Distributions to shareholders from: Net realized gains Class II (775,764) (536,347) Class III (16,956,509) (7,886,316) Class IV (2,127,054) (1,226,681) ------------------- ------------------ Total distributions from net realized gains (19,859,327) (9,649,344) ------------------- ------------------ Net share transactions: (Note 5) Class II 9,959,196 (19,441,415) Class III (4,237,455) 104,968,005 Class IV (21,451,838) (85,018,178) ------------------- ------------------ Increase (decrease) in net assets resulting from net share transactions (15,730,097) 508,412 ------------------- ------------------ Total increase (decrease) in net assets 175,872,282 (29,513,451) Net assets: Beginning of period 1,091,647,773 1,121,161,224 ------------------- ------------------ End of period (including accumulated undistributed net investment income of $7,489,133 and distributions in excess of net investment income of $5,330,621, respectively) $ 1,267,520,055 $ 1,091,647,773 =================== ==================
See accompanying notes to the financial statements. 21 GMO Foreign Fund (A Series of GMO Trust) Financial Highlights (For a Class II share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended Year Ended Period Ended (Unaudited) February 28, 1999 February 28, 1998 February 28, 1997* -------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 11.79 $ 12.09 $ 10.65 $ 10.02 -------------- ----------------- ----------------- ----------------- Income from investment operations: Net investment income 0.14 (c) 0.20 (c) 0.18 (c) 0.06 Net realized and unrealized gain (loss) 2.17 (0.14) 1.48 0.65 -------------- ----------------- ----------------- ----------------- Total from investment operations 2.31 0.06 1.66 0.71 -------------- ----------------- ----------------- ----------------- Less distributions to shareholders from: Net investment income (0.01) (0.25) (0.22) (0.08) Net realized gains (0.22) (0.11) (0.00)(d) -------------- ----------------- ----------------- ----------------- Total distributions (0.23) (0.36) (0.22) (0.08) -------------- ----------------- ----------------- ----------------- Net asset value, end of period $ 13.87 $ 11.79 $ 12.09 $ 10.65 ============== ================= ================= ================= Total Return (a) 19.66% 0.36% 15.94% 7.08% Ratios/Supplemental Data: Net assets, end of period (000's) $ 50,649 $ 33,780 $ 53,949 $ 21,957 Net expenses to average daily net assets 0.82% ** 0.82% 0.82% 0.84 ** (b) Net investment income to average daily net assets 2.16% ** 1.64% 1.60% 0.83%** Portfolio turnover rate 31% 27% 19% 13% 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
* 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 approximate .02% of average daily net assets. (c) Computed using average shares outstanding throughout the period. (d) The per share realized gain distribution was $0.004. 22 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Financial Highlights (For a Class III share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended Year Ended Period Ended (Unaudited) February 28, 1999 February 28, 1998 February 28, 1997* --------------- ----------------- ----------------- ------------------ Net asset value, beginning of period $ 11.81 $ 12.10 $ 10.66 $ 10.00 -------------- ----------------- ------------- -------------- Income from investment operations: Net investment income 0.15 (c) 0.20 (c) 0.21 (c) 0.08 Net realized and unrealized gain (loss) 2.16 (0.12) 1.45 0.66 -------------- ----------------- ------------- ------------- Total from investment operations 2.31 0.08 1.66 0.74 -------------- ----------------- ------------- ------------- Less distributions to shareholders from: Net investment income (0.01) (0.26) (0.22) (0.08) Net realized gains (0.22) (0.11) (0.00)(d) - -------------- ----------------- ------------- ------------- Total distributions (0.23) (0.37) (0.22) (0.08) -------------- ----------------- ------------- ------------- Net asset value, end of period $ 13.89 $ 11.81 $ 12.10 $ 10.66 ============== ================= ============= ============= Total Return (a) 19.65% 0.48% 15.95% 7.37% Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,084,464 $ 927,108 $ 847,427 $ 671,829 Net expenses to average daily net assets 0.75% ** 0.75% 0.75% 0.76% ** (b) Net investment income to average daily net assets 2.28% ** 1.60% 1.80% 1.24% ** Portfolio turnover rate 31% 27% 19% 13% 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
* 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 approximate .01% of average daily net assets. (c) Computed using average shares outstanding throughout the period. (d) The per share realized gain distribution was $0.004. See accompanying notes to the financial statements. 23 GMO Foreign Fund (A Series of GMO Trust) Financial Highlights (For a Class IV share outstanding throughout each period) - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended Period Ended (Unaudited) February 28, 1999 February 28, 1998* ------------------ ------------------ ------------------ Net asset value, beginning of period $ 11.81 $ 12.11 $ 10.90 ----------------- ----------------- ----------------- Income from investment operations: Net investment income 0.16 (d) 0.22 (d) - (b) Net realized and unrealized gain (loss) 2.15 (0.15) 1.21 ----------------- ----------------- ------------------ Total from investment operations 2.31 0.07 1.21 ----------------- ----------------- ----------------- Less distributions to shareholders from: Net investment income (0.01) (0.26) - Net realized gains (0.22) (0.11) - ----------------- ------------------ ------------------ Total distributions (0.23) (0.37) - ----------------- ------------------ ------------------ Net asset value, end of period $ 13.89 $ 11.81 $ 12.11 ================= ================== ================= Total Return (a) 19.67% 0.53% 11.10% Ratios/Supplemental Data: Net assets, end of period (000's) $ 132,407 $ 130,760 $ 219,785 Net expenses to average daily net assets 0.69% ** 0.69% 0.69% ** Net investment income to average daily net assets 2.37% ** 1.81% 0.26% ** Portfolio turnover rate 31% 27% 19% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.03 $ (c)
* Period from January 9, 1998 (commencement of operations) to February 28, 1998. ** Annualized. (a) The total returns would have been lower had certain expenses not been waived during the periods shown. (b) Net investment income earned was less than $.01 per share. Computed using average shares outstanding throughout the period. (c) Fees or expenses voluntarily waived or borne by the manager were less than $.01 per share. (d) Computed using average shares outstanding throughout the period. 24 See accompanying notes to the financial statements. GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 seeks high total return through investment in equity securities of non-U.S. issuers. The Fund's current benchmark is the Morgan Stanley Capital International EAFE Index. 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. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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. 25 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 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 forward foreign currency contracts outstanding as of August 31, 1999. 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 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 entering into 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 and agency 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 26 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. As of August 31, 1999, there were no outstanding futures contracts. