File Nos. 2-98772
811-4347
GMO TRUST
GMO Trust (the "Trust"), 40 Rowes Wharf, Boston, Massachusetts 02110, is
an open-end management investment company offering seven diversified portfolios
and fourteen non-diversified portfolios (the portfolios, other than the Pelican
Fund whose shares are offered pursuant to a separate prospectus, are referred to
herein as the "Funds"). Each Fund has its own investment objectives and
strategies. Grantham, Mayo, Van Otterloo & Co. (the "Manager") is the manager of
each Fund. The Manager has entered into a Consulting Agreement with Dancing
Elephant, Ltd. (the "Consultant") with respect to the management of the Emerging
Markets Fund. Unless otherwise noted, each of the Funds referred to below is a
diversified portfolio. For a discussion of the significance and/or risks
associated with "non-diversified" portfolios, see "Descriptions and Risks of
Fund Investment Practices -- Diversified and Non-Diversified Portfolios". A
Table of Contents appears on page 3 of this Prospectus.
DOMESTIC EQUITY FUNDS
The Trust offers the following seven domestic equity portfolios which
are collectively referred to as the "Domestic Equity Funds".
GMO CORE FUND (the "Core Fund") seeks a total return greater than that
of the Standard & Poor's 500 Stock Index (the "S&P 500") through investment in
common stocks chosen from among the 1,200 companies with the largest equity
capitalization whose securities are listed on a United States national
securities exchange (the "Large Cap 1200").
GMO TOBACCO-FREE CORE FUND (the "Tobacco-Free Core Fund") seeks a total
return greater than that of the S&P 500 through investment in common stocks
chosen from the Large Cap 1200 which are not Tobacco Producing Issuers. A
"Tobacco Producing Issuer" is an issuer which derives more than 10% of its gross
revenues from the production of tobacco-related products.
GMO VALUE ALLOCATION FUND (the "Value Allocation Fund") is a
non-diversified portfolio that seeks a total return greater than that of the S&P
500 through investment in common stocks chosen from the Large Cap 1200. Strong
consideration is given to common stocks whose current prices, in the opinion of
the Manager, do not adequately reflect the on-going business value of the
underlying company.
GMO GROWTH ALLOCATION FUND (the "Growth Allocation Fund") is a
non-diversified portfolio that seeks long-term growth of capital through
investment in the equity securities of companies chosen from the Large Cap 1200.
Current income is only an incidental consideration.
GMO U.S. SECTOR ALLOCATION FUND (the "U.S. Sector Allocation Fund") is
a non-diversified portfolio that seeks a total return greater than that of the
S&P 500 through investment in common stocks chosen from among the 1,800
companies with the largest equity capitalization whose securities are listed on
a United States national securities exchange.
GMO CORE II SECONDARIES FUND (the "Core II Secondaries Fund") seeks
long-term growth of capital through investment primarily in companies whose
equity capitalization ranks in the lower two thirds of the 1800 companies with
the largest equity capitalization whose securities are listed on a United States
national securities exchange. Current income is only an incidental
consideration.
GMO FUNDAMENTAL VALUE FUND (the "Fundamental Value Fund") seeks
long-term capital growth through investment primarily in equity securities.
Consideration of current income is secondary to this principal objective.
INTERNATIONAL EQUITY FUNDS
The Trust offers the following six international equity portfolios which
are collectively referred to as the "International Equity Funds."
GMO INTERNATIONAL CORE FUND (the "International Core Fund") seeks
maximum total return through investment in a portfolio of common stocks of
non-U.S. issuers.
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND (the "Currency Hedged
International Core Fund") is a non-diversified portfolio that seeks maximum
total return through investment in a portfolio of common stocks of non-U.S.
issuers and through management of the Fund's foreign currency positions. The
Fund has similar policies to the International Core Fund, except that the
Currency Hedged International Core Fund will maintain currency hedges with
respect to a substantial portion of the foreign currency exposure represented in
the Fund's benchmark while the International Core Fund will generally hedge only
a limited portion of the currency exposure of that benchmark. The Currency
Hedged International Core Fund has not yet commenced operations.
GMO INTERNATIONAL SMALL COMPANIES FUND (the "International Small
Companies Fund") seeks maximum total return through investment primarily in
equity securities of foreign issuers whose equity securities are traded on a
major stock exchange of a foreign country ("foreign stock exchange companies")
and whose equity capitalization at the time of investment, when aggregated with
the equity capitalizations of all foreign stock exchange companies in that
country whose equity capitalizations are smaller than that of such company, is
less than 50% of the aggregate equity capitalization of all foreign stock
exchange companies in such country.
GMO JAPAN FUND (the "Japan Fund") is a non-diversified portfolio that
seeks maximum total return through investment in Japanese securities, primarily
in common stocks of Japanese companies.
GMO EMERGING MARKETS FUND (the "Emerging Markets Fund") is a
non-diversified portfolio that seeks long term capital appreciation consistent
with what the Manager believes to be a prudent level of risk through investment
in equity and equity-related securities traded in the securities markets of
newly industrializing countries in Asia, Latin America, the Middle East,
Southern Europe, Eastern Europe and Africa.
GMO GLOBAL HEDGED EQUITY FUND (the "Global Hedged Equity Fund") is a
non-diversified portfolio that seeks total return consistent with minimal
exposure to general equity market risk.
FIXED INCOME FUNDS
The Trust offers the following six domestic and international fixed
income portfolios which are collectively referred to as the "Fixed Income
Funds".
GMO DOMESTIC BOND FUND (the "Domestic Bond Fund") is a non-diversified
portfolio that seeks high total return through investment primarily in U.S.
government securities. The Fund may also invest a significant portion of its
assets in other investment grade bonds (including convertible bonds) denominated
in U.S. dollars. The Fund's portfolio will generally have a duration of
approximately four to six years (excluding short-term investments).
GMO SHORT-TERM INCOME FUND (the "Short-Term Income Fund") is a
non-diversified portfolio that seeks current income to the extent consistent
with the preservation of capital and liquidity through investment in a portfolio
of high quality short-term instruments. The Short-Term Income Fund intends to
invest in short-term securities, but it is not a "money market fund."
GMO INTERNATIONAL BOND FUND (the "International Bond Fund") is a
non-diversified portfolio that seeks high total return by investing primarily in
investment grade bonds (including convertible bonds) denominated in various
currencies including U.S. dollars or in multicurrency units. The Fund seeks to
provide a total return greater than that provided by the
international fixed income securities market generally.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND (the "Currency Hedged
International Bond Fund") is a non-diversified portfolio with the same
investment objectives and policies as the International Bond Fund except that
the Currency Hedged International Bond Fund will generally attempt to hedge
substantially all of its foreign currency risk while the International Bond Fund
will generally not hedge any of its foreign currency risk. Despite the otherwise
identical objectives and policies, the composition of the two portfolios may
differ substantially at any given time.
GMO GLOBAL BOND FUND (the "Global Bond Fund") is a non-diversified
portfolio that seeks high total return by investing primarily in investment
grade bonds (including convertible bonds) denominated in various currencies
including U.S. dollars or in multicurrency units. The Fund seeks to provide a
total return greater than that provided by the global fixed income securities
market generally.
GMO EMERGING COUNTRY DEBT FUND (the "Emerging Country Debt Fund") is a
non-diversified portfolio that seeks high total return by investing primarily in
sovereign debt (bonds and loans) of countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa.
GMO CORE EMERGING COUNTRY DEBT FUND (the "Core Emerging Country Debt
Fund") is a non-diversified portfolio that seeks high total return by investing
primarily in the most marketable sovereign debt (bonds and loans) of countries
in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and
Africa. The Core Emerging Country Debt Fund has not yet commenced operations.
Shares of each Fund are sold to investors by the Trust. The minimum
initial investment in the Trust (which minimum investment may be allocated among
one or more Funds) is $10,000,000 and the minimum for each subsequent investment
is $250,000. For more information, see "Purchase of Shares". For information
concerning share redemption procedures, see "Redemption of Shares".
Investors should consider the risks associated with an investment in
the Funds. For information concerning the types of investment practices in which
a particular Fund may engage, see "Investment Objectives and Policies". For more
information concerning such investment practices and their associated risks, see
"Descriptions and Risks of Fund Investment Practices".
This Prospectus concisely describes the information which investors
ought to know before investing. Please read this Prospectus carefully and keep
it for further reference. A Statement of Additional Information dated September
18, 1995, as revised from time to time, is available free of charge by writing
to Grantham, Mayo, Van Otterloo & Co., 40 Rowes Wharf, Boston, Massachusetts
02110 or by calling (617) 330-7500. The Statement, which contains more detailed
information about each Fund, has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference in this Prospectus.
THE EMERGING COUNTRY DEBT AND THE CORE EMERGING COUNTRY DEBT FUNDS MAY
INVEST WITHOUT LIMIT, THE INTERNATIONAL BOND, CURRENCY HEDGED INTERNATIONAL BOND
AND GLOBAL BOND FUNDS MAY INVEST UP TO 25% OF THEIR NET ASSETS AND THE DOMESTIC
BOND AND GLOBAL CORE FUNDS MAY INVEST UP TO 5% OF ITS NET ASSETS IN LOWER-RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A
GREATER RISK OF LOSS OF PRINCIPAL AND NON-PAYMENT OF INTEREST. INVESTORS SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THESE FUNDS. PLEASE
SEE "DESCRIPTION AND RISKS OF FUND INVESTMENT PRACTICES -- LOWER RATED
SECURITIES."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS SEPTEMBER 18, 1995
TABLE OF CONTENTS
SCHEDULE OF FEES AND EXPENSES 4
FINANCIAL HIGHLIGHTS 6
INVESTMENT OBJECTIVES AND POLICIES 15
DOMESTIC EQUITY FUNDS 15
Core Fund 15
Tobacco-Free Core Fund 15
Value Allocation Fund 16
Growth Allocation Fund 16
U.S. Sector Allocation Fund 17
Core II Secondaries Fund 17
Fundamental Value Fund 17
INTERNATIONAL EQUITY FUNDS 18
International Core Fund 18
Currency Hedged International Core Fund 19
International Small Companies Fund 20
Japan Fund 20
Emerging Markets Fund 21
Global Hedged Equity Fund 22
FIXED INCOME FUNDS 24
Domestic Bond Fund 24
Short-Term Income Fund 25
International Bond Fund 26
Currency Hedged International Bond Fund 26
Global Bond Fund 27
Emerging Country Debt Fund 28
Core Emerging Country Debt Fund 28
DESCRIPTIONS AND RISKS OF FUND
INVESTMENT PRACTICES 29
Portfolio Turnover 29
Diversified and Non-Diversified Portfolios 29
Certain Risks of Foreign Investments 29
General 29
Emerging Markets 29
Securities Lending 30
Depository Receipts 30
Convertible Securities 30
Futures and Options 30
Options 31
Writing Covered Option 31
Futures 32
Index Futures 32
Interest Rate Futures 33
Options on Futures Contracts 33
Uses of Options, Futures and Options on Futures 33
Risk Management 33
Hedging 33
Investment Purposes 33
Synthetic Sales and Purchases 34
Swap Contracts and Other Two-Party Contracts 34
Swap Contracts 34
Interest Rate and Currency Swap Contracts 34
Equity Swap Contracts and Contracts for Differences 34
Interest Rate Caps, Floors and Collars 35
Foreign Currency Transactions 35
Repurchase Agreements 36
Debt and Other Fixed Income Securities Generally 36
Temporary High Quality Cash Items 37
U.S. Government Securities and Foreign
Government Securities 37
Mortgage-Backed and Other Asset-Backed Securities 37
Collateralized Mortgage Obligations ("CMOs") 37
Adjustable Rate Securities 38
Lower Rated Securities 38
Brady Bonds 38
Zero Coupon Securities 38
Indexed Securities 38
Firm Commitments 39
Loans, Loan Participations and Assignments 39
Reverse Repurchase Agreements and
Dollar Roll Agreements 39
Illiquid Securities 40
PURCHASE OF SHARES 40
Purchase Procedures 41
REDEMPTION OF SHARES 41
DETERMINATION OF NET ASSET VALUE 42
DISTRIBUTIONS 43
TAXES 43
Withholding on Distributions to Foreign Investors 43
Foreign Tax Credits 43
Loss of Regulated Investment Company Status 44
MANAGEMENT OF THE TRUST 44
ORGANIZATION AND CAPITALIZATION 45
Appendix A 46
RISKS AND LIMITATIONS OF OPTIONS,
FUTURES AND SWAPS 46
Limitations on the Use of Options and Futures
Portfolio Strategies 46
Risk Factors in Options Transactions 46
Risk Factors in Futures Transactions 46
Risk Factors in Swap Contracts, OTC Options
and other Two-Party Contracts 47
Additional Regulatory Limitations on the Use
of Futures and Related Options, Interest Rate
Floors, Caps and Collars and Interest Rate
and Currency Swap Contracts 47
Appendix B 48
COMMERCIAL PAPER AND CORPORATE DEBT RATINGS 48
Commercial Paper Ratings 48
Corporate Debt Ratings 48
Standard & Poor's Corporation 48
Moody's Investors Service, Inc. 48
SCHEDULE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
GMO FUND NAME SHAREHOLDER TRANSACTION EXPENSES ANNUAL FUND OPERATING EXPENSES
Cash Purchase
Premium (as a Redemption Fees Management Total Fund
percentage of (as a percentage of Fees after Fee Other Operating
amount invested)1 amount redeemed)2 Waiver3 Expenses3 Expenses3
<S> <C> <C> <C> <C> <C>
Core Fund .17% None .45% .03% .48%
Tobacco-Free Core Fund .17% None .23% .25% .48%
Value Allocation Fund .15% None .56% .05% .61%
Growth Allocation Fund .17% None .42% .06% .48%
U.S. Sector Allocation Fund .17% None .40% .08% .48%
Core II Secondaries Fund .75% .75% .39% .09% .48%
Fundamental Value Fund .15% None .68% .07% .75%
International Core Fund .75% None .59%7 .10%7 .69%
Currency Hedged
International Core Fund .75% None .43% .26%4 .69%
International Small
Companies Fund 1.25% .75% .47% .29% .76%
Japan Fund .40% .70% .58%11 .30%9 .94%
Emerging Markets Fund 1.60% .40%6 .98%7 .58%7 1.56%
Global Hedged
Equity Fund .60% 1.40%5 .62% .20%4 .82%
Domestic Bond Fund None None .19% .06%4 .25%
Short-Term Income Fund None None .06% .19% .25%
International Bond Fund .15% None .19% .21% .40%
Currency Hedged
International Bond Fund .15% None .31% .09%4 .40%
Global Bond Fund .15% None .06% .29%4 .35%
Emerging Country
Debt Fund .50% .25%8 .29% .21%10 .50%
Core Emerging Country
Debt Fund .40% None .00% .45%4 .45%
</TABLE>
SCHEDULE OF FEES AND EXPENSES (Continued)
<TABLE>
<CAPTION>
EXAMPLES
You would pay the following
expenses on a $1,000 invest- You would pay the following
ment assuming 5% annual expenses on the same
return with redemption at the investment assuming no
end of each time period: redemption:
1Yr. 3 Yr. 5 Yr. 10 Yr. 1 Yr. 3 Yr. 5 Yr. 10 Yr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core Fund $ 7 $17 $ 29 $ 62 $ 7 $17 $ 29 $ 62
Tobacco-Free Core Fund $ 7 $17 $ 29 $ 62 $ 7 $17 $ 29 $ 62
Value Allocation Fund $ 8 $21 $ 35 $ 78 $ 8 $21 $ 35 $ 78
Growth Allocation Fund $ 7 $17 $ 29 $ 62 $ 7 $17 $ 29 $ 62
U.S. Sector Allocation Fund $ 7 $17 $ 29 $ 62 $ 7 $17 $ 29 $ 62
Core II Secondaries Fund $20 $31 $ 43 $ 79 $12 $23 $ 34 $ 67
Fundamental Value Fund $ 9 $25 $ 43 $ 94 $ 9 $25 $ 43 $ 94
International Core Fund $15 $29 $ 46 $ 93 $15 $29 $ 46 $ 93
Currency Hedged
International Core Fund $15 $29 $15 $29
International Small
Companies Fund $28 $45 $ 63 $117 $20 $36 $ 54 $106
Japan Fund $21 $42 $ 64 $129 $14 $34 $ 56 $119
Emerging Markets Fund $36 $69 $104 $204 $32 $65 $100 $199
Global Hedged
Equity Fund $29 $48 $ 68 $128 $14 $32 $ 51 $107
Domestic Bond Fund $ 3 $ 8 $ 14 $ 32 $ 3 $ 8 $ 14 $ 32
Short-Term Income Fund $ 3 $ 8 $ 14 $ 32 $ 3 $ 8 $ 14 $ 32
International Bond Fund $ 6 $14 $ 24 $ 52 $ 6 $14 $ 24 $ 52
Currency Hedged
International Bond Fund $ 6 $14 $ 24 $ 52 $ 6 $14 $ 24 $ 52
Global Bond Fund $ 5 $13 $ 5 $13
Emerging Country
Debt Fund $13 $24 $ 36 $ 71 $10 $21 $ 33 $ 68
Core Emerging Country
Debt Fund $ 9 $18 $ 9 $18
</TABLE>
SCHEDULE OF FEES AND EXPENSES
Footnotes
1Applies only with respect to certain cash transactions as set forth under the
heading "Purchase of Shares". The Manager may waive purchase premiums if there
are minimal brokerage and transaction costs incurred in connection with the
purchase. Normally, no purchase premium is charged with respect to in-kind
purchases of Fund shares. However, in the case of in-kind purchases involving
transfers of large positions in markets where the costs of re-registration
and/or other transfer expenses are high, the International Core Fund, Currency
Hedged International Core Fund, Global Core Fund, International Small Companies
Fund, Japan Fund and Global Hedged Equity Fund may each charge a premium of
0.10% and the Emerging Markets Fund may charge a premium of 0.20%.
2The Manager may waive redemption fees as set forth under the heading
"Redemption of Shares" if there are minimal brokerage and transaction costs
incurred in connection with the redemption.
3The Manager has voluntarily undertaken to reduce its management fees and to
bear certain expenses with respect to each Fund until further notice to the
extent that a Fund's total annual operating expenses (excluding brokerage
commissions, extraordinary expenses, securities lending fees and expenses and
transfer taxes; and, in the case of the Japan Fund, Emerging Markets Fund and
Global Hedged Equity Fund, excluding custodial fees; and, in the case of the
Global Hedged Equity Fund only, also excluding hedging transaction fees) would
otherwise exceed the percentage of that Fund's daily net assets specified
below. Therefore so long as the Manager agrees so to reduce its fee and bear
certain expenses, total annual operating expenses (subject to such exclusions)
of the Fund will not exceed these stated limitations. The Manager has also
voluntarily undertaken, until further notice, to limit its management fee for
the Emerging Markets Fund to 0.98% regardless of the total operating expenses
of the Fund. Absent such undertakings, management fees for each Fund and the
annual operating expenses for each Fund would be as shown below.
<TABLE>
<CAPTION>
Annual Fund
Voluntary Management Operating
Expense Fee (Absent Expenses
Fund Limit Waiver) (Absent Waiver)
<S> <C> <C> <C>
Core Fund .48% .525% .553%
Tobacco-Free Core Fund .48% .50% .75%
Value Allocation Fund .61% .70% .75%
Growth Allocation Fund .48% .50% .56%
U.S. Sector Allocation Fund .48% .49% .57%
Core II Secondaries Fund .48% .50% .59%
Fundamental Value Fund .75% .75% .82%
International Core Fund .69% .75% .84%
Currency Hedged
International Core Fund .69% .75% 1.01%
International Small Companies Fund .75% 1.25% 1.54%
Japan Fund .75% .75% 1.05%
Emerging Markets Fund 1.20% 1.00% 1.58%
Global Hedged Equity Fund .65% .65% .85%
Domestic Bond Fund .25% .25% .31%
Short-Term Income Fund .25% .25% .44%
International Bond Fund .40% .40% .61%
Currency Hedged International
Bond Fund .40% .50% .59%
Global Bond Fund .35% .35% .64%
Emerging Country Debt Fund .50% .50% .71%
Core Emerging Country Debt Fund .45% .45% .90%
4Based on estimated amounts for the Fund's first fiscal year.
5May be reduced depending upon whether it is necessary to incur costs relating
to the early termination of hedging transactions to meet redemption requests.
6Applies only to shares acquired on or after July 1, 1995 (including shares
acquired by reinvestment of dividends or other distributions on or after such
date).
7Figure based on actual expenses for the fiscal year ended February 28, 1995 but
restated to give effect to a change in the fee waiver and/or expense limitation
of the Fund, which change was effective as of June 27, 1995.
8Applies only to shares acquired on or after July 1, 1995 (including shares
acquired by reinvestment of dividends or other distributions on or after such
date).
9Restated to reflect higher expenses anticipated for the current fiscal year.
10Based on expenses during the period ended February 28, 1995.
11Figure based on actual expenses for the fiscal year ended February 28, 1995,
but restated to give effect to a change in the fee waiver and/or expense
limitation of the Fund, which change is effective as of the date of this
prospectus.
</TABLE>
Unless otherwise noted, Annual Fund Operating Expenses shown are actual
expenses for the year ended February 28, 1995. Where a purchase premium and/or
redemption fee is indicated as being charged by a Fund in certain instances, the
foregoing examples assume the payment of such purchase premium and/or redemption
fee even though such purchase premium and/or redemption fee is not applicable in
all cases. (See "Purchase of Shares" and "Redemption of Shares").
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses of each Fund that are borne by holders of Fund
shares.
THE FIVE PERCENT ANNUAL RETURN AND EXPENSE NUMBERS USED ARE NOT REPRESENTATIONS
OF FUTURE PERFORMANCE OR EXPENSES: SUBJECT TO THE MANAGER'S UNDERTAKING TO WAIVE
ITS FEE AND/OR BEAR CERTAIN EXPENSES FOR EACH FUND AS DESCRIBED IN THE FOREGOING
TABLES, ACTUAL PERFORMANCE AND/OR EXPENSES MAY BE MORE OR LESS THAN SHOWN.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
DOMESTIC EQUITY FUNDS
CORE FUND Year Ended February 28/29,
1995 1994 1993 1992 1991 2
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.78 $ 15.73 $ 15.96 $ 15.13 $ 13.90
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 3 0.41 0.42 0.45 0.43 0.43
Net realized and unrealized gain
(loss) on investments 0.66 1.59 1.13 1.55 1.74
------ ------ ------ ------ ------
Total from investment operations 1.07 2.01 1.58 1.98 2.17
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.39) (0.43) (0.46) (0.42) (0.51)
From net realized gains (1.01) (1.53) (1.35) (0.73) (0.43)
------ ------ ------ ------ ------
Total distributions (1.40) (1.96) (1.81) (1.15) (0.94)
------ ------ ------ ------ ------
Net asset value, end of period $ 15.45 $ 15.78 $ 15.73 $ 15.96 $ 15.13
====== ====== ====== ====== ======
Total Return 4 7.45% 13.36% 10.57% 13.62% 16.52%
Ratios/Supplemental Data:
Net assets, end of period (000's) $2,309,248 $1,942,005 $1,892,955 $2,520,710 $1,613,945
Net expenses to average daily
net assets 3 0.48% 0.48% 0.49% 0.50% 0.50%
Net investment income to average
daily net assets 3 2.63% 2.56% 2.79% 2.90% 3.37%
Portfolio turnover rate 99% 40% 54% 39% 55%
</TABLE>
<TABLE>
<CAPTION>
CORE FUND (continued) Year Ended February 28/29,
1990 2 1989 2 1988 2 1987 2 1986 1, 2
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.47 $ 13.43 $ 15.24 $ 12.64 $ 10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 3 0.65 0.54 0.45 0.34 0.11
Net realized and unrealized gain
(loss) on investments 2.43 0.96 (0.92) 3.15 2.53
------ ------ ------ ------ ------
Total from investment operations 3.08 1.50 (0.47) 3.49 2.64
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.70) (0.46) (0.38) (0.46) --.--
From net realized gains (2.95) --.-- (0.96) (0.43) --.--
------ ------ ------ ------ ------
Total distributions (3.65) (0.46) (1.34) (0.89) --.--
------ ------ ------ ------ ------
Net asset value, end of period $ 13.90 $ 14.47 $ 13.43 $ 15.24 $ 12.64
====== ====== ====== ====== ======
Total Return 4 21.19% 11.49% (3.20%) 28.89% 26.46%
Ratios/Supplemental Data:
Net assets, end of period (000's) $1,016,965 $1,222,115 $1,010,014 $909,394 $266,734
Net expenses to average daily
net assets 3 0.50% 0.50% 0.52% 0.53% 0.53% 5
Net investment income to average
daily net assets 3 3.84% 4.02% 3.23% 3.06% 3.63% 5
Portfolio turnover rate 72% 51% 46% 75% 81%
1 For the period from the commencement of operations, September 25, 1985 to
February 28, 1986.
2 The per share amounts and the number of shares outstanding have been restated
to reflect a ten for one stock split effective December 31, 1990.
3 Net of fees and expenses voluntarily waived or borne by the Manager of $ .01
per share for each period presented.
4 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
5 Annualized.
</TABLE>
<TABLE>
<CAPTION>
TOBACCO - FREE CORE FUND Year Ended February 28/29,
1995 1994 1993 1992 1
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.07 $ 11.35 $ 10.50 $ 10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 2 0.23 0.34 0.31 0.12
Net realized and unrealized gain
(loss) on investments 0.50 1.18 0.84 0.44
------ ------ ------ ------
Total from investment operations 0.73 1.52 1.15 0.56
------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.28) (0.35) (0.30) (0.06)
From net realized gains (0.87) (1.45) -.- -.-
------ ------ ------ ------
Total distributions (1.15) (1.80) (0.30) (0.06)
------ ------ ------ ------
Net asset value, end of period $ 10.65 $ 11.07 $ 11.35 $ 10.50
====== ====== ====== ======
Total Return 3 7.36% 14.12% 11.20% 5.62%
Ratios/Supplemental Data:
Net assets, end of period (000's) $47,969 $55,845 $85,232 $75,412
Net expenses to average daily net 0.48% 0.48% 0.49% 0.49% 4
assets 2
Net investment income to average
daily net assets 2 2.52% 2.42% 2.88% 3.77%4
Portfolio turnover rate 112% 38% 56% 0%
1 For the period from the commencement of operations, October 31, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $ .03 ,
$.03, $.02 and $.01 for the fiscal years 1995, 1994, and 1993 and for the period
ended February 29, 1992, respectively.
3 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
VALUE ALLOCATION FUND Year Ended February 28/29,
1995 1994 1993 1992 1991 1
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.48 $ 13.50 $ 12.94 $ 12.25 $ 10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 2 0.41 0.43 0.38 0.40 0.12
Net realized and unrealized gain
(loss) on investments 0.32 1.27 0.98 1.11 2.16
------ ------ ------ ------ ------
Total from investment operations 0.73 1.70 1.36 1.51 2.28
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.45) (0.40) (0.38) (0.41) (0.03)
From net realized gains (1.71) (1.32) (0.42) (0.41) --.--
------ ------ ------ ------ ------
Total distributions (2.16) (1.72) (0.80) (0.82) (0.03)
------ ------ ------ ------ ------
Net asset value, end of period $ 12.05 $ 13.48 $ 13.50 $ 12.94 $ 12.25
====== ====== ====== ====== ======
Total Return 3 6.85% 13.02% 11.01% 12.96% 22.85%
Ratios/Supplemental Data:
Net assets, end of period (000's) $350,694 $679,532 $1,239,536 $644,136 $190,664
Net expenses to average daily net 0.61% 0.61% 0.62% 0.67% 0.70% 4
assets 2
Net investment income to average
daily net assets 2 2.86% 2.70% 3.15% 3.75% 7.89% 4
Portfolio turnover rate 77% 35% 50% 41% 23%
1 For the period from the commencement of operations, November 14, 1990 to
February 28, 1991.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.02,
$.02, $.01, $.01, and $.01 for the fiscal years 1995, 1994, 1993, and 1992 and
for the period ended February 28, 1991, respectively.
3 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
GROWTH ALLOCATION FUND Year Ended February 28/29,
1995 1994 1993 1992 1991 1990 1989 1
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 4.14 $ 4.55 $ 5.82 $ 14.54 $ 12.64 $ 10.49 $ 10.00
------ ------ ------ ------- ------ ------ ------
Income (loss) from investment operations:
Net investment income 2 0.06 0.06 0.07 0.19 0.25 0.26 0.03
Net realized and unrealized gain
(loss) on investments 0.38 0.11 0.17 1.63 2.61 2.40 0.46
------ ------ ------ ------- ------ ------ ------
Total from investment operations 0.44 0.17 0.24 1.82 2.86 2.66 0.49
------ ------ ------ ------- ------ ------ ------
Less distributions to shareholders:
From net investment income (0.06) (0.06) (0.08) (0.23) (0.25) (0.23) --.--
From net realized gains (0.07) (0.52) (1.43) (10.31) (0.71) (0.28) --.--
------ ------ ------ ------- ------ ------ ------
Total distributions (0.13) (0.58) (1.51) (10.54) (0.96) (0.51) --.--
------ ------ ------ ------- ------ ------ ------
Net asset value, end of period $ 4.45 $ 4.14 $ 4.55 $ 5.82 $ 14.54 $ 12.64 $ 10.49
====== ====== ====== ======= ====== ====== ======
Total Return 3 10.86% 4.13% 3.71% 20.47% 24.24% 25.35% 4.90%
Ratios/Supplemental Data:
Net assets, end of period (000's) $239,006 $230,698 $168,143 $338,439 $1,004,345 $823,891 $291,406
Net expenses to average daily net 0.48% 0.48% 0.49% 0.50% 0.50% 0.50% 0.08% 4
assets 2
Net investment income to average
daily net assets 2 1.50% 1.38% 1.15% 1.38% 1.91% 2.34% 0.52%4
Portfolio turnover rate 139% 57% 36% 46% 45% 57% 0%
1 For the period from the commencement of operations, December 28, 1988 to
February 28, 1989.
2 Net of fees and expenses voluntarily waived or borne by the Manager of less
than $.01 for each period presented.
3 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
U.S. SECTOR ALLOCATION FUND Year Ended February 28/29,
1995 1994 1993 1
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.26 $ 10.38 $ 10.00
------ ------ ------
Income (loss)from investment operations:
Net investment income 2 0.28 0.29 0.05
Net realized and unrealized gain
(loss) on investments 0.49 1.21 0.33
------ ------ ------
Total from investment operations 0.77 1.50 0.38
------ ------ ------
Less distributions to shareholders:
From net investment income (0.27) (0.30) --.--
From net realized gains (0.70) (0.32) --.--
------ ------ ------
Total distributions (0.97) (0.62) --.--
------ ------ ------
Net asset value, end of period $ 11.06 $ 11.26 $ 10.38
====== ====== ======
Total Return 3 7.56% 14.64% 3.80%
Ratios/Supplemental Data:
Net assets, end of period (000's) $207,291 $167,028 $169,208
Net expenses to average daily net 0.48% 0.48% 0.48% 4
assets 2
Net investment income to average
daily net assets 2 2.61% 2.56% 3.20%4
Portfolio turnover rate 101% 53% 9%
1 For the period from the commencement of operations, January 4, 1993 to February 28, 1993.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01 for each period presented.
3 Calculation excludes subscription fees. The total returns would have been lower had certain expenses not been waived during
the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
CORE II SECONDARIES FUND Year Ended February 28/29,
1995 1994 1993 1992 1
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.31 $ 12.68 $ 11.12 $ 10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 2 0.20 0.21 0.22 0.04
Net realized and unrealized gain
(loss) on investments 0.34 2.14 1.59 1.08
------ ------ ------ ------
Total from investment operations 0.54 2.35 1.81 1.12
------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.20) (0.22) (0.21) --.--
From net realized gains (1.04) (0.50) (0.04) --.--
------ ------ ------ ------
Total distributions (1.24) (0.72) (0.25) --.--
------ ------ ------ ------
Net asset value, end of period $ 13.61 $ 14.31 $ 12.68 $ 11.12
====== ====== ====== ======
Total Return 3 4.48% 18.97% 16.46% 11.20%
Ratios/Supplemental Data:
Net assets, end of period (000's) $235,781 $151,286 $102,232 $58,258
Net expenses to average daily net 0.48% 0.48% 0.49% 0.49% 4
assets 2
Net investment income to average
daily net assets 2 1.55% 1.66% 2.02% 2.19% 4
Portfolio turnover rate 54% 30% 3% 0%
1 For the period from the commencement of operations, December 31, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.01,
$.02, $.02 and $.01 per share for the fiscal years ended 1995, 1994, and 1993
and for the period ended February 29, 1992, respectively.
3 Calculation excludes subscription and redemption fees. The total returns would
have been lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
FUNDAMENTAL VALUE FUND Year Ended February 28/29,
1995 1994 1993 1992 1
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.49 $ 11.71 $ 10.82 $ 10.00
------ ------ ------ ------
Income (loss)from investment operations:
Net investment income 2 0.34 0.27 0.30 0.11
Net realized and unrealized gain
(loss) on investments 0.55 1.64 1.32 0.77
------ ------ ------ ------
Total from investment operations 0.89 1.91 1.62 0.88
------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.32) (0.28) (0.30) (0.06)
From net realized gains (0.52) (0.85) (0.43) --.--
------ ------ ------ ------
Total distributions (0.84) (1.13) (0.73) (0.06)
------ ------ ------ ------
Net asset value, end of period $ 12.54 $ 12.49 $ 11.71 $ 10.82
====== ====== ====== ======
Total Return 3 7.75% 16.78% 15.66% 8.87%
Ratios/Supplemental Data:
Net assets, end of period (000's) $182,871 $147,767 $62,339 $32,252
Net expenses to average daily net 0.75% 0.75% 0.73% 0.62% 4
assets 2
Net investment income to average
daily net assets 2 2.84% 2.32% 2.77% 3.43% 4
Portfolio turnover rate 49% 65% 83% 33%
1 For the period from the commencement of operations, October 31, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of less
than $.01, $.01, $.03 and $.03 per share for the fiscal years 1995, 1994, and
1993 and for the period ended February 29, 1992, respectively.
3 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE FUND Year Ended February 28/29,
1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.56 $ 18.51 $ 18.80 $ 18.73 $ 18.79 $ 17.22 $ 14.76 $ 15.00
------ ------ ------ ------ ------ ------ ------ ------
Income (loss)from investment operations:
Net investment income 2 0.27 0.29 0.29 0.29 0.55 0.49 0.45 0.18
Net realized and unrealized gain
(loss) on investments (1.57) 7.44 (0.04) 0.22 0.69 1.93 3.37 (0.03)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations (1.30) 7.73 0.25 0.51 1.24 2.42 3.82 0.15
------ ------ ------ ------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.35) (0.27) (0.20) (0.28) (0.54) (0.55) (0.45) (0.05)
From net realized gains (1.59) (0.41) (0.34) (0.16) (0.76) (0.30) (0.91) (0.34)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.94) (0.68) (0.54) (0.44) (1.30) (0.85) (1.36) (0.39)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $22.32 $25.56 $18.51 $18.80 $18.73 $18.79 $17.22 $14.76
======= ======= ======= ======= ======= ======= ======= ======
Total Return 3 (5.31%) 42.10% 1.43% 2.84% 7.44% 13.99% 26.35% 1.07%
Ratios/Supplemental Data:
Net assets, end of period (000's) $2,591,646 $2,286,431 $918,332 $414,341 $173,792 $101,376 $35,636 $11,909
Net expenses to average daily net 0.70% 0.71%4 0.70% 0.70% 0.78% 0.80% 0.88% 0.70% 5
assets 2
Net investment income to average
daily net assets 2 1.48% 1.48% 2.36% 2.36% 3.32% 3.17% 3.19% 1.27% 5
Portfolio turnover rate 53% 23% 23% 35% 81% 45% 37% 129%
1 For the period from the commencement of operations, April 7, 1987 to February
29, 1988.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.03,
$.03, $.03, $.02, $.01, $.02, $.05 and $.08 per share for the fiscal years 1995,
1994, 1993, 1992, 1991, 1990, and 1989 and for the period ended February 29,
1988, respectively.
3 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
4 Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximate .01% of average daily net assets.
5 Annualized.
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANIES FUND Year Ended February 28/29,
1995 1994 1993 1992 1
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.45 $ 8.91 $ 9.62 $ 10.00
------ ------ ------ ------
Income (loss)from investment operations:
Net investment income 2 0.18 0.15 0.35 0.06
Net realized and unrealized gain
(loss) on investments (1.52) 5.59 (0.68) (0.43)
------ ------ ------ ------
Total from investment operations (1.34) 5.74 (0.33) (0.37)
------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.20) (0.12) (0.38) (0.01)
From net realized gains (0.96) (0.08) --.-- --.--
------ ------ ------ ------
Total distributions (1.16) (0.20) (0.38) (0.01)
------ ------ ------ ------
Net asset value, end of period $ 11.95 $ 14.45 $ 8.91 $ 9.62
====== ====== ====== ======
Total Return 3 (9.66%) 64.67% (3.30%) (3.73%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $186,185 $132,645 $35,802 $24,467
Net expenses to average daily net 0.76%4 0.75% 0.75% 0.85% 5
assets 2
Net investment income to average
daily net assets 2 1.45% 1.50% 4.02% 1.91% 5
Portfolio turnover rate 58% 38% 20% 1%
1 For the period from the commencement of operations, October 15, 1991 to
February 29, 1992.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $.08,
$.09, $.09 and $.05 per share for the fiscal years 1995, 1994, and 1993 and for
the period ended February 29, 1992, respectively.
3 Calculation excludes subscription and redemption fees. The total returns would
have been lower had certain expenses not been waived during the periods shown.
4 Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximate .01% of average daily net assets.
5 Annualized.
</TABLE>
<TABLE>
<CAPTION>
JAPAN FUND Year Ended February 28/29,
1995 1994 1993 1992 19911
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.13 $ 7.37 $ 7.73 $ 9.48 $ 10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) 2 --.-- 3 --.-- 0.01 --.-- (0.01)
Net realized and unrealized gain (loss)
on investments (1.08) 3.94 (0.36) (1.74) (0.39)
------ ------ ------ ------ ------
Total from investment operations (1.08) 3.94 (0.35) (1.74) (0.40)
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income --.-- --.-- (0.01) --.-- --.--
In excess of net investment income --.-- (0.01) --.-- --.-- --.--
From net realized gains (0.93) (0.17) --.-- --.-- --.--
From paid-in capital 4 --.-- --.-- --.-- (0.01) (0.12)
------ ------ ------ ------ ------
Total distributions (0.93) (0.18) (0.01) (0.01) (0.12)
------ ------ ------ ------ ------
Net asset value, end of period $ 9.12 $ 11.13 $ 7.37 $ 7.73 $ 9.48
====== ====== ====== ====== ======
Total Return 5 (10.62%) 53.95% (4.49%) (18.42%) (3.79%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $60,123 $450,351 $306,423 $129,560 $60,509
Net expenses to average daily net 0.83% 0.87% 0.88% 0.93% 0.95%6
assets2
Net investment income to average
daily net assets2 (0.02%) (0.01%) 0.12% (0.11%) (0.32%)6
Portfolio turnover rate 60% 8% 17% 25% 11%
1 For the period from the commencement of operations, June 8, 1990 to February
28, 1991.
2 Net of fees and expenses voluntarily waived or borne by the Manager of $ .01
for each period presented.
3 Based on average month end shares outstanding.
4 Return of capital for book purposes only. A distribution was required for tax
purposes to avoid the payment of federal excise tax.
5 Calculation excludes subscription and redemptions fees. The total returns
would have been lower had certain expenses not been waived during the periods
shown.
6 Annualized.
</TABLE>
<TABLE>
<CAPTION>
Period from
December 9,
EMERGING MARKETS FUND 1993
Year Ended (commencement of
February 28, operations) to
1995 February 28,
1994
<S> <C> <C>
Net asset value, beginning of period $ 12.13 $ 10.00
------- ------
Income (loss) from investment operations:
Net investment income 0.05 0.02 1
Net realized and unrealized gain
(loss) on investments (2.37) 2.11
------- ------
Total from investment operations (2.32) 2.13
Less distributions to shareholders:
From net investment income (0.07) (0.00) 2
From net realized gains (0.22) (0.00)
------- ------
Total distributions (0.29) (0.00)
------- ------
Net asset value, end of period $ 9.52 $ 12.13
======= ======
Total Return 3 (19.51%) 21.35%
Ratios/Supplemental Data:
Net assets, end of period (000's) $384,259 $114,409
Net expenses to average daily net 1.58% 1.64% 1,4
assets
Net investment income to average
daily net assets 0.85% 0.87% 1,4
Portfolio turnover rate 50% 2%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.003
for the period ended February 28, 1994.
2 The per share income distribution was $0.004.
3 Calculation excludes subscription fees. The total returns for the period ended
February 28, 1994 would have been lower had certain expenses not been waived
during the periods shown.
4 Annualized.
</TABLE>
<TABLE>
<CAPTION>
Period from
GLOBAL HEDGED EQUITY FUND July 29, 1994
(commencement
of operations)
to February
28, 1995
<S> <C>
Net asset value, beginning of period $ 10.00
------
Income (loss) from investment operations:
Net investment income 1 0.11
Net realized and unrealized gain
(loss) on investments 0.08
------
Total from investment operations 0.19
------
Less distributions to shareholders:
From net investment income (0.07)
------
Total distributions (0.07)
------
Net asset value, end of period $ 10.12
======
Total Return 2 1.92%
Ratios/Supplemental Data:
Net assets, end of period (000's) $214,638
Net expenses to average daily net 0.92%3
assets 1
Net investment income to average
daily net assets 1 2.85%3
Portfolio turnover rate 194%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.006
for the period ended February 28, 1995.
2 Calculation excludes subscription fees. The total return would have been lower
had certain expenses not been waived during the period shown.
3 Annualized.
</TABLE>
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
Period from
August 18, 1994
DOMESTIC BOND FUND (commencement
of operations)
to February
28, 1995
<S> <C>
Net asset value, beginning of period $ 10.00
------
Income (loss) from investment operations:
Net investment income 1 0.24
Net realized and unrealized gain
(loss) on investments 0.07
------
Total from investment operations 0.31
------
Less distributions to shareholders:
From net investment income (0.18)
------
Total distributions (0.18)
------
Net asset value, end of period $ 10.13
======
Total Return 2 3.16%
Ratios/Supplemental Data:
Net assets, end of period (000's) $209,377
Net expenses to average daily net 0.25%3
assets 1
Net investment income to average
daily net assets 1 6.96%3
Portfolio turnover rate 65%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
for the period ended February 28, 1995.
2 The total return would have been lower had certain expenses not been waived
during the period shown.
3 Annualized.
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INCOME FUND Year Ended February 28/29,
1995 1994 1993 1992 3 1991 1,2,3
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.79 $ 10.05 $ 10.11 $ 10.00 $ 10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 4 0.63 0.44 0.46 0.56 0.67
Net realized and unrealized gain
(loss) on investments (0.28) (0.09) 0.30 0.11 --.--
------ ------ ------ ------ ------
Total from investment operations 0.35 0.35 0.76 0.67 0.67
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.58) (0.46) (0.38) (0.56) (0.67)
From net realized gains --.-- (0.15) (0.44) --.-- --.--
------ ------ ------ ------ ------
Total distributions (0.58) (0.61) (0.82) (0.56) (0.67)
------ ------ ------ ------ ------
Net asset value, end of period $ 9.56 $ 9.79 $ 10.05 $ 10.11 $ 10.00
====== ====== ====== ====== ======
Total Return 5 3.78% 3.54% 8.25% 11.88% 3.83%
Ratios/Supplemental Data:
Net assets, end of period (000's) $8,193 $8,095 $10,499 $9,257 $40,850
Net expenses to average daily net 0.25% 0.25% 0.25% 0.25% 0.25%6
assets 4
Net investment income to average
daily net assets 4 5.02% 4.35% 4.94% 5.83% 7.88%6
Portfolio turnover rate 335% 243% 649% 135% --.--
1 For the period from the commencement of operations, April 17, 1990 to February
28, 1991.
2 The per share amounts and the number of shares outstanding have been restated
to reflect a one for ten reverse stock split effective December 1, 1991.
3 The Fund operated as a money market fund from April 17, 1990 until June 30,
1991. Subsequently, the Fund became a short-term income fund.
4 Net of fees and expenses voluntarily waived or borne by the Manager of $.02,
$.02, $03, $.03 and $.09 per share for the fiscal years 1995, 1994, 1993, and
1992 and for the period ended February 28, 1991, respectively.
5 The total returns would have been lower had certain expenses not been waived
during the periods shown.
6 Annualized.
</TABLE>
<TABLE>
<CAPTION>
Period from
December 22,
INTERNATIONAL BOND FUND 1993
Year Ended (commencement of
February 28, operations) to
1995 February 28,
1994
<S> <C> <C>
Net asset value, beginning of period $ 9.96 $ 10.00
------ ------
Income (loss) from investment operations:
Net investment income 1 0.98 0.08
Net realized and unrealized gain
(loss) on investments (0.21) (0.12)
------ ------
Total from investment operations 0.77 (0.04)
------ ------
Less distributions to shareholders:
From net investment income (0.75) --.--
From net realized gains (0.34) --.--
------ ------
Total distributions (1.09) --.--
Net asset value, end of period $ 9.64 $ 9.96
====== ======
Total Return 2 8.23% (0.40%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $151,189 $39,450
Net expenses to average daily net 0.40% 0.40%3
assets 1
Net investment income to average
daily net assets 1 7.51% 5.34%3
Portfolio turnover rate 141% 14%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.02
and $.01 for the fiscal year 1995 and for the period ended February 28, 1994,
respectively.
2 Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the period shown.
3 Annualized.
</TABLE>
<TABLE>
<CAPTION>
Period from
CURRENCY HEDGED INTERNATIONAL BOND FUND September 30,
1994
(commencement
of operations)
to February
28, 1995
<S> <C>
Net asset value, beginning of period $ 10.00
------
Income (loss) from investment operations:
Net investment income 1 0.24
Net realized and unrealized gain
(loss) on investments (0.09)
------
Total from investment operations 0.15
Less distributions to shareholders:
From net investment income (0.16)
------
Net asset value, end of period $ 9.99
======
Total Return 2 1.49%
Ratios/Supplemental Data:
Net assets, end of period (000's) $238,664
Net expenses to average daily net 0.40%3
assets 1
Net investment income to average
daily net assets 1 8.46%3
Portfolio turnover rate 64%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for the period ended February 28, 1995.
2 Calculation excludes subscription fees. The total return would have been lower
had certain expenses not been waived during the period shown.
3 Annualized.
</TABLE>
<TABLE>
<CAPTION>
Period from
EMERGING COUNTRY DEBT FUND April 19, 1994
(commencement
of operations)
to February
28, 1995
<S> <C>
Net asset value, beginning of period $ 10.00
------
Income (loss) from Investment
Operations:
Net investment income 1 0.48
Net realized and unrealized gain
(loss) on investments (1.59)
------
Total from investment operations (1.11)
------
Less distributions to shareholders:
From net investment income (0.40)
From net realized gains (0.10)
------
Total distributions (0.50)
------
Net asset value, end of period $ 8.39
=======
Total Return 2 (11.65%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $243,451
Net expenses to average daily net 0.50%3
assets 1
Net investment income to average
daily net assets 1 10.57%3
Portfolio turnover rate 104%
1 Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for the period ended February 28, 1995.
2 Calculation excludes subscription fees. The total return would have been lower
had certain expenses not been waived during the period shown.
3 Annualized.
</TABLE>
The above information has been audited by Price Waterhouse LLP, independent
accountants. These statements should be read in conjunction with the financial
statements and related notes which are included in the Trust's Statement of
Additional Information.
The Manager's discussion of the performance of each Fund in fiscal 1995, as
well as a comparison of each Fund's performance over the life of the Fund with
that of a benchmark securities index selected by the Manager, is included in
each Fund's Annual Report for the fiscal year ended February 28, 1995. Copies of
the Annual Reports are available upon request without charge.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Core Fund, Value Allocation
Fund, Growth Allocation Fund, Short-Term Income Fund, International Core Fund
and Japan Fund is fundamental and may not be changed without shareholder
approval. The investment objective of each other Fund may be changed without
shareholder approval. Except for investment policies which are explicitly
described as fundamental, the investment policies of each Fund may be changed
without shareholder approval. There can be no assurance that the investment
objective of any Fund will be achieved.
As is noted below, several of the Funds seek a total return greater than
the S&P 500. The S&P 500 is an unmanaged weighted index of the common stock
performance of 500 industrial, transportation, utility and financial companies
selected for inclusion in the Index by Standard & Poor's Corporation on a
statistical basis. For over 25 years, investors have used the S&P 500 against
which to measure the performance of their portfolios because it is generally
believed by knowledgeable investors that the S&P 500 combines the breadth,
weight and statistical integrity needed to reflect overall market activity.
The International Equity Funds, together with the International Bond
Fund, Currency Hedged International Bond Fund, Global Bond Fund, Emerging
Country Debt Fund, and Core Emerging Country Debt Fund are sometimes
collectively referred to as the "International Funds".
DOMESTIC EQUITY FUNDS
CORE FUND
The Core Fund seeks a total return greater than that of the S&P 500
through investment in common stocks. The Core Fund expects that substantially
all of its assets will be invested in the equity securities of at least 125
companies chosen from among the approximately 1,200 companies with the largest
equity capitalization (i.e., number of shares outstanding multiplied by the
market price per share) at the time of investment which are also listed on a
United States national securities exchange (the "Large Cap 1200"). The Core Fund
may, from time to time, invest in fewer issuers if, in the opinion of the
Manager, there are not at least 125 attractive investment opportunities from
among such companies.
The Manager will select which issuers to invest in based on its
assessment of whether the common stock of the issuer is likely to perform better
than the S&P 500. Since the Core Fund's portfolio investments will not be chosen
and proportionately weighted to approximate the total return of the S&P 500, the
total return of the Core Fund may be more or less than the total return of the
S&P 500. An investment in the Fund involves risks similar to investing in common
stocks directly.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
TOBACCO-FREE CORE FUND
The Tobacco-Free Core Fund seeks a total return greater than that of
the S&P 500 through investment in common stocks chosen from the Large Cap 1200
and which are not Tobacco Producing Issuers. The Tobacco-Free Core Fund expects
that substantially all of its assets will be invested in the securities of at
least 125 companies chosen from the Large Cap 1200. The Tobacco-Free Core Fund
may, from time to time, invest in fewer issuers if, in the opinion of the
Manager, there are not at least 125 attractive investment opportunities from
among such companies.
The Manager will select which issuers to invest in based on its
assessment of whether the common stock of the issuer is likely to perform better
than the S&P 500. Since the Tobacco-Free Core Fund's portfolio investments will
not be chosen and proportionately weighted to approximate the total return of
the S&P 500, the total return of the Tobacco-Free Core Fund may be more or less
than the total return of the S&P 500. An investment in the Fund involves risks
similar to investing in common stocks directly.
The Manager has instituted procedures to avoid investment by the
Tobacco-Free Core Fund in the securities of issuers which, at the time of
purchase, derive more than 10% of their gross revenues from the production of
tobacco-related products ("Tobacco Producing Issuers"). For this purpose the
Manager will subscribe to and generally rely on information services provided by
third parties, although the Manager may cause the Tobacco-Free Core Fund to
purchase securities of issuers which are identified by those third parties as
Tobacco Producing Issuers if, at the time of purchase, the Manager has received
information from the issuer to the effect that it is no longer a Tobacco
Producing Issuer.
The Tobacco-Free Core Fund is required to have a fundamental policy,
which cannot be changed without shareholder approval, that under normal market
conditions at least 65% of its assets will be invested in the securities of
issuers other than Tobacco Producing Issuers. The requirements of this policy
are not, however, expected to affect the Manager's overall approach of not
investing in Tobacco Producing Issuers.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
VALUE ALLOCATION FUND
The Value Allocation Fund seeks a total return greater than that of the
S&P 500 through investment in a broadly diversified and liquid portfolio of
common stocks chosen from the Large Cap 1200. The Fund expects that any income
it derives will be from dividends on common stock. The Manager will select which
issuers to invest in based on its assessment of whether the common stock of the
issuer is likely to perform better than the S&P 500. Strong consideration is
given to common stocks whose current prices do not adequately reflect, in the
opinion of the Manager, the ongoing business value of the underlying company.
The Fund's investments are made in securities of companies which, in
the opinion of the Manager, are of average or above average investment quality.
Investment quality is evaluated using fundamental analysis emphasizing each
issuer's historic financial performance, balance sheet strength, management
capability and competitive position. Various valuation parameters are examined
to determine the attractiveness of individual securities. Since the Fund's
portfolio investments will not be chosen and proportionately weighted to
approximate the total return of the S&P 500, at times the total return of the
Value Allocation Fund may be more or less than the total return of the S&P 500.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
GROWTH ALLOCATION FUND
The Growth Allocation Fund seeks long-term growth of capital. Current
income is only an incidental consideration. The Growth Allocation Fund attempts
to achieve its objective by investing in companies whose earnings per share are
expected by the Manager to grow at a rate faster than the average of the Large
Cap 1200.
The Fund expects that at least 65% of its assets will be invested in
the common stocks (and securities convertible into common stocks) of issuers
chosen from the Large Cap 1200. Such companies may include foreign issuers,
although the Fund does not intend to invest in securities which are principally
traded outside of the United States. The balance of the common stocks (and
securities convertible into common stocks) held by the Fund may be less liquid
investments since the companies in question will have smaller equity
capitalization and/or the securities may not be listed on a national securities
exchange.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in the high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
U.S. SECTOR ALLOCATION FUND
The U.S. Sector Allocation Fund seeks a total return greater than that
of the S&P 500 through investment in common stocks chosen from among the 1,800
companies with the largest equity capitalization whose securities are listed on
United States national securities exchanges.
The Fund may place varying degrees of emphasis on different types of
companies depending on the Manager's assessment of economic and market
conditions, including companies with superior growth prospects and/or companies
whose common stock does not, in the opinion of the Manager, adequately reflect
the companies' ongoing business value. The Fund may invest in companies with
smaller equity capitalization than the companies whose securities are purchased
by the Value Allocation Fund and the Growth Allocation Fund. The securities of
small capitalization companies may be less liquid and their market prices more
volatile than those issued by companies with larger equity capitalizations.
Since the Fund's portfolio investments will not be chosen and proportionately
weighted to approximate the S&P 500, the total return of the U.S. Sector
Allocation Fund may be more or less than the total return of the S&P 500.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
CORE II SECONDARIES FUND
The investment objective of the Core II Secondaries Fund is long-term
growth of capital. Current income is only an incidental consideration. The Core
II Secondaries Fund attempts to achieve its objective by selecting its
investments from domestic second tier companies. For these purposes, "second
tier companies" are those companies whose equity capitalization at the time of
investment by the Core II Secondaries Fund ranks in the lower two thirds of the
1800 publicly-held issuers with the largest equity capitalization.
The Core II Secondaries Fund invests primarily in common stocks,
although the Fund may on rare occasions hold securities convertible into common
stocks such as convertible bonds, convertible preferred stocks and warrants. The
Fund expects that at least 65% of its assets will be invested in the securities
of second tier companies, as defined above. The Fund may also hold the common
stocks (and securities convertible into common stocks) of companies with smaller
equity capitalizations. Such investments may be less liquid, as the securities
may not be listed on a national securities exchange and their market prices may
be more volatile than those issued by companies with larger equity
capitalizations.
In pursuing its objective, the Fund may invest in securities of foreign
issuers traded principally on U.S. securities exchanges, invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
FUNDAMENTAL VALUE FUND
The Fundamental Value Fund seeks long-term capital growth through
investment primarily in equity securities. Current income is only a secondary
consideration. It is anticipated that at least 90% of the Fund's assets will be
invested in common stocks and securities convertible into common stocks.
Although the Fund invests primarily in securities traded in the United States,
it may invest up to 25% of its assets in securities of foreign issuers and
securities traded principally outside of the United States.
The Fund invests primarily in common stocks of domestic corporations
that, in the opinion of the Manager, represent favorable values relative to
their market prices. Under normal conditions, the Fund generally, but not
exclusively, looks for companies with low price/earnings ratios and rising
earnings. The Fund focuses on established firms with capitalizations of more
than $100 million and generally does not buy issues of companies with less than
three years of operating history. The Fund seeks to maintain lower than average
equity risk levels relative to the potential for return through a portfolio with
an average historic volatility (beta) below 1.0. The S&P 500, which serves as a
standard for measuring volatility, always has average volatility (beta) of 1.0.
The Fund's beta may change with market conditions.
The Fund's Manager analyzes key economic variables to identify general
trends in the stock markets. World economic indicators, which are tracked
regularly, include U.S. industry and trade indicators, interest rates,
international stock market indices, and currency levels. Under normal
conditions, investments are made in a variety of economic sectors, industry
segments, and individual securities to reduce the effects of price volatility in
any one area.
In making investments, the Manager takes into account, among other
things, a company's source of earnings, competitive edge, management strength,
and level of industry dominance as measured by market share. At the same time,
the Manager analyzes the financial condition of each company. The Manager
examines current and historical measures of relative value to find corporations
that are selling at discounts relative to both underlying asset values and
market pricing. The Manager then selects those companies with financial and
business characteristics that it believes will produce above-average growth in
earnings. Sell decisions are triggered when, in the opinion of the Manager, the
stock price and other fundamental considerations make further appreciation less
likely.
The Manager generally selects equities that normally trade in
sufficient volume to provide liquidity. Domestic equities are usually traded on
the New York Stock Exchange or the American Stock Exchange or in the
over-the-counter markets.
The Fund's investments in foreign securities will generally consist of
equity securities traded in principal European and Pacific Basin markets. The
Manager evaluates the economic strength of a country, which includes its
resources, markets, and growth rate. In addition, it examines the political
climate of a country as to its stability and business policies. The Manager then
assesses the strength of the country's currency and considers foreign exchange
issues in general. The Fund aims for diversification not only among countries
but also among industries in order to enable shareholders to participate in
markets that do not necessarily move in concert with U.S. markets.
Once the Fund has identified a rapidly expanding foreign economy, the
Fund attempts to search out growing industries and corporations, focusing on
companies with established records. Individual securities are selected based on
value indicators, such as low price to earnings ratio. Foreign securities in the
portfolio are generally listed on principal overseas exchanges.
In pursuing its objective, the Fund may invest without limit in
depository receipts of foreign issuers, and purchase convertible securities. The
Fund may also invest up to 15% of its net assets in illiquid securities, lend up
to 100% of its portfolio securities, and enter into repurchase agreements.
In addition, the Fund may purchase index futures on the S&P 500 and
other domestic indices for investment, anticipatory hedging and risk management
and to effect synthetic sales and purchases. The Fund may also use equity swap
contracts and contracts for differences for these purposes. The Fund may also
purchase put options and write covered call options provided that premiums paid
by the Fund on all outstanding options it has purchased do not exceed 5% of its
total assets.
It is a policy of the Fund to stay fully invested in common stocks,
index futures, equity swap contracts and contracts for differences even when the
Manager believes that equity securities generally may underperform other types
of investments. The Fund expects that, not including the margin deposits or the
segregated accounts created in connection with index futures and other
derivatives, less than 5% of its total net assets will be invested in high
quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund will at all times invest at least 65% of
its total assets in domestic common stocks. The Fund does not expect to invest
in long or short-term fixed income securities for temporary defensive purposes.
For a detailed description of the investment practices described in the
preceding five paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE FUND
The investment objective of the International Core Fund is to maximize
total return through investment in a portfolio of common stocks of non-U.S.
issuers. The Fund will usually invest primarily in common stocks, including
dividend-paying common stocks. Capital appreciation may be sought through
investment in common stocks, convertible bonds, convertible preferred stocks,
warrants or rights. Income may be sought through investment in dividend-paying
common stocks, convertible bonds, money market instruments or fixed income
securities such as long and medium term corporate and government bonds and
preferred stocks. Some of these fixed income securities may have speculative
qualities and the values of these securities generally fluctuate more than those
of other, less speculative fixed income securities. See "Descriptions and Risks
of Fund Investment Practices -- Lower Rated Securities".
The relative emphasis of the Fund on capital appreciation or income
will depend upon the views of the Manager with respect to the opportunities for
capital appreciation relative to the opportunities for income. There are no
prescribed limits on geographic asset distribution and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world, although under normal market conditions the Fund will invest in
securities traded in the securities markets of at least three foreign countries.
The responsibility for allocating the Fund's assets among the various securities
markets of the world is borne by the Manager. In making these allocations, the
Manager will consider such factors as the condition and growth potential of the
various economic and securities markets, currency and taxation considerations
and other pertinent financial, social, national and political factors. The Fund
generally will not invest in securities of U.S. issuers, except that for
temporary defensive purposes the Fund may invest up to 100 percent of its assets
in United States securities.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management, although the
Fund's foreign currency exposure will not generally vary by more than 30% from
the foreign currency exposure of a benchmark index (the "EAFE-lite Index"),
which is a modification of the Morgan Stanley Capital International EAFE Index
(the "EAFE Index") developed by the Manager so as to reduce the weighting of
Japan in the EAFE Index. The put and call options on currency futures written by
the Fund will always be covered. For more information on foreign currency
transactions, see "Descriptions and Risks of Fund Investment Practices --
Foreign Currency Transactions". The stocks held by the Fund will not be chosen
to approximate the weightings of the EAFE-lite Index.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets or
other of the International Equity Funds to the extent permitted under the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder (the "1940 Act"). As a shareholder of an investment
company, the Fund may indirectly bear service fees which are in addition to the
fees the Fund pays its service providers.
In addition, the Fund may invest in securities of foreign issuers
traded on U.S. exchanges and securities traded abroad, American Depositary
Receipts, European Depository Receipts and other similar securities convertible
into securities of foreign issuers. The Fund may also enter repurchase
agreements, lend portfolio securities valued at up to 25% of total assets, and
may invest up to 15% of its net assets in illiquid securities. The Fund expects
that, not including the margin deposits or the segregated accounts created in
connection with index futures and other derivatives, less than 5% of its total
net assets will be invested in cash or high quality money market instruments
such as securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit.
The Fund may also buy put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund's use of options on particular securities (as
opposed to market indices) is limited such that the premiums paid by the Fund on
all outstanding options it has purchased may not exceed 5% of its total assets.
The Fund may also write options in connection with buy-and-write transactions,
and use index futures (on foreign stock indices), options on futures, equity
swap contracts and contracts for differences for investment, anticipatory
hedging and risk management and to effect synthetic sales and purchases.
For a detailed description of the investment practices described in the
four preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
CURRENCY HEDGED INTERNATIONAL CORE FUND
The investment objective of the Currency Hedged International Core Fund
is to maximize total return through investment in a portfolio of common stocks
of non-U.S. issuers and through management of the Fund's currency positions. The
Fund has policies that are similar to the International Core Fund, except that
the Currency Hedged International Core Fund will employ a different strategy
with respect to foreign currency exposure. While the International Core Fund
will not generally vary its foreign currency exposure by more than 30% from the
currency exposure of the EAFE-lite Index, the Currency Hedged International Core
Fund will not generally vary its foreign currency exposure by more than 30% from
the currency exposure of a fully currency hedged EAFE-lite Index. That is, the
Currency Hedged International Core Fund will maintain short currency positions
with respect to a substantial portion (generally at least 70%) of the foreign
currency exposure represented in the EAFE-lite Index while the International
Core Fund will generally take short positions to offset a limited portion
(generally less than 30%) of the currency exposure of the EAFE-lite Index. The
Currency Hedged International Core Fund may use forward foreign currency
contracts, currency futures contracts, currency swap contracts, options on
currencies and buy and sell foreign currencies for hedging and for currency risk
management. The put and call options on currency futures written by the Fund
will always be covered. For more information on foreign currency transactions,
see "Descriptions and Risks of Fund Investment Practices -- Foreign Currency
Transactions". Because of its name, the Currency Hedged International Bond Fund
is required to have a policy that it will maintain short currency positions with
respect to at least 65% of the foreign currency exposure represented by the
common stocks owned by the Fund.
The Fund will usually invest primarily in common stocks, including
dividend-paying common stocks. The stocks held by the Fund will not be chosen to
approximate the weightings of the EAFE-lite Index. Capital appreciation may be
sought through investment in common stocks, convertible bonds, convertible
preferred stocks, warrants or rights. Income may be sought through investment in
dividend-paying common stocks, convertible bonds, money market instruments or
fixed income securities such as long and medium term corporate and government
bonds and preferred stocks. Some of these fixed income securities may have
speculative qualities and the values of these securities generally fluctuate
more than those of other, less speculative fixed income securities. See
"Descriptions and Risks of Fund Investment Practices -- Lower Rated Securities".
The relative emphasis of the Fund on capital appreciation or income
will depend upon the views of the Manager with respect to the opportunities for
capital appreciation relative to the opportunities for income. There are no
prescribed limits on geographic asset distribution and the Fund has the
authority to invest in securities traded in securities markets of any country in
the world, although under normal market conditions the Fund will invest in
securities traded in the securities markets of at least three foreign countries.
The responsibility for allocating the Fund's assets among the various securities
markets of the world is borne by the Manager. In making these allocations, the
Manager will consider such factors as the condition and growth potential of the
various economic and securities markets, currency and taxation considerations
and other pertinent financial, social, national and political factors. The Fund
generally will not invest in securities of U.S. issuers, except that for
temporary defensive purposes the Fund may invest up to 100 percent of its assets
in United States securities.
The Fund may also invest in securities of investment companies, such as
closed-end investment management companies which invest in foreign markets or
other of the International Equity Funds to the extent permitted under the 1940
Act. As a shareholder of an investment company, the Fund may indirectly bear
service fees which are in addition to the fees the Fund pays its service
providers.
In addition, the Fund may invest in securities of foreign issuers
traded on U.S. exchanges and securities traded abroad, American Depositary
Receipts, European Depository Receipts and other similar securities convertible
into securities of foreign issuers. The Fund may also enter repurchase
agreements, and lend portfolio securities valued at up to 25% of total assets.
The Fund may also invest up to 15% of its net assets in illiquid securities and
temporarily invest in cash and high quality money market instruments such as
securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit. The Fund
expects that, not including the margin deposits or the segregated accounts
created in connection with index futures and other derivatives, less than 5% of
its total net assets will be invested in such high quality cash items.
The Fund may also buy put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund's use of options on particular securities (as
opposed to market indices) is limited such that the premiums paid by the Fund on
all outstanding options it has purchased may not exceed 5% of its total assets.
The Fund may also write options in connection with buy-and-write transactions,
and use index futures (on foreign stock indices), options on futures, equity
swap contracts and contracts for differences for investment, anticipatory
hedging and risk management and to effect synthetic sales and purchases.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
INTERNATIONAL SMALL COMPANIES FUND
The International Small Companies Fund seeks to maximize total return
through investment primarily in equity securities of foreign issuers whose
equity securities are traded on a major stock exchange of a foreign country
("foreign stock exchange companies") and whose equity capitalization at the time
of investment, when aggregated with the equity capitalizations of all foreign
stock exchange companies in that country whose equity capitalizations are
smaller than that of such company, is less than 50% of the aggregate equity
capitalization of all foreign stock exchange companies in such country ("small
capitalization foreign companies"). With the exception of the International
Small Companies Fund's policy of investing in securities of small capitalization
foreign companies, and except as otherwise disclosed in this Prospectus and the
related Statement of Additional Information, the International Small Companies
Fund's investment objectives and policies are the same as those described above
with respect to the International Core Fund.
It is currently expected that at least 65% of the International Small
Companies Fund's assets will be invested in common stocks of small
capitalization foreign companies. Such companies may present greater
opportunities for capital appreciation because of high potential earnings
growth, but may also involve greater risk. Small capitalization foreign
companies tend to be smaller and newer than other foreign companies and may be
dependent upon a single proprietary product or market niche. They may have
limited product lines, markets or financial resources, or may depend on a
limited management group. Typically, small capitalization foreign companies have
fewer securities outstanding and are less liquid than large companies. Their
common stock and other securities may trade less frequently and in limited
volume. The securities of small capitalization foreign companies are generally
more sensitive to purchase and sale transactions and, therefore, the prices of
such securities tend to be more volatile than the securities of larger
companies.
The Fund also may invest in securities of foreign issuers traded on
U.S. exchanges and securities traded abroad, American Depositary Receipts,
European Depository Receipts and other similar securities convertible into
securities of foreign issuers. The Fund may also enter repurchase agreements,
and lend up to 100% of its portfolio securities. The Fund may also invest up to
15% of its net assets in illiquid securities and temporarily invest in cash and
high quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit. The Fund expects that, not including the margin
deposits or the segregated accounts created in connection with index futures and
other derivatives, less than 5% of its total net assets will be invested in such
high quality cash items.
The Fund may also buy put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund's use of options on particular securities (as
opposed to market indices) is limited such that the premiums paid by the Fund on
all outstanding options it has purchased may not exceed 5% of its total assets.
The Fund may also write options in connection with buy-and-write transactions,
and use index futures (on foreign stock indices), options on futures, equity
swap contracts and contracts for differences for investment, anticipatory
hedging and risk management and to effect synthetic sales and purchases.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management. The put and
call options on currency futures written by the Fund will always be covered.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
JAPAN FUND
The Japan Fund seeks to maximize total return through investment in a
portfolio of Japanese securities, consisting primarily of common stocks of
Japanese companies. It is currently expected that the Japan Fund will invest at
least 90% of its assets in "Japanese Securities," that is, securities issued by
entities that are organized under the laws of Japan and that either have 50% or
more of their assets in Japan or derive 50% or more of their revenues from Japan
("Japanese Companies"). Although the Japan Fund will invest primarily in common
stocks of Japanese Companies, it may also invest in other Japanese Securities,
such as convertible preferred stock, warrants or rights as well as short-term
government debt securities or other short-term prime obligations (i.e., high
quality debt obligations maturing not more than one year from the date of
issuance). The Japan Fund expects that any income it derives will be from
dividend or interest payments on securities.
Unlike mutual funds which invest in the securities of many other
countries, the Japan Fund will be invested almost exclusively in Japanese
Securities. No effort will be made by the Manager to assess the Japanese
economic, political or regulatory developments or changes in currency exchange
rates for purposes of varying the portion of the Fund's assets invested in
Japanese Securities. This means that the Fund's performance will be directly
affected by political, economic, market and exchange rate conditions in Japan.
Also, since the Japanese economy is dependent to a significant extent on foreign
trade, the relationships between Japan and its trading partners and between the
yen and other currencies are expected to have a significant impact on particular
Japanese Companies and on the Japanese economy generally. Also, the Japan Fund's
investments are denominated in yen, whose value continually changes in relation
to the dollar. This varying relationship will also directly affect the value of
the Japan Fund's shares. The Japan Fund is designed for investors who are
willing to accept the risks associated with changes in such conditions and
relationships.