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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, 1999, the Fund loaned securities having a market value of $36,889,234 collateralized by cash in the amount of $39,403,337 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 net investment income and net realized short-term and long-term capital gains, 27 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded an accrual in the amount of $325,821 for potential capital gains and repatriation taxes at August 31, 1999. The accrual for capital gains and repatriation taxes is included in net realized and unrealized gain in the Statement of Operations. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $276,528 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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 dividends 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. 28 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 of shares of the Fund 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .60% of average daily net assets. The Fund has adopted a Shareholder Service 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 .22% for Class II shares, .15% for Class III shares, and .09% for Class IV shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of 0.75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .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, 1999, was $6,347. No remuneration is paid to any Trustee or officer who is affiliated with the Manager. 29 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, 1999 aggregated $194,255,215 and $316,693,544, respectively. At August 31, 1999 the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $1,023,637,159 $285,940,905 $65,530,193 $220,410,712 4. Principal shareholder At August 31, 1999, 12.6% 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, 1999 February 28, 1999 -------------------------------- ---------------------------------- Class II: Shares Amount Shares Amount -------------- --------------- -------------- ---------------- Shares sold 852,214 $ 10,905,461 854,704 $ 10,796,765 Shares issued to shareholders in reinvestment of distributions 59,540 799,598 146,654 1,773,377 Shares repurchased (125,271) (1,745,863) (2,597,721) (32,011,557) -------------- --------------- -------------- ---------------- Net increase (decrease) 786,483 $ 9,959,196 (1,596,363) $ (19,441,415) ============== =============== ============== ================
30 GMO Foreign Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Share transactions - continued
Six Months Ended Year Ended August 31, 1999 February 28, 1999 -------------------------------------------- ---------------------------------------- Class III: Shares Amount Shares Amount ------------------- --------------------- ------------------ ------------------ Shares sold 2,187,898 $ 27,913,922 17,082,138 $ 209,494,684 Shares issued to shareholders in reinvestment of distributions 1,292,375 17,382,438 1,616,582 19,533,092 Shares repurchased (3,924,787) (49,533,815) (10,176,725) (124,059,771) ------------------- --------------------- ------------------ ------------------ Net increase (decrease) (444,514) $ (4,237,455) 8,521,995 $ 104,968,005 =================== ===================== ================== ================== Six Months Ended Year Ended August 31, 1999 February 28, 1999 -------------------------------------------- ---------------------------------------- Class IV: Shares Amount Shares Amount ------------------- --------------------- ------------------ ------------------ Shares sold 2,877,065 $ 36,897,955 445,359 $ 5,633,670 Shares issued to shareholders in reinvestment of distributions 161,529 2,170,952 128,073 1,542,577 Shares repurchased (4,580,566) (60,520,745) (7,653,734) (92,194,425) ------------------- --------------------- ------------------ ------------------ Net decrease (1,541,972) $ (21,451,838) (7,080,302) $ (85,018,178) =================== ===================== ================== ==================
GMO Evolving Countries Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS - 79.9% Brazil - 5.3% 145,000 Brahma ON 58,845 1,160,000 CIA Saneamento Basico SAO PA 76,643 1,200,000 Companhia Petroquimica do Sul 33,590 7,232,000 Companhia Siderurgica Nacional SA 174,930 40,409,000 Electrobras 628,631 10,331 Itausa-Investimentos Itau SA 4,730 48,191 Souza Cruz (Registered) 270,792 7,000 Telebras ADR * 328 9,642 Telebras Holders ADR 715,316 17,000,000 Telebras SA 442 17,000,000 Telecomunicacoes Brasileiras SA * 698,663 13,800 Vale Do Rio Doce 222,581 5,000 Vidraria Santa Marina 4,553 ----------------- 2,890,044 ----------------- Chile - 1.3% 700 Banco de Edward ADR 10,588 6,000 Banco Santander ADR 100,500 3,000 Banco Santiago ADR 63,000 5,600 Chilectra SA ADR 109,200 2,600 Compania Cervecerias 68,088 3,400 Compania de Telefones de Chile ADR 76,500 3,100 Distribucion y Servicio ADR 51,150 7,182 Empresa Natl de Electricidad ADR 88,877 7,100 Gener SA ADR 130,019 ----------------- 697,922 ----------------- China - 5.0% 147,000 China Merchants Holdings Co Ltd 123,996 662,000 China Overseas Land & Investment Ltd 79,285 98,000 China Resources Enterprise 160,911 2,600 China Telecom (Hong Kong) Ltd ADR * 161,684 296,000 China Telecom Ltd Class H * 918,669 208,000 Citic Ka Wah Bank Ltd 83,038 120,000 Cosco Pacific Ltd 105,085 5,500 Huaneng Power International ADR 68,750 626,000 Huaneng Power International Inc 201,542 2,288,000 Maanshan Iron & Steel * 194,469 46,000 Shanghai Industrial Holdings 109,888 2,128,000 Shanghai Petrochemical Co Class H 457,655 ----------------- 2,664,972 ----------------- Czech Republic - 0.7% 10,910 Ceska Sporitelna * 53,867 1,770 Ceske Radiokomunikace * 64,830 2,975 Komercni Banka AS * 74,645 430 Severoceske Doly 12,401 2,792 SPT Telecom AS * 47,427 362 Tabak AS 85,400 20,700 Unipetrol 36,416 ----------------- 374,986 -----------------
See accompanying notes to the financial statements. 1 GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------------- India - 0.0% 100 Castrol India 998 100 Satyam Computer Service 1,997 100 Satyam Computer Service New Shares 1,993 ----------------- 4,988 ----------------- Indonesia - 5.9% 411,000 Astra International * 144,586 18,400 Bank Internasional Indonesia * 360 3,677,500 Bank Negara Indonesia 107,809 354,000 Gajah Tunggal Tbk * 31,134 607,100 Gudang Garam 1,463,368 9,000 Gulf Resources Ltd ADR * 92,813 126,900 HM Sampoerna * 263,721 731,900 Indah Kiat Pulp & Paper * 267,012 599,000 Indorama Synthetics * 101,459 941,000 Matahari Putra Prima Tbk * 95,020 364,000 PT Daya Guna Samudera * 147,023 198,600 PT Indofood Sukses Makmur Tbk * 212,185 20,000 PT Indosat (Persero) Tbk 31,075 66,500 Semen Gresik 129,967 41,000 Tambang Timah Persero (Foreign Registered) 26,977 198,612 Telekomunikasi Indonesia 76,339 ----------------- 3,190,848 ----------------- Korea - 20.0% 8,860 Cheil Jedang Corp 701,745 55,700 Daewoo Corp 87,289 47,000 Daewoo Heavy Industries 74,452 11,200 Daewoo Securities 205,879 70,000 Daewoo Electronics * 128,674 23,084 Hana Bank 205,321 11,450 Housing & Commercial Bank 267,700 9,400 Hyundai Heavy Industries 527,133 15,433 Hyundai Merchant Marine 237,934 25,000 Kookmin Bank 349,428 11,700 Korea Electric Power Corp 436,086 11,150 Korea Telecommunications ADR * 362,375 13,404 LG Chemicals Ltd 428,065 4,800 LG Information & Communication 428,971 11,520 Pohang Iron & Steel (b) 1,557,274 1,000 Pohang Iron & Steel ADR 36,750 22,928 Samsung Corp 403,983 3,000 Samsung Display Devices 173,571 10,624 Samsung Electronics 2,015,905 2,564 Samsung Electronics GDR 144A (1/2 Voting) 238,324 7,614 Samsung Electronics GDS 144A (Non Voting) 529,554 4,000 Samsung Fire & Marine Insurance 197,543 11,321 Samsung Securities 444,017 13,000 SK Corporation 313,850 19,600 Ssangyong Oil Refining 486,472 ----------------- 10,838,295 -----------------