To achieve its objectives, the Fund may invest in securities of foreign
issuers traded on U.S. exchanges and securities traded abroad, American
Depositary Receipts, European Depository Receipts and other similar securities
convertible into securities of foreign issuers. The Fund may also enter
repurchase agreements, and lend up to 100% of its portfolio securities The Fund
may also invest up to 15% of its net assets in illiquid securities and
temporarily invest in cash and high quality money market instruments such as
securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit. The Fund
expects that, not including the margin deposits or the segregated accounts
created in connection with index futures or other derivatives, less than 5% of
its total net assets will be invested in such high quality cash items.
The Fund may also buy put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund's use of options on particular securities (as
opposed to market indices) is limited such that the premiums paid by the Fund on
all outstanding options it has purchased may not exceed 5% of its total assets.
The Fund may also write options in connection with buy-and-write transactions,
and use index futures (on foreign stock indices), options on futures, equity
swap contracts and contracts for differences for investment, anticipatory
hedging and risk management and to effect synthetic sales and purchases.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management. The put and
call options on currency futures written by the Fund will always be covered.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
EMERGING MARKETS FUND
The Emerging Markets Fund seeks long-term capital appreciation
consistent with what the Manager believes to be a prudent level of risk through
investment in equity and equity-related securities traded in the securities
markets of newly industrializing countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa. The Manager has appointed
Dancing Elephant, Ltd. to serve as a consultant (the "Consultant") to the Fund.
The Consultant's efforts focus on asset allocation among the selected
emerging markets. (See "Descriptions and Risks of Fund Investment Practices --
Certain Risks of Foreign Investments".) In addition to considerations relating
to a particular market's investment restrictions and tax barriers, this asset
allocation is based on certain other relevant factors including the outlook for
economic growth, currency exchange rates, commodity prices, interest rates,
political factors and the stage of the local market cycle in such emerging
market. The Consultant expects to allocate the Fund's investments over
geographic as well as economic sectors.
There are currently over 50 newly industrializing and developing
countries with equity markets. A number of these markets are not yet easily
accessible to foreign investors and have unattractive tax barriers or
insufficient liquidity to make significant investments by the Fund feasible or
attractive. However, many of the largest of the emerging markets have, in recent
years, liberalized access and more are expected to do so over the coming few
years if the present trend continues.
Emerging markets in which the Fund intends to invest may include the
following emerging markets:
Asia: Bangladesh, China, India, Indonesia, Korea, Malaysia, Mynanmar,
Mongolia, Pakistan, Philippines, Sri Lanka, Republic of China
(Taiwan), Thailand, Vietnam
Latin Argentina, Bolivia, Brazil, Chile, Columbia, Costa Rica, Ecuador,
America: Jamaica, Mexico, Peru, Uruguay, Venezuela,
Europe/ Botswana, Czech Republic, Ghana, Greece, Hungary, Israel, Jordan,
Middle Kazakhstan, Kenya, Morocco, Namibia, Nigeria, Poland, Portugal,
East/ Russia, Slovakia, Slovenia, South Africa, Turkey, Ukraine, Zimbabwe
Africa:
The Fund invests predominantly in individual stocks listed on emerging
stock exchanges or in depository receipts of such stocks listed on markets in
industrialized countries or traded in the international equity market. The Fund
may also invest in shares of companies which are not presently listed but are in
the process of being privatized by the government and, subject to a maximum
aggregate investment equal to 25% of the total assets of the Fund, shares of
companies that are traded in unregulated over-the-counter markets or other types
of unlisted securities markets. The Fund may also invest through investment
funds, pooled accounts or other investment vehicles designed to permit
investments in a portfolio of stocks listed in a particular developing country
or region subject to obtaining any necessary local regulatory approvals,
particularly in the case of countries in which such an investment vehicle is the
exclusive or main vehicle for foreign portfolio investment. Such investments may
result in additional costs, as the Fund may be required to bear a pro rata share
of the expenses of each such fund in which it invests. The Fund may also invest
in companies listed on major markets outside of the emerging markets that, based
on information obtained by the Consultant, derive at least half of their
revenues from trade with or production in developing countries. In addition, the
Fund's assets may be invested on a temporary basis in debt securities issued by
companies or governments in developing countries or money market securities of
high-grade issuers in industrialized countries denominated in various
currencies.
The Fund may also invest in bonds and money market instruments in
Canada, the United States and other markets of industrialized nations and
emerging securities markets, and, for temporary defensive purposes, may invest
without limit in cash and high quality money market instruments such as
securities issued by the U.S. government and agencies thereof, bankers'
acceptances, commercial paper, and bank certificates of deposit. The Fund
expects that, not including the margin deposits or the segregated accounts
created in connection with index futures and other derivatives, less than 5% of
its total net assets will be invested in such high quality cash items. The Fund
may also invest in indexed securities, the redemption value and/or coupons of
which are indexed to the prices of other securities, securities indices,
currencies, precious metal, or other commodities, as well as other technical
indicators.
The Fund may also invest up to 10% of its total assets through
debt-equity conversion funds established to exchange foreign bank debt of
countries whose principal repayments are in arrears into a portfolio of listed
and unlisted equities, subject to certain repatriation restrictions. The Fund
may also invest in convertible securities, enter repurchase agreements and lend
up to 100% of its portfolio securities. The Fund may invest up to 15% of its net
assets in illiquid securities.
The Fund may also buy put and call options, sell (write) covered options
and enter into futures contracts and options on futures contracts for hedging
and risk management. The Fund's use of options on particular securities (as
opposed to market indices) is limited such that the premiums paid by the Fund on
all outstanding options it has purchased may not exceed 5% of its total assets.
The Fund may also write options in connection with buy-and-write transactions,
and use index futures (on foreign stock indices), options on futures, equity
swap contracts and contracts for differences for investment, anticipatory
hedging and risk management and to effect synthetic sales and purchases.
The Fund may use forward foreign currency contracts, currency futures
contracts, currency swap contracts, options on currencies and buy and sell
foreign currencies for hedging and for currency risk management. The put and
call options on currency futures written by the Fund will always be covered.
For a detailed description of the investment practices described in the
five preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
GLOBAL HEDGED EQUITY FUND
The Global Hedged Equity Fund seeks total return consistent with
minimal exposure to general equity market risk. The Fund will pursue its
investment objective by investing substantially all of its assets in a
combination of (i) equity securities, (ii) derivative instruments intended to
hedge the value of the Fund's equity securities against substantially all of the
general movements in the relevant equity market(s), including hedges against
substantially all of the changes in the value of the U.S. dollar relative to the
currencies represented in the indices used to hedge general equity market risk
and (iii) long interest rate futures contracts intended to adjust the duration
of the theoretical fixed income security embedded in the pricing of the
derivatives used for hedging the Fund's equity securities (the "Theoretical
Fixed Income Security"). To the extent that the Fund's portfolio strategy is
successful, the Fund is expected to achieve a total return consisting of (i) the
performance of the Fund's equity securities, relative to the relevant equity
market indices (including appreciation or depreciation of any overweighted
currency relative to the currency weighting of the equity hedge), plus or minus
(ii) short-term capital gains or losses approximately equal to the total return
on the Theoretical Fixed Income Security, plus or minus (iii) capital gains or
losses on the Fund's interest rate futures positions minus (iv) transaction
costs and other Fund expenses. Investors should understand that, as opposed to
conventional equity portfolios, to the extent that the Fund's hedging positions
are effective, the performance of the Fund is not expected to correlate with the
movements of equity markets generally. Rather, the performance of the Fund will
tend to be a function of the total return on fixed income securities and the
performance of the Fund's equity securities relative to broad market indices,
including changes in overweighted currencies relative to the currency weighting
of those indices.
The Global Hedged Equity Fund will generally invest in at least 125
different common stocks chosen from among (i) the Large Cap 1200 and (ii) stocks
traded primarily outside of the United States similarly chosen from among
issuers with the largest market capitalization that are principally traded on a
given foreign securities exchange. The Manager will select which common stocks
to purchase based on its assessment of whether the common stock of an issuer
(and/or the currency in which the stock is traded) is likely to perform better
than the broad global equity market index (the "Selected Equity Index") selected
by the Manager to serve as a hedge for the Fund's portfolio as a whole.
As indicated above, the Fund will seek to hedge fully the value of its
equity holdings (measured in U.S. Dollars) against substantially all movements
in the global equity markets (measured in U.S. Dollars). This means that, if the
hedging strategy is successful, when the world equity markets and/or the U.S.
dollar go up or down, the Fund's net asset value will not be materially affected
by those movements in the relevant equity or currency markets generally, but
will rise or fall based primarily on whether the Fund's selected equity
securities perform better or worse than the Selected Equity Index. Those changes
will include the changes in any overweighted currency relative to the currency
weighting of the Selected Equity Index.
The Fund may use a variety of equity hedging instruments. It is
currently anticipated that the Fund will primarily use a combination of short
equity swap contracts and Index Futures for the purpose of hedging equity market
exposure, including, to the extent permitted by regulations of the Commodity
Futures Trading Commission, those traded on foreign markets. The derivative
short positions represented by the Fund's equity swap contracts will generally
relate to modified versions of the market capitalization weighted U.S., Europe,
Australia and Far East Index (or "Global Index") calculated by Morgan Stanley
Capital International. These modified indices ("Modified Global Index")
generally reduce the size of the Japanese equity markets for purposes of the
country weighting by 40% or more. The Fund generally expects to build its
currency hedging into its equity swap contracts, although it may also attempt to
hedge directly its foreign currency-denominated portfolio securities against an
appreciation in the U.S. dollar relative to the foreign currencies in which such
securities are denominated.
The Manager expects to select specific equity investments without
regard to the country weightings of the Modified Global Index and in some cases
may intentionally emphasize holdings in a particular market or traded in a
particular currency. Because the country market and currency weighting of the
Modified Global Index will generally not precisely mirror the country market
weightings represented by the Fund's equity securities, there will be an
imperfect correlation between the Fund's equity securities and the hedging
position(s). Consequently, the Fund's hedging strategies using those equity swap
contracts are expected to be somewhat imperfect. This means there is a risk that
if the Fund's equity securities decline in value as a result of general market
conditions, the hedging position(s) may not appreciate enough to offset that
decline (or may actually depreciate). Likewise, if the Fund's equity securities
increase in value, that value may be more than offset by a decline in the value
of the hedging position(s). Also, because the Manager may conclude that a
particular currency is likely to appreciate relative to the currencies
represented by the Selected Equity Index, securities traded in that particular
currency may be overweighted relative to the Selected Equity Index. Such an
overweighted position may result in a loss or reduced gain to the Fund (even
when the security appreciates in local currency) if the relevant currency
depreciates relative to the currencies represented by the Modified Global Index.
The Fund's hedging positions are also expected to increase or decrease
the Fund's gross total return by an amount approximating the total return on
relevant short-term fixed income securities referred to above as the Theoretical
Fixed Income Security. For example, as the holder of a short derivative position
on an equity index, the Fund will be obligated to pay the holder of the long
position (the "counterparty") the total return on that equity index. The Fund's
contractual obligation eliminates for the counterparty the opportunity cost that
would be associated with actually owning the securities underlying that equity
index. That opportunity cost would generally be considered the total return that
a counterparty could achieve if the counterparty's capital were invested in a
short-term fixed income security (i.e., up to 2 years maturity) rather than in
the securities underlying the Relevant Equity Index. Because the counterparty is
relieved of this cost, the pricing of the hedging instruments is designed to
compensate the holder of the short position (in this case the Fund) by paying to
the holder the total return on the Theoretical Fixed Income Security. (Another
way of thinking about this is that the holder of the short position must, in
theory, be compensated for the cost of borrowing money over some relatively
short term (generally up to 2 years) to purchase an equity portfolio matching
that holder's obligations under the hedging instrument.)
In practice, the Manager has represented that generally, if there is no
movement in the Relevant Equity Index during the term of the derivative
instrument, the Fund as the holder of the short (hedging) position would be able
to close out that position with a gain or loss equal to the total return on a
Theoretical Fixed Income Security with a principal amount equal to the face or
notional amount of the hedging instrument.
The total return on the Theoretical Fixed Income Security would be
accrued interest plus or minus the capital gain or loss on that security. In the
case of Index Futures, the Fund would expect the Theoretical Fixed Income
Security would be one with a term equal to the remaining term of the Index
Future and bearing interest at a rate approximately equal to the weighted
average interest rate for money market obligations denominated in the currency
or currencies used to settle the Index Futures (generally LIBOR if settled in
U.S. dollars). In the case of equity swap contracts, the Manager can specify the
Theoretical Fixed Income Security whose total return will be paid to (or payable
by) the Fund. In cases where the Manager believes the implicit "duration" of the
Fund's theoretical fixed income securities is too short to provide an acceptable
total return, the Fund may enter into long interest rate futures (or purchase
call options on longer maturity fixed-income securities) which, together with
the Theoretical Fixed Income Security, creates a synthetic Theoretical Fixed
Income Security with a longer duration (but never with a duration causing the
Fund's overall duration to exceed that of 3-year U.S. Treasury obligations) (See
"Descriptions and Risks of Fund Investment Practices -- Use of Options, Futures
and Options on Futures -- Investment Purposes"). The Fund will segregate cash,
U.S. Treasury obligations and other high grade debt obligations in an amount
equal, on a mark-to-market basis, to the Fund's obligations under the interest
rate futures. Duration is the average time until payment (or anticipated payment
in the case of a callable security) of interest and principal on a fixed income
security, weighted according to the present value of each payment.
If interest rates rise, the Fund would expect that the value of any
long interest rate future owned by the Fund would decline and that amounts
payable to the Fund under an equity swap contract in respect of the Theoretical
Fixed Income Security would decrease or that amounts payable by the Fund
thereunder would increase. Any such decline (and/or the amount of any such
decrease or increase under a short equity swap contract) could be greater than
the derivative "interest" received on the Fund's Theoretical Fixed Income
Securities. The Fund's gross return is also expected to be reduced by
transaction costs and other Fund expenses. Those expenses will generally include
currency hedging costs if interest rates outside the U.S. are higher than those
in the U.S.
For the equity swap contracts entered into by the Fund, the
counterparty will typically be a bank, investment banking firm or broker/dealer.
The counterparty will generally agree to pay the Fund (i) interest on the
Theoretical Fixed Income Security with a principal amount equal to the notional
amount of the equity swap contract plus (ii) the amount, if any, by which that
notional amount would have decreased in value (measured in U.S. Dollars) had it
been invested in the stocks comprising the equity index agreed to by the Fund
(the "Contract Index") in proportion to the composition of the Contract Index.
(The Contract Index will be the Modified Global Index except that, to the extent
short futures contracts on a particular country's equity securities are also
used by the Fund, the Contract Index may be the Modified Global Index with a
reduced weighting for that country to reflect the futures position.) The Fund
will agree to pay the counterparty (i) any negative total return on the
Theoretical Fixed Income Security plus (ii) the amount, if any, by which the
notional amount of the equity swap contract would have increased in value
(measured in U.S. Dollars) had it been invested in the stocks comprising the
Contract Index plus (iii) the dividends that would have been received on those
stocks. Therefore, the return to the Fund on any equity swap contract should be
the total return on the Theoretical Fixed Income Security reduced by the gain
(or increased by the loss) on the notional amount as if invested in the Contract
Index and reduced by the dividends on the stocks comprising the Contract Index.
The Fund will only enter into equity swap contracts on a net basis, i.e., the
two parties' obligations are netted out, with the Fund paying or receiving, as
the case may be, only the net amount of any payments. Payments under the equity
swap contracts may be made at the conclusion of the contract or periodically
during its term.
The Fund may from time to time enter into the opposite side of equity
swap contracts (i.e., where the Fund is obligated to pay the decrease (or
receive the increase) on the Contract Index increased by any negative total
return (and decreased by any positive total return) on the Theoretical Fixed
Income Security) to reduce the amount of the Fund's equity market hedging
consistent with the Fund's objective. These positions are sometimes referred to
as "long equity swap contracts". The Fund may also take long positions in index
futures for similar purposes.
The Fund may also take a long position in index futures to reduce the
amount of the Fund's equity market hedging consistent with the Fund's objective.
When hedging positions are reduced using index futures, the Fund will also be
exposed to the risk of imperfect correlations between the index futures and the
hedging positions being reduced.
The Fund will use a combination of long and short equity swap contracts
and long and short positions in index futures in an attempt to hedge generally
its equity securities against substantially all movements in the relevant equity
markets generally. The Fund will not use equity swap contracts or Relevant
Equity Index Futures to leverage the Fund.
The Fund's actual exposure to an equity market or markets will not be
completely hedged if the aggregate of the notional amount of the long equity
swap contracts (less the notional amount of any short equity swap contracts)
relating to the relevant equity index plus the face amount of the short Index
Futures (less the face amount of any long Index Futures) is less than the Fund's
total net assets invested in common stocks principally traded on such market or
markets and will tend to be overhedged if such aggregate is more than the Fund's
total net assets so invested. Under normal conditions, the Manager expects the
Fund's total net assets invested in equity securities generally to be up to 5%
more or less than this aggregate because purchases and redemptions of Fund
shares will change the Fund's total net assets frequently, because Index Futures
can only be purchased in integral multiples of an equity index and because the
Funds' positions may appreciate or depreciate over time. Also, the ability of
the Fund to hedge risk may be diminished by imperfect correlations between price
movements of the underlying equity index with the price movements of Index
Futures relating to that index and by lack of correlation between the market
weightings of the Modified Global Index, on the one hand, and, on the other, the
market weightings represented by the common stocks selected for purchase by the
Fund.
In theory, the Fund will only be able to achieve its objective with
precision if (i) the aggregate face amount of the net short Index Futures plus
the notional amount of the long equity swap contracts (less the notional amount
of any short equity swap contracts) relating to the Selected Equity Index is
precisely equal to a Fund's total net assets, (ii) there is exact price movement
correlation between any Index Futures and the relevant equity index, (iii) there
is exact price correlation between the Modified Global Index and the overall
movements of the relevant equity markets and (iv) the Fund's currency hedging
strategies are effective. As noted, in practice there are a number of risks and
cash flows which will tend to undercut these assumptions.
The purchase and sale of common stocks and Index Futures involve
transaction costs and reverse equity swap contracts require the Fund to pay
interest on the notional amount of the contract.
In addition to the practices described above, in order to pursue its
objective the Fund may invest in securities of foreign issuers traded on U.S.
exchanges and securities traded abroad, American Depositary Receipts, European
Depository Receipts and other similar securities convertible into securities of
foreign issuers. The Fund may also invest up to 15% of its net assets in
illiquid securities and temporarily invest up to 50% of its assets in cash and
high quality money market instruments such as securities issued by the U.S.
government and agencies thereof, bankers' acceptances, commercial paper, and
bank certificates of deposit.
The Fund may also enter repurchase agreements, and lend up to 100% of
its portfolio securities.
In addition, for hedging purposes only the Fund may use forward foreign
currency contracts, currency futures contracts, related options and options on
currencies, and buy and sell foreign currencies.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices" later in this Prospectus.
FIXED INCOME FUNDS
As used in several of the Fixed Income Funds' investment objectives
below, "bond" means any fixed income obligation with an original maturity of two
years or more, as well as "synthetic" bonds created by combining a futures
contract or option on a fixed income security with cash, a cash equivalent
investment or another fixed income security. (See "Descriptions and Risks of
Fund Investment Practices -- Synthetic Bonds".) Total return for each Fund will
be measured by aggregating capital value changes and income. Under normal market
conditions, each of the Emerging Country Debt Fund, the Core Emerging Country
Debt Fund, the International Bond Fund, the Currency Hedged International Bond
Fund and the Global Bond Fund will invest at least 65% of its assets in bonds of
issuers of at least three countries (excluding the United States). However, up
to 100% of these Fixed Income Fund's assets may be denominated in U.S. dollars,
and for temporary defensive purposes, each such Fixed Income Fund may invest as
much as 100% of its assets in issuers from one or two countries, which may
include the United States.
DOMESTIC BOND FUND
The Domestic Bond Fund seeks to earn high total return through
investment primarily in U.S. government securities. The Fund may also invest a
significant portion of its assets in other investment grade bonds (including
convertible bonds) denominated in U.S. dollars. The Fund's portfolio will
generally have a duration of approximately four to six years (excluding
short-term investments). The duration of a fixed income security is the weighted
average maturity, expressed in years, of the present value of all future cash
flows, including coupon payments and principal repayments. The Fund will attempt
to provide a total return greater than that generally provided by the U.S.
government securities market as measured by an index selected from time to time
by the Manager. The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
The Fund may lend securities valued at up to 100% of total assets,
invest up to 5% of its assets in lower rated securities (also known as "junk
bonds"), and invest in adjustable rate securities, zero coupon securities and
depository receipts. The Fund may also enter into repurchase agreements, reverse
repurchase agreements and dollar roll transactions. The Fund may also enter into
loan participation agreements and invest in other direct debt instruments. In
addition, the Fund may invest in mortgage-backed and other asset-backed
securities issued by the U.S. government, its agencies and by non-government
issuers, including collateral mortgage obligations ("CMO's"), strips and
residuals. The Fund may also invest in indexed securities the redemption values
and/or coupons of which are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. The Fund may also enter into firm commitment agreements
with banks or broker-dealers, and may invest up to 15% of its assets in illiquid
securities.
In addition, the Fund may buy put and call options, sell (write) covered
options, and enter into futures contracts and options on futures contracts for
hedging, investment and risk management and to effect synthetic sales and
purchases. The Fund's use of options on particular securities (as opposed to
market indices) is limited such that the premiums paid by the Fund on all
outstanding options it has purchased may not exceed 5% of its total assets. The
Fund may also use interest rate swap contracts, contracts for differences and
interest rate caps, floors and collars for hedging, investment and risk
management.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
SHORT-TERM INCOME FUND
The Short-Term Income Fund seeks current income to the extent
consistent with the preservation of capital and liquidity through investment in
a portfolio of fixed income instruments rated high quality by Standard & Poor's
Corporation ("S&P") or by Moody's Investors Service, Inc. ("Moody's") or
considered by the Manager to be of comparable quality. While the Short-Term
Income Fund intends to invest in short-term securities, it is not a money market
fund. Debt securities held by the Fund which have a remaining maturity of 60
days or less will be valued at amortized cost unless circumstances dictate
otherwise. See "Determination of Net Asset Value". It is the present policy of
the Short-Term Income Fund, which may be changed without shareholder approval,
to maintain at least 65% of the Fund's assets invested in securities with
remaining maturities of two years or less.
In determining whether a security is a suitable investment for the
Short-Term Income Fund, reference will be made to the quality of the security,
including its rating, at the time of purchase. The Manager may or may not
dispose of a portfolio security as a result of a change in the securities'
rating, depending on its evaluation of the security in light of the Fund's
investment objectives and policies.
The Fund may invest in prime commercial paper and master demand notes
(rated "A-1" by S&P or "Prime-1" by Moody's or, if not rated, issued by
companies having an outstanding debt issue rated at least "AA" by S&P or at
least "Aa" by Moody's), high-quality corporate debt securities (rated at least
"AA" by S&P or at least "Aa" by Moody's), and high-quality debt securities
backed by pools of commercial or consumer finance loans (rated at least "AA" by
S&P or "Aa" by Moody's) and certificates of deposit, bankers' acceptances and
other bank obligations (when and if such other bank obligations become available
in the future) issued by banks having total assets of at least $2 billion as of
the date of the bank's most recently published financial statement.
In addition to the foregoing, the Short-Term Income Fund may also
invest in certificates of deposit of $100,000 or less of domestic banks and
savings and loan associations, regardless of total assets, if the certificates
of deposit are fully insured as to principal by the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance Corporation. The
Short-Term Income Fund may invest up to 100% of its assets in obligations issued
by banks, and up to 15% of its assets in obligations issued by any one bank. If
the bank is a domestic bank, it must be a member of the Federal Deposit
Insurance Corporation. This does not prevent the Short-Term Income Fund from
investing in obligations issued by foreign branches of domestic banks and there
is currently no limit on the Fund's ability to invest in these obligations. If
the bank is foreign, the obligation must, in the opinion of the Manager, be of a
quality comparable to the other debt securities which may be purchased by the
Short-Term Income Fund. There are special risks associated with investments in
such foreign bank obligations, including the risks associated with foreign
political, economic and legal developments and the fact that foreign banks may
not be subject to the same or similar regulatory requirements that apply to
domestic banks. (See "Descriptions and Risks of Fund Investment Practices -
Certain Risks of Foreign Investments".) The Short-Term Income Fund will invest
in these securities only when the Manager believes the risks are minimal. In
addition, to the extent the Short-Term Income Fund concentrates its assets in
the banking industry, including the domestic banking industry, adverse events
affecting the industry may also have an adverse effect on the Fund. Such adverse
events include, but are not limited to, rising interest rates which affect a
bank's ability to maintain the "spread" between the cost of money and any fixed
return earned on money, as well as industry-wide increases in loan default rates
and declines in the value of loan collateral such as real estate. The Fund may
also invest in U.S. Government Securities.
The Short-Term Income Fund may purchase any of the foregoing
instruments through firm commitment arrangements with domestic commercial banks
and registered broker-dealers and may enter into repurchase agreements with such
banks and broker-dealers with respect to any of the foregoing money market
instruments, longer term U.S. Government Securities or corporate debt securities
rated at least "AA" by S&P or at least "Aa" by Moody's. The Fund will only enter
into firm commitment arrangements and repurchase agreements with banks and
broker-dealers which the Manager determines present minimal credit risks.
All of the Short-Term Income Fund's investments will, at the time of
investment, have remaining maturities of five years or less and the average
maturity of the Short-Term Income Fund's portfolio securities based on their
dollar value will not exceed two years at the time of each investment. When the
Fund has purchased a security subject to a repurchase agreement, the amount and
maturity of the Fund's investment will be determined by reference to the amount
and term of the repurchase agreement, not by reference to the underlying
security. When the Fund purchases an adjustable rate security, the security's
maturity will be determined with reference to the frequency with which the rate
is adjusted. If the disposition of a portfolio security results in a
dollar-weighted average portfolio maturity in excess of two years for the Fund,
it will invest its available cash in such a manner as to reduce its
dollar-weighted average maturity to two years or less as soon as reasonably
practicable.
The Fund may also invest in foreign securities when the Manager
believes the risks are minimal, and lend portfolio securities valued at up to
100% of its total assets.
For a detailed description of the investment practices described in the
preceding paragraphs and the risks associated with them, see "Descriptions and
Risks of Fund Investment Practices".
INTERNATIONAL BOND FUND
The International Bond Fund seeks to earn high total return through
investment primarily in investment-grade bonds (including convertible bonds)
denominated in various currencies, including U.S. dollars, or in multicurrency
units. The Fund will attempt to provide a total return greater than that
generally provided by the international fixed income securities markets as
measured by an index selected from time to time by the Manager. Because the Fund
will not generally attempt to hedge against an appreciation in the U.S. dollar
relative to the foreign currency in which its portfolio securities are
denominated, investors should expect that the Fund's performance will be
adversely affected by appreciation of the U.S. dollar and will be positively
affected by a decline in the U.S. dollar relative to the currencies in which the
Funds' portfolio securities are denominated.
The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, and purchase or sell
securities on a when-issued or delayed delivery basis. The Fund may also invest
a portion of its assets in sovereign debt (bonds, including convertible bonds
and Brady bonds, and loans) of countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa (see "Emerging Country Debt
Fund") and, to the extent permitted by the 1940 Act, may invest in shares of the
Emerging Country Debt Fund or the Core Emerging Country Debt Fund.
The Fund may lend securities valued at up to 100% of total assets, invest
up to 25% of its assets in lower rated securities (also known as "junk bonds"),
and invest in adjustable rate securities, zero coupon securities and depository
receipts of foreign issuers. The Fund may also enter into repurchase agreements,
reverse repurchase agreements and dollar roll agreements. In addition, the Fund
may invest in mortgage-backed and other asset-backed securities issued by the
U.S. government, its agencies and by non-government issuers, including
collateral mortgage obligations ("CMO's"), strips and residuals. The Fund may
also invest in indexed securities the redemption values and/or coupons of which
are indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. The Fund
may also enter into firm commitment agreements with banks or broker-dealers, and
may invest up to 15% of its assets in illiquid securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indices) is
limited such that the premiums paid by the Fund on all outstanding options it
has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indices for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
CURRENCY HEDGED INTERNATIONAL BOND FUND
The Currency Hedged International Bond Fund seeks to earn high total
return through investment primarily in investment-grade bonds (including
convertible bonds) denominated in various currencies including U.S. dollars or
in multicurrency units. The Fund will attempt to provide a total return greater
than that generally provided by the international fixed income securities
markets as measured by an index selected from time to time by the Manager. The
Fund has the same objectives and policies as the International Bond Fund, except
that the Currency Hedged International Bond Fund will generally attempt to hedge
at least 75% of its foreign currency-denominated portfolio securities against an
appreciation in the U.S. dollar relative to the foreign currencies in which the
portfolio securities are denominated. However, there can be no assurance that
the Fund's hedging strategies will be totally effective.
The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements and purchase or sell securities
on a when-issued or delayed delivery basis. The Fund may also invest a portion
of its assets in sovereign debt (bonds, including convertible bonds and Brady
Bonds, and loans) of countries in Asia, Latin America, the Middle East, Southern
Europe, Eastern Europe and Africa (see "Emerging Country Debt Fund") and, to the
extent permitted by the 1940 Act, may invest in shares of the Emerging Country
Debt Fund or the Core Emerging Country Debt Fund.
The Fund may lend securities valued at up to 100% of total assets,
invest up to 25% of its assets in lower rated securities (also known as "junk
bonds"), and invest in adjustable rate securities, zero coupon securities and
depository receipts of foreign issuers. The Fund may also enter into repurchase
agreements, reverse repurchase agreements and dollar roll agreements. In
addition, the Fund may invest in mortgage-backed and other asset-backed
securities issued by the U.S. government, its agencies and by non-government
issuers, including collateral mortgage obligations ("CMO's"), strips and
residuals. The Fund may also invest in indexed securities the redemption values
and/or coupons of which are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. The Fund may also enter into firm commitment agreements
with banks or broker-dealers, and may invest up to 15% of its assets in illiquid
securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indices) is
limited such that the premiums paid by the Fund on all outstanding options it
has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indices for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
For a detailed description of the investment practices described in the
three preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices".
GLOBAL BOND FUND
The Global Bond Fund seeks to earn high total return through investment
primarily in investment-grade bonds (including convertible bonds) denominated in
various currencies, including U.S. dollars, or in multicurrency units. The Fund
will attempt to provide a total return greater than that generally provided by
the global fixed income securities markets as measured by an index selected from
time to time by the Manager. The Fund will invest in fixed income securities of
both United States and foreign issuers. Because the Fund will not generally
attempt to hedge against an appreciation in the U.S. dollar relative to the
foreign currencies in which some of its portfolio securities are denominated,
investors should expect that the Fund's performance will be adversely affected
by appreciation of the U.S. dollar and will be positively affected by a decline
in the U.S. dollar relative to the currencies in which the Funds' portfolio
securities are denominated.
The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
Under certain adverse investment conditions, the Fund may restrict the
number of securities markets in which assets will be invested, although under
normal market circumstances it is expected that the Fund's investments will
involve securities principally traded in at least three different countries. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
securities principally traded in the United States and/or denominated in U.S.
dollars.
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, and purchase or sell
securities on a when-issued or delayed delivery basis. The Fund may also invest
a portion of its assets in sovereign debt (bonds, including convertible bonds
and Brady bonds, and loans) of countries in Asia, Latin America, the Middle
East, Southern Europe, Eastern Europe and Africa (See "Emerging Country Debt
Fund") and, to the extent permitted by the 1940 Act, may invest in shares of the
Emerging Country Debt Fund, the Core Emerging Country Debt Fund, the Domestic
Bond Fund and/or the International Bond Fund.
The Fund may lend securities valued at up to 100% of total assets,
invest up to 25% of its assets in lower rated securities (also known as "junk
bonds"), and invest in adjustable rate securities, zero coupon securities and
depository receipts of foreign issuers. The Fund may also enter into repurchase
agreements, reverse repurchase agreements and dollar roll transactions. In
addition, the Fund may invest in mortgage-backed and other asset-backed
securities issued by the U.S. government, its agencies and by non-government
issuers, including collateral mortgage obligations ("CMO's"), strips and
residuals. The Fund may also invest in indexed securities the redemption values
and/or coupons of which are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. The Fund may also enter into firm commitment agreements
with banks or broker-dealers, and may invest up to 15% of its assets in illiquid
securities.
The Fund may buy put and call, sell (write) covered options, and enter
into futures contracts and options on futures contracts for hedging, investment
and risk management and to effect synthetic sales and purchases. The Fund's use
of options on particular securities (as opposed to market indices) is limited
such that the premiums paid by the Fund on all outstanding options it has
purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indices for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging and for currency risk management. The
Fund may also use futures contracts and foreign currency forward contracts to
create synthetic bonds and synthetic foreign currency denominated securities to
approximate desired risk/return profiles where the non-synthetic security having
the desired risk/return profile is either unavailable or possesses undesirable
characteristics.
In addition, the Fund may use interest rate and currency swap
contracts, contracts for differences and interest rate caps, floors and collars
for hedging, investment and risk management. The use of unsegregated futures
contracts, related options, interest rate floors, caps and collars and interest
rate swap contracts for risk management is limited to no more than 10% of the
Fund's total net assets when aggregated with the Fund's traditional borrowings.
This 10% limitation applies to the face amount of unsegregated futures contracts
and related options and to the amount of a Fund's net payment obligation that is
not segregated against in the case of interest rate floors, caps and collars and
interest rate swap contracts.
For a detailed description of the investment practices described above
and the risks associated with them, see "Descriptions and Risks of Fund
Investment Practices" later in this Prospectus.
EMERGING COUNTRY DEBT FUND
The Emerging Country Debt Fund seeks to earn high total return by
investing primarily in sovereign debt (bonds, including convertible bonds, and
loans) of countries in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe and Africa. In addition to considerations relating to investment
restrictions and tax barriers, allocation of the Fund's investments among
selected emerging countries will be based on certain other relevant factors
including the outlook for economic growth, currency exchange rates, interest
rates, political factors and the stage of the local market cycle. The Fund will
generally have at least 50% of its assets denominated in hard currencies such as
the U.S. dollar, Japanese yen, Italian lira, British pound, Deutchmark, French
franc and Canadian dollar. The Fund will attempt to provide a total return
greater than that generally provided by the international fixed income
securities markets as measured by an index selected from time to time by the
Manager.
The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
The Emerging Country Debt Fund's investments in emerging country debt
instruments are subject to special risks that are in addition to the usual risks
of investing in debt securities of developed foreign markets around the world,
and investors are strongly advised to consider those risks carefully. See
"Descriptions and Risks of Fund Investment Practices -- Certain Risks of Foreign
Investments".
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, invest in Brady bonds and
purchase or sell securities on a when-issued or delayed delivery basis. The Fund
may also lend securities valued at up to 100% of total assets, invest without
limit in lower rated securities (also known as "junk bonds"), and invest in
adjustable rate securities, zero coupon securities and depository receipts of
foreign issuers. The Fund may also enter into repurchase agreements, reverse
repurchase agreements and dollar roll agreements. In addition, the Fund may
invest in mortgage-backed and other asset-backed securities issued by the U.S.
government, its agencies and by non-government issuers, including collateral
mortgage obligations ("CMO's"), strips and residuals. The Fund may also invest
in indexed securities the redemption values and/or coupons of which are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. The Fund may also
enter into firm commitment agreements with banks or broker-dealers, and may
invest up to 15% of its assets in illiquid securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indices) is
limited such that the premiums paid by the Fund on all outstanding options it
has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indices for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
For a detailed description of the investment practices described in the
four preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices" later in this Prospectus.
CORE EMERGING COUNTRY DEBT FUND
The Core Emerging Country Debt Fund seeks to earn high total return by
investing primarily in sovereign debt (bonds, including convertible bonds, and
loans) of countries in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe and Africa. The Fund's investments will be concentrated in
emerging country debt issues having above average marketability. In addition to
considerations relating to investment restrictions and tax barriers, allocation
of the Fund's investments among selected emerging countries will be based on
certain other relevant factors including the outlook for economic growth,
currency exchange rates, interest rates, political factors and the stage of the
local market cycle. The Fund will generally have at least 50% of its assets
denominated in hard currencies such as the U.S. dollar, Japanese yen, Italian
lira, British pound, Deutchmark, French franc and Canadian dollar. The Fund will
attempt to provide a total return greater than that generally provided by the
international fixed income securities markets as measured by an index selected
from time to time by the Manager.
The Fund may invest in fixed income securities of any maturity,
although the Fund expects that at least 65% of its total assets will be
comprised of "bonds" as such term is defined above. Fixed income securities
include securities issued by federal, state, local and foreign governments, and
a wide range of private issuers.
The Core Emerging Country Debt Fund's investments in emerging country
debt instruments are subject to special risks that are in addition to the usual
risks of investing in debt securities of developed foreign markets around the
world, and investors are strongly advised to consider those risks carefully. See
"Descriptions and Risks of Fund Investment Practices -- Certain Risks of Foreign
Investments".
The Fund may enter into loan participation agreements and other direct
investments, forward foreign exchange agreements, invest in Brady bonds and
purchase or sell securities on a when-issued or delayed delivery basis. The Fund
may also lend securities valued at up to 100% of total assets, invest without
limit in lower rated securities (also known as "junk bonds"), and invest in
adjustable rate securities, zero coupon securities and depository receipts of
foreign issuers. The Fund may also enter into repurchase agreements, reverse
repurchase agreements and dollar roll agreements. In addition, the Fund may
invest in mortgage-backed and other asset-backed securities issued by the U.S.
government, its agencies and by non-government issuers, including collateral
mortgage obligations ("CMO's"), strips and residuals. The Fund may also invest
in indexed securities the redemption values and/or coupons of which are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. The Fund may also
enter into firm commitment agreements with banks or broker-dealers, and may
invest up to 15% of its assets in illiquid securities.
The Fund may buy put and call options, sell (write) covered options,
and enter into futures contracts and options on futures contracts for hedging,
investment and risk management and to effect synthetic sales and purchases. The
Fund's use of options on particular securities (as opposed to market indices) is
limited such that the premiums paid by the Fund on all outstanding options it
has purchased may not exceed 10% of its total assets. The Fund may also write
options in connection with buy-and-write transactions, and use index futures on
foreign indices for investment, anticipatory hedging and risk management. In
addition, the Fund may use forward foreign currency contracts, currency futures
contracts and related options, currency swap contracts, options on currencies,
and buy and sell currencies for hedging, and for currency risk management. The
Fund may also use synthetic bonds and synthetic foreign currency denominated
securities to approximate desired risk/return profiles where the desired profile
is either unavailable or possesses undesirable characteristics.
In addition, the Fund may use interest rate swap contracts, contracts
for differences and interest rate caps, floors and collars for hedging,
investment and risk management.
For a detailed description of the investment practices described in the
four preceding paragraphs and the risks associated with them, see "Descriptions
and Risks of Fund Investment Practices" later in this Prospectus.
DESCRIPTIONS AND RISKS OF FUND INVESTMENT PRACTICES
The following is a detailed description of the various investment
practices in which the Funds may engage and the risks associated with their use.
Not all Funds may engage in all practices described below. Please refer to the
"Investment Objectives and Policies" section above for determination of which
practices a particular Fund may engage in.
PORTFOLIO TURNOVER
Portfolio turnover is not a limiting factor with respect to investment
decisions for the Funds. The portfolio turnover rate of those Funds with at
least five months of operational history is shown under the heading "Financial
Highlights."
In any particular year market conditions may well result in greater
rates than are presently anticipated. However, portfolio turnover for the Core
Emerging Country Debt Fund, the Currency Hedged International Core Fund and the
Global Bond Fund is not expected to exceed 150%. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the relevant Fund, and could involve
realization of capital gains that would be taxable when distributed to
shareholders of the relevant Fund unless such shareholders are themselves
exempt. See "Taxes" section below.
DIVERSIFIED AND NON-DIVERSIFIED PORTFOLIOS
It is a fundamental policy of each of the Core Fund, the Tobacco-Free
Core Fund, the Core II Secondaries Fund, the Fundamental Value Fund, the
International Core Fund, and the International Small Companies Fund, which may
not be changed without shareholder approval, that (i)Eno more than 5% of the
relevant Fund's assets will be invested in the securities of any one issuer,
although up to 25% of each Fund's assets may be invested without regard to this
restriction and (ii)Ethe Fund may not own more than 10% of the outstanding
voting securities of any single issuer. Each such Fund is referred to herein as
a "diversified" fund.
All other Funds are "non-diversified" funds under the 1940 Act, and as
such are not required to satisfy the "diversified" requirements stated above. As
a non-diversified fund, each of these Funds may invest a relatively high
percentage of its assets in the securities of relatively few issuers that the
Manager deems to be attractive investments, rather than invest in the securities
of a large number of issuers merely to satisfy diversification requirements.
Such concentration may increase the risk of loss to such Funds should there be a
decline in the market value of any one portfolio security. Investment in a
non-diversified fund may therefore entail greater risks than investment in a
diversified fund. All Funds, however, must meet certain diversification
standards to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986.
CERTAIN RISKS OF FOREIGN INVESTMENTS
GENERAL. Investment in foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments, including favorable or unfavorable changes in currency
exchange rates, exchange control regulations (including currency blockage),
expropriation of assets or nationalization, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in obtaining and
enforcing judgments against foreign entities. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign governments and companies and foreign securities markets are less
liquid and at times more volatile than comparable U.S. securities and securities
markets. Foreign brokerage commissions and other fees are also generally higher
than in the United States. The laws of some foreign countries may limit a Fund's
ability to invest in securities of certain issuers located in these foreign
countries. There are also special tax considerations which apply to securities
of foreign issuers and securities principally traded overseas. Investors should
also be aware that under certain circumstances, markets which are perceived to
have similar characteristics to troubled markets may be adversely affected
whether or not similarities actually exist.
EMERGING 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.
Disclosure and regulatory standards in many respects are less stringent than in
the U.S. and developed foreign markets. There also may be a lower level of
monitoring and regulation of securities markets in emerging market countries and
the activities of investors in such markets, and enforcement of existing
regulations has been extremely limited. Many emerging countries have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain emerging countries. Economies in emerging markets generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been and may continue to be adversely affected by economic conditions
in the countries in which they trade. The economies of countries with emerging
markets may also be predominantly based on only a few industries or dependent on
revenues from particular commodities. In addition, custodial services and other
costs relating to investment in foreign markets may be more expensive in
emerging markets than in many developed foreign markets, which could reduce a
Fund's income from such securities. Finally, because publicly traded debt
instruments of emerging markets represent a relatively recent innovation in the
world debt markets, there is little historical data or related market experience
concerning the attributes of such instruments under all economic, market and
political conditions.
In many cases, governments of emerging countries continue to exercise
significant control over their economies, and government actions relative to the
economy, as well as economic developments generally, may affect the capacity of
issuers of emerging country debt instruments to make payments on their debt
obligations, regardless of their financial condition. In addition, there is a
heightened possibility of expropriation or confiscatory taxation, imposition of
withholding taxes on interest payments, or other similar developments that could
affect investments in those countries. There can be no assurance that adverse
political changes will not cause a Fund to suffer a loss of any or all of its
investments or, in the case of fixed-income securities, interest thereon.
SECURITIES LENDING
All of the Funds may make secured loans of portfolio securities
amounting to not more than 100% of the relevant Fund's total assets, except for
the International Core and Currency Hedged International Core Funds, each of
which may make loans of portfolio securities amounting to not more than 25% of
their respective total assets. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible delay in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially. However, such loans will be made only to broker-dealers that are
believed by the Manager to be of relatively high credit standing. Securities
loans are made to broker-dealers pursuant to agreements requiring that loans be
continuously secured by collateral in cash or U.S. Government Securities at
least equal at all times to the market value of the securities lent. The
borrower pays to the lending Fund an amount equal to any dividends or interest
the Fund would have received had the securities not been lent. If the loan is
collateralized by U.S. Government Securities, the Fund will receive a fee from
the borrower. In the case of loans collateralized by cash, the Fund typically
invests the cash collateral for its own account in interest-bearing, short-term
securities and pays a fee to the borrower. Although voting rights or rights to
consent with respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable notice, and it
will do so in order that the securities may be voted by the Fund if the holders
of such securities are asked to vote upon or consent to matters materially
affecting the investment. The Fund may also call such loans in order to sell the
securities involved. The Manager has retained a lending agent on behalf of
several of the Funds that is compensated based on a percentage of a Fund's
return on the securities lending activity. The Fund also pays various fees in
connection with such loans including shipping fees and reasonable custodian fees
approved by the Trustees of the Trust or persons acting pursuant to direction of
the Board.
DEPOSITORY RECEIPTS
Each Fund (except the Short-Term Income Fund) may invest in American
Depositary Receipts (ADRs), Global Depository Receipts (GDRs) and European
Depository Receipts (EDRs) (collectively, "Depository Receipts") if issues of
such Depository Receipts are available that are consistent with a Fund's
investment objective. Depository Receipts generally evidence an ownership
interest in a corresponding foreign security on deposit with a financial
institution. Transactions in Depository Receipts usually do not settle in the
same currency in which the underlying securities are denominated or traded.
Generally, ADRs, in registered form, are designed for use in the U.S. securities
markets and EDRs, in bearer form, are designed for use in European securities
markets. GDRs may be traded in any public or private securities markets and may
represent securities held by institutions located anywhere in the world.
CONVERTIBLE SECURITIES
A convertible security is a fixed-income security (a bond or preferred
stock) which may be converted at a stated price within a specified period of
time into a certain quantity of the common stock of the same or a different
issuer. Convertible securities are senior to common stock in a corporation's
capital structure, but are usually subordinated to similar non-convertible
securities. Convertible securities provide, through their conversion feature, an
opportunity to participate in capital appreciation resulting from a market price
advance in a convertible security's underlying common stock. The price of a
convertible security is influenced by the market value of the underlying common
stock and tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. The Manager regards convertible securities as a form of equity
security.
FUTURES AND OPTIONS
As has been described in the "Investment Objectives and Policies"
section above, many of the Funds may use futures and options for various
purposes. Such transactions may involve options, futures and related options on
futures contracts, and those instruments may relate to particular equity and
fixed income securities, equity and fixed income indices, and foreign
currencies. The Funds may also enter into a combination of long and short
positions (including spreads and straddles) for a variety of investment
strategies, including protecting against changes in certain yield relationships.
The use of futures contracts and options on futures contracts involves
risk. Thus, while a Fund may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices, or currency
exchange rates may result in poorer overall performance for the Fund than if it
had not entered into any futures contracts or options transactions. Losses
incurred in transactions in futures and options on futures and the costs of
these transactions will affect a Fund's performance. See Appendix A, "Risks and
Limitations of Options, Futures and Swaps" for a more detailed discussion of the
limits, conditions and risks of the Funds' investments in futures contracts and
related options.
OPTIONS. As has been noted above, many Funds which may use options (1)
may enter into contracts giving third parties the right to buy the Fund's
portfolio securities for a fixed price at a future date (writing "covered call
options"); (2) may enter into contracts giving third parties the right to sell
securities to the Fund for a fixed price at a future date (writing "covered put
options"); and (3) may buy the right to purchase securities from third parties
("call options") or the right to sell securities to third parties ("put
options") for a fixed price at a future date.
WRITING COVERED OPTIONS. Each of the International Equity Funds and
Fixed Income Funds (except the Short-Term Income Fund) may seek to increase its
return by writing covered call or put options on optionable securities or
indices. A call option written by a Fund on a security gives the holder the
right to buy the underlying security from the Fund at a stated exercise price; a
put option gives the holder the right to sell the underlying security to the
Fund at a stated exercise price. In the case of options on indices, the options
are usually cash settled based on the difference between the strike price and
the value of the index.
Each such Fund will receive a premium for writing a put or call option,
which increases the Fund's return in the event the option expires unexercised or
is closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price and volatility of the underlying
security or securities index to the exercise price of the option, the remaining
term of the option, supply and demand and interest rates. By writing a call
option on a security, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option on a security, the Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value. In the case
of options on an index, if a Fund writes a call, any profit by the Fund in
respect of portfolio securities expected to correlate with the index will be
limited by an increase in the index above the exercise price of the option. If
the Fund writes a put on an index, the Fund may be required to make a cash
settlement greater than the premium received if the index declines.
A call option on a security is "covered" if a Fund owns the underlying
security or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds on a share-for-share basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, U.S. Government securities
or other high grade debt obligations in a segregated account with its custodian.
A put option is "covered" if the Fund maintains cash, U.S. Government securities
or other high grade debt obligations with a value equal to the exercise price in
a segregated account with its custodian, or else holds on a share-for-share
basis a put on the same security as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
If the writer of an option wishes to terminate his obligation, he may
effect a "closing purchase transaction." This is accomplished, in the case of
exchange traded options, by buying an option of the same series as the option
previously written. The effect of the purchase is that the writer's position
will be canceled by the clearing corporation. The writer of an option may not
effect a closing purchase transaction after he has been notified of the exercise
of an option. Likewise, an investor who is the holder of an option may liquidate
his position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. There
is no guarantee that a Fund will be able to effect a closing purchase or a
closing sale transaction at any particular time. Also, an over-the-counter
option may be closed out only with the other party to the option transaction.
Effecting a closing transaction in the case of a written call option
will permit the Fund to write another call option on the underlying security
with either a different exercise price or expiration date or both, or in the
case of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or high
grade debt obligations. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security or
index of securities, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or securities owned by the Fund.
A Fund may write options in connection with buy-and-write transactions;
that is, a Fund may purchase a security and then write a call option against
that security. The exercise price of the call the Fund determines to write will
depend upon the expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to ("at-the-money")
or above ("out-of-the-money") the current value of the underlying security at
the time the option is written. Buy-and-write transactions using in-the-money
call options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upward or downward by the
difference between the Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset in part, or entirely, by the
premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price. In that event, the Fund's return
will be the premium received from the put option minus the cost of closing the
position or, if it chooses to take delivery of the security, the premium
received from the put option minus the amount by which the market price of the
security is below the exercise price. Out-of-the-money, at-the-money and
in-the-money put options may be used by the Fund in market environments
analogous to those in which call options are used in buy-and-write transactions.
The extent to which a Fund will be able to write and purchase call and
put options may be restricted by the Fund's intention to qualify as a regulated
investment company under the Internal Revenue Code.
FUTURES. A financial futures contract sale creates an obligation by the
seller to deliver the type of financial instrument called for in the contract in
a specified delivery month for a stated price. A financial futures contract
purchase creates an obligation by the purchaser to pay for and take delivery of
the type of financial instrument called for in the contract in a specified
delivery month, at a stated price. In some cases, the specific instruments
delivered or taken, respectively, at settlement date are not determined until on
or near that date. The determination is made in accordance with the rules of the
exchange on which the futures contract sale or purchase was made. Some futures
contracts are "cash settled" (rather than "physically settled", as described
above) which means that the purchase price is subtracted from the current market
value of the instrument and the net amount if positive is paid to the purchaser,
and if negative is paid by the purchaser. Futures contracts are traded in the
United States only on commodity exchanges or boards of trade -- known as
"contract markets" -- approved for such trading by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures commission merchant
or brokerage firm which is a member of the relevant contract market. Under U.S.
law, futures contracts on individual equity securities are not permitted. See
Appendix A, "Risks and Limitations of Options, Futures and Swaps" for more
information concerning these practices and their accompanying risks.
The purchase or sale of a futures contract differs from the purchase or
sale of a security or option in that no price or premium is paid or received.
Instead, an amount of cash or U.S. Government securities generally not exceeding
5% of the face amount of the futures contract must be deposited with the broker.
This amount is known as initial margin. Subsequent payments to and from the
broker, known as variation margin, are made on a daily basis as the price of the
underlying futures contract fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as "marking to
market." Prior to the settlement date of the futures contract, the position may
be closed out by taking an opposite position which will operate to terminate the
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by the broker,
and the purchaser realizes a loss or gain. In addition, a commission is paid on
each completed purchase and sale transaction.
In most cases futures contracts are closed out before the settlement
date without the making or taking of delivery. Closing out a futures contract
sale is effected by purchasing a futures contract for the same aggregate amount
of the specific type of financial instrument or commodity and the same delivery
date. If the price of the initial sale of the futures contract exceeds the price
of the offsetting purchase, the seller is paid the difference and realizes a
gain. Conversely, if the price of the offsetting purchase exceeds the price of
the initial sale, the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, a loss will be realized.
The ability to establish and close out positions on options on futures
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or be maintained.
INDEX FUTURES. Each of the Funds (except the Short-Term Income Fund)
may purchase futures contracts on various securities indices ("Index Futures").
Each of the Domestic Equity Funds may purchase Index Futures on the S&P 500
("S&P 500 Index Futures") and on such other domestic stock indices as the
Manager may deem appropriate. The Japan Fund may purchase Index Futures on the
Nikkei 225 Stock Average and on the Tokyo Stock Price Index ("TOPIX") (together
with Nikkei 225 futures contracts, "Japanese Index Futures"). The International
Core Fund, Currency Hedged International Core Fund, the Global Core Fund, the
International Small Companies Fund and the Emerging Markets Fund may each
purchase Index Futures on foreign stock indices, including those which may trade
outside the United States. The Domestic Bond Fund, the International Bond Fund,
the Currency Hedged International Bond Fund, the Global Bond Fund, the Emerging
Country Debt Fund and the Core Emerging Country Debt Fund may each purchase
Index Futures on domestic and (except for the Domestic Bond Fund) foreign fixed
income securities indices, including those which may trade outside the United
States. A Fund's purchase and sale of Index Futures is limited to contracts and
exchanges which have been approved by the CFTC.
An Index Future may call for "physical delivery" or be "cash settled."
An Index Future that calls for physical delivery is a contract to buy an
integral number of units of the particular securities index at a specified
future date at a price agreed upon when the contract is made. A unit is the
value from time to time of the relevant index. While a Fund that purchases an
Index Future that calls for physical delivery is obligated to pay the face
amount on the stated date, such an Index Future may be closed out on that date
or any earlier date by selling an Index Future with the same face amount and
contract date. This will terminate the Fund's position and the Fund will realize
a profit or a loss based on the difference between the cost of purchasing the
original Index Future and the price obtained from selling the closing Index
Future. The amount of the profit or loss is determined by the change in the
value of the relevant index while the Index Future was held.
Index Futures that are "cash settled" provide by their terms for
settlement on a net basis reflecting changes in the value of the underlying
index. Thus, the purchaser of such an Index Future is never obligated to pay the
face amount of the contract. The net payment obligation may in fact be very
small in relation to the face amount.
The use of Index Futures involves risk. See Appendix A, "Risks and
Limitations of Options, Futures and Swaps" for a more detailed discussion of the
limits, conditions and risks of the Funds' investment in futures contracts.
INTEREST RATE FUTURES. For the purposes previously described, the Fixed
Income Funds (other than the Short-Term Income Fund) may engage in a variety of
transactions involving the use of futures with respect to U.S. Government
Securities and other fixed income securities. The use of interest rate futures
involves risk. See Appendix A, "Risks and Limitations of Options, Futures and
Swaps" for a more detailed discussion of the limits, conditions and risks of the
Fund's investment in futures contracts.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts give the
purchaser the right in return for the premium paid to assume a position in a
futures contract at the specified option exercise price at any time during the
period of the option. Funds may use options on futures contracts in lieu of
writing or buying options directly on the underlying securities or purchasing
and selling the underlying futures contracts. For example, to hedge against a
possible decrease in the value of its portfolio securities, a Fund may purchase
put options or write call options on futures contracts rather than selling
futures contracts. Similarly, a Fund may purchase call options or write put
options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund expects to purchase. Such options generally operate in the same manner
as options purchased or written directly on the underlying investments. See
"Descriptions and Risks of Fund Investment Practices--Foreign Currency
Transactions" for a description of the Funds' use of options on currency
futures.
USES OF OPTIONS, FUTURES AND OPTIONS ON FUTURES
RISK MANAGEMENT. When futures and options on futures are used for risk
management, a Fund will generally take long positions (e.g., purchase call
options, futures contracts or options thereon) in order to increase the Fund's
exposure to a particular market, market segment or foreign currency. For
example, if a Fixed Income Fund wants to increase its exposure to a particular
fixed income security, the Fund may take long positions in futures contracts on
that security. Likewise, if an Equity Fund holds a portfolio of stocks with an
average volatility (beta) lower than that of the Fund's benchmark securities
index as a whole (deemed to be 1.00), the Fund may purchase Index Futures to
increase its average volatility to 1.00. In the case of futures and options on
futures, a Fund is only required to deposit the initial and variation margin as
required by relevant CFTC regulations and the rules of the contract markets.
Because the Fund will then be obligated to purchase the security or index at a
set price on a future date, the Fund's net asset value will fluctuate with the
value of the security as if it were already included in the Fund's portfolio.
Risk management transactions have the effect of providing a degree of investment
leverage, particularly when the Fund does not segregate assets equal to the face
amount of the contract (i.e., in cash settled futures contracts) since the
futures contract (and related options) will increase or decrease in value at a
rate which is a multiple of the rate of increase or decrease in the value of the
initial and variable margin that the Fund is required to deposit. As a result,
the value of the Fund's portfolio will generally be more volatile than the value
of comparable portfolios which do not engage in risk management transactions. A
Fund will not, however, use futures and options on futures to obtain greater
volatility than it could obtain through direct investment in securities; that
is, a Fund will not normally engage in risk management to increase the average
volatility (beta) of that Fund's portfolio above 1.00, the level of risk (as
measured by volatility) that would be present if the Fund were fully invested in
the securities comprising the relevant index. However, a Fund may invest in
futures and options on futures without regard to this limitation if the face
value of such investments, when aggregated with the Index Futures equity swaps
and contracts for differences as described below does not exceed 10% of a Fund's
assets.
HEDGING. To the extent indicated elsewhere, a Fund may also enter into
options, futures contracts and buy and sell options thereon for hedging. For
example, if a Fund wants to hedge certain of its fixed income securities against
a decline in value resulting from a general increase in market rates of
interest, it might sell futures contracts with respect to fixed income
securities or indices of fixed income securities. If the hedge is effective,
then should the anticipated change in market rates cause a decline in the value
of the Fund's fixed income security, the value of the futures contract should
increase. Likewise, the Equity Funds may sell equity index futures if a Fund
wants to hedge its equity securities against a general decline in the relevant
equity market(s). The Funds may also use futures contracts in anticipatory hedge
transactions by taking a long position in a futures contract with respect to a
security, index or foreign currency that a Fund intends to purchase (or whose
value is expected to correlate closely with the security or currency to be
purchased) pending receipt of cash from other transactions (including the
proceeds from this offering) to be used for the actual purchase. Then if the
cost of the security or foreign currency to be purchased by the Fund increases
and if the anticipatory hedge is effective, that increased cost should be
offset, at least in part, by the value of the futures contract. Options on
futures contracts may be used for hedging as well. For example, if the value of
a fixed-income security in a Fund's portfolio is expected to decline as a result
of an increase in rates, the Fund might purchase put options or write call
options on futures contracts rather than selling futures contracts. Similarly,
for anticipatory hedging, the Fund may purchase call options or write put
options as a substitute for the purchase of futures contracts. See "Descriptions
and Risks of Fund Investment Practices--Foreign Currency Transactions" for more
information regarding the currency hedging practices of certain Funds.
INVESTMENT PURPOSES. To the extent indicated elsewhere, a Fund may also
enter into futures contracts and buy and sell options thereon for investment.
For example, a Fund may invest in futures when its Manager believes that there
are not enough attractive securities available to maintain the standards of
diversity and liquidity set for a Fund pending investment in such securities if
or when they do become available. Through this use of futures and related
options, a Fund may diversify risk in its portfolio without incurring the
substantial brokerage costs which may be associated with investment in the
securities of multiple issuers. This use may also permit a Fund to avoid
potential market and liquidity problems (e.g., driving up the price of a
security by purchasing additional shares of a portfolio security or owning so
much of a particular issuer's stock that the sale of such stock depresses that
stock's price) which may result from increases in positions already held by the
Fund.
When any Fund purchases futures contracts for investment, it will
maintain cash, U.S. Government securities or other high grade debt obligations
in a segregated account with its custodian in an amount which, together with the
initial and variation margin deposited on the futures contracts, is equal to the
face value of the futures contracts at all times while the futures contracts are
held.
Incidental to other transactions in fixed income securities, for
investment purposes a Fund may also combine futures contracts or options on
fixed income securities with cash, cash equivalent investments or other fixed
income securities in order to create "synthetic" bonds which approximate desired
risk and return profiles. This may be done where a "non-synthetic" security
having the desired risk/return profile either is unavailable (e.g., short-term
securities of certain foreign governments) or possesses undesirable
characteristics (e.g., interest payments on the security would be subject to
foreign withholding taxes). A Fund may also purchase forward foreign exchange
contracts in conjunction with U.S. dollar-denominated securities in order to
create a synthetic foreign currency denominated security which approximates
desired risk and return characteristics where the non-synthetic securities
either are not available in foreign markets or possess undesirable
characteristics. For greater detail, see "Foreign Currency Transactions" below.
When a Fund creates a "synthetic" bond with a futures contract, it will maintain
cash, U.S. Government securities or other high grade debt obligations in a
segregated account with its custodian with a value at least equal to the face
amount of the futures contract (less the amount of any initial or variation
margin on deposit).
SYNTHETIC SALES AND PURCHASES. Futures contracts may also be used to
reduce transaction costs associated with short-term restructuring of a Fund's
portfolio. For example, if a Fund's portfolio includes stocks of companies with
medium-sized equity capitalization (e.g., between $300 million and $5.2 billion)
and, in the opinion of the Manager, such stocks are likely to underperform
larger capitalization stocks, the Fund might sell some or all of its
mid-capitalization stocks, buy large capitalization stocks with the proceeds and
then, when the expected trend had played out, sell the large capitalization
stocks and repurchase the mid-capitalization stocks with the proceeds. In the
alternative, the Fund may use futures to achieve a similar result with reduced
transaction costs. In that case, the Fund might simultaneously enter into short
futures positions on an appropriate index (e.g., the S&P Mid Cap 400 Index) (to
synthetically "sell" the stocks in the Fund) and long futures positions on
another index (e.g., the S&P 500) (to synthetically buy the larger
capitalization stocks). When the expected trend has played out, the Fund would
then close out both futures contract positions. A Fund will only enter into
these combined positions if (1) the short position (adjusted for historic
volatility) operates as a hedge of existing portfolio holdings, (2) the face
amount of the long futures position is less than or equal to the value of the
portfolio securities that the Fund would like to dispose of, (3) the contract
settlement date for the short futures position is approximately the same as that
for the long futures position and (4) the Fund segregates an amount of cash,
U.S. Government securities and other high-quality debt obligations whose value,
marked-to-market daily, is equal to the Fund's current obligations in respect of
the long futures contract positions. If a Fund uses such combined short and long
positions, in addition to possible declines in the values of its investment
securities, the Fund may also suffer losses associated with a securities index
underlying the long futures position underperforming the securities index
underlying the short futures position. However, the Manager will enter into
these combined positions only if the Manager expects that, overall, the Fund
will perform as if it had sold the securities hedged by the short position and
purchased the securities underlying the long position. A Fund may also use swaps
and options on futures to achieve the same objective. For more information, see
Appendix A, "Risks and Limitations of Options, Futures and Swaps".
SWAP CONTRACTS AND OTHER TWO-PARTY CONTRACTS
As has been described in the "Investment Objectives and Policies"
section above, many of the Funds may use swap contracts and other two-party
contracts for the same or similar purposes as they may use options, futures and
related options. The use of swap contracts and other two-party contracts
involves risk. See Appendix A, "Risks and Limitations of Options, Futures and
Swaps" for a more detailed discussion of the limits, conditions and risks of the
Funds' investments in swaps and other two-party contracts.
SWAP CONTRACTS. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than one year. In a standard "swap" transaction, two parties agree to
exchange returns (or differentials in rates of return) calculated with respect
to a "notional amount," e.g., the return on or increase in value of a particular
dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index. A Fund
will usually enter into swaps on a net basis, i.e., the two returns are netted
out, with the Fund receiving or paying, as the case may be, only the net amount
of the two returns.
INTEREST RATE AND CURRENCY SWAP CONTRACTS. Interest rate swaps involve
the exchange of the two parties' respective commitments to pay or receive
interest on a notional principal amount (e.g., an exchange of floating rate
payments for fixed rate payments). Currency swaps involve the exchange of the
two parties' respective commitments to pay or receive fluctuations with respect
to a notional amount of two different currencies (e.g., an exchange of payments
with respect to fluctuations in the value of the U.S. dollar relative to the
Japanese yen).
EQUITY SWAP CONTRACTS AND CONTRACTS FOR DIFFERENCES. As described under
"Investment Objectives and Policies -- International Equity Funds -- Global
Hedged Equity Fund", equity swap contracts involve the exchange of one party's
obligation to pay the loss, if any, with respect to a notional amount of a
particular equity index (e.g., the S&P 500 Index) plus interest on such notional
amount at a designated rate (e.g., the London Inter-Bank Offered Rate) in
exchange for the other party's obligation to pay the gain, if any, with respect
to the notional amount of such index.
If a Fund enters into a long equity swap contract, the Fund's net asset
value will fluctuate as a result of changes in the value of the equity index on
which the equity swap is based as if it had purchased the notional amount of
securities comprising the index. The Funds will not use long equity swap
contracts to obtain greater volatility than it could obtain through direct
investment in securities; that is, a Fund will not normally enter an equity swap
contract to increase the volatility (beta) of the Fund's portfolio above 1.00
[if the Fund were fully invested], the volatility that would be present in the
stocks comprising the Fund's benchheld Index. However, a Fund may invest in long
equity swap contracts without regard to this limitation if the notional amount
of such equity swap contracts, when aggregated with the Index Futures as
described above and the contracts for differences as described below, does not
exceed 10% of a Fund's net assets.
Contracts for differences are swap arrangements in which a Fund may
agree with a counterparty that its return (or loss) will be based on the
relative performance of two different groups or "baskets" of securities. As to
one of the baskets, the Fund's return is based on theoretical long futures
positions in the securities comprising that basket (with an aggregate face value
equal to the notional amount of the contract for differences) and as to the
other basket, the Fund's return is based on theoretical short futures positions
in the securities comprising the basket. The Fund may also use actual long and
short futures positions to achieve the same market exposure(s) as contracts for
differences. The Funds will only enter into contracts for differences where
payment obligations of the two legs of the contract are netted and thus based on
changes in the relative value of the baskets of securities rather than on the
aggregate change in the value of the two legs. The Funds will only enter into
contracts for differences (and analogous futures positions) when the Manager
believes that the basket of securities constituting the long leg will outperform
the basket constituting the short leg. However, it is possible that the short
basket will outperform the long basket - resulting in a loss to the Fund, even
in circumstances where the securities in both the long and short baskets
appreciate in value.
Except for instances in which a Fund elects to obtain leverage up to
the 10% limitation mentioned above, a Fund will maintain cash, U.S. Government
securities or other high grade debt obligations in a segregated account with its
custodian in an amount equal to the aggregate of net payment obligations on its
swap contracts and contracts for differences, marked to market daily.
A Fund may enter into swaps and contracts for differences for hedging,
investment and risk management. When using swaps for hedging, a Fund may enter
into an interest rate, currency or equity swap, as the case may be, on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities. For risk management or investment purposes a Fund may
also enter into a contract for differences in which the notional amount of the
theoretical long position is greater than the notional amount of the theoretical
short position. A Fund will not normally enter into a contract for differences
to increase the volatility (beta) of the Fund's portfolio above 1.00. However, a
Fund may invest in contracts for differences without regard to this limitation
if the aggregate amount by which the theoretical long positions of such
contracts exceed the theoretical short positions of such contacts, when
aggregated with the Index Futures and equity swaps contracts as described above,
does not exceed 10% of a Fund's net assets.
INTEREST RATE CAPS, FLOORS AND COLLARS. The Funds may use interest rate
caps, floors and collars for the same purposes or similar purposes as for which
they use interest rate futures contracts and related options. Interest rate
caps, floors and collars are similar to interest rate swap contracts because the
payment obligations are measured by changes in interest rates as applied to a
notional amount and because they are individually negotiated with a specific
counterparty. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specific index exceeds a specified interest rate, to receive
payments of interest on a notional principal amount from the party selling the
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below specified interest
rates, to receive payments of interest on a notional principal amount from the
party selling the interest rate floor. The purchase of an interest rate collar
entitles the purchaser, to the extent that a specified index exceeds or falls
below two specified interest rates, to receive payments of interest on a
notional principal amount from the party selling the interest rate collar.
Except when using such contracts for risk management, each Fund will maintain
cash, U.S. Government securities or other high grade debt obligations in a
segregated account with its custodian in an amount at least equal to its
obligations, if any, under interest rate cap, floor and collar arrangements. As
with futures contracts, when a Fund uses notional amount contracts for risk
management it is only required to segregate assets equal to its net payment
obligation, not the notional amount of the contract. In those cases, the
notional amount contract will have the effect of providing a degree of
investment leverage similar to the leverage associated with non-segregated
futures contracts. The Funds' use of interest rate caps, floors and collars for
the same or similar purposes as those for which they use futures contracts and
related options present the same risks and similar opportunities to those
associated with futures and related options. For a description of certain
limitations on the Funds' use of caps, floors and collars, see Appendix A,
"Risks and Limitations of Options, Futures and Swaps -- Additional Regulatory
Limitations on the Use of Futures, Related Options, Interest Rate Floors, Caps
and Collars and Interest Rate and Currency Swap Contracts". Because caps, floors
and collars are recent innovations for which standardized documentation has not
yet been developed they are deemed by the SEC to be relatively illiquid
investments which are subject to a Fund's limitation on investment in illiquid
securities. See "Descriptions and Risks of Fund Investment Practices -- Illiquid
Securities".
FOREIGN CURRENCY TRANSACTIONS
To the extent each of the International Funds and the Fundamental
Value Fund is invested in foreign securities, it may buy or sell foreign
currencies or may deal in forward foreign currency contracts, that is, agree to
buy or sell a specified currency at a specified price and future date. These
Funds may use forward contracts for hedging, investment or currency risk
management.
These Funds may enter into forward contracts for hedging under three
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying security transaction, the Fund will be able
to protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date on which the security is purchased or sold and the
date on which payment is made or received.
Second, when the Manager of a Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency.
Maintaining a match between the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.
Third, the Funds may engage in currency "cross hedging" when, in the
opinion of the Manager, the historical relationship among foreign currencies
suggests that the Funds may achieve the same protection for a foreign security
at reduced cost through the use of a forward foreign currency contract relating
to a currency other than the U.S. dollar or the foreign currency in which the
security is denominated. By engaging in cross hedging transactions, the Funds
assume the risk of imperfect correlation between the subject currencies. These
practices may present risks different from or in addition to the risks
associated with investments in foreign currencies. See Appendix A, "Risks and
Limitations of Options, Futures and Swaps".