2 See accompanying notes to the financial statements. GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------------- Malaysia - 10.3% 58,000 Edaran Otomobil Berhad 213,684 69,000 Hong Leong Bank Berhad 78,805 100,000 Malakoff Berhad 265,789 258,000 Malayan Banking Berhad 848,684 77,000 Nestle Malaysia 297,868 250,000 Oriental Holdings Berhad 549,342 90,000 Public Bank Berhad (Alien Market) 84,789 58,000 Renong Berhad * 38,158 63,000 Resorts World Berhad 159,987 41,000 Rothmans of Pall Mall Berhad 285,921 683,000 Sime Darby Berhad 898,684 1,077,000 Tan Chong International Ltd 298,198 344,000 Tanjong 796,632 139,000 United Engineers * 261,539 249,000 YTL Corp 507,829 ----------------- 5,585,909 ----------------- Mexico - 3.2% 123,602 Alfa SA Class A 467,840 31,961 Cemex SA Class B 141,761 16,800 Cemex SA CPO 74,157 34,062 Cifra SA de CV * 56,364 17,803 Grupo Carso SA de CV Class A 68,999 3,000 Grupo Financiero Banamex Acciva * 5,758 12,715 Grupo Mexico Class B 54,973 6,324 Grupo Televisa SA PTG Certs (1A,L & D) * 113,952 35,163 Kimberly Clark Class A 111,349 8,650 Telefonos de Mexico ADR Class L 643,344 ----------------- 1,738,497 ----------------- Pakistan - 0.3% 77,760 Pakistan State Oil 187,373 ----------------- Phillippines - 4.2% 896,153 Ayala Corp 242,814 90,900 Ayala Land Inc 22,682 27,285 Equitable Banking Corp 58,456 285,554 Filinvest Development Corp * 21,952 130,988 La Tondena Distillers Inc 132,061 8,910 Manila Electric Class B 26,500 25,880 Metro Bank & Trust Co 213,628 1,991,071 Metro Pacific Corp * 72,266 891,200 Petron Corp 79,742 7,100 Philippine Commercial International Bank 45,633 35,835 Philippine Long Distance Telephone 849,021 223,519 San Miguel Corp Class B 363,377 914,941 SM Prime Holdings 168,345 ----------------- 2,296,477 ----------------- Poland - 0.1% 3,500 Agora SA GDR * 38,500 -----------------
See accompanying notes to the financial statements. 3 GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------------- Russia - 3.2% 103,000 Irkutskenergo ADR (b) 446,052 17,900 Lukoil Holding Co ADR 528,050 96,000 Norilsk Nickel (Registered) (b) * 257,837 23,000 Surgutneftegaz ADR 179,774 33,000 Unified Energy Systems GDR * 222,750 13,500 Unified Energy Systems GDR 91,125 ----------------- 1,725,588 ----------------- South Africa - 8.3% 58,340 Amalgamated Bank of South Africa 300,237 7,677 Anglo American Corp Plc 422,601 3,300 Anglo Gold Ltd 165,488 33,563 Bidvest Group Ltd 240,603 29,100 Comparex Holding Ltd 180,380 26,700 De Beers Centenary Link Units 728,741 5,500 De Beers Consolidated Mines Ltd ADR 149,531 67,029 Dimension Data Holdings * 278,277 12,010 Investec Group Ltd 418,632 7,599 Liberty International Plc 56,849 33,600 Liberty Life Association of Africa Ltd 393,897 4,700 Nedcor Ltd 93,505 44,900 Rembrandt Group Ltd 336,639 61,700 Sasol Ltd 448,395 4,700 South African Breweries Plc 38,639 75,500 Standard Bank Investment Corp 235,860 ----------------- 4,488,274 ----------------- Taiwan - 0.7% 22,080 China Steel Corp GDR * 399,648 ----------------- Thailand - 9.5% 52,700 Advanced Info Service Public Co Ltd (Foreign Registered) 722,727 234,800 Bangkok Bank Pcl (Foreign Registered) * 596,871 594,400 Bank of Ayudhya Pcl (Foreign Registered) * 267,329 36,200 BEC World Public Co Ltd (Foreign Registered) 224,628 35,745 Delta Electronics Public Co Ltd (Foreign Registered) 283,313 6,400 Electricity Generating Public Co Ltd (Foreign Registered) 10,012 287,431 Krung Thai Bank Public Co Ltd * 112,409 187,100 National Finance Pcl * 86,586 53,700 PTT Exploration and Production Public Co Ltd (Foreign Registered) * 422,824 257,300 Securities One Ltd * 59,705 90,436 Shinawatra Computer Public Co Ltd (Foreign Registered) * 412,627 7,100 Siam Cement Pcl (Foreign Registered) * 183,632 36,700 Siam City Cement (Foreign Registered) * 135,873 245,535 Siam Commercial Bank Pcl (Foreign Registered) * 275,271 27 Siam Makro Co Ltd 51 405,000 Telecomasia (Foreign Registered) * 388,052 171,100 Thai Airways International (Foreign Registered) * 301,115 102,087 Thai Farmers Bank Pcl (Foreign Registered) * 146,390
4 See accompanying notes to the financial statements. GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------------------------------------------- Thailand - continued 613,700 Thai Military Bank * 292,010 327,900 Thai Petrochemical (Foreign Registered) * 162,433 136,200 United Broadcasting Pcl (Foreign Registered) * 87,000 ----------------- 5,170,858 ----------------- Venezuela - 1.9% 45,424 Compania Anonima Nacional Telefonos de Venezuela (CANTV) Sponsored ADR 905,641 59,300 Siderurgica Venezolana (Sivensa) Registered ADR Class A 103,775 ----------------- 1,009,416 ----------------- TOTAL COMMON STOCKS (Cost $40,169,008) 43,302,595 ----------------- INVESTMENT FUNDS - 2.8% Taiwan - 2.5% 173,900 R.O.C. Taiwan Fund 1,369,463 ----------------- United States - 0.3% 15,000 Morgan Stanley Emerging Markets Fund 167,813 ----------------- TOTAL INVESTMENT FUNDS (Cost $1,349,730) 1,537,276 ----------------- PREFERRED STOCKS - 2.8% Brazil - 2.8% 30,000 Aracruz Celulose SA Class B 60,094 18,254,950 Banco Bradesco SA 72,184 1,000,000 Banco Estado Sao Paulo 30,963 133,000 Brahma PN 70,375 5,200 Companhia Vale do Rio Doce 115,255 32,767,000 Electrobras Class B (Registered) 517,419 436,229 Investimentos Itau SA 199,432 250,000 Itaubanco SA (Registered) 115,765 624,000 Petroleo Brasileiro SA (Petrobras) 83,438 3,177,000 Telebras SA (Registered) 99 3,177,000 Telecomunicacoes Brasileiras SA * 236,870 ----------------- 1,501,894 ----------------- TOTAL PREFERRED STOCKS (Cost $1,737,786) 1,501,894 ----------------- DEBT OBLIGATIONS - 2.4% U.S. Government - 2.4% $ 1,054,255 U.S. Treasury Inflation Indexed Note, 3.375% due 1/15/07 (a) 1,008,461 $ 304,023 U.S. Treasury Inflation Indexed Note, 3.875% due 1/15/09 (a) 299,843 ----------------- 1,308,304 ----------------- TOTAL DEBT OBLIGATIONS (Cost $1,320,995) 1,308,304 -----------------
See accompanying notes to the financial statements. 5 GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares/ Par Value ($) Description Value ($) - -------------------------------------------------------------------------------------------------------------------- RIGHTS & WARRANTS - 0.2% Indonesia - 0.0% 57,050 Bank Internasional Indonesia Warrants 4/16/02 (b)* 387 ----------------- Thailand - 0.2% 102,087 Thai Farmers Bank Rights 12/31/49 * 93,157 ----------------- TOTAL RIGHTS & WARRANTS (Cost $88,140) 93,544 ----------------- SHORT-TERM INVESTMENTS - 11.3% Cash Equivalents - 11.3% $ 6,100,000 Wachovia Bank Time Deposit, 5.10% due 9/01/99 6,100,000 ----------------- TOTAL SHORT-TERM INVESTMENTS (Cost $6,100,000) 6,100,000 ----------------- TOTAL INVESTMENTS - 99.4% (Cost $50,765,659) 53,843,613 Other Assets and Liabilities (net) - 0.6% 315,214 ----------------- TOTAL NET ASSETS - 100.0% $ 54,158,827 ================= Notes to the Schedule of Investments: ADR American Depositary Receipt GDR Global Depository Receipt GDS Global Depository Shares (a) All or a portion of this security is held as collateral for open swaps (Note 6). (b) Valued by management (Note 1). 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 buyers. * Non income-producing security.
6 See accompanying notes to the financial statements. GMO Evolving Countries Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, industry sector diversification of the Fund's equity investments was as follows: Industry Sector Telecommunications 11.7 % Banking 9.8 Electronic Equipment 8.3 Financial Services 8.3 Utilities 7.3 Metals and Mining 6.5 Oil and Gas 6.1 Food and Beverage 5.6 Conglomerates 4.8 Real Estate 3.9 Consumer Goods 3.1 Construction 3.0 Communications 2.6 Automotive 2.2 Paper and Allied Products 1.5 Insurance 1.3 Chemicals 1.3 Machinery 1.3 Transportation 1.1 Services 0.5 Health Care 0.3 Textiles 0.2 Retail Trade 0.2 Miscellaneous 9.1 ------- 100.0 % ======= See accompanying notes to the financial statements. 7 GMO Evolving Countries Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $50,765,659) (Note 1) $ 53,843,613 Foreign currency, at value (cost $704,448) (Note 1) 703,390 Cash 12,884 Receivable for investments sold 28,772 Dividends and interest receivable 170,472 Receivable for open swap contracts (Notes 1 and 6) 25,746 Receivable for expenses waived or borne by Manager (Note 2) 6,799 ------------------- Total assets 54,791,676 ------------------- Liabilities: Payable for investments purchased 12,033 Net payable for open forward foreign currency contracts (Notes 1 and 6) 260,241 Accrued capital gain and repatriation taxes payable (Note 1) 11,631 Accrued Malaysian repatriation taxes (Note 1) 247,953 Payable to affiliate for (Note 2): Management fee 27,109 Shareholder service fee 6,175 Accrued expenses 67,707 ------------------- Total liabilities 632,849 ------------------- Net assets $ 54,158,827 =================== Net assets consist of: Paid-in capital $ 56,118,016 Accumulated undistributed net investment income 102,552 Accumulated net realized loss (4,626,547) Net unrealized appreciation 2,564,806 ------------------- $ 54,158,827 =================== Net assets attributable to Class III Shares $ 54,158,827 =================== Shares outstanding - Class III 5,514,816 =================== Net asset value per share - Class III $ 9.82 ===================
8 See accompanying notes to the financial statements. GMO Evolving Countries Fund (A Series of GMO Trust)
Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $65,285) $ 363,853 Interest 66,911 ------------------- Total income 430,764 ------------------- Expenses: Management fee (Note 2) 144,136 Custodian fees 105,543 Audit fees 24,290 Transfer agent fees 13,800 Legal fees 643 Registration fees 364 Trustees fees (Note 2) 184 Miscellaneous 4,150 Fees waived or borne by Manager (Note 2) (39,649) ------------------- 253,461 Shareholder service fee - Class III (Note 2) 33,262 ------------------- Net expenses 286,723 ------------------- Net investment income 144,041 ------------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 8,456,069 Closed swap contracts 1,441,530 Foreign currency, forward contracts and foreign currency related transactions 5,382 ------------------- Net realized gain 9,902,981 ------------------- Change in net unrealized appreciation (depreciation) on: Investments (Note 1) 11,845,413 Open swap contracts (459,220) Foreign currency, forward contracts and foreign currency related transactions (293,525) ------------------- Net unrealized gain 11,092,668 ------------------- Net realized and unrealized gain 20,995,649 ------------------- Net increase in net assets resulting from operations $ 21,139,690 ===================
See accompanying notes to the financial statements. 9 GMO Evolving Countries Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 -------------------- -------------------- Increase (decrease) in net assets: Operations: Net investment income $ 144,041 $ 1,569,067 Net realized gain (loss) 9,902,981 (13,606,696) Change in net unrealized appreciation (depreciation) 11,092,668 (7,524,498) -------------------- -------------------- Net increase (decrease) in net assets resulting from operations 21,139,690 (19,562,127) -------------------- -------------------- Distributions to shareholders from: Net investment income - Class III - (1,117,606) -------------------- -------------------- Net share transactions - Class III (Note 5) 1,300,848 12,699,670 -------------------- -------------------- Total increase (decrease) in net assets 22,440,538 (7,980,063) Net assets: Beginning of period 31,718,289 39,698,352 -------------------- -------------------- End of period (including accumulated undistributed net investment income of $102,552 and distributions in excess of net investment income of $41,489, respectively) $ 54,158,827 $ 31,718,289 ==================== ====================
10 See accompanying notes to financial statements. GMO Evolving Countries Fund (A Series of GMO Trust)
Financial Highlights (For a Class III share outstanding throughout each period) - ------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Period from August 29, 1997 August 31, 1999 Year Ended (commencement of operations) (Unaudited) February 28, 1999 to February 28, 1998 --------------------- --------------------- ------------------------- Net asset value, beginning of period $ 5.74 $ 8.61 $ 10.00 --------------------- --------------------- ------------------------- Income from investment operations: Net investment income 0.03 0.23 0.03 + Net realized and unrealized gain (loss) 4.05 (2.94) (1.42) --------------------- --------------------- ------------------------- Total from investment operations 4.08 (2.71) (1.39) --------------------- --------------------- ------------------------- Less distributions to shareholders: From net investment income - (0.16) - --------------------- --------------------- ------------------------- Total distributions - (0.16) - --------------------- --------------------- ------------------------- Net asset value, end of period $ 9.82 $ 5.74 $ 8.61 ===================== ===================== ========================= Total Return (a) 71.08% (31.60%) (13.90%) Ratios/Supplemental Data: Net assets, end of period (000's) $ 54,159 $ 31,718 $ 39,698 Net expenses to average daily net assets 1.29% * 1.27% 1.65% * (b) Net investment income to average daily net assets 0.65% * 3.65% 0.78% * Portfolio turnover rate 104% 158% 56% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.02 $ 0.03
+ Computed using average shares outstanding throughout the period. * 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) Includes stamp duties and transfer taxes not waived or borne by the manager, which approximate .16% of average daily net assets. See accompanying notes to the financial statements. 11 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Evolving Countries 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 equity securities traded in the securities markets of developing countries of Asia, Latin America, the Middle East, Africa and Europe ("Emerging Markets"). The Fund's current benchmark is the IFC Investable Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, currency gains and losses realized between the trade and settlement dates on securities transactions and the 12 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 sell is shown under Note 6, and represents the currency exposure the Fund has acquired or hedged through currency contracts as of August 31, 1999. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 13 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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 entering into 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 and agency 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. As of August 31, 1999, there were no outstanding futures contracts. 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 the equity markets. The Fund enters into total return 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. Total return 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 will be 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 agreements as of August 31, 1999. 14 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. At February 28, 1999, the Fund had a capital loss carryforward available to offset future capital gains, if any, of $353,921 and $10,409,816, expiring in 2006 and 2007, respectively. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded an accrual in the amount of $11,631 for potential capital gains and repatriation taxes at August 31, 1999. The accrual for capital gains and repatriation taxes is included in net realized and unrealized gain in the Statement of Operations. Effective February 4, 1999, the Malaysian government imposed levies on the repatriation by foreigners of proceeds from the sale of Malaysian securities. Funds invested in Malaysia prior to February 15, 1999 and repatriated within one year of September 1, 1998, or one year from the date of the investment if after September 1, 1998, were subject to a graduated repatriation tax on the principal invested with a maximum of 30%. The Fund has recorded an accrual in the amount of $247,953 for potential repatriation tax on principal invested prior to February 15, 1999. Effective September 1, 1999, the Malaysian government exempted funds invested prior to February 15, 1999 from all levies, and such funds may now be freely repatriated. Accordingly, effective September 1, 1999 no accrual for potential Malaysian repatriation taxes 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. Income dividends 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 15 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the funds. 