A Fund is not required to enter into hedging transactions with regard
to its foreign currency-denominated securities and will not do so unless deemed
appropriate by the Manager. By entering into the above hedging transactions, the
Funds may be required to forego the benefits of advantageous changes in the
exchange rates.
Each of the International Funds may also enter foreign currency forward
contracts for investment and currency risk management. When a Fund uses currency
instruments for such purposes, the foreign currency exposure of the Fund may
differ substantially from the currencies in which the Fund's investment
securities are denominated. However, a Fund's aggregate foreign currency
exposure will not normally exceed 100% of the value of the Fund's securities,
except that a Fund may use currency instruments without regard to this
limitation if the amount of such excess, when aggregated with futures contracts,
equity swap contracts and contracts for differences used in similar ways, does
not exceed 10% of a Fund's net assets. The International Bond Fund, the Currency
Hedged International Bond Fund, the Global Bond Fund, the Emerging Country Debt
Fund and the Core Emerging Country Debt Fund may each also enter into foreign
currency forward contracts to give fixed income securities denominated in one
currency (generally the U.S. dollar) the risk characteristics of similar
securities denominated in another currency as described above under "Synthetic
Bonds" or for risk management in a manner similar to such Funds' use of futures
contracts and related options.
Except to the extent that the Funds may use such contracts for risk
management, whenever a Fund enters into a foreign currency forward contract,
other than a forward contract entered into for hedging, it will maintain cash,
U.S. Government securities or other high grade debt obligations in a segregated
account with its custodian with a value, marked to market daily, equal to the
amount of the currency required to be delivered. A Fund's ability to engage in
forward contracts may be limited by tax considerations.
A Fund may use currency futures contracts and related options and
options on currencies for the same reasons for which they use currency forwards.
Except to the extent that the Funds may use futures contracts and related
options for risk management, a Fund will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on currency futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by the Fund in cash, U.S. Government
securities or other high grade debt obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, the Fund will maintain an amount of cash, U.S. Government securities
or other high grade debt obligations in a segregated account with its custodian
equal in value to the difference. Alternatively, the Fund may cover the call
option by owning securities denominated in the currency with a value equal to
the face amount of the contract(s) or through segregating with the custodian an
amount of the particular foreign currency equal to the amount of foreign
currency per futures contract option times the number of options written by the
Fund.
REPURCHASE AGREEMENTS
A Fund may enter into repurchase agreements with banks and
broker-dealers by which the Fund acquires a security (usually an obligation of
the Government where the transaction is initiated or in whose currency the
agreement is denominated) for a relatively short period (usually not more than a
week) for cash and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed-on price and date. The resale price is in
excess of the acquisition price and reflects an agreed-upon market rate
unrelated to the coupon rate on the purchased security. Such transactions afford
an opportunity for the Fund to earn a return on temporarily available cash at no
market risk, although there is a risk that the seller may default in its
obligation to pay the agreed-upon sum on the redelivery date. Such a default may
subject the relevant Fund to expenses, delays and risks of loss.
DEBT AND OTHER FIXED INCOME SECURITIES GENERALLY
Debt and Other Fixed Income Securities include fixed income securities
of any maturity, although, under normal circumstances, a Fixed Income Fund
(other than the Short-Term Income Fund) will only invest in a security if, at
the time of such investment, at least 65% of its total assets will be comprised
of bonds, as defined in "Investment Objectives and Policies--Fixed Income
Funds--Additional Fixed Income Fund Investment Practices" above. Fixed income
securities pay a specified rate of interest or dividends, or a rate that is
adjusted periodically by reference to some specified index or market rate. Fixed
income securities include securities issued by federal, state, local and foreign
governments and related agencies, and by a wide range of private issuers.
Fixed income securities are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in interest
rates generally. In general, the values of fixed income securities increase when
prevailing interest rates fall and decrease when interest rates rise. Credit
risk relates to the ability of the issuer to make payments of principal and
interest. Fixed income securities denominated in foreign currencies are also
subject to the risk of a decline in the value of the denominating currency.
Because interest rates vary, it is impossible to predict the future
income of a Fund investing in such securities. The net asset value of each such
Fund's shares will vary as a result of changes in the value of the securities in
its portfolio and will be affected by the absence and/or success of hedging
strategies.
TEMPORARY HIGH QUALITY CASH ITEMS
Each of the Domestic Equity and International Equity Funds may
temporarily invest a portion of its assets in cash or cash items pending other
investments or in connection with the maintenance of a segregated account. These
cash items must be of high quality and may include a number of money market
instruments such as securities issued by the United States government and
agencies thereof, bankers' acceptances, commercial paper, and bank certificates
of deposit. By investing only in high quality money market securities a Fund
will seek to minimize credit risk with respect to such investments. The
Short-Term Income Fund may make many of the same investments, although it
imposes less strict restrictions concerning the quality of such investments. See
"Investment Objectives and Policies -- Fixed Income Funds -- Short-Term Income
Fund" for a general description of various types of money market instruments.
U.S. GOVERNMENT SECURITIES AND FOREIGN GOVERNMENT SECURITIES
U.S. Government Securities include securities issued or guaranteed by
the U.S. Government or its authorities, agencies or instrumentalities. Foreign
Government Securities include securities issued or guaranteed by foreign
governments (including political subdivisions) or their authorities, agencies or
instrumentalities or by supra-national agencies. U.S. Government Securities and
Foreign Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds, are
supported by the full faith and credit of the United States, whereas certain
other U.S. Government Securities issued or guaranteed by federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States. Similarly, some Foreign Government Securities are
supported by the full faith and credit of a foreign national government or
political subdivision and some are not. In the case of certain countries,
Foreign Government Securities may involve varying degrees of credit risk as a
result of financial or political instability in such countries and the possible
inability of a Fund to enforce its rights against the foreign government issuer.
Supra-national agencies are agencies whose member nations make capital
contributions to support the agencies' activities, and include such entities as
the International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Coal and Steel Community and the
Inter-American Development Bank.
Like other fixed income securities, U.S. Government Securities and
Foreign Government Securities are subject to market risk and their market values
fluctuate as interest rates change. Thus, for example, the value of an
investment in a Fund which holds U.S. Government Securities or Foreign
Government Securities may fall during times of rising interest rates. Yields on
U.S. Government Securities and Foreign Government Securities tend to be lower
than those of corporate securities of comparable maturities.
In addition to investing directly in U.S. Government Securities and
Foreign Government Securities, a Fund may purchase certificates of accrual or
similar instruments evidencing undivided ownership interests in interest
payments or principal payments, or both, in U.S. Government Securities and
Foreign Government Securities. These certificates of accrual and similar
instruments may be more volatile than other government securities.
MORTGAGE-BACKED AND OTHER ASSET-BACKED SECURITIES
Mortgage-backed and other asset-backed securities may be issued by the
U.S. Government, its agencies or instrumentalities, or by non-governmental
issuers. Interest and principal payments (including prepayments) on the
mortgages underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when the mortgagor on
an individual mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying mortgages, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgages
vary, there can be no certainty as to the predicted yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and a
Fund would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses because the premium may
not have been fully amortized at the time the obligation was prepaid. As a
result of these principal prepayment features, the values of mortgage-backed
securities generally fall when interest rates rise, but their potential for
capital appreciation in periods of falling interest rates is limited because of
the prepayment feature. The mortgage-backed securities purchased by a Fund may
include Adjustable Rate Securities as such term is defined in "Descriptions and
Risks of Fund Investment Practices--Adjustable Rate Securities" below.
Other "asset-backed securities" include securities backed by pools of
automobile loans, educational loans and credit card receivables. Mortgage-backed
and asset-backed securities of non-governmental issuers involve prepayment risks
similar to those of U.S. Government guaranteed mortgage-backed securities and
also involve risk of loss of principal if the obligors of the underlying
obligations default in payment of the obligations.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"); STRIPS AND RESIDUALS. A
CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued in multiple classes or series which
have different maturities representing interests in some or all of the interest
or principal on the underlying collateral or a combination thereof. CMOs of
different classes are generally retired in sequence as the underlying mortgage
loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its stated maturity. Thus, the early
retirement of a particular class or series of CMO held by a Fund would have the
same effect as the prepayment of mortgages underlying a mortgage-backed
pass-through security.
CMOs include securities ("Residuals") representing the interest in any
excess cash flow and/or the value of any collateral remaining on mortgages or
mortgage-backed securities from the payment of principal of and interest on all
other CMOs and the administrative expenses of the issuer. Residuals have value
only to the extent income from such underlying mortgages or mortgage-backed
securities exceeds the amounts necessary to satisfy the issuer's debt
obligations represented by all other outstanding CMOs.
CMOs also include certificates representing undivided interests in
payments of interest-only or principal-only ("IO/PO Strips") on the underlying
mortgages. IO/PO Strips and Residuals tend to be more volatile than other types
of securities. IO Strips and Residuals also involve the additional risk of loss
of a substantial portion of or the entire value of the investment if the
underlying securities are prepaid. In addition, if a CMO bears interest at an
adjustable rate, the cash flows on the related Residual will also be extremely
sensitive to the level of the index upon which the rate adjustments are based.
ADJUSTABLE RATE SECURITIES
Adjustable rate securities are securities that have interest rates that
are reset at periodic intervals, usually by reference to some interest rate
index or market interest rate. They may be U.S. Government Securities or
securities of other issuers. Some adjustable rate securities are backed by pools
of mortgage loans. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rate is reset only periodically, changes in the interest rates on adjustable
rate securities may lag changes in prevailing market interest rates. Also, some
adjustable rate securities (or, in the case of securities backed by mortgage
loans, the underlying mortgages) are subject to caps or floors that limit the
maximum change in interest rate during a specified period or over the life of
the security. Because of the resetting of interest rates, adjustable rate
securities are less likely than non-adjustable rate securities of comparable
quality and maturity to increase significantly in value when market interest
rates fall.
LOWER RATED SECURITIES
Certain Funds may invest some or all of their assets in securities
rated below investment grade (that is, rated below BBB by Standard & Poor's or
below Baa by Moody's) at the time of purchase, including securities in the
lowest rating categories, and comparable unrated securities ("Lower Rated
Securities"). A Fund will not necessarily dispose of a security when its rating
is reduced below its rating at the time of purchase, although the Manager will
monitor the investment to determine whether continued investment in the security
will assist in meeting the Fund's investment objective.
Lower Rated Securities generally provide higher yields, but are subject
to greater credit and market risk, than higher quality fixed income securities.
Lower Rated Securities are considered predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments. Achievement
of the investment objective of a Fund investing in Lower Rated Securities may be
more dependent on the Manager's own credit analysis than is the case with higher
quality bonds. The market for Lower Rated Securities may be more severely
affected than some other financial markets by economic recession or substantial
interest rate increases, by changing public perceptions of this market or by
legislation that limits the ability of certain categories of financial
institutions to invest in these securities. In addition, the secondary market
may be less liquid for Lower Rated Securities. This reduced liquidity at certain
times may affect the values of these securities and may make the valuation and
sale of these securities more difficult. Securities of below investment grade
quality are commonly referred to as "junk bonds." Securities in the lowest
rating categories may be in poor standing or in default. Securities in the
lowest investment grade category (BBB or Baa) have some speculative
characteristics. See Appendix B for more information concerning commercial paper
and corporate debt ratings.
BRADY BONDS
Brady Bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Plan debt restructurings have been implemented in Mexico,
Uruguay, Venezuela, Costa Rica, Argentina, Nigeria, the Philippines and other
countries.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the bonds.
Brady Bonds are often viewed as having three or four valuation
components: any collateralized repayment of principal at final maturity; any
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
ZERO COUPON SECURITIES
A Fund investing in "zero coupon" fixed income securities is required
to accrue interest income on these securities at a fixed rate based on the
initial purchase price and the length to maturity, but these securities do not
pay interest in cash on a current basis. Each Fund is required to distribute the
income on these securities to its shareholders as the income accrues, even
though that Fund is not receiving the income in cash on a current basis. Thus,
each Fund may have to sell other investments to obtain cash to make income
distributions. The market value of zero coupon securities is often more volatile
than that of non-zero coupon fixed income securities of comparable quality and
maturity. Zero coupon securities include IO and PO strips.
INDEXED SECURITIES
Indexed Securities are securities the redemption values and/or the
coupons of which are indexed to the prices of a specific instrument or
statistic. Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference to
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. Dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
Indexed securities in which each Fund may invest include so-called
"inverse floating obligations" or "residual interest bonds" on which the
interest rates typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities have the effect
of providing a degree of investment leverage, since they will generally increase
or decrease in value in response to changes in market interest rates at a rate
which is a multiple of the rate at which fixed-rate long-term securities
increase or decrease in response to such changes. As a result, the market values
of such securities will generally be more volatile than the market values of
fixed rate securities.
FIRM COMMITMENTS
A firm commitment agreement is an agreement with a bank or
broker-dealer for the purchase of securities at an agreed-upon price on a
specified future date. A Fund may enter into firm commitment agreements with
such banks and broker-dealers with respect to any of the instruments eligible
for purchase by the Fund. A Fund will only enter into firm commitment
arrangements with banks and broker-dealers which the Manager determines present
minimal credit risks. Each such Fund will maintain in a segregated account with
its custodian cash, U.S. Government Securities or other liquid high grade debt
obligations in an amount equal to the Fund's obligations under firm commitment
agreements.
LOANS, LOAN PARTICIPATIONS AND ASSIGNMENTS
Certain Funds may invest in direct debt instruments which are interests
in amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates (loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other parties. Direct debt
instruments are subject to a Fund's policies regarding the quality of debt
securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating and yield could be adversely affected. Loans that are fully secured offer
the Fund more protections than an unsecured loan in the event of non-payment of
scheduled interest of principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral can be liquidated. Indebtedness of borrowers
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may never
pay off their indebtedness, or may pay only a small fraction of the amount owed.
Direct indebtedness of emerging countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
When investing in a loan participation, a Fund will typically have the
right to receive payments only from the lender to the extent the lender receives
payments from the borrower, and not from the borrower itself. Likewise, a Fund
typically will be able to enforce its rights only through the lender, and not
directly against the borrower. As a result, a Fund will assume the credit risk
of both the borrower and the lender that is selling the participation.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to
the Fund. For example, if a loan is foreclosed, a Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, a Fund could be held liable
as a co-lender. Direct debt instruments may also involve a risk of insolvency of
the lending bank or other intermediary. Direct debt instruments that are not in
the form of securities may offer less legal protection to a Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance, a
Fund may rely on the Manager's research to attempt to avoid situations where
fraud or misrepresentation could adversely affect the fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the loan or loan participation, such Fund could suffer a loss of principal or
interest.
Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time when it
would not otherwise have done so. A Fund will set aside appropriate liquid
assets in a segregated custodial account to cover its potential obligations
under standby financing commitments.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Certain Funds may enter into reverse repurchase agreements and dollar
roll agreements with banks and brokers to enhance return. Reverse repurchase
agreements involve sales by a Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities and also has the
opportunity to earn a return on the collateral furnished by the counterparty to
secure its obligation to redeliver the securities.
Dollar rolls are transactions in which a Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
A Fund which makes such investments will establish segregated accounts
with its custodian in which the Fund will maintain cash, U.S. Government
Securities or other liquid high grade debt obligations equal in value to its
obligations in respect of reverse repurchase agreements and dollar rolls.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by a Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase agreement or
dollar roll files for bankruptcy or becomes insolvent, a Fund's use of the
proceeds of the agreement may be restricted pending a determination by the other
party or its trustee or receiver whether to enforce the Fund's obligation to
repurchase the securities. Reverse repurchase agreements and dollar rolls are
not considered borrowings by a Fund for purposes of a Fund's fundamental
investment restriction with respect to borrowings.
ILLIQUID SECURITIES
Each Fund may purchase "illiquid securities," i.e., securities which
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the Fund has valued the investment,
which include securities whose disposition is restricted by securities laws, so
long as no more than 15% of net assets would be invested in such illiquid
securities. Each Fund currently intends to invest in accordance with the SEC
staff view that repurchase agreements maturing in more than seven days are
illiquid securities. The SEC staff has stated informally that it is of the view
that over-the-counter options and securities serving as cover for
over-the-counter options are illiquid securities. While the Trust does not agree
with this view, it will operate in accordance with any relevant formal
guidelines adopted by the SEC.
In addition, the SEC staff considers equity swap contracts, caps,
floors and collars to be illiquid securities. Consequently, while the staff
maintains this position, the Fund will not enter into an equity swap contract or
a reverse equity swap contract or purchase a cap, floor or collar if, as a
result of the investment, the total value (i.e., marked-to-market value) of such
investments (without regard to their notional amount) together with that of all
other illiquid securities which the Fund owns would exceed 15% of the Fund's
total assets.
PURCHASE OF SHARES
Shares of each Fund may be purchased directly from the Trust on any day
when the New York Stock Exchange is open for business (a "business day"). The
minimum for an initial investment in the Trust (which minimum investment may be
allocated among one or more Funds) is $10,000,000, and the minimum for each
subsequent investment is $250,000; provided, however, that, in the Manager's
sole discretion, smaller initial and subsequent investments may be made if the
investor is an employee of the Manager, or the Manager otherwise determines it
is appropriate to permit such investments.
The purchase price of a share of each Fund is (i)the net asset value
next determined after a purchase order is received in good order plus (ii)a
premium established from time to time by the Trust. The following table
summarizes the maximum purchase premiums that each Fund may charge in connection
with cash investments in such Funds:
PURCHASE
FUND PREMIUM
Short-Term Income and Domestic Bond Funds NONE
Currency Hedged International Bond, Value
Allocation, Fundamental Value, International
Bond and Global Bond Funds 0.15%
Core, Tobacco-Free Core, Growth Allocation and
U.S. Sector Allocation Funds 0.17%
Japan Fund and Core Emerging Country
Debt Fund 0.40%
Emerging Country Debt Fund 0.50%
Global Hedged Equity Fund 0.60%
Core II Secondaries, International Core and
Currency Hedged International Core Funds 0.75%
International Small Companies Fund 1.25%
Emerging Markets Fund 1.60%
The Manager will waive the purchase premium if, in the view of the
Manager, there are minimal brokerage and transaction costs incurred in
connection with the purchase. To the extent that shares are purchased at a time
when other shares of the same Fund are being redeemed, the Manager will treat
the purchase (up to the amount being concurrently redeemed) as involving minimal
brokerage and transaction costs and will charge any purchase premium only with
respect to the excess, if any, of the amount of the purchase over the amount of
the concurrent redemption. If there is more than one purchase at the time of a
concurrent redemption, each of the purchasers will share, pro rata, in the
reduction in purchase premium caused by the concurrent redemption. Normally, no
purchase premium is charged with respect to in-kind purchases. In the case of
in-kind purchases of each of the International Equity Funds (except the Global
Hedged Equity Fund) involving transfers of large positions in markets where the
costs of re-registration and/or other transfer expenses are high, the Fund may
charge a purchase premium of .10% (.20% in the case of the Emerging Markets
Fund). All purchase premiums are paid to and retained by the relevant Fund and
are intended to cover brokerage and other expenses of the Fund arising in
connection with the purchase.
Shares of each Fund may be purchased either (i) in exchange for
securities on deposit at The Depository Trust Company ("DTC") (or such other
depository acceptable to the Manager), subject to the determination by the
Manager that the securities to be exchanged are acceptable, (ii) in cash or
(iii) by a combination of such securities and cash. In all cases, the Manager
reserves the right to reject any particular investment. Securities accepted by
the Manager in exchange for Fund shares will be valued as set forth under
"Determination of Net Asset Value" (generally the last quoted sale price) as of
the time of the next determination of net asset value after such acceptance. All
dividends, subscription or other rights which are reflected in the market price
of accepted securities at the time of valuation become the property of the
relevant Fund and must be delivered to the Trust upon receipt by the investor
from the issuer. A gain or loss for federal income tax purposes may be realized
by investors subject to Federal income taxation upon the exchange, depending
upon the investor's basis in the securities tendered.
The Manager will not approve the acceptance of securities in exchange
for Fund shares unless (1)the Manager, in its sole discretion, believes the
securities are appropriate investments for the Fund; (2)the investor represents
and agrees that all securities offered to the Fund are not subject to any
restrictions upon their sale by the Fund under the Securities Act of 1933, or
otherwise; and (3)the securities may be acquired under the investment
restrictions applicable to the relevant Fund. Investors interested in purchases
through exchange should telephone the Manager at (617) 330-7500, Attention:
Shareholder Services.
Investors should call the offices of the Trust before attempting to
place an order for Trust shares. The Trust reserves the right at any time to
reject an order.
For purposes of calculating the purchase price of Trust shares, a
purchase order is received by the Trust on the day that it is "in good order"
and is accepted by the Trust.
For a purchase order to be in "good order" on a particular day, the
investor's consideration must be received before the relevant deadline on that
day. If the investor makes a cash investment, the deadline for wiring Federal
funds to the Trust is 2:00 p.m.; if the investor makes an investment in-kind,
the investor's securities must be placed on deposit at DTC (or such other
depository as is acceptable to the Manager) and 2:00 p.m. is the deadline for
transferring those securities to the account designated by the transfer agent,
Investors Bank & Trust Company, One Lincoln Plaza, Boston, Massachusetts 02205.
Investors should be aware that approval of the securities to be used for
purchase must be obtained from the Manager prior to this time. When the
consideration is received by the Trust after the relevant deadline, the purchase
order is not considered to be in good order and is required to be resubmitted on
the following business day. With the prior consent of the Manager, in certain
circumstances the Manager may, in its discretion, permit purchases based on
receiving adequate written assurances that Federal Funds or securities, as the
case may be, will be delivered to the Trust by 2:00 p.m. on the fourth business
day after such assurances are received.
PURCHASE PROCEDURES:
(a) Purchase Order Form: The Trust reserves the right to reject any
order for Trust shares. Therefore, investors must submit an application to the
Manager and obtain the Manager's acceptance of the order before it will be
considered "in good order." A Purchase Order Form may be obtained by calling the
Trust at (617) 330-7500, Attention: Shareholder Services. The Order Form may be
submitted to the Manager (i) By Mail to Grantham, Mayo, Van Otterloo & Co., 40
Rowes Wharf, Boston, MA 02110; Attention: Shareholder Services, or (ii) By
Facsimile to (617) 261-0134; Attention: Shareholder Services.
(b) Acceptance of Order: No purchase order is in "good order" until it
has been accepted by the Manager. Investors should call the Trust (at (617)
330-7500, Attention: Shareholder Services) before attempting to place an order
for Trust shares. If a Purchase Order Form is mailed or faxed to the Trust
without first contacting Shareholder Services, investors should not consider
their order acknowledged until they have received notification from the Trust or
have confirmed receipt of the order by contacting Shareholder Services.
(c) Payment: All Federal funds must be transmitted to Investors Bank &
Trust Company for the account of the specific Fund of GMO Trust as set forth
below:
Core Fund Account No. 4001
Tobacco-Free Core Fund Account No. 4008
Value Allocation Fund Account No. 4004
Growth Allocation Fund Account No. 4002
U.S. Sector Allocation Fund Account No. 4014
Core II Secondaries Fund Account No. 4012
Fundamental Value Fund Account No. 4009
International Core Fund Account No. 4006
Currency Hedged International
Core Fund Account No. 4028
International Small Companies Fund Account No. 4010
Japan Fund Account No. 4007
Emerging Markets Fund Account No. 4018
Global Hedged Equity Fund Account No. 4024
Domestic Bond Fund Account No. 4025
Short-Term Income Fund Account No. 4005
International Bond Fund Account No. 4015
Currency Hedged International
Bond Fund Account No. 4026
Global Bond Fund Account No. 4029
Emerging Country Debt Fund Account No. 4021
Core Emerging Country Debt Fund Account No. 4027
"Federal funds" are monies credited to Investors Bank & Trust Company's
account with the Federal Reserve Bank of Boston.
DO NOT SEND CASH, CHECKS OR SECURITIES DIRECTLY TO THE TRUST OR TO THE
MANAGER. Wire transfer and mailing instructions are contained on the Purchase
Order Form which can be obtained from the Manager.
Purchases will be made in full and fractional shares of each Fund
calculated to three decimal places. The Trust will send to shareholders written
confirmation (including a statement of shares owned) at the time of each
transaction. The Manager may attempt to process orders for Trust shares that are
submitted less formally than as described above but, in such cases, the investor
should carefully review confirmations sent by the Trust to verify that the order
was properly executed. The Trust and the Manager can not be responsible for
failure to execute orders or improperly executing orders that are not submitted
in accordance with these procedures.
REDEMPTION OF SHARES
Shares of each Fund may be redeemed on any business day in cash or in
kind. The redemption price is the net asset value per share next determined
after receipt of the redemption request in "good order" less any applicable
redemption fee. With the exception of the redemption fees for those Funds set
forth in the table below, there is no redemption fee for cash redemptions of
shares of any of the Funds:
Redemption Fee
(as a percentage of
Fund amount redeemed)
Core II Secondaries Fund 0.75%
International Small Companies Fund 0.75%
Japan Fund 0.70%
Emerging Markets Fund 0.40%*
Global Hedged Equity Fund 1.40%
Emerging Country Debt Fund 0.25%**
* Applies only to shares acquired on or after June 1, 1995 (including shares
acquired through the reinvestment of dividends and other distributions after
such date).
** Applies only to shares acquired on or after July 1, 1995 (including shares
acquired through the reinvestment of dividends and other distributions after
such date).
In addition, the Manager may waive the Redemption Fees stated above if
there are minimal brokerage and transaction costs incurred in connection with
the redemption. To the extent that shares are redeemed at a time when other
shares of the same Fund are being purchased, the Manager will treat the
redemption (up to the amount being concurrently purchased) as involving minimal
brokerage and transaction costs and will charge any redemption fee only with
respect to the excess, if any, of the amount of the redemption over the amount
of the concurrent purchase. If there is more than one redemption at the time of
a concurrent purchase, each of the redeeming shareholders will share, pro rata,
in the reduction in redemption fee caused by the concurrent purchase. There is
no redemption fee on redemptions in-kind. Redemption fees will be retained by
the relevant Fund and are intended to cover brokerage and other expenses of the
Fund arising out of redemptions.
If the Manager determines, in its sole discretion, that it would be
detrimental to the best interests of the remaining shareholders of a Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities held by the Fund in
lieu of cash. Securities used to redeem Fund shares in kind will be valued in
accordance with the relevant Fund's procedures for valuation described under
"Determination of Net Asset Value." Securities distributed by a Fund in kind
will be selected by the Manager in light of the Fund's objective and will not
generally represent a pro rata distribution of each security held in the Fund's
portfolio. Any in-kind redemptions will be of readily marketable securities to
the extent available. Investors may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
Payment on redemption will be made as promptly as possible and in any
event within seven days after the request for redemption is received by the
Trust in good order. A redemption request is in good order if it includes the
exact name in which shares are registered, the investor's account number and the
number of shares or the dollar amount of shares to be redeemed and if it is
signed exactly in accordance with the form of registration. In addition, for a
redemption request to be in "good order" on a particular day, the investor's
request must be received by the Manager by 2:00 p.m. on a business day. When a
redemption request is received after 2:00 p.m., the redemption request will not
be considered to be in "good order" and is required to be resubmitted on the
following business day. Persons acting in a fiduciary capacity, or on behalf of
a corporation, partnership or trust must specify, in full, the capacity in which
they are acting. The redemption request can be considered "received" by the
Trust only after (i) it is mailed or faxed to the Trust (at the address or
facsimile number set forth above for purchase orders), and (ii) the investor has
confirmed receipt of the request by calling (617) 330-7500, Attention:
Shareholder Services. In-kind distributions will be transferred and delivered as
directed by the investor. Cash payments will be made by transfer of Federal
funds for payment into the investor's account.
When opening an account with the Trust, shareholders will be required
to designate the account(s) to which funds or securities may be transferred upon
redemption. Designation of additional accounts and any change in the accounts
originally designated must be made in writing.
Each Fund may suspend the right of redemption and may postpone payment
for more than seven days when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange is restricted or
during an emergency which makes it impracticable for the Fund to dispose of its
securities or to fairly determine the value of the net assets of the Fund, or
during any other period permitted by the Securities and Exchange Commission for
the protection of investors. Because the International Funds each hold portfolio
securities listed on foreign exchanges which may trade on days on which the New
York Stock Exchange is closed, the net asset value of such Funds' shares may be
significantly affected on days when shareholders have no access to such Funds.
DETERMINATION OF NET ASSET VALUE
Except on days during which no security is tendered for redemption and
no order to purchase or sell such security is received by the relevant Fund, the
net asset value of a share is determined for each Fund once on each day on which
the New York Stock Exchange is open as of 4:15 p.m., New York City Time, by
dividing the total market value of the Fund's portfolio investments and other
assets, less any liabilities, by the total outstanding shares of the Fund.
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. Price
information on listed securities is generally taken from the closing price on
the exchange where the security is primarily traded. Unlisted securities for
which market quotations are readily available are valued at the most recent
quoted bid price, except that debt obligations with sixty days or less remaining
until maturity may be valued at their amortized cost. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees or persons acting at their
direction. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at current exchange rates or at such other rates as
the Trustees may determine in computing net asset value. Debt securities with a
remaining maturity of 60 days or less will be valued at amortized cost, unless
circumstances dictate otherwise. Circumstances may dictate otherwise, among
other times, when the issuer's creditworthiness has become impaired.
Because of time zone differences, foreign exchanges and securities
markets will usually be closed prior to the time of the closing of the New York
Stock Exchange and values of foreign options and foreign securities will be
determined as of the earlier closing of such exchanges and securities markets.
However, events affecting the values of such foreign securities may occasionally
occur between the earlier closings of such exchanges and securities markets and
the closing of the New York Stock Exchange which will not be reflected in the
computation of the net asset value of the International Funds. If an event
materially affecting the value of such foreign securities occurs during such
period, then such securities will be valued at fair value as determined in good
faith by the Trustees or persons acting at their direction.
Because foreign securities, options on foreign securities and foreign
futures are quoted in foreign currencies, fluctuations in the value of such
currencies in relation to the U.S. dollar will affect the net asset value of
shares of the International Funds even though there has not been any change in
the values of such securities and options, measured in terms of the foreign
currencies in which they are denominated.
DISTRIBUTIONS
Each Fund intends to pay out as dividends substantially all of its net
investment income (which comes from dividends and interest it receives from its
investments and net short-term capital gains). For these purposes and for
federal income tax purposes, a portion of the premiums from certain expired call
or put options written by a Fund, net gains from certain closing purchase and
sale transactions with respect to such options and a portion of net gains from
other options and futures transactions are treated as short-term capital gain.
Each Fund also intends to distribute substantially all of its net long-term
capital gains, if any, after giving effect to any available capital loss
carryover. With the exception of the International Funds, each Fund's present
policy is to declare and pay distributions of its dividends and interest
quarterly. The policy of each International Fund is to declare and pay
distributions of its dividends, interest and foreign currency gains
semi-annually. Each Fund also intends to distribute net short-term capital gains
and net long-term gains at least annually.
All dividends and/or distributions will be paid in shares of the
relevant Fund, at net asset value, unless the shareholder elects to receive
cash. There is no purchase premium on reinvested dividends or distributions.
Shareholders may make this election by marking the appropriate box on the
Purchase Order Form or by writing to the Trust.
TAXES
Each Fund is treated as a separate taxable entity for federal income
tax purposes. Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. So
long as a Fund so qualifies, the Fund itself will not pay federal income tax on
the amount distributed.
Fund distributions derived from interest, dividends and certain other
income, including in general short-term capital gains, will be taxable as
ordinary income to shareholders subject to federal income tax whether received
in cash or reinvested shares. Designated distributions of any long-term capital
gains whether received in cash or reinvested shares are taxable as such to
shareholders subject to federal income tax, regardless of how long a shareholder
may have owned shares in the Fund. Any loss realized upon a taxable disposition
of shares held for six months or less will be treated as long-term capital loss
to the extent of any long-term capital gain distributions received by a
shareholder with respect to those shares. A distribution paid to shareholders by
a Fund in January of a year generally is deemed to have been received by
shareholders on December 31 of the preceding year, if the distribution was
declared and payable to shareholders of record on a date in October, November or
December of that preceding year. The Trust will provide federal tax information
annually, including information about dividends and distributions paid during
the preceding year.
The back-up withholding rules do not apply to tax exempt entities so
long as each such entity furnishes the Trust with an appropriate certification.
However, other shareholders are subject to back-up withholding at a rate of 31%
on all distributions of net investment income and capital gain, whether received
in cash or reinvested in shares of the relevant Fund, and on the amount of the
proceeds of any redemption of Fund shares paid or credited to any shareholder
account for which an incorrect or no taxpayer identification number has been
provided, where appropriate certification has not been provided for a foreign
shareholder, or where the Trust is notified that the shareholder has
underreported income in the past (or the shareholder fails to certify that he is
not subject to such withholding).
The foregoing is a general summary of the federal income tax
consequences for shareholders who are U.S. citizens, residents or domestic
corporations. Shareholders should consult their own tax advisors about the tax
consequences of an investment in a Fund in light of each shareholder's
particular tax situation. Shareholders should also consult their own tax
advisors about consequences under foreign, state, local or other applicable tax
laws.
WITHHOLDING ON DISTRIBUTIONS TO FOREIGN INVESTORS
Dividend distributions (including distributions derived from
short-term capital gains) are in general subject to a U.S. withholding tax of
31% when paid to a nonresident alien individual, foreign estate or trust, a
foreign corporation, or a foreign partnership ("foreign shareholder"). Persons
who are resident in a country, such as the U.K., that has an income tax treaty
with the U.S. may be eligible for a reduced withholding rate (upon filing of
appropriate forms), and are urged to consult their tax advisors regarding the
applicability and effect of such a treaty. Distributions of net long-term
capital gains to a foreign shareholder, and any gain realized upon the sale of
Fund shares by such a shareholder will ordinarily not be subject to U.S.
taxation, unless the recipient or seller is a nonresident alien individual who
is present in the United States for more than 182 days during the taxable year.
However, foreign shareholders with respect to whom income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder will in general be subject to U.S. federal income tax on the income
derived from the Fund at the graduated rates applicable to U.S. citizens,
residents or domestic corporations, whether received in cash or reinvested in
shares, and, in the case of a foreign corporation, may also be subject to a
branch profits tax. Again, foreign shareholders who are resident in a country
with an income tax treaty with the United States may obtain different tax
results, and are urged to consult their tax advisors.
FOREIGN TAX CREDITS
If, at the end of the fiscal year, more than 50% of the total assets
of any Fund is represented by stock of foreign corporations, the Fund intends to
make an election with respect to the relevant Fund which allows shareholders
whose income from the Fund is subject to U.S. taxation at the graduated rates
applicable to U.S. citizens, residents or domestic corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax return.
In such case, the amounts of foreign income taxes paid by the Fund would be
treated as additional income to Fund shareholders from non-U.S. sources and as
foreign taxes paid by Fund shareholders. Investors should consult their tax
advisors for further information relating to the foreign tax credit and
deduction, which are subject to certain restrictions and limitations.
Shareholders of any of the International Funds whose income from the Fund is not
subject to U.S. taxation at the graduated rates applicable to U.S. citizens,
residents or domestic corporations may receive substantially different tax
treatment of distributions by the relevant Fund, and may be disadvantaged as a
result of the election described in this paragraph.
LOSS OF REGULATED INVESTMENT COMPANY STATUS
A Fund may experience particular difficulty qualifying as a regulated
investment company in the case of highly unusual market movements, in the case
of high redemption levels and/or during the first year of its operations. If the
Fund does not qualify for taxation as a regulated investment company for any
taxable year, the Fund's income will be taxed at the Fund level at regular
corporate rates, and all distributions from earnings and profits, including
distributions of net long-term capital gains, will be taxable to shareholders as
ordinary income and subject to withholding in the case of non-U.S. shareholders.
In addition, in order to requalify for taxation as a regulated investment
company, the Fund may be required to recognize unrealized gains, pay taxes on
such gains, and make certain distributions.
MANAGEMENT OF THE TRUST
Each Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co.,
40 Rowes Wharf, Boston, Massachusetts 02110 (the "Manager") which provides
investment advisory services to a substantial number of institutional and other
investors, including one other registered investment company. Each of the
following four general partners holds a greater than 5% interest in the Manager:
R. Jeremy Grantham, Richard A. Mayo, Eyk H.A. Van Otterloo and Kingsley Durant.
Under separate Management Contracts with the Trust, the Manager selects
and reviews each Fund's investments and provides executive and other personnel
for the management of the Trust. Pursuant to the Trust's Agreement and
Declaration of Trust, the Board of Trustees supervises the affairs of the Trust
as conducted by the Manager. In the event that the Manager ceases to be the
manager of any Fund, the right of the Trust to use the identifying name "GMO"
may be withdrawn.
The Manager has entered into a Consulting Agreement (the "Consulting
Agreement") with Dancing Elephant, Ltd., 1936 University Avenue, Berkeley,
California 94704 (the "Consultant), with respect to the management of the
portfolio of the Emerging Markets Fund. The Consultant is wholly-owned by Mr.
Arjun Divecha. Under the Consulting Agreement, the Manager pays the Consultant a
monthly fee at an annual rate equal to the greater of 0.50% of the Fund's
average daily net assets or $500,000. The Consultant may from time to time waive
all or a portion of its fee. 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.
Each Management Contract provides for payment to the Manager of a
monthly fee at the stated annual rates set forth under Schedule of Fees and
Expenses. While the fee paid to the Manager by each of the International Core
Fund, the International Small Companies Fund, the Japan Fund and the Emerging
Markets Fund is higher than that paid by most funds, each is comparable to the
fees paid by many funds with similar investment objectives. In addition, with
respect to each Fund, the Manager has voluntarily agreed to waive its fee and to
bear certain expenses until further notice in order to limit each Fund's annual
expenses to specified limits (with certain exclusions). These limits and the
terms applicable to them are described under Schedule of Fees and Expenses.
During the fiscal year ended February 28, 1995, the Manager received,
as compensation for advisory services rendered in such year (after waiver), the
percentages of each Fund's average net assets as set forth below:
Fund % of Average Net Assets
Core Fund 0.45%
Tobacco-Free Core Fund 0.23%
Value Allocation Fund 0.56%
Growth Allocation Fund 0.42%
U.S. Sector Allocation Fund 0.40%
Core II Secondaries Fund 0.39%
Fundamental Value Fund 0.68%
International Core Fund 0.61%
International Small
Companies Fund 0.47%
Japan Fund 0.72%
Emerging Markets Fund 1.00%
Global Hedged Equity Fund 0.62%
Domestic Bond Fund 0.19%
Short-Term Income Fund 0.06%
International Bond Fund 0.19%
Currency Hedged International
Bond Fund 0.31%
Emerging Country Debt Fund 0.42%
Mr. R. Jeremy Grantham, Mr. Christopher Darnell and Ms. Jody Shuman
Meslin are primarily responsible for the day-to-day management of the portfolio
of each of the Core Fund, the Tobacco-Free Core Fund, the Growth Allocation
Fund, the U.S. Sector Allocation Fund, and the Core II Secondaries Fund. Each
has served in this capacity for more than five years. Mr. William L. Nemerever
and Mr. Thomas F. Cooper are primarily responsible for the day-to-day management
of the Fixed Income Funds. Each of Messrs. Nemerever and Cooper has served in
this capacity since the inception of all of these Funds except the Short-Term
Income Fund. Messrs. Nemerever and Cooper have served as the managers of the
Short-Term Income Fund since 1993. Prior to 1993, the Short-Term Income Fund was
managed by Mr. Robert Brokaw. Mr. Richard A. Mayo has been primarily responsible
for the day-to-day management of the portfolio of the Fundamental Value Fund
since the inception of the Fund. Mr. Mayo and Mr. Christopher Darnell have been
primarily responsible for the day-to-day management of the portfolio of the
Value Allocation Fund since the inception of the Fund. Mr. Grantham, Mr. Forrest
Berkley and Ms. Doris Chu have been primarily responsible for the day-to-day
management of the portfolio of each of the Currency Hedged International Core
Fund, the International Small Companies Fund, the Japan Fund and the Global
Hedged Equity Fund since inception of the Funds and have served as managers of
the International Core Fund for the last five years. Mr. Arjun Bhagwan Divecha
has been primarily responsible for the day-to-day management of the portfolio of
the Emerging Markets Fund since the inception of the Fund.
Mr. Grantham and Mr. Mayo are both founding partners of the Manager and
have been employed by the Manager in equity and fixed-income portfolio
management since its inception in 1977. Mr. Grantham serves as President -
Domestic Quantitative and Mr. Mayo serves as President - Domestic Active of the
Trust. Ms. Meslin has been employed by the Manager principally in equity
portfolio management for more than ten years. Mr. Darnell has been employed by
the Manager since 1979 and has been involved in equity portfolio management for
more than ten years. Mr. Berkley and Ms. Chu have each been employed by the
Manager for more than eight years and have each been involved in portfolio
management (principally of international equities) for more than six years. Mr.
Nemerever and Mr. Cooper have been employed by the Manager in fixed-income
portfolio management since October, 1993. For the five years prior to October,
1993, Mr. Nemerever was employed by Boston International Advisors and Fidelity
Management Trust Company in fixed-income portfolio management. For the five
years prior to October, 1993, Mr. Cooper was employed by Boston International
Advisors, Goldman Sachs Asset Management and Western Asset Management in
fixed-income portfolio management. Mr. Divecha is the sole shareholder and
President of the Consultant which he began to organize in September 1993. From
1981 until September 1993, Mr. Divecha was employed by BARRA and during this
period he was involved in equity portfolio management for more than five years.
ORGANIZATION AND CAPITALIZATION
OF THE TRUST
The Trust was established on June 24, 1985 as a business trust under
Massachusetts law. The Trust has an unlimited authorized number of shares of
beneficial interest which may, without shareholder approval, be divided into an
unlimited number of series of such shares, and which are presently divided into
twenty-four series of shares, one for each Fund, one for the Pelican Fund and
one for each of the Conservative Equity Fund, the Global Core Fund and the REIT
Fund which are currently inactive. All shares of all series are entitled to vote
at any meetings of shareholders. The Trust does not generally hold annual
meetings of shareholders and will do so only when required by law. Matters
submitted to shareholder vote must be approved by each Fund separately except
(i) when required by the 1940 Act shares shall be voted together as a single
class and (ii) when the Trustees have determined that the matter does not affect
a Fund, then only shareholders of the Fund(s) affected shall be entitled to vote
on the matter. Shares are freely transferable, are entitled to dividends as
declared by the Trustees, and, in liquidation of the Trust, are entitled to
receive the net assets of their Fund, but not of any other Fund. Shareholders
holding a majority of the outstanding shares of all series may remove Trustees
from office by votes cast in person or by proxy at a meeting of shareholders or
by written consent.
On June 15, 1995, the following shareholders held greater than 25% of
the outstanding shares of the series noted below:
Fund Shareholders
Tobacco-Free Core Fund Dewitt Wallace - Reader's
Digest Fund, Inc.; Lila
Wallace
U.S. Sector Allocation Fund John D. MacArthur & Catherine
T. MacArthur Foundation
Fundamental Value Fund Yale University; Leland
Stanford Junior University II
Japan Fund International Monetary Staff
Retirement Fund; Gordon
Family Trust
Domestic Bond Fund Bankers Trust Company as
Trustee, GTE Service Corp.
Pension Trust
Short-Term Income Fund MJH Foundation
International Bond Fund Bankers Trust Company as
Trustee, GTE Service Pension
Trust
Currency Hedged Bankers Trust Company as
International Bond Fund Trustee, GTE Service Corp.
Pension Trust
Emerging Country Debt Fund Bankers Trust Company as Trustee,
GTE Service Corp. Pension Trust
As a result, such shareholders may be deemed to "control" their respective
series as such term is defined in the 1940 Act.
Shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the risk of a shareholder
incurring financial loss on account of that liability is considered remote since
it may arise only in very limited circumstances.
SHAREHOLDER INQUIRIES
Shareholders may direct inquiries to the Trust
c/o Grantham, Mayo, Van Otterloo & Co.,
40 Rowes Wharf, Boston, MA 02110
APPENDIX A
RISKS AND LIMITATIONS OF OPTIONS, FUTURES AND SWAPS
Limitations on the Use of Options and Futures Portfolio Strategies. As
noted in "Descriptions and Risks of Fund Investment Practices--Futures and
Options" above, the Funds may use futures contracts and related options for
hedging and, in some circumstances, for risk management or investment but not
for speculation. Thus, except when used for risk management or investment, each
such Fund's long futures contract positions (less its short positions) together
with the Fund's cash (i.e., equity or fixed income) positions will not exceed
the Fund's total net assets.
The Funds' ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to currencies are
relatively new and still developing. It is impossible to predict the amount of
trading interest that may exist in various types of options or futures.
Therefore no assurance can be given that a Fund will be able to utilize these
instruments effectively for the purposes set forth above. Furthermore, each
Fund's ability to engage in options and futures transactions may be limited by
tax considerations.
Risk Factors in Options Transactions. The option writer has no control
over when the underlying securities or futures contract must be sold, in the
case of a call option, or purchased, in the case of a put option, since the
writer may be assigned an exercise notice at any time prior to the termination
of the obligation. If an option expires unexercised, the writer realizes a gain
in the amount of the premium. Such a gain, of course, may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security or futures contract during the option period. If a call
option is exercised, the writer realizes a gain or loss from the sale of the
underlying security or futures contract. If a put option is exercised, the
writer must fulfill the obligation to purchase the underlying security or
futures contract at the exercise price, which will usually exceed the then
market value of the underlying security or futures contract.
An exchange-traded option may be closed out only on a national
securities exchange ("Exchange") which generally provides a liquid secondary
market for an option of the same series. An over-the-counter option may be
closed out only with the other party to the option transaction. If a liquid
secondary market for an exchange-traded option does not exist, it might not be
possible to effect a closing transaction with respect to a particular option
with the result that the Fund holding the option would have to exercise the
option in order to realize any profit. For example, in the case of a written
call option, if the Fund is unable to effect a closing purchase transaction in a
secondary market (in the case of a listed option) or with the purchaser of the
option (in the case of an over-the-counter-option), the Fund will not be able to
sell the underlying security (or futures contract) until the option expires or
it delivers the underlying security (or futures contract) upon exercise. Reasons
for the absence of a liquid secondary market on an Exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii)Erestrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more Exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that Exchange (or in that class or series of options)
would cease to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
Exchange should continue to be exercisable in accordance with their terms.
The Exchanges have established limitations governing the maximum number
of options which may be written by an investor or group of investors acting in
concert. It is possible that the Funds, the Manager and other clients of the
Manager may be considered to be such a group. These position limits may restrict
a Fund's ability to purchase or sell options on a particular security.
The amount of risk a Fund assumes when it purchases an option is the
premium paid for the option plus related transaction costs. In addition to the
correlation risks discussed below, the purchase of an option also entails the
risk that changes in the value of the underlying security or futures contract
will not be fully reflected in the value of the option purchased.
Risk Factors in Futures Transactions. Investment in futures contracts
involves risk. If the futures are used for hedging, some of that risk may be
caused by an imperfect correlation between movements in the price of the futures
contract and the price of the security or currency being hedged. The correlation
is higher between price movements of futures contracts and the instrument
underlying that futures contract. The correlation is lower when futures are used
to hedge securities other than such underlying instrument, such as when a
futures contract on an index of securities is used to hedge a single security, a
futures contract on one security (e.g., U.S. Treasury bonds) is used to hedge a
different security (e.g., a mortgage-backed security) or when a futures contract
in one currency (e.g., the German Mark) is used to hedge a security denominated
in another currency (e.g., the Spanish Peseta). In the event of an imperfect
correlation between a futures position and a portfolio position (or anticipated
position) which is intended to be protected, the desired protection may not be
obtained and a Fund may be exposed to risk of loss. In addition, it is not
always possible to hedge fully or perfectly against currency fluctuations
affecting the value of the securities denominated in foreign currencies because
the value of such securities also is likely to fluctuate as a result of
independent factors not related to currency fluctuations. The risk of imperfect
correlation generally tends to diminish as the maturity date of the futures
contract approaches.
A hedge will not be fully effective where there is such imperfect
correlation. To compensate for imperfect correlations, a Fund may purchase or
sell futures contracts in a greater amount than the hedged securities if the
volatility of the hedged securities is historically greater than the volatility
of the futures contracts. Conversely, a Fund may purchase or sell fewer
contracts if the volatility of the price of the hedged securities is
historically less than that of the futures contract.
As noted in the Prospectus, a Fund may also purchase futures contracts
(or options thereon) as an anticipatory hedge against a possible increase in the
price of currency in which is denominated the securities the Fund anticipates
purchasing. In such instances, it is possible that the currency may instead
decline. If the Fund does not then invest in such securities because of concern
as to possible further market and/or currency decline or for other reasons, the
Fund may realize a loss on the futures contract that is not offset by a
reduction in the price of the securities purchased.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
exceeded the daily limit on a number of consecutive trading days. Short
positions in index futures may be closed out only by entering into a futures
contract purchase on the futures exchange on which the index futures are traded.
The successful use of transactions in futures and related options for
hedging and risk management also depends on the ability of the Manager to
forecast correctly the direction and extent of exchange rate, interest rate and
stock price movements within a given time frame. For example, to the extent
interest rates remain stable during the period in which a futures contract or
option is held by a Fund investing in fixed income securities (or such rates
move in a direction opposite to that anticipated), the Fund may realize a loss
on the futures transaction which is not fully or partially offset by an increase
in the value of its portfolio securities. As a result, the Fund's total return
for such period may be less than if it had not engaged in the hedging
transaction.
Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the CFTC and may be subject to greater
risks than trading on domestic exchanges. For example, some foreign exchanges
may be principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. In addition, unless
a Fund hedges against fluctuations in the exchange rate between the U.S. dollar
and the currencies in which trading is done on foreign exchanges, any profits
that a Fund might realized in trading could be eliminated by adverse changes in
the exchange rate, or the Fund could incur losses as a result of those changes.
Risk Factors in Swap Contracts, OTC Options and other Two-Party
Contracts. A Fund may only close out a swap, contract for differences, cap floor
or collar or OTC option, with the particular counterparty. Also, if the
counterparty defaults, a Fund will have contractual remedies pursuant to the
agreement related to the transaction, but there is no assurance that contract
counterparties will be able to meet their obligations pursuant to such contracts
or that, in the event of default, a Fund will succeed in pursuing contractual
remedies. The Fund thus assumes the risk that it may be delayed or prevented
from obtaining payments owed to it pursuant to swap contracts. The Manager will
closely monitor subject to the oversight of the Trustees, the creditworthiness
of contract counterparties and a Fund will not enter into any swaps, caps,
floors or collars, unless the unsecured senior debt or the claims-paying ability
of the other party thereto is rated at least A by Moody's Investors Service or
Standard and Poor's Corporation at the time of entering into such transaction or
if the counterparty has comparable credit as determined by the Manager. However,
the credit of the counterparty may be adversely affected by larger-than-average
volatility in the markets, even if the counterparty's net market exposure is
small relative to its capital. The management of caps, floors, collars and swaps
may involve certain difficulties because the characteristics of many derivatives
have not been observed under all market conditions or through a full market
cycle.
Additional Regulatory Limitations on the Use of Futures and Related
Options, Interest Rate Floors, Caps and Collars and Interest Rate and Currency
Swap Contracts. In accordance with CFTC regulations, investments by any Fund as
provided in the Prospectus in futures contracts and related options for purposes
other than bona fide hedging are limited such that the aggregate amount that a
Fund may commit to initial margin on such contracts or premiums on such options
may not exceed 5% of that Fund's net assets.
The Manager and the Trust do not believe that the Fund's respective
obligations under equity swap contracts, reverse equity swap contracts or Index
Futures are senior securities and, accordingly, the Fund will not treat them as
being subject to its borrowing restrictions. However, the net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each equity swap contract will be accrued on a daily basis and an amount of
cash, U.S. government securities or other high grade debt obligations having an
aggregate market value at least equal to the accrued excess will be maintained
in a segregated account by the Fund's custodian. Likewise, when a Fund takes a
short position with respect to an Index Futures contract the position must be
covered or the Fund must maintain at all times while that position is held by
the Fund, cash, U.S. government securities or other high grade debt obligations
in a segregated account with its custodian, in an amount which, together with
the initial margin deposit on the futures contract, is equal to the current
delivery or cash settlement value.
The use of unsegregated futures contracts, related written options,
interest rate floors, caps and collars and interest rate and currency swap
contracts for risk management by a Fund permitted to engage in any or all of
such practices is limited to no more than 10% of a Fund's total net assets when
aggregated with such Fund's traditional borrowings in accordance with SEC
pronouncements. This 10% limitation applies to the face amount of unsegregated
futures contracts and related options and to the amount of a Fund's net payment
obligation that is not segregated against in the case of interest rate floors,
caps and collars and interest rate and currency swap contracts.
APPENDIX B
COMMERCIAL PAPER AND CORPORATE DEBT RATINGS
COMMERCIAL PAPER RATINGS
Commercial paper ratings of Standard & Poor's Corporation ("Standard &
Poor's") are current assessments of the likelihood of timely payment of debts
having original maturities of no more than 365 days. Commercial paper rated A-1
by Standard & Poor's indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted A-1+. Commercial paper
rated A-2 by Standard and Poor's indicates that capacity for timely payment on
issues is strong. However, the relative degree of safety is not as high as for
issues designated A-1. Commercial paper rated A-3 indicates capacity for timely
payment. It is, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained. Issuers rated
Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market composition may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and the requirement of
relatively high financial leverage. Adequate alternate liquidity is maintained.
CORPORATE DEBT RATINGS
Standard & Poor's Corporation. A Standard & Poor's corporate debt
rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. The following is a summary of the ratings used
by Standard & Poor's for corporate debt:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA - Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc. The following is a summary of the
ratings used by Moody's Investor Services, Inc. for corporate debt:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.1
A - Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.1
Baa - Bonds that are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing. Should no rating be assigned by Moody's, the reason
may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols 1Aa1,
A1, Baa1, and B1.
GRANTHAM, MAYO, VAN OTTERLOO & CO.
40 Rowes Wharf, Boston, MA 02110
(617) 330-7500
GMO TRUST
STATEMENT OF ADDITIONAL INFORMATION
September 18, 1995
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated September 18, 1995, as
amended from time to time and should be read in conjunction therewith. A copy of
the Prospectus may be obtained from GMO Trust, 40 Rowes Wharf, Boston,
Massachusetts 02110.
<TABLE>
<CAPTION>
Table of Contents
Caption Page
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES 1
MISCELLANEOUS INVESTMENT PRACTICES 2
INVESTMENT RESTRICTIONS 5
INCOME, DIVIDENDS, DISTRIBUTIONS AND TAX STATUS 9
MANAGEMENT OF THE TRUST 11
INVESTMENT ADVISORY AND OTHER SERVICES 12
PORTFOLIO TRANSACTIONS 17
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES 19
DETERMINATION OF NET ASSET VALUE 30
FINANCIAL STATEMENTS 31
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
Domestic Equity Funds
The investment objective and policies of the GMO Core Fund
(the "Core Fund"), the GMO Value Allocation Fund (the "Value Allocation
Fund"), the GMO Core II Secondaries Fund (the "Core II Secondaries
Fund"), the GMO Tobacco-Free Core Fund (the "Tobacco-Free Core Fund"),
the GMO Fundamental Value Fund (the "Fundamental Value Fund"), the GMO
Growth Allocation Fund (the "Growth Allocation Fund"), and the GMO U.S.
Sector Allocation Fund ("U.S. Sector Allocation Fund") of GMO Trust
(the "Trust") are summarized on the front page of the Prospectus and in
the text of the Prospectus under the headings "Investment Objectives
and Policies -- Domestic Equity Funds." A Fund's total return is the
sum of dividends, interest and net realized and unrealized appreciation
and depreciation in the value of the Fund's assets, less expenses.
As described in the Prospectus, each Domestic Equity Fund may
invest in securities of foreign issuers except that the Manager has
adopted procedures to avoid investment by the Tobacco- Free Core Fund
in the securities of any issuer which, at the time of purchase, derives
more than 10% of its gross revenues from the production of
tobacco-related products (referred to as "Tobacco Producing Issuers").
The Manager will generally rely on a list of Tobacco Producing Issuers
prepared by third parties, although the Manager may cause the
Tobacco-Free Core Fund, as the case may be, to purchase securities of
issuers which are not included on such lists if, at the time of
purchase, the Manager has received information from the issuer
indicating that it is no longer a Tobacco Producing Issuer, as the case
may be.
Fixed-Income Funds
The portfolio securities of the GMO Short-Term Income Fund
(the "Short-Term Income Fund"), the GMO International Bond Fund (the
"International Bond Fund"), the GMO Currency Hedged International Bond
Fund (the "Currency Hedged International Bond Fund"), the GMO Global
Bond Fund (the "Global Bond Fund"), the GMO Domestic Bond Fund (the
"Domestic Bond Fund") the GMO Emerging Country Debt Fund (the "Emerging
Country Debt Fund") and the GMO Core Emerging Country Debt Fund (the
"Core Emerging Country Debt Fund") are subject to credit risk and
market risk. Credit risk relates to the ability of the issuer of an
obligation to make timely payments of principal and interest. In a
repurchase agreement transaction, credit risk relates to the
performance by the other party of its obligation to repurchase the
underlying security from the Fund. Obligations of issuers are subject
to the provisions of bankruptcy, insolvency and other laws, such as the
Federal Bankruptcy Reform Act of 1978, affecting the rights and
remedies of creditors. As noted in the Prospectus, the Short-Term
Income Fund invests only in instruments which have received a
"high-quality" rating from Moody's or S&P or, in the case of unrated
instruments, which are of comparable quality as determined by the
Manager. The International Bond Fund may invest in lower rated
securities.
Market risk relates to changes in the market value of a
security as a result of variations in the level of prevailing interest
rates and yield relationships among particular segments of the
high-grade money market or the U.S. Government Securities market.
Generally, prices tend to fluctuate less for higher quality issues than
for lower quality issues, and, for any given change in the level of
interest rates, prices for shorter maturity issues tend to fluctuate
less than for longer maturity issues.
The value of the securities in the Short-Term Income Fund's
and International Bond Fund's respective portfolios can be expected to
vary inversely to the changes in prevailing interest rates. Thus, if
interest rates increase after a security was purchased, that security,
if sold, might be sold at less than cost. Conversely, if interest rates
decline after purchase, the security, if sold, might be sold at a
profit. In either instance, if the security were held to maturity, no
gain or loss would normally be realized as a result of these
fluctuations. Substantial redemptions of the shares of a Fund could
require the sale of portfolio investments in that Fund at a time when a
sale might not be desirable.
International Funds
As indicated in the Prospectus, the International Funds may
invest in foreign securities, which may be in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs
are receipts typically issued by a United States bank or trust company
evidencing ownership of the underlying foreign securities. EDRs are
receipts typically issued by a European bank or trust company
evidencing ownership of the underlying foreign securities. Generally,
ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in
European securities markets.
MISCELLANEOUS INVESTMENT PRACTICES
Portfolio Turnover. A change in securities held by a Fund is
known as "portfolio turnover" and almost always involves the payment by
the Trust of brokerage commissions or dealer markup and other
transaction costs on the sale of securities as well as on the
reinvestment of the proceeds in other securities. As a result of the
investment policies of the Funds, under certain market conditions their
portfolio turnover may be higher than those of many other investment
companies. It is, however, impossible to predict portfolio turnover in
future years. As disclosed in the Prospectus, high portfolio turnover
involves correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the relevant Fund.
Foreign brokerage commissions and fees are generally higher than in the
United States. To the extent that portfolio turnover results in the
realization of net short-term capital gains, such gains are ordinarily
taxed at ordinary income tax rates.
Index Futures. As stated in the Prospectus under the heading
"Descriptions and Risks of Fund Investment Practices -- Futures and
Options," each of the Funds may purchase futures contracts on various
securities indices ("Index Futures"). As indicated in the Prospectus,
an Index Future is a contract to buy or sell an integral number of
units of the particular stock index at a specified future date at a
price agreed upon when the contract is made. A unit is the value from
time to time of the relevant index. Entering into a contract to buy
units is commonly referred to as buying or purchasing a contract or
holding a long position in the relevant index.
For example, if the value of a unit of a particular index were
$1,000, a contract to purchase 500 units would be worth $500,000 (500
units x $1,000). The Index Futures contract specifies that no delivery
of the actual stocks making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and
the actual level of the relevant index at the expiration of the
contract. For example, if a Fund enters into one futures contract to
buy 500 units of an index at a specified future date at a contract
price of $1,000 per unit and the index is at $1,010 on that future
date, the Fund will gain $5,000 (500 units x gain of $10).
Index Futures in which a Fund may invest typically can be
traded through all major commodity brokers and trades are currently
effected on the exchanges described in the Prospectus. A Fund may close
open positions on the futures exchange on which Index Futures are then
traded at any time up to and including the expiration day. All
positions which remain open at the close of the last business day of
the contract's life are required to settle on the next business day
(based upon the value of the relevant index on the expiration day) with
settlement made, in the case of S&P 500 Index Futures, with the
Commodities Clearing House. Because the specific procedures for trading
foreign stock Index Futures on futures exchanges are still under
development, additional or different margin requirements as well as
settlement procedures may be applicable to foreign stock Index Futures
at the time a Fund purchases foreign stock Index Futures.
The price of Index Futures may not correlate perfectly with
movement in the relevant index due to certain market distortions.
First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the S&P 500 Index and futures markets. Secondly,
the deposit requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result the
futures market may attract more speculators than does the securities
market. Increased participation by speculators in the futures market
may also cause temporary price distortions. In addition, trading hours
for foreign stock Index Futures may not correspond perfectly to hours
of trading on the foreign exchange to which a particular foreign stock
Index Future relates. This may result in a disparity between the price
of Index Futures and the value of the relevant index due to the lack of
continuous arbitrage between the Index Futures price and the value of
the underlying index.
Options and Futures Transactions. As indicated in the
Prospectus following the captions "Descriptions and Risks of Fund
Investments Practices -- Futures and Options," and discussed in detail
in Appendix A thereto each of the International Funds may engage in a
variety of transactions involving the use of financial futures
contracts and related options as well as options in securities.
Warrants. Each of the International Funds (other than the
International Bond Fund) may invest up to 5% of its total assets in
warrants which entitle the holder to buy equity securities at a
specific price for a specified period of time.
Interest Caps, Floors and Collars and Interest Rate, Currency
and Equity Swap Contracts. As described in detail in the Prospectus and
Appendix A thereto, each of the Fixed-Income Funds may invest in
interest rate swap contracts; each International Fund may invest in
currency swap contracts; and each Fund (except the Fixed Income Funds)
may invest in equity swap contracts.
As also described in detail in the Prospectus and Appendix A
thereto, the Fixed Income Funds may use interest rate caps, floors and
collars.
Foreign Currency Transactions. Each of the International Funds
may buy or sell foreign currencies, enter into forward foreign currency
exchange contracts or futures on foreign currencies for the purposes
described in the Prospectus under the heading "Descriptions and Risks
of Fund Investment Practices -- Foreign Currency Transactions."
Repurchase Agreements. The repurchase agreements referred to
in the Prospectus are agreements by which a Fund purchases a security
and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed upon price and date. The value of the security
purchased plus any other collateral provided to the Fund by the seller
will at all times be greater than or equal to the resale price. The
resale price is in excess of the purchase price and reflects an agreed
upon market rate unrelated to the coupon rate on the purchased
security. Such transactions afford the relevant Fund the opportunity to
earn a return on temporarily available cash at minimal market risk.
While the underlying security may be a Treasury bill, certificate of
indebtedness, note or bond issued by an agency, authority or
instrumentality of the United States Government, the obligation of the
seller is not guaranteed by the U.S. Government and there is a risk
that the seller may fail to repurchase the underlying security. In such
event, the relevant Fund would attempt to exercise rights with respect
to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and risks of
loss including (a) possible declines in the value of the underlying
security during the period while the Fund seeks to enforce its rights
thereto, (b) possible reduced levels of income and lack of access to
income during this period and (c) inability to enforce rights and the
expenses involved in attempted enforcement.
Securities Loans. As described in the Prospectus each Fund
(other than the International Core and Currency Hedged International
Core Funds) may make secured loans of portfolio securities amounting to
up to 100% of the relevant Fund's total assets and the International
Core and Currency Hedged International Core Funds may make such loans
of up to 25% of their total assets.
Firm Commitments. As described in the Prospectus following the
caption "Descriptions and Risks of Fund Investment Practices -- Firm
Commitments," each of the Fixed Income Funds may enter into firm
commitment agreements with banks or broker-dealers for the purchase of
securities at an agreed-upon price on a specified future date. Such
agreements might be entered into, for example, when the Fund
anticipates a decline in the yield of securities of a given issuer and
is able to obtain a more advantageous yield by committing currently to
purchase securities to be issued later. Entry into firm commitment
agreements with broker-dealers requires the creation and maintenance of
a segregated account. The underlying securities subject to a firm
commitment agreement are subject to fluctuation in market value.
Pending delivery of securities purchased under firm commitment
agreements, the amount of the purchase price will be held in liquid
assets such as cash or high-quality debt obligations. Such obligations
will be maintained in a separate account with the Trust's custodian in
an amount equal on a daily basis to the amount of the Fund's
commitments. When the time comes to pay for securities subject to firm
commitment agreements, the Fund will meet its obligations from then-
available cash flow or the sale of securities, or, although it would
normally not expect to do so, from the sale of the when-issued
securities themselves (which may have a value greater or less than the
Fund's payment obligation).
Notice on Shareholder Approval
Unless otherwise indicated, the investment objective and
policies of the Funds may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
Without a vote of the majority of the outstanding voting
securities of the relevant Fund, the Trust will not take any of the
following actions with respect to any Fund:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of the Fund's total assets (not
including the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary measure to facilitate the meeting
of redemption requests (not for leverage) which might otherwise require
the untimely disposition of portfolio investments or for extraordinary
or emergency purposes. Such borrowings will be repaid before any
additional investments are purchased.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 10% of the Fund's total assets (taken at cost) and
then only to secure borrowings permitted by Restriction 1 above. (The
deposit of securities or cash or cash equivalents in escrow in
connection with the writing of covered call or put options,
respectively, is not deemed to be a pledge or other encumbrance.) (For
the purposes of this restriction, collateral arrangements with respect
to the writing of options, stock index, interest rate, currency or
other futures, options on futures contracts and collateral arrangements
with respect to initial and variation margin are not deemed to be a
pledge or other encumbrance of assets.)
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and sales of
securities. (For this purpose, the deposit or payment of initial or
variation margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.)
(4) Make short sales of securities or maintain a short
position for the Fund's account unless at all times when a short
position is open the Fund owns an equal amount of such securities or
owns securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue
as, and equal in amount to, the securities sold short.
(5) Underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under federal
securities laws.
(6) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, including securities
of real estate investment trusts, and may purchase securities which are
secured by interests in real estate.
(7) Make loans, except by purchase of debt obligations or by
entering into repurchase agreements or, through the lending of the
Fund's portfolio securities. Loans of portfolio securities may be made
with respect to up to 100% of a Fund's total assets in the case of each
Fund (except the International Core and Currency Hedged International
Core Funds), and with respect to not more than 25% of total assets in
the case of each of the International Core and Currency Hedged
International Core Funds.
(8) Invest in securities of any issuer if, to the knowledge of
the Trust, officers and Trustees of the Trust and officers and partners
of Grantham, Mayo, Van Otterloo & Co. (the "Manager") who beneficially
own more than 1/2 of 1% of the securities of that issuer together
beneficially own more than 5%.
(9) Concentrate more than 25% of the value of its total assets
in any one industry (except that, as described in the Prospectus, the
Short-Term Income Fund may invest up to 100% of its assets in
obligations issued by banks).
(10) Invest in securities of other investment companies,
except by purchase in the open market involving only customary brokers'
commissions. For purposes of this restriction, foreign banks or their
agents or subsidiaries are not considered investment companies. (Under
the Investment Company Act of 1940 (the "Investment Company Act") no
registered investment company may (a) invest more than 10% of its total
assets (taken at current value) in securities of other investment
companies, (b) own securities of any one investment company having a
value in excess of 5% of its total assets (taken at current value), or
(c) own more than 3% of the outstanding voting stock of any one
investment company.)
(11) Purchase or sell commodities or commodity contracts,
except that the Funds (other than the Short-Term Income Fund) may
purchase and sell financial futures contracts and options thereon.
(12) Except for the Global Bond Fund, the International Bond
Fund, the Domestic Bond Fund, the Currency Hedged International Bond
Fund, the Currency Hedged International Core Fund, the Global Hedged
Equity Fund, the Emerging Country Debt Fund and the Core Emerging
Country Debt Fund, invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities the disposition
of which is restricted under federal securities laws, and (c)
repurchase agreements maturing in more than seven days if, as a result,
more than 10% of the Fund's total assets (taken at current value) would
then be invested in securities described in (a), (b) and (c) above.
(13) In addition to the foregoing, it is a fundamental policy
that none of the Core Fund, the Japan Fund, the Core II Secondaries
Fund, the Fundamental Value Fund, the Tobacco-Free Core Fund, the
International Core Fund or the Currency Hedged International Core Fund
will acquire more than 10% of the voting securities of any issuer.
Notwithstanding the latitude permitted by Restrictions 1, 2, 4
and 6 above, no Fund has any current intention of (a) borrowing money,
(b) entering into short sales or (c) investing in real estate
investment trusts.
It is contrary to the present policy of all the Funds, which
may be changed by the Trustees without shareholder approval, to:
(a) Invest in warrants or rights excluding options (other than
warrants or rights acquired by the Fund as a part of a unit or attached
to securities at the time of purchase) except that the International
Funds (other than the International Bond Fund) may invest in such
warrants or rights so long as the aggregate value thereof (taken at the
lower of cost or market) does not exceed 5% of the value of the Fund's
total net assets; provided that within this 5%, not more than 2% of its
net assets may be invested in warrants that are not listed on the New
York or American Stock Exchange or a recognized foreign exchange.
(b) Invest in securities of an issuer, which, together with
any predecessors or controlling persons, has been in operation for less
than three consecutive years if, as a result, the aggregate of such
investments would exceed 5% of the value of the Fund's net assets;
except that this restriction shall not apply to any obligation of the
U.S. Government or its instrumentalities or agencies; and except that
this restriction shall not apply to the investments of the Japan Fund.
(c) Write, purchase or sell options on particular securities
(as opposed to market indices) except that (i) any of the International
Funds and the Domestic Bond Fund may (A) with respect to all or any
part of its portfolio securities, write covered call options or covered
put options and enter into closing purchase transactions with respect
to such options, and (B) in combination therewith, or separately,
purchase put and call options; and (ii) the Fundamental Value Fund may
purchase put options and write covered call options on its portfolio
securities; provided that in each case the premiums paid by the Fund on
all outstanding options it has purchased do not exceed 5% (10% in the
case of each of the International Bond Fund, the Global Bond Fund, the
Currency Hedged International Bond Fund, the Core Emerging Country Debt
Fund and the Emerging Country Debt Fund) of its total assets. Any Fund
may enter into closing sale transactions with respect to options it has
purchased.
(d) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(e) Make investments for the purpose of gaining control of a
company's management.
(f) In the case of the International Bond Fund, the Domestic
Bond Fund, the Currency Hedged International Bond Fund, the Global
Hedged Equity Fund, and the Emerging Country Debt Fund and the Core
Emerging Country Debt Fund, purchase securities restricted as to
resale, if, as a result, such investments would exceed 15% of the value
of the Fund's net assets, excluding restricted securities that have
been determined by the Trustees of the Fund (or the person designated
by them to make such determinations) to be readily marketable.
Except as indicated above in Restriction No. 1, all percentage
limitations on investments set forth herein and in the Prospectus will
apply at the time of the making of an investment and shall not be
considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The phrase "shareholder approval," as used in the Prospectus,
and the phrase "vote of a majority of the outstanding voting
securities," as used herein with respect to a Fund, means the
affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of that Fund, or (2) 67% or more of the shares of that Fund
present at a meeting if more than 50% of the outstanding shares are
represented at the meeting in person or by proxy.
INCOME, DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
Each 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"). In order to so qualify, the Fund must,
among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans,
and gains from the sale of stock, securities and foreign currencies, or
other income (including but not limited to gains from options, futures
or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (b) derive less than 30% of
its gross income from gains from the sale or other disposition of
securities and certain other assets (including certain foreign currency
contracts) held for less than three months; (c) distribute at least 90%
of its dividend, interest and certain other income (including, in
general, short-term capital gains) each year; and (d) diversify its
holdings so that, at the end of each fiscal quarter (i) at least 50% of
the market value of the Fund's assets is represented by cash items,
U.S. Government securities, securities of other regulated investment
companies, and other securities, limited in respect of any one issuer
to a value not greater than 5% of the value of the Fund's total assets
and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the
securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which
the Fund controls and which are engaged in the same, similar or related
trades or businesses. So long as a Fund qualifies for treatment as a
regulated investment company, the Fund will not be subject to federal
income tax on income paid to its shareholders in the form of dividends
or capital gain distributions.
The tax status of each Fund and the distributions which it may
make are summarized in the Prospectus under the heading "Taxes." Each
Fund intends to pay out substantially all of its ordinary income and
net short-term capital gains, and to distribute substantially all of
its net capital gain, if any, after giving effect to any available
capital loss carry-over. Net capital gain is the excess of net
long-term capital gain over net short-term capital loss. It is the
policy of each Fund to make distributions sufficient to avoid the
imposition of a 4% excise tax on certain undistributed amounts. The
recognition of certain losses upon the sale of shares of a Fund may be
limited to the extent shareholders dispose of shares of one Fund and
invest in shares of the same or another Fund.
The Funds' transactions in options, futures contracts, hedging
transactions, forward contracts, straddles and foreign currencies may
accelerate income, defer losses, cause adjustments in the holding
periods of the Funds' securities and convert short-term capital gains
or losses into long-term capital gains or losses. Qualification
segments noted above may restrict the Fund's ability to engage in these
transactions, and these transactions may affect the amount, timing and
character of distributions to shareholders.
Investment by the International Funds in certain "passive
foreign investment companies" could subject a Fund to a U.S. federal
income tax or other charge on distributions received from or the sale
of its investment in such a company, which tax cannot be eliminated by
making distributions to Fund shareholders. If the Fund elects to treat
a passive foreign investment company as a "qualified electing fund," or
elects the mark-to-market election under proposed regulation 1291.8,
different rules would apply, although the Fund does not currently
expect to be in the position to make such elections.
In general, all dividends derived from ordinary income and
short-term capital gain are taxable to investors as ordinary income
(subject to special rules concerning the extent of the dividends
received deduction for corporations) and long-term capital gain
distributions are taxable to investors as long-term capital gains,
whether such dividends or distributions are received in shares or cash.
Tax exempt organizations or entities will generally not be subject to
federal income tax on dividends or distributions from a Fund, except
certain organizations or entities, including private foundations,
social clubs, and others, which may be subject to tax on dividends or
capital gains. Each organization or entity should review its own
circumstances and the federal tax treatment of its income.
The dividends-received deduction for corporations will
generally apply to a Fund's dividends paid from investment income to
the extent derived from dividends received by the Fund from domestic
corporations.
Certain of the Funds which invest in foreign securities may be
subject to foreign withholding taxes on income and gains derived from
foreign investments. Such taxes would reduce the yield on the Trust's
investments, but, as discussed in the Prospectus, may be taken as
either a deduction or a credit by U.S. citizens and corporations if the
Fund makes the election described in the Prospectus.
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal
occupations during the past five years are as follows:
R. Jeremy Grantham*. President-Domestic Quantitative and
Trustee of the Trust. Partner, Grantham, Mayo, Van Otterloo
& Co. (investment adviser).
Harvey R. Margolis. Trustee of the Trust. Mathematics
Professor, Boston College.
Eyk del Mol Van Otterloo*. President-International and
Trustee of the Trust. Partner, Grantham, Mayo,
Van Otterloo & Co.
Richard Mayo*. President-Domestic Active of the Trust.
Partner, Grantham, Mayo, Van Otterloo & Co.
Kingsley Durant*. Vice President, Treasurer, Secretary, Clerk
of the Trust. Partner, Grantham, Mayo, Van Otterloo & Co.
*Deemed to be an "interested person" of the Trust, as defined
by the 1940 Act.
The mailing address of each of the officers and Trustees is
c/o GMO Trust, 40 Rowes Wharf, Boston, Massachusetts 02110. The
Trustees and officers of the Trust as a group own less than 1% of any
class of outstanding shares of the Trust.
Except as stated above, the principal occupations of the
officers and Trustees for the last five years have been with the
employers as shown above, although in some cases they have held
different positions with such employers.
The Manager pays the Trustees other than those who are
interested persons of the Manager an annual fee of $19,000.
Messrs. Grantham, Van Otterloo, Mayo and Durant, as partners
of the Manager, will benefit from the management fees paid by each Fund
of the Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
Management Contracts
As disclosed in the Prospectus under the heading "Management
of the Fund," under separate Management Contracts (each a "Management
Contract") between the Trust and Grantham, Mayo, Van Otterloo & Co.
(the "Manager"), subject to such policies as the Trustees of the Trust
may determine, the Manager will furnish continuously an investment
program for each Fund and will make investment decisions on behalf of
the Fund and place all orders for the purchase and sale of portfolio
securities. Subject to the control of the Trustees, the Manager also
manages, supervises and conducts the other affairs and business of the
Trust, furnishes office space and equipment, provides bookkeeping and
certain clerical services and pays all salaries, fees and expenses of
officers and Trustees of the Trust who are affiliated with the Manager.
As indicated under "Portfolio Transactions --Brokerage and Research
Services," the Trust's portfolio transactions may be placed with
broker-dealers which furnish the Manager, at no cost, certain research,
statistical and quotation services of value to the Manager in advising
the Trust or its other clients.
As is disclosed in the Prospectus, the Manager's compensation
will be reduced to the extent that any Fund's annual expenses incurred
in the operation of the Fund (including the management fee but
excluding brokerage commissions, extraordinary expenses, securities
lending fees and expenses and transfer taxes, and, in the case of the
Japan Fund, the Emerging Markets Fund and the Global Hedged Equity
Fund, custodial fees, and in the case of the Global Hedged Equity Fund
only, also excluding hedging transaction fees) would exceed the
percentage of the Fund's average daily net assets described therein.
Because the Manager's compensation is fixed at an annual rate equal to
this expense limitation, it is expected that the Manager will pay such
expenses (with the exceptions noted) as they arise. In addition, the
Manager's compensation under the Management Contract is subject to
reduction to the extent that in any year the expenses of the relevant
Fund exceed the limits on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of
such Fund are qualified for offer and sale. The term "expenses" is
defined in the statutes or regulations of such jurisdictions, and,
generally speaking, excludes brokerage commissions, taxes, interest and
extraordinary expenses. No Fund is currently subject to any state
imposed limit on expenses.
Each Management Contract provides that the Manager shall not
be subject to any liability in connection with the performance of its
services thereunder in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties.
Each Management Contract was approved by the Trustees of the
Trust (including the Trustee who is not an "interested person" of the
Manager) and by the relevant Fund's sole shareholder in connection with
the organization of the Trust and the establishment of the Funds. Each
Management Contract will continue in effect for a period more than two
years from the date of its execution only so long as its continuance is
approved at least annually by (i) vote, cast in person at a meeting
called for that purpose, of a majority (or one, if there is only one)
of those Trustees who are not "interested persons" of the Manager or
the Trust, and by (ii) the majority vote of either the full Board of
Trustees or the vote of a majority of the outstanding shares of the
relevant Fund. Each Management Contract automatically terminates on
assignment, and is terminable on not more than 60 days' notice by the
Trust to the Manager. In addition, each Management Contract may be
terminated on not more than 60 days' written notice by the Manager to
the Trust.
In the last three fiscal years the Funds have paid the
following amounts as Management Fees to the Manager pursuant to the
relevant Management Contract:
<TABLE>
<CAPTION>
Gross Reduction Net
<S> <C> <C> <C>
CORE FUND
Year ended 2/295 $10,703,745 $ 1,492,476 $ 9,211,269
Year ended 2/28/ $ 9,872,383 $ 1,323,098 $ 8,549,285
Year ended 2/26/93 $12,080,377 $ 1,424,465 $10,655,912
INTERNATIONAL CORE FUND
Year ended 2/28/95 $19,964,039 $ 3,849,845 $16,114,194
Year ended 2/28/94 $12,131,276 $ 2,974,235 $ 9,157,041
Year ended 2/26/93 $ 4,498,002 $ 1,290,142 $ 3,207,860
GROWTH ALLOCATION FUND
Year ended 2/28/95 $ 1,063,102 $ 162,479 $ 900,623
Year ended 2/28/94 $ 732,330 $ 136,305 $ 596,025
Year ended 2/26/93 $ 1,009,458 $ 143,307 $ 866,151
SHORT-TERM INCOME FUND
Year ended 2/28/95 $ 32,631 $ 24,693 $ 7,938
Year ended 2/28/94 $ 25,648 $ 25,012 $ 636
Year ended 2/26/93 $ 31,464 $ 31,464 $ 0
JAPAN FUND
Year ended 2/28/95 $ 3,394,922 $ 113,442 $ 3,281,480
Year ended 2/28/94 $ 2,985,621 $ 116,523 $ 2,869,098
Year ended 2/26/93 $ 1,827,062 $ 120,816 $ 1,706,246
VALUE ALLOCATION FUND
Year ended 2/28/95 $ 3,144,806 $ 612,779 $ 2,532,027
Year ended 2/28/94 $ 7,860,120 $ 1,319,736 $ 6,540,384
Year ended 2/26/93 $ 6,383,292 $ 1,109,271 $ 5,274,021
TOBACCO-FREE CORE FUND
Year ended 2/28/95 $ 260,209 $ 140,422 $ 119,787
Year ended 2/28/94 $ 285,625 $ 123,056 $ 162,569
Year ended 2/26/93 $ 462,477 $ 144,724 $ 317,753
FUNDAMENTAL VALUE FUND
Year ended 2/28/95 $ 1,297,348 $ 118,250 $ 1,179,098
Year ended 2/28/94 $ 847,075 $ 131,219 $ 715,856
Year ended 2/26/93 $ 302,376 $ 119,657 $ 182,719
CORE II SECONDARIES FUND
Year ended 2/28/95 $ 865,852 $ 187,546 $ 678,306
Year ended 2/28/94 $ 626,163 $ 154,249 $ 471,914
Year ended 2/26/93 $ 414,388 $ 132,039 $ 282,349
INTERNATIONAL SMALL COMPANIES FUND
Year ended 2/28/95 $ 2,184,055 $ 1,368,080 $ 815,975
Year ended 2/28/94 $ 833,440 $ 625,615 $ 207,825
Year ended 2/26/93 $ 366,646 $ 320,728 $ 45,918
U.S. SECTOR ALLOCATION FUND
Year ended 2/28/95 $ 934,108 $ 179,986 $ 754,122
Year ended 2/28/94 $ 848,089 $ 141,400 $ 706,689
Commencement of
Operations $ 125,141 $ 61,672 $ 63,469
(1/04/93) - 2/26/93
INTERNATIONAL BOND FUND
Year ended 2/28/95 $ 345,558 $ 181,243 $ 164,315
Commencement of
Operations $ 23,776 $ 23,776 $ 0
(12/22/93) - 2/28/94
EMERGING MARKETS FUND
Year ended 2/28/95 $ 3,004,553 $ 0 $ 3,004,553
Commencement of
Operations $ 158,043 $ 18,574 $ 139,469
(12/8/93) - 2/28/94
EMERGING COUNTRY DEBT FUND
Commencement of
Operations $ 417,918 $ 174,820 $ 243,098
(4/19/94) - 2/28/95
GLOBAL HEDGED EQUITY FUND
Commencement of
Operations $ 324,126 $ 80,409 $ 243,717
(7/29/94) - 2/28/95
DOMESTIC BOND FUND
Commencement of
Operations $ 95,643 $ 68,732 $ 26,911
(8/18/94) - 2/28/95
CURRENCY HEDGED INTERNATIONAL BOND FUND
Commencement of
Operations $ 306,031 $ 173,302 $ 132,729
(9/30/94) - 2/28/95
</TABLE>
Custodial Arrangements. Investors Bank & Trust Company
("IBT"), One Lincoln Plaza, Boston, Massachusetts 02205, and Brown
Brothers Harriman & Co. ("BBH"), 40 Water Street, Boston, Massachusetts
02109 serve as the Trust's custodians on behalf of the Funds. As such,
IBT or BBH holds in safekeeping certificated securities and cash
belonging to a Fund and, in such capacity, is the registered owner of
securities in book-entry form belonging to a Fund. Upon instruction,
IBT or BBH receives and delivers cash and securities of a Fund in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. Each of
IBT and BBH also maintains certain accounts and records of the Trust
and calculates the total net asset value, total net income and net
asset value per share of each Fund on a daily basis. The Japan Fund
pays its own custodial charges. The Manager has voluntarily agreed with
the Trust to reduce its management fees and to bear certain expenses
with respect to each Fund until further notice to the extent that a
Fund's total annual operating expenses (excluding brokerage
commissions, extraordinary expenses, securities lending fees and
expenses and transfer taxes; and, in the case of the Japan Fund,
Emerging Markets Fund and Global Hedged Equity Fund, excluding
custodial fees; and, in the case of the Global Hedged Equity Fund only,
also excluding hedging transaction fees) would otherwise exceed the
percentage of that Fund's daily net assets specified below. Therefore
so long as the Manager agrees so to reduce its fee and bear certain
expenses, total annual operating expenses (subject to such exclusions,)
of the Fund will not exceed this stated limitation. The Manager has
also agreed with respect to the Emerging Markets Fund that, until
further notice, it will limit its management fee with respect to this
Fund to 0.98% regardless of the total operating expenses of the Fund.
Absent such agreement by the Manager to waive its fees, management fees
for each Fund and the annual operating expenses for each Fund would be
as stated in the Prospectus.
Independent Accountants. The Trust's independent accountants
are Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts
02110. Price Waterhouse LLP conducts annual audits of the Trust's
financial statements, assists in the preparation of each Fund's federal
and state income tax returns, consults with the Trust as to matters of
accounting and federal and state income taxation and provides
assistance in connection with the preparation of various Securities and
Exchange Commission filings.
PORTFOLIO TRANSACTIONS
The purchase and sale of portfolio securities for each Fund
and for the other investment advisory clients of the Manager are made
by the Manager with a view to achieving their respective investment
objectives. For example, a particular security may be bought or sold
for certain clients of the Manager even though it could have been
bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or
more other clients are selling the security. In some instances,
therefore, one client may sell indirectly a particular security to
another client. It also happens that two or more clients may
simultaneously buy or sell the same security, in which event purchases
or sales are effected on a pro rata, rotating or other equitable basis
so as to avoid any one account's being preferred over any other
account.
Transactions involving the issuance of Fund shares for
securities or assets other than cash, will be limited to a bona fide
reorganization or statutory merger and to other acquisitions of
portfolio securities that meet all of the following conditions: (a)
such securities meet the investment objectives and policies of the
Fund; (b) such securities are acquired for investment and not for
resale; (c) such securities are liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (d)
such securities have a value which is readily ascertainable as
evidenced by a listing on the American Stock Exchange, the New York
Stock Exchange, NASDAQ or a recognized foreign exchange.
Brokerage and Research Services. In placing orders for the
portfolio transactions of each Fund, the Manager will seek the best
price and execution available, except to the extent it may be permitted
to pay higher brokerage commissions for brokerage and research services
as described below. The determination of what may constitute best price
and execution by a broker-dealer in effecting a securities transaction
involves a number of considerations, including, without limitation, the
overall net economic result to the Fund (involving price paid or
received and any commissions and other costs paid), the efficiency with
which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, availability of the
broker to stand ready to execute possibly difficult transactions in the
future and the financial strength and stability of the broker. Because
of such factors, a broker-dealer effecting a transaction may be paid a
commission higher than that charged by another broker-dealer. Most of
the foregoing are judgmental considerations.
Over-the-counter transactions often involve dealers acting for
their own account. It is the Manager's policy to place over-the-counter
market orders for the Domestic Funds with primary market makers unless
better prices or executions are available elsewhere.
Although the Manager does not consider the receipt of research
services as a factor in selecting brokers to effect portfolio
transactions for a Fund, the Manager will receive such services from
brokers who are expected to handle a substantial amount of the Funds'
portfolio transactions. Research services may include a wide variety of
analyses, reviews and reports on such matters as economic and political
developments, industries, companies, securities and portfolio strategy.
The Manager uses such research in servicing other clients as well as
the Funds.
As permitted by Section 28(e) of the Securities Exchange Act
of 1934 and subject to such policies as the Trustees of the Trust may
determine, the Manager may pay an unaffiliated broker or dealer that
provides "brokerage and research services" (as defined in the Act) to
the Manager an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction.
During the three most recent fiscal years, the Trust paid, on
behalf of the Funds, the following amounts in brokerage commissions:
<TABLE>
<CAPTION>
1993 1994 1995 Total
<S> <C> <C> <C> <C>
Core Fund $ 2,470,801 $ 1,176,157 $ 4,641,334 $ 8,288,292
Growth Allocation Fund 222,747 159,018 211,476 $ 593,241
SAF Core Fund 249,717 158,642 -- $ 408,359
Value Allocation Fund 1,803,808 1,911,868 1,523,065 $ 5,238,741
Short-Term Income Fund -- -- -- --
International Core Fund 1,505,681 2,911,201 4,518,970 $ 8,935,852
Japan Fund 447,978 138,019 1,038,223 $ 1,624,220
Tobacco-Free Core Fund 120,642 70,113 126,491 $ 317,246
Fundamental Value Fund 184,309 508,267 444,239 $ 1,136,815
International Small Companies Fund 54,565 279,639 470,900 $ 805,104
Bond Allocation Fund 3,046 34,238 29,533 $ 66,817
Core II Secondaries Fund 34,155 127,191 211,451 $ 372,797
U.S. Sector Allocation Fund 29,586 166,982 434,291 $ 630,859
International Bond Fund -- 1,340 3,251 $ 4,591
Emerging Markets Fund -- 423,879 2,668,508 $ 3,092,387
Emerging Country Debt Fund -- -- -- --
Global Hedged Equity Fund -- -- 146,893 $ 146,893
Domestic Bond Fund -- -- -- --
Currency Hedged International Bond -- -- -- --
Fund
$ 7,127,035 $ 8,066,554 $16,468,625 $31,662,214
</TABLE>
DESCRIPTION OF THE TRUST AND OWNERSHIP OF SHARES
The Trust is organized as a Massachusetts business trust under
the laws of Massachusetts by an Agreement and Declaration of Trust
("Declaration of Trust") dated June 24, 1985. A copy of the Declaration
of Trust is on file with the Secretary of The Commonwealth of
Massachusetts. The fiscal year for each Fund ends on February 28.
Pursuant to the Declaration of Trust, the Trustees have
currently authorized the issuance of an unlimited number of full and
fractional shares of twenty-four series: the Core Fund; the Value
Allocation Fund; the Growth Allocation Fund; the Pelican Fund; the
Short-Term Income Fund; the Core II Secondaries Fund; the Fundamental
Value Fund, the Tobacco-Free Core Fund; the U.S. Sector Allocation
Fund; the Conservative Equity Fund; the International Core Fund; the
Japan Fund; the Core Emerging Country Debt Fund; the International Bond
Fund; the Emerging Markets Fund; the Emerging Country Debt Fund; the
Domestic Bond Fund; the Currency Hedged International Bond Fund; the
Global Hedged Equity Fund; the Currency Hedged International Core Fund;
the International Small Companies Fund; the REIT Fund; the Global Bond
Fund, and the Global Core Fund. Interests in each portfolio (Fund) are
represented by shares of the corresponding series. Each share of each
series represents an equal proportionate interest, together with each
other share, in the corresponding Fund. The shares of such series do
not have any preemptive rights. Upon liquidation of a Fund,
shareholders of the corresponding series are entitled to share pro rata
in the net assets of the Fund available for distribution to
shareholders. The Declaration of Trust also permits the Trustees to
charge shareholders directly for custodial, transfer agency and
servicing expenses, but there is no present intention to make such
charges.
The Declaration of Trust also permits the Trustees, without
shareholder approval, to subdivide any series of shares into various
sub-series of shares with such dividend preferences and other rights as
the Trustees may designate. While the Trustees have no current
intention to exercise this power, it is intended to allow them to
provide for an equitable allocation of the impact of any future
regulatory requirements which might affect various classes of
shareholders differently. The Trustees may also, without shareholder
approval, establish one or more additional separate portfolios for
investments in the Trust or merge two or more existing portfolios.
Shareholders' investments in such a portfolio would be evidenced by a
separate series of shares.
The Declaration of Trust provides for the perpetual existence
of the Trust. The Trust, however, may be terminated at any time by vote
of at least two-thirds of the outstanding shares of the Trust. While
the Declaration of Trust further provides that the Trustees may also
terminate the Trust upon written notice to the shareholders, the 1940
Act requires that the Trust receive the authorization of a majority of
its outstanding shares in order to change the nature of its business so
as to cease to be an investment company.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to
one vote for each full share held (with fractional votes for fractional
shares held) and will vote (to the extent provided herein) in the
election of Trustees and the termination of the Trust and on other
matters submitted to the vote of shareholders. Shareholders vote by
individual Fund on all matters except (i) when required by the
Investment Company Act of 1940, shares shall be voted in the aggregate
and not by individual Fund, and (ii) when the Trustees have determined
that the matter affects only the interests of one or more Funds, then
only shareholders of such Funds shall be entitled to vote thereon.
Shareholders of one Fund shall not be entitled to vote on matters
exclusively affecting another Fund, such matters including, without
limitation, the adoption of or change in the investment objectives,
policies or restrictions of the other Fund and the approval of the
investment advisory contracts of the other Fund.
There will normally be no meetings of shareholders for the
purpose of electing Trustees except that in accordance with the 1940
Act (i) the Trust will hold a shareholders' meeting for the election of
Trustees at such time as less than a majority of the Trustees holding
office have been elected by shareholders, and (ii) if, as a result of a
vacancy in the Board of Trustees, less than two-thirds of the Trustees
holding office have been elected by the shareholders, that vacancy may
only be filled by a vote of the shareholders. In addition, Trustees may
be removed from office by a written consent signed by the holders of
two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding
shares at a meeting duly called for the purpose, which meeting shall be
held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon written request by the holders of at least
1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining
the signatures necessary to demand a meeting to consider removal of a
Trustee, the Trust has undertaken to provide a list of shareholders or
to disseminate appropriate materials (at the expense of the requesting
shareholders). Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees. Voting rights are
not cumulative.
No amendment may be made to the Declaration of Trust without
the affirmative vote of a majority of the outstanding shares of the
Trust except (i) to change the Trust's name or to cure technical
problems in the Declaration of Trust and (ii) to establish, designate
or modify new and existing series or sub-series of Trust shares or
other provisions relating to Trust shares in response to applicable
laws or regulations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Trust. However, the Declaration of Trust disclaims shareholder
liability for acts or obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of all the
property of the relevant Fund for all loss and expense of any
shareholder of that Fund held personally liable for the obligations of
the Trust. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is considered remote since it is
limited to circumstances in which the disclaimer is inoperative and the
Fund of which he is or was a shareholder would be unable to meet its
obligations.
The Declaration of Trust further provides that the Trustees
will not be liable for errors of judgment or mistakes of fact or law.
However, nothing in the Declaration of Trust protects a Trustee against
any liability to which the Trustee would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. The
By-laws of the Trust provide for indemnification by the Trust of the
Trustees and the officers of the Trust except with respect to any
matter as to which any such person did not act in good faith in the
reasonable belief that his action was in or not opposed to the best
interests of the Trust. Such person may not be indemnified against any
liability to the Trust or the Trust shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office.
Beneficial Owners of 5% or More of the Fund's Shares
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Core Fund as of June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Employee Retirement Plan of 201 Fourth Street 5.36
Safeway IN Oakland, CA 94660
NRECA Attn: Peter Morris 7.46
1800 Massachusetts Ave. NW
Washington, DC 20036
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the International Core Fund as of
June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
RJR Nabisco Defined Benefits Attn: Sandy Breda 5.70
Master Trust - P.O. Box 3099
International Accounts Winston-Salem, NC 27150
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Growth Allocation Fund as of June
15, 1994:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Aerospace Corporation Attn: Mutual Funds 11.14
Retirement Plan P.O. Box 92956
Northern Trust Co. Chicago, IL 60675
John D. MacArthur & Attn: Lawrence L.. Landry 8.48
Catherine T. MacArth 140 South Dearborn
Foundation Suite 1100
Chicago, IL 60603
Yale University 230 Prospect Street 15.11
Attn: Theodore D. Seides
New Haven, CT 06511
Surdna Foundation Inc. 1155 Avenue of the Americas 13.88
16th Floor
New York, NY 10036
Collins Group Trust I 840 Newport Center Dr. 10.96
Newport Beach, CA 92660
Duke University 2200 West Main St. 6.21
Long Term Endowment Suite 1000
Attn: Deborah Lane
Durham, NC 27705
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Japan Fund as of June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
International Monetary Staff 700 19th St., NW 63.96
Retirement Fund Attn: Hillary Boardman
Washington, DC 20431
SIMI Client #05 2000 K Street, NW 8.56
Suite 400
Washington, DC 20006
Gordon Family Trust c/o Strategic Investment Management 27.45
1001 19th Street North, 16th Floor
Arlington, VA 22209-1722
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Short-Term Income Fund as of June
15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
MJH Foundation Attn: J. Michael Burris 61.66
Martha Jefferson Hospital 459 Locust Avenue
Charlottesville, VA 22902
Liu Chong Hing Bank Liu Chong Hing Bank Building 14.58
Ltd Provident Fund 24 Des Voeux Road Central
Hong Kong
Protestant Episcopal Treasurer 5.79
Cathedral Foundation Mount Saint Alban
Washington, DC 20016
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Value Allocation Fund as of June
15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Duke University Long Term Duke Management Co. 6.20
Endowment Fund 2200 West Main Street
Suite 1000
Durham, NC 27705
International Monetary Staff 700 19th St., NW 10.58
Retirement Fund Attn: Hillary Boardman
Washington, DC 20431
Leland Stanford Junior Stanford Management Company 21.15
University II 2770 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Fundamental Value Fund as of June
15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Princeton University Trustee Attn: John D. Sweeney 5.17
P.O. Box 35
Princeton, NJ 08544
Yale University 230 Prospect Street 29.02
Attn: Theodore D. Seides
New Haven, CT 06511
Berea College Box 2306 15.70
Attn: Mr. Leigh A. Jones
Berea, KY 40404
Leland Stanford Junior Stanford Management Company 31.58
University II 2770 Sand Hill Road
Menlo Park, CA 04025
Wachovia Bank Trustee P.O. Box 3099 18.44
RJR Nabisco Inc. 301 North Main Street
Defined Benefit/Master Winston-Salem, NC 27150
Trust - FVF
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Core II Secondaries Fund as of
June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
The Andrew W. Mellon Foundation 140 E. 62nd Street 13.09
Attn: Kenneth J. Herr, Treasurer
New York, NY 10021
Cheyne Walk Trust Pearce Investments Ltd. 7.77
Attn: Howard Reynolds
1325 Air Motive Way, Suite 262
Reno, NV 89502
John D. MacArthur & Catherine T. Attn: Lawrence L. Landry 10.72
MacArth Foundation 140 South Dearborn
Suite 1100
Chicago, IL 60603
Wachovia Bank Trustee Attn: Julie Haynes NC 31013 8.45
RJR Nabisco Inc. P.O. Box 3099
Defined Benefit/Master Winston-Salem, NC 27150
Trust
Bost & Co./BAMF8721002 1 Cabot Road 028-003B 11.43
Bell Atlantic Mutual Fund Operations
Medford, MA 02155
Bankers Trust Company Trustee Attn: Geoffrey Mullen 17.56
GTE Service Corp Pension 280 Park Avenue - 13 East
Trust New York, NY 10017
William & Flora Hewlett Attn: William F. Nichols 7.79
525 Middlefield Rd #200
Menlo Park, CA 94025
NationsBank Trust Co. N.A. Attn: SAS 5.04
FBO Brookings Institution Acc't #: 45-16-161-7467244
P.O. Box 831575
Dallas, TX 75283
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the International Small Companies
Fund as of June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Yale University 230 Prospect Street 7.97
Attn: Theodore D. Seides
New Haven, CT 06511
Bankers Trust Company Trustee Attn: Geoffrey Mullen 7.02
GTE Service Corp Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
International Monetary Fund Staff 700-19th Street NW IS2-281 5.44
Retirement Plan Washington, DC 20431
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Tobacco-Free Core Fund as of June
15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Dewitt Wallace-Reader's Digest 261 Madison Avenue 49.59
Fund, Inc. 24th Floor
New York, NY 10016
Lila Wallace-Reader's Digest 261 Madison Avenue 42.36
Fund, Inc. 24th Floor
New York, NY 10016
Tufts Associated HMO Inc. 353 Wyman Street 8.03
Waltham, MA 02254
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the U.S. Sector Allocation Fund as of
June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C>
John D. MacArthur & Catherine T. Attn: Lawrence L. Landry 54.42
MacArthur Foundation 140 South Dearborn, Suite 1100
Chicago, IL 60603
Trustees of Columbia University Columbia University 19.37
in the City of New York-Global 475 Riverside Drive, Suite 401
New York, NY 10115
Bost & Co./BAMF8721002 1 Cabot Road 028-003B 10.30
Bell Atlantic Mutual Fund Operations
Medford, MA 02155
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the International Bond Fund as of
June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Catholic Bishop of Chicago 155 East Superior Street 6.24
Attn: John F. Benware
Chicago, IL 60611
Bost & Co./BAMF8721002 1 Cabot Road 028-003B 10.55
Bell Atlantic Mutual Fund Operations
Medford, MA 02155
Saturn & Co. A/C 4600712 P.O. Box 1537 Top 57 8.49
c/o Investors Bank & Trust Co. Boston, MA 02205
FBO The John Hancock Mutual
Life Insurance Company Pension
Plan
Bankers Trust Company Trustee Attn: Geoffrey Mullen 28.17
GTE Service Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Emerging Markets Fund as of June
15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Leland Stanford Jr. University II - 2770 Sand Hill Road 7.85
AA Stanford Management Company Menlo Park, CA 94025
Bankers Trust Company Trustee Attn: Geoffrey Mullen 15.882
GTE Service Corp. Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Domestic Bond Fund as of June 15,
1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Bost & Co./BAMF8721002 1 Cabot Road 028-003B 23.63
Bell Atlantic Mutual Fund Operations
Medford, MA 02155
Bankers Trust Company Trustee Attn: Geoffrey Mullen 46.49
GTE Service Corp. Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
Princeton University TR Attn: John D. Sweeney 5.00
P.O. Box 35
Princeton, NJ 08544
The Edna McConnell Clark Found. Attn: Laura Kielczewski 5.98
Ass't Financial Officer
250 Park Avenue
New York, NY 10177
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Currency Hedged International
Bond Fund as of June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Princeton University Tr. Attn: John D. Sweeney 9.20
P.O. Box 35
Princeton, NJ 08544
Bost & Co./BAMF8721002 1 Cabot Road 028-003B 16.96
Bell Atlantic Mutual Fund Operations
Medford, MA 02155
Bankers Trust Company Trustee Attn: Geoffrey Mullen 35.91
GTE Service Corp. Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Emerging Country Debt Fund as of
June 15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Yale University 230 Prospect Street 5.38
Attn: Theodore D. Seides
New Haven, CT 06511
Bost & Co./BAMF8721002 1 Cabot Road 028-003B 7.60
Bell Atlantic Mutual Fund Operations
Medford, MA 02155
Bankers Trust Company Trustee Attn: Geoffrey Mullen 17.77
GTE Service Corp. Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
Regents of the Univ. Michigan 5032 Fleming Admin. Bldg. 13.37
Treasurer's Office Ann Arbor, MI 48109
Duke University Long Term 2200 W. Main Street 5.51
Endowment Po Suite 1000
Attn: Deborah Lane
Durham, NC 27705
</TABLE>
The following chart sets forth the names, addresses and
percentage ownership of those shareholders owning beneficially 5% or
more of the outstanding shares of the Global Hedged Equity as of June
15, 1995:
<TABLE>
<CAPTION>
Name Address % Ownership
<S> <C> <C>
Andrew W. Mellon Foundation 140 E. 62nd Street 5.57
Attn: Kenneth J. Herr
New York, NY 10021
Bankers Trust Company TR Attn: Geogrey Mullen 29.50
GTE Services Corp. Pension Trust 280 Park Avenue - 13 East
New York, NY 10017
Duke University Long Term 2200 W. Main Street 8.66
Endowment PO Suite 1000
Attn: Deborah Lane
Durham, NC 27705
</TABLE>
DETERMINATION OF NET ASSET VALUE
As indicated in the Prospectus, except on days during which no
security is tendered for redemption and no order to purchase or sell
such security is received by the relevant Fund, the net asset value of
each Fund share is determined on each day on which the New York Stock
Exchange is open for trading. The Trust expects that the days, other
than weekend days, that the New York Stock Exchange will not be open
are Independence Day, Labor Day, Election Day, Thanksgiving Day,
Christmas Day, New Year's Day, Washington's Birthday, Good Friday and
Memorial Day.
As described in the Prospectus, debt securities with remaining
maturities of 60 days or less held by the Short-Term Income Fund will
be valued at amortized cost, unless the particular circumstances
dictate otherwise. Circumstances may dictate otherwise when, among
other times, the creditworthiness of an issuer is impaired.
FINANCIAL STATEMENTS
The audited Financial Statements in this Statement of
Additional Information have been so included in reliance on the reports
of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
GMO Trust
Specimen Price-Make-Up Sheet
Following are computations of the total offering price per
share for the Core Fund, the International Core Fund, the Growth
Allocation Fund, the Short-Term Income Fund, the Japan Fund, the Value
Allocation Fund, the Tobacco-Free Core Fund, the Core II Secondaries
Fund, the International Small Companies Fund, the U.S. Sector
Allocation Fund, the International Bond Fund, the Emerging Markets
Fund, the Emerging Country Debt Fund, the Global Hedged Equity Fund,
the Domestic Bond Fund, the Currency Hedged International Bond Fund,
the Fundamental Value Fund and the Pelican Fund based upon their
respective net asset values and shares of beneficial interest
outstanding at the close of business on February 28, 1995.
Core Fund
Net Assets at Value (Equivalent to
$15.45 per share based on
149,509,336 shares of beneficial $2,309,247,938
interest outstanding)
Offering Price ($15.45 x 100/99.83)* $15.48
International Core Fund
Net Assets at Value (Equivalent to $22.32
per share based on 116,104,099 shares of
beneficial interest outstanding) $2,591,645,852
Offering Price ($22.32 x 100/99.25)* $22.49
Growth Allocation Fund
Net Assets at Value (Equivalent to $4.45
per share based on 53,657,221 shares of
beneficial interest outstanding) $239,006,317
Offering Price ($4.45 x 100/99.83)* $4.46
Short-Term Income Fund
Net Assets at Value (Equivalent to $9.56
per share based on 856,832 shares of
beneficial interest outstanding) $8,193,496
Offering price $9.56
Japan Fund
Net Assets at Value (Equivalent to $9.12
per share based on 6,591,242 shares of
beneficial interest outstanding) $60,123,163
Offering Price ($9.12 x 100/99.60)* $9.16
Value Allocation Fund
Net Assets at Value (Equivalent to
$12.05 per share based on
29,095,761 shares of beneficial
interest outstanding) $350,694,461
Offering Price ($12.05 x 100/99.85)* $12.07
Tobacco-Free Core Fund
Net Assets at Value (Equivalent to
$10.65 per share based on
4,502,238 shares of beneficial $47,968,731
interest outstanding)
Offering Price ($10.65 x 100/99.83)* $10.67
Core II Secondaries Fund
Net Assets at Value (Equivalent to $13.61
per share based on 17,325,736 shares
of beneficial interest outstanding) $235,780,647
Offering Price ($13.61 x 100/99.25)* $13.71
International Small Companies Fund
Net Assets at Value (Equivalent to $11.95
per share based on 15,585,433 shares of
beneficial interest outstanding) $186,185,200
Offering Price ($11.95 x 100/98.75)* $12.10
Fundamental Value Fund
Net Assets at Value (Equivalent to $12.54
per share based on 14,581,927 shares
of beneficial interest outstanding) $182,870,907
Offering Price ($12.54 x 100/99.85)* $12.56
U.S. Sector Allocation Fund
Net Assets at Value (Equivalent to $11.06
per share based on 18,734,305 shares
of beneficial interest outstanding) $207,291,098
Offering Price ($11.06 x 100/99.83)* $11.08
Emerging Markets Fund
Net Assets at Value (Equivalent to $9.52
per share based on 40,355,453 shares
of beneficial interest outstanding) $384,258,762
Offering Price ($9.52 x 100/98)* $9.71
International Bond Fund
Net Assets at Value (Equivalent to $9.64
per share based on 15,687,479 shares) $151,189,371
Offering Price ($9.64 x 100/99.85)* $9.65
Emerging Country Debt Fund
Net Assets at Value (Equivalent to $8.39
per share based on 29,024,789 shares) $243,451,344
Offering Price ($8.39 x 100/99.50)* $8.43
Global Hedged Equity Fund
Net Assets at Value (Equivalent to $10.12
per share based on 21,216,892 shares) $214,638,121
Offering Price ($10.12 x 100/99.40)* $10.18
Domestic Bond Fund
Net Assets at Value (Equivalent to $10.13
per share based on 20,670,984 shares) $209,377,248
Offering Price $10.13
Currency Hedged International Bond Fund
Net Assets at Value (Equivalent to $9.99
per share based on 23,885,450 shares) $238,664,438
Offering Price ($9.99 x 100/99.85)* $10.01
Pelican Fund
Net Assets at Value (Equivalent to $11.99
per share based on 9,831,023 shares) $117,919,771
Offering Price $11.99
--------------
* Represents maximum offering price charged on certain
cash purchases. See "Purchase of Shares" in the Prospectus.
GMO CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Core Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Core Fund at February 28, 1995,
and the results of its operations, the changes in its net assets and the
financial highlights for each of the respective periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
STOCK - 96.7%
AEROSPACE - 4.6%
<C> <S> <C>
104,600 E-Systems Inc 4,576,250
345,800 Lockheed Corp 26,842,725
517,800 Martin Marietta Corp 24,724,950
45,500 Northrop Corp 2,019,063
657,150 Raytheon Co 46,329,075
51,300 Rockwell International Corp 1,975,050
106,467,113
AUTOMOTIVE - 1.0%
47,600 Bandag Inc 2,856,000
110,400 Eaton Corp 5,533,800
209,400 Genuine Parts Co 8,140,425
273,000 Harley-Davidson 7,371,000
23,901,225
BANKING AND FINANCIAL SERVICES - 7.5%
1,654,500 American Express Co 55,839,375
6,600 Bancorp Hawaii Inc 184,800
227,490 Bear Stearns Cos Inc 4,265,438
151,300 Beneficial Corp 5,617,013
6,600 California Federal Bank * 71,775
85,400 Chase Manhattan Corp 3,063,725
225,100 Chemical Banking Corp 9,032,138
650,300 Citicorp (a) 29,263,500
122,600 Danaher Corp 3,616,700
556,371 Dean Witter Discover and Co 22,463,479
147,955 Edwards (A G) Inc 3,328,988
24,900 First Bank of America Corp 843,488
70,000 First Chicago Corp 3,543,750
43,500 First USA Inc 1,604,063
1,100 Glendale Federal Bank FSB * 10,313
204,900 Household International Inc 8,964,375
297,300 Morgan Stanley Group Inc 20,030,588
15,100 Student Loan Marketing Association 556,813
172,300,321
CHEMICALS - 0.5%
131,100 Georgia Gulf Corp * 3,933,000
45,800 Loctite Corp 2,106,800
236,000 Lyondell Petrochemical (a) 5,693,500
11,733,300
COMPUTER AND OFFICE EQUIPMENT - 1.3%
480,250 Micron Technology (a) 29,775,500
CONSTRUCTION - 1.3%
746,400 P P G Industries 27,430,200
27,800 Vulcan Materials Inc 1,480,350
28,910,550
CONSUMER GOODS - 5.0%
131,200 Callaway Golf Company (a) 4,428,000
76,500 Clorox Co 4,618,688
280,600 ConAgra Inc * (a) 9,189,650
276,600 Corning Inc 8,885,775
711,800 Eastman Kodak Co 36,301,800
45,755 Hubbell Inc Class B 2,470,770
158,300 International Flavors & Fragrances 7,618,188
74,300 Liz Claiborne 1,198,088
92,775 Mattel Co 2,075,841
97,400 National Service Industries 2,617,625
228,300 Newell Co 5,450,663
95,200 Nike Inc Class B 6,842,500
122,900 Polaroid Corp 3,687,000
252,700 Premark International Inc (a) 10,929,275
125,200 Reebok International Ltd 4,585,450
96,700 VF Corp 4,980,050
115,879,363
FOOD AND BEVERAGE - 6.8%
606,000 Anheuser-Busch Cos Inc 34,163,250
328,800 Archer Daniels Midland Co 6,247,200
147,700 Brown Forman Corp Class B (a) 4,781,788
203,500 CPC International Inc 10,887,250
111,250 Dean Foods Co 3,448,750
430,900 Heinz (H J) Co 16,966,688
33,500 Hershey Foods Corp (a) 1,641,500
88,600 Hormel (Geo A) and Co 2,370,050
94,600 IBP Inc 3,015,375
221,600 Kellogg Co 11,994,100
667,600 Sara Lee Corp 17,524,500
25,300 Tyson Food Inc Class A 623,013
294,400 Unilever ADR 35,769,600
81,600 Universal Foods Corp 2,560,200
249,300 Whitman Corp 4,705,538
156,698,802
HEALTH CARE - 6.3%
5,400 Bausch & Lomb Inc 179,550
187,700 Boston Scientific Corp * (a) 4,059,013
851,142 Columbia/HCA Healthcare Corp (a) 35,216,000
280,200 Johnson & Johnson 15,901,350
412,700 Medtronic Inc 24,762,000
506,350 National Medical Enterprises * 7,848,425
109,100 United Healthcare Corp 4,691,300
479,000 Upjohn Co 16,884,750
730,500 US Health Care Inc 31,411,500
133,200 Wellpoint Health Networks Class A * 4,378,950
145,332,838
INSURANCE - 5.3%
282,900 Aetna Life and Casualty Co 15,205,875
227,900 AFLAC Corp 8,603,225
34,600 Allmerica Property and Casualty 674,700
24,000 Allstate Corp 660,000
92,200 Ambac Inc 3,745,625
450,900 American General Corp 14,259,713
202,850 AON Corp 7,049,038
152,000 Cigna Corp 11,514,000
22,800 Conseco Inc (a) 812,250
5,900 Continental Corp 114,313
25,600 Geico Corp 1,251,200
136,300 Jefferson Pilot Corp 7,769,100
55,800 Marsh & McLennan Cos Inc 4,575,600
42,800 MBIA Inc 2,653,600
23,400 MGIC Investment 892,125
115,200 Old Republic International Corp (a) 2,851,200
88,800 Provident Life and Accident Insurance Co Class B 2,086,800
136,100 Providian Corp 4,814,538
10,900 Safeco Corp 599,500
303,100 St Paul Cos 14,738,238
3,200 SunAmerica Inc 131,200
217,450 Torchmark Corp 9,105,719
130,309 Transamerica Corp 7,118,129
11,600 Transatlantic Holdings Inc 667,000
90,100 Twentieth Century Industries 1,126,250
123,018,938
MACHINERY - 1.1%
198,000 Dover Corp 11,781,000
110,600 FMC Corp * 6,470,100
167,000 Parker Hannifin Corp 7,807,250
5,500 Snap-On Tools Corp 187,000
26,245,350
MANUFACTURING - 8.5%
52,000 Alco Standard Corp 3,536,000
1,490,427 Boeing Co 68,745,918
1,107,844 International Business Machines Corp 83,365,261
149,100 Litton Industries * 5,442,150
489,800 Minnesota Mining and Manufacturing 26,816,550
16,800 Stone Container Corp * (a) 392,700
112,600 Textron Inc 6,164,850
67,000 York International Corp 2,579,500
197,042,929
METALS AND MINING - 0.6%
10,500 Mapco Inc 573,563
240,500 Phelps Dodge Corp 13,107,250
13,680,813
MISCELLANEOUS - 0.0%
3,000 Witco Corp 85,875
OIL AND GAS - 6.8%
382,300 Amoco Corp 22,651,275
282,800 Ashland Inc (a) 9,155,650
55,400 Atlantic Richfield Co 6,073,225
232,122 Chevron Corp 11,025,795
57,400 Columbia Gas Systems * 1,492,400
47,509 El Paso Natural Gas Co 1,460,902
766,200 Exxon Corp 49,036,800
1,700 FINA Inc Class A 129,625
13,400 Kerr-McGee Corp 675,025
233,900 Mobil Corp 20,349,300
9,500 Murphy Oil Corp 415,625
92,000 Occidental Petroleum Corp 1,828,500
2,900 Pennzoil Co 137,388
6,200 Phillips Petroleum Co 206,925
196,800 Royal Dutch Petroleum Co ADR 22,066,200
96,900 Texaco Inc 6,177,375
111,800 Williams Companies Inc 3,214,250
156,096,260
PAPER AND ALLIED PRODUCTS - 0.1%
45,100 Consolidated Papers Inc 2,181,713
43,300 Glatfelter (PH) Co 790,225
2,971,938
PHARMACEUTICALS - 9.7%
469,120 American Home Products Corp 33,542,080
364,300 Amgen Inc * 25,136,700
1,085,800 Bristol-Myers Squibb Co 67,319,600
770,400 Lilly (Eli) & Co 51,616,800
227,100 Marion Merrell Dow Inc 5,649,113
944,300 Merck & Co Inc 40,014,713
52,100 Mylan Laboratories (a) 1,628,125
1,000 Warner Lambert Co 76,375
224,983,506
PRIMARY PROCESSING - 1.3%
256,200 Dow Chemical Co 17,165,400
196,400 Du Pont (E I) De Nemours & Co Inc 11,022,950
51,400 Rohm & Haas Co 2,884,825
31,073,175
PRINTING AND PUBLISHING - 0.7%
99,300 Dun and Bradstreet Corp 5,126,363
53,100 McGraw Hill Inc 3,743,550
168,500 Readers Digest Association Inc 7,751,000
16,620,913
RETAIL TRADE - 3.2%
313,200 Albertson's Inc 9,630,900
401,000 Autozone Inc * (a) 10,626,500
95,900 Circuit City Stores Inc 2,073,838
82,600 Gap Stores 2,684,500
533,900 Kroger Co * 14,014,875
175,400 Melville Corp 5,700,500
192,200 Nordstrom Inc 8,120,450
411,900 Rite Aid Corp 10,194,525
206,100 The Pep Boys 6,749,775
71,800 Walgreen Co 3,392,550
34,100 Weismarkets Inc 873,813
74,062,226
SERVICES - 2.4%
34,700 BHC Communications Inc Class A * 2,576,475
414,900 Capital Cities/ABC Inc 36,718,650
26,700 Equifax Inc 824,363
55,000 Fleming Cos 1,072,500
259,200 Manpower Inc 7,581,600
107,500 Omnicom Group 5,710,938
54,484,526
TECHNOLOGY - 7.9%
14,400 3Com Corp * 750,600
273,000 Amp Inc 20,475,000
439,700 Apple Computer 17,368,150
164,300 Avery Dennison Corp 6,161,250
1,337,250 Compaq Computer Corp * 46,135,125
174,100 Computer Sciences Corp * 8,552,663
158,200 E G & G 2,274,125
21,300 Emerson Electric 1,408,463
103,500 Grainger (WW) Inc 6,326,438
73,700 Hewlett-Packard Inc 8,475,500
229,500 LSI Logic Corp * 12,507,750
445,600 Microsoft Corp * 28,072,800
121,450 Millipore Corp 6,452,031
135,900 Storage Technology Corp * (a) 2,955,825
75,900 Sun Microsystems Inc * 2,428,800
549,800 Tandem Computers Inc * 9,346,600
24,100 Thomas & Betts Corp 1,605,663
181,296,783
TELECOMMUNICATIONS - 0.2%
54,300 Frontier Corp 1,242,113
42,600 General Instrument Corp * (a) 1,352,550
47,100 Southern New England Telecommunications Corp 1,560,188
4,154,851
TOBACCO - 2.5%
43,600 Loews Corp 4,234,650
880,900 Philip Morris Cos Inc 53,514,675
57,749,325
UTILITIES - 12.1%
94,000 Allegheny Power System Inc 2,209,000
194,800 American Electric Power Inc 6,598,850
232,650 Baltimore Gas and Electric Co 5,729,006
122,700 Carolina Power and Light Co 3,374,250
299,288 Centerior Energy Corp 2,918,058
293,800 Central & South West Corp (a) 7,234,825
217,400 Cinergy Corp 5,380,650
118,100 CMS Energy Corp 2,834,400
358,100 Consolidated Edison 9,892,513
310,374 Detroit Edison Co 8,884,456
267,800 Dominion Resources Inc (a) 10,176,400
154,450 DPL Inc 3,224,144
80,300 DQE 2,700,088
388,200 Duke Power Co 15,236,850
258,044 Entergy Corp 5,773,735
163,800 Florida Progress Corp 5,139,225
185,900 FPL Group Inc 6,669,163
240,200 General Public Utilities 7,266,050
113,200 Houston Industries Inc 4,329,900
132,200 Illinova Corp 3,090,175
101,500 Kansas City Power and Light Co 2,423,313
171,600 Long Island Lighting Co 2,745,600
78,600 New England Electric System 2,593,800
94,300 New York State Electric and Gas Corp 2,027,450
197,800 Niagara Mohawk Power Corp 2,942,275
103,600 Nipsco Industries Inc 3,276,350
173,300 Northeast Utilities (a) 3,942,575
118,700 Northern States Power Co 5,371,175
201,300 Ohio Edison Co 4,227,300
52,800 Oklahoma Gas and Electric Co 1,867,800
140,300 Pacific Enterprises 3,437,350
571,300 Pacific Gas and Electric Co 14,639,563
461,900 PacifiCorp 8,833,838
192,200 Panhandle Eastern Corp 4,324,500
311,900 Peco Energy Co 8,343,325
134,700 Penn Power and Light Co 2,795,025
128,500 Pinnacle West Capital Corp 2,762,750
128,500 Potomac Electric Power Co 2,489,688
366,200 Public Service Enterprise Group Inc 10,665,575
58,900 Public Service of Colorado 1,803,813
66,600 Puget Sound Power and Light Co 1,440,225
102,900 San Diego Gas and Electric Co 2,225,213
68,300 Scana Corp 3,013,738
602,500 SCE Corp 9,865,938
982,100 Southern Co 20,255,813
179,400 Teco Energy (a) 3,857,100
178,100 Texas Utilities Co 5,855,038
357,700 Unicom Corp 9,121,350
159,900 Union Electric Co 6,056,213
82,300 Western Resources Inc 2,613,025
165,400 Wisconsin Energy Corp (a) 4,589,850
279,068,306
TOTAL STOCK (Cost $2,017,125,996) 2,233,634,726
Par Value SHORT-TERM INVESTMENTS - 7.1%
REPURCHASE AGREEMENT - 3.3%
$ 76,224,083 Salomon Brothers Repurchase Agreement, dated 2/28/95,
due 3/1/95, with a maturity value of $76,235,940 and an
effective yield of 5.60%, collateralized by a U.S. Treasury
Bond with a rate of 6.25%, a maturity date of 8/15/23,
and with an aggregate market value of $78,300,878. 76,224,083
U.S. GOVERNMENT - 0.2%
4,350,000 U.S. Treasury Bill, 4.92% due 3/2/95 (b) 4,349,339
CASH EQUIVALENTS - 3.6%
50,252,375 Bank of Boston Time Deposit 50,252,375
5,633,314 Dreyfus Cash Management Money Market Fund Plus, A Shares 5,633,314
3,245,504 National Westminster Time Deposit 3,245,504
23,885,357 Provident Institutional Prime Money Market Fund 23,885,357
83,016,550
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 163,589,972
TOTAL INVESTMENTS - 103.8%
(Cost $2,180,715,968) * * $ 2,397,224,698
Other Assets and Liabilities (net) - (3.8%) (87,976,760)
TOTAL NET ASSETS - 100.0% $ 2,309,247,938
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
* Non-income producing security
** The aggregate identified cost for federal income tax purposes is
$2,189,359,977 resulting in gross unrealized appreciation and depreciation of
$226,594,451 and $18,729,730, respectively, and net unrealized appreciation of
$207,864,721.
</TABLE>
See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $2,017,125,996) (Note 1) $ 2,233,634,726
Short-term investments, at amortized cost (Note 1) 163,589,972
Receivable for investments sold 31,631,037
Receivable for Fund shares sold 55,256
Dividends and interest receivable 8,154,549
Receivable for variation margin on open futures contracts 289,165
Receivable for expenses waived or borne by Manager (Note 2) 140,815
Total assets 2,437,495,520
LIABILITIES:
Payable for investments purchased 38,429,058
Payable for Fund shares repurchased 5,667,276
Payable upon return of securities loaned (Note 1) 82,991,280
Payable to affiliate for management fee (Note 2) 916,856
Accrued expenses 243,112
Total liabilities 128,247,582
NET ASSETS:(equivalent to $15.45 per share based
on 149,509,336 shares outstanding, unlimited shares authorized) $ 2,309,247,938
NET ASSETS CONSIST OF:
Paid-in capital $ 2,084,137,288
Undistributed net investment income 9,992,385
Accumulated net realized loss on investments and
closed futures contracts (1,721,805)
Net unrealized appreciation on investments
and open futures contracts 216,840,070
NET ASSETS $ 2,309,247,938
See accompanying notes to the financial statements.
</TABLE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $365,315) $ 59,069,213
Interest (including securities lending income of $215,485) 4,376,365
Total income 63,445,578
EXPENSES:
Management fee (Note 2) 10,703,745
Custodian and transfer agent fees 336,727
Legal fees 87,805
Audit fees 66,870
Registration fees 48,316
Insurance 24,215
Trustee fee (Note 2) 9,607
Miscellaneous expense 1,472
Total expenses 11,278,757
Less: expenses waived or borne by Manager (Note 2) (1,492,476)
Net expenses 9,786,281
Net investment income 53,659,297
Realized and unrealized gain (loss) on investments
and futures contracts:
Net realized gain (loss) on
Investments 123,367,263
Closed futures contracts (2,848,169)
Net realized gain 120,519,094
Change in net unrealized appreciation (depreciation) on:
Investments (24,616,912)
Open futures contracts 660,248
Net unrealized gain (23,956,664)
Net realized and unrealized gain on investments
and futures contracts 96,562,430
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 150,221,727
</TABLE>
See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 53,659,297 $ 48,057,746
Net realized gain on investments
and closed futures contracts 120,519,094 100,704,203
Change in net unrealized appreciation (depreciation)
of investments and open futures contracts (23,956,664) 85,584,922
Net increase in net assets resulting from operations 150,221,727 234,346,871
Distributions to shareholders from:
Net investment income (50,303,126) (49,395,951)
Net realized gains (137,451,908) (174,873,817)
(187,755,034) (224,269,768)
Fund share transactions: (Note 4)
Proceeds from sale of shares 637,535,879 279,781,809
Net asset value of shares issued to shareholders
in payment of distributions declared 166,089,524 203,217,875
Cost of shares repurchased (398,849,571) (444,026,848)
Net increase in net assets resulting
from Fund share transactions 404,775,832 38,972,836
Total increase in net assets 367,242,525 49,049,939
Net assets:
Beginning of period 1,942,005,413 1,892,955,474
End of period (including undistributed net
investment income of $9,992,385 and
$5,928,323, respectively) $ 2,309,247,938 $ 1,942,005,413
</TABLE>
See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 1991 (b)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.78 $ 15.73 $ 15.96 $ 15.13 $ 13.90
Income from investment operations:
Net investment income (a) 0.41 0.42 0.45 0.43 0.43
Net realized and unrealized gain
on investments and futures contracts 0.66 1.59 1.13 1.55 1.74
Total from investment operations 1.07 2.01 1.58 1.98 2.17
Less distributions to shareholders:
From net investment income (0.39) (0.43) (0.46) (0.42) (0.51)
From net realized gains (1.01) (1.53) (1.35) (0.73) (0.43)
Total distributions (1.40) (1.96) (1.81) (1.15) (0.94)
NET ASSET VALUE, END OF PERIOD $ 15.45 $ 15.78 $ 15.73 $ 15.96 $ 15.13
TOTAL RETURN (C) 7.45% 13.36% 10.57% 13.62% 16.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 2,309,248 $ 1,942,005 $ 1,892,955 $ 2,520,710 $ 1,613,945
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.49% 0.50% 0.50%
Net investment income to average
daily net assets (a) 2.63% 2.56% 2.79% 2.90% 3.37%
Portfolio turnover rate 99% 40% 54% 39% 55%
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for each period presented.
(b) The per share amounts and the number of shares outstanding have been
restated to reflect a ten for one stock split effective December 31, 1990.
(c) Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Core Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The 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 following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P 500 index. 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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 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 held as of February 28, 1995.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $81,082,751, collateralized by
cash in the amount of $83,016,550, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary. Withholding taxes on foreign
interest and dividend income have been withheld in accordance with the
applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund 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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for partnership interests.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Loss Paid-in Capital
<S> <C> <C>
$707,891 ($642,819) ($65,072)
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .17 % of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $772,803 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .525% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .48% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $9,607. 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 year ended February 28, 1995, aggregated
$2,219,660,820 and $1,938,260,771, respectively.
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 41,333,390 17,341,722
Shares issued to shareholders in reinvestment
of distributions 11,326,288 13,054,059
Shares repurchased (26,231,509) (27,674,912)
Net increase 26,428,169 2,720,869
Fund shares:
Beginning of period 123,081,167 120,360,298
End of period 149,509,336 123,081,167
</TABLE>
5. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 28, 1995, is as
follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
<S> <C> <C> <C> <C>
140 S & P 500 March 1995 $ 34,198,500 $ 331,340
</TABLE>
At February 28, 1995, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
* * *
GMO CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 72.21% of distributions as net capital gain dividends.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Tobacco-Free Core Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
STOCK - 97.8%
AEROSPACE - 4.8%
<C> <S> <C>
2,400 E-Systems Inc 105,000
7,400 Lockheed Corp 574,425
11,000 Martin Marietta Corp 525,250
1,200 Northrop Corp 53,250
14,100 Raytheon Co 994,050
1,100 Rockwell International Corp 42,350
2,294,325
AUTOMOTIVE - 1.1%
1,000 Bandag Inc 60,000
2,400 Eaton Corp 120,300
4,500 Genuine Parts Co 174,938
6,000 Harley-Davidson 162,000
517,238
BANKING AND FINANCIAL SERVICES - 7.8%
35,600 American Express Co 1,201,500
100 Bancorp Hawaii Inc 2,800
4,800 Bear Stearns Cos Inc 90,000
3,300 Beneficial Corp 122,513
1,900 Chase Manhattan Corp 68,163
4,800 Chemical Banking Corp 192,600
14,200 Citicorp 639,000
2,800 Danaher Corp 82,600
12,200 Dean Witter Discover and Co 492,575
3,200 Edwards (A G) Inc 72,000
700 First Bank of America Corp 23,713
1,500 First Chicago Corp 75,938
900 First USA Inc 33,188
4,400 Household International Inc 192,500
6,400 Morgan Stanley Group Inc 431,200
300 Student Loan Marketing Association 11,063
3,731,353
CHEMICALS - 0.5%
2,800 Georgia Gulf Corp * 84,000
1,000 Loctite Corp 46,000
5,200 Lyondell Petrochemical (a) 125,450
255,450
COMPUTER AND OFFICE EQUIPMENT - 1.3%
10,300 Micron Technology (a) 638,600
CONSTRUCTION - 1.3%
16,100 P P G Industries 591,675
700 Vulcan Materials Inc 37,275
628,950
CONSUMER GOODS - 5.2%
2,800 Callaway Golf Company (a) 94,500
1,600 Clorox Co 96,600
6,700 ConAgra Inc * 219,425
5,600 Corning Inc 179,900
15,300 Eastman Kodak Co 780,300
955 Hubbell Inc Class B 51,570
3,400 International Flavors & Fragrances 163,625
1,700 Liz Claiborne 27,413
2,025 Mattel Co 45,309
2,100 National Service Industries 56,438
4,900 Newell Co 116,988
2,000 Nike Inc Class B 143,750
2,600 Polaroid Corp 78,000
5,500 Premark International Inc 237,875
2,700 Reebok International Ltd 98,888
2,100 VF Corp 108,150
2,498,731
FOOD AND BEVERAGE - 7.0%
13,000 Anheuser-Busch Cos Inc 732,875
7,100 Archer Daniels Midland Co 134,900
3,200 Brown Forman Corp 103,600
4,400 CPC International Inc 235,400
2,400 Dean Foods Co 74,400
9,300 Heinz (H J) Co 366,188
500 Hershey Foods Corp 24,500
1,800 Hormel (Geo A) and Co 48,150
2,000 IBP Inc 63,750
4,800 Kellogg Co 259,800
14,400 Sara Lee Corp 378,000
500 Tyson Food Inc Class A 12,313
6,300 Unilever ADR 765,450
2,000 Universal Foods Corp 62,750
5,400 Whitman Corp 101,925
3,364,001
HEALTH CARE - 6.5%
4,300 Boston Scientific Corp * (a) 92,988
18,200 Columbia/HCA Healthcare Corp 753,025
6,100 Johnson & Johnson 346,175
8,900 Medtronic Inc 534,000
11,300 National Medical Enterprises * 175,150
2,300 United Healthcare Corp 98,900
10,200 Upjohn Co 359,550
15,700 US Health Care Inc 675,100
2,900 Wellpoint Health Networks Class A * 95,338
3,130,226
INSURANCE - 5.7%
6,200 Aetna Life and Casualty Co 333,250
5,100 AFLAC Corp 192,525
900 Allmerica Property and Casualty 17,550
500 Allstate Corp 13,750
2,000 Ambac Inc 81,250
10,000 American General Corp 316,250
4,500 AON Corp 156,375
3,300 Cigna Corp 249,975
600 Conseco Inc (a) 21,375
100 Continental Corp 1,938
700 Geico Corp 34,213
3,000 Jefferson Pilot Corp 171,000
1,200 Marsh & McLennan Cos Inc 98,400
900 MBIA Inc 55,800
600 MGIC Investment 22,875
2,700 Old Republic International Corp 66,825
2,300 Provident Life and Accident Insurance Co Class B 54,050
3,000 Providian Corp 106,125
200 Safeco Corp 11,000
6,600 St Paul Cos 320,925
200 SunAmerica Inc 8,200
4,700 Torchmark Corp 196,813
2,900 Transamerica Corp 158,413
200 Transatlantic Holdings Inc 11,500
2,100 Twentieth Century Industries 26,250
2,726,627
MACHINERY - 1.2%
4,400 Dover Corp 261,800
2,400 FMC Corp * 140,400
3,700 Parker Hannifin Corp 172,975
100 Snap-On Tools Corp 3,400
578,575
MANUFACTURING - 8.8%
1,100 Alco Standard Corp 74,800
32,300 Boeing Co 1,489,814
23,800 International Business Machines Corp 1,790,950
3,400 Litton Industries * 124,100
10,500 Minnesota Mining and Manufacturing 574,875
462 Stone Container Corp * (a) 10,799
2,200 Textron Inc 120,450
1,500 York International Corp 57,750
4,243,538
METALS AND MINING - 0.7%
200 Mapco Inc 10,925
5,200 Phelps Dodge Corp 283,400
294,325
MISCELLANEOUS - 0.0%
100 Witco Corp 2,863
OIL AND GAS - 6.6%
8,100 Amoco Corp (a) 479,925
1,200 Atlantic Richfield Co 131,550
5,200 Chevron Corp 247,000
1,200 Columbia Gas Systems * 31,200
1,000 El Paso Natural Gas Co 30,750
16,500 Exxon Corp 1,056,000
400 Kerr-McGee Corp 20,150
5,100 Mobil Corp 443,700
200 Murphy Oil Corp 8,750
2,400 Occidental Petroleum Corp 47,700
200 Pennzoil Co 9,475
100 Phillips Petroleum Co 3,338
4,200 Royal Dutch Petroleum Co ADR 470,925
2,100 Texaco Inc 133,875
2,400 Williams Companies Inc 69,000
3,183,338
PAPER AND ALLIED PRODUCTS - 0.1%
900 Consolidated Papers Inc 43,538
1,000 Glatfelter (PH) Co 18,250
61,788
PHARMACEUTICALS - 10.1%
10,100 American Home Products Corp 722,150
7,801 Amgen Inc * 538,269
23,400 Bristol-Myers Squibb Co 1,450,800
16,600 Lilly (Eli) & Co 1,112,200
4,800 Marion Merrell Dow Inc 119,400
20,300 Merck & Co Inc 860,213
1,000 Mylan Laboratories (a) 31,250
4,834,282
PRIMARY PROCESSING - 1.4%
5,500 Dow Chemical Co 368,500
4,200 Du Pont (E I) De Nemours & Co Inc 235,725
1,100 Rohm & Haas Co 61,738
665,963
PRINTING AND PUBLISHING - 0.7%
2,100 Dun and Bradstreet Corp 108,413
1,100 McGraw Hill Inc 77,550
3,700 Readers Digest Association Inc 170,200
356,163
REFINING - 0.4%
6,200 Ashland Inc 200,725
RETAIL TRADE - 3.3%
6,700 Albertson's Inc 206,025
8,600 Autozone Inc * 227,900
2,100 Circuit City Stores Inc 45,413
1,500 Gap Stores 48,750
11,600 Kroger Co * 304,500
3,800 Melville Corp 123,500
4,000 Nordstrom Inc 169,000
8,900 Rite Aid Corp 220,275
4,600 The Pep Boys 150,650
1,500 Walgreen Co 70,875
600 Weismarkets Inc 15,375
1,582,263
SERVICES - 2.5%
700 BHC Communications Inc Class A * 51,975
8,900 Capital Cities/ABC Inc 787,650
600 Equifax Inc 18,525
1,400 Fleming Cos 27,300
5,800 Manpower Inc 169,650
2,300 Omnicom Group 122,188
1,177,288
TECHNOLOGY - 8.2%
300 3Com Corp * 15,638
5,900 Amp Inc 442,500
9,500 Apple Computer 375,250
3,500 Avery Dennison Corp 131,250
28,800 Compaq Computer Corp * 993,600
3,700 Computer Sciences Corp * 181,763
4,100 E G & G 58,938
500 Emerson Electric 33,063
2,300 Grainger (WW) Inc 140,588
1,600 Hewlett-Packard Inc 184,000
4,900 LSI Logic Corp * 267,050
9,600 Microsoft Corp * 604,800
2,700 Millipore Corp 143,438
2,900 Storage Technology Corp * 63,075
1,600 Sun Microsystems Inc * 51,200
11,800 Tandem Computers Inc * 200,600
500 Thomas & Betts Corp 33,313
3,920,066
TELECOMMUNICATIONS - 0.2%
1,000 Frontier Corp 22,875
900 General Instrument Corp * (a) 28,575
1,200 Southern New England Telecommunications Corp 39,750
91,200
UTILITIES - 12.4%
2,000 Allegheny Power System Inc 47,000
4,200 American Electric Power Inc 142,275
4,300 Baltimore Gas and Electric Co 105,888
2,600 Carolina Power and Light Co 71,500
6,600 Centerior Energy Corp 64,350
6,300 Central & South West Corp 155,138
4,700 Cinergy Corp 116,325
2,500 CMS Energy Corp 60,000
7,700 Consolidated Edison 212,713
6,700 Detroit Edison Co 191,788
5,800 Dominion Resources Inc (a) 220,400
3,100 DPL Inc 64,713
1,600 DQE 53,800
8,300 Duke Power Co 325,775
5,600 Entergy Corp 125,300
3,500 Florida Progress Corp 109,813
4,000 FPL Group Inc 143,500
5,100 General Public Utilities 154,275
2,400 Houston Industries Inc 91,800
2,700 Illinova Corp 63,113
2,200 Kansas City Power and Light Co 52,525
4,000 Long Island Lighting 64,000
1,700 New England Electric System 56,100
2,000 New York State Electric and Gas Corp 43,000
4,300 Niagara Mohawk Power Corp 63,963
2,200 Nipsco Industries Inc 69,575
3,700 Northeast Utilities (a) 84,175
2,600 Northern States Power Co 117,650
4,300 Ohio Edison Co 90,300
1,100 Oklahoma Gas and Electric Co 38,913
3,000 Pacific Enterprises 73,500
12,300 Pacific Gas and Electric Co 315,188
9,900 PacifiCorp 189,338
4,100 Panhandle Eastern Corp 92,250
6,700 Peco Energy Co 179,225
2,900 Penn Power and Light Co 60,175
3,100 Pinnacle West Capital Corp 66,650
2,400 Potomac Electric Power Co 46,500
7,900 Public Service Enterprise Group Inc 230,088
1,300 Public Service of Colorado 39,813
1,400 Puget Sound Power and Light Co 30,275
1,900 San Diego Gas and Electric Co 41,088
1,600 Scana Corp 70,600
13,000 SCE Corp 212,875
21,100 Southern Co 435,188
3,900 Teco Energy 83,850
3,800 Texas Utilities Co 124,925
7,800 Unicom Corp 198,900
3,200 Union Electric Co 121,200
1,500 Western Resources Inc 47,625
3,600 Wisconsin Energy Corp 99,900
5,958,820
TOTAL STOCK (Cost $42,499,049) 46,936,698
PAR VALUE SHORT-TERM INVESTMENTS - 6.9%
REPURCHASE AGREEMENT - 2.8%
$1,357,130 Salomon Brothers Repurchase Agreement, dated 2/28/95, due 3/1/95,
with a maturity value of $1,357,341 and an effective yield of
5.60%, collateralized by a U.S. Treasury Bond with a rate of 6.25%,
a maturity date of 8/15/23,
and with an aggregate market value of $1,394,106. 1,357,130
U.S. GOVERNMENT - 0.1%
60,000 U.S. Treasury Bill, 4.92% due 3/2/95 59,991
CASH EQUIVALENTS - 4.0%
853,664 Bank of Boston Time Deposit 853,664
371,200 Dreyfus Cash Management Money Market Fund Plus, A Shares 371,200
94,745 National Westminster Time Deposit 94,745
533,041 Provident Institutional Prime Money Market Fund 533,041
1,852,650
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 3,269,771
TOTAL INVESTMENTS - 104.7%
(Cost $45,768,820) * * 50,206,469
Other Assets and Liabilities (net) - (4.7%) (2,237,738)
TOTAL NET ASSETS - 100.0% $ 47,968,731
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) All or a portion of this security is on loan.