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. The fees will be reduced by 50% with respect to any portion of a purchase or redemption that is offset by a corresponding redemption or purchase, respectively, occurring on the same day. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" and redemption fees are included as part of "shares repurchased," respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received $102,544 in purchase premiums and $20,462 in redemption fees. There is no premium for reinvested distributions. While no purchase premium is normally charged with respect to in-kind purchases of Fund shares, a purchase premium of up to .20% may be charged on certain in-kind transactions. Investment risk Investments in securities of emerging countries present certain risks that are not inherent in many other investments. Many emerging countries present elements of political and/or economic instability. The securities markets of emerging countries are generally smaller and less developed than the securities markets of the U.S. and developed foreign markets. 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 .65% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding custody fees, brokerage commissions, 16 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .80% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .65% of average daily net assets. 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, 1999, was $184. 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, 1999, were as follows: Purchases Proceeds ------------- ------------- U.S. Government securities $ 800,128 $ 1,756,813 Investments (non-U.S. Government securities) 39,301,869 41,253,519 At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $50,765,659 $8,537,235 $5,459,281 $3,077,954 4. Principal shareholders At August 31, 1999, 54% 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 Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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, including the purchase premiums and redemption fees received by the Fund, were as follows: Six Months Ended Year Ended August 31, 1999 February 28, 1999 ---------------------- --------------------------- Class III: Shares Amount Shares Amount -------- ----------- ----------- ------------ Shares sold 647,629 $ 6,534,028 3,158,638 $ 26,166,632 Shares issued to shareholders in reinvestment of distributions - - 134,305 804,354 Shares repurchased (660,421) (5,233,180) (2,378,020) (14,271,316) -------- ----------- ----------- ------------- Net increase (decrease) (12,792) $ 1,300,848 914,923 $ 12,699,670 ======== =========== =========== ============= 6. Financial instruments A summary of outstanding financial instruments at August 31, 1999 is as follows: Forward currency contracts
Net Unrealized Settlement Units Appreciation Date Deliver of Currency Value (Depreciation) -------------- --------- ---------------- ------------- ----------------- Buy 10/06/99 IDR 84,263,250,000 $ 10,913,044 $ (1,347,162) ================= Sale 10/06/99 IDR 84,263,520,000 $ 10,913,079 $ 1,086,921 =================
Currency Abbreviation: IDR Indonesian Rupiah 18 GMO Evolving Countries Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - --------------------------------------------------------------------------------
Swap agreements Notional Expiration Net Unrealized Amount Date Description Appreciation -------------- ---------- ----------------------------------------------------- ---------------- $ 622,562 3/16/00 Agreement with Credit Agricole Indosuez (W.I. Carr) $ 24,490 dated 3/16/99 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. 635,124 3/17/00 Agreement with Credit Agricole Indosuez (W.I. Carr) 1,256 dated 3/17/99 to receive (pay) the notional amount multiplied by the return on the MSCI Taiwan Index and to pay the notional amount multiplied by 3 month LIBOR adjusted by a specified spread. ---------------- $ 25,746 ================
19 GMO Global Properties Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 GMO Global Properties Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------------- INVESTMENTS IN REAL ESTATE COMPANIES - 87.7% Canada - 10.2% 13,700 Brookfield Properties Corp 167,555 9,000 Canadian Hotel Income Properties (REIT) 55,187 37,722 Concord Pacific Group * 18,960 49,591 Oxford Properties Group * 528,412 4,000 Trizec Hahn Corp (Sub-Voting) 78,000 ----------------- 848,114 ----------------- Finland - 1.2% 20,000 Sponda Oyj 96,330 ----------------- France - 12.9% 4,662 Compagnie Fonciere Klepierre 487,500 1,357 Silic 222,166 9,101 Sophia SA 379,711 ----------------- 1,089,377 ----------------- Hong Kong - 6.8% 125,000 Amoy Properties Ltd 123,146 15,000 Cheung Kong Holdings 130,873 51,275 Great Eagle Holdings Ltd 75,277 166,000 Kerry Properties Ltd 207,362 115,000 Tai Cheung Holdings Ltd 28,139 ----------------- 564,797 ----------------- Japan - 7.6% 8,000 Daibiru Corp 53,628 5,000 Hankyu Realty Co Ltd 20,977 10,000 Heiwa Real Estate Co Ltd 30,918 5,000 Keihanshin Real Estate 19,609 26,000 Mitsubishi Real Estate Co Ltd 268,430 13,000 Mitsui Fudosan Co Ltd 105,641 7,000 Sankei Building Co Ltd 23,686 11,000 Sumitomo Realty and Development Co Ltd 44,042 6,180 TOC Co Ltd 53,320 5,000 Tokyo Rakutenchi 17,420 ----------------- 637,671 ----------------- Netherlands - 5.2% 6,019 Nagron Nationaal Grandbezit NV 153,535 2,186 Vastned Retail NV 110,138 5,327 Vastned (Offices) NV 169,925 ----------------- 433,598 ----------------- New Zealand - 4.9% 2,557,821 Trans Tasman Properties Ltd 409,942 -----------------
See accompanying notes to the financial statements. 1 GMO Global Properties Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------------- Singapore - 1.3% 25,000 DBS Land Ltd 56,997 20,000 Singapore Land Ltd 48,447 ----------------- 105,444 ----------------- Spain - 1.0% 5,400 SOL Melia SA 73,516 1,800 SOL Melia SA Warrants 6/30/00 * 6,274 ----------------- 79,790 ----------------- Sweden - 4.9% 140,500 Hufvudstaden AB Class A 406,581 ----------------- United Kingdom - 3.9% 100,000 Nursing Home Properties 321,590 ----------------- United States - 27.8% 6,000 Arden Realty Group Inc (REIT) 139,875 4,500 Bedford Properties Investments Inc (REIT) 79,875 3,000 Boston Properties Inc (REIT) 99,938 3,000 Bradley Real Estate Inc (REIT) 57,375 2,000 Brandywine Realty Trust (REIT) 35,875 8,500 Crescent Real Estate Equities (REIT) 176,375 800 Crestline Capital Corp 15,150 4,500 Eastgroup Properties Inc (REIT) 83,813 5,000 Felcor Lodging Trust Inc (REIT) 89,688 10,200 First Industrial Realty Trust Inc (REIT) 261,375 3,000 Gables Residential Trust (REIT) 71,813 2,000 Glimcher Realty Trust (REIT) 30,500 8,696 Host Marriott Corp (REIT) 80,438 683 Interstate Hotels Corp * 2,476 18,000 Meditrust Companies (REIT) 160,875 2,000 Parkway Properties Inc (REIT) 66,000 3,500 Prentiss Properties Trust (REIT) 79,406 4,000 Prison Realty Corp (REIT) 52,250 6,000 Reckson Associates Realty Corp (REIT) 124,500 960 Reckson Service Industries Inc * 13,200 4,000 Simon Property Group Inc (REIT) 102,000
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, 1999 (Unaudited)
Shares Description Value ($) - -------------------------------------------------------------------------------------------------------------------- United States - continued 3,000 Smith (Charles E) Residential Realty (REIT) 102,938 7,000 Starwood Hotels & Resorts (REIT) 166,688 5,000 Urban Shopping Centers Inc (REIT) 153,438 20,498 Wyndham International Class A * 73,024 ----------------- 2,318,885 ----------------- TOTAL INVESTMENTS IN REAL ESTATE COMPANIES (Cost $9,218,733) 7,312,119 ----------------- TOTAL INVESTMENTS - 87.7% (Cost $9,218,733) 7,312,119 Other Assets and Liabilities (net) - 12.3% 1,026,302 ----------------- TOTAL NET ASSETS - 100.0% $ 8,338,421 ================= Notes to the Schedule of Investments * Non-income producing security. REIT - Real Estate Investment Trust
See accompanying notes to the financial statements. 3 GMO Global Properties Fund (A Series of GMO Trust)
Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - ---------------------------------------------------------------------------------------------------------------- Assets: Investments, at value (cost $9,218,733) (Note 1) $ 7,312,119 Foreign currency, at value (cost $428,435) 436,061 Cash 48,555 Receivable for investments sold 551,015 Dividends receivable 52,998 Foreign withholding taxes receivable 12,263 Receivable for expenses waived or borne by Manager (Note 2) 5,740 ------------------ Total assets 8,418,751 ------------------ Liabilities: Payable for investments purchased 43,883 Payable to affiliate for (Note 2): Management fee 4,231 Shareholder service fee 1,063 Accrued expenses 31,153 ------------------ Total liabilities 80,330 ------------------ Net assets $ 8,338,421 ================== Net assets consist of: Paid-in capital $ 9,993,463 Accumulated undistributed net investment income 62,495 Accumulated undistributed net realized gain 179,746 Net unrealized depreciation (1,897,283) ------------------ $ 8,338,421 ================== Net assets attributable to Class III Shares $ 8,338,421 ================== Shares outstanding - Class III 992,455 ================== Net asset value per share - Class III $ 8.40 ==================