* Non-income producing security.
** The aggregate identified cost for federal income tax
purposes is $46,140,978, resulting in gross unrealized
appreciation and depreciation of $4,519,461 and
$453,970, respectively, and net unrealized appreciation
of $4,065,491.
See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $42,499,049) (Note 1) $ 46,936,698
Short-term investments, at amortized cost (Note 1) 3,269,771
Receivable for investments sold 581,147
Dividends and interest receivable 178,375
Receivable for variation margin on open futures contracts 3,350
Receivable for expenses waived or borne by Manager (Note 2) 14,148
Total assets 50,983,489
LIABILITIES:
Payable for investments purchased 498,656
Payable for Fund shares repurchased 583,092
Payable upon return of securities loaned (Note 1) 1,852,396
Payable to affiliate for management fee (Note 2) 18,351
Accrued expenses 62,263
Total liabilities 3,014,758
NET ASSET(equivalent to $10.65 per share based
on 4,502,238 shares outstanding, unlimited shares authorized) $ 47,968,731
NET ASSETS CONSIST OF:
Paid-in capital $ 43,015,553
Accumulated net realized gain on investments and
closed futures contracts 515,529
Net unrealized appreciation on investments
and open futures contracts 4,437,649
NET ASSETS $ 47,968,731
</TABLE>
See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $9,454) $ 1,465,067
Interest (including securities lending income of $4,528) 95,182
Total income 1,560,249
EXPENSES:
Management fee (Note 2) 260,209
Custodian and transfer agent fees 76,742
Audit fees 49,489
Legal fees 2,318
Insurance 644
Trustee fee (Note 2) 261
Miscellaneous 560
Total expenses 390,223
Less: expenses waived or borne by Manager (Note 2) (140,422)
Net expenses 249,801
Net investment income 1,310,448
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 4,405,159
Closed futures contracts (57,931)
Net realized gain 4,347,228
Change in net unrealized appreciation (depreciation) on:
Investments (2,301,772)
Open futures contracts 7,846
Net unrealized loss (2,293,926)
Net realized and unrealized gain on investments
and futures contracts 2,053,302
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,363,750
</TABLE>
See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Operations:
Net investment income $ 1,310,448 $ 1,384,900
Net realized gain on investments
and closed futures contracts 4,347,228 4,277,764
Change in net unrealized appreciation (depreciation) on
investments and open futures contracts (2,293,926) 2,265,919
Net increase in net assets resulting from operations 3,363,750 7,928,583
Distributions to shareholders from:
Net investment income (1,340,450) (1,612,593)
Net realized gains (4,364,391) (6,681,832)
(5,704,841) (8,294,425)
Fund share transactions: (Note 5)
Proceeds from sale of shares 2,407,000 -
Net asset value of shares issued to shareholders
in payment of distributions declared 5,704,841 8,294,425
Cost of shares repurchased (13,646,591) (37,315,687)
Net decrease in net assets resulting
from Fund share transactions (5,534,750) (29,021,262)
Total decrease in net assets (7,875,841) (29,387,104)
NET ASSETS:
Beginning of period 55,844,572 85,231,676
End of period (including undistributed net
investment income of $0 and
$254,797, respectively) $ 47,968,731 $ 55,844,572
</TABLE>
See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992*
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.07 $ 11.35 $ 10.50 $ 10.00
Income from investment operations:
Net investment income (a) 0.23 0.34 0.31 0.12
Net realized and unrealized gain
on investments and futures contracts 0.50 1.18 0.84 0.44
Total from investment operations 0.73 1.52 1.15 0.56
Less distributions to shareholders:
From net investment income (0.28) (0.35) (0.30) (0.06)
From net realized gains (0.87) (1.45) - -
Total distributions (1.15) (1.80) (0.30) (0.06)
NET ASSET VALUE, END OF PERIOD $ 10.65 $ 11.07 $ 11.35 $ 10.50
TOTAL RETURN (B) 7.36% 14.12% 11.20% 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of peri $ 47,969 $ 55,845 $ 85,232 $ 75,412
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.49% 0.49%**
Net investment income to average
daily net assets (a) 2.52% 2.42% 2.88% 3.77%**
Portfolio turnover rate 112% 38% 56% 0%
* For the period from the commencement of operations, October 31, 1991 to February 29, 1992.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.03, $.03, $.02, and $.01
per share for the for the fiscal years ended 1995, 1994, 1993 and for the
period ended February 29, 1992, respectively.
(b) Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The 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
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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P 500 index. 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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 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 February 28,
1995, there were no outstanding futures contracts.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $1,839,887 collateralized by
cash in the amount of $1,852,650, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods.
Therefore, no provision for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for partnership interests.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain Paid-in Capital
<S> <C> <C>
($224,795) $223,859 $936
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .17% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $4,092 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .50% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .48% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $261. 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 year ended February 28, 1995, aggregated
$55,293,634 and $63,480,456, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 95% of the outstanding shares of the Fund were held
by two individual shareholders, each holding in excess of 10% of the
outstanding shares of the Fund.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 226,368 ----
Shares issued to shareholders in reinvestment
of distributions 560,904 749,482
Shares repurchased (1,331,510) (3,214,595)
Net decrease (544,238) (2,465,113)
Fund shares:
Beginning of period 5,046,476 7,511,589
End of period 4,502,238 5,046,476
* * *
</TABLE>
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 71.00% of distributions as net capital gain dividends.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of GMO Value Allocation Fund
(A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Value Allocation Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
STOCK - 95.1%
AEROSPACE - 3.6%
<C> <S> <C>
44,500 E-Systems Inc 1,946,875
26,100 Lockheed Corp 2,026,013
37,400 Martin Marietta Corp 1,785,850
10,600 Northrop Corp 470,375
54,000 Raytheon Co 3,807,000
68,500 Rockwell International Corp 2,637,250
12,673,363
AUTOMOTIVE - 2.6%
2,600 Bandag Inc 156,000
5,000 Chrysler Corp 217,500
4,500 Eaton Corp 225,563
106,300 Ford Motor Co 2,777,088
80,000 General Motors Corp 3,410,000
23,300 Genuine Parts Co 905,788
15,000 Mascotech Industries Inc Convertible Preferred $1.20 208,125
25,000 Navistar International Corp Preferred $6.00 1,306,250
3,300 SPX Corp 50,325
9,256,639
BANKING AND FINANCIAL SERVICES - 12.7%
245,400 American Express Co 8,282,250
10,000 Bank of Boston 301,250
35,000 BankAmerica Corp 1,684,375
28,400 Bear Stearns Cos Inc 532,500
15,900 Beneficial Corp 590,288
34,400 Chase Manhattan Corp 1,234,100
75,000 Chemical Banking Corp 3,009,375
55,000 Citicorp Convertible Preferred 10.75% 6,778,750
487,500 Citicorp Convertible Preferred $1.21 9,384,375
11,300 Comdisco Inc 288,150
45,000 Comerica Inc 1,265,625
5,000 Countrywide Credit Industries 81,250
66,600 Dean Witter Discover and Co 2,688,975
20,300 Edwards (A G) Inc 456,750
15,000 Great Western Financial 281,250
14,000 Household International Inc 612,500
22,900 Morgan Stanley Group Inc 1,542,888
10,000 Nationsbank Corp 498,750
11,200 Paine Webber Inc 194,600
41,100 Salomon Inc (a) 1,479,600
5,000 Shawmut National Corp 128,125
8,200 Student Loan Marketing Association 302,375
40,000 Summit Properties Inc 680,000
60,000 Travelers Inc 2,332,500
44,630,601
CHEMICALS - 0.7%
45,000 Baxter International Inc 1,400,625
25,000 Borden Chemical and Plastics LP 437,500
7,500 Georgia Gulf Corp * 225,000
7,500 Grace (WR) and Co 337,500
3,500 Wellman Inc 94,500
2,495,125
COMMUNICATIONS - 0.0%
2,500 Motorola Inc 143,750
COMPUTER AND DATA PROCESSING SERVICES - 0.6%
250,000 SHL System House * 1,500,000
16,900 Stratus Computer Inc * 445,738
1,945,738
CONSTRUCTION - 0.4%
45,000 Owens Corning Fiberglass Corp * (a) 1,513,125
CONSUMER GOODS - 5.4%
62,500 Burlington Industries Inc * 687,500
8,100 Callaway Golf Company (a) 273,375
50,000 Corning Inc 1,606,250
117,500 Eastman Kodak Co 5,992,500
5,700 Jones Apparel Group Inc * 133,950
16,800 Liz Claiborne 270,900
75,000 Maytag Corp 1,237,500
1,100 National Service Industries 29,563
5,500 Nike Inc Class B 395,313
13,500 Polaroid Corp 405,000
22,500 Premark International Inc 973,125
2,500 Procter and Gamble Co 166,250
9,000 Reebok International Ltd 329,625
5,800 VF Corp 298,700
425,000 Westinghouse Electric Corp Convertible Preferred $1.30 144A 5,790,625
2,500 Whirlpool Corp 135,938
18,726,114
ENVIRONMENTAL CONTROL - 0.0%
7,500 Waste Management International Plc ADS * 78,750
FOOD AND BEVERAGE - 4.1%
55,500 Anheuser-Busch Cos Inc 3,128,813
9,500 Brown Forman Corp Class B 307,563
4,300 Dean Foods Co 133,300
17,300 Heinz (H J) Co 681,188
1,700 Hershey Foods Corp 83,300
7,700 Hormel (Geo A) and Co 205,975
600 IBP Inc 19,125
1,400 International Multifoods Corp 26,075
750,000 RJR Nabisco Holdings Convertible Preferred Series C 9.25% 4,406,250
39,100 Sara Lee Corp 1,026,375
25,000 Supervalu Inc 643,750
27,600 Unilever ADR 3,353,400
4,900 Universal Foods Corp 153,738
5,400 Whitman Corp 101,925
14,270,777
HEALTH CARE - 2.7%
7,800 Bausch & Lomb Inc 259,350
100,000 Beverly Enterprises Inc * (a) 1,300,000
2,900 Boston Scientific Corp * (a) 62,713
25,000 Caremark International Inc 437,500
39,600 Columbia/HCA Healthcare Corp 1,638,450
5,000 Elan Corp Plc ADR * (a) 176,250
17,500 Foundation Health Corp * 522,813
10,300 Medtronic Inc 618,000
78,900 National Medical Enterprises * 1,222,950
78,600 Upjohn Co 2,770,650
14,400 Wellpoint Health Networks Class A * 473,400
9,482,076
INSURANCE - 6.6%
102,400 Aetna Life and Casualty Co 5,504,000
7,700 AFLAC Corp 290,675
2,500 Alexander & Alexander Services Inc 54,375
16,900 Allmerica Property and Casualty 329,550
7,500 Allstate Corp 206,250
15,600 American General Corp 493,350
10,000 AON Corp 347,500
35,300 Cigna Corp 2,673,975
210,000 Continental Corp 4,068,750
15,000 First Colony Corp 335,625
3,500 General Re Corp 455,875
5,000 John Alden Financial Corp 143,750
5,000 Kemper Corp 201,250
15,000 Life Re Corp 298,125
2,500 Marsh & McLennan Cos Inc 205,000
10,600 MBIA Inc 657,200
5,000 National Re Corp 151,875
3,200 Old Republic International Corp 79,200
6,400 Provident Life and Accident Insurance Co Class B 150,400
16,200 Providian Corp 573,075
150,000 Reliance Group Holdings Inc 825,000
31,700 St Paul Cos 1,541,413
32,500 TIG Holdings Inc 674,375
7,900 Torchmark Corp 330,813
20,000 Transamerica Corp 1,092,500
2,400 Twentieth Century Industries 30,000
75,000 USF & G Corp 1,068,750
1,000 USLIFE Corp 38,125
25,000 Willis Corroon Group Plc ADR 281,250
23,102,026
MACHINERY - 1.0%
75,000 CBI Industries Inc 1,818,750
7,500 Cummins Engine Inc 341,250
7,800 Dover Corp 464,100
10,000 FMC Corp * 585,000
10,000 Snap-On Tools Corp 340,000
3,549,100
MANUFACTURING - 9.5%
133,800 Boeing Co 6,171,525
5,000 General Electric Co 274,375
103,500 International Business Machines Corp 7,788,375
15,000 ITT Corp 1,462,500
12,700 Litton Industries * 463,550
225,000 Mascotech Industries Inc 2,756,250
40,800 Minnesota Mining and Manufacturing 2,233,800
1,200 Sequa Corp Class A * 33,750
200,000 Teledyne Inc 4,625,000
2,000 Teledyne Inc Preferred Stock Series E 30,000
1,400 Temple Inland Inc 68,425
16,200 Textron Inc 886,950
35,000 United Technologies Corp 2,323,125
275,000 Westinghouse Electric Corp 4,262,500
33,380,125
METALS AND MINING - 2.9%
150,000 Alcan Aluminum Ltd 3,637,500
10,000 Alumax Inc * 286,250
10,000 Aluminum Co of America 390,000
45,200 Asarco Inc 1,231,700
45,000 Cyprus Amax Minerals Co (a) 1,215,000
60,000 Inco Ltd (a) 1,612,500
14,100 Phelps Dodge Corp 768,450
20,000 Reynolds Metals Co 1,000,000
10,141,400
MISCELLANEOUS - 0.1%
7,500 Freeport-McMoran Corp Preferred 243,750
OIL AND GAS - 6.6%
12,500 Amerada Hess Corp 612,500
8,200 Chevron Corp 389,500
26,200 Columbia Gas Systems * 681,200
12,500 Dresser Industries Inc 257,813
3,700 El Paso Natural Gas Co 113,775
25,000 Enserch Corp 350,000
1,200 Equitable Resources Inc 33,300
37,900 Exxon Corp 2,425,600
5,000 Kerr-McGee Corp 251,875
25,000 Maxus Energy Corp * 96,875
42,900 Mobil Corp 3,732,300
125,000 Noram Energy Corp 703,125
60,000 Occidental Petroleum Corp 1,192,500
1,400 Oneok Inc 24,150
28,200 Royal Dutch Petroleum Co ADR 3,161,925
22,500 Seagull Energy Corp * 379,688
4,400 Southwest Gas Corp 67,100
1,300 Southwestern Energy Co 16,413
20,300 Texaco Inc 1,294,125
87,500 Unocal Corp 2,482,813
5,000 Unocal Corp Convertible Preferred $3.50 144A 256,250
125,000 USX - Marathon Group 2,031,250
87,500 Williams Companies Inc 2,515,625
23,069,702
PAPER AND ALLIED PRODUCTS - 0.1%
5,000 Weyerhaeuser Co (a) 203,750
PHARMACEUTICALS - 4.0%
19,900 American Home Products Corp 1,422,850
67,000 Bristol-Myers Squibb Co 4,154,000
94,500 Lilly (Eli) & Co 6,331,500
30,500 Marion Merrell Dow Inc 758,688
34,300 Merck & Co Inc 1,453,463
14,120,501
PRIMARY PROCESSING - 4.3%
75,000 Armco Inc * 496,875
75,000 Bethlehem Steel Corp * 1,171,875
50,000 Boise Cascade Corp Preferred Series G $1.58 1,368,750
22,500 Champion International Corp 925,313
7,500 Du Pont (E I) De Nemours & Co Inc 420,938
35,000 International Paper Co 2,673,125
75,000 James River Corp 1,846,875
100,000 James River Corp Convertible Preferred 9.00% 2,275,000
45,000 Methanex Corp * 472,500
35,000 National Steel Corp Class B * 577,500
700 NCH Corp 42,875
1,800 Olin Corp (a) 91,575
50,000 USX-US Steel Group Inc 1,662,500
2,900 Valspar 103,675
100,000 Weirton Steel Corp * 762,500
25,000 WHX Corp * 265,625
15,157,501
PRINTING AND PUBLISHING - 0.2%
15,000 Dun and Bradstreet Corp 774,375
REAL ESTATE - 0.1%
25,000 Crown American Realty 309,375
REFINING - 0.8%
13,300 Ashland Inc 430,588
8,300 Diamond Shamrock Inc 207,500
22,500 Imperial Oil Ltd 765,000
25,000 Sun Co Inc 728,125
8,500 Tosco Corp 245,438
32,500 Valero Energy Corp 580,938
2,957,589
RETAIL TRADE - 3.6%
5,000 Albertson's Inc 153,750
25,000 American Stores Co 612,500
1,600 Blair Corp 54,200
3,900 Circuit City Stores Inc 84,338
1,800 Family Dollar Stores 23,400
2,500 Fingerhut Companies Inc 40,938
100,000 Kmart 1,275,000
2,800 Lands' End Inc * 46,550
2,600 Longs Drugstores Corp 82,550
10,000 May Dept Stores 365,000
35,600 Melville Corp 1,157,000
250,000 Price/Costco Inc * 3,406,250
25,900 Rite Aid Corp 641,025
50,000 Sears Roebuck & Co 2,462,500
3,000 Stanhome Inc 84,000
10,000 The Limited Inc 175,000
40,000 TJX Cos Inc 540,000
55,000 Wal-Mart Stores Inc 1,306,250
12,510,251
SERVICES - 0.9%
2,600 BHC Communications Inc Class A * 193,050
7,100 Chris Craft Industries Inc * 252,050
5,500 Deluxe Corp 154,000
59,600 Fleming Cos 1,162,200
2,300 Lee Enterprises Inc 83,088
500 Meredith Corp 24,313
4,200 PHH Corp 157,500
50,000 Tele-Communications Class A * 1,137,500
3,163,701
TECHNOLOGY - 3.9%
25,000 Advanced Micro Devices * 759,375
26,800 Apple Computer 1,058,600
5,000 Bay Networks Inc * 156,875
40,000 Cray Research Inc * 675,000
25,000 Data General * 196,875
212,500 Digital Equipment Corp * 7,118,750
70,000 Fisher Scientific 1,890,000
12,500 Intel Corp 996,875
3,500 Microsoft Corp * 220,500
25,000 Moore Corp Ltd (a) 462,500
13,535,350
TELECOMMUNICATIONS - 3.5%
12,500 AT & T Corp 646,875
177,500 GTE Corp 5,924,063
75,000 MCI Communications 1,509,375
45,000 Pacific Telesis Group 1,350,000
22,500 Sprint Corp 658,125
60,000 US West Inc 2,325,000
12,413,438
TEXTILES - 0.1%
25,000 Kellwood Co 440,625
TOBACCO - 2.2%
95,000 American Brands Inc 3,550,625
50,000 Hanson Plc ADR (a) 937,500
30,400 Loews Corp 2,952,600
4,000 Philip Morris Cos Inc 243,000
7,683,725
TRANSPORTATION - 1.9%
25,000 AMR Corp * 1,528,125
125,000 Canadian Pacific Ltd 1,750,000
15,000 Delta Air Lines Inc 870,000
5,000 Goodyear Tire and Rubber 184,375
10,000 Northwest Airlines Corp Class A * 246,250
7,500 Overseas Shipholding Group Inc 173,438
37,500 Ryder System Inc 871,875
40,000 USAir Group Inc Convertible Preferred Series B $4.375 1,090,000
6,714,063
UTILITIES - 10.0%
1,200 Allegheny Power System Inc 28,200
3,400 American Electric Power Inc 115,175
4,200 American Water Works Co 123,900
3,900 Atlantic Energy Inc 74,100
15,900 Baltimore Gas and Electric Co 391,538
2,700 Boston Edison Co 66,150
219,200 Centerior Energy Corp 2,137,200
74,700 Cinergy Corp 1,848,825
15,000 CMS Energy Corp 360,000
38,900 Consolidated Edison 1,074,592
1,400 Delmarva Power and Light Co 27,825
4,100 Destec Energy Inc * 41,000
54,800 Detroit Edison Co 1,568,650
25,000 DPL Inc 521,875
5,400 DQE 181,575
92,300 Entergy Corp 2,065,213
1,600 FPL Group Inc 57,400
65,200 General Public Utilities 1,972,300
4,500 Houston Industries Inc 172,125
35,000 Illinova Corp 818,125
25,900 Long Island Lighting 414,400
1,400 Midwest Resources 20,300
5,500 New England Electric System 181,500
14,100 New York State Electric and Gas Corp 303,150
28,400 Niagara Mohawk Power Corp 422,450
43,400 Northeast Utilities (a) 987,350
12,500 Ohio Edison Co 262,500
700 Oklahoma Gas and Electric Co 24,763
53,500 Pacific Gas and Electric Co 1,370,938
50,000 Panhandle Eastern Corp 1,125,000
23,000 Peco Energy Co 615,250
9,300 Penn Power and Light Co 192,975
45,600 Pinnacle West Capital Corp 980,400
13,000 Portland General Electric Co 264,875
9,000 Potomac Electric Power Co 174,375
77,900 Public Service Enterprise Group Inc 2,268,838
24,800 Public Services Co of New Mexico * 319,300
1,100 Puget Sound Power and Light Co 23,788
5,000 Rochester Gas and Electric Corp 109,375
67,800 SCE Corp 1,110,225
60,000 Tenneco Inc 2,730,000
127,600 Texas Utilities Co 4,194,850
50,000 TransCanada Pipeline Ltd 662,500
92,100 Unicom Corp 2,348,550
4,900 Western Resources Inc 155,575
34,908,995
TOTAL STOCK (Cost $306,984,846) 333,595,400
PAR VALUE SHORT-TERM INVESTMENTS - 5.8%
REPURCHASE AGREEMENT - 3.0%
$ 10,503,055 Salomon Brothers Repurchase Agreement, dated 2/28/95,
due 3/1/95, with a maturity value of $10,504,689 and an
effective yield of 5.60%, collateralized by a U.S. Treasury
Bond with a rate of 6.25%, a maturity date of 8/15/23,
and with an aggregate market value of $10,789,221. 10,503,055
U.S. GOVERNMENT - 0.3%
945,000 U.S. Treasury Bill, 4.92% due 3/2/95 (b) 944,861
CASH EQUIVALENTS - 2.5%
1,663,720 Bank of Boston Time Deposit 1,663,720
4,052,245 Dreyfus Cash Management Money Market Fund Plus, A Shares 4,052,245
442,140 National Westminster Time Deposit 442,140
2,487,495 Provident Institutional Prime Money Market Fund 2,487,495
8,645,600
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 20,093,516
TOTAL INVESTMENTS - 100.9%
(Cost $327,078,362) * * $ 353,688,916
Other Assets and Liabilities (net) - (0.9%) (2,994,455)
TOTAL NET ASSETS - 100.0% $ 350,694,461
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
ADS American Depositary Shares
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
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
** The aggregate identified cost for federal income
tax purposes is $336,063,721, resulting in gross
unrealized appreciation and depreciation of
$31,073,736 and $13,448,541, respectively, and net
unrealized appreciation of $17,625,195.
</TABLE>
See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $306,984,846) (Note 1) $ 333,595,400
Short-term investments, at amortized cost (Note 1) 20,093,516
Receivable for Fund shares sold 6,500,000
Receivable for investments sold 5,158,625
Dividends and interest receivable 1,478,267
Receivable for variation margin on open futures contracts 58,671
Receivable for expenses waived or borne by Manager (Note 2) 30,926
Total assets 366,915,405
Liabilities:
Payable upon return of securities loaned (Note 1) 8,643,998
Payable for investments purchased 3,770,601
Payable for Fund shares repurchased 3,539,907
Payable to affiliate for management fee (Note 2) 185,497
Accrued expenses 80,941
Total liabilities 16,220,944
NET ASSETS(equivalent to $12.05 per share based
on 29,095,761 shares outstanding, unlimited shares authorized) $ 350,694,461
NET ASSETS CONSIST OF:
Paid-in capital $ 326,243,082
Undistributed net investment income 1,914,719
Accumulated net realized loss on investments and
closed futures contracts (4,119,787)
Net unrealized appreciation on investments and
open futures contracts 26,656,447
NET ASSETS $ 350,694,461
See accompanying notes to the financial statements.
</TABLE>
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $70,611) $ 14,887,482
Interest (including securities lending income of $28,587) 687,766
Total income 15,575,248
EXPENSES:
Management fee (Note 2) 3,144,806
Custodian and transfer agent fees 116,807
Audit fees 54,293
Legal fees 28,232
Insurance 5,337
Trustee fee (Note 2) 1,778
Registration fees 1,000
Miscellaneous 1,000
Total expenses 3,353,253
Less: expenses waived or borne by Manager (Note 2) (612,779)
Net expenses 2,740,474
Net investment income 12,834,774
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain on:
Investments 45,409,063
Closed futures contracts 405,102
Net realized gain 45,814,165
Change in net unrealized appreciation (depreciation) on:
Investments (41,594,737)
Open futures contracts 45,893
Net unrealized loss (41,548,844)
Net realized and unrealized gain on investments
and futures contracts 4,265,321
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,100,095
</TABLE>
See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Operations:
Net investment income $ 12,834,774 $ 30,299,099
Net realized gain on investments
and closed futures contracts 45,814,165 130,330,133
Change in net unrealized appreciation (depreciation)
on investments and open futures contracts (41,548,844) (15,258,162)
Net increase in net assets resulting from operations 17,100,095 145,371,070
Distributions to shareholders from:
Net investment income (16,241,648) (32,053,898)
Net realized gains (53,036,477) (100,074,809)
(69,278,125) (132,128,707)
Fund share transactions: (Note 5)
Proceeds from sale of shares 37,637,168 154,515,349
Net asset value of shares issued to shareholders
in payment of distributions declared 59,045,467 109,347,043
Cost of shares repurchased (373,341,674) (837,109,087)
Net decrease in net assets resulting
from Fund share transactions (276,659,039) (573,246,695)
Total decrease in net assets (328,837,069) (560,004,332)
NET ASSETS:
Beginning of period 679,531,530 1,239,535,862
End of period (including undistributed net
investment income of $1,914,719 and
$5,309,936, respectively) $ 350,694,461 $ 679,531,530
</TABLE>
See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 1991 *
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.48 $ 13.50 $ 12.94 $ 12.25 $ 10.00
Income from investment operations:
Net investment income (a) 0.41 0.43 0.38 0.40 0.12
Net realized and unrealized gain
on investments and futures contracts 0.32 1.27 0.98 1.11 2.16
Total from investment operations 0.73 1.70 1.36 1.51 2.28
Less distributions to shareholders:
From net investment income (0.45) (0.40) (0.38) (0.41) (0.03)
From net realized gains (1.71) (1.32) (0.42) (0.41) --
Total distributions (2.16) (1.72) (0.80) (0.82) (0.03)
Net asset value, end of period $ 12.05 $ 13.48 $ 13.50 $ 12.94 $ 12.25
Total Return (b) 6.85% 13.02% 11.01% 12.96% 22.85%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 350,694 $ 679,532 $ 1,239,536$ 644,136 $ 190,664
Net expenses to average
daily net assets (a) 0.61% 0.61% 0.62% 0.67% 0.70%**
Net investment income to average
daily net assets (a) 2.86% 2.70% 3.15% 3.75% 7.89%**
Portfolio turnover rate 77% 35% 50% 41% 23%
* For the period from the commencement of operations, November 14, 1990 through
February 28, 1991.
** Annualized
(a)Net of fees and expenses voluntarily waived or borne by the Manager of $.02, $.02, $.01, $.01, and $.01 per
share for the fiscal years ended 1995, 1994, 1993, 1992 and the period ended February 28, 1991, respectively.
(b)Calculation excludes subscription fees. The total returns would have been lower had certain expenses
not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Value 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, non-diversified management investment company.
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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P 500 index. 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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $8,188,338, collateralized by
cash in the amount of $8,645,600, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for redemptions in-kind.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Loss Paid-in Capital
<S> <C> <C>
$11,657 ($1,777,037) $1,765,380
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $24,038 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .70% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .61% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $1,778. 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 year ended February 28, 1995, aggregated
$331,512,147 and $654,370,170, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 16% 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 full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 3,061,654 11,215,805
Shares issued to shareholders in reinvestment
of distributions 5,068,747 8,104,633
Shares repurchased (29,453,951) (60,726,452)
Net decrease (21,323,550) (41,406,014)
Fund shares:
Beginning of period 50,419,311 91,825,325
End of period 29,095,761 50,419,311
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 28, 1995, is as
follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
<S> <C> <C> <C> <C>
44 S&P 500 March 1995 $ 10,748,100 $
45,893
</TABLE>
At February 28, 1995, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
* * *
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 67.44% of distributions as net capital gain dividends.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Growth Allocation Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Growth Allocation Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
STOCK - 90.3%
AEROSPACE - 3.1%
<C> <S> <C>
11,300 E-Systems Inc 494,375
20,700 Lockheed Corp 1,606,838
25,000 Martin Marietta Corp 1,193,750
1,200 Northrop Corp 53,250
57,100 Raytheon Co 4,025,550
7,373,763
AUTOMOTIVE - 2.0%
8,400 Bandag Inc 504,000
27,300 Breed Technologies Inc (a) 648,375
12,500 Eaton Corp 626,563
39,400 Genuine Parts Co 1,531,675
53,700 Harley-Davidson 1,449,900
4,760,513
BANKING AND FINANCIAL SERVICES - 4.7%
125,600 American Express Co 4,239,000
6,700 Bear Stearns Cos Inc 125,625
15,865 Comdisco Inc 404,558
14,200 Danaher Corp 418,900
77,300 Dean Witter Discover and Co 3,120,988
34,500 First USA Inc 1,272,188
19,900 Morgan Stanley Group Inc 1,340,763
1,400 Salomon Inc (a) 50,400
5,100 Student Loan Marketing Association 188,063
11,160,485
CHEMICALS - 0.4%
6,500 Loctite Corp 299,000
900 Lyondell Petrochemical (a) 21,713
26,200 Praxair Inc 592,775
3,700 Wellman Inc 99,900
1,013,388
CONSUMER GOODS - 3.3%
45,500 Callaway Golf Company (a) 1,535,625
4,000 Church & Dwight Co Inc 72,000
4,100 Clorox Co 247,538
15,600 ConAgra Inc * 510,900
8,400 International Flavors & Fragrances 404,250
18,000 Jones Apparel Group Inc * 423,000
800 Kohls Corp * 32,800
8,000 Liz Claiborne 129,000
36,550 Mattel Co 817,806
1,000 National Service Industries 26,875
52,200 Newell Co 1,246,275
11,700 Nike Inc Class B 840,938
1,900 Polaroid Corp 57,000
6,100 Premark International Inc 263,825
25,300 Reebok International Ltd 926,613
3,900 Russ Berrie and Co 50,700
4,800 Russell Corp 145,200
1,200 VF Corp 61,800
7,792,145
FOOD AND BEVERAGE - 15.1%
81,500 Anheuser-Busch Cos Inc 4,594,563
14,800 Brown Forman Corp Class B 479,150
198,200 Coca-Cola Co 10,901,000
78,700 CPC International Inc 4,210,450
18,150 Dean Foods Co 562,650
78,100 Heinz (H J) Co 3,075,188
7,900 Hershey Foods Corp 387,100
12,000 Hormel (Geo A) and Co 321,000
2,400 International Multifoods Corp 44,700
60,100 Kellogg Co 3,252,913
900 Quaker Oats Co 29,363
166,200 Sara Lee Corp 4,362,750
1,600 Tootsie Roll Industries Inc 107,200
1,500 Tyson Food Inc Class A 36,765
21,300 Unilever ADR 2,587,950
15,500 Universal Foods Corp 486,313
36,100 Whitman Corp 681,388
36,120,443
HEALTH CARE - 13.4%
12,600 Bausch & Lomb Inc 418,950
36,500 Boston Scientific Corp * (a) 789,313
201,000 Columbia/HCA Healthcare Corp 8,316,375
700 Haemonetics Corp * 11,113
108,400 Johnson & Johnson 6,151,700
96,500 Medtronic Inc 5,790,000
9,600 National Medical Enterprises * 148,800
44,300 United Healthcare Corp 1,904,900
179,100 US Health Care Inc 7,701,300
24,800 Wellpoint Health Networks Class A * 815,300
32,047,751
MACHINERY - 1.1%
22,500 Dover Corp 1,338,750
14,900 FMC Corp * 871,650
7,300 Thermo Electron Corp * (a) 345,838
2,556,238
MANUFACTURING - 3.1%
14,400 Alco Standard Corp 979,200
4,800 Bemis Co 130,200
10,500 Litton Industries * 383,250
86,600 Minnesota Mining and Manufacturing 4,741,350
22,800 Pall Corp 458,850
1,300 Sequa Corp Class A * 36,563
4,100 Trimas Corp 92,250
18,100 York International Corp 696,850
7,518,513
MISCELLANEOUS - 0.0%
400 Labone Inc 5,500
OIL AND GAS - 1.1%
25,200 Anadarko Petroleum Corp 1,105,650
2,000 Berry Petroleum Class A 18,000
35,200 Burlington Resources Inc 1,355,200
800 Pennzoil Co 37,900
5,700 Western Gas Resources Inc 104,025
2,620,775
PHARMACEUTICALS - 20.3%
259,204 Abbott Laboratories 9,201,712
10,500 Allergan Inc 303,188
24,500 American Home Products Corp 1,751,750
91,500 Amgen Inc * 6,313,500
113,600 Bristol-Myers Squibb Co 7,043,200
13,500 Forest Labs * 685,125
54,100 Lilly (Eli) & Co 3,624,700
22,400 Marion Merrell Dow Inc 557,200
99,700 Merck & Co Inc 4,224,788
68,100 Mylan Laboratories (a) 2,128,125
90,500 Pfizer Inc 7,488,875
34,400 Schering-Plough Corp 2,696,100
31,900 Warner Lambert Co 2,436,363
48,454,626
PRIMARY PROCESSING - 0.1%
1,000 NCH Corp 61,250
4,700 Valspar 168,025
229,275
PRINTING AND PUBLISHING - 1.5%
2,800 Central Newspapers Class A 75,250
31,000 Dun and Bradstreet Corp 1,604,250
1,600 McClatchy Newspapers Inc 37,800
40,200 Readers Digest Association Inc 1,849,200
3,566,500
REFINING - 0.2%
18,000 Ashland Inc 582,750
RETAIL TRADE - 7.5%
134,200 Albertson's Inc 4,126,650
38,600 Autozone Inc * 1,022,900
2,200 Best Buy Co Inc * 47,575
2,700 Blair Corp 91,463
34,500 Circuit City Stores Inc 746,063
62,200 Gap Stores 2,021,500
8,200 Hannaford Brothers Co 211,150
85,200 Kroger Co * (a) 2,236,500
3,200 Lands' End Inc * 53,200
25,800 Nordstrom Inc 1,090,050
6,600 Price/Costco Inc * 89,925
33,900 Rite Aid Corp 839,025
24,800 Safeway Inc * 889,700
7,200 Stanhome Inc 201,600
40,100 The Pep Boys 1,313,275
56,300 Walgreen Co 2,660,175
5,600 Weismarkets Inc 143,500
17,784,251
SERVICES - 5.3%
2,500 BHC Communications Inc Class A * 185,625
62,900 Capital Cities/ABC Inc 5,566,650
10,875 Chris Craft Industries Inc * 386,063
10,100 Deluxe Corp 282,800
4,000 Equifax Inc 123,500
23,200 Gannett Co Inc 1,276,000
15,000 Kingworld Productions Inc * 534,375
7,600 Lee Enterprises Inc 274,550
12,100 Lin Broadcasting Corp 1,565,438
41,000 Manpower Inc 1,199,250
5,400 Omnicom Group 286,875
7,200 PHH Corp 270,000
500 Rollins Inc 12,625
1,700 Total System Services Inc 29,963
2,800 Washington Post Co Class B 709,100
12,702,814
TECHNOLOGY - 4.1%
27,600 Apple Computer 1,090,200
34,500 Cabletron Systems Inc * 1,367,063
23,300 Compaq Computer Corp * 803,850
90,400 Microsoft Corp * 5,695,200
16,100 Millipore Corp 855,313
9,811,626
TOBACCO - 4.0%
10,200 Loews Corp 990,675
141,828 Philip Morris Cos Inc 8,616,051
9,606,726
TOTAL STOCK (Cost $201,309,216) 215,708,082
PAR VALUE SHORT-TERM INVESTMENTS - 12.4%
REPURCHASE AGREEMENTS - 8.6%
$ 8,830,985 Prudential Securities Group, Inc. Repurchase Agreement
dated 2/28/95, due 3/1/95, with a maturity value of $8,832,396
and an effective yield of 5.75%, collateralized by U.S. Government
Agency Obligations with rates ranging from 3.64% to 11.62%,
maturities ranging from 5/1/00 to 10/25/24, and with an aggregate
market value of $9,007,546. 8,830,985
11,848,273 Salomon Brothers Repurchase Agreement, dated 2/28/95, due
3/1/95, with a maturity value of $11,850,116 and an effective
yield of 5.60%, collateralized by a U.S. Treasury Bond with a
rate of 6.25%, a maturity date of 8/15/23,
and with an aggregate market value of $12,171,091. 11,848,273
20,679,258
U.S. GOVERNMENT - 0.5%
1,150,000 U.S. Treasury Bill, 4.92% due 3/2/95 (b) 1,149,827
CASH EQUIVALENTS - 3.3%
621,593 Bank of Boston Time Deposit 621,593
4,574,781 Dreyfus Cash Management Money Market Fund Plus, A Shares 4,574,781
401,949 National Westminster Time Deposit 401,949
2,261,377 Provident Institutional Prime Money Market Fund 2,261,377
7,859,700
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 29,688,785
TOTAL INVESTMENTS - 102.7%
(Cost $230,998,001) * * 245,396,867
Other Assets and Liabilities (net) - (2.7%) (6,390,550)
TOTAL NET ASSETS - 100.0% $ 239,006,317
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
* Non-income producing security
** The aggregate identified cost for federal income tax
purposes is $231,432,854, resulting in gross
unrealized appreciation and depreciation of
$16,638,794 and $2,674,781, respectively, and net
unrealized appreciation of $13,964,013.
</TABLE>
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $201,309,216) (Note 1) $ 215,708,082
Short-term investments, at amortized cost (Note 1) 29,688,785
Receivable for securities sold 2,034,611
Dividends and interest receivable 427,906
Receivable for variation on open futures contracts 136,929
Receivable for expenses waived or borne by Manager (Note 2) 13,996
Total assets 248,010,309
LIABILITIES:
Payable upon return of securities loaned (Note 1) 7,851,089
Payable for securities purchased 994,601
Payable to affiliate for management fee (Note 2) 85,260
Accrued expenses 73,042
Total liabilities 9,003,992
NET ASSETS (equivalent to $4.45 per share based
on 53,657,221 shares outstanding, unlimited shares authorized) $ 239,006,317
NET ASSETS CONSIST OF:
Paid-in capital $ 214,269,890
Undistributed net investment income 558,495
Accumulated net realized gain on investments and
closed futures contracts 9,725,239
Net unrealized appreciation on investments
and open futures contracts 14,452,693
NET ASSETS $ 239,006,317
</TABLE>
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 3,771,365
Interest (including securities lending income of $34,538) 438,583
Total income 4,209,948
EXPENSES:
Management fee (Note 2) 1,063,102
Audit fees 59,197
Custodian and transfer agent fees 47,355
Legal fees 8,001
Insurance 2,499
Trustee fee (Note 2) 1,126
Miscellaneous 1,777
Total expenses 1,183,057
Less: expenses waived or borne by Manager (Note 2) (162,479)
Net expenses 1,020,578
Net investment income 3,189,370
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
CONTRACTS:
Net realized gain (loss) on:
Investments 12,823,712
Closed futures contracts (146,686)
Net realized gain 12,677,026
Change in net unrealized appreciation (depreciation) on:
Investments 6,775,575
Open futures contracts 350,711
Net unrealized gain 7,126,286
Net realized and unrealized gain on investments
and futures contracts 19,803,312
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 22,992,682
</TABLE>
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,189,370 $ 2,025,942
Net realized gain on investments
and closed futures contracts 12,677,026 6,091,248
Change in net unrealized appreciation (depreciation) on
investments and open futures contracts 7,126,286 (6,463,451)
Net increase in net assets resulting from operations 22,992,682 1,653,739
Distributions to shareholders from:
Net investment income (2,852,156) (1,819,190)
Net realized gains (3,416,541) (14,870,917)
(6,268,697) (16,690,107)
Fund share transactions: (Note 5)
Proceeds from sale of shares 35,930,626 136,284,525
Net asset value of shares issued to shareholders
in payment of distributions declared 4,464,606 14,338,282
Cost of shares repurchased (48,810,882) (73,031,937)
Net increase (decrease) in net assets resulting
from Fund share transactions (8,415,650) 77,590,870
Total increase in net assets 8,308,335 62,554,502
NET ASSETS:
Beginning of period 230,697,982 168,143,480
End of period (including undistributed net investment
income of $558,495 and $206,752, respectively) $ 239,006,317 $ 230,697,982
</TABLE>
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 4.14 $ 4.55 $ 5.82 $ 14.54 $ 12.64
Income from investment operations:
Net investment income (a) 0.06 0.06 0.07 0.19 0.25
Net realized and unrealized gain
on investments and futures contracts 0.38 0.11 0.17 1.63 2.61
Total from investment operations 0.44 0.17 0.24 1.82 2.86
Less distributions to shareholders:
From net investment income (0.06) (0.06) (0.08) (0.23) (0.25)
From net realized gains (0.07) (0.52) (1.43) (10.31) (0.71)
Total distributions (0.13) (0.58) (1.51) (10.54) (0.96)
NET ASSET VALUE, END OF PERIOD $ 4.45 $ 4.14 $ 4.55 $ 5.82 $ 14.54
TOTAL RETURN (B) 10.86% 4.13% 3.71% 20.47% 24.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 239,006 $ 230,698 $ 168,143 $ 338,439 $ 1,004,345
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.49% 0.50% 0.50%
Net investment income to average
daily net assets (a) 1.50% 1.38% 1.15% 1.38% 1.91%
Portfolio turnover rate 139% 57% 36% 46% 45%
(a)Net of fees and expenses voluntarily waived or borne by the Manager of less
than $.01 for each period presented.
(b)Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Growth 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, non-diversified management investment company.
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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P 500 index. 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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $7,545,950 collateralized by
cash in the amount of $7,859,700, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for redemptions in-kind.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
UNDISTRIBUTED NET INVESTMENT ACCUMULATED NET REALIZED
INCOME GAIN PAID-IN CAPITAL
<S> <C> <C>
$14,529 $60,692 ($75,221)
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .17 % of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $60,775 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .50% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .48% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $1,126. 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 year ended February 28, 1995, aggregated
$283,581,694 and $291,201,212, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 87% of the outstanding shares of the Fund were held
by six individual shareholders each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
Shares sold 8,350,129 31,436,943
Shares issued to shareholders in reinvestment
of distributions 1,076,722 3,469,608
Shares repurchased (11,444,911) (16,150,645)
Net increase (decrease) (2,018,060) 18,755,906
Fund shares:
Beginning of period 55,675,281 36,919,375
End of period 53,657,221 55,675,281
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 28, 1995, is as
follows:
<TABLE>
<CAPTION>
NUMBER OF NET UNREALIZED
CONTRACTS TYPE EXPIRATION DATE CONTRACT VALUE APPRECIATION
<S> <C> <C> <C> <C>
76 S&P 500 March 1995 $ 18,564,900 $ 53,827
</TABLE>
At February 28, 1995, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
* * *
GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 54.73% of distributions as net capital gain dividends.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO U.S. Sector Allocation Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO U.S. Sector Allocation Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 14, 1995
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
STOCK - 97.8%
AEROSPACE - 4.6%
9,500 E-Systems Inc 415,625
31,500 Lockheed Corp 2,445,188
46,600 Martin Marietta Corp 2,225,150
4,100 Northrop Corp 181,938
59,800 Raytheon Co 4,215,900
4,600 Rockwell International Corp 177,100
9,660,901
AUTOMOTIVE - 1.0%
4,300 Bandag Inc 258,000
10,000 Eaton Corp 501,250
19,000 Genuine Parts Co 738,625
24,600 Harley-Davidson 664,200
2,162,075
BANKING AND FINANCIAL SERVICES - 7.5%
150,500 American Express Co 5,079,375
600 Bancorp Hawaii Inc 16,800
20,700 Bear Stearns Cos Inc 388,125
13,600 Beneficial Corp 504,900
7,700 Chase Manhattan Corp 276,238
20,500 Chemical Banking Corp 822,563
59,100 Citicorp 2,659,500
11,200 Danaher Corp 330,400
50,600 Dean Witter Discover and Co 2,042,975
13,500 Edwards (A G) Inc 303,750
2,200 First Bank of America Corp 74,525
6,400 First Chicago Corp 324,000
4,000 First USA Inc 147,500
16,400 Household International Inc 717,500
27,000 Morgan Stanley Group Inc 1,819,125
1,400 Student Loan Marketing Association 51,625
15,558,901
CHEMICALS - 0.5%
11,800 Georgia Gulf Corp * 354,000
4,200 Loctite Corp 193,200
21,600 Lyondell Petrochemical (a) 521,100
1,068,300
COMPUTER AND OFFICE EQUIPMENT - 1.3%
5 Harris Computer Systems Corp * 89
43,700 Micron Technology (a) 2,709,400
2,709,489
CONSTRUCTION - 1.3%
67,900 P P G Industries 2,495,325
2,600 Vulcan Materials Inc 138,450
2,633,775
CONSUMER GOODS - 5.1%
11,900 Callaway Golf Company (a) 401,625
7,000 Clorox Co 422,625
16,100 ConAgra Inc * 527,275
33,200 Corning Inc 1,066,550
64,700 Eastman Kodak Co 3,299,700
4,095 Hubbell Inc Class B 221,130
14,400 International Flavors & Fragrances 693,000
6,800 Liz Claiborne 109,650
8,400 Mattel Co 187,950
8,800 National Service Industries 236,500
20,800 Newell Co 496,600
8,700 Nike Inc Class B 625,313
11,200 Polaroid Corp 336,000
23,000 Premark International Inc 994,750
11,400 Reebok International Ltd 417,525
8,800 VF Corp 453,200
10,489,393
FOOD AND BEVERAGE - 6.7%
55,100 Anheuser-Busch Cos Inc 3,106,263
29,900 Archer Daniels Midland Co 568,100
13,400 Brown Forman Corp 433,825
18,500 CPC International Inc 989,750
10,100 Dean Foods Co 313,100
39,200 Heinz (H J) Co 1,543,500
3,000 Hershey Foods Corp 147,000
8,100 Hormel (Geo A) and Co 216,675
8,600 IBP Inc 274,125
20,200 Kellogg Co 1,093,325
44,600 Sara Lee Corp 1,170,750
2,300 Tyson Food Inc Class A 56,638
26,800 Unilever ADR 3,256,200
7,100 Universal Foods Corp 222,763
21,800 Whitman Corp 411,475
13,803,489
HEALTH CARE - 6.6%
600 Bausch & Lomb Inc 19,950
17,100 Boston Scientific Corp * (a) 369,788
77,400 Columbia/HCA Healthcare Corp 3,202,425
25,500 Johnson & Johnson 1,447,105
37,500 Medtronic Inc 2,250,000
45,700 National Medical Enterprises * 708,350
19,100 United Healthcare Corp 821,300
43,600 Upjohn Co 1,536,900
66,400 US Health Care Inc 2,855,200
12,200 Wellpoint Health Networks Class A * 401,075
13,612,093
INSURANCE - 5.4%
25,700 Aetna Life and Casualty Co 1,381,375
20,700 AFLAC Corp 781,425
3,400 Allmerica Property and Casualty 66,300
2,200 Allstate Corp 60,500
8,600 Ambac Inc 349,375
40,800 American General Corp 1,290,300
18,500 AON Corp 642,875
13,800 Cigna Corp 1,045,350
2,000 Conseco Inc (a) 71,250
500 Continental Corp 9,688
2,300 Geico Corp 112,413
12,400 Jefferson Pilot Corp 706,800
5,000 Marsh & McLennan Cos Inc 410,000
3,900 MBIA Inc 241,800
1,900 MGIC Investment 72,438
10,700 Old Republic International Corp 264,825
7,900 Provident Life and Accident Insurance Co Class B 185,650
12,400 Providian Corp 438,650
1,000 Safeco Corp 55,000
27,600 St Paul Cos 1,342,050
300 SunAmerica Inc 12,300
19,800 Torchmark Corp 829,125
12,000 Transamerica Corp 655,500
1,000 Transatlantic Holdings Inc 57,500
7,400 Twentieth Century Industries 92,500
11,174,989
MACHINERY - 1.2%
18,000 Dover Corp 1,071,000
10,100 FMC Corp * 590,850
15,100 Parker Hannifin Corp 705,925
700 Snap-On Tools Corp 23,800
2,391,575
MANUFACTURING - 8.8%
4,600 Alco Standard Corp 312,800
135,500 Boeing Co 6,249,938
100,700 International Business Machines Corp 7,577,675
13,700 Litton Industries * 500,050
44,400 Minnesota Mining and Manufacturing 2,430,900
1,700 Stone Container Corp * (a) 39,738
15,600 Textron Inc 854,100
6,200 York International Corp 238,700
18,203,901
METALS AND MINING - 0.6%
1,100 Inco Ltd (a) 29,563
1,000 Mapco Inc 54,625
22,100 Phelps Dodge Corp 1,204,450
1,288,638
MISCELLANEOUS - 0.0%
300 Witco Corp 8,588
OIL AND GAS - 6.5%
34,500 Amoco Corp (a) 2,044,125
5,000 Atlantic Richfield Co 548,125
21,600 Chevron Corp 1,026,000
5,000 Columbia Gas Systems * 130,000
4,400 El Paso Natural Gas Co 135,300
69,700 Exxon Corp 4,460,800
200 FINA Inc Class A 15,250
1,300 Kerr-McGee Corp 65,488
21,300 Mobil Corp 1,853,100
900 Murphy Oil Corp 39,375
8,500 Occidental Petroleum Corp 168,938
300 Pennzoil Co 14,213
600 Phillips Petroleum Co 20,025
17,900 Royal Dutch Petroleum Co ADR 2,007,038
8,800 Texaco Inc 561,000
10,200 Williams Companies Inc 293,250
13,382,027
PAPER AND ALLIED PRODUCTS - 0.1%
4,000 Consolidated Papers Inc 193,500
4,000 Glatfelter (PH) Co 73,000
266,500
PHARMACEUTICALS - 9.7%
42,700 American Home Products Corp 3,053,050
33,099 Amgen Inc * 2,283,831
98,700 Bristol-Myers Squibb Co 6,119,400
70,100 Lilly (Eli) & Co 4,696,700
20,600 Marion Merrell Dow Inc 512,425
81,500 Merck & Co Inc 3,453,563
4,700 Mylan Laboratories (a) 146,875
20,265,844
PRIMARY PROCESSING - 1.4%
23,300 Dow Chemical Co 1,561,100
17,900 Du Pont (E I) De Nemours & Co Inc 1,004,638
4,600 Rohm & Haas Co 258,175
2,823,913
PRINTING AND PUBLISHING - 0.7%
9,000 Dun and Bradstreet Corp 464,625
4,700 McGraw Hill Inc 331,350
15,300 Readers Digest Association Inc 703,800
1,499,775
REFINING - 0.4%
25,400 Ashland Inc 822,325
RETAIL TRADE - 3.5%
28,700 Albertson's Inc 882,525
36,500 Autozone Inc * (a) 967,250
8,700 Circuit City Stores Inc 188,138
23,900 Gap Stores 776,750
48,600 Kroger Co * 1,275,750
16,000 Melville Corp 520,000
17,500 Nordstrom Inc 739,375
37,500 Rite Aid Corp 928,125
18,800 The Pep Boys 615,700
6,500 Walgreen Co 307,125
2,900 Weismarkets Inc 74,313
7,275,051
SERVICES - 2.4%
3,200 BHC Communications Inc Class A * 237,600
37,700 Capital Cities/ABC Inc 3,336,450
2,400 Equifax Inc 74,100
5,000 Fleming Cos 97,500
23,700 Manpower Inc 693,225
9,800 Omnicom Group 520,625
4,959,500
TECHNOLOGY - 7.6%
1,300 3Com Corp * 67,763
24,800 Amp Inc 1,860,000
40,000 Apple Computer 1,580,000
14,900 Avery Dennison Corp 558,750
121,600 Compaq Computer Corp * 4,195,200
15,800 Computer Sciences Corp * 776,175
14,300 E G & G 205,563
1,900 Emerson Electric 125,638
9,500 Grainger (WW) Inc 580,688
10,800 LSI Logic Corp * 588,600
40,500 Microsoft Corp * 2,551,500
11,000 Millipore Corp 584,375
7,000 Monsanto Co 554,750
12,100 Storage Technology Corp * (a) 263,175
6,900 Sun Microsystems Inc * 220,800
50,000 Tandem Computers Inc * 850,000
2,200 Thomas & Betts Corp 146,575
15,709,552
TELECOMMUNICATIONS - 0.2%
4,600 Frontier Corp 105,225
3,900 General Instrument Corp * (a) 123,825
4,200 Southern New England Telecommunications Corp 139,125
368,175
TOBACCO - 2.5%
4,000 Loews Corp 388,500
80,100 Philip Morris Cos Inc 4,866,075
5,254,575
UTILITIES - 12.2%
8,500 Allegheny Power System Inc 199,750
17,700 American Electric Power Inc 599,588
21,200 Baltimore Gas and Electric Co 522,050
11,200 Carolina Power and Light Co 308,000
27,400 Centerior Energy Corp 267,150
26,700 Central & South West Corp 657,488
19,800 Cinergy Corp 490,050
8,200 CMS Energy Corp 196,800
32,600 Consolidated Edison 900,575
28,200 Detroit Edison Co 807,225
24,400 Dominion Resources Inc (a) 927,200
14,000 DPL Inc 292,250
7,300 DQE 245,463
35,300 Duke Power Co 1,385,525
23,500 Entergy Corp 525,813
14,900 Florida Progress Corp 467,488
16,900 FPL Group Inc 606,288
21,800 General Public Utilities 659,450
10,300 Houston Industries Inc 393,975
12,000 Illinova Corp 280,500
9,200 Kansas City Power and Light Co 219,650
15,600 Long Island Lighting 249,600
7,100 New England Electric System 234,300
8,600 New York State Electric and Gas Corp 184,900
18,000 Niagara Mohawk Power Corp 267,750
9,400 Nipsco Industries Inc 297,275
15,800 Northeast Utilities (a) 359,450
10,800 Northern States Power Co 488,700
18,300 Ohio Edison Co 384,300
4,800 Oklahoma Gas and Electric Co 169,800
12,800 Pacific Enterprises 313,600
52,000 Pacific Gas and Electric Co 1,332,500
42,000 PacifiCorp (a) 803,250
17,500 Panhandle Eastern Corp 393,750
28,400 Peco Energy Co 759,700
12,200 Penn Power and Light Co 253,150
11,700 Pinnacle West Capital Corp 251,550
11,700 Potomac Electric Power Co 226,688
33,300 Public Service Enterprise Group Inc 969,863
5,400 Public Service of Colorado 165,375
6,100 Puget Sound Power and Light Co 131,913
7,800 San Diego Gas and Electric Co 168,675
6,100 Scana Corp 269,163
54,800 SCE Corp 897,350
89,300 Southern Co 1,841,813
16,300 Teco Energy 350,450
16,200 Texas Utilities Co 532,575
32,500 Unicom Corp 828,750
14,500 Union Electric Co 549,188
7,500 Western Resources Inc 238,125
15,000 Wisconsin Energy Corp 416,250
25,282,031
TOTAL STOCK (Cost $184,555,737) 202,675,375
PAR VALUE SHORT-TERM INVESTMENTS - 6.6%
REPURCHASE AGREEMENT - 1.8%
$3,664,697 Salomon Brothers Repurchase Agreement, dated 2/28/95, due 3/1/95,
with a maturity value of $3,665,267 and an effective yield of
5.60%, collateralized by a U.S. Treasury Bond with a rate of 6.25%,
a maturity date of 8/15/23,
and with an aggregate market value of $3,764,545. 3,664,697
U.S. GOVERNMENT - 0.3%
700,000 U.S. Treasury Bill, 4.92% due 3/2/95 (b) 699,891
CASH EQUIVALENTS - 4.5%
1,331,655 Bank of Boston Time Deposit, 6.16% due 3/1/95 1,331,655
4,883,538 Dreyfus Cash Management Money Market Fund Plus, A Shares 4,883,538
480,756 National Westminster Time Deposit, 6.00% due 3/1/95 480,756
2,704,751 Provident Institutional Prime Money Market Fund 2,704,751
9,400,700
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 13,765,288
TOTAL INVESTMENTS - 104.4%
(Cost $198,321,025) * * $ 216,440,663
Other Assets and Liabilities (net) - (4.4%) (9,149,565)
TOTAL NET ASSETS - 100.0% $ 207,291,098
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
* Non-income producing security
** The aggregate identified cost for federal income tax
purposes is $199,156,781, resulting in gross unrealized
appreciation and depreciation of $19,574,594 and
$2,290,712, respectively, and net unrealized appreciation
of $17,283,882.
</TABLE>
See accompanying notes to the financial statements.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $184,555,737) (Note 1) $ 202,675,375
Short-term investments, at amortized cost (Note 1) 13,765,288
Receivable for investments sold 851,224
Dividends and interest receivable 741,915
Receivable for variation margin on open futures contracts 7,200
Receivable for expenses waived or borne by Manager (Note 2) 19,182
Total assets 218,060,184
LIABILITIES:
Payable for investments purchased 1,216,498
Payable upon return of securities loaned (Note 1) 9,399,240
Payable to affiliate for management fee (Note 2) 76,501
Accrued expenses 76,847
Total liabilities 10,769,086
NET ASSETS(equivalent to $11.06 per share based
on 18,734,305 shares outstanding, unlimited shares authorized) $ 207,291,098
NET ASSETS CONSIST OF:
Paid-in capital $ 188,342,765
Undistributed net investment income 918,110
Accumulated net realized loss on investments and
closed futures contracts (96,031)
Net unrealized appreciation on investments and
open futures contracts 18,126,254
NET ASSETS $ 207,291,098
</TABLE>
See accompanying notes to the financial statements.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $30,563) $ 5,491,421
Interest (including securities lending income of $18,550) 399,386
Total income 5,890,807
EXPENSES:
Management fee (Note 2) 934,108
Custodian and transfer agent fees 88,081
Audit fees 53,685
Legal fees 8,451
Registration fees 7,002
Insurance 2,273
Trustee fee (Note 2) 853
Miscellaneous 577
Total expenses 1,095,030
Less: expenses waived or borne by Manager (Note 2) (179,986)
Net expenses 915,044
Net investment income 4,975,763
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 9,060,538
Closed futures contracts (181,625)
Net realized gain 8,878,913
Change in net unrealized appreciation (depreciation) on:
Investments 760,991
Open futures contracts 164,835
Net unrealized gain 925,826
Net realized and unrealized gain on investments
and futures contracts 9,804,739
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,780,502
</TABLE>
See accompanying notes to the financial statements.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 4,975,763 $ 4,436,144
Net realized gain on investments
and closed futures contracts 8,878,913 6,521,684
Change in net unrealized appreciation (depreciation)
on investments and open futures contracts 925,826 12,513,031
Net increase in net assets resulting from operations 14,780,502 23,470,859
Distributions to shareholders from:
Net investment income (4,670,650) (4,637,080)
Net realized gains (12,614,921) (3,930,145)
(17,285,571) (8,567,225)
Fund share transactions: (Note 5)
Proceeds from sale of shares 47,339,037 41,143,899
Net asset value of shares issued to shareholders
in payment of distributions declared 5,887,140 919,208
Cost of shares repurchased (10,457,780) (59,146,614)
Net increase (decrease) in net assets resulting
from Fund share transactions 42,768,397 (17,083,507)
Total increase (decrease) in net assets 40,263,328 (2,179,873)
NET ASSETS:
Beginning of period 167,027,770 169,207,643
End of period (including undistributed net
investment income of $918,110 and
$615,928, respectively) $ 207,291,098 $ 167,027,770
</TABLE>
See accompanying notes to the financial statements.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
1995 1994 1993*
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.26 $ 10.38 $ 10.00
Income from investment operations:
Net investment income (a) 0.28 0.29 0.05
Net realized and unrealized gain
on investments and futures contracts 0.49 1.21 0.33
Total from investment operations 0.77 1.50 0.38
Less distributions to shareholders:
From net investment income (0.27) (0.30) -
From net realized gains (0.70) (0.32) -
Total distributions (0.97) (0.62) -
NET ASSET VALUE, END OF PERIOD $ 11.06 $ 11.26 $ 10.38
TOTAL RETURN (B) 7.56% 14.64% 3.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $ 207,291 $ 167,028 $ 169,208
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.48%**
Net investment income to average
daily net assets (a) 2.61% 2.56% 3.20%**
Portfolio turnover rate 101% 53% 9%
* For the period from January 4, 1993 (commencement of operations) to February 28, 1993.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.01 for all
periods presented.
(b) Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO U.S. Sector 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, non-diversified management investment
company. 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
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P 500 index. 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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
commitment value ("variation margin") is recorded by the Fund. The payable
or receivable is liquidated on the following business day. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if counterparties do not perform under the contract terms. Futures
contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. See Note 6 for all
open futures contracts held as of February 28, 1995.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines,
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $9,282,750, collateralized by
cash in the amount of $9,400,700, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for partnership interests.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income (Loss) Gain (Loss) Paid-in Capital
<S> <C> <C>
($2,931) $2,931 -
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions area accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .17% 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 toand recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $76,910 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .49% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .48% of average daily net assets. In addition, the Fund's
organizational expenses have been borne by the manager.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $853. 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 year ended February 28, 1995, aggregated
$219,706,758 and $182,418,057, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 85% 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 full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 4,299,814 3,633,930
Shares issued to shareholders in
reinvestment of distributions 561,797 82,939
Shares repurchased (957,241) (5,185,868)
Net increase (decrease) 3,904,370 (1,468,999)
Fund shares:
Beginning of period 14,829,935 16,298,934
End of period 18,734,305 14,829,935
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 28, 1995 is as
follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
<S> <C> <C> <C> <C>
4 S&P 500 March 1995 $977,100 $6,616
</TABLE>
At February 28, 1995, the Fund has cash and/or securities to cover any
margin requirements on these contracts.