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, 1999 (Unaudited) - ------------------------------------------------------------------------------------------------------------- Investment income: Dividends (net of foreign tax expense of $13,985) $ 283,868 Interest 8,551 ----------------- Total income 292,419 ----------------- Expenses: Management fee (Note 2) 25,183 Custodian fees 31,027 Audit fees 17,759 Transfer agent fees 13,709 Registration fees 364 Legal fees 184 Trustees fees (Note 2) 32 Miscellaneous 243 Fees waived or borne by Manager (Note 2) (32,291) ----------------- 56,210 Shareholder service fee - Class III (Note 2) 6,301 ----------------- Net expenses 62,511 ----------------- Net investment income 229,908 ----------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 182,695 Foreign currency and foreign currency related transactions (2,773) ----------------- Net realized gain 179,922 ----------------- Change in net unrealized appreciation (depreciation) on: Investments 172,092 Foreign currency and foreign currency related transactions 6,743 ----------------- Net unrealized gain 178,835 ----------------- Net realized and unrealized gain 358,757 ----------------- Net increase in net assets resulting from operations $ 588,665 =================
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, 1999 Year Ended (Unaudited) February 28, 1999 ---------------------- ----------------------- Increase (decrease) in net assets: Operations: Net investment income $ 229,908 $ 309,183 Net realized gain 179,922 158,277 Change in net unrealized appreciation (depreciation) 178,835 (2,047,672) ---------------------- ----------------------- Net increase (decrease) in net assets resulting from operations 588,665 (1,580,212) ---------------------- ----------------------- Distributions to shareholders from: Net investment income - Class III (33,133) (329,064) In excess of net investment income - Class III - (38,660) Net realized gains - Class III (121,807) (221,135) ---------------------- ----------------------- (154,940) (588,859) ---------------------- ----------------------- Net share transactions - Class III (Note 5) 72,865 (60,157) ---------------------- ----------------------- Total increase (decrease) in net assets 506,590 (2,229,228) Net assets: Beginning of period 7,831,831 10,061,059 ---------------------- ----------------------- End of period (including accumulated undistributed net investment income and distributions in excess of net investment income of $62,495 and $134,280, respectively) $ 8,338,421 $ 7,831,831 ====================== =======================
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, 1999 Year Ended Year Ended Period Ended (Unaudited) February 28, 1999 February 28, 1998 February 28, 1997* --------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 7.96 $ 10.14 $ 10.06 $ 10.00 --------------- ----------------- ----------------- ----------------- Income from investment operations: Net investment income 0.23 0.40 0.30 0.04 Net realized and unrealized gain (loss) 0.36 (1.97) 0.10 0.02 (b) --------------- ----------------- ----------------- ----------------- Total from investment operations 0.59 (1.57) 0.40 0.06 --------------- ----------------- ----------------- ----------------- Less distributions to shareholders from: Net investment income (0.03) (0.33) (0.32) - In excess of net investment income - (0.06) - - Net realized gains (0.12) (0.22) - - --------------- ----------------- ----------------- ----------------- Total distributions (0.15) (0.61) (0.32) - --------------- ----------------- ----------------- ----------------- Net asset value, end of period $ 8.40 $ 7.96 $ 10.14 $ 10.06 =============== ================= ================= ================= Total Return (a) 7.49% (15.87%) 4.07% 0.60% Ratios/Supplemental Data: Net assets, end of period (000's) $ 8,338 $ 7,870 $ 10,061 $ 9,464 Net expenses to average daily net assets 1.49% ** 1.43% 1.43% 1.98% ** Net investment income to average daily net assets 5.48% ** 3.44% 2.89% 2.39% ** Portfolio turnover rate 7% 26% 15% 0% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.03 $ 0.10 $ 0.08 $ 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 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 August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 1. Significant accounting policies GMO Global Properties 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 securities of issuers throughout the world which are engaged in or related to the real estate industry or which own significant real estate assets ("real estate companies"). The Fund's current benchmark is the Salomon Smith Barney BMI World Property Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign exchange contracts, 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. 8 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 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. Income dividends 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 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. 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 taking into consideration, among other things, the nature and type of expense and the relative size of the Funds. 9 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. All purchase premiums and redemption fees are paid to and recorded by the Fund as paid-in capital. Purchase premiums are included as part of "shares sold" and redemption fees are included as part of "shares repurchased", respectively, as summarized in Note 5. For the six months ended August 31, 1999, the Fund received no purchase premiums and $244 in 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 including the possible imposition of capital controls or other foreign governmental laws or restrictions. In addition, the securities of some foreign companies and securities markets are less liquid and at times may be 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 .60% of average daily net assets. The Fund has adopted a Shareholder Service 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 at the annual rate of .15% for Class III shares. GMO has entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (excluding custody fees, brokerage commissions, certain other transaction costs (including stamp duties and transfer taxes), shareholder service fees and extraordinary expenses) exceed the management fee. Prior to March 1, 1999, GMO earned a management fee at the annual rate of .75% of average daily net assets. GMO had agreed to waive a portion of its fee and bear other expenses 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) exceeded .60% of average daily net assets. 10 GMO Global Properties Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- The Fund's portion of the fee paid by the Trust to the unaffiliated Trustees during the six months ended August 31, 1999 was $32. 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, 1999, aggregated $515,566 and $1,314,763, respectively. At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in the value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Depreciation ----------------- ------------------ ------------------ ---------------- $9,218,733 $425,133 $2,331,747 $1,906,614 4. Principal shareholder At August 31, 1999, 69% of the outstanding shares of the Fund were held by one shareholder, who is an affiliate of the Manager. Investment activities of this shareholder could have a material effect. 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, including the purchase premiums and redemption fees received by the Fund, were as follows:
Six Months Ended Year Ended August 31, 1999 February 28, 1999 -------------------------------- -------------------------------- Class III: Shares Amount Shares Amount -------------- ---------------- -------------- ---------------- Shares sold - $ - 6,092 $ 51,612 Shares issued to shareholders in reinvestment of distributions 18,000 153,896 65,429 570,231 Shares repurchased (9,810) (81,031) (79,398) (682,000) --------------- -------------- --------------- -------------- Net increase (decrease) 8,190 $ 72,865 (7,877) $ (60,157) =============== ============== =============== ==============