* * *
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 50.99% of distributions as net capital gain dividends.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders
of GMO Core II Secondaries Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Core II Secondaries Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 14, 1995
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<S> <C> <C>
STOCK - 97.9%
ADVERTISING - 0.0%
100 Grey Advertising 17,800
AEROSPACE - 2.4%
23,000 Alliant Techsystems Inc * 868,250
6,700 Curtiss Wright Corp 253,763
35,100 E-Systems Inc 1,535,625
3,800 Hi-Shear Industries * 16,150
8,550 Keane Inc * 185,963
16,100 Logicon Inc 525,263
27,300 Rohr Inc * (a) 307,125
49,100 Thiokol Corp 1,270,463
23,800 UNC Inc * 133,875
15,900 United Industial Corp 85,463
10,300 Watkins Johnson 375,950
16,800 Wyman-Gordon Co * 105,000
5,662,890
AGRICULTURE - 0.0%
1,000 Monk-Austin Inc 12,250
AUTOMOTIVE - 1.2%
500 Bandag Inc 30,000
51,000 Breed Technologies Inc (a) 1,211,250
800 Hayes Wheels International Inc 13,600
6,400 Lamson and Sessions Co * 36,800
15,300 Oshkosh Truck 206,550
17,000 Smith (A O) Corp Class A 382,500
27,700 SPX Corp 422,425
18,900 Standard Products Corp 408,713
18,850 TBC Corp 190,856
2,902,694
BANKING AND FINANCIAL SERVICES - 7.3%
27,600 Alex Brown Inc 1,048,800
10,600 Amplicon Inc 172,250
4,300 Baldwin and Lyons Inc Class B 74,175
17,000 Bank of Boston 512,125
4,295 BankAmerica Corp 206,697
11,600 Banponce Corp 350,900
16,800 BB&T Financial Corp 535,500
48,100 California Federal Bank * 523,088
2,100 CCB Financial Corp 79,275
400 Central Fidelity Banks Inc 10,900
1,200 Centura Banks Inc 29,550
2,200 CMAC Investment Corp 75,075
3,500 Coast Savings and Loan * 51,625
14,900 Colonial Group Class A 499,150
55,400 Comdisco Inc 1,412,700
1,215 Commerce Bancshares Inc 37,361
14,100 Compass Bancshares 387,750
18,400 Danaher Corp 542,800
4,300 Dauphin Deposit Corp 108,575
13,200 Deposit Guaranty Corp 425,700
13,100 Dime Bancorp Inc * 116,263
8,300 Downey Financial Corp 135,913
17,300 Eaton Vance Corp 523,325
49,300 Edwards (A G) Inc 1,109,250
7,900 Finova Group Inc 264,650
4,500 First Bancorp Inc 105,750
2,068 First Bank System Inc 80,394
1,700 First Citizens Bancshares Class A 76,500
25,950 First Commerce Corp 687,675
1,200 First Empire State Corp 198,600
7,700 First Hawaiian Inc 207,900
1,100 Firstier Financial Inc 34,788
7,700 Foothill Group 140,525
2,224 Glendale Federal Bank * 20,850
25,500 Hibernia Corp Class A 197,625
11,200 Inter-Regional Financial Group 278,600
7,600 Jefferies Group Inc 230,850
6,400 LDI Corp * 23,200
17,375 Legg Mason Inc 393,109
1,750 Mercantile Bancorp 64,531
8,100 Mercantile Bankshares 169,088
21,100 Money Store Inc 527,500
2,900 Morgan Keegan Inc 43,500
11,500 North American Mortgage Co 186,875
2,300 NS Bancorp Inc 67,563
7,400 Orange and Rockland Utilities 235,875
972 Pimco Advisors L. P. Class A 17,253
14,800 Piper Jaffrey Inc (a) 173,900
20,310 Premier Bancorp * 324,960
7,600 Price (T Rowe) Associates Inc 243,200
16,942 Quick and Reilly Group 592,970
15,000 Raymond James Financial Corp 266,250
17,900 Riggs National Corp * 163,338
9,800 Southern National Corp 219,275
17,600 Standard Federal Bank 523,600
12,900 Star Banc Corp 549,863
5,900 Student Loan Group 140,125
1,000 Tejon Ranch 12,750
7,400 Trustmark Corp 112,850
2,100 Union Bank 70,350
2,400 United Carolina Bancshares 64,800
200 US Trust Corp 13,313
600 Value Line Inc 19,200
25,000 Washington Federal Inc 500,000
800 West One Bancorp 21,850
500 Westamerica Bancorp 15,625
3,200 Wilmington Trust Corp 79,200
17,329,367
CHEMICALS - 1.4%
9,600 Carlisle Plastics Inc * 52,800
22,200 Church & Dwight Co Inc 399,600
10,800 Hexcel Corp * 48,600
11,600 IMC Fertilizer Group Inc 542,300
800 Pratt And Lambert Inc 14,200
1,900 Stepan Co 34,438
46,600 Sterling Chemicals Inc * 524,250
21,100 Vigoro Corp 743,775
37,800 Wellman Inc 1,020,600
3,380,563
COMMUNICATIONS - 0.0%
500 Tekelec * 16,375
COMPUTER AND DATA PROCESSING SERVICES - 0.4%
600 Artisoft Inc * 5,175
2,900 Printronix Inc * 50,025
32,900 Stratus Computer Inc * 867,738
1,200 Volt Information Sciences Inc * 34,674
957,612
COMPUTER AND OFFICE EQUIPMENT - 1.3%
30,400 Ceridian Corp * 957,600
3,500 Cherry Corp Class B * 50,750
6,900 Chipcom Corp * 307,050
4,600 Duplex Product * 36,800
22,300 FileNet Corp * 696,875
7,600 Intuit Inc * 503,500
36,000 Western Digital * 540,000
3,092,575
CONSTRUCTION - 0.6%
1,200 Ameron Inc 40,650
15,200 Apogee Enterprises Inc 260,300
6,800 Blount Inc Class A 316,200
15,000 Fedders Corp * 105,000
1,900 Florida Rock Industries 55,100
4,200 Grossmans Inc * 10,500
6,700 Hechinger Co Class A 77,469
332 Horton (D R) Inc * 3,362
200 IMCO Recycling Inc 2,975
1,700 International Aluminium Corp 54,188
8,400 Medusa Corp 207,900
1,100 Pitt-Des Moines 37,400
9,500 Plygem Industries Inc 186,438
3,600 Puerto Rican Cement Co 105,750
600 Texas Industries Inc 18,750
1,300 TJ International Inc 22,588
1,504,570
CONSUMER GOODS - 6.9%
21,800 Armor All Products Corp 430,550
57,400 Bed Bath and Beyond Inc * 1,391,950
1,200 Bic Corp 38,550
12,084 Block Drug Co Inc Class A 410,856
28,500 BMC Industries 473,813
51,700 Callaway Golf Company (a) 1,744,875
3,400 Chemed Corp 107,525
12,400 Coleman Co Inc * (a) 437,100
56,900 Cypress Semiconductor Corp * 1,614,538
3,300 Delta Woodside Industries 35,888
2,500 Fab Industries Inc 77,188
3,000 Farah Inc * 22,125
9,000 Garan Inc 146,250
42,200 Gymboree Corp * 1,012,800
34,700 Herbalife International Inc 394,713
6,900 Hydron Technologies * 34,069
7,000 Interface Inc 98,875
13,950 Jason Inc * 122,063
9,900 Johnson Worldwide Associates * 198,000
43,200 Jones Apparel Group Inc * 1,015,200
12,100 K Swiss Inc Class A 228,388
23,910 Lancaster Colony Corp 818,918
16,800 National Service Industries 451,500
21,840 Natures Sunshine Products Inc 270,270
2,100 Nine West Group Inc * 59,063
3,300 Oil Dri America Class A 53,213
7,400 Oneida Ltd 107,300
16,600 Paragon Trade Brands Inc * 230,325
5,100 Park Electrochemical Corp 176,588
1,500 Polaris Industries L.P. Class A 68,250
1,800 Rogers Corp * 88,650
18,100 Russ Berrie and Co 235,300
14,100 Superior Surgical Manufacturing 169,200
18,700 The Men's Wearhouse Inc * 381,013
6,900 Toro Corp 199,238
16,000 Varian Associates Inc 586,000
33,600 Vicor Corp * 1,142,400
5,700 Wabash National Corp 202,350
14,000 WD 40 Co 570,500
2,800 WH Brady Co Class A 138,600
50 Wolverine World Wide 1,356
15,985,350
ELECTRONICS - 0.3%
3,000 C-Cor Electronics * 80,250
5,300 Cirrus Logic Inc * 178,213
3,800 Dynamics Corp of America 88,825
5,300 EDO Corp 18,435
600 Hawaiian Electric Industry Inc 19,800
2,100 Sundstrand Corp 97,650
5,100 Tech Sym Corp * 117,300
1,200 Technitrol 17,700
618,173
ENVIRONMENTAL CONTROL - 0.1%
13,600 Allwaste * 75,643
13,700 Calgon Carbon Corporation 143,850
4,800 Horsehead Resources * 28,200
8,600 Mid American Waste Systems Inc * 48,375
296,068
FOOD AND BEVERAGE - 4.2%
2,300 Alico Inc 38,525
16,600 American Maize Products Co Class A 655,700
16,600 Bob Evans Farms 352,750
15,600 Bruno's Inc 158,925
1,400 Chart House Enterprises Inc * 10,850
10,000 Chiquita Brands International 133,750
38,100 Dean Foods Co 1,181,100
1,300 Dr Pepper/7 Up * 42,738
4,100 Farmer Brothers Co 533,000
7,600 Flowers Industries Inc 139,650
2,900 Golden Poultry Co 18,488
18,000 Great Atlantic & Pacific Tea Co 346,500
20,300 Hudson Foods 583,625
17,400 IBP Inc 554,625
3,100 Imperial Holly Inc 28,675
35,800 International Multifoods Corp 666,775
2,900 Lance Inc 50,025
9,200 Luby's Cafeteria Inc 209,300
1,800 Morningstar Group Inc * 13,050
17,600 Pilgrims Pride Corp 143,000
25,600 Ryans Family Steak House * 198,400
14,400 Sanderson Farms Inc 198,000
15,400 Savannah Foods and Industries Inc 202,125
2,150 Sbarro Inc 52,675
1,500 Seaboard Corp 246,000
900 Showbiz Pizza Time * 8,663
4,000 Smithfield Foods Inc 105,750
5,100 Tasty Baking * 72,675
6,200 Thorn Apple Valley 155,388
7,796 Tootsie Roll Industries Inc 522,349
46,725 Universal Foods Corp 1,465,997
4,100 Uno Restaurant Corp * 63,550
16,500 WLR Foods Inc 433,125
3,640 Zapata Corp 12,285
9,598,033
FOREST PRODUCTS - 0.0%
5,600 Wolohan Lumber Co 84,000
HEALTH CARE - 12.7%
443 Abbey Healthcare Group Inc * (a) 12,570
37,600 Acuson Corp * 465,300
22,100 Adac Laboratories 176,800
3,270 Anika Research Inc * 6,744
400 Aura Systems Inc * (a) 1,350
4,295 Benson Eyeycare * 32,749
5,400 Bergen Brunswig Corp Class A 147,150
16,600 Bindley Western Industries Inc 246,925
6,200 BioMet Inc * 100,363
9,800 Bio-Rad Laboratories Inc Class A * 271,950
51,227 Boston Scientific Corp * (a) 1,107,793
31,100 Centocor Inc * 592,844
760 Columbia/HCA Healthcare Corp 31,445
49 Community Health Systems * 1,366
24,200 Coram Healthcare Corp * 568,700
9,500 Cordis Corp * 617,500
19,900 Coventry Corp * 537,300
31,200 Diagnostek Inc * 483,600
1,500 Diagnostic Prods Corp * 40,500
15,600 FHP Group * 419,250
31,680 FHP International Corp Preferred Series A 5.00% 788,040
23,101 Foundation Health Corp * 690,142
17,573 Foxmeyer Health Corp * 294,344
33,900 HBO and Co 1,305,150
51,000 Health Care Compare * 1,619,250
68,100 Health Management Associates Class A * 1,813,163
5,100 Healthcare Services Group Inc * 77,775
17,700 Healthsource * 769,950
33,600 Healthsouth Rehabilitation * 1,352,400
17,160 Hillhaven Corp * 413,985
1,000 Integrated Health Services (a) 38,250
15,100 Kinetic Concepts Inc 117,025
5,000 Life Technologies Inc 90,000
41,400 Lincare Holdings Inc * 1,159,200
36,700 Marquette Electronics Class A * 816,575
4,300 Medaphis Corp * 242,950
10,900 Med-Chem Products Inc * 51,775
3,500 Mentor Corp 84,875
141,200 Mid Atlantic Medical Services * (a) 2,894,600
700 National Healthcare 17,238
16,500 National Medical Enterprises * 255,750
2,000 Nellcor Inc * 68,000
53,400 Oxford Health Plans * (a) 4,859,400
6,800 Pacificare Health Systems Class A * 470,900
11,000 Perceptive Biosystems Inc * 65,313
3,500 Research Industries Corp * 56,438
10,000 Resound Corporation * 93,125
5,500 Respironics Inc * 164,313
8,500 Seafield Capital Corp 314,500
8,000 Sierra Health Services Inc * 243,000
13,500 Spacelabs Medical Inc * 327,375
10,800 Target Therapeutics Inc * 402,300
7,700 Tecnol Medical Products Inc * 128,975
1,000 United Wisconsin Services 37,000
16,400 Universal Health Services Class B * 410,000
23,600 Utah Medical Products Inc * 228,625
37,050 Vencor Inc * 1,176,338
13,700 Vital Sign Inc 191,800
29,992,038
INSURANCE - 8.3%
5,468 Alleghany Corp 862,577
50,500 Allmerica Property and Casualty 984,750
5,300 Ambac Inc 215,313
700 America Premier Underwriters 17,238
30,600 American Bankers Insurance Group 830,025
7,249 American Heritage Life Investments 141,356
10,100 American National Insurance 505,000
17,700 Argonaut Group Inc 544,275
3,800 Avemco Corp 58,425
1,200 Bankers Life Holding Corp 25,050
2,400 Berkley (WR) 85,800
14,900 Capital Re Corp 348,288
9,300 Capitol American Financial Corp 220,875
6,000 CCP Insurance Inc 127,500
5,500 Citizens Corp 95,563
16,000 Continental Corp 310,000
9,300 Delphi Financial Group Inc * 176,700
20,600 Enhance Financial Services Group Inc 365,650
19,300 Equitable of Iowa Cos 641,725
9,152 First American Financial Corp 185,328
13,863 Frontier Insurance Group Inc 299,787
6,315 Gainsco Inc 58,411
12,100 Gallagher (Arthur J) and Co 423,500
6,800 Guaranty National Corp 117,300
100 Hartford Steam Boiler 4,250
5,000 Home Beneficial Corp Class B 101,250
24,300 Horace Mann Educators 583,200
24,400 Independent Insurance Group 317,200
10,500 Integon Corp 129,938
13,500 John Alden Financial Corp 388,125
3,900 Kansas City Life Insurance Co 179,400
12,700 Liberty Corp 341,313
15,900 Life Re Corp 316,013
5,300 Markel Corp * 239,825
300 Midland Co 15,075
16,000 National Re Corp 486,000
17,100 Old Republic International Corp 423,225
16,418 Orion Capital 582,839
8,200 Penncorp Financial Group Inc 131,200
46,400 Presidential Life Corp 272,600
20,100 Protective Life Corp 954,750
18,500 Provident Life and Accident Insurance Co Class B 434,750
4,000 PXRE Corp 94,000
1,000 Re Capital Corp 18,000
9,900 Reinsurance Group of America 275,963
30,139 Reliastar Financial Corp 1,028,512
5,400 RLI Corp 122,175
7,400 Scor U S Corp 61,975
18,000 Selective Insurance Group 508,500
26,800 Southwestern Life Corp * 21,775
700 SunAmerica Inc 28,700
5,800 The Fund American Cos * 432,825
5,100 Transatlantic Holdings Inc 293,250
7,900 Twentieth Century Industries 98,750
15,420 United Cos Financial Corp 508,860
56,750 USLIFE Corp 2,163,594
14,700 Washington National Corp 271,950
8,600 Zenith National Insurance Corp 180,600
19,650,818
LEISURE - 0.1%
27,550 Casino America Inc * 285,831
2,500 Orion Pictures Corp * 15,000
300,831
MACHINERY - 2.5%
8,800 Applied Power Inc Class A 205,700
1,700 Baldwin Technology Co Inc Class A * 9,350
4,700 Bearings Inc 133,363
3,300 Bw/Ip Inc 52,800
6,850 Commercial Intertech Corp 143,850
18,500 Donaldson Co Inc 464,813
7,500 Fedders Corp Class A * 39,375
700 Gleason Corp 12,863
5,550 Gorman Rupp Co 91,575
4,350 Graco Inc 102,769
14,450 Idex Corp 419,050
8,000 IMO Delaval Inc * 65,000
11,000 Kaydon Corp 302,500
4,700 Kysor Industrial Corp 103,400
700 Lindsay Manufacturing Co * 20,825
15,300 Merisel Inc * 80,325
7,300 National Auto Credit Inc * 73,913
12,700 Regal Beloit Corp 198,438
1,000 Roper Industries Inc 25,000
600 Roto Rooter Inc 15,000
550 Sps Technologies, Rights * 9
4,000 Starrett (L S) Co Class A 90,000
12,000 Syquest Technology Inc * 177,000
12,300 Tecumseh Products Co Class A (a) 575,025
21,600 Tecumseh Products Co Class B 993,600
1,600 Tennant Co 77,600
12,000 Watts Industries Inc Class A 285,000
1,000 Whittaker Corp * 17,875
30,900 Zebra Technologies Corp * 1,123,988
6,200 Zurn Industries Inc 111,600
6,011,606
MANUFACTURING - 4.3%
1,800 Actava Group Inc * 18,900
3,300 Barnes Group Inc 136,538
15,000 Bemis Co 406,875
17,000 Blessings Corp 238,000
17,000 Carlisle Corp 605,625
8,500 Clarcor Inc 167,875
11,267 Commercial Metals Co 290,125
25,200 CSS Industries Inc * 415,800
38,500 Figgie International Class A * 322,438
45,600 Gibson Greetings Inc 427,500
5,500 Handy and Harman 85,250
12,900 Helene Curtis Industries 374,100
26,700 Kaman Corp Class A 303,713
5,200 Katy Industries Inc 51,350
10,600 Kennametal Inc 286,200
5,300 Liqui-Box Corp 177,550
1,200 Litton Industries * 43,800
2,150 Myers Industries 34,131
6,900 Nortek Inc * 69,863
8,400 O'Sullivan Corp 82,950
37,050 Precision Castparts 861,413
22,200 Sealed Air Corp * 929,625
11,100 Sealright Inc 202,575
6,000 Sequa Corp Class A * 168,750
9,800 Shorewood Packaging Corp * 179,463
5,500 SPS Technologies Inc * 165,000
12,600 Standex International Corp 395,325
21,400 Stone Container Corp * (a) 500,225
17,500 Synetic Inc * 441,875
28,200 The Geon Co 817,800
9,500 Tredegar Industries 185,250
16,300 Trimas Corp 366,750
11,400 West Co Inc 296,400
4,600 Worldtex Inc * 18,400
1,300 York International Corp 50,050
10,117,484
METALS AND MINING - 1.0%
6,600 Ashland Coal 180,675
21,900 Brush Wellman Inc 383,250
8,800 Carpenter Technology Corp 477,400
7,050 Castle AM 96,056
2,400 Chaparral Steel Corp 20,400
1,300 Christiana Cos * 40,463
5,500 Maxxam * 158,125
14,900 NL Industries Inc * 176,938
3,200 Penn Virginia Corp 104,800
13,800 Smith International * 184,575
79,300 Sunshine Mining Co * 128,863
31,600 Terra Industries Inc 347,600
6,800 Tyler Corp * 22,950
2,322,095
MISCELLANEOUS - 0.8%
8,700 Beauticontrol Cosmetics Inc 108,750
4,600 Buckeye Partners 154,675
15,800 Devon Group Inc * 406,850
3,600 Donnelly Corp 63,000
21,500 Fremont Gen Corp 440,750
1,000 Greif Brothers Corp 51,250
12,700 Labone Inc 174,625
3,000 McWhorter Technologies Inc * 45,000
13,000 PEC Isreal Economic Corp * 277,875
1,700 Sturm Ruger and Company Inc 51,850
13,900 Sun Distributors L.P. Class B 60,813
800 Weyco Group 26,800
1,500 X-Rite Inc 29,250
1,891,488
OIL AND GAS - 2.0%
400 Atlanta Gas Light 13,500
5,200 Berry Petroleum Class A 46,800
1,200 Brooklyn Union Gas Co 29,400
3,500 Cabot Corp 119,000
800 Colonial Gas Co 16,400
33,200 Columbia Gas Systems * 863,200
500 Connecticut Natural Gas Corp 11,688
5,100 Crown Central Petroleum Class A * 68,850
1,000 Daniel Industries 13,250
3,600 Dekalb Energy Company Class B * 77,400
6,600 El Paso Natural Gas Co 202,950
11,825 Energy Service Co * 138,944
800 Energy Ventures Inc * 11,300
11,050 Equitable Resources Inc 306,638
1,500 Equity Oil * 5,438
600 FINA Inc Class A 45,750
13,500 Giant Industries Inc 114,750
17,300 Harken Energy Corp * 29,194
2,900 Hondo Oil & Gas Co * (a) 38,425
1,000 Indiana Energy Inc 18,750
900 Indresco Inc * 11,138
6,850 K N Energy 147,275
1,400 Laclede Gas Co 27,650
9,800 MCN Corp 180,075
900 MDU Resources Group Inc 24,188
700 Mitchell Energy Class A 11,550
2,300 National Fuel Gas 62,675
700 Nicor Inc 17,325
2,750 North Carolina Natural Gas 59,813
700 Northwest Natural Gas Co 21,175
4,100 Oneok Inc 70,725
4,300 Plains Petroleum 96,750
3,100 Pool Energy Services * 23,638
25,600 Southwest Gas Corp 390,400
13,300 Southwestern Energy Co 167,913
6,300 Teppco Partners 178,763
29,000 Ultramar Corp 746,750
6,400 Wainoco Oil Corp * 27,200
3,200 Washington Energy 44,000
400 Washington Gas Light 15,250
6,600 Western Gas Resources Inc 120,450
4,000 Wiser Oil Co 57,500
4,673,830
PAPER AND ALLIED PRODUCTS - 0.1%
100 American Filtona 2,752
3,900 Glatfelter (PH) Co 71,175
8,900 Riverwood International Inc 147,963
221,890
PHARMACEUTICALS - 0.5%
7,300 Allergan Inc 210,788
24,115 ICN Pharmaceuticals Inc 346,647
9,600 Pharmacy Management Services Inc * 151,500
22,100 Watson Pharmaceutical Inc * (a) 570,456
1,279,391
PRIMARY PROCESSING - 2.9%
39,800 Boise Cascade Corp 1,278,575
2,600 Dexter Corp 55,575
50 Fuller (HB) Co 1,663
5,400 Hanna (MA) Co 131,625
3,900 Lea Ronal Inc 78,000
14,400 Lydall Inc * 504,000
1,200 Mosinee Paper Corp 33,600
5,700 NCH Corp 349,125
30,000 Olin Corp (a) 1,526,250
2,900 Park-Ohio Industries * 39,875
6,700 Pentair Inc 287,681
1,400 Petrolite Corp 35,350
33,900 Pope and Talbot 559,350
5,600 Quanex Corp 131,600
8,400 Rayonier Timberlands L.P. 312,900
61,900 UNR Industries Inc 417,825
23,100 Valspar 825,825
1,000 Weirton Steel Corp * 7,625
6,576,444
PRINTING AND PUBLISHING - 1.0%
7,600 Central Newspapers Class A 204,250
17,600 Clear Channel Communications * 1,001,000
4,000 Houghton Mifflin Co 172,000
11,200 McClatchy Newspapers Inc 264,600
2,500 Paxar Corp * 29,375
6,400 Plenum Publishing 212,800
7,200 Pulitzer Publishing Co 243,000
5,500 Wiley (John) and Sons Class A 280,500
2,407,525
REAL ESTATE - 0.1%
10,100 Hilb Rogal and Hamilton Co 118,675
1,100 Santa Anita Realty Enterprises 18,563
137,238
REFINING - 2.2%
51,700 Diamond Shamrock Inc 1,292,500
11,500 Getty Petroleum Corp * 133,688
16,100 Holly Corp 380,363
51,700 Quaker State Corp 749,650
20,000 Tesoro Petroleum Corp * 207,500
51,900 Tosco Corp 1,498,613
52,900 Valero Energy Corp 945,588
1,600 Vintage Petroleum Inc 27,800
5,235,702
RETAIL TRADE - 7.9%
6,600 Ann Taylor * 217,800
9,425 Arctco Inc 155,513
24,500 Best Buy Co Inc * 529,813
18,600 Big B Inc 267,375
9,700 Blair Corp 328,588
30,800 Burlington Coat Factory Warehouse * 346,500
15,200 Caldor Inc * 347,700
300 Claire's Stores Inc 4,163
17,900 CPI Corp 268,500
8,800 Crown Books * 114,400
3,000 Dart Group Corp Class A 246,000
7,000 Deb Shops Inc 34,125
10,000 Delchamps Inc 172,500
17,000 Dress Barn Inc * 174,250
19,800 Express Scripts Inc Class A * 673,200
19,600 Family Dollar Stores 254,800
26,600 Fastenal Co (a) 1,243,550
20,700 Fay's Inc 139,725
6,780 Genovese Drug Stores Inc Class A 71,190
23,300 Giant Food Inc Class A 553,375
33,100 Good Guys Inc * 393,063
21,400 Goody's Family Clothing * 197,950
2,900 Gottschalks Inc * 22,113
5,900 Hi-Lo Automotive Inc * 61,950
19,300 House of Fabrics * 18,094
24,300 Ingles Markets 236,925
4,100 Intertan * (a) 30,238
28,400 Lands' End Inc * 472,150
7,400 Lechters Inc * 138,750
13,100 Lillian Vernon Corp 240,713
32,900 Longs Drugstores Corp 1,044,575
13,700 MacFrugals Bargains Close Outs Inc * 232,900
20,100 Mercantile Stores 836,663
52,900 Micro Warehouse Inc * 1,520,875
1,500 Oshmans Sporting Goods * 10,313
1,200 Penn Traffic Co * 45,300
20,200 Rite Aid Corp 499,950
1,900 Roses Stores Class B * 178
18,300 Ruddick Corp 372,863
400 Smart & Final Inc 6,050
2,550 Sportmart Inc * 23,269
1,850 Sportmart Inc Class A * 12,488
29,900 Stanhome Inc 837,200
64,650 Staples Inc * 1,567,762
5,600 Stein Mart Inc * 62,300
14,460 Strawbridge and Clothier Class A 310,890
6,200 Syms Corp 43,400
13,900 The Vons Co Inc * 276,263
4,800 Tiffany & Co 151,200
100 Tops Appliance City Inc * (a) 488
16,000 Trans World Entertainment Corp * 88,000
25,100 Value City Department Stores Inc * 191,388
28,200 Venture Stores Inc 391,275
35,300 Waban Inc * 697,175
6,900 Weismarkets Inc 176,813
62,400 Williams-Sonoma Inc 1,326,000
900 Xircom Inc * (a) 14,625
1,400 Younkers Inc * 25,200
18,720,416
SERVICES - 7.1%
7,300 ABM Industries Inc 167,900
22,000 Adia SA ADR 511,500
13,300 American Business Information * 234,413
32,750 Apple South Inc 431,376
3,600 Belo (AH) Corp 202,950
1,200 Berlitz International Inc * 15,300
1,500 BET Holdings Inc Class A * 22,688
7,500 Borg-Warner Security Corp * 48,750
25,000 Bowne and Co Inc 428,125
3,800 C C H Inc 67,450
15,800 CACI International Inc Class A * 150,100
18,100 CDI Corp * 398,200
39,899 Chris Craft Industries Inc * 1,416,415
1,600 Dames and Moore Inc 21,000
20,500 Electro Rent Corp * 394,625
3,400 E-Town Corp 89,675
36,200 Fleming Cos 705,900
69,800 Handleman Co 741,625
27,500 Harland (JH) Co 622,188
14,200 International Dairy Queen Inc Class A * 255,600
600 Jenny Craig Inc 4,350
225 Jones Intercable Inc * 3,656
611 Jones Intercable Inc Class A * 9,891
28,050 La Quinta Motor Inns 697,744
29,600 Lee Enterprises Inc 1,069,300
5,000 Marcus Corp 135,000
20,600 McGrath Rentcorp 345,050
20,800 Nash Finch Co 317,200
8,300 Nashua Corp 163,925
54,100 Outback Steakhouse Inc * (a) 1,413,363
8,100 Owens and Minor Holdings Co 113,400
8,900 Park Communications * 260,325
2,300 PCA International Inc 23,000
28,300 PHH Corp 1,061,250
32,700 Robert Half International Inc * 805,238
25,050 Rollins Inc 632,513
33,600 Safecard Services Inc 693,000
5,000 Safeguard Scientifics Inc * 116,250
2,400 Sanifill Inc * 56,700
1,000 Scoreboard Inc * 4,500
4,700 Sevenson Environmental Services 76,375
7,300 Sizzler International Inc 46,538
9,000 SPS Transaction Services Corp * 286,875
10,800 Super Food Services Inc 117,450
4,000 Total System Services Inc 70,500
15,200 True North Communications Inc 241,300
13 Turner Broadcasting System Class B 250
11,000 Unifirst Corp 132,000
8,100 United Television Inc * 473,850
2,400 USA Waste Services Inc * 26,700
16,000 Western Waste Industries * 260,000
22,400 Westwood One Inc 253,400
16,836,673
TECHNOLOGY - 7.8%
500 ADC Telecommunications Inc * 27,875
2,200 American Business Products 51,150
19,450 American Management Systems Inc * 397,509
3,800 Ametek Inc 67,925
2,800 Analogic Corp * 55,300
15,750 Andrew Corp * 913,500
2,900 Atari Corp * 10,331
20,800 Atmel Corp * 709,800
600 Aydin Corp * 7,275
13,600 Bay Networks Inc * 426,700
1,900 Bisys Group Inc * 36,575
41,100 Cadence Design Sys Inc * 1,053,188
5,300 Caere Corp * 53,000
1,700 Compuware Corp * 62,475
3,575 Control Data Systems Inc 25,472
3,500 CTS Corp 105,000
2,800 Cubic Corp 54,250
9,600 Dell Computer Corp * (a) 398,400
3,900 Diebold Inc 137,963
300 Dionex Corp * 11,925
6,600 Electronics for Imaging * 259,050
17,000 Ennis Business Forms 233,750
40,700 Exabyte * 768,213
2,400 Frame Technology Corp * 39,000
2,100 General Binding Corp 31,500
2,300 Gundle Environmental Systems Inc * 12,075
36,400 Integrated Device Tech Inc * 1,387,750
900 Intergrated Systems Inc * 19,125
1,100 Ionics Inc * 31,625
5,900 Joslyn Corp 147,500
4,100 MacNeal Schwendler Corp 52,788
44,600 Maxim Intergrated Products * 1,466,225
3,000 Methode Electronics Class A 47,250
1,250 Millipore Corp 66,406
10,800 Moorco International Inc 147,150
6,700 MTS Systems Corp 164,150
42,000 Network General Corp * 1,118,250
1,100 Osmonics Inc * 16,225
14,800 Peoplesoft Inc * 514,300
62,500 Quantum Corp * 921,875
35,000 Stratacom Inc * 1,295,000
15,840 Sybase Inc * 645,480
27,800 Symbol Technologies Inc * 726,275
225 System Software Associates Inc 5,203
61,000 Tellabs Inc * 3,172,000
1,300 Thermotrex Corp * 18,363
17,300 United Stationers 263,825
3,200 Walker Interactive Systems * 23,600
9,000 Wallace Computer Services 280,125
18,479,691
TELECOMMUNICATIONS - 0.4%
33,800 Federal Signal Corp 692,900
2,963 Millicom International Cellular SA * 80,742
8,600 Telco Systems Inc * 102,125
875,767
TEXTILES - 0.1%
500 Angelica Corp 12,750
1,300 Crown Crafts 20,963
5,000 Quiksilver Inc * 90,000
5,100 Ross Stores Inc 59,606
183,319
TRANSPORTATION - 3.0%
17,600 AAR Corp 242,000
1,300 Airborne Freight Corp 31,038
24,800 American President Cos 564,200
46,200 Ball Corp 1,513,050
21,300 Expeditors International of Washington Inc 468,600
6,500 Florida East Coast Industries Inc 501,313
7,700 GRC International Inc * 132,825
507 Heartland Express * 14,893
6,600 International Shipholding Corp 133,650
1,100 Offshore Logistics * 14,163
1,200 Oglebay Norton Co 40,200
200 Old Dominion Freight Line * 3,550
22,000 OMI Corp * 115,500
33,500 Overseas Shipholding Group Inc 774,688
41,200 Swift Transportation Co 957,900
1,300 Thor Industries 27,300
31,400 Wisconsin Central Transportation * 1,428,700
6,963,570
UTILITIES - 7.0%
2,200 AES Corp * 40,700
29,300 American Water Works Co 864,350
2,100 Aquarion Co 50,138
30,300 Atlantic Energy Inc 575,700
3,300 Balder Electric 94,050
7,000 Boston Edison Co 171,500
1,000 California Energy Co Inc * 17,125
500 California Water Service Co 16,000
52,300 Centerior Energy Corp 509,925
20,700 Central Hudson Gas and Electric Co 571,838
3,300 Central Louisiana Electric Inc 77,550
38,700 Central Maine Power Co 541,800
5,650 Central Vermont Public Services 78,394
3,600 Cilcorp Inc 127,350
14,117 Cinergy Corp 349,406
4,200 CIPSCO Inc 123,900
14,100 Commonwealth Energy Systems 590,438
27,400 Delmarva Power and Light Co 544,575
78,400 Destec Energy Inc * 784,000
2,000 Digital Systems International Inc * 13,750
1,900 DQE 63,888
10,900 Eastern Enterprises 287,488
12,900 Eastern Utilities Associates 304,763
1,700 Energen Corp 37,400
4,579 Entergy Corp 102,455
1,000 Franklin Electric Inc 33,750
700 Green Mountain Power Corp 19,513
1,700 Idaho Power Co 42,713
1,600 IES Industries 43,800
3,600 Illinova Corp 84,150
1,500 Interstate Power Co 36,750
4,700 Iowa Illinois Gas and Electric Co 102,225
1,800 Ipalco Enterprises Inc 59,175
1,700 IWC Resources Corp 33,150
1,400 Kansas City Power and Light Co 33,425
1,700 Ku Energy Corp 47,388
1,700 LG & E Energy Corp 66,088
3,562 Magma Power Co * 137,360
9,200 Midwest Resources 133,400
1,000 Minnesota Power and Light Co 25,875
3,900 Montana Power Co 92,625
6,300 Nevada Power Co 130,725
11,600 New York State Electric and Gas Corp 249,400
6,600 Oklahoma Gas and Electric Co 233,475
80 Pacific Crest Capital Inc * 320
2,000 Pennsylvania Enterprises Inc 57,500
3,900 Peoples Energy Corp 102,375
9,900 Pinnacle West Capital Corp 212,850
125,500 Portland General Electric Co 2,557,063
122,100 Public Services Co of New Mexico * 1,572,038
26,500 Puget Sound Power and Light Co 573,063
3,000 Republic Waste Industries * 9,938
43,200 Rochester Gas and Electric Corp 945,000
23,700 Sierra Pacific Resources 479,925
800 South Jersey Industries 16,000
1,470 Southeastern Michigan Gas Enterprises 29,033
6,300 Southern California Water Co 109,463
2,100 Southern Indiana Gas and Electric Co 61,163
1,100 Southwesten Public Services Co 32,038
15,200 TNP Enterprises Inc 228,000
8,406 Transco Energy Co 149,207
24,100 Tucson Electric Power Co * 87,363
600 UGI Corp 12,150
12,100 United Illuminating Co 402,325
11,848 United Water Resources Inc 161,429
900 Utilicorp United Inc 25,988
4,200 Washington Water Power 63,000
500 Wisconsin Power and Light Holding Co 15,063
1,300 WPS Resources Corp 38,188
1,300 Yankee Energy System Inc 28,275
16,512,227
TOTAL STOCK (Cost $213,885,660) 230,848,363
PAR VALUE SHORT-TERM INVESTMENTS - 10.1%
REPURCHASE AGREEMENTS - 5.2%
$ 2,849,575 Prudential Securities Group, Inc. Repurchase Agreement
dated 2/28/95, due 3/1/95, with a maturity value of $2,850,030
and an effective yield of 5.75%, collateralized by U.S. Government
Agency Obligations with rates ranging from 3.64% to 11.62%,
maturities ranging from 5/1/00 to 10/25/24, and with an aggregate
market value of $2,906,517. 2,849,575
9,404,322 Salomon Brothers Repurchase Agreement, dated 2/28/95, due
3/1/95, with a maturity value of $9,405,785 and an effective
yield of 5.60%, collateralized by a U.S. Treasury Bond with
a rate of 6.25%, a maturity date of 8/15/23,
and with an aggregate market value of $9,660,551. 9,404,322
12,253,897
U.S. GOVERNMENT - 0.2%
500,000 U.S. Treasury Bill, 4.92% due 3/2/95 (b) 499,922
CASH EQUIVALENTS - 4.7%
54,088 Bank of Boston Time Deposit, 6.16% due 3/1/95 54,088
7,197,674 Dreyfus Cash Management Money Market Fund Plus, A Shares 7,197,674
560,936 National Westminster Time Deposit, 6.05% due 3/1/95 560,936
3,155,849 Provident Institutional Prime Money Market Fund 3,155,849
10,968,547
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 23,722,366
TOTAL INVESTMENTS - 108.0%
(Cost $237,608,026) * * $ 254,570,729
Other Assets and Liabilities (net) - (8.0%) (18,790,082)
TOTAL NET ASSETS - 100.0% $ 235,780,647
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
* Non-income producing security
** The aggregate identified cost for federal income
tax purposes is $237,646,141, resulting in gross
unrealized appreciation and depreciation of
$25,158,415 and $8,233,827, respectively, and net
unrealized appreciation of $16,924,588.
</TABLE>
See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $213,885,660) (Note 1) $ 230,848,363
Short-term investments, at amortized cost (Note 1) 23,722,366
Receivable for investments sold 23,111,907
Receivable for Fund shares sold 521,815
Dividends and interest receivable 311,645
Receivable for variation margin on open futures contracts 87,141
Receivable for expenses waived or borne by Manager (Note 2) 7,861
Total assets 278,611,098
LIABILITIES:
Payable for investments purchased 19,513,375
Payable for Fund shares repurchased 12,208,915
Payable upon return of securities loaned (Note 1) 10,961,415
Payable to affiliate for management fee (Note 2) 72,108
Accrued expenses 74,638
Total liabilities 42,830,451
NET ASSETS (equivalent to $13.61 per share based
on 17,325,736 shares outstanding, unlimited shares authorized) $ 235,780,647
NET ASSETS CONSIST OF:
Paid-in capital $ 210,300,226
Undistributed net investment income 707,076
Accumulated net realized gain on investments and
closed futures contracts 7,270,940
Net unrealized appreciation of investments and open futures
contracts 17,502,405
NET ASSETS $ 235,780,647
</TABLE>
See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $863) $ 2,998,140
Interest (including securities lending income of $71,659) 520,458
Total income 3,518,598
EXPENSES:
Management fee (Note 2) 865,852
Custodian and transfer agent fees 83,274
Audit fees 53,078
Legal fees 7,010
Registration fees 5,528
Insurance 2,058
Trustee fee (Note 2) 869
Miscellaneous 1,095
Total expenses 1,018,764
Less: expenses waived or borne by Manager (Note 2) (187,546)
Net expenses 831,218
Net investment income 2,687,380
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 15,256,562
Closed futures contracts (569,321)
Net realized gain 14,687,241
Change in net unrealized appreciation (depreciation) on:
Investments (8,973,117)
Open futures contracts 408,125
Net unrealized loss (8,564,992)
Net realized and unrealized gain on investments
and futures contracts 6,122,249
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,809,629
</TABLE>
See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,687,380 $ 2,074,574
Net realized gain on investments
and closed futures contracts 14,687,241 10,560,435
Change in net unrealized appreciation (depreciation)
on investments and open futures contracts (8,564,992) 8,634,849
Net increase in net assets resulting from operations 8,809,629 21,269,858
Distributions to shareholders from:
Net investment income (2,478,510) (2,016,452)
Net realized gains (13,249,265) (4,787,721)
(15,727,775) (6,804,173)
Fund share transactions: (Note 5)
Proceeds from sale of shares 106,039,496 57,853,253
Net asset value of shares issued to shareholders
in payment of distributions declared 13,476,187 5,529,115
Cost of shares repurchased (28,102,815) (28,793,929)
Net increase in net assets resulting
from Fund share transactions 91,412,868 34,588,439
Total increase in net assets 84,494,722 49,054,124
NET ASSETS:
Beginning of period 151,285,925 102,231,801
End of period (including undistributed net
investment income of $707,076 and
$460,639, respectively) $ 235,780,647 $ 151,285,925
</TABLE>
See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992*
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.31 $ 12.68 $ 11.12 $ 10.00
Income from investment operations:
Net investment income (a) 0.20 0.21 0.22 0.04
Net realized and unrealized gain
on investments and futures contracts 0.34 2.14 1.59 1.08
Total from investment operations 0.54 2.35 1.81 1.12
Less distributions to shareholders:
From net investment income (0.20) (0.22) (0.21) -
From net realized gains (1.04) (0.50) (0.04) -
Total distributions (1.24) (0.72) (0.25) -
NET ASSET VALUE, END OF PERIOD $ 13.61 $ 14.31 $ 12.68 $ 11.12
TOTAL RETURN (B) 4.48% 18.97% 16.46% 11.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $ 235,781 $ 151,286 $ 102,232$ 58,258
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.49% 0.49%**
Net investment income to average
daily net assets (a) 1.55% 1.66% 2.02% 2.19%**
Portfolio turnover rate 54% 30% 3% 0%
* For the period from the commencement of operations, December 31, 1991 to February 29, 1992.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.01, $.02, $.02, and $.01
per share for the fiscal years ended 1995, 1994 and 1993 and for the period
ended February 29, 1992, respectively.
(b) Calculation excludes subscription and redemption fees. The total returns
would have been lower had certain expenses not been waived during the
periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Core II Secondaries 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
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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P Mid Cap 400 index and on
such other domestic stock indices as the Manager may deem appropriate.
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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. Government obligations in accordance with the
initial margin requirements of the broker. 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 the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $10,447,364, collateralized by
cash in the amount of $10,968,547, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions, partnership interests,
non-taxable dividends and losses deferred due to wash sales.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
UNDISTRIBUTED NET INVESTMENT ACCUMULATED NET REALIZED
INCOME GAIN PAID-IN CAPITAL
<S> <C> <C>
$37,567 ($37,567) -
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net
realized gains.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. In determining the net gain or loss on securities sold, the
cost of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases and redemptions of Fund shares is .75% of the
amount invested and redeemed. The Manager may waive such premium to the
extent that a transaction results in minimal brokerage and transaction
costs to the Fund. All purchase and redemption premiums are paid to and
recorded as paid-in capital by the Fund. For the year ended February 28,
1995, the Fund received $174,223 in purchase premiums and $277 in
redemption premiums.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .50% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .48% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $869. 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 year ended February 28, 1995 aggregated
$174,786,081 and $93,504,081, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 20% 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 full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
Shares sold 7,782,253 4,169,190
Shares issued to shareholders in reinvestment
of distributions 1,047,874 408,736
Shares repurchased (2,079,900) (2,066,228)
Net increase 6,750,227 2,511,698
Fund shares:
Beginning of period 10,575,509 8,063,811
End of period 17,325,736 10,575,509
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 28, 1995, is as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS NET UNREALIZED
TYPE EXPIRATION DATE CONTRACT VALUE APPRECIATION
<S> <C> <C> <C>
153 S & P Mid Cap 400 March 1995 $ 13,727,925 $ 539,702
</TABLE>
At February 28, 1995, the Fund had cash and/or securities to cover any
margin requirements on these contracts.
* * *
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 81.73% of distributions as net capital gain dividends.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Fundamental Value Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Fundamental Value Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<S> <C> <C>
STOCK - 97.5%
AEROSPACE - 1.3%
60,000 Rockwell International Corp 2,310,000
AUTOMOTIVE - 1.8%
10,000 Chrysler Corp 435,000
20,000 General Motors Corp 852,500
25,000 Intermet Corp * 187,500
25,000 Mascotech Industries Inc Convertible Preferred $1.20 346,875
25,000 Navistar International Corp Preferred $6.00 1,306,250
25,000 TBC Corp * 253,125
3,381,250
BANKING AND FINANCIAL SERVICES - 6.2%
75,000 American Express Co 2,531,250
15,000 Chase Manhattan Corp 538,125
45,000 Chemical Banking Corp 1,805,625
10,000 Citicorp 450,000
2,500 Citicorp Convertible Preferred 10.75% 308,125
45,000 Citicorp Convertible Preferred $1.21 866,250
12,500 First Interstate Bancorp 1,017,188
15,000 Great Western Financial 281,250
5,000 John Nuveen and Company Inc Class A 116,250
5,000 Nationsbank Corp 249,375
5,000 Republic New York Corp 249,375
25,000 Salomon 6.75% "DEC" Equity Linked Security (Elks) (b) 834,375
20,000 Shawmut National Corp 512,500
20,000 Summit Properties Inc 340,000
30,000 Travelers Inc 1,166,250
11,265,938
CHEMICALS - 3.7%
97,500 Baxter International Inc 3,034,678
25,000 Borden Chemical and Plastics LP 437,500
25,000 Georgia Gulf Corp * 750,000
10,000 Grace (WR) and Co 450,000
12,500 IMC Global Inc 584,375
20,000 Olin Corp Convertible Preferred Series A $3.64 (a) 1,007,500
20,000 Praxair Inc 452,500
6,716,553
COMMUNICATIONS - 0.2%
10,000 BCE Inc 308,750
COMPUTER AND DATA PROCESSING SERVICES - 0.7%
200,000 SHL System House * 1,200,000
COMPUTER AND OFFICE EQUIPMENT - 0.3%
10,000 Seagate Technology * 240,000
7,500 Storage Technology Convertible Preferred 7.00% 388,125
628,125
CONSTRUCTION - 1.5%
25,000 Fleetwood Enterprises Inc 546,875
12,500 Halliburton Co 465,625
49,500 Owens Corning Fiberglass Corp * (a) 1,664,438
2,676,938
CONSUMER GOODS - 7.8%
25,000 American Safety Razor Co * 306,250
75,000 Black and Decker Corp 2,006,250
50,000 Burlington Industries Inc * 550,000
27,500 Corning Inc 883,438
95,000 Eastman Kodak Co 4,845,000
25,000 Maytag Corp 412,500
10,000 Premark International Inc 432,500
15,000 Procter and Gamble Co 997,500
25,000 United States Shoe Corp 475,000
250,000 Westinghouse Electric Corp Convertible Preferred $1.30 144A 3,406,250
14,314,688
ELECTRONIC EQUIPMENT - 0.5%
10,000 Kuhlman Corp (a) 123,750
15,000 Philips NV ADR 493,125
7,500 Teradyne Inc * 272,813
889,688
FOOD AND BEVERAGE - 4.2%
5,000 Anheuser-Busch Cos Inc 281,875
30,000 Coca Cola Enterprises Inc 615,000
25,000 Coors (Adolph) Co 406,250
50,000 Nestle SA ADR 2,405,010
500,000 RJR Nabisco Holdings Convertible Preferred Series C 9.25% 2,937,500
15,000 Sara Lee Corp 393,750
13,000 Smith Food and Drug Center Class B 349,375
10,000 Supervalu Inc 257,500
7,646,260
HEALTH CARE - 1.0%
4,600 Bard (C R) 123,050
50,000 Beverly Enterprises Inc * 650,000
25,000 Community Psychiatric Centers 290,625
15,000 Glaxo Plc ADR (a) 301,875
10,000 National Medical Enterprises * 155,000
7,500 Upjohn Co 264,375
1,784,925
INSURANCE - 9.5%
25,000 Aetna Life and Casualty Co 1,343,750
92,500 Alexander & Alexander Services Inc 2,011,875
25,000 Alexander & Alexander Services Inc Convertible
Preferred Series A $3.625 1,081,250
25,000 Allstate Corp 687,500
5,000 AON Corp 173,750
12,500 Cigna Corp 946,875
150,000 Continental Corp 2,906,250
17,500 First Colony Corp 391,563
12,500 Gallagher (Arthur J) and Co 437,500
5,000 John Alden Financial Corp 143,750
10,000 Kemper Corp 402,500
20,000 Liberty Corp 537,500
17,500 Life Re Corp 347,813
15,000 National Re Corp 455,625
125,000 Reliance Group Holdings Inc 687,500
10,000 Sedgwick Group ADR 122,473
20,000 TIG Holdings Inc 415,000
22,500 Transamerica Corp 1,229,063
65,356 USF & G Corp 931,316
7,500 USLIFE Corp 285,938
10,000 Vesta Insurance Group Inc 300,000
25,000 Washington National Corp 462,500
75,000 Willis Corroon Group Plc ADR 843,750
5,000 Zurich Reinsurance Centre Inc * 151,250
17,296,291
MACHINERY - 2.2%
10,000 Allegheny Ludlum Corp 211,250
50,000 CBI Industries Inc 1,212,500
15,000 Cincinnati Milacron Inc 315,000
15,000 Cummins Engine Inc 682,500
22,500 FMC Corp * 1,316,250
5,000 Giddings and Lewis Inc 85,000
30,000 Northwestern Steel and Wire * 191,250
4,013,750
MANUFACTURING - 6.1%
25,000 General Electric Co 1,371,875
50,000 Instrument Systems Corp * 450,000
27,500 International Business Machines Corp 2,069,375
105,000 Mascotech Industries Inc 1,286,250
9,100 Minnesota Mining and Manufacturing 498,225
112,500 Teledyne Inc 2,601,563
1,125 Teledyne Inc Preferred Stock Series E 16,875
25,000 United Technologies Corp 1,659,375
75,000 Westinghouse Electric Corp 1,162,500
11,116,038
METALS AND MINING - 1.4%
10,000 Alcan Aluminum Ltd 242,500
15,000 Asarco Inc 408,750
5,000 Battle Mountain Gold Convertible Preferred $3.25 265,000
5,000 Cyprus Amax Minerals Co 135,000
5,000 Echo Bay Financial Convertible Preferred Series A $1.75 141,875
30,000 Falconbridge Ltd 493,212
5,000 Inco Ltd (a) 134,375
5,000 Newmont Mining Corp 180,625
15,000 Placer Dome Inc 305,625
6,000 Santa Fe Pacific Gold Corp * 65,250
25,000 Sherritt Inc * 229,088
2,601,300
MISCELLANEOUS - 1.8%
25,000 Brascan Ltd 328,125
50,000 Freeport-McMoran Corp Preferred 1,625,000
10,000 Pittston Minerals Group 207,500
65,000 Wellcome Plc ADR 1,048,125
3,208,750
OIL AND GAS - 7.3%
10,000 Alberta Energy Company Ltd 134,758
10,000 Amerada Hess Corp 490,000
5,000 Atlantic Richfield Co 548,125
5,000 Atlantic Richfield Co Convertible Preferred 9.00% 122,500
10,000 Dresser Industries Inc 206,250
30,000 Enserch Corp 420,000
50,000 Global Marine Inc * 206,250
5,000 Kerr-McGee Corp 251,875
100,000 Lasmo Plc ADR * 712,500
125,000 Maxus Energy Corp * 484,375
20,500 Mitchell Energy Class A 338,250
15,000 Mitchell Energy Class B 226,875
125,000 Noram Energy Corp 703,125
35,000 Occidental Petroleum Corp 695,625
25,000 Oryx Energy Co * 275,000
12,500 Questar Corp 360,938
15,000 Reading and Bates Corp Preferred $1.625 375,000
25,000 Santa Fe Energy Resources Inc Convertible Preferred 8.25% 225,000
10,000 Texaco Inc 637,500
7,500 Tidewater Inc 147,188
10,000 Union Texas Petroleum Holdings 192,500
50,000 Unocal Corp 1,418,750
25,000 Unocal Corp Convertible Preferred $3.50 144A 1,281,250
65,000 USX - Marathon Group 1,056,250
60,000 Williams Companies Inc 1,725,000
10,000 YPF Sociedad Anonima ADR 190,000
13,424,884
PAPER AND ALLIED PRODUCTS - 0.3%
15,000 Weyerhaeuser Co 611,250
PHARMACEUTICALS - 1.0%
10,000 Allergan Inc 288,750
20,000 Lilly (Eli) & Co 1,340,000
10,000 Teva Pharmaceutical ADR 259,375
1,888,125
PRIMARY PROCESSING - 4.7%
40,000 Armco Inc * 265,000
5,000 Armco Inc Convertible Preferred $3.625 251,250
17,500 Bethlehem Steel Corp * 273,438
25,000 Boise Cascade Corp Preferred Series G $1.58 684,375
5,000 Champion International Corp 205,625
5,000 Dow Chemical Co 335,000
5,000 Du Pont (E I) De Nemours & Co Inc 280,625
10,000 Inland Steel Industries Inc * 287,500
5,000 International Paper Co 381,875
50,000 James River Corp 1,231,250
97,500 James River Corp Convertible Preferred 9.00% 2,218,125
5,000 LTV Corp * 76,875
30,000 National Steel Corp Class B * 495,000
10,000 Pope and Talbot 165,000
22,500 USX-US Steel Group Inc 748,125
95,000 Weirton Steel Corp * 724,375
8,623,438
PRINTING AND PUBLISHING - 0.2%
5,000 Dun and Bradstreet Corp 258,125
10,000 Saatchi & Saatchi Plc ADR * 45,000
303,125
REAL ESTATE - 2.8%
55,000 AMLI Residential Properties Trust 1,038,125
50,000 Crown American Realty 618,750
100,000 Debartolo Realty Corp 1,400,000
15,000 Irvine Apartment Communities 238,125
75,000 JP Realty Inc 1,500,000
25,000 Regency Realty Corp 412,500
5,207,500
REFINING - 1.3%
25,000 Ashland Inc Convertible Preferred $3.125 1,343,750
20,000 Imperial Oil Ltd 680,000
15,000 Sun Co Inc 436,875
2,460,625
RETAIL TRADE - 5.4%
25,000 American Stores Co 612,500
40,000 Federated Department Stores * 880,000
100,000 Food Lion Inc (a) 562,500
75,000 Kmart 956,250
125,000 Price/Costco Inc * 1,703,125
12,500 Rite Aid Corp 309,375
25,000 Scotts Company Class A * 462,500
25,000 Sears Roebuck & Co 1,231,250
10,000 The Limited Inc 175,000
15,000 TJX Cos Inc 202,500
110,000 Wal-Mart Stores Inc 2,612,500
10,000 Williams-Sonoma Inc 212,500
9,920,000
SERVICES - 1.6%
10,000 Fleming Cos 195,000
25,000 Host Marriott Corp * 275,000
25,000 International Technology Corp * (a) 68,750
15,000 International Technology Corp Convertible Preferred 7.00% 255,000
5,000 Lee Enterprises Inc 180,625
25,000 Morningstar Group Inc * 179,688
20,000 Noram Energy Corp Convertible Preferred Series A $3.00 682,500
15,000 Pinkertons Inc * 266,250
15,000 Tele-Communications Class A * 341,250
2,500 Time Warner Inc 96,563
10,000 USA Waste Services Inc * 111,250
18,750 Wackenhut Corp Class B 260,156
2,912,032
TECHNOLOGY - 5.5%
50,000 Avnet Inc 1,937,500
15,000 Bay Networks Inc * 470,625
35,000 Cray Research Inc * 590,625
15,000 Cytec Industries Inc * 581,250
35,000 Data General * 275,625
87,500 Digital Equipment Corp * 2,931,250
2,500 Emerson Electric 165,313
15,000 Fisher Scientific 405,000
5,000 Intel Corp 398,750
5,000 Moorco International Inc 68,125
14,600 Moore Corp Ltd (a) 270,100
5,000 SCI Systems Inc * 90,625
10,000 Storage Technology Corp * 217,500
72,500 Tandem Computers Inc * 1,232,500
5,000 Xerox Corp 554,375
10,189,163
TELECOMMUNICATIONS - 4.7%
12,500 AT & T Corp 646,875
5,000 Bell Atlantic Corp (a) 268,125
15,000 Comsat Corp 266,250
122,500 GTE Corp 4,088,438
60,000 MCI Communications 1,207,500
25,000 Pacific Telesis Group 750,000
5,000 Sprint Corp 146,250
30,000 US West Inc 1,162,500
8,535,938
TEXTILE - 0.1%
10,000 Kellwood Co 176,250
TOBACCO - 0.8%
10,000 BAT Industries Plc ADR 132,500
57,500 Hanson Plc ADR (a) 1,078,125
2,500 Loews Corp 242,813
1,453,438
TRANSPORTATION - 3.6%
22,500 AMR Corp * 1,375,313
5,000 Burlington Northern Inc 280,000
75,000 Canadian Pacific Ltd 1,050,000
5,000 Consolidated Freightways Inc Preferred Series C $1.54 119,375
7,500 Delta Air Lines Inc 435,000
3,500 Delta Air Lines Inc Convertible Preferred Series C $3.50 174,125
25,000 Gencorp Inc 337,500
20,000 Hunt JB Transportation Services Inc 390,000
25,000 Navistar International Corp * 362,500
10,000 Overseas Shipholding Group Inc 231,250
25,000 Ryder System Inc 581,250
10,000 Skywest Inc 145,000
30,000 Southern Pacific Rail Corp * 536,250
15,000 USAir Group Inc * 88,125
15,000 USAir Group Inc Cumulative Convertible Preferred
Series B $4.375 408,750
6,514,438
UTILITIES - 7.8%
75,000 Centerior Energy Corp 731,250
35,000 Cinergy Corp 866,250
10,000 CMS Energy Corp 240,000
20,000 Detroit Edison Co 572,500
25,000 DPL Inc 521,875
50,000 Entergy Corp 1,118,750
10,000 General Public Utilities 302,500
10,000 Illinova Corp 233,750
25,000 Niagara Mohawk Power Corp 371,875
22,500 Northeast Utilities (a) 511,875
25,000 Ohio Edison Co 525,000
10,000 Pacific Gas and Electric Co 256,250
25,000 PacifiCorp 478,125
120,000 Panhandle Eastern Corp 2,700,000
10,000 Public Service Enterprise Group Inc 291,250
5,000 Public Services Co of New Mexico * 64,375
35,000 Tenneco Inc 1,592,515
45,000 Texas Utilities Co 1,479,375
50,000 TransCanada Pipeline Ltd 662,500
7,532 Transco Energy Co 133,693
20,000 Unicom Corp 510,000
20,000 USX-Delhi Group 165,000
14,328,708
WHOLESALE TRADE - 0.2%
20,000 Ogden Corp 427,500
TOTAL STOCK (Cost $166,736,093) 178,335,658
SHORT-TERM INVESTMENTS - 7.0%
PAR VALUE REPURCHASE AGREEMENT - 3.6%
$6,685,539 Salomon Brothers Repurchase Agreement, dated 2/28/95, due 3/1/95,
with a maturity value of $6,686,579 and an effective yield of
5.60%, collateralized by a U.S. Treasury Bond with a rate of 6.25%,
a maturity date of 8/15/23,
and with an aggregate market value of $6,867,693. 6,685,539
U.S. GOVERNMENT - 0.1%
115,000 U.S. Treasury Bill, 5.29% due 3/16/95 114,747
CASH EQUIVALENTS - 3.3%
1,939,199 Bank of Boston Time Deposit 1,939,199
991,089 Dreyfus Cash Management Money Market Fund Plus, A Shares 991,089
1,304,015 National Westminster Time Deposit 1,304,015
1,710,397 Provident Institutional Prime Money Market Fund 1,710,397
5,944,700
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 12,744,986
TOTAL INVESTMENTS - 104.5%
(Cost $179,481,079) * * 191,080,644
Other Assets and Liabilities (net) - (4.5%) (8,209,737)
TOTAL NET ASSETS - 100.0% $ 182,870,907
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 buyers.
(a) All or a portion of this security is on loan.
(b) A derivative security whose price is linked to the
common stock of Digital Equipment Corporation. Interest
is paid quarterly at an annual rate of 6.75% of the
offering price of $37.50. The redemption value is
determined by the ten days' average closing prices of
Digital Equipment common stock but not to exceed
$50.625.
* Non-income producing security.
** The aggregate identified cost for federal income tax
purposes is $180,294,666, resulting in gross unrealized
appreciation and depreciation of $18,056,665 and
$7,270,687, respectively, and net unrealized appreciation
of $10,785,978.
</TABLE>
See accompanying notes to the financial statements.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $166,736,093) (Note 1) $ 178,335,658
Short-term investments, at amortized cost (Note 1) 12,744,986
Receivable for investments sold 943,649
Dividends and interest receivable 668,906
Receivable for expenses waived or borne by Manager (Note 2) 4,760
Total assets 192,697,959
LIABILITIES:
Payable for investments purchased 3,710,185
Payable upon return of securities loaned (Note 1) 5,944,095
Payable to affiliate for management fee (Note 2) 104,077
Accrued expenses 68,695
Total liabilities 9,827,052
NET ASSETS(equivalent to $12.54 per share based
on 14,581,927 shares outstanding, unlimited shares authorized) $ 182,870,907
NET ASSETS CONSIST OF:
Paid-in capital $ 167,992,729
Undistributed net investment income 890,128
Accumulated net realized gain on investments and
closed futures contracts 2,388,485
Net unrealized appreciation on investments 11,599,565
NET ASSETS $ 182,870,907
</TABLE>
See accompanying notes to the financial statements.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $54,075) $ 5,822,051
Interest (including securities lending income of $18,706) 392,038
Total income 6,214,089
EXPENSES:
Management fee (Note 2) 1,297,348
Custodian and transfer agent fees 59,763
Audit fees 45,184
Legal fees 7,061
Registration fees 2,617
Insurance 2,038
Trustee fee (Note 2) 837
Miscellaneous 750
Total expenses 1,415,598
Less: expenses waived or borne by Manager (Note 2) (118,250)
Net expenses 1,297,348
Net investment income 4,916,741
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 7,529,398
Closed futures contracts (157,926)
Net realized gain 7,371,472
Change in net unrealized appreciation (depreciation) on:
Investments 1,366,446
Open futures contracts 21,391
Net unrealized gain 1,387,837
Net realized and unrealized gain on investments
and futures contracts 8,759,309
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,676,050
</TABLE>
See accompanying notes to the financial statements.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Operations:
Net investment income $ 4,916,741 $ 2,616,010
Net realized gain on investments
and closed futures contracts 7,371,472 8,955,513
Change in net unrealized appreciation (depreciation)
on investments and open futures contracts 1,387,837 4,887,710
Net increase in net assets resulting from operations 13,676,050 16,459,233
Distributions to shareholders from:
Net investment income (4,583,693) (2,354,352)
Net realized gains (7,395,946) (8,047,558)
(11,979,639) (10,401,910)
Fund share transactions: (Note 5)
Proceeds from sale of shares 39,104,294 71,322,199
Net asset value of shares issued to shareholders
in payment of distributions declared 8,303,555 8,047,702
Costs of shares repurchased (14,000,000) -
Net increase in net assets resulting
from Fund share transactions 33,407,849 79,369,901
Total increase in net assets 35,104,260 85,427,224
Net assets:
Beginning of period 147,766,647 62,339,423
End of period (including undistributed net
investment income of $890,128 and
$528,164, respectively) $ 182,870,907 $ 147,766,647
</TABLE>
See accompanying notes to the financial statements.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992*
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.49 $ 11.71 $ 10.82 $ 10.00
Income from investment operations:
Net investment income (a) 0.34 0.27 0.30 0.11
Net realized and unrealized gain
on investments and futures contracts 0.55 1.64 1.32 0.77
Total from investment operations 0.89 1.91 1.62 0.88
Less distributions to shareholders:
From net investment income (0.32) (0.28) (0.30) (0.06)
From net realized gains (0.52) (0.85) (0.43) --
Total distributions (0.84) (1.13) (0.73) (0.06)
NET ASSET VALUE, END OF PERIOD $ 12.54 $ 12.49 $ 11.71 $ 10.82
TOTAL RETURN (B) 7.75% 16.78% 15.66% 8.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of per $ 182,871$ 147,767 $ 62,339$ 32,252
Net expenses to average
daily net assets (a) 0.75% 0.75% 0.73% 0.62%**
Net investment income to average
daily net assets (a) 2.84% 2.32% 2.77% 3.43%**
Portfolio turnover rate 49% 65% 83% 33%
* For the period from the commencement of operations, October 31, 1991 through February 29, 1992.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of less than $.01, $.01,
$.03, and $.03 per share, for the fiscal years ended 1995, 1994, 1993 and
for the period ended February 29, 1992, respectively.
(b) Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The 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
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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase futures contracts on the S&P 500 index. 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
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 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 February 28,
1995, the Fund had no outstanding futures contracts.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $5,658,100, collateralized by
cash in the amount of $5,944,700, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and 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 following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain Paid-in Capital
<S> <C> <C>
$28,916 ($32,741) $3,825
</TABLE>
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 will be reported in the Fund's financial statements as
a return of capital. Furthermore, differences in the recognition or
classification of income between the financial statements and tax earnings
and profits 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. Premiums and
market discounts are amortized and accreted.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $45,138 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .75% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .75% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $837. 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 year ended February 28, 1995, aggregated
$122,861,745 and $88,380,848, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 95% 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 full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 3,213,626 5,848,898
Shares issued to shareholders in reinvestment
of distributions 706,233 660,543
Shares repurchased (1,169,385) --
Net increase 2,750,474 6,509,441
Fund shares:
Beginning of period 11,831,453 5,322,012
End of period 14,581,927 11,831,453
* * *
</TABLE>
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 21.61% of distributions as net capital gain dividends.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of GMO International Core Fund
(A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Core Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 20, 1995
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28,1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
STOCK AND EQUIVALENTS - 98.4%
AUSTRALIA - 5.3%
<C> <S> <C>
602,300 Ampolex Ltd * 1,487,351
293,400 Ashton Mining Ltd 469,327
3,996,230 Australia and New Zealand Banking Group Ltd 14,022,108
2,906,400 Boral Ltd 7,798,528
126,600 Caltex Australia Ltd 326,631
2,792,700 Coles Myer Ltd 9,366,807
48,200 Comalco Ltd 166,994
217,332 Commonwealth Bank of Australia 1,441,857
349,782 Crusader Ltd 335,194
3,090,488 CSR Ltd 10,160,563
142,300 Energy Resources of Australia Ltd Class A * 144,757
12,495,902 Fosters Brewing Group Ltd 10,961,511
968,451 Goodman Fielder Ltd 885,228
88,461 Hardie (James) Industries Ltd 143,460
30,500 Metal Manufactures Ltd 59,580
5,060,776 News Corp Ltd 22,532,528
2,530,388 News Corp Ltd Preferred $.04 * 10,035,182
720,200 North Broken Hill Peko Ltd 1,688,247
311,499 Pacific Dunlop Ltd 686,568
498,700 Pancontinental Mining Ltd * 647,005
1,074,800 Pasminco Ltd * 1,109,204
5,749,322 Pioneer International Ltd 13,816,247
1,768,425 QCT Resources Ltd 1,694,673
196,000 Renison Goldfields Consolidated Ltd 601,043
1,846,908 Santos Ltd 4,955,672
1,426,700 Schroders Property 2,313,722
37,310 Smith (Howard) Ltd 165,018
40,000 Sons of Gwalia Ltd 140,059
869,367 Stockland Trust Group 1,948,196
342,300 TNT Ltd * 486,990
2,051 Tyco International 106,908
2,725,400 Western Mining Corp Holdings Ltd 14,605,638
209,378 Westfield Trust Units 358,076
703,241 Westpac Banking Corp 2,597,154
138,258,026
AUSTRIA - 2.1%
2,055 Allgemeine Baugesellschaft AG 313,375
2,677 Allgemeine Baugesellschaft AG Preferred 7.00% 220,494
6,310 Austrian Airlines * 1,066,428
35,000 Bank Austria AG (Participating Certificate) 1,227,236
36,490 Bau Holding AG Preferred (Non Voting) 2.42% 2,420,736
27,750 Brau Union AG 1,754,676
62,410 Creditanstalt-Bankverein 3,909,910
47,710 Creditanstalt-Bankverein Preferred 1.65% 2,896,292
5,600 EA-Generali AG 1,455,006
3,300 EA-Generali AG Preferred 6.00% 524,064
22,060 EVN Energie-Versorgung Niederoesterreich AG 2,661,215
11,900 Lenzing AG 1,106,144
19,600 Leykam-Muerztaler Papier und Zellstoff AG * 932,835
5,300 Miba Holding AG Series B Preferred 1.34% 226,507
56,850 OEMV AG * 5,516,312
8,700 Oesterreichische Brau Beteiligungs AG 496,033
93,440 Oesterreichische Elektrizitaetswirschafts AG 5,763,143
127,440 Oesterreichische Laenderbank AG 10,051,124
32,700 Oesterreichische Laenderbank AG Preferred (Non Voting) 1,572,193
6,120 Perlmooser Zementwerke AG 426,210
24,930 Radex-Heraklith AG 898,357
8,800 RAS Versicherungs AG 1,410,326
19,950 Steyr-Daimler-Puch AG * 292,599
4,341 Strabag Oesterreich AG 602,946
9,000 Universale Bau AG * 528,872
26,300 Veitsch-Radex AG * 697,383
1,000 Wiener Allianz Versicherungs AG * 236,026
6,760 Wienerberger Baustoffindustrie AG 2,390,017
51,596,459
BELGIUM - 0.4%
18,480 Banque Bruxelles Lambert 2,643,722
747 Banque Bruxelles Lambert VVPR* 103,641
1,296 Banque Nationale de Belgique 1,623,897
170 Bekaert SA 110,032
3,700 Electrabel SA 724,586
1,800 GIB Holdings Ltd 73,966
2,400 Gevaert Photo-Producten NV 120,687
23,120 Groupe Bruxelles Lambert SA 2,808,700
1,750 Petrofina SA Bruxelles 514,646
23,710 Powerfin SA 2,274,395
10,998,272
CANADA - 2.3%
106,100 Abitibi-Price Inc 1,391,788
54,500 Air Canada Inc * 293,801
190,600 Alberta Energy Ltd 2,602,983
114,900 Bank of Montreal 2,240,189
140,010 Bank of Nova Scotia 2,767,493
87,790 BCE Inc 2,729,141
9,485 Bramalea Inc * 6,340
51,100 Brascan Ltd Class A (Convertible) 679,497
13,400 Brunswick Mining & Smelt Ltd 96,316
22,800 CAE Industries Inc 120,863
17,100 Cambridge Shopping Centres Ltd 144,420
159,000 Canadian Imperial Bank of Commerce 3,885,714
29,600 Canadian Marconi Co 292,543
18,100 Canadian Tire Ltd Class A 172,381
23,300 Canfor Corp 276,334
32,500 CCL Industries Class B 274,483
270,800 Cominco Ltd * 4,330,854
82,800 Dominion Textile Inc 490,997
361,900 Domtar Inc * 3,088,994
6,400 Extendicare Inc * 101,204
171,400 Fletcher Challenge Class A 2,294,573
171,800 Gulf Canada Resources Ltd * 632,866
62,600 Hees International Bancorp Inc 528,697
9,400 Hudsons Bay Co 183,270
10,900 Imasco Ltd 330,036
168,800 Imperial Oil Ltd 5,747,996
32,600 John Labatt Ltd 489,146
387,200 MacMillan Bloedel Ltd 5,009,596
13,000 Maple Leaf Foods 120,305
47,100 Mitel Corp 236,981
7,500 Molson Class A 104,447
144,500 National Bank of Canada 1,012,668
12,500 Noma Industries Ltd Class A 46,047
115,400 Noranda Forest Inc 881,312
102,400 Norcen Energy Resource 1,278,850
53,600 Numac Energy Inc * 284,133
32,200 Pagurian Ltd Class A 102,994
36,700 Power Corp 488,014
35,600 Repap Enterprises Inc * 249,488
143,320 Royal Bank of Canada 2,961,689
23,400 Sceptre Resources Ltd * 149,272
34,800 Sears Canada Inc 190,728
5,500 Spar Aerospace Ltd 48,922
180,400 Teck Corp Class B 3,112,022
147,100 Toronto Dominion Bank 2,220,377
10,600 Total Petroleum North America 111,429
48,900 Transcanada Pipelines Ltd 645,849
56,300 United Dominion Inds Ltd 1,067,323
17,200 Westcoast Energy Inc 262,713
56,778,078
FINLAND - 0.5%
67,400 Amer Group Series A 1,238,886
36,500 Cultor OY Series 1 1,075,073
25,800 Instrumentarium Class A 514,228
14,200 Instrumentarum OY B * 270,446
162,650 Kansallis-Osake-Pankki * 171,096
30,960 OY Nokia AB Preferred 1.54% 4,628,050
91,200 Partek OY * 1,161,330
8,600 Sampo Insurance Company Ltd 371,387
15,900 Stockmann AB Series A 841,566
17,700 Stockmann AB Series B 744,767
83,950 Unitas Bank Ltd Class A * 265,858
97,800 Valmet OY * 1,970,941
13,253,628
FRANCE - 7.6%
4,214 Accor SA 452,757
2,816 Agache Financiere 662,009
8,622 Air Liquide 1,239,611
156,184 Alcatel Alsthom Cie Generale d'Electricite SA 12,532,347
102,920 Axa SA 4,429,139
553,550 Banque Nationale de Paris 24,467,190
750 Bic SA 100,544
7,175 BIS SA * 514,392
14,820 Carrefour Supermarche SA 6,032,232
18,156 Club Mediterranee SA 1,474,492
975 Colas SA 161,016
779,885 Compagnie de Suez SA 34,395,550
148,935 Credit Lyonnais 9,401,395
25,356 Credit National 1,847,387
8,875 Dassault Electronique SA * 655,236
12,550 Dollfus-Mieg and Cie 702,234
7,155 Elf Gabon 1,376,229
96,812 Elf Sanofi SA 5,057,849
40,216 Eridania Beghin-Say SA 5,860,113
2,180 Essilor International 307,072
3,700 Esso 467,981
1,358 Europe 1 Communication 313,709
264 Europe 1 Communication (New) * 58,216
157,187 Financiere de Paribas SA 8,945,031
69,130 FINEXTEL 1,128,214
2,380 INGENICO SA 36,992
3,975 Labinal SA 597,756
73,570 Lafarge Coppee SA 4,731,236
4,263 Lefebvre (Jean) Entreprises 264,212
36,020 LVMH Moet Hennessy Louis Vuitton 5,738,566
5,200 Metaleurop SA * 68,599
221,950 Michelin SA Class B * 8,844,365
14,832 Moulinex SA * 296,813
2,225 Navigation Mixte SA 428,832
1,700 Nord-Est 43,929
16,252 Parisienne de Reescompte (CPR-Cie) 1,038,840
39,500 Pechiney International SA 963,134
42,680 Pechiney International SA Preferred 3.43% 2,860,812
64,755 Pernod-Ricard 3,961,793
106,059 Peugeot SA * 14,424,189
1,190 Poliet SA 91,094
1,775 Radiotechnique 193,812
814 Saint Louis 221,727
1,320 Salomon SA 461,885
60,760 Schneider SA 4,167,142
6,542 SIMCO 517,310
750 Skis Rossignol SA 276,860
2,750 Sligos SA 213,182
57,170 Societe Generale d 'Entreprise SA 1,921,587
97,864 Societe Generale Paris 9,288,239
24,600 SOVAC SA 1,751,681
6,175 SPIE Batignolles * 221,950
317,270 Thomson CSF * 7,834,664
10,145 Total SA 559,187
10,560 UAP Co 240,662
8,400 Union Immobiliere de France 672,392
1,800 Vallourec * 91,626
52,920 Worms et Compagnie SA 2,560,148
198,167,161
GERMANY - 8.1%
40,040 Bankgesellschaft Berlin AG 9,175,463
235,910 Bayer AG 57,737,672
66,700 Bayerische Hypotheken-und Wechselbank AG 17,601,231
15,602 Bayerische Motorenwerke AG 8,084,988
66,880 Bayerische Vereinsbank AG 19,852,535
30,950 Berliner Handels- und Frankfurter Bank 8,019,176
20,344 Berliner Kraft und Licht AG Class A 4,005,518
350 Boss (Hugo) AG Preferred 3.84% 245,257
175 Colonia Konzern AG 130,405
100,570 Commerzbank AG 23,170,118
2,820 Daimler-Benz AG 1,366,864
2,000 Deutsche Bank AG 981,029
3,800 Didier-Werke AG * 333,823
1,229 Draegerwerk AG Preferred 2.29% 229,374
145,940 Dresdner Bank AG 39,808,621
300 Escada AG 69,937
800 Escada AG Preferred (Non Voting) 1.43% 173,372
1,070 GEA AG Preferred 3.13% 338,684
6,690 IKB Deutsche Industriebank AG 1,221,145
1,788 IKB Deutsche Industriebank AG (New) 314,145
750 Kaufhof AG Preferred (Non Voting) 5.59% 190,224
24,620 Kloeckner Humboldt-Deutz AG * 993,047
2,250 Kugelfischer George Schaefer AG * 350,709
800 Kugelfischer George Schaefer AG Preferred (Non Voting) * 117,040
300 Pfaff (GM) AG * 31,789
2,075 Philips Kommunikations Industrie AG 723,466
3,188 Porsche AG Preferred * 1,357,801
12,630 Porsche AG Preferred (Non Voting) * 5,526,030
4,090 Puma AG Preferred * 1,005,199
1,870 Rheinmetall Berlin AG 357,956
1,620 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 229,807
1,500 RWE AG Preferred (Non Voting) 389,369
12,670 Siemens AG 5,872,678
720 Varta AG * 147,076
1,100 Villeroy and Boch AG 238,387
975 Volkswagen AG Preferred .79% 202,299
210,592,234
HONG KONG - 6.1%
571,500 Amoy Properties Ltd 521,125
893,000 Applied International Holdings Ltd 102,796
178,600 Applied International Holdings Ltd Warrants 12/30/99 * 6,699
1,609,000 Cathay Pacific Airways Ltd 2,601,371
1,544,000 Chinese Estates Holdings Ltd 1,198,215
392,775 Cross Harbour Tunnel Co Ltd 772,189
2,925,562 Dairy Farm International 3,519,075
4,296,000 Denway Investments 355,615
1,533,000 Dickson Concepts International Ltd 832,775
7,574,927 Elec and Eltek International Holdings Ltd 881,774
220,262 Furama Hotel Enterprises Ltd 270,645
1,810,000 Goldlion Holdings Ltd 402,664
1,041,000 Great Eagle Holdings Ltd 437,593
2,006,000 Hang Lung Development Co Ltd 2,970,795
200,600 Hang Lung Development Co Ltd Warrants 10/31/97 * 35,286
327,500 Harbour Centre Development Ltd 368,525
978,000 Henderson Land Development Co Ltd 5,451,956
855,600 Hong Kong and China Gas Co Ltd 1,493,966
1,703,700 Hong Kong Ferry Co Ltd 1,828,974
113,580 Hong Kong Ferry Warrants 6/30/96 * 43,337
2,087,000 Hong Kong Land Holdings 3,981,537
71,300 Hong Kong & China Gas Warrants 12/31/95 * 11,528
222,800 Hongkong Aircraft Engineering Co Ltd 717,548
805,500 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 922,030
1,442,400 Hongkong Electric Holdings Ltd 4,318,898
7,374,515 Hopewell Holdings Ltd 5,627,580
3,746,000 Hutchison Whampoa Ltd 15,891,974
916,000 Jardine International Motor Holdings Ltd 1,001,125
74,000 Johnson Electric Holdings Ltd 147,397
686,400 Kowloon Motor Bus Co Ltd 1,234,037
2,047,000 Kumagai Gumi Hong Kong Ltd 1,416,472
1,479,800 Lai Sun Garment International Ltd 1,579,040
183,000 Lane Crawford International Ltd Series A 281,666
250,000 Lane Crawford International Ltd Series B 35,569
1,076,000 Laws International Holdings Ltd 180,922
1,014,435 Mandarin Oriental 1,200,554
2,084,000 National Mutual Asia Ltd 1,361,211
1,740,168 New World Development Co Ltd 4,749,084
1,086,000 Playmate Toys Holding 337,114
615,539 Playmates Properties Holdings 88,372
385,748 Realty Development Corp Ltd Class A 937,989
12,966,890 Regal International Ltd 2,498,954
1,364,000 San Miguel Brewery Ltd 1,182,022
1,144,000 Shun Tak Holdings Ltd 680,644
945,599 Sino Hotels Holdings Ltd * 244,609
3,782,398 Sino Land Co Ltd 3,033,159
2,338,000 South China Morning Post Ltd 1,270,077
2,895,826 Stelux Holdings International Ltd 852,099
2,370,400 Sun Hung Kai Properties Ltd 15,942,676
5,100,136 Swire Pacific Ltd Class A 35,786,378
1,759,707 Tai Cheung Holdings Ltd 1,672,877
536,000 Television Broadcasts Ltd 2,017,409
5,698,944 Wharf Holdings Ltd 19,607,050
1,197,000 Wheelock & Co Ltd 2,020,416
412,000 Wing On International Holdings Ltd 719,395
1,097,500 Winsor Industrial Corp Ltd 1,355,639
802,000 World Trade Centre Group Ltd 98,545
159,098,971
ITALY - 4.6%
3,694,100 Alitalia Linee Aeree Italiane Class A * 2,025,228
338,800 Alitalia Linee Aeree Italiane Class B (Private Placement) * (b) 127,482
79,640 Assicurazioni Generali SPA 1,794,169
2,720,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 4.98% 3,406,116
547,505 Banca Commerciale Italiana SPA 1,230,166
344,000 Banca Commerciale Italiana SPA (Non Convertible) 791,469
1,196,717 Banca Commerciale Italiana SPA Warrants 11/30/95 * 674,006
10,687,700 Banca di Roma 9,458,211
227,250 Banca Nazionale dell'Agricoltura di Risp * 91,227
634,500 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 269,159
471,050 Banca Nazionale dell'Agricoltura SPA Preferred * 368,317
74,000 Banca Popolare di Bergamo Credit 939,965
357,400 Banca Toscana 828,724
506,600 Banco Ambrosiano Veneto SPA (Non Convertible) 761,874
6,037,450 Banco di Napoli (Non Convertible) 3,852,542
3,300,000 Bastogi-IRBS SPA * 199,701
500,200 Benetton Group SPA 4,795,213
18,500 Bonifiche-Siele Finanziaria SPA * 379,090
20,000 Caffaro SPA di Risp * 23,966
273,750 Caffaro SPA * 328,041
524,000 Cartiere Burgo SPA * 3,610,550
322,000 Cementir Cementerie del Tirreno SPA 269,716
472,500 COFIDE SPA (Non Convertible) * 215,159
594,843 COFIDE SPA * 326,826
434,500 Cogefar Impresit Costruzioni Generali SPA * 396,492
480,000 Comau Finanziaria SPA 760,696
222,500 Compagnia Italiana Grandi Alberghi (Non Convertible) * 126,648
76,967 Credito Fondiario 262,859
2,138,310 Credito Italiano (Non Convertible) 2,306,149
35,000 Danieli and Co SPA 250,495
159,000 Danieli and Co SPA (Non Convertible) 548,737
1,107,000 Edison SPA 4,775,561
79,000 Editoriale l'Espresso SPA 144,368
37,750 Ericsson SPA 508,913
183,000 Falck Acciaierie and Ferriere Lombarde * 371,702
2,466,000 Fiat SPA * 9,478,377
2,283,500 Fiat SPA (Non Convertible) 5,500,109
1,899,000 Fiat SPA Preferred * 4,767,418
644,550 FIDIS SPA 1,454,005
27,000 Filippo SPA * 36,642
188,000 Finmeccanica SPA (Non Convertible) * 146,435
1,313,000 Finmeccanica SPA * 1,170,609
450,000 Gemina SPA (Non Convertible) 297,933
844,940 Gilardini SPA * 2,095,900
593,000 Grassetto SPA * 515,189
4,513,350 Industriali Riunite SPA * 4,367,328
1,840,500 Industriali Riunite (Cie) SPA (Non Convertible) * 1,074,086
734,710 Istituto Bancario San Paolo 4,076,347
363,250 Italcementi Fabbriche Riunite Cemento SPA 2,367,984
274,150 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 865,652
17,000 Magona d'Italia SPA 39,724
90,500 Marzotto and Figli SPA 572,065
7,564,220 Montedison SPA * 5,533,808
1,760,000 Montedison SPA (Non Convertible) * 1,067,179
475,000 Montefibre SPA * 391,328
410,000 Montefibre SPA (Non Convertible) * 249,341
1,555,200 Olivetti and Co SPA * 1,728,520
671,500 Olivetti and Co SPA (Non Convertible) * 523,038
274,500 Olivetti and Co SPA Preferred * 380,748
2,543,000 Parmalat Finanziaria SPA 2,247,412
1,133,700 Pirelli and Co 2,567,640
241,000 Pirelli and Co (Non Convertible) 310,456
368,000 Pirelli SPA (Non Convertible) 405,043
302,000 Ratti SPA 602,553
20,100 Recordati Industria Chimica e Farmaceutica SPA 98,212
60,500 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 170,372
358,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 1,782,495
317,600 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 851,565
391,100 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 972,479
272,000 SAFFA SPA * 785,525
34,000 SAFILO SPA * 208,808
390,533 Saipem SPA * 685,598
273,000 Sasib SPA 1,267,677
96,000 Sasib SPA (Non Convertible) 258,550
498,000 Sirti SPA 3,341,886
3,185,270 Snia BPD SPA * 3,721,561
120,000 Snia BPD SPA (Convertible) 143,367
298,000 Snia BPD SPA (Non Convertible) 203,547
1,065,900 Societa Metallurgica SPA * 542,850
176,000 SORIN Biomedica SPA * 474,009
105,000 Stefanel SPA 212,328
238,370 STET SPA 661,981
14,000 Teleco Cavi SPA 60,773
252,000 Telecom Italia SPA di Risp (Non Convertible) 488,449
25,200 Tosi (Franco) SPA 269,515
116,900 Unione Cementi Marchino Emiliane e di Augusta-Casale 791,475
148,100 Unione Cementi Marchino Emiliane e di Augusta-Casale
(Non Convertible) 465,863
120,511,291
JAPAN - 20.9%
60,000 Ajinomoto Co Inc 695,616
99,000 Alps Electric Co Ltd * 1,178,510
360,000 Amada Co Ltd 3,577,455
1,483,000 Aoki Corp 8,136,121
45,700 Arabian Oil Co Ltd 1,925,356
236,000 Asahi Breweries Ltd 2,442,938
50,000 Asics Corp 168,211
19,000 Bank of Kyoto Ltd 133,740
170,000 Bank of Yokohama Ltd 1,295,171
193,000 Banyu Pharmaceutical Co Ltd 1,993,831
58,000 Brother Industries Ltd 321,805
49,000 Canon Sales Co Inc 1,110,812
113,000 Chiba Bank Ltd 860,908
32,300 Chubu Electric Power Co Inc 785,725
13,000 Chudenko Corp 501,941
68,000 Chugai Pharmaceutical Co Ltd 682,780
30,000 Chugoku Bank Ltd 487,552
16,000 Chugoku Electric Power Co Inc 357,745
544,000 Cosmo Oil Co Ltd 3,575,798
221,000 CSK Corp 6,039,439
467,000 Dai Nippon Printing Co Ltd 6,912,789
39,000 Dai Tokyo Fire and Marine Insurance Co Ltd 249,490
815,000 Daicel Chemical Industries Ltd 3,847,006
77,000 Daiichi Seiyaku Co Ltd 1,171,678
81,000 Daikin Industries Ltd 605,372
118,000 Daikyo Inc 853,807
185,000 Dainippon Ink & Chemicals Inc 808,136
46,000 Dainippon Pharmaceutical Co Ltd 480,927
38,000 Dainippon Screen Manufacturing Co Ltd * 250,173
33,000 Daito Trust Construction Co Ltd 283,526
213,000 Daiwa Bank Ltd 1,777,113
95,000 Daiwa Kosho Lease Co Ltd 856,529
14,000 Denny's Japan Co Ltd 428,963
1,779 East Japan Railway Co 7,844,873
72,000 Eisai Co Ltd 1,095,595
14,000 Ezaki Glico Co Ltd 124,631
134,000 Fuji Heavy Industries Ltd * 486,869
265,000 Fuji Photo Film Co Ltd 5,678,278
761,000 Fujisawa Pharmaceutical Co Ltd 8,665,183
262,000 Fujita Corp 1,404,855
57,000 Fujita Kanko Inc 1,115,160
1,281,000 Fujitsu Ltd 11,695,482
13,000 Fujiya Co Ltd 65,266
2,000 Fukuoka City Bank Ltd 14,720
174,000 Fukuyama Transporting Co Ltd 1,610,227
154,000 Furukawa Electric Co Ltd 857,637
256,000 Gakken Co Ltd * 1,854,976
203,000 General Sekiyu (KK) 1,924,828
57,000 Green Cross Corp 476,746
525,000 Hankyu Corp 2,825,941
42,000 Hankyu Department Stores Inc 431,282
198,000 Hanwa Co Ltd * 643,569
745,000 Haseko Corp 3,971,585
262,000 Hazama-Gumi Ltd 1,274,675
72,000 Heiwa Real Estate Co Ltd 521,712
48,000 Higo Bank Ltd 378,614
91,000 Hiroshima Bank Ltd 518,089
262,000 Hitachi Cable Ltd 1,789,969
1,620,000 Hitachi Ltd 14,170,074
38,000 Hitachi Maxell Ltd 593,965
99,000 Hitachi Sales Corp 584,131
95,000 Hokkaido Bank Ltd 351,069
24,000 Hokkaido Takushoku Bank Ltd 82,729
65,000 Hokuriku Bank Ltd 432,638
100,000 Honda Motor Co Ltd 1,511,309
11,000 House Foods Corp 203,820
104,000 Hoya Corp 2,239,222
5,000 Hyogo Bank Ltd * 13,716
249,000 INAX Corp 2,518,224
100,000 Intec Inc 1,283,577
333,000 Itochu Corp 1,961,358
28,000 Itoham Foods Inc 191,294
3,000 Izumiya Co Ltd 46,581
47,000 Japan Airport Terminal Co Ltd 510,843
942,000 Japan Energy Co Ltd 3,373,863
606,000 Japan Synthetic Rubber Co Ltd 3,418,767
805 Japan Tobacco Inc * 6,699,653
150,000 Joshin Denki Co Ltd 1,707,986
196,000 Kajima Corp 1,742,808
25,000 Kaken Pharmaceutical Co Ltd 282,077
108,000 Kamigumi Co Ltd 894,364
299,000 Kankaku Securities Co Ltd 1,210,175
11,000 Kansai Paint Co Ltd 58,185
55,000 Kao Corp 597,795
304,000 Keihin Electric Express Railway Co Ltd 1,759,081
395,000 Keio Teito Electric Railway Co Ltd 2,171,161
166,000 Keisei Electric Railway Co Ltd 1,207,991
962,000 Kinki Nippon Railway Co Ltd 7,707,551
341,000 Kirin Brewery Co Ltd 3,529,838
13,000 Kissei Pharmaceutical Co Ltd 504,632
185,000 Kokusai Kogyo Co Ltd 1,821,179
55,000 Kokuyo Co Ltd 1,326,536
235,000 Komatsu Ltd 1,724,704
14,000 Konami Co Ltd 257,958
82,000 Konica Corp 560,219
240,000 Koyo Seiko Co Ltd 2,062,005
2,126,000 Kumagai Gumi Co Ltd 10,541,421
583,000 Kurabo Industries Ltd 2,172,558
756,000 Kureha Chemical Industry Co Ltd 3,545,034
37,000 Kyodo Printing Co Ltd 363,853
126,000 Kyowa Hakko Kogyo Co Ltd 1,218,198
142,000 Lion Corp 843,724
192,000 Maeda Corp 2,047,099
244,000 Makino Milling Machine Co Ltd * 1,818,539
606,000 Marubeni Corp 2,766,379
240,000 Marudai Food Co Ltd 1,619,792
526,000 Marui Co Ltd 7,513,897
737,000 Matsushita Electric Industrial Co Ltd 10,680,607
556,000 Matsushita Electric Works Ltd 5,611,511
252,000 Mazda Motor Corp * 1,171,244
27,000 Meiji Milk Products Co Ltd 182,506
81,000 Meiji Seika Kaisha Ltd 482,118
79,000 Mercian Corp 539,724
637,000 Minebea Co Ltd 3,890,378
836,000 Mitsubishi Electric Corp 5,434,584
845,000 Mitsubishi Estate Co Ltd 8,528,285
647,000 Mitsubishi Gas Chemical Co Inc 2,645,463
2,520,000 Mitsubishi Materials Corp 11,868,951
386,000 Mitsubishi Oil Co Ltd 3,352,352
144,000 Mitsubishi Rayon Co Ltd 487,428
448,000 Mitsubishi Trust & Banking Corp 6,353,294
70,000 Mitsubishi Warehouse & Transportation Co Ltd 999,948
527,000 Mitsui Fudosan Co Ltd 5,395,197
128,000 Mitsui Mining Co Ltd * 582,993
698,000 Mitsui Petrochemical Industries Ltd 4,913,203
395,000 Mitsui Trust & Banking Co Ltd 3,553,180
57,000 Mitsui-Soko Co Ltd 395,321
33,000 Mochida Pharmaceutical Co Ltd 666,115
26,000 Mori Seiki Co Ltd 460,225
487,000 Nagoya Railroad Co Ltd 2,334,051
21,000 Namco Ltd 456,498
282,000 Nankai Electric Railway Co Ltd 2,055,049
797,000 NEC Corp 7,565,333
270,000 New Japan Securities Co Ltd 1,537,188
428,000 Nichiei Co Ltd 2,144,320
63,000 Nichii Co Ltd 684,747
29,000 Nichirei Corp 178,614
57,000 Nihon Cement Co Ltd 396,501
16,000 Nippon Beet Sugar Manufacturing Co Ltd 66,912
29,000 Nippon Chemi-Con Corp * 159,402
18,000 Nippon Credit Bank Ltd 92,604
44,000 Nippon Denko Co Ltd 157,135
657,000 Nippon Express Co Ltd 5,848,766
19,000 Nippon Flour Mills Co Ltd 94,602
54,000 Nippon Kayaku Co Ltd 340,976
21,000 Nippon Meat Packers Inc 273,899
4,032,000 Nippon Oil Co Ltd 24,207,443
1,057,000 Nippon Sheet Glass Co Ltd 5,416,024
223,000 Nippon Suisan Kaisha Ltd * 1,038,766
38,000 Nippon Yakin Kogyo Co Ltd 188,810
1,318,000 Nissan Motor Co Ltd 9,018,146
22,000 Nisshin Flour Milling Co Ltd 234,563
443,000 Nisshinbo Industries Inc 4,195,901
183,000 Nissho Iwai Corp 831,603
12,000 Nissin Food Products Co Ltd 265,825
58,000 Nitto Boseki Co Ltd * 157,300
383,000 Nitto Denko Corp 5,431,499
606,000 NSK Ltd 3,732,416
435,000 Odakyu Electric Railway Co Ltd 3,179,028
142,000 Okamoto Industries Inc 898,111
61,000 Olympus Optical Co Ltd 574,608
35,000 Ono Pharmaceutical Co Ltd 1,648,465
100,000 Onoda Cement Co Ltd 576,575
33,000 Onward Kashiyama Co Ltd 420,165
845,000 Renown Inc * 3,315,098
152,000 Ricoh Co Ltd 1,294,923
146,000 Royal Co Ltd 1,889,136
39,000 Ryobi Ltd 190,549
252,000 Sagami Railway Co Ltd 1,171,244
56,000 Sanden Corp 314,187
44,000 Sankyo Aluminium Industry Co Ltd 239,118
114,000 Sankyo Co Ltd 2,678,743
18,000 Sanrio Co Ltd 210,548
41,000 Sanwa Shutter Corp 368,811
456,000 Sanyo Electric Co Ltd 2,374,287
107,000 Sapporo Breweries Ltd 976,906
48,000 SECOM Co Ltd 2,543,968
72,000 Seibu Railway Co Ltd 2,630,920
307,000 Seino Transportation Co Ltd 4,830,392
303,000 Sekisui Chemical Co Ltd 3,011,024
547,000 Sekisui House Ltd 6,171,834
717,000 Settsu Corp * 2,597,692
52,000 Shimadzu Corp 324,579
205,000 Shionogi and Co Ltd 1,735,831
208,000 Shiseido Co Ltd 2,260,753
38,000 Shochiku Co Ltd 397,288
34,000 Shokusan Jutaku Sogo Co Ltd * 158,377
282,000 Showa Shell Sekiyu 3,152,632
142,000 Skylark Co Ltd 2,087,263
30,000 Snow Brand Milk Products Co Ltd 204,027
104,000 Sony Corp 4,521,505
43,000 Stanley Electric Co Ltd 284,871
71,000 Sumitomo Coal Mining Co Ltd * 404,958
1,059,000 Sumitomo Corp 9,098,597
31,000 Sumitomo Forestry Co Ltd 433,207
736,000 Sumitomo Metal Industries Ltd * 2,110,367
184,000 Sumitomo Osaka Cement Co Ltd 902,810
265,000 Sumitomo Realty & Development Co Ltd 1,442,886
22,000 Sumitomo Sitix Corp 280,110
370,000 Sumitomo Trust & Banking Co Ltd 4,289,633
58,000 Sumitomo Warehouse Co Ltd 341,018
19,000 SXL Corp Ltd 182,910
238,000 Taisei Corp 1,532,384
96,000 Taisho Pharmaceutical Co Ltd 1,629,729
25,000 Taiyo Yuden Co Ltd 243,259
67,000 Takara Shuzo Co Ltd 506,288
247,000 Takeda Chemical Industries Ltd 2,863,620
447,000 Tanabe Seiyaku Co Ltd 3,424,046
2,170,000 Teijin Ltd 10,175,560
229,000 Teikoku Oil Co Ltd 1,481,549
96,000 Terumo Corp 775,115
33,000 The Japan Steel Works Ltd 94,281
557,000 Toa Nenryo Kogyo (K K) 8,302,676
525,000 Tobu Railway Co Ltd 3,141,142
69,000 Toei Co Ltd 461,405
7,500 Toho Co Ltd 1,180,063
87,000 Tokyo Broadcasting System Inc 1,179,753
78,000 Tokyo Dome Corp 1,396,822
270,000 Tokyo Electric Co Ltd * 1,123,544
145,000 Tokyo Tatemono Co Ltd 813,519
135,000 Tokyotokeiba Co Ltd 628,849
546,000 Tokyu Construction Co Ltd 2,808,985
672,000 Tokyu Corp 4,278,039
161,000 Tokyu Department Store Co Ltd 946,618
297,000 Tokyu Land Corp 1,340,428
388,000 Toppan Printing Co Ltd 4,658,972
111,000 Toshiba Tungaloy Co Ltd * 460,753
39,000 Tostem Corp 1,142,487
58,000 Toto Ltd * 912,582
40,000 Toyo Engineering Corp 233,942
9,000 Toyo Exterior Co Ltd 206,822
228,000 Toyo Ink Manufacturing Co Ltd 1,300,430
103,000 Toyo Trust & Banking Co Ltd 890,275
147,000 Toyota Motor Corp 2,647,689
35,000 Tsumura and Co 394,907
17,000 Uni-Charm Corp 329,072
132,000 Victor Co of Japan Ltd * 1,462,036
222,000 Wacoal Corp 2,252,057
126,000 Yakult Honsha Co Ltd 1,786,864
100,000 Yamaguchi Bank Ltd 1,656,229
44,000 Yamaha Corp 487,345
1,136,000 Yamaichi Securities Co Ltd 7,490,627
91,000 Yamanouchi Pharmaceutical Co Ltd 1,780,343
203,000 Yamato Transport Co Ltd 2,101,341
20,000 Yamazaki Baking Co Ltd 360,230
238,000 Yasuda Trust and Banking Co Ltd 1,741,794
68,000 Yokogawa Bridge Corp 879,872
103,000 Yokogawa Electric Corp 941,452
40,000 Yoshitomi Pharmaceutical Industries Ltd 335,800
540,632,366
MALAYSIA - 0.2%
68,000 DMIB Berhad 74,053
4,513,000 Faber Group Berhad * 4,313,670
194,000 Golden Hope Plantations Berhad 345,024
204,000 Highlands and Lowlands Berhad 359,612
319,000 Idris Hydraulic Berhad * 537,342
65,000 Malaysia Mining Corp Berhad 103,379
44,000 Perlis Plantations 145,647
5,878,727
NEW ZEALAND - 1.0%
814,641 Air New Zealand Ltd Class B 2,631,774
2,267,066 Carter Holt Harvey Ltd 4,997,533
27,250 Ceramco Corp Ltd 43,154
676,200 DB Group Ltd * 406,922
1,433,746 Fay Richwhite and Company Ltd 690,237
178,406 Fisher and Paykel Industries Ltd 457,696
5,238,400 Fletcher Challenge Ltd 13,040,776
2,130,900 Lion Nathan Ltd 4,049,455
30,306,360 Tasman Properties Ltd * 479,939
54,000 Wilson and Horton Ltd 307,857
1,719,000 Wilson (Neill) Ltd * 10,889
27,116,232
NORWAY - 2.9%
84,800 Aker AS Class A 1,120,030
56,600 Aker AS Class B (Non Voting) 721,337
269,090 Bergesen d y AS Class A 5,944,306
118,170 Bergesen d y AS Class B 2,610,423
77,450 Det Norske Luftfartsselskab AS Class B * 2,823,586
112,700 Dyno Industrier AS 3,133,747
183,150 Elkem AS * 2,291,709
194,670 Hafslund Nycomed AS 3,909,398
252,110 Hafslund Nycomed AS Class B 5,062,919
94,140 Kvaerner Industrier AS 4,275,521
195,020 Leif Hoegh and Co AS 2,711,373
745,790 Norsk Hydro AS 28,226,056
39,000 Norske Skogindustrier AS Series A 1,295,301
121,340 Orkla-Borregaard AS Series A 4,479,912
41,450 Orkla-Borregaard AS Series B (Non Voting) 1,434,300
181,910 Unitor AS 2,767,964
190,800 Vard AS Class A * 226,953
63,100 Vital Forsikring AS 633,593
73,668,428
SINGAPORE - 5.3%
2,579,000 Chuan Hup Holdings Ltd 2,313,244
3,941,000 Faber Group Berhad * 3,834,001
51,000 Far East Levingston Shipbuilding Ltd 216,407
790,500 First Capital Corp Ltd 2,148,943
8,711 First Capital Corp Ltd Warrants 5/18/97 * 13,824
1,290,400 Fraser and Neave Ltd 13,622,051
38,000 Golden Hope Plantations Berhad 66,333
67,000 Goodman Fielder Asia Holdings Ltd 117,880
1,634,000 Hai Sun Hup Group Ltd 1,567,089
1,452,200 Haw Par Brothers International Ltd 3,005,899
848,000 Highlands and Lowlands Berhad 1,480,277
2,551,000 Hotel Properties Ltd 4,453,051
425,000 Inchcape Berhad 1,389,933
1,816,627 Jardine Matheson Holdings Ltd * 16,712,968
2,564,594 Jardine Strategic Holdings Ltd * 9,540,290
657,000 Jurong Shipyard Ltd 5,485,011
824,000 Kuala Lumpur Kepong Berhad 2,262,752
1,488,000 Lum Chang Holdings Ltd 1,355,201
524,000 Malaysia Mining Corp Berhad 838,776
150,000 Marco Polo Developments Ltd 184,221
371,000 Metro Holdings Ltd 1,369,476
4,464,000 Neptune Orient Lines Ltd 5,759,603
278,000 Prima Ltd 1,064,546
402,000 Robinson and Co Ltd 1,622,589
235,000 Shangri-La Hotel Ltd 883,672
3,582,200 Singapore Airlines Ltd 35,838,065
350,000 Singapore Land Ltd 1,980,198
2,444,000 Straits Trading Co Ltd 5,598,427
404,000 Times Publishing Ltd 1,075,958
9,505,000 United Industrial Corp Ltd 7,935,316
1,528,000 United Overseas Land Ltd 2,846,517
513,000 Wearne Brothers Ltd 1,160,962
137,743,480
SPAIN - 4.9%
398,150 Argentaria Corporacion Bancaria de Espana SA 12,868,936
91,700 Asland SA 1,229,289
47,893 Asturiana del Zinc SA * 471,697
154,300 Autopistas Concesionaria Espanola SA 1,278,475
227,950 Autopistas del Mare Nostrum SA 2,280,710
20,100 Azucarera de Espana SA 519,264
730,400 Banco Bilbao Vizcaya SA 19,468,638
336,740 Banco Central Hispanoamericano SA 7,830,727
38,500 Banco Exterior de Espana Namen 1,169,155
33,600 Banco Zaragozano SA 492,449
39,305 Bankinter SA 3,219,805
21,025 Cristaleria Espanola SA * 1,055,095
5,290 Cubiertas y MZOV SA 297,720
483,820 Dragados y Construcciones SA 6,050,959
126,550 Ebro Agricolas Compania de Alimentacion SA 1,350,253
84,600 Empresa Nacional de Celulosa SA * 2,278,138
98,410 Empresa Nacional de Electricidad SA 4,284,645
515,200 Ercros SA * 587,962
14,900 Europistas Concesionaria Espanola SA 121,127
20,049 Fabricacion de Automoviles Renault de Espana SA 584,550
2,608,023 FENOSA SA 9,989,136
1,050 Fomento Construcciones y Contratas SA 86,179
1,950,320 Fuerzas Electricas de Cataluna SA 9,680,550
61,186 Grupo Duro Felguera SA * 243,439
28,400 Hornos Ibericos Alba SA * 345,199
182,150 Huarte SA 1,637,372
1,615,680 Iberdrola SA 10,103,358
1,550 Koipe SA 82,387
20,700 Prosegur Cia SA 387,522
314,120 Repsol SA 8,912,974
117,600 Sarrio SA * 519,369
2,115,577 Sevillana de Electricidad 9,095,194
17,400 Tabacalera SA Series A 510,036
91,700 Tableros Defibras Series B * 878,063
91,700 Tableros Fibras Rights 4/12/95 * 53,759
8,400 Telefonica de Espana ADR 315,000
44,780 Telefonica de Espana SA 558,297
274,870 Uralita SA * 2,717,930
120,816 Vallehermoso SA 1,770,705
125,326,063
SWEDEN - 0.8%
79,590 AGA AB Series A 850,937
15,000 AGA AB Series B 160,373
90,100 Bilspedition AB Series B * 353,416
7,000 Celsius Industrier AB Class B 154,925
67,920 Electrolux AB Series B 3,418,075
11,900 Esselte AB Series A 155,592
23,000 Esselte AB Series B 303,857
120,800 Fastighets AB (Hufvudstaden) Series A 707,465
35,600 Hennes and Mauritz AB Series B 2,094,610
96,920 Marieberg Tidnings AB Series A 2,310,047
12,400 Mo Och Domsjoe AB Series B * 617,275
21,300 Pharmacia AB Class A 391,636
8,000 Pharmacia AB Class B 146,549
27,875 Sandvik AB Class B 474,563
22,000 Skandia Group Foersaekrings AB 388,027
508,460 Skandinaviska Enskilda Banken Series A * 2,776,966
24,200 Skandinaviska Enskilda Banken Series C * 124,918
121,140 Skanska AB Series B 2,689,333
46,720 SKF AB Class B * 862,207
3,200 Stora Kopparbergs Bergslags AB Series B 206,149
169,100 Svenska Handelsbanken Series A 2,141,884
19,800 Svenska Handelsbanken Series B 238,659
28,800 Trelleborg Class B AB * 398,133
21,965,596
SWITZERLAND - 5.1%
2,900 Adia SA * 537,882
350 Baer Holdings AG 340,107
3,570 Baloise Holdings 6,621,507
1,160 Banque Cantonale Vaudoise 598,686
1,390 Bobst SA (Bearer) 1,877,545
1,530 Bobst SA (Registered) 987,057
150 CIBA-GEIGY AG (Bearer) 94,835
27,605 CS Holdings (Bearer) 11,419,995
82,126 CS Holdings (Registered) 6,788,367
900 Danzas Holding AG 816,499
190 Elektrowatt AG 49,490
930 Elvia Schweiz Versicherungs 2,868,634
160 Forbo Holding AG (Bearer) 285,150
524 Forbo Holdings Warrants 11/1/95 * 845
675 Helvetia Schweizerische Versicherungsgesellschaft 318,435
4,800 Hilti AG, Schaan (Participating Certificate) 3,522,439
3,820 Holderbank Financiere Glarus AG (Bearer) 2,821,757
17,180 Holderbank Financiere Glarus AG (Registered) 2,618,459
6,770 Interdiscount Holding SA Warrants 11/15/96 * 7,643
600 Interdiscount Holding SA (Bearer) 747,551
770 Interdiscount Holding SA (Participating Certificate) 88,174
1,695 Intershop Holding AG 714,878
775 Magazine zum Globus (Registered) 474,981
6,710 Merkur Holding AG 1,791,065
2,410 Pargesa Holding SA 2,545,946
15 Reisebuero Kuoni AG (Bearer) 459,659
160 Reisebuero Kuoni AG (Participating Certificate) 251,603
1,110 Sandoz AG * 640,910
650 Saurer Group Holdings 204,951
110 Schindler Holding AG (Bearer) 722,955
1,565 Schindler Holding AG (Participating Certificate) 1,943,551
1,500 Schindler Holding AG (Registered) 1,838,636
1,863 Sika Finanz AG 533,337
3,200 Sika Finanz AG (Registered) 159,994
4,190 SMH AG (Bearer) 2,240,208
17,550 SMH AG (Registered) 2,087,517
700 Societe Generale de Surveillance Holdings Ltd (Registered) 191,363
2,220 Sulzer Gebrueder AG 1,405,347
358 Swiss Bank Corp Warrants 6/30/98 (Registered) * 1,732
664 Swiss Bank Corp Warrants 6/30/98 * 5,890
28,414 Swiss Bank Corp (Bearer) 8,134,325
30,868 Swiss Bank Corp (Registered) 4,405,980
23,938 Union Bank of Switzerland (Bearer) 20,018,311
2,800 Union Bank of Switzerland (Registered) 557,719
20,600 Winterthur Schweizerische Versicherungs-Gesellschaft (Registered) 10,017,177
6,850 Winterthur Schweizerische Versicherungs-Gesellschaft 3,441,434
11,710 Zurich Versicherungs-Gesellschaft (Bearer) 11,161,824
14,440 Zurich Versicherungs-Gesellschaft (Registered) 13,880,473
133,242,823
UNITED KINGDOM - 20.3%
4,380 Allied Domecq Plc 34,829
562,312 AMEC Plc 560,594
63,280 Amersham International Plc 822,129
661,660 Amstrad Plc 1,769,506
30,640 Anglian Water Plc 232,492
4,125,994 Argyll Group 17,596,152
18,994,185 ASDA Group Plc 20,363,869
67,340 Associated British Foods 622,856
160,000 Barratt Developments Plc 417,767
1,689,100 Bass Plc 13,511,603
1,979,950 BAT Industries Plc 13,034,005
327,420 Berisford International Plc 1,147,650
520,650 Boots Co Plc 3,925,899
2,317,229 British Aerospace Plc 17,271,108
242,471 British Land Co Plc 1,421,603
8,362,974 British Petroleum Co Plc 52,406,635
999,770 British Steel Plc 2,523,429
2,128,740 BTR Plc 10,560,646
393,750 Bunzl Plc 1,028,099
6,418,620 Burton Group Plc 6,805,293
48,530 Carlton Communications Plc 667,360
115,884 Charter Plc 1,368,021
271,100 Cobham Plc 1,312,748
4,399,565 Costain Group Plc * 1,549,067
509,950 Dixons Group Plc 1,694,639
11,140 East Midlands Electricity 128,159
564,440 English China Clays Plc 3,019,012
4,570,300 Ferranti International Plc * (c) 54,242
26,300 First Leisure Corp.Plc 110,289
1,264,250 Fisons Plc 2,540,780
2,367,695 Forte Plc 8,992,229
2,357,020 General Electric Co Plc 10,816,621
6,876,273 Glaxo Plc 68,987,865
1,217,886 Grand Metropolitan Plc 7,371,713
1,057,755 Great Portland Estates Plc 2,929,230
804,370 Great Universal Stores Plc 6,491,669
204,560 Greenalls Group Plc 1,304,536
341,975 Greycoat Plc * 687,272
1,652,881 Hammerson Property Investment and Development Corp Plc 8,383,010
367,100 Hillsdown Holdings Plc 1,042,748
435,060 Imperial Chemical Industries Plc 4,843,325
1,839,517 Ladbroke Group Plc 4,919,499
280,408 Laing (John) Plc Class A 820,904
4,240,075 Lasmo Plc * 10,299,408
39,680 Lex Service Plc 177,073
201,840 London Electricity Plc 2,306,082
1,031,600 London International Group Plc * 1,550,834
4,058,065 Lonrho Plc 9,311,451
1,488,510 Marks & Spencer Plc 8,774,217
161,766 Meyer International Plc 793,559
128,160 Midland Electricity 1,488,603
1,008,990 National Power Plc 7,400,600
394,321 Norcros Plc 486,715
16,080 Northern Electric Plc 268,962
496,400 Northern Foods Plc 1,590,696
16,890 Northumbrian Water Group Plc 195,646
166,500 NORWEB Plc 2,092,016
199,140 Ocean Group Plc 869,757
1,321,257 Peninsular and Oriental Steam Navigation Co 11,781,798
1,612,256 Pilkington Plc 4,222,429
895,660 Powergen Plc 7,044,171
417,026 Reckitt & Colman Plc 4,144,318
498,773 Redland Plc 3,362,350
1,060,713 Sainsbury Plc 6,865,174
116,360 Scottish & Newcastle Plc 914,225
99,940 Securicor Group Plc Class A (Non-Voting) 1,447,074
1,944,500 Signet Group Plc * 538,488
697,874 Simon Engineering Plc * 866,916
380,170 Slough Estates Plc 1,356,609
2,912,032 Smith & Nephew Plc 7,303,916
2,971,010 Smithkline Beecham Plc Class A 23,671,944
3,573,220 Smithkline Beecham Plc Equity Units 27,282,704
5,500 South West Water Plc 43,126
80,620 South Western Electricity Plc 1,034,651
31,262 Southern Water Plc 269,615
70,260 Suter Plc 169,554
6,902,675 Tarmac Plc 11,469,304
2,872,426 Taylor Woodrow Plc 5,363,659
2,095,660 Tesco 8,307,281
122,260 Thorn EMI Plc Ord 2,014,028
3,141,383 Trafalgar House Plc 3,082,073
292,870 Unigate Plc 1,631,353
674,070 Unilever Plc 12,480,190
640,140 United Biscuits Holdings Plc 3,383,388
6,986 Vodafone Group Plc 20,894
687,200 Wellcome Plc 11,021,412
774,403 Wessex Water Plc 3,345,492
676,884 Whitbread Plc Class A (Limited Voting) 5,762,711
239,600 Wilson (Connolly) Holdings Plc 466,361
884,480 Wimpey (George) Plc 1,686,574
26,260 Wolseley Plc 145,859
526,196,362
TOTAL STOCK AND EQUIVALENTS (Cost $2,501,692,687) 2,551,024,197
Par Value SHORT-TERM INVESTMENT - 0.4%
U.S. GOVERNMENT - 0.4%
$ 10,430,000 U.S. Treasury Bill 5.89% due 2/8/96 (a) 9,830,020
TOTAL SHORT-TERM INVESTMENT (Cost $9,777,724) 9,830,020
TOTAL INVESTMENTS - 98.8%
(Cost $2,511,470,411) * * $ 2,560,854,217
Other Assets and Liabilities (net) - 1.2% 30,791,635
TOTAL NET ASSETS - 100.0% $ 2,591,645,852
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) This security is held as collateral for open futures contracts.
(b) Restricted security - This security is restricted as to resale. At
February 28, 1995, restricted securities amounted to $127,482.
(c) Security valued by management (Note 1).
* Non-income producing security.
** The aggregate identified cost for federal
income tax purposes is $2,512,340,919 resulting
in gross unrealized appreciation and depreciation
of $198,384,375 and $149,871,077, respectively,
and net unrealized appreciation of $48,513,298.
</TABLE>
<TABLE>
<CAPTION>
At February 28, 1995, industry sector diversificatio investments
was as follows:
Percentage of
Industry Sector Net Assets
<S> <C>
Services 16.5 %
Banking 16.1
Construction 10.2
Oil and Gas 7.0
Transportation 5.5
Retail Stores 5.2
Technology 4.2
Primary Processing 4.2
Consumer Goods 4.1
Utilities 3.9
Food and Beverage 3.2
Metals and Mining 3.0
Machinery 2.9
Pharmaceuticals 2.7
Automotive 2.6
Insurance 2.4
Real Estate 2.2
Manufacturing 0.8
Miscellaneous 1.7
98.4 %
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $2,501,692,687) (Note 1) $ 2,551,024,197
Short-term investments, at value (cost $9,777,724) (Note 1) 9,830,020
Foreign currency, at value (cost $ 46,877,222) (Note 1) 46,902,909
Receivable for Fund shares sold 201,537
Receivable for investments sold 160,803,865
Dividends and interest receivable 2,766,728
Foreign withholding taxes receivable 3,604,738
Receivable for open forward foreign currency contracts (Note 5) 1,317,197
Receivable for variation margin on open futures contracts 2,044,183
Receivable for expenses waived or borne by Manager (Note 2) 213,313
Total assets 2,778,708,687
LIABILITIES:
Payable for investments purchased 160,772,812
Payable for open forward foreign currency contracts (Note 5) 14,283,784
Due to Custodian 6,102,542
Payable for Fund shares repurchased 3,797,751
Payable to affiliate for management fee 1,507,939
Accrued expenses 598,007
Total liabilities 187,062,835
NET ASSETS(equivalent to $22.32 per share based
on 116,104,099 shares outstanding, unlimited shares authorized) $ 2,591,645,852
NET ASSETS CONSIST OF:
Paid-in capital $ 2,453,213,046
Accumulated net realized gain 100,721,946
Net unrealized appreciation 37,710,860
NET ASSETS $ 2,591,645,852
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $7,455,318) $ 55,664,794
Interest 2,602,161
Total income 58,266,955
Expenses:
Management fee (Note 2) 19,964,039
Custodian fees 2,182,474
Stamp duties and transfer taxes 116,741
Legal fees 105,483
Audit fees 83,697
Registration fees 72,479
Insurance 31,850
Transfer agent fees 27,493
Trustee fee (Note 2) 13,230
Miscellaneous 2,203
Total expenses 22,599,689
Less: expenses waived or borne by Manager (Note 2) (3,849,845)
Net expenses 18,749,844
Net investment income 39,517,111
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS, FOREIGN CURRENCY, FORWARD CONTRACTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments 251,835,142
Closed futures contracts 1,165,193
Foreign currency, forward contracts and foreign
currency related transactions (14,261,791)
Net realized gain 238,738,544
Change in net unrealized appreciation (depreciation) on:
Investments (413,444,424)
Open futures contracts 970,756
Foreign currency, forward contracts and foreign
currency related transactions (11,601,187)
Net unrealized loss (424,074,855)
Net realized and unrealized loss on investments, futures
contracts, foreign currency, forward contracts and
foreign currency related transactions (185,336,311)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(145,819,200)
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 39,517,111 $ 23,895,036
Net realized gain on investments, closed futures
contracts, foreign currency, forward contracts
and foreign currency related transactions 238,738,544 63,775,412
Change in net unrealized appreciation (depreciation)
on investments, open futures contracts, foreign
currency, forward contracts and foreign
currency related transactions (424,074,855) 455,871,027
Net increase (decrease) in net assets resulting from
operations (145,819,200) 543,541,475
Distributions to shareholders from:
Net investment income (38,432,195) (22,013,675)
Net realized gains (172,566,881) (34,254,981)
(210,999,076) (56,268,656)
Fund share transactions: (Note 4)
Proceeds from sale of shares 1,196,755,657 1,024,284,607
Net asset value of shares issued to shareholders
in payment of distributions declared 191,594,151 44,737,151
Cost of shares repurchased (726,316,370) (188,195,832)
Net increase in net assets resulting
from Fund share transactions 662,033,438 880,825,926
Total increase in net assets 305,215,162 1,368,098,745
NET ASSETS:
Beginning of period 2,286,430,690 918,331,945
End of period (including undistributed net
investment income of $0 and
$7,595,549, respectively) $ 2,591,645,852 $ 2,286,430,690
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.56 $ 18.51 $ 18.80 $ 18.73 $ 18.79
Income (loss) from investment operations:
Net investment income (a) 0.27 0.29 0.29 0.29 0.55
Net realized and unrealized gain (loss)
on investments (1.57) 7.44 (0.04) 0.22 0.69
Total from investment operations (1.30) 7.73 0.25 0.51 1.24
Less distributions to shareholders:
From net investment income (0.35) (0.27) (0.20) (0.28) (0.54)
From net realized gains (1.59) (0.41) (0.34) (0.16) (0.76)
Total distributions (1.94) (0.68) (0.54) (0.44) (1.30)
NET ASSET VALUE, END OF PERIOD $ 22.32 $ 25.56 $ 18.51 $ 18.80 $ 18.73
TOTAL RETURN (B) (5.31%) 42.10% 1.43% 2.84% 7.44%
Ratios/Supplemental Data:
Net assets, end of period $ 2,591,646 $ 2,286,431 $ 918,332 $ 414,341 $ 173,792
Net expenses to average
daily net assets (a) 0.70% 0.71%(c) 0.70% 0.70% 0.78%
Net investment income to average
daily net assets (a) 1.48% 1.48% 2.36% 2.36% 3.32%
Portfolio turnover rate 53% 23% 23% 35% 81%
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.03,
$.03, $.03, $.02, $.01 per share for the fiscal years ended 1995, 1994, 1993,
1992, and 1991, respectively.
(b) Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the periods shown.
(c) Includes stamp duties and transfer taxes not waived or borne by the Manager,
which approximates .01% of average daily net assets.
See accompanying notes to the financial statements.
</TABLE>
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENT
AUGUST 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO International Core Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company. The
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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies 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 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 and currency
markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 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 held as of February 28, 1995.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
When a forward currency contract is extinguished, through delivery or
offset by entering into another forward currency contract, the Fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the
time it was extinguished or offset. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to sell is shown
under Note 5 and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of February 28, 1995.
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"). It is the policy of the Fund to distribute all of its taxable
income, including any net realized gain on investments not offset by loss
carryovers, to shareholders within the prescribed time periods. 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 paid and received by the shareholders of
the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and 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. There is no premium
incurred on reinvested distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions and redemption
in-kind.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain Paid-in Capital
<S> <C> <C>
($8,680,465) $7,352,943 $1,327,522
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .75% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid in capital by the
Fund. There is no premium for redemptions or in-kind transactions. For the
year ended February 28, 1995, the Fund received $1,914,529 in purchase
premiums.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of .75% of average daily net assets. The Manager has
agreed to waive a portion of its fee until further notice to the extent
that the Fund's annual expenses (including management and custody fees but
excluding brokerage commissions and transfer taxes) exceed .70% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $13,230. 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 year ended February 28, 1995 aggregated
$1,813,370,609 and $1,379,237,707, respectively.
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 47,709,816 45,915,356
Shares issued to shareholders in reinvestment of
distributions 8,245,854 1,887,116
Shares repurchased (29,287,818) (7,968,846)
Net increase 26,667,852 39,833,626
Fund shares:
Beginning of period 89,436,247 49,602,621
End of period 116,104,099 89,436,247
</TABLE>
5. FINANCIAL INSTRUMENTS
A summary of outstanding forward currency contracts and futures contracts
at February 28, 1995 is as follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
<S> <C> <C> <C> <C>
Buys
661 Hang Seng March 1995 $ 35,309,190 $ 166,312
309 FT-SE 100 March 1995 36,807,776 (771,429)
$ (605,117)
Sales
252 DAX March 1995 36,290,412 $ (160,940)
521 CAC March 1995 36,035,749 1,736,813
$ 1,575,873
At February 28, 1995 the Fund has cash and/or securities to cover any margin requirements on open
futures contracts.
</TABLE>
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Sales
In Exchange for Net Unrealized
Settlement Units of (in U.S. Dolollars) Appreciation
Date Deliver Currency (Note 1) (Depreciation)
<C> <S> <C> <C> <C>
6/1/95 German Marks 108,780,000 $ 66,434,591 $ (8,153,999)
7/3/95 German Marks 97,300,000 61,660,330 (5,125,311)
12/1/95 German Marks 25,070,000 16,279,221 (1,004,474)
2/1/96 British Pounds 83,500,000 132,379,825 1,317,197
$ (12,966,587)
</TABLE>
* * *
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 77.43% of distributions as net capital gain dividends.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO International Small Companies Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Small Companies
Fund at February 28, 1995, and the results of its operations, the changes in its
net assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 14, 1995
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<S> <C> <C>
STOCK AND EQUIVALENTS - 98.6%
AUSTRALIA - 2.6%
43,600 Aberfoyle Ltd * 94,812
41,500 Adelaide Brighton Ltd 44,052
91,100 Australian Gas and Light Co * 286,078
97,600 Australian National Industries Ltd * 97,127
99,000 Bougainville Copper Ltd * 47,436
148,200 Burns Philp & Co Ltd 355,048
91,800 Caltex Australia Ltd 236,846
2,900 Coal & Allied Industries Ltd 27,791
44,900 Crusader Ltd 43,027
82,874 Email Ltd 218,093
86,600 Fairfax Holdings Ltd * 180,659
414,610 Goodman Fielder Ltd 378,981
101,875 Hardie (James) Industries Ltd 165,214
23,200 Metal Manufactures Ltd 45,320
30,800 OPSM Protector Ltd 43,138
75,000 Pacific Magazines and Printing Ltd 152,037
266,000 Pasminco Ltd * 274,515
115,300 Pioneer International Ltd 277,078
52,800 Publishing and Broadcasting Ltd Preferred 4.96% * 134,279
238,200 QCT Resources Ltd 228,266
18,050 Rothmans Holdings Ltd 59,875
252,887 Santos Ltd 678,553
96,500 Seven Network Ltd 214,116
189,800 Southcorp Holdings Ltd 436,523
6,800 Weston Foods Ltd 29,825
47,200 Wills (WD & HO) Holdings Ltd 92,551
4,841,240
AUSTRIA - 2.9%
777 Allgemeine Baugesellschaft AG 118,488
888 Allgemeine Baugesellschaft AG Preferred 7.00% 73,141
800 Austrian Airlines * 135,205
11,700 Bank Austria AG (Participating Certificate) 410,247
700 Bau Holding AG Preferred (Non Voting) 2.42% 46,438
1,150 Brau Union AG 72,716
200 BWT AG 30,246
1,500 Constantia Industrie Holdings AG * 115,245
2,800 Creditanstalt-Bankverein 175,417
1,200 Creditanstalt-Bankverein Preferred 1.65% 72,847
100 EA-Generali AG 25,982
1,100 EA-Generali AG Preferred 6.00% 174,688
500 EVN Energie-Versorgung Niederoesterreich AG 60,318
2,300 Flughafen Wien AG 100,083
1,100 Jenbacher Werke AG 168,705
200 Lenzing AG 18,591
300 Leykam-Muerztaler Papier und Zellstoff AG * 14,278
800 Miba Holding AG Series B Preferred 1.34% 34,190
7,000 OMV AG * 679,229
1,100 Oesterreichische Brau Beteiligungs AG 62,717
3,000 Oesterreichische Elektrizitaetswirschafts AG 185,032
7,200 Oesterreichische Laenderbank AG 567,860
700 Oesterreichische Laenderbank AG Preferred (Non Voting) 33,656
110 Perlmooser Zementwerke AG 7,661
16,930 Radex-Heraklith AG 610,076
300 RAS Versicherungs AG 48,079
2,400 Steyr-Daimler-Puch AG * 35,200
2,180 Strabag Oesterreich AG 302,793
4,000 Universale Bau AG * 235,054
1,700 VA Technologie AG * 182,789
15,100 Veitsch-Radex AG * 400,399
200 Wiener Allianz Versicherungs AG * 47,205
220 Wienerberger Baustoffindustrie AG 77,782
5,322,357
CANADA - 2.0%
6,000 Abitibi-Price Inc 78,706
5,000 Avenor Inc * 102,426
17,000 Brunswick Mining & Smelt Ltd 122,192
18,900 Cameco Corp 461,887
3,100 Canadian Marconi Co 30,638
38,300 Canadian Tire Ltd Class A 364,762
900 Canfor Corp 10,674
1,900 CCL Industries Class B 16,047
21,900 Cominco Ltd * 350,243
18,100 Dominion Textile Inc 107,332
24,400 Domtar Inc * 208,266
18,900 Dylex Ltd Part Class A Preferred $0.01 * 1,834
13,000 Gulf Canada Resources Ltd * 47,889
6,400 Hudsons Bay Co 124,780
13,900 Inter-City Prods Corp * 22,480
1,700 International Forest Products A * 14,205
9,400 Ipsco Inc 151,177
16,800 Maple Leaf Foods 155,472
15,300 Molson Class A 213,073
2,900 Molson Co Ltd Class B 42,731
11,300 Noranda Forest Inc 86,298
30,100 Nova Scotia Power Inc 243,396
15,800 Oshawa Group Ltd Class A 212,938
30,200 Power Corp 401,581
1,700 Scotts Hospitality Inc 9,164
12,100 Sears Canada Inc 66,316
3,600 Semi Tech Corp Class A 26,523
1,700 Slocan Forest Products Ltd 16,343
5,200 Spar Aerospace Ltd 46,253
6,600 Total Petroleum North America 69,381
3,805,007
DENMARK - 0.0%
800 Hafnia Holdings Class A (a) * -
FINLAND - 3.2%
29,000 Amer Group Series A 533,052
25,000 Cultor OY Series 1 736,351
9,500 Cultor OY Serie 2 265,086
4,000 Huhtamaki OY Series L 124,903
700 Instrumentarum OY B * 13,332
98,000 Kesko OY 1,096,000
63,700 Partek OY * 811,149
132,400 Rautaruukki OY * 952,938
69,600 Valmet OY * 1,402,633
5,935,444
HONG KONG - 7.0%
3,940,000 Applied International Holdings Ltd 453,547
518,000 Applied International Holdings Ltd Warrants 12/30/99 * 19,430
127,000 Cathay Pacific Airways Ltd 205,329
73,000 Cross Harbour Tunnel Co Ltd 143,517
194,309 Dairy Farm International 233,729
6,350,000 Denway Investments 525,642
414,000 Dickson Concepts (International) Ltd 224,898
15,540,000 Elec and Eltek International Holdings Ltd 1,808,963
16,780 Furama Hotel Enterprises Ltd 20,618
1,668,000 Goldlion Holdings Ltd 371,074
19,000 Harbour Centre Development Ltd 21,380
46,500 Hong Kong Ferry Co Ltd 49,919
3,100 Hong Kong Ferry Warrants 6/30/96 * 1,183
52,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 59,523
520,000 Jardine International Motor Holdings Ltd 568,324
50,000 Kowloon Motor Bus Co Ltd 89,892
1,671,000 Kumagai Gumi Hong Kong Ltd 1,156,289
682,000 Lai Sun Garment International Ltd 727,737
252,000 Lane Crawford International Ltd Series A 387,868
3,680,000 Laws International Holdings Ltd 618,767
74,862 Mandarin Oriental 88,597
952,000 Playmate Toys Holding 295,518
211,455 Playmates Properties Holdings 30,358
40,000 Realty Development Corp Ltd Class B 18,625
7,734,000 Regal Hotels International Ltd 1,490,482
80,800 San Miguel Brewery Ltd 70,020
1,076,000 Shun Tak Holdings Ltd 640,186
160,000 South China Morning Post Ltd 86,917
1,933,595 Stelux Holdings International Ltd 568,962
214,500 Swire Pacific Ltd Class A 1,505,093
26,000 Television Broadcasting Ltd 97,859
105,000 Wing On International Holdings Ltd 183,341
263,000 Winsor Industrial Corp Ltd 324,859
13,088,446
ITALY - 7.0%
69,000 Alitalia Linee Aeree Italiane Class A * 37,828
118,000 Alitalia Linee Aeree Italiane Class B (Private Placement) (b) * 44,400
375,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 469,593
474,400 Banca Nazionale dell'Agricoltura di Risp * 190,442
635,800 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 269,711
36,500 Banca Nazionale dell'Agricoltura SPA Preferred * 28,540
4,000 Bonifiche-Siele Finanziaria SPA * 81,965
70,000 Caffaro SPA * 83,883
12,000 Calcestruzzi SPA * 57,520
285,200 Caltagirone SPA 234,107
62,000 Cantoni ITC SPA * 96,585
33,500 Cartiere Burgo SPA * 230,827
215,000 Cementir Cementerie del Tirreno SPA 180,090
41,100 Cia Italiana dei Grandi Alberghi Cigahotels SPA * 21,892
212,100 COFIDE SPA * 96,583
24,000 Cogefar Impresit Costruzioni Generali SPA * 21,901
360,000 Comau Finanziaria SPA 570,522
40,000 Danieli and Co SPA (Non Convertible) 138,047
32,000 Falck Acciaierie and Ferriere Lombarde * 64,997
294,000 Fiat SPA (Non Convertible) 708,138
178,000 Fiat SPA Preferred * 446,867
473,500 Finmeccanica SPA (Non Convertible) * 368,814
102,000 Fornara SPA (a) * 4,400
245,000 Gemina SPA (Non Convertible) 162,208
80,833 Gilardini SPA * 200,509
229,900 Grassetto SPA * 199,734
94,500 Industriali Riunite SPA * 91,443
32,000 Industriali Riunite (Cie) SPA (Non Convertible) * 18,675
36,000 Italcementi Fabbriche Riunite Cemento SPA 234,680
57,000 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 179,982
76,800 Latina di Assicurazioni SPA (Non Convertible) * 196,487
3,000 Marzotto and Figli SPA 20,312
895,000 Montedison SPA (Non Convertible) * 542,685
60,000 Montefibre SPA (Non Convertible) * 36,489
340,000 Montefibre SPA * 280,108
179,000 Olivetti and Co SPA (Non Convertible) * 139,425
41,000 Olivetti and Co SPA (Private Placement) (b) * 56,869
191,000 Parmalat Finanziaria SPA 168,799
83,000 Pirelli and Co (Non Convertible) 106,920
162,000 Pirelli SPA (Non Convertible) 178,307
132,000 Ratti SPA 263,368
17,000 Recordati Industria Chimica e Farmaceutica SPA 83,065
81,000 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 228,101
32,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 159,329
151,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 404,869
237,000 Rinascente per l'Esercizio di Grandi Magazzini SPA
(Private Placement) (b) 589,306
180,000 SAFFA SPA * 519,833
14,000 Sasib SPA 65,009
42,000 Sirti SPA 281,846
105,000 Snia BPD SPA 125,447
650,000 Snia BPD SPA (Non Convertible) 443,979
670,000 Societa Metallurgica SPA * 341,223
45,000 SORIN Biomedica SPA * 121,195
27,000 Stefanel SPA 54,599
12,900 Tosi (Franco) SPA 137,966
3,500 Unione Cementi Marchino Emiliane e di Augusta-Casale 23,697
633,410 Unione Cementi Marchino Emiliane e di Augusta-Casale
(Non Convertible) 1,992,455
13,096,571
JAPAN - 18.5%
6,000 Aida Engineering Ltd 45,277
6,000 Ajinomoto Co Inc 69,562
5,000 Alps Electric Co Ltd * 59,521
8,000 Amada Co Ltd 79,499
47,000 Aoki Corp 257,854
4,800 Arabian Oil Co Ltd 202,226
26,000 Asahi Breweries Ltd 269,137
6,000 Asics Corp 20,185
3,000 Bank of Kyoto Ltd 21,117
16,000 Bank of Yokohama Ltd 121,898
7,000 Banyu Pharmaceutical Co Ltd 72,315
5,000 Canon Sales Co Inc 113,348
12,000 Chiba Bank Ltd 91,424
1,000 Chudenko Corp 38,611
7,000 Chugai Pharmaceutical Co Ltd 70,286
3,000 Chugoku Bank Ltd 48,755
57,000 Cosmo Oil Co Ltd 374,670
3,000 CSK Corp 81,983
31,000 Daicel Chemical Industries Ltd 146,328
8,000 Daiichi Seiyaku Pharmaceutical Co Ltd 121,733
23,000 Dainippon Ink & Chemicals Inc 100,471
5,000 Dainippon Pharmaceutical Co Ltd 52,275
4,000 Dainippon Screen Manufacturing Co Ltd * 26,334
4,000 Daito Trust Construction Co Ltd 34,367
20,000 Daiwa Bank Ltd 166,865
8,000 Denki Kagaku Kogyo * 26,665
1,000 Denny's Japan Co Ltd 30,640
2,000 Descente Ltd 11,242
7,000 Eisai Co Ltd 106,516
33,000 Fuji Heavy Industries Ltd * 119,901
18,000 Fujisawa Pharmaceutical Co Ltd 204,958
14,000 Fujita Corp 75,069
6,000 Fujita Kanko Inc 117,385
54,000 Fujiya Co Ltd 271,104
1,000 Fukuoka City Bank Ltd 7,360
18,000 Fukuyama Transporting Co Ltd 166,575
19,000 Furukawa Electric Co Ltd 105,812
80,000 Gakken Co Ltd * 579,680
34,000 General Sekiyu (KK) 322,385
36,000 Godo Shusei Co Ltd * 172,538
6,000 Green Cross Corp 50,184
55,000 Hankyu Corp 296,051
5,000 Hankyu Department Stores Inc 51,343
11,000 Hanwa Co Ltd * 35,754
19,000 Haseko Corp 101,289
9,000 Hazama Ltd 43,787
4,000 Higo Bank Ltd 31,551
8,000 Hiroshima Bank Ltd 45,546
19,000 Hitachi Maxell Ltd 296,983
68,000 Hitachi Sales Corp 401,221
6,000 Hokkaido Bank Ltd 22,173
8,000 Hokuriku Bank Ltd 53,248
2,000 Honen Corp 11,759
1,000 House Foods Corp 18,529
3,000 Hoya Corp 64,593
22,000 Hyogo Bank Ltd * 60,349
4,000 INAX Corp 40,453
39,000 Intec Inc 500,595
8,000 Itoham Foods Inc 54,656
22,000 Japan Airport Terminal Co Ltd 239,118
100,000 Japan Energy Co Ltd 358,160
100,000 Japan Synthetic Rubber Co Ltd 564,153
30,000 Joshin Denki Co Ltd 341,597
2,000 Kaken Pharmaceutical Co Ltd 22,566
11,000 Kamigumi Co Ltd 91,093
6,000 Kao Corp 65,214
32,000 Keihin Electric Express Railway Co Ltd 185,166
42,000 Keio Teito Electric Railway Co Ltd 230,858
17,000 Keisei Electric Railway Co Ltd 123,710
1,000 Kissei Pharmaceutical Co Ltd 38,818
2,000 Kobori Juken Co Ltd 19,254
15,000 Koito Manufacturing Co Ltd 111,795
50,000 Kokusai Kogyo Co Ltd 492,211
5,000 Kokuyo Co Ltd 120,594
29,000 Komatsu Ltd 212,836
1,000 Konami Co Ltd 18,426
10,000 Konica Corp 68,319
49,000 Koyo Seiko Co Ltd 420,993
19,000 Kumagai Gumi Co Ltd 94,208
104,000 Kurabo Industries Ltd 387,558
227,000 Kureha Chemical Industry Co Ltd 1,064,448
4,000 Kyodo Printing Co Ltd 39,335
13,000 Kyowa Hakko Kogyo Co Ltd 125,687
16,000 Lion Corp 95,068
56,000 Maeda Corp 597,071
52,000 Makino Milling Machine Co Ltd * 387,558
43,000 Marubeni Corp 196,294
95,000 Marudai Food Co Ltd 641,168
13,000 Matsushita Electric Works Ltd 131,204
24,000 Matsushita Refrigeration Co 180,115
6,000 Matsuzakaya Co Ltd 68,941
31,000 Mazda Motor Corp * 144,082
9,000 Mercian Corp 61,488
200 Mitsubishi Chemical Corp 961
14,000 Mitsubishi Gas Chemical Co Inc 57,243
32,000 Mitsubishi Materials Corp 150,717
41,000 Mitsubishi Oil Co Ltd 356,079
18,000 Mitsubishi Rayon Co Ltd 60,929
21,000 Mitsubishi Trust & Banking Corp 297,811
7,000 Mitsubishi Warehouse & Transportation Co Ltd 99,995
49,000 Mitsuboshi Belting Ltd 285,058
13,000 Mitsui Mining Co Ltd * 59,210
22,000 Mitsui Toatsu Chemicals Inc 76,746
19,000 Mitsui Trust & Banking Co Ltd 170,912
6,000 Mitsui-Soko Co Ltd 41,613
3,000 Mochida Pharmaceutical Co Ltd 60,556
75,000 Nagasakiya Co Ltd * 378,086
51,000 Nagoya Railroad Co Ltd 244,428
30,000 Nakkai Electric Railway Co Ltd 218,622
2,000 Namco Ltd 43,476
131,000 Nichiei Co Ltd 656,322
8,000 Nichii Co Ltd 86,952
6,000 Nihon Cement Co Ltd 41,737
1,000 Nippon Beet Sugar Manufacturing Co Ltd 4,182
109,000 Nippon Chemi-Con Corp * 599,130
3,000 Nippon Denko Co Ltd 10,714
5,000 Nippon Kayaku Co Ltd 31,572
2,000 Nippon Meat Packers Inc 26,086
4,000 Nippon Metal Industry Co Ltd 14,782
147,000 Nippon Oil Co Ltd 882,563
13,000 Nippon Piston Ring Co Ltd 64,324
12,000 Nippon Sheet Glass Co Ltd 61,488
8,000 Nippon Suisan Kaisha Ltd * 37,265
4,000 Nippon Yakin Kogyo Co Ltd 19,875
46,000 Nissan Fire & Marine Insurance Co Ltd 298,080
2,000 Nisshin Flour Milling Co Ltd 21,324
22,000 Nissho Iwai Corp 99,974
1,000 Nissin Food Products Co Ltd 22,152
7,000 Nitto Boseki Co Ltd * 18,985
5,000 Nitto Denko Corp 70,907
16,000 NSK Ltd 98,546
46,000 Odakyu Electric Railway Co Ltd 336,173
15,000 Okamoto Industries Inc 94,871
7,000 Olympus Optical Co Ltd 65,939
3,000 Ono Pharmaceutical Co Ltd 141,297
10,000 Onoda Cement Co Ltd 57,657
223,000 Renown Inc * 874,872
18,000 Ricoh Co Ltd 153,346
47,000 Royal Co Ltd 608,147
4,000 Ryobi Ltd 19,544
26,000 Sagami Railway Co Ltd 120,843
21,000 Sanden Corp 117,820
4,000 Sankyo Aluminium Industry Co Ltd 21,738
30,000 Sanrio Co Ltd 350,914
4,000 Sanwa Shutter Corp 35,982
131,000 Sanyo Securities Co Ltd 542,415
11,000 Sapporo Breweries Ltd 100,430
5,000 SECOM Co Ltd 264,997
9,000 Seino Transportation Co Ltd 141,608
10,000 Sekisui Chemical Co Ltd 99,374
217,000 Settsu Corp * 786,191
31,000 Shionogi and Co Ltd 262,492
12,000 Shiseido Co Ltd 130,428
4,000 Shochiku Co Ltd 41,820
4,000 Shokusan Jutaku Sogo Co Ltd * 18,633
122,000 Showa Denko * 376,337
30,000 Showa Shell Sekiyu 335,386
5,000 Skylark Co Ltd 73,495
3,000 Snow Brand Milk Products Co Ltd 20,403
5,000 Stanley Electric Co Ltd 33,125
7,000 Sumitomo Coal Mining Co Ltd * 39,925
3,000 Sumitomo Forestry Co Ltd 41,923
21,000 Sumitomo Osaka Cement Co Ltd 103,038
19,000 Sumitomo Trust & Banking Co Ltd 220,278
6,000 Sumitomo Warehouse Co Ltd 35,278
29,000 Taisei Corp 186,719
10,000 Taisho Pharmaceutical Co Ltd 169,763
6,000 Taiyo Yuden Co Ltd 58,382
7,000 Takara Shuzo Co Ltd 52,896
24,000 Tanabe Seiyaku Co Ltd 183,841
24,000 Teikoku Oil Co Ltd 155,271
10,000 Terumo Corp 80,741
55,000 Tobu Railway Co Ltd 329,072
7,000 Toei Co Ltd 46,809
700 Toho Co Ltd 110,139
5,000 Tokai Carbon Co Ltd 19,719
8,000 Tokyo Dome Corp 143,264
77,000 Tokyo Electric Co Ltd * 320,418
39,000 Tokyo Rope Manufacturing Co Ltd * 220,020
8,000 Tokyo Sowa Bank Ltd 36,437
14,000 Tokyotokeiba Co Ltd 65,214
96,000 Tokyu Construction Co Ltd 493,887
71,000 Tokyu Corp 451,995
7,000 Tokyu Department Store Co Ltd 41,157
30,000 Toppan Printing Co Ltd 360,230
24,000 Toshiba Tungaloy Co Ltd * 99,622
4,000 Tostem Corp 117,178
6,000 Toto Ltd * 94,405
11,000 Toyo Engineering Corp 64,334
4,000 Toyo Kanetsu (KK) 21,490
10,000 Toyo Trust & Banking Co Ltd 86,434
26,000 Tsugami Corp 116,267
4,000 Tsumura and Co 45,132
1,000 Uni-Charm Corp 19,357
163,000 Victor Co of Japan Ltd * 1,805,393
6,000 Wacoal Corp 60,866
3,000 Yamaguchi Bank Ltd 49,687
5,000 Yamaha Corp 55,380
9,000 Yamanouchi Pharmaceutical Co Ltd 176,078
21,000 Yamato Transport Co Ltd 217,380
2,000 Yamazaki Baking Co Ltd 36,023
16,000 Yasuda Trust and Banking Co Ltd 117,095
7,000 Yokogawa Electric Corp 63,982
4,000 Yoshitomi Pharmaceutical Industries Ltd 33,580
34,364,819
NEW ZEALAND - 0.6%
25,000 Air New Zealand Ltd Class B 80,765
4,500 Ceramco Corp Ltd 7,126
658,000 DB Group Ltd * 395,969
15,510 Fernz Corp Ltd 51,580
9,201 Fisher and Paykel Industries Ltd 23,605
42,500 Fletcher Challenge Ltd 53,843
14,500 Independent Newspapers Ltd 48,589
218,000 Lion Nathan Ltd 414,276
2,500 Steel and Tube Holdings Ltd 10,214
8,500 Wilson and Horton Ltd 48,459
250,000 Wilson (Neill) Ltd * 1,584
1,136,010
NORWAY - 4.2%
11,100 Aker AS Class A 146,608
4,700 Aker AS Class B (Non Voting) 59,899
16,000 Bergesen d y AS Class A 353,446
8,000 Bergesen d y AS Class B 176,723
123,700 Den Norske Bank AS Series A * 326,763
8,600 Det Norske Luftfartsselskab AS Class B * 313,529
6,900 Dyno Industrier AS 191,862
14,700 Elkem AS * 183,937
29,150 Hafslund Nycomed AS 585,396
11,250 Hafslund Nycomed AS Class B 225,925
3,050 Kvaerner Industrier AS 138,521
1,200 Kvaerner Industrier AS Class B (Non Voting) 51,905
14,400 Leif Hoegh and Co AS 200,204
79,750 Norsk Hydro AS 3,018,313
12,430 Norske Skogindustrier AS Series A 412,836
6,580 Norske Skogindustrier AS Series B 208,376
6,050 Orkla-Borregaard AS Series A 223,368
3,650 Orkla-Borregaard AS Series B (Non Voting) 126,301
46,300 Unitor AS 704,506
13,000 Vard AS Class A * 15,463
9,760 Vital Forsikring AS Series A 98,001
7,761,882
SINGAPORE - 5.9%
42,000 Amcol Holdings Ltd 84,617
6,000 Boustead Holdings Berhad 10,391
2,391,000 Chuan Hup Holdings Ltd 2,144,617
21,000 Fraser and Neave Ltd 221,686
247,000 Hai Sun Hup Group Ltd 236,886
16,500 Haw Par Brothers International Ltd 34,153
178,000 Hotel Properties Ltd 310,719
122,000 Inchcape Berhad 398,993
138,888 Jardine Matheson Holdings Ltd * 1,277,770
911,500 Jardine Strategic Holdings Ltd * 3,390,780
47,000 Kulim Berhad 67,127
45,000 Low Keng Huat Singapore Ltd 23,597
24,000 Natsteel Ltd 55,639
170,000 Neptune Orient Lines Ltd 219,340
210,000 Parkway Holdings Ltd 469,452
97,000 Prima Ltd 371,442
223,000 Robinson and Co Ltd 900,093
34,000 Straits Trading Co Ltd 77,883
245,000 Times Publishing Ltd 652,499
46,000 Wearne Brothers Ltd 104,102
11,051,786
SPAIN - 6.0%
11,050 Acerinox SA 1,170,367
7,500 Asland SA 100,542
36,403 Asturiana del Zinc SA * 358,532
9,300 Azucarera de Espana SA 240,256
27,600 Banco Zaragozano SA 404,511
900 Bodegas y Bebidas SA 24,622
225 Bodegas y Bebidas SA (New) * 6,033
15,650 Cristileria Espanola SA * 785,362
22,000 Empresa Nacional de Celulosa SA * 592,424
40,400 Ercros SA * 46,106
19,950 Espanola de Carburos Metalicos SA 746,963
138,100 Espanola de Tubos por Extrusion SA * 115,504
3,500 Fabricacion de Automoviles Renault de Espana SA 102,046
3,783 Grupo Anaya SA * 94,625
27,400 Grupo Duro Felguera SA * 109,016
273,700 Huarte SA 2,460,328
1,010 Koipe SA 53,685
275,820 Sarrio SA * 1,218,133
43,850 Tableros Defibras Series B * 419,881
43,850 Tableros Fibras Rights 4/12/95 * 25,707
215,000 Uralita SA * 2,125,932
11,200,575
SWEDEN - 5.1%
65,400 Bilspedition AB Series B * 256,531
40,700 Celsius Industrier AB Class B 900,777
1,000 Esselte AB Series A 13,075
600 Esselte AB Series B 7,927
28,200 Euroc Industri AB Series A 618,364
57,860 Marieberg Tidnings AB Series A 1,379,069
3,300 Mo Och Domsjoe AB Series B * 164,275
34,600 Pharmacia AB Class B 633,823
138,420 Skandinaviska Enskilda Banken Series A * 755,984
3,000 SKF AB Class B * 55,364
295,400 Stena Line AB Class B 1,734,032
46,400 Svenska Handelsbanken Series B 559,282
3,600 Svenska Kullagerfabriken AB 66,192
64,300 Sydkraft AB Series A 998,356
55,600 Sydkraft AB Series C * 742,113
31,900 Trelleborg AB Series B * 440,987
9,326,151
SWITZERLAND - 9.9%
1,000 Adia SA * 185,476
50 Ascom Holding AG * 54,433
550 Ascom Holding AG * 124,189
1,290 Baloise Holdings 2,392,645
3,220 Bobst SA (Registered) 2,077,336
625 CIBA-GEIGY AG (Bearer) 395,145
475 CS Holdings (Bearer) 196,504
500 CS Holdings (Registered) 41,329
100 Danzas Holding AG 90,722
350 Elektrowatt AG (Bearer) 91,166
40 Elvia Schweiz Versicherungs 123,382
170 EMS-Chemie Holdings AG * 509,979
250 Fischer (George) AG (Registered) * 58,869
30 Forbo Holding AG (Bearer) 53,466
40 Forbo Holding AG (Registered) 36,128
125 Helvetia Schweizerische Versicherungsgesellschaft 58,969
150 Hero AG (Bearer) 75,844
500 Hero AG (Registered) 64,514
1,175 Hilti AG, Schaan (Participating Certificate) 862,264
625 Holderbank Financiere Glarus AG (Bearer) 461,675
2,700 Holderbank Financiere Glarus AG (Registered) 411,516
50 Interdiscount Holding SA (Bearer) 62,296
3,350 Interdiscount Holding SA (Participating Certificate) 383,614
3,350 Interdiscount Holding SA Warrants 11/15/96 * 3,782
150 Landis and Gyr AG 91,327
930 Magazine zum Globus (Participating Certificate) 573,727
300 Magazine zum Globus (Registered) 183,864
20 Merkur Holding AG 5,338
30 Reisebuero Kuoni AG (Bearer) 919,318
700 Reisebuero Kuoni AG (Participating Certificate) 1,100,762
4,550 Saurer Group Holdings 1,434,660
10 Schindler Holding AG (Bearer) 65,723
190 Schindler Holding AG (Participating Certificate) 235,958
300 Schindler Holding AG (Registered) 367,727
1,050 Schweizerische Rueckversicherungsgesellschaft (Bearer) 627,434
100 Schweizerische Rueckversicherungsgesellschaft (Registered) 59,756
20 SIG AG (Bearer) 39,676
20 SIG AG (Registered) 19,354
450 Sika Finanz AG 128,825
4,600 Sika Finanz AG (Registered) 229,991
890 SMH AG (Bearer) 475,844
3,700 SMH AG (Registered) 440,103
280 Societe Generale de Surveillance Holdings Ltd (Bearer) 406,661
750 Societe Generale de Surveillance Holdings Ltd (Registered) 205,032
175 Sulzer Gebrueder AG 110,782
350 Swiss Bank Corp (Bearer) 100,198
250 Swiss Bank Corp (Registered) 35,684
2,150 Swissair AG (Participating Certificate) * 246,200
630 Union Bank of Switzerland (Bearer) 526,842
250 Union Bank of Switzerland (Registered) 49,796
400 Winterthur Insurance (Registered) 194,508
120 Winterthur Schweizerische Versicherungs-Gesellschaft (Bearer) 60,288
10 Zellweger Luwa AG * 6,532
330 Zurich Versicherungs-Gesellschaft (Bearer) 314,552
450 Zurich Versicherungs-Gesellschaft (Registered) 432,563
18,504,268
UNITED KINGDOM - 23.7%
320,404 AMEC Plc 319,425
101,926 Amstrad Plc 272,585
6,380 Anglian Water Plc 48,411
55,800 Argyll Group 237,971
1,257,000 ASDA Group Plc 1,347,643
2,700 Associated British Foods 24,973
85,400 Astec (BSR) Plc 108,113
52,590 Barratt Developments Plc 137,315
23,360 Bass Plc 186,863
135,600 BAT Industries Plc 892,654
129,063 Berisford International Plc 452,383
30,300 Boots Co Plc 228,474
351,980 British Aerospace Plc 2,623,413
93,150 Bunzl Plc 243,219
630,125 Burton Group Plc 668,085
11,170 Carlton Communications Plc 153,604
26,973 Charter Plc 318,419
49,290 Cobham Plc 238,677
947,025 Costain Group Plc * 333,443
42,968 Dawson International Plc 76,154
149,202 Dixons Group Plc 495,820
2,640 East Midlands Electricity 30,372
133,540 English China Clays Plc 714,263
938,880 Ferranti International Plc * 11,143
6,200 First Leisure Corp Plc 26,000
1,018,500 Forte Plc 3,868,144
123,123 Glaxo Plc 1,235,261
78,945 Grand Metropolitan Plc 477,844
97,680 Greenalls Group Plc 622,933
37,302 Greycoat Plc * 74,966
40,734 Hammerson Property Investment and Development Corp Plc 206,593
116,070 Hazlewood Foods Plc 189,185
86,850 Hillsdown Holdings Plc 246,697
1,601,770 Ladbroke Group Plc 4,283,682
40,843 Laing (John) Plc 118,923
8,859 Laing (John) Plc Class A (Non Voting) 25,935
1,266,000 Lasmo Plc * 3,075,193
79,940 Lex Service Plc 356,733
47,740 London Electricity Plc 545,444
223,137 London International Group Plc * 335,448
1,007,401 Lonrho Plc 2,311,536
49,420 Manweb Plc 619,382
96,020 Marks & Spencer Plc 566,002
45,117 Marley Plc 86,745
23,500 McAlpine (Alfred) Plc 58,385
43,462 Meyer International Plc 213,207
30,320 Midland Electricity 352,173
212,347 Norcros Plc 262,102
56,240 Northern Electric Plc 940,699
117,400 Northern Foods Plc 376,204
34,838 Northumbrian Water Group Plc 403,547
83,160 NORWEB Plc 1,044,877
47,100 Ocean Group Plc 205,712
61,880 Reckitt & Colman Plc 614,951
62,494 Sainsbury Plc 404,475
4,440 Scottish & Newcastle Plc 34,885
148,200 Sears Plc 232,174
23,640 Securicor Group A Plc (Non Voting) 342,294
79,880 SEEBOARD Plc 546,549
571,340 Signet Group Plc * 158,221
116,394 Simon Engineering Plc * 144,587
32,569 Smithkline Beecham Plc Class A 259,498
25,860 Smithkline Beecham Plc Equity Units 197,450
29,080 South Wales Electricity 374,354
19,396 South West Water Plc 152,085
49,760 South Western Electricity Plc 638,604
446 Southern Water Plc 3,846
19,350 Storehouse Plc 67,977
171,893 T and N Plc 440,660
841,015 Tarmac Plc 1,397,409
702,869 Taylor Woodrow Plc 1,312,462
400,217 Trafalgar House Plc 392,661
38,469 Trafalgar House Plc Cumulative Convertible Redeemable
Preferred 6.00% 50,831
124,550 Transport Development Group Plc 367,581
29,505 Unilever Plc 546,276
151,440 United Biscuits Holdings Plc 800,419
14,840 Welsh Water Plc 139,258
10,262 Wessex Water Plc 44,333
12,740 Whitbread Plc Class A (Limited Voting) 108,463
135,730 Wilson (Connolly) Holdings Plc 264,187
373,085 Wimpey (George) Plc 711,419
5,290 Wolseley Plc 29,383
44,070,266
TOTAL STOCK AND EQUIVALENTS (Cost $192,284,532) 183,504,822
PAR VALUE SHORT-TERM INVESTMENTS - 0.7%
$ 1,300,000 Republic Bank of New York Deposit, 6.00% due 3/1/95
(at amortized cost) 1,300,000
TOTAL INVESTMENTS - 99.3%
(Cost $193,584,532) * * 184,804,822
Other Assets and Liabilities (net) - 0.7% 1,380,378
TOTAL NET ASSETS - 100.0% $ 186,185,200
Notes to the Schedule of Investments:
(a) Security is valued by management (Note 1).