11 Pelican Fund (A Series of GMO Trust) Semi-Annual Report August 31, 1999 Pelican Fund (A Series of GMO Trust) Schedule of Investments (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- COMMON STOCKS - 90.2% Advertising - 0.1% 7,500 Cordiant Communications Group Plc ADR 115,313 ----------------- Aerospace - 0.3% 10,000 Boeing Company 453,125 ----------------- Automotive - 2.7% 12,500 Delphi Automotive Systems Corp 234,375 17,500 General Motors Corp 1,157,188 35,000 Mascotech Industries Inc 603,750 62,500 Michelin SA Class B* 2,711,401 ----------------- 4,706,714 ----------------- Banking and Financial Services - 11.3% 15,000 American Express Co 2,062,500 10,000 Bank of America Corp 605,000 20,000 Bank One Corp 802,500 75,000 Block (H & R) Inc 4,171,875 50,000 Chase Manhattan Corp 4,184,375 120,000 Citigroup Inc 5,332,500 7,500 First Union Corp 311,250 5,000 PNC Bank Corp 261,563 25,000 Washington Mutual Inc 793,750 35,000 Wells Fargo Co 1,393,438 ----------------- 19,918,751 ----------------- Chemicals - 0.3% 15,000 Albemarle Corp 259,688 5,000 Du Pont (E I) De Nemours & Co Inc 316,875 ----------------- 576,563 ----------------- Computer and Office Equipment - 4.5% 70,000 Compaq Computer Corp 1,623,125 5,000 Hewlett - Packard Co 526,875 45,000 International Business Machines Corp 5,605,294 25,000 Maxtor Corp * 160,156 ----------------- 7,915,450 ----------------- Consumer Goods - 2.1% 42,500 Eastman Kodak 3,121,094 25,000 Mattel Inc 532,813 ----------------- 3,653,907 ----------------- Electronic Equipment - 2.1% 87,500 International Rectifier Corp* 1,410,938 40,000 Stoneridge Inc* 720,000 32,500 Thomas & Betts Corp 1,462,500 ----------------- 3,593,438 ----------------- Food and Beverage - 4.4% 35,000 Anheuser-Busch Cos Inc 2,695,000 17,500 ConAgra Inc 428,750 5,000 Coors (Adolph) Co 285,313
See accompanying notes to the financial statements. 1 Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Food and Beverage - continued 27,500 Nestle SA ADR 2,713,607 87,500 Pepsi Bottling Group Inc 1,657,031 ----------------- 7,779,701 ----------------- Health Care - 0.9% 65,000 Acuson Corp* 1,023,750 50,000 Owens and Minor Holdings Co 553,125 ----------------- 1,576,875 ----------------- Insurance - 0.9% 35,000 Allstate Corp 1,148,438 75,000 Reliance Group Holdings Inc 356,250 ----------------- 1,504,688 ----------------- Machinery - 1.8% 10,000 Baker Hughes Inc 340,000 15,000 FMC Corp* 873,750 15,000 Milacron Inc 270,000 50,000 Pall Corp 993,750 25,000 Stanley Works 659,375 ----------------- 3,136,875 ----------------- Manufacturing - 5.7% 52,500 American Greetings Corp 1,453,594 50,000 Clayton Homes Inc 475,000 40,000 Corning Inc 2,660,000 17,500 General Electric Co 1,965,469 65,000 Owens Corning 1,828,125 25,000 United Technologies Corp 1,653,125 ----------------- 10,035,313 ----------------- Metals and Mining - 0.9% 7,500 Alcan Aluminum Ltd 246,563 25,000 Allegheny Teledyne Inc 467,188 50,000 Amcol International Corp 725,000 5,000 Placer Dome Inc 51,875 ----------------- 1,490,626 ----------------- Oil and Gas - 6.8% 12,500 Amerada Hess Corp 775,781 25,000 Cabot Oil & Gas Corp, Class A 476,563 20,000 Enron Oil & Gas Co 477,500 150,000 Gulf Canada Resources Ltd 600,000 12,500 Kerr-McGee Corp 700,000 50,000 Lasmo Plc ADR 353,125 22,500 Mitchell Energy Class A 458,438 45,000 Mitchell Energy Class B 888,750 2,500 Mobil Corp 255,938 82,500 Occidental Petroleum Corp 1,789,219 20,000 Triton Energy Ltd* 242,500 100,000 Union Pacific Resources Group Inc 1,793,750 35,000 Unocal Corp 1,465,625
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, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Oil and Gas - continued 47,500 USX - Marathon Group 1,478,438 12,500 Westcoast Energy Inc 243,750 ----------------- 11,999,377 ----------------- Paper and Allied Products - 4.5% 50,000 Abitibi-Consolidated Inc 593,750 30,000 International Paper Co 1,411,875 85,000 Kimberly-Clark Corp 4,839,688 25,000 Tenneco Inc 503,125 10,000 Weyerhaeuser Co 562,500 ----------------- 7,910,938 ----------------- Pharmaceuticals - 1.6% 37,500 Bergen Brunswig Corp 578,906 20,000 Lilly (Eli) & Co 1,492,500 12,500 Mylan Laboratories Inc 247,656 7,500 Smithkline Beecham PLC 478,125 ----------------- 2,797,187 ----------------- Primary Processing - 0.8% 50,000 Engelhard Corp 996,875 35,000 Intermet Corp 403,594 ----------------- 1,400,469 ----------------- Printing and Publishing - 0.4% 25,000 R. R. Donnelley & Sons Co 784,375 ----------------- Real Estate - 8.6% 7,500 Avalonbay Communities Inc 264,375 20,000 Boston Properties Inc 666,250 62,500 Brandywine Realty Trust 1,121,094 75,000 Equity Office Properties Trust 1,917,188 50,000 Equity Residential Properties Trust 2,200,000 25,000 Glenborough Realty Trust Inc 432,813 165,000 JP Realty Inc 3,196,875 32,500 Mack-Cali Realty Corp 922,188 10,000 Prime Group Realty Trust 165,625 15,000 Reckson Associates Realty Corp 311,250 22,500 Spieker Properties Inc 860,625 100,000 Summit Properties Inc 1,987,500 50,000 United Dominion Realty Trust Inc 575,000 25,000 Walden Residential Properties Inc 470,313 ----------------- 15,091,096 ----------------- Refining - 0.5% 32,500 Conoco Inc 873,438 ----------------- Retail Trade - 5.1% 50,000 Federated Department Stores* 2,300,000 75,000 Saks Inc * 1,260,938
See accompanying notes to the financial statements. 3 Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Shares Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Retail Trade - continued 35,000 Sears Roebuck & Co 1,312,500 125,000 Toys R Us Inc* 1,726,563 52,500 Wal-Mart Stores Inc 2,326,406 ----------------- 8,926,407 ----------------- Services - 4.7% 7,500 Core Laboratories NV* 143,438 15,000 Hilton Hotels Corp 183,750 57,500 Manpower Inc 1,552,500 150,000 Modis Professional Services Inc * 2,371,875 12,500 Republic Services Inc* 135,938 175,000 Waste Management Inc 3,817,188 ----------------- 8,204,689 ----------------- Technology - 6.4% 12,500 Computer Sciences Corp* 864,844 25,000 Data General Corp* 460,938 15,000 Electronic Data Systems Corp 841,875 25,000 GTECH Holdings Corp* 631,250 100,000 Information Resources Inc* 1,087,500 22,500 Intel Corp 1,849,219 100,000 Parametric Technology Corp * 1,400,000 180,000 Storage Technology Corp* 3,780,000 7,500 Xerox Corp 358,125 ----------------- 11,273,751 ----------------- Telecommunications - 4.2% 5,000 Bell Atlantic Corp 306,250 52,500 GTE Corp 3,602,813 27,500 MediaOne Group Inc* 1,808,125 12,500 SBC Communications Inc 600,000 20,000 US WEST Inc 1,045,000 ----------------- 7,362,188 ----------------- Transportation - 3.2% 10,000 Airborne Freight Corp 251,875 15,000 AMR Corp* 879,375 15,000 Brunswick Corp 383,438 47,500 Canadian Pacific Ltd 1,113,281 10,000 Delta Air Lines Inc 508,125 12,500 FDX Corp* 530,469 75,000 Ryder System Inc 1,654,688 7,500 US Airways Group Inc* 231,094 ----------------- 5,552,345 ----------------- Utilities - 5.4% 10,000 Cinergy Corp 303,750 5,000 Duke Energy Co 287,500 15,000 Illinova Corp 478,125 37,500 K N Energy Inc 764,063 75,000 Niagara Mohawk Holdings Inc* 1,134,375
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, 1999 (Unaudited)
Shares/ Par Value Description Value ($) - ---------------------------------------------------------------------------------------------------------------- Utilities - continued 20,000 Northern States Power Co 471,250 75,000 Sempra Energy 1,673,438 57,500 Texas Utilities 2,325,156 25,000 TransCanada Pipeline Ltd 356,250 42,500 Unicom Corp 1,641,563 ----------------- 9,435,470 ----------------- TOTAL COMMON STOCKS (Cost $119,321,491) 158,069,069 ----------------- PREFERRED STOCKS - 0.4% Metals and Mining - 0.2% 25,000 Freeport-McMoran Corp Preferred $0.2273 417,188 ----------------- Oil and Gas - 0.2% 5,000 Unocal Corp Convertible Preferred 6.25% 289,375 ----------------- TOTAL PREFERRED STOCKS (Cost $1,154,170) 706,563 ----------------- DEBT OBLIGATIONS - 9.4% Banking and Financial Services - 0.6% $ 1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 972,650 ----------------- Computer and Office Equipment - 0.8% 1,500,000 International Business Machines Corp, 6.50% due 1/15/28 1,351,425 ----------------- Electronic Equipment - 0.4% 1,000,000 Advanced Micro Devices Inc, 6.00% due 5/15/05 757,500 ----------------- Food and Beverage - 0.3% 500,000 Anheuser-Busch Cos Inc, 7.10% due 6/15/07 492,395 ----------------- Technology - 0.6% 1,000,000 Data General Corp, 6.00% due 5/15/04 990,000 ----------------- Transportation - 0.5% 750,000 United Air Lines Inc, 9.13% due 1/15/12 816,300 ----------------- U.S. Government - 6.2% 6,250,000 U.S. Treasury Bond, 11.13% due 8/15/03 7,338,875 1,250,000 U.S. Treasury Bond, 10.75% due 8/15/05 1,528,713 750,000 U.S. Treasury Note, 7.75% due 2/15/01 771,090 1,500,000 U.S. Treasury Note, 6.625% due 5/15/07 1,538,670 ----------------- 11,177,348 ----------------- TOTAL DEBT OBLIGATIONS (Cost $16,824,952) 16,557,618 -----------------
See accompanying notes to the financial statements. 5 Pelican Fund (A Series of GMO Trust) Schedule of Investments - continued (showing percentage of total net assets) August 31, 1999 (Unaudited)
Value ($) - ---------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS - 100.0% (Cost $137,300,613) 175,333,250 Other Assets and Liabilities (net) - (0.0%) (52,367) ----------------- TOTAL NET ASSETS - 100.0% $ 175,280,883 ================= Notes to the Schedule of Investments: ADR - American Depositary Receipt * Non-income producing security.
6 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Statement of Assets and Liabilities - August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Assets: Investments, at value (cost $137,300,613) (Note 1) $ 175,333,250 Dividends and interest receivable 351,939 Foreign withholding taxes receivable 15,040 Receivable for investments sold 845,059 Receivable for Fund shares sold 200 Receivable for expenses waived or borne by Manager (Note 2) 12,778 ---------------------- Total assets 176,558,266 ---------------------- Liabilities: Due to custodian 235,359 Payable for investments purchased 805,825 Payable for Fund shares repurchased 32,920 Payable to affiliate for management fee (Note 2) 134,707 Accrued expenses and other liabilities 68,572 ---------------------- Total liabilities 1,277,383 ---------------------- Net Assets (equivalent to $15.87 per share based on 11,044,013 shares outstanding, unlimited shares authorized) $ 175,280,883 ====================== Net Assets consist of: Paid-in capital $ 110,631,548 Accumulated undistributed net investment income 378,170 Accumulated undistributed net realized gain 26,238,335 Net unrealized appreciation 38,032,830 ---------------------- Net assets $ 175,280,883 ======================
See accompanying notes to the financial statements. 7 Pelican Fund (A Series of GMO Trust) Statement of Operations - Six Months Ended August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------------------------------------- Investment income: Dividends (net of withholding taxes of $21,954) $ 1,823,819 Interest 882,018 --------------------- Total income 2,705,837 --------------------- Expenses: Management fee (Note 2) 903,071 Custodian and transfer agent fees 84,466 Audit fees 19,597 Registration fees 4,277 Legal fees 3,314 Trustees fees (Note 2) 1,197 Miscellaneous 4,600 --------------------- Total expenses 1,020,522 Less: expenses waived or borne by Manager (Note 2) (67,288) --------------------- Net expenses 953,234 --------------------- Net investment income 1,752,603 --------------------- Realized and unrealized gain (loss): Net realized gain (loss) on: Investments 27,348,209 Foreign currency and foreign currency related transactions (415) --------------------- Net realized gain 27,347,794 --------------------- Change in net unrealized appreciation (depreciation) on: Investments (14,802,445) Foreign currency and foreign currency related transactions 193 --------------------- Net unrealized loss (14,802,252) --------------------- Net realized and unrealized gain 12,545,542 --------------------- Net increase in net assets resulting from operations $ 14,298,145 =====================
8 See accompanying notes to the financial statements. Pelican Fund (A Series of GMO Trust) Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Six Months Ended August 31, 1999 Year Ended (Unaudited) February 28, 1999 ------------------------ ------------------------ Increase (decrease) in net assets: Operations: Net investment income $ 1,752,603 $ 3,881,844 Net realized gain 27,347,794 30,658,342 Change in net unrealized appreciation (depreciation) (14,802,252) (25,781,297) ---------------------- ---------------------- Net increase in net assets resulting from operations 14,298,145 8,758,889 ---------------------- ---------------------- Distributions to shareholders from: Net investment income (2,061,258) (4,037,021) Net realized gains (7,332,211) (31,637,977) ---------------------- ---------------------- (9,393,469) (35,674,998) ---------------------- ---------------------- Fund share transactions: (Note 5) Proceeds from sale of shares 6,247,932 20,859,512 Net asset value of shares issued to shareholders in payment of distributions declared 9,040,801 35,005,102 Cost of shares repurchased (68,849,116) (41,297,725) ---------------------- ---------------------- Net increase (decrease) in net assets resulting from Fund share transactions (53,560,383) 14,566,889 ---------------------- ---------------------- Total decrease in net assets (48,655,707) (12,349,220) Net assets: Beginning of period 223,936,590 236,285,810 ---------------------- ---------------------- End of period (including accumulated undistributed net investment income of $378,170 and $686,825, respectively) $ 175,280,883 $ 223,936,590 ====================== ======================
See accompanying notes to the financial statements. 9 Pelican 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, 1999 --------------------------------------------------------------- (Unaudited) 1999 1998 1997 1996 1995 ---------------- --------- --------- --------- --------- --------- Net asset value, beginning of period $ 15.73 $ 17.78 $ 16.31 $ 14.52 $ 11.99 $ 12.08 --------- --------- --------- --------- --------- --------- Income from investment operations: Net investment income 0.17 0.30 0.32 0.33 0.31 0.37 Net realized and unrealized gain (loss) 0.83 0.43 4.13 2.27 3.04 0.46 --------- --------- --------- --------- --------- --------- Total from investment operations 1.00 0.73 4.45 2.60 3.35 0.83 --------- --------- --------- --------- --------- --------- Less distributions to shareholders: From net investment income (0.18) (0.31) (0.40) (0.27) (0.29) (0.37) From net realized gains (0.68) (2.47) (2.58) (0.54) (0.53) (0.55) --------- --------- --------- --------- --------- --------- Total distributions (0.86) (2.78) (2.98) (0.81) (0.82) (0.92) --------- --------- --------- --------- --------- --------- Net asset value, end of period $ 15.87 $ 15.73 $ 17.78 $ 16.31 $ 14.52 $ 11.99 ========= ========= ========= ========= ========= ========= Total Return (a) 6.25% 3.89% 28.97% 18.40% 28.54% 7.38% Ratios/Supplemental Data: Net assets, end of period (000's) $ 175,281 $ 223,937 $ 236,286 $ 207,369 $ 177,238 $ 117,920 Net expenses to average daily net assets 0.95% * 0.95% 0.95% 0.95% 1.05% 1.10% Net investment income to average daily net assets 1.75% * 1.68% 1.77% 2.10% 2.42% 2.51% Portfolio turnover rate 17% 34% 28% 27% 32% 40% Fees and expenses voluntarily waived or borne by the Manager consisted of the following per share amounts: $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ - $ -
* Annualized (a) 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. Pelican Fund (A Series of GMO Trust) Notes to Financial Statements August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 growth of capital primarily through investment in equity securities. The Fund's current benchmark is the Standard & Poor's 500 Composite Stock Market Index. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith by the Trustees or other persons acting at their direction. 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 gains and losses on disposition of foreign currencies and forward foreign currency contracts, 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 11 Pelican Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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. At August 31, 1999 there were no open forward foreign currency contracts. Options The Fund may write call and put options on futures, securities or currencies it owns or in which it may invest. Writing put options tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. 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 added to the proceeds or offset against the 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, 1999 there were no open written option contracts. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. 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. 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 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 are withheld in accordance with the applicable country's tax treaty with the United States. 12 Pelican Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- 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 dividends 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. 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 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 entered into a binding agreement effective until June 30, 2000 to reimburse the Fund to the extent that the Fund's total annual operating expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), and extraordinary expenses) exceed .95% of average daily net assets. Prior to March 1, 1999, GMO had agreed to waive a portion of its fee and bear other expenses to the extent that the Fund's annual expenses (including the management fee but excluding brokerage commissions, certain other transaction costs (including transfer taxes), and extraordinary expenses) exceeded .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, 1999, was $1,197. 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, 1999, cost of purchases and proceeds from sales of investments, other than short-term obligations, were as follows:
Purchases Proceeds -------------- ------------- U.S. Government securities $183,656 $515,781 Investments (non-U.S. Government securities) $31,616,591 $89,364,592
13 Pelican Fund (A Series of GMO Trust) Notes to Financial Statements - continued August 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- At August 31, 1999, the cost for Federal income tax purposes and gross unrealized appreciation and depreciation in value of investments held were as follows: Gross Unrealized Gross Unrealized Net Unrealized Aggregate Cost Appreciation Depreciation Appreciation ---------------- ------------------ ------------------ ---------------- $137,300,613 $48,198,934 $10,166,297 $38,032,637 4. Principal shareholder At August 31, 1999, 46.40% 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, 1999 February 28, 1999 -------------------- --------------------- Shares sold 377,820 1,214,307 Shares issued to shareholders in reinvestment of distributions 546,702 2,112,963 Shares repurchased (4,116,046) (2,378,657) ------------------- ------------------- Net increase (decrease) (3,191,524) 948,613 Fund shares: Beginning of period 14,235,537 13,286,924 ------------------- ------------------- End of period 11,044,013 14,235,537 =================== ===================
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