(b) Restricted security - This security is not
registered under the Securities Act of 1933. At
February 28, 1995, restricted securities amounted
to $690,575 or 0.4% of net assets.
* Non-income producing security.
** The aggregate identified cost for federal income
tax purposes is $193,590,857 resulting in gross
unrealized appreciation and depreciation of
$9,030,569 and $17,816,604, respectively, and net
unrealized depreciation of $8,786,035.
</TABLE>
At February 28, 1995, industry sector diversification of the
Fund's equity investments was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
<S> <C>
Services 20.6 %
Construction 14.3
Consumer Goods 9.2
Machinery 7.0
Retail Stores 6.4
Oil and Gas 6.0
Transportation 4.8
Technology 4.4
Utilities 4.4
Banking 3.4
Primary Processing 3.4
Metals and Mining 2.5
Insurance 2.4
Food and Beverage 2.2
Miscellaneous 7.6
98.6 %
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $192,284,532) (Note 1) $ 183,504,822
Short-term investments, at amortized cost (Note 1) 1,300,000
Foreign currency, at value (cost $4,031,644) (Note 1) 4,039,541
Cash 21,311
Receivable for investments sold 2,170,699
Receivable for Fund shares sold 500,000
Dividends and interest receivable 194,533
Receivable for open forward foreign currency contracts 95,026
Receivable for foreign tax reclaims 75,612
Receivable for expenses waived or borne by Manager (Note 2) 138,530
Total assets 192,040,074
LIABILITIES:
Payable for investments purchased 3,724,728
Payable for Fund shares repurchased 984,515
Payable for open forward foreign currency contracts 832,161
Payable to affiliate for management fee (Note 2) 180,144
Accrued expenses 133,326
Total liabilities 5,854,874
NET ASSETS(equivalent to $11.95 per share based
on 15,585,433 shares outstanding, unlimited shares authorized) $ 186,185,200
NET ASSETS CONSIST OF:
Paid-in capital $ 194,013,481
Undistributed net investment income 706,457
Accumulated net realized gain on investments, foreign currency, forward
contracts and foreign currency related transactions 981,267
Net unrealized depreciation on investments, foreign currency,
forward contracts and foreign currency related transactions (9,516,005)
NET ASSETS $ 186,185,200
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $535,667) $ 3,626,690
Interest 234,023
Total income 3,860,713
EXPENSES:
Management fee (Note 2) 2,184,055
Custodian fees 384,653
Audit fees 57,710
Transfer agent fees 27,223
Registration fees 14,468
Stamp duties and transfer taxes 13,766
Legal fees 6,424
Insurance 2,095
Trustee fee (Note 2) 877
Miscellaneous 1,008
Total expenses 2,692,279
Less: expenses waived or borne by Manager (Note 2) (1,368,080)
Net expenses 1,324,199
Net investment income 2,536,514
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN
CURRENCY, FORWARD CONTRACTS AND FOREIGN CURRENCY RELATED
TRANSACTIONS:
Net realized gain (loss) on:
Investments 10,513,218
Foreign currency, forward contracts and foreign
currency related transactions (865,809)
Net realized gain 9,647,409
Change in net unrealized appreciation (depreciation) on:
Investments (31,174,311)
Foreign currency, forward contracts and foreign
currency related transactions (652,541)
Net unrealized loss (31,826,852)
Net realized and unrealized loss on investments,
foreign currency, forward contracts and foreign
currency related transactions (22,179,443)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (19,642,929)
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,536,514 $ 1,002,016
Net realized gain on investments, foreign
currency, forward contracts and foreign currency
related transactions 9,647,409 6,068,886
Change in net unrealized appreciation (depreciation) on
investments, foreign currency, forward contracts
and foreign currency related transactions (31,826,852) 24,443,182
Net increase (decrease) in net assets
resulting from operations (19,642,929) 31,514,084
Distributions to shareholders from:
Net investment income (2,988,635) (829,189)
Net realized gains (13,044,663) (561,334)
(16,033,298) (1,390,523)
Fund share transactions: (Note 5)
Proceeds from sale of shares 110,097,988 80,216,853
Net asset value of shares issued to shareholders
in payment of distributions declared 14,268,183 771,191
Cost of shares repurchased (35,149,466) (14,268,984)
Net increase in net assets resulting
from Fund share transactions 89,216,705 66,719,060
Total increase in net assets 53,540,478 96,842,621
NET ASSETS:
Beginning of period 132,644,722 35,802,101
End of period (including undistributed net investment
income of $706,457 and $599,953, respectively) $ 186,185,200 $ 132,644,722
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 *
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.45 $ 8.91 $ 9.62 $ 10.00
Income (loss) from investment operations:
Net investment income (a) 0.18 0.15 0.35 0.06
Net realized and unrealized gain (loss)
on investments (1.52) 5.59 (0.68) (0.43)
Total from investment operations (1.34) 5.74 (0.33) (0.37)
Less distributions to shareholders from:
Net investment income (0.20) (0.12) (0.38) (0.01)
Net realized gains (0.96) (0.08) -- --
Total distributions (1.16) (0.20) (0.38) (0.01)
NET ASSET VALUE, END OF PERIOD $ 11.95 $ 14.45 $ 8.91 $ 9.62
TOTAL RETURN (B) (9.66%) 64.67% (3.30%) (3.73%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $186,185 $132,645 $ 35,802 $24,467
Net expenses to average
daily net assets (a) 0.76%(c) 0.75% 0.75% 0.85%**
Net investment income to average
daily net assets (a) 1.45% 1.50% 4.02% 1.91%**
Portfolio turnover rate 58% 38% 20% 1%
* For the period from the commencement of operations, October 15, 1991
through February 29, 1992.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of
$.08, $.09, $.09 and $.05 for the fiscal years ended 1995, 1994, 1993 and
for the period ended February 29, 1992, respectively.
(b) Calculation excludes subscription and redemption fees. The total returns
would have been lower had certain expenses not been waived during the
periods shown.
(c) Includes stamp duties and transfer taxes not waived or borne by the
Manager, which approximate .01% of average daily net assets.
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO International Small Companies Fund (the "Fund") is a series of GMO
Trust (the "Trust"). The Fund is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. The 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
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
planned purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Fund's portfolio securities. A forward
currency contract is an agreement between two parties to buy and sell a
currency at a set price on a future date. The market value of a forward
currency contract fluctuates with changes in forward currency exchange
rates. Forward currency contracts are marked to market daily and the change
in value is recorded by the Fund as an unrealized gain or loss. When a
forward currency contract is extinguished, through delivery or offset by
entering into another forward currency contract with the same broker, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value of the
contract at the time it was extinguished or offset. These contracts may
involve market risk in excess of the unrealized gain or loss reflected in
the Fund's Statement of Assets and Liabilities. In addition, the Fund could
be exposed to risk if the counterparties are unable to meet the terms of
the contracts or if the value of the currency changes unfavorably to the
U.S. dollar. The U. S. dollar value of the currencies the Fund has
committed to sell is shown under Note 6, and represents the currency
exposure the Fund has acquired or hedged through currency contracts as of
February 28, 1995.
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"). It is the policy of the Fund to distribute all of its taxable
income, including any net realized gain on investments not offset by loss
carryovers, to shareholders within the prescribed time periods. 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 paid and received by the shareholders of
the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and 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. There is no premium
incurred on reinvested distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain Paid-in Capital
<C> <C> <C>
$558,625 ($558,625) -
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is 1.25% of the amount
invested. In the case of cash redemptions, the premium is .75% of the
amounts redeemed. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase and redemption premiums are paid to and recorded as paid-in
capital by the Fund. For the year ended February 28, 1995, the Fund
received $912,912, and $41,963 in purchase and redemption premiums,
respectively. There is no premium for reinvested distributions or in-kind
transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of 1.25% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including management
and custody fees but excluding brokerage commissions and transfer taxes)
exceed .75% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $877. 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 year ended February 28, 1995, aggregated
$171,720,430 and $98,589,111, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 12% of the outstanding shares of the Fund were held
by one shareholder.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 7,848,879 6,240,437
Shares issued to shareholders in reinvestment
of distributions 1,117,555 59,556
Shares repurchased (2,560,141) (1,140,840)
Net increase 6,406,293 5,159,153
Fund shares:
Beginning of period 9,179,140 4,019,987
End of period 15,585,433 9,179,140
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of open forward currency contracts at February 28, 1995 is as
follows:
<TABLE>
<CAPTION>
FORWARD CURRENCY CONTRACTS TO SELL
Settlement Units of In Exchange for Net Unrealized
Date Deliver Currency (in U.S. Dollars) Appreciation
(Note 1) (Depreciation)
<C> <S> <C> <C> <C>
2/1/96 British Pounds 6,000,000 $ 9,512,700 $ 95,026
6/1/95 Deutsche Marks 3,872,000 2,364,226 (290,738)
7/3/95 Deutsche Marks 6,100,000 3,865,653 (321,320)
12/1/95 Deutsche Marks 4,760,000 3,090,909 (190,718)
2/1/96 Deutsche Marks 1,450,000 971,720 (29,385)
(737,135)
</TABLE>
* * *
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 80.00% of distributions as net capital gain dividends.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of GMO Japan Fund (A Series of
GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Japan Fund at February 28,
1995, and the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 14, 1995
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<C> <S> <C>
STOCK AND EQUIVALENTS - 87.1%
AUTOMOTIVE - 7.0%
15,000 Fuji Heavy Industries Ltd * 54,500
8,000 Honda Motor Co Ltd 120,905
126,000 Mazda Motor Corp * 585,622
313,000 Nissan Motor Co Ltd 2,141,639
74,000 Toyota Motor Corp 1,332,850
4,235,516
BANKING - 4.8%
54,000 Asahi Bank Ltd 631,644
21,000 Bank of Fukuoka Ltd 154,557
20,000 Bank of Tokyo Ltd 293,981
10,000 Gunma Bank Ltd 107,655
14,000 Hiroshima Bank Ltd 79,706
23,000 Mitsui Trust & Banking Co Ltd 206,894
24,000 Sanwa Bank Ltd 469,541
42,000 Sumitomo Trust & Banking Co Ltd 486,931
14,000 Tokai Bank Ltd 160,861
42,000 Yasuda Trust and Banking Co Ltd 307,375
2,899,145
CONSTRUCTION - 7.2%
11,000 Aoki Corp 60,349
2,000 Chudenko Corp 77,222
4,000 Daito Trust Construction Co Ltd 34,367
56,000 Fujita Corp 300,274
11,000 Haseko Corp 58,641
8,000 Hazama-Gumi Ltd 38,921
4,000 INAX Corp 40,453
20,000 Kajima Corp 177,838
18,000 Kumagai Gumi Co Ltd 89,250
13,000 Maeda Corp 138,606
30,000 Matsushita Electric Works Ltd 302,779
26,000 Mitsubishi Paper Mills Ltd 151,255
6,000 Nihon Cement Co Ltd 41,737
20,000 Obayashi Corp * 151,131
7,000 Okumura Corp 60,069
10,000 Onoda Cement Co Ltd 57,657
4,000 Sanwa Shutter Corp 35,982
70,000 Sekisui Chemical Co Ltd 695,616
61,000 Sekisui House Ltd 688,267
15,000 Shimizu Corp 149,061
7,000 Sumitomo Forestry Co Ltd 97,821
33,000 Sumitomo Osaka Cement Co Ltd 161,917
78,000 Taisei Corp 502,210
6,000 Tokyu Construction Co Ltd 30,868
4,000 Tostem Corp 117,178
6,000 Toto Ltd * 94,405
4,353,874
CONSUMER GOODS - 10.4%
6,000 Ajinomoto Co Inc 69,562
13,000 Ezaki Glico Co Ltd 115,729
33,000 Fuji Photo Film Co Ltd 707,106
2,000 Hitachi Maxell Ltd 31,261
6,000 Kao Corp 65,214
6,000 Katokichi Co Ltd 129,186
26,000 Konica Corp 177,631
93,000 Matsushita Electric Industrial Co Ltd 1,347,756
1,700 Nintendo Co Ltd 89,571
11,000 Nippon Meat Packers Inc 143,471
36,000 Nippon Suisan Kaisha Ltd * 167,693
18,000 Nisshinbo Industries Inc 170,488
1,000 Nissin Food Products Co Ltd 22,152
7,000 Olympus Optical Co Ltd 65,939
14,000 Onward Kashiyama Co Ltd 178,252
5,700 QP Corp 58,708
217,000 Sanyo Electric Co Ltd 1,129,872
19,000 Snow Brand Milk Products Co Ltd 129,217
12,000 Sony Corp 521,712
9,000 Tokyo Style Co Ltd 129,496
43,000 Victor Co of Japan Ltd * 476,269
13,000 Wacoal Corp 131,877
6,000 Yakult Honsha Co Ltd 85,089
5,000 Yamaha Corp 55,380
2,000 Yamazaki Baking Co Ltd 36,023
6,234,654
FOOD AND BEVERAGE - 2.6%
26,000 Asahi Breweries Ltd 269,137
86 Japan Tobacco Inc * 715,739
36,000 Kirin Brewery Co Ltd 372,652
5,000 Mercian Corp 34,160
11,000 Sapporo Breweries Ltd 100,430
7,000 Takara Shuzo Co Ltd 52,896
1,545,014
INSURANCE - 0.4%
15,000 Dai Tokyo Fire and Marine Insurance Co Ltd 95,958
15,000 Nichido Fire & Marine Insurance Co Ltd 107,914
6,000 Sumitomo Marine & Fire Insurance Co Ltd 46,706
250,578
MACHINERY - 2.9%
6,000 Aida Engineering Ltd 45,277
23,000 Aisin Seiki Co Ltd 264,272
45,000 Amada Co Ltd 447,182
15,000 Daikin Industries Ltd 112,106
17,000 Furukawa Electric Co Ltd 94,674
33,000 Komatsu Ltd 242,192
12,000 Koyo Seiko Co Ltd 103,100
2,000 Kurita Water Industries Ltd 43,683
16,000 NHK Spring Co Ltd 76,683
15,000 NSK Ltd 92,387
22,000 Stanley Electric Co Ltd 145,748
690 Sumitomo Rubber Industries Ltd 5,307
1,672,611
METALS AND MINING - 1.3%
81,000 Mitsubishi Materials Corp 381,502
23,000 Nippon Sheet Glass Co Ltd 117,851
7,000 Sumitomo Coal Mining Co Ltd * 39,925
9,000 Toyo Seikan Kaisha Ltd 258,061
797,339
OIL AND GAS - 7.3%
4,900 Arabian Oil Co Ltd 206,439
58,000 Cosmo Oil Co Ltd 381,243
35,000 General Sekiyu (KK) 331,867
100,000 Japan Energy Co Ltd 358,160
41,000 Mitsubishi Oil Co Ltd 356,079
13,000 Mitsui Mining Co Ltd * 59,210
225,000 Nippon Oil Co Ltd 1,350,862
30,000 Showa Shell Sekiyu 335,386
24,000 Teikoku Oil Co Ltd 155,271
59,000 Toa Nenryo Kogyo (KK) 879,458
4,413,975
PHARMACEUTICALS - 2.5%
7,000 Banyu Pharmaceutical Co Ltd 72,315
7,000 Chugai Pharmaceutical Co Ltd 70,286
5,000 Dainippon Pharmaceutical Co Ltd 52,275
39,000 Fujisawa Pharmaceutical Co Ltd 444,076
3,000 Kaken Pharmaceutical Co Ltd 33,849
4,000 Kissei Pharmaceutical Co Ltd 155,271
3,000 Mochida Pharmaceutical Co Ltd 60,556
4,000 Ono Pharmaceutical Co Ltd 188,396
10,000 Taisho Pharmaceutical Co Ltd 169,763
10,000 Yamanouchi Pharmaceutical Co Ltd 195,642
4,000 Yoshitomi Pharmaceutical Industries Ltd 33,580
1,476,009
PRIMARY PROCESSING - 5.4%
10,000 Daicel Chemical Industries Ltd 47,203
13,000 Daido Steel Co Ltd 63,920
21,000 Dainippon Ink & Chemicals Inc 91,734
27,000 Denki Kagaku Kogyo * 89,995
10,000 Kansai Paint Co Ltd 52,896
6,000 Kureha Chemical Industry Co Ltd 28,135
51,000 Mitsubishi Gas Chemical Co Inc 208,530
253,000 Mitsubishi Kasei Corp 1,215,175
16,000 Mitsubishi Rayon Co Ltd 54,159
27,000 Mitsui Petrochemical Industries Ltd 190,052
20,000 Nippon Yakin Kogyo Co Ltd 99,374
43,000 Nisshin Steel Co Ltd 180,270
6,000 Shin-Etsu Chemical Co Ltd 96,889
152,000 Sumitomo Metal Industries Ltd * 435,837
58,000 Teijin Ltd 271,974
11,550 Toagosei Chemical Industry Co Ltd 59,540
13,000 Toray Industries Inc 81,549
3,267,232
PRINTING AND PUBLISHING - 1.9%
33,000 Dai Nippon Printing Co Ltd 488,484
4,000 Kyodo Printing Co Ltd 39,335
49,000 Toppan Printing Co Ltd 588,375
1,116,194
REAL ESTATE - 3.5%
12,000 Daikyo Inc 86,828
10,000 Daiwa Kosho Lease Co Ltd 90,161
7,000 Heiwa Real Estate Co Ltd 50,722
90,000 Mitsubishi Estate Co Ltd 908,338
56,000 Mitsui Fudosan Co Ltd 573,304
28,000 Sumitomo Realty & Development Co Ltd 152,456
15,000 Tokyo Tatemono Co Ltd 84,157
32,000 Tokyu Land Corp 144,423
2,090,389
RETAIL STORES - 1.3%
5,000 Hankyu Department Stores Inc 51,343
27,000 Marui Co Ltd 385,694
4,000 Matsuzakaya Co Ltd 45,960
7,000 Nichii Co Ltd 76,083
7,000 Tokyu Department Store Co Ltd 41,157
13,000 UNY Co Ltd 195,124
795,361
SERVICES - 9.1%
5,000 Canon Sales Co Inc 113,348
5,000 CSK Corp 136,639
13,000 Daiichi Seiyaku Co Ltd 197,816
1,000 Denny's Japan Co Ltd 30,640
7,000 Eisai Co Ltd 106,516
6,000 Fujita Kanko Inc 117,385
6,000 Green Cross Corp 50,184
10,000 Hanwa Co Ltd * 32,503
3,000 Hoya Corp 64,593
44,000 Itochu Corp 259,158
11,000 Kamigumi Co Ltd 91,093
6,000 Kokuyo Co Ltd 144,713
12,000 Kyowa Hakko Kogyo Co Ltd 116,019
15,000 Lion Corp 89,126
105,000 Marubeni Corp 479,323
6,000 Mitsui-Soko Co Ltd 41,613
2,000 Namco Ltd 43,476
5,000 Nippon Kayaku Co Ltd 31,572
23,000 Nippon Shinpan Co Ltd 171,420
20,000 Nissho Iwai Corp 90,886
14,000 Okamoto Industries Inc 88,546
12,000 Sankyo Co Ltd 281,973
5,000 SECOM Co Ltd 264,997
10,000 Shionogi and Co Ltd 84,675
39,000 Shiseido Co Ltd 423,891
4,000 Shochiku Co Ltd 41,820
5,000 Skylark Co Ltd 73,495
93,000 Sumitomo Corp 799,027
6,000 Sumitomo Warehouse Co Ltd 35,278
26,000 Takeda Chemical Industries Ltd 301,434
7,000 Tanabe Seiyaku Co Ltd 53,620
10,000 Terumo Corp 80,741
7,000 Toei Co Ltd 46,809
700 Toho Co Ltd 110,139
10,000 Tokyo Broadcasting System Inc 135,604
8,000 Tokyo Dome Corp 143,264
14,000 Tokyotokeiba Co Ltd 65,214
2,000 Uni-Charm Corp 38,714
3,000 Yamaichi Securities Co Ltd 19,782
5,497,046
TECHNOLOGY - 8.2%
5,000 Alps Electric Co Ltd * 59,521
4,000 Dainippon Screen Manufacturing Co Ltd * 26,334
67,000 Fujitsu Ltd 611,707
177,000 Hitachi Ltd 1,548,212
2,000 Makita Corp 31,054
152,000 Mitsubishi Electric Corp 988,106
300 Murata Manufacturing Co Ltd 9,906
60,000 NEC Corp 569,536
4,000 Omron Corp 67,905
29,000 Ricoh Co Ltd 247,058
11,000 Rohm Co Ltd 404,223
4,000 TDK Corp 165,209
33,000 Tokyo Electric Co Ltd * 137,322
7,000 Yokogawa Electric Corp 63,982
4,930,075
TRANSPORTATION - 10.6%
189 East Japan Railway Co 833,435
18,000 Fukuyama Transporting Co Ltd 166,575
56,000 Hankyu Corp 301,434
5,000 Japan Airport Terminal Co Ltd 54,345
32,000 Keihin Electric Express Railway Co Ltd 185,166
42,000 Keio Teito Electric Railway Co Ltd 230,858
16,000 Keisei Electric Railway Co Ltd 116,433
102,000 Kinki Nippon Railway Co Ltd 817,225
7,000 Mitsubishi Warehouse & Transportation Co Ltd 99,995
52,000 Nagoya Railroad Co Ltd 249,221
30,000 Nakkai Electric Railway Co Ltd 218,622
70,000 Nippon Express Co Ltd 623,156
46,000 Odakyu Electric Railway Co Ltd 336,173
25,000 Sagami Railway Co Ltd 116,195
19,000 Seibu Railway Co Ltd 694,270
20,000 Seino Transportation Co Ltd 314,684
56,000 Tobu Railway Co Ltd 335,055
71,000 Tokyu Corp 451,995
22,000 Yamato Transport Co Ltd 227,731
6,372,568
UTILITIES - 0.7%
8,000 Chugoku Electric Power Co Inc 178,873
7,600 Kyushu Electric Power Co Inc 175,436
2,500 Tohoku Electric Power Co Inc 60,815
415,124
TOTAL STOCK AND EQUIVALENTS (Cost $54,982,140) 52,362,704
PAR VALUE SHORT-TERM INVESTMENTS - 0.8%
$ 500,000 Republic Bank of New York Deposit, 6.00% due 3/1/95
(at amortized cost) 500,000
TOTAL INVESTMENTS - 87.9%
(Cost $55,482,140) * * $ 52,862,704
Other Assets and Liabilities (net) - 12.1% 7,260,459
TOTAL NET ASSETS - 100.0% $ 60,123,163
NOTES TO THE SCHEDULE OF INVESTMENTS:
* Non-income producing security.
** The aggregate identified cost for federal income tax
purposes is $55,672,217 resulting in gross unrealized
appreciation and depreciation of $1,547,820 and $4,357,333,
respectively, and net unrealized depreciation of
$2,809,513.
</TABLE>
See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $54,982,140) (Note 1) $ 52,362,704
Short-term investments, at amortized cost (Note 1) 500,000
Foreign currency, at value (cost $1,195,431) (Note 1) 1,205,331
Cash 48,718
Receivable for Fund shares sold 6,000,000
Dividends and interest receivable 143,040
Total assets 60,259,793
LIABILITIES:
Payable to affiliate for management fee (Note 2) 43,290
Accrued expenses 93,340
Total liabilities 136,630
NET ASSETS(equivalent to $9.12 per share based
on 6,591,242 shares outstanding, unlimited shares authorized) $ 60,123,163
NET ASSETS CONSIST OF:
Paid-in capital $ 51,478,963
Distributions in excess of net investment income (401,346)
Accumulated net realized gain on investments, closed futures
contracts, foreign currency and foreign currency related
transactions 11,647,848
Net unrealized depreciation on investments, foreign
currency and foreign currency related transactions (2,602,302)
NET ASSETS $ 60,123,163
</TABLE>
See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $636,314) $ 3,606,109
Interest 80,066
Total income 3,686,175
EXPENSES:
Management fee (Note 2) 3,394,922
Custodian fees 350,102
Audit fees 57,689
Stamp duties and transfer taxes 34,137
Transfer agent fees 27,251
Legal fees 19,563
Insurance 5,390
Trustee fee (Note 2) 2,098
Registration 1,000
Miscellaneous 451
Total expenses 3,892,603
Less: expenses waived or borne by Manager (Note 2) (113,442)
Net expenses 3,779,161
Net investment loss (92,986)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CLOSED FUTURES
CONTRACTS, FOREIGN CURRENCY AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments 152,057,790
Closed futures contracts (65,647)
Foreign currency and foreign currency related
transactions (505,154)
Net realized gain 151,486,989
Change in net unrealized appreciation (depreciation) on:
Investments (156,239,782)
Foreign currency and foreign currency related transactions (151,244)
Net unrealized loss (156,391,026)
Net realized and unrealized loss on investments, closed futures
contracts, foreign currency and foreign currency related
transactions (4,904,037)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (4,997,023)
</TABLE>
See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss $ (92,986) $ (50,840)
Net realized gain on investments, closed futures contracts,
foreign currency and foreign currency related
transactions 151,486,989 11,352,587
Change in net unrealized appreciation (depreciation) on
investments, foreign currency and foreign
currency related transactions (156,391,026) 156,341,625
Net increase (decrease) in net assets resulting from operations (4,997,023) 167,643,372
Distributions to shareholders:
From net investment income -- (1,074)
In excess of net investment income -- (479,900)
From net realized gains (42,616,601) (6,613,389)
(42,616,601) (7,094,363)
Fund share transactions: (Note 5)
Proceeds from sale of shares 95,499,568 27,100,000
Net asset value of shares issued to shareholders
in payment of distributions declared 41,776,818 7,094,363
Cost of shares repurchased (479,890,795) (50,815,336)
Net decrease in net assets resulting
from Fund share transactions (342,614,409) (16,620,973)
Total increase (decrease) in net assets (390,228,033) 143,928,036
NET ASSETS:
Beginning of period 450,351,196 306,423,160
End of period (including distributions in excess of net
investment income of $401,346 and $370,352,
respectively) $ 60,123,163 $ 450,351,196
</TABLE>
See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 1991 *
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.13 $ 7.37 $ 7.73 $ 9.48 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (a) -- (d) -- 0.01 -- (0.01)
Net realized and unrealized gain (loss)
on investments (1.08) 3.94 (0.36) (1.74) (0.39)
Total from investments (1.08) 3.94 (0.35) (1.74) (0.40)
Less distributions to shareholders:
From net investment income -- -- (0.01) -- --
In excess of net investment income -- (0.01) -- -- --
From net realized gains (0.93) (0.17) -- --
From paid-in capital (c) -- -- (0.01) (0.12)
Total distributions (0.93) (0.18) (0.01) (0.01) (0.12)
NET ASSET VALUE, END OF PERIOD $ 9.12 $ 11.13 $ 7.37 $ 7.73 $ 9.48
TOTAL RETURN (B) (10.62%) 53.95% (4.49%) (18.42%) (3.79%)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 60,123 $ 450,351 $ 306,423 $ 129,560 $ 60,509
Net expenses to average
daily net assets (a) 0.83% 0.87% 0.88% 0.93% 0.95%**
Net investment income to average
daily net assets (a) (0.02%) (0.01%) 0.12% (0.11%) (0.32%)**
Portfolio turnover rate 60% 8% 17% 25% 11%
* For the period from the commencement of operations, June 8, 1990 through February 28, 1991.
** Annualized
(a) Net of fees and expenses voluntarily waived or borne by the Manager of less than $.01 for the year ended February 28,
1995, and $.01 for each of the other periods presented.
(b) Calculation excludes subscription and redemption fees. The total returns would have been lower had certain expenses not
been waived during the periods presented.
(c) Return of capital for book purposes only. A distribution was required for tax purposes to avoid the payment of
federal excise tax.
(d) Based on average month end shares outstanding.
</TABLE>
See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The 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 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 following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges. Those values are then translated into U.S. dollars at
the current exchange rate. Short-term investments with a remaining maturity
of sixty days or less are valued at amortized cost which approximates
market value. Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by
the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies 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 Japanese futures contracts. Japanese futures
contracts represent commitments for future delivery of cash based upon the
level of a specified index of equity securities at a given date. The Fund
may use futures contracts to manage its exposure to the stock and currency
markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instruments or hedge other Fund instruments.
Upon purchase of a futures contract, the Fund is required to deposit with
its custodian, in a segregated account in the name of the futures broker,
an amount of cash and U.S. government obligations in accordance with the
initial margin requirements of the broker. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
commitment 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 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 February 28,
1995, there were no outstanding futures contracts.
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. When a
forward currency contract is extinguished, through delivery or offset by
entering into another forward currency contract with the same broker, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value of the
contract at the time it was extinguished or offset. These contracts may
involve market risk in excess of the unrealized gain or loss reflected in
the Fund's Statement of Assets and Liabilities. In addition, the Fund could
be exposed to risk if the counterparties are unable to meet the terms of
the contracts or if the value of the currency changes unfavorably to the
U.S. dollar. At February 28, 1995, there were no outstanding forward
currency contracts.
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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary. Taxes on foreign interest
and dividend income has been withheld in accordance with the applicable
country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and 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. There is no
premium incurred on reinvested distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions and redemptions
in-kind.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Distribution in Excess of Net Accumulated Net Realized
Investment Income Gain Paid-in Capital
<S> <C> <C>
$61,992 ($95,036,617) $94,974,625
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .40% of the amount
invested. In the case of cash redemptions, the premium is .70% of the
amount redeemed. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase and redemption premiums are paid to and recorded as paid in
capital by the Fund. There is no premium for in-kind transactions. For the
year ended February 28, 1995 the Fund received $452,607 in purchase
premiums and $361,976 in redemption premiums.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of .75% of average daily net assets. The Manager has
agreed to waive a portion of its fee until further notice to the extent
that the Fund's annual expenses (including management fee but excluding
brokerage commissions, transfer taxes and custodian fees) exceed .75% of
average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $2,098. 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 year ended February 28, 1995, aggregated
$247,277,226 and $637,393,069, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 92% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 8,607,105 3,348,625
Shares issued to shareholders in reinvestment
of distributions 4,075,787 777,039
Shares repurchased (46,537,969) (5,270,795)
Net decrease (33,855,077) (1,145,131)
Fund shares:
Beginning of period 40,446,319 41,591,450
End of period 6,591,242 40,446,319
</TABLE>
* * *
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
For the fiscal year ended February 28, 1995, the Fund has designated 100%
of distributions as net capital gain dividends.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of GMO Emerging Markets Fund
(A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Emerging Markets Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 20, 1995
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
STOCK AND EQUIVALENTS - 94.2%
ARGENTINA - 4.3%
<C> <C> <C>
3,591,376 Acindar Industria Argentina de Aceros SA Class A * 1,741,730
2,657,777 Alpargatas SA * 1,275,669
714,000 Astra Cia Argentina 835,338
550,791 Atanor Cia Naci * 671,931
8,316,007 Cia Celulosa Argentina SA Class B * 1,746,274
441,794 Ciadea SA 2,429,746
149,954 Corcemar Class B * 554,802
252,381 Garovaglio y Zorraquin * 757,105
749,900 Indupa SA Industrial y Comercial * 299,945
254,966 Industrias Petroq Koppers * 777,607
62,740 Juan Minetti SA 191,347
1,077,200 Ledesma SA 1,184,861
67,983 Pirelli Cables Industria * 71,379
468,308 Rigolleau Christalerias Preferred * 351,213
4,886,300 Siderca * 2,443,028
55,000 YPF Sociedad Anonima ADR 1,045,000
16,376,975
BRAZIL - 14.1%
5,521,000 Acos Villares SA Preferred * 2,536,148
199,446,000 Banco de Brasil SA Preferred 2,584,106
354,319,000 Banco Estado Sao Paulo Preferred 2,549,928
2,380,000 Banco Itau SA Preferred 644,759
121,940,000 Banco Nacional Preferred 2,872,556
2,319,000 Brasinca Industrial SA Preferred * 1,611,555
7,802,000 Caemi Mineracao e Metalurgica SA Preferred 799,498
1,836,000 Copene-Petroquimica do Nordeste SA Class A Preferred 1,557,010
56,343,771 Electrobras Class B Preferred 12,409,566
6,200,000 Electrobras Ordinary 1,402,120
17,000,000 Hering Preferred * 200,236
1,300,000 Iochpe Maxion Preferred 712,014
147,000,000 Ipiranga Brasileira de Petroleo Preferred 2,287,244
335,746,000 Olvebra Preferred * 134,457
141,700,000 Paranapanema Preferred 2,169,729
40,500,000 Petroleo Brasileiro SA Preferred 4,126,802
42,500,000 Siderurgica de Nacional * 1,101,296
2,490,000 Siderurgica de Tubarao Preferred Series B 1,965,018
16,000 Telecomunicacoes Brasileiras SA ADR 456,000
378,731,000 Telecomunicacoes Brasileiras SA Ordinary 9,100,250
93,200,000 Telecomunicacoes Brasileiras SA Preferred 2,755,383
249,222 Telecomunicacoes de Sao Paulo SA Preferred 30,676
54,006,351
CHINA - 0.9%
722,208 China First Pencil Co Ltd Class B * 202,218
1,157,033 Kong Wah 125,708
1,100,000 Maanshan Iron & Steel Series H 220,526
1,172,900 Shanghai Chlor-Alkali Chemical Co Series B 300,262
1,490,900 Shanghai Erfangji Textile Machinery Co Ltd Series B 292,216
434,160 Shanghai Hai Xing Shipping Company Ltd Series B 260,496
877,000 Shanghai Hero Co Ltd Series B * 254,330
1,000,000 Shanghai Petrochemical Co Series H 310,418
437,800 Shanghai Phoenix Bicycle B * 130,464
612,500 Shenzhen China Bicycle Co 261,431
770,000 Shenzhen Konka Electronic B * 383,431
316,000 Sime Darby H.K. 347,410
2,200,000 Tianjin Bohai Chemical Industry (Group) Co Ltd Series H * 278,859
3,367,769
CZECH REPUBLIC - 0.1%
19,100 Czech Republic Fund Inc 200,550
GREECE - 7.9%
25,720 Aktor SA * 393,108
34,820 Alpha Leasing (Registered) 892,472
32,400 Aluminum Co of Greece Preferred * 1,710,966
11,000 Aluminum Co of Greece (Registered) * 514,767
29,200 ATTI-KAT SA * 406,181
750,470 Balkan Export 924,712
236,900 Boutaris Wine Co 1,169,646
238,546 Commercial Bank of Greece (Registered) 8,167,595
81,329 Credit Bank Athens (Registered) 3,732,626
64,270 Ergo Bank SA (Registered) 2,483,374
108,880 Etba Leasing (Registered) 2,056,800
87,500 Etma Rayon Manufacturers * 456,432
6,000 Hellas Can Sa Packaging Manufacturers 103,039
93,600 Hellenic Technodom SA 1,707,875
13,820 Heracles General Cement (Registered) 121,634
32,850 Ionian Bank 572,602
64,100 Klonatex SA Preferred * 674,241
67,975 National Bank of Greece (Registered) 3,204,372
6,250 National Investment Bank for Industrial Development
(Registered) * 135,507
3,975 National Mortgage Bank of Greece * 70,823
14,500 Petzetakis SA 75,326
88,750 Petzetakis SA Preferred 346,738
83,800 Shelman * 492,897
30,413,733
INDIA - 3.0%
160,000 Arvind Mills Ltd GDR 580,800
7,000 Bajaj Auto GDR 144A * 161,000
120,300 Bombay Dyeing & Manufacturing Co Ltd GDR 1,203,000
48,000 Garden Silk Mills Ltd GDR * 336,000
10,000 Grasim Industries GDR (New) 144A 215,000
15,500 Grasim Industries Ltd GDS 333,250
25,000 Great Eastern Shipping Co GDR 144A * 190,750
91,000 Great Eastern Shipping Co Ltd GDR 694,330
300,000 Hindustan Development Corp GDR 144A * 225,000
97,000 Hindustan Development Corp Units * 145,500
40,000 Indian Aluminum 144A 390,000
34,000 Indian Petrochemicals Corporation Ltd GDR * 425,000
90,000 Indo Gulf Fertilizers GDR 144A 184,500
68,000 JCT Ltd GDR Series S * 892,840
85,000 Mahindra Mahindra GDR 839,800
87,400 Morgan Stanley India Fund Inc 863,075
96,200 Reliance Industries Ltd GDR 1,563,250
55,500 Southern Petrochemicals Industries Corp Ltd GDR 541,125
43,000 Tube Investment GDR 144A * 258,000
8,000 Usha Beltron GDR 144A 50,000
525,000 Videocon International Ltd GDR * 1,522,500
11,614,720
INDONESIA - 6.6%
214,000 Andayani Megah (Foreign Registered) 219,648
771,500 Astra International (Foreign Registered) 1,305,267
522,500 Bank Bali (Foreign Registered) 1,178,660
1,056,000 Bank Dagang Nasional (Foreign Registered) 1,774,690
414,400 Bank International (Foreign Registered) 1,016,721
800,250 Bank Private Development Finance (Foreign Registered) 532,537
50,000 Cipendawa Farm Enterprise (Foreign Registered) 63,163
370,000 Ciputra Devlopment (Foreign Registered) * 667,719
910,000 Dharmala Intiland (Foreign Registered) 646,628
860,000 Duta Anggada Realty (Foreign Registered) 591,699
397,500 Gadjah Tunggal (Foreign Registered) 488,693
1,870,000 Great River Industries (Foreign Registered) 1,328,784
3,816,500 Hadtex Indosyntec (Foreign Registered) 1,980,138
2,082,100 Indah Kiat Pulp and Paper (Foreign Registered) 3,052,933
2,448,000 Jakarta International Hotel and Development
(Foreign Registered) 2,374,554
422,000 JAPFA Comfeed (Foreign Registered) 380,781
221,500 Jaya Real Property (Foreign Registered) 542,133
223,000 Kawasan Industri Jababeka (Foreign Registered) * 379,799
552,000 Metrodata Electronic (Foreign Registered) 410,918
2,123,500 Multipolar (Foreign Registered) 1,269,406
3,000 Pabrik Kertas Tjiwi (Foreign Registered) 5,820
35,000 Pakuwon Jati (Foreign Registered) 21,712
1,991,500 Pan Brothers Textile (Foreign Registered) * 741,891
874,500 Polysindo Eka Perkasa (Foreign Registered) 1,578,164
1,258,500 Rig Tenders Indonesia (Foreign Registered) 292,496
156,000 Semen Gresik (Foreign Registered) 721,408
2,500 Trafindo Perkasa (Foreign Registered) 1,917
1,690,500 Ungul Indah Corp (Foreign Registered) 1,735,117
25,303,396
MALAYSIA - 14.8%
731,000 Amalgamated Steel Mills Berhad 1,116,796
1,062,000 Berjaya Industrial Berhad 807,083
94,000 Berjaya Leisure Berhad 87,639
238,000 Cement Industries of Malaysia Berhad 722,554
152,000 Cold Storage Berhad 248,892
2,178,000 Golden Hope Plantations Berhad 3,873,517
1,144,000 Guinness Anchor Berhad 1,927,020
1,243,000 IGB Corp Berhad 1,071,237
483,000 Kedah Cement Berhad 624,385
912,000 Kuala Lumpur Kepong Berhad 2,518,696
2,225,000 Kumpulan Guthrie Berhad 3,399,275
239,000 Landmarks Berhad 395,095
1,248,000 Malayan Cement Berhad 1,906,650
1,169,000 Malayan United Industries Berhad 1,666,893
530,000 Malayawata Steel 876,153
858,000 Malaysia Mining Corp Berhad 1,364,599
1,165,000 Malaysian International Ship (Alien Market) 3,194,594
363,000 Malaysian Tobacco Co Berhad 568,798
3,716,000 MBF Capital Berhad 4,206,930
218,000 Nestle Malaysia 1,409,069
1,302,000 Nylex Berhad 2,626,697
76,000 Oriental Holdings Berhad 401,920
1,055,000 Rashid Hussain Berhad 2,768,975
383,000 RJ Reynolds Berhad 582,133
353,000 Rothmans of Pall Mall Berhad 2,364,626
248,000 Shell Refinery Co 777,201
2,753,200 Sime Darby Berhad 6,686,844
1,156,000 Sime UEP Properties Berhad 2,173,656
1,089,000 Tan Chong Motor Holdings Berhad 1,288,328
244,000 Tenaga Nasional Berhad 974,949
1,196,000 Tractors Malaysia Holdings Berhad 1,546,097
1,135,600 UMW Holdings Berhad 2,802,578
133,600 UMW Holdings Berhad Warrants (a) * 30,616
57,010,495
MEXICO - 12.2%
6,680,000 Aerovias de Mexico SA de CV CPO 372,051
159,300 Celanese Mexicana SA Class A 2,094,425
160,000 Cementos de Mexico SA de CV 403,983
1,885,400 Cydsa SA Class A * 3,054,825
1,605,000 Fomento Economico Mexicano SA de CV 2,432,557
106,000 Grupo Carso A1 * 393,587
290,000 Grupo Embotellador de Mexico SA 964,219
2,800,600 Grupo Financiero Banamex Accival SA de CV Class C 2,410,643
18,602,000 Grupo Financiero Bancomer SA de CV Class C 3,390,744
60,400 Grupo Financiero Invermex Series L 37,718
992,000 Grupo Financiero Invermexico Class B 617,803
123,000 Grupo Financiero Serfin Class L 102,552
833,700 Grupo Financiero Serfin SA de CV Class B 745,757
2,050,000 Grupo Gigante SA * 366,749
921,000 Grupo Industrial Alfa SA 6,777,316
880,213 Grupo Mexico Class B 2,344,263
90,886 Grupo Mexico Class B Warrants 8/9/01 * 168,734
434,000 Grupo Posadas SA de CV Series L * 167,008
220,000 Grupo Posadas SA de CV * 92,827
4,690 Grupo Sidek SA de CV Class B * 2,454
2,430,000 Grupo Situr SA de CV * 926,886
46,000 Grupo Tribasa SA ADR * 270,250
109,100 Industrias Penoles SA de CV 220,225
157,000 Sears Roebuck de Mexico SA * 423,966
188,000 Telefonos de Mexico ADR Series L 5,193,500
1,441,900 Telefonos de Mexico SA Class L 2,024,744
1,133,100 Tubos de Acero de Mexico SA * 3,805,686
1,549,400 Vitro SA 4,963,310
223,000 Vitro SA ADR 1,979,125
46,747,907
POLAND - 1.0%
59,500 Bank Rozwoju Eksportu SA * 744,582
11,300 Bank Slaski SA * 388,638
310,000 Elektrim SA 1,091,866
67,500 Exbud Sa * 335,640
100,350 Polifarb Cieszyn * 374,239
66,000 Vistula * 317,242
311,000 Wielkopolski * 618,572
3,870,779
PORTUGAL - 5.8%
171,700 Banco Chemical (Registered) 1,810,834
91,500 Banco Comercial Portugues SA * 1,147,149
140,100 Banco De Fomento Exterior SA 1,232,843
212,800 Banco Espirito Santo e Commercial de Lisboa (Registered) 3,503,905
5,400 Banco Portugues do Atlantico SA (Registered) 96,817
337,100 Banco Totta & Acores (Registered) 6,888,248
142,000 Banif Banco Internacional Funchal 1,338,483
15,400 Cel-Cat Fabrica Nacional de Condutores Electricos SA 274,179
27,000 CIMPOR Cimentos de Portugal SA (Registered) 483,194
19,000 Crisal Cristais Alcob * 286,799
30,200 Efacec (New) * 357,720
37,200 Empresa Fabril de Maquinas Electricas * 440,635
44,500 Fisipe Fibra Sint 366,656
32,200 Investimentos Participacoes e Gestao SA 741,596
33,800 Modelo Supermercados SA 1,020,400
2,000 Radio Marconi SA (Registered) 79,758
23,800 Soja de Portugal Sociedada Gest (Bearer) 313,915
60,700 Sonae Investimentos 1,377,571
16,200 Unicer Uniao Cervejeira SA (New) * 238,020
16,200 Unicer Uniao Cervejeira SA (Registered) 238,020
22,236,742
SOUTH AFRICA - 9.9%
58,400 AECI Ltd 402,759
329,700 Amalgamated Bank of South Africa 943,203
106,800 Anglo-American Corp of South Africa Ltd 5,285,441
4,200 Anglovaal N 110,498
188,000 Barlow Ltd 1,740,741
204,300 De Beers Centenary Link (Units) 4,252,989
51,000 De Beers Cons Mines Ltd ADR 1,058,250
408,700 Deelkraal Gold Mining Co Ltd 360,157
193,800 Del Monte Royal Foods Ltd 321,762
54,400 Elandsrand Gold Mining Co Ltd 274,432
58,500 Engen Ltd 414,655
48,500 Financiere Richemont AG 449,074
90,000 First National Bank Holdings 488,506
321,900 Free State Consolidated Gold Mines 3,741,111
290,400 Genbel Investments Ltd 623,080
19,700 Harmony Gold Mining * 166,054
27,000 Hartebeestfontein Gold Mining Co Ltd 106,897
35,200 Impala Platinum Holdings Ltd 728,276
21,200 Johannesburg Consol Investment Co 519,847
62,200 Kloof Gold Mining Company 722,886
114,400 Liblife Strategic Investments Ltd 315,586
120,800 Loraine Gold Mines Ltd. * 431,980
97,500 Malbak Ltd 510,536
108,200 Pick'N Pay Stores Ltd 221,098
226,700 Randfontein Estates Gold Mining Co Ltd 1,606,877
249,300 Rembrandt Group Ltd 1,671,552
81,200 Sappi Ltd 1,389,630
252,705 Sasol Ltd 1,888,026
3,378,576 South African Iron & Steel Industrial Corp Ltd 3,693,565
24,600 Standard Bank Investment Corp Ltd 722,605
15,105 Tongaat-Hulett Group Ltd 150,471
13,800 Vaal Reefs Exploration & Mining 944,674
22,600 Western Areas Gold Mining Co Ltd 245,338
52,400 Western Deep Levels 1,686,437
38,188,993
SOUTH KOREA - 4.5%
35,892 Boram Bank Co Ltd 418,168
8,860 Central Investment and Finance 179,523
13,215 Cho Hung Bank Co Ltd 152,291
54,110 Daegu Bank 705,092
63,870 Haitai Confectionery Co Ltd 1,083,845
1,853 Han Shin Construction 19,242
40,000 Han Wha Corp * 612,930
111,176 Hana Bank 2,029,228
50,407 Hanil Bank 591,747
14,800 Hannong Corp 1,246,375
12,950 Hanshin Construction Preferred * 85,278
35,000 Kia Motors GDS 144A * 490,000
150,814 Korea First Bank 1,715,601
38,632 Korea Fund 753,324
38,325 Korea Long Term Credit Bank 1,049,794
445 Kumho Construction and Engineering * 6,424
34,000 Kwang Ju Bank 400,431
17,500 Kwangju Investment & Finance Co Ltd 498,639
3,787 Kyungki Bank Ltd 36,928
28,041 Sam Hee Investment and Finance Co Ltd 340,902
33,400 Shin Han Investment and Finance Co Ltd 647,147
16,622 Shin Poong Paper Manufacturing 1,081,961
109,800 Shinhan Bank 2,248,421
20,161 Shinhan Bank (New) * 412,845
7,387 Shinhan Investment and Finance Preferred 85,128
6,300 Sung Bo Chemical Co 195,466
5,000 Tongyang Nylon 174,128
17,260,858
SRI LANKA - 0.1%
32,600 Hayleys Ltd * 126,640
57,000 John Keells Holdings Ltd * 238,832
13,000 National Development Bank * 84,927
450,399
TAIWAN - 3.7%
15,034 Asia Cement Corp GDR 330,748
34,200 Chia Hsin Cement GDR 504,450
101,300 China Steel Corp GDS 2,026,000
12,000 President Enterprises Corp GDS * 213,000
836,600 R O C Taiwan Fund * 9,307,175
93,493 Tuntex Distinct Corp GDR 144A * 1,075,170
57,853 Tuntex Distinct Corp GDR * 665,310
6,731 Tuntex Distinct Corp GDS (New) 144A * 77,407
4,165 Tuntex Distinct Corp GDS (New) * 47,898
14,247,158
THAILAND - 2.8%
1,517,000 Bangkok Rubber Public Co Ltd (Foreign Registered) 1,607,631
1,460 Bangkok Land Public Co Ltd Warrants 12/31/96
(Foreign Registered) (a) * 59
357,000 Bank of Ayudhya Public Co Ltd (Foreign Registered) 1,545,950
11,500 Carpets International Thailand Public Co Ltd (Foreign Registered) 45,188
267,900 CP Feedmill Public Co Ltd (Foreign Registered) 1,815,361
549,700 GFPT Co Ltd (Foreign Registered) * 330,613
694,700 NEP Realty and Industry Co Ltd (Foreign Registered) * 369,077
533,200 Padaeng Industry Co Ltd (Foreign Registered) 932,566
441,000 Prasit Development Public Co Ltd (Foreign Registered) 831,075
675,000 Saha Union Public Co Ltd (Foreign Registered) 967,572
695,600 Siam City Bank Public Co Ltd (Foreign Registered) 760,028
125,000 Thai Farmers Bank Public Co Ltd (Foreign Registered) 1,032,478
2,705,500 Unicord (Foreign Registered) * 705,122
10,942,720
TURKEY - 1.4%
900,000 Adana Cimento Sanayi * 385,404
392,000 Akal Tekstil 74,712
11,665,000 Eregli Demir ve Celik Fabrikalari Turk Anonim Sirketi 1,280,476
5,495,000 Goltas Cimento AS (a) (b)* 994,270
600,000 Mardin Cimento 155,609
26,263,600 Yapi ve Kredi Bankasi AS 2,249,355
5,139,826
VENEZUELA - 1.1%
320,666 Ceramic Carabobo Class A ADR 240,500
650,000 Ceramic Carabobo Class B ADR 487,500
9,200 Mantex SAICA ADR 58,604
174,975 Siderurgica Venezolana Sivensa 56,011
1,028,000 Siderurgica Venezuela ADR 1,285,000
82,500 Sudamtex ADR 443,025
120,000 Venezolana de Cementos 197,897
2,333 Venezolana de Prerreducidos Caroni GDS 13,648
527,000 Venezolano de Pulpa y Papel GDS 144A 1,512,490
4,294,675
TOTAL STOCK AND EQUIVALENTS (Cost $454,651,201) 361,674,046
PAR VALUE CONVERTIBLE BONDS - 1.6%
India - 0.3%
USD 500,000 Essar Gujarat Ltd, 5.50% due 8/5/98 650,000
USD 700,000 Sterlite, 3.50% due 6/30/99 591,500
1,241,500
TAIWAN - 0.9%
USD 400,000 Far East Department Stores, 3.00% due 7/06/01, 144A 338,000
USD 750,000 Formosa Chemical and Fiber, 1.75% due 7/19/01 731,250
USD 500,000 Formosa Chemical and Fiber, 1.75% due 7/19/01, 144A 487,500
USD 300,000 Nan Ya Plastics Corp, 1.75% due 7/19/01 271,500
USD 650,000 Nan Ya Plastics Corp, 1.75% due 7/19/01, 144A 588,250
CHF 550,000 Pacific Construction, 2.13% due 10/01/98 496,754
USD 500,000 Teco Electric & Machine, 2.75% due 4/15/04 144A 420,000
3,333,254
THAILAND - 0.4%
USD 1,530,000 Bangkok Bank Public Co, 3.25% due 3/3/04 1,281,375
USD 566,000 Bangkok Land Ltd, 4.50% due 10/13/03 (Foreign Registered) 404,690
1,686,065
TOTAL CONVERTIBLE BONDS (Cost $6,967,863) 6,260,819
SHORT-TERM INVESTMENT - 1.4%
$ 5,500,000 Republic Bank of New York Deposit, 6.00% due 3/1/95 5,500,000
TOTAL SHORT-TERM INVESTMENT (at amortized cost) 5,500,000
TOTAL INVESTMENTS - 97.2%
(Cost $467,119,064) * * 373,434,865
Other Assets and Liabilities (net) - 2.8% 10,823,897
TOTAL NET ASSETS - 100.0% $ 384,258,762
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
GDR Global Depositary Receipt
GDS Global Depositary Shares
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) Security valued by management (Note 1).
(b) This security has been purchased on a when-issued basis.
* Non-income producing security.
** The aggregate identified cost for federal
income tax purposes is $468,048,723
resulting in gross unrealized appreciation
and depreciation of $12,705,789 and
$107,319,647, respectively, and net
unrealized depreciation of $94,613,858.
The principal amount of each security is stated in currency in which the security
is denominated: USD - United States Dollar CHF - Swiss Franc
</TABLE>
At February 28, 1995, industry sector diversification of the
Fund's equity investments was as follows:
<TABLE>
<CAPTION>
Percentage of
Industry Sector Net Assets
<S> <C>
Banking 17.6 %
Metals and Mining 12.8
Construction 6.8
Financial Services 6.1
Utilities 5.9
Consumer Goods 5.8
Miscellaneous 4.8
Primary Processing 4.6
Telecommunications 4.2
Services 5.3
Oil and Gas 3.6
Investment Companies 2.9
Food and Beverage 2.6
Automotive 2.2
Manufacturing 2.1
Insurance 1.8
Transportation 1.6
Chemicals 1.4
Machinery 1.1
Textiles 1.0
94.2 %
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $461,619,064) (Note 1) $ 367,934,865
Short-term investments, at amortized cost (Note 1) 5,500,000
Foreign currency, at value (cost $4,279,240) (Note 1) 4,297,707
Cash 267,451
Receivable for investments sold 5,333,892
Receivable for Fund shares sold 8,503,193
Dividends and interest receivable 856,495
Foreign withholding taxes receivable 3,787
Total assets 392,697,390
LIABILITIES:
Payable for investments purchased 5,191,939
Payable for Fund shares repurchased 2,583,000
Payable to affiliate for management fee (Note 2) 303,501
Accrued expenses 360,188
Total liabilities 8,438,628
NET ASSETS(equivalent to $9.52 per share based
on 40,355,453 shares outstanding, unlimited shares authorized) $ 384,258,762
NET ASSETS CONSIST OF:
Paid-in capital $ 473,471,619
Accumulated net realized gain on investments, swap contracts
and foreign currency related transactions 4,506,417
Net unrealized depreciation on investments,
foreign currency and foreign currency related transactions (93,719,274)
NET ASSETS $ 384,258,762
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $785,221) $ 5,708,825
Interest 1,613,039
Total income 7,321,864
EXPENSES:
Management fee (Note 2) 3,004,553
Custodian fees 920,828
Stamp duties and transfer taxes 310,532
IOF fees (Note 1) 228,444
IPMF taxes (Note 1) 109,156
Audit fees 68,738
Registration fees 63,891
Transfer agent fees 27,189
Legal fees 15,977
Insurance 3,598
Trustee fee (Note 2) 797
Miscellaneous 802
Total expenses 4,754,505
Net investment income 2,567,359
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
SWAP CONTRACTS AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments 11,504,282
Swap contracts 184,985
Foreign currency and foreign currency related transactions (940,628)
Net realized gain 10,748,639
Change in net unrealized appreciation (depreciation) on:
Investments (99,219,068)
Foreign currency and foreign currency related transactions 3,250
Net unrealized loss (99,215,818)
Net realized and unrealized loss on investments, swap contracts
and foreign currency related transactions (88,467,179)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (85,899,820)
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994*
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Operations:
Net investment income $ 2,567,359 $ 136,972
Net realized gain on investments, swap contracts
and foreign currency related transactions 10,748,639 604,768
Net unrealized appreciation (depreciation) on investments,
foreign currency and foreign currency related
transactions (99,215,818) 5,496,544
Net increase (decrease) in net assets
resulting from operations (85,899,820) 6,238,284
Distributions to shareholders from:
Net investment income (2,332,870) (17,227)
Net realized gains (7,201,224) -
(9,534,094) (17,227)
Fund share transactions: (Note 5)
Proceeds from sale of shares 374,416,514 111,221,997
Net asset value of shares issued to shareholders
in payment of distributions declared 8,065,981 2,038
Cost of shares repurchased (17,198,392) (3,036,519)
Net increase in net assets resulting
from Fund share transactions 365,284,103 108,187,516
Total increase in net assets 269,850,189 114,408,573
NET ASSETS:
Beginning of period 114,408,573 -
End of period (including undistributed net
investment income of $0 and
$235,005, respectively) $ 384,258,762 $ 114,408,573
* Period from December 9, 1993 (commencement of operations) to February 28, 1994.
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 9, 1993
YEAR ENDED (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.13 $ 10.00
Income (loss) from investment operations:
Net investment income (a) 0.05 0.02
Net realized and unrealized gain (loss)
on investments (2.37) 2.11
Total from investment operations (2.32) 2.13
Less distributions to shareholders from:
Net investment income (0.07) (0.00)(c)
Net realized gains (0.22) --
Total distributions (0.29) (0.00)
NET ASSET VALUE, END OF PERIOD $ 9.52 $ 12.13
TOTAL RETURN (B) (19.51%) 21.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 384,259 $ 114,409
Net expenses to average
daily net assets 1.58% 1.64%* (a)
Net investment income to average
daily net assets 0.85% 0.87%* (a)
Portfolio turnover rate 50% 2%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.003
for the period ended February 28, 1994.
(b) Calculation excludes subscription fees. The total return would have been
lower had certain expenses not been waived during the period shown.
(c) The per share income distribution was $ 0.004.
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The 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 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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
When a forward currency contract is extinguished, through delivery or
offset by entering into another forward currency contract, the Fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the
time it was extinguished or offset. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. As of
February 28, 1995, there were no outstanding forward currency contracts.
SWAP AGREEMENTS
A swap is an agreement to exchange the return generated by one instrument
for the return generated by another instrument. The Fund entered into
equity swap agreements which involve a commitment by one party in the
agreement to pay interest in exchange for a market linked return based on a
notional amount. To the extent that the total return of the security or
index underlying the transaction exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. Equity swaps are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of measurement period are recorded as
realized gain or loss in the Statement of Operations. Entering into these
agreements involves, to varying degrees, elements of credit and market risk
in excess of the amounts recognized on the Statement of Assets and
Liabilities. Such risks involve the possibility that there is no liquid
market for these agreements, that the counterparty to the agreements may
default on its obligation to perform and that there may be unfavorable
changes in the price of the security or index underlying these
transactions. As of February 28, 1995, there were no outstanding 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
"Code"). It is the policy of the Fund to distribute all of its taxable
income, including any net realized gain on investments not offset by loss
carryovers, to shareholders within the prescribed time periods. 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.
The Fund was subject to a .25% Imposto Provisorio Sobre Morimentacoes
Financeiras (IPMF) tax on debits (withdrawals) for banking transactions in
Brazil. This tax was repealed effective January 1, 1995. In addition, the
Fund is subject to an Imposto Sobre Operacues Financeiras (IOF) tax which
is imposed on certain investment transactions in Brazil.
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 paid and received by the
shareholders of the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and 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. There is no premium
incurred on reinvested distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain Paid-in Capital
<S> <C> <C>
($469,494) $469,494 -
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is 2% of the amount invested.
The Manager may waive such premium to the extent that a transaction results
in minimal brokerage and transaction costs to the Fund. All purchase
premiums are paid to and recorded as paid-in capital by the Fund. For the
year ended February 28, 1995, the Fund received $7,203,554 in purchase
premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of 1% of average daily net assets. The Manager has
agreed to waive a portion of its fee until further notice to the extent
that the Fund's annual expenses (including management but excluding custody
fees, brokerage commissions and transfer taxes) exceed 1.20% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $797. 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 year ended February 28, 1995, aggregated
$490,764,611 and $142,687,568, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 15% 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 full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Period from December 9, 1993
Year Ended (Commencement of Operations)
February 28, 1995 to February 28, 1994
<S> <C> <C>
Shares sold 31,656,227 9,700,010
Shares issued to shareholders in
reinvestment of distributions 708,112 189
Shares repurchased (1,438,354) (270,731)
Net increase 30,925,985 9,429,468
Fund shares:
Beginning of period 9,429,468 --
End of period 40,355,453 9,429,468
</TABLE>
* * *
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Global Hedged Equity Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Global Hedged Equity Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the period from July 29, 1994
(commencement of operations) to February 28, 1995, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 20, 1995
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
<S> <C> <C>
STOCK AND EQUIVALENTS - 86.0%
AUSTRALIA - 2.8%
143,967 Australia and New Zealand Banking Group Ltd 505,156
12,100 Australian Gas Light Co * 37,997
54,300 Boral Ltd 145,699
110,000 Bougainville Copper Ltd * 52,706
21,600 Burns Philp & Co Ltd 51,748
127,800 Coles Myer Ltd 428,645
176,005 CSR Ltd 578,650
566,400 Fosters Brewing Group Ltd 496,851
91,200 Goodman Fielder Ltd 83,363
2,500 Newcrest Mining Ltd 9,141
146,053 News Corp Ltd 650,284
72,798 News Corp Ltd Preferred $.04 * 288,707
41,500 Pacific Dunlop Ltd 91,469
40,800 Pasminco Ltd * 42,106
293,500 Pioneer International Ltd 705,312
38,200 QCT Resources Ltd 36,607
59,762 Santos Ltd 160,355
62,100 Schroders Property 100,709
10,100 Smith (Howard) Ltd 44,671
27,200 Southcorp Holdings Ltd 62,558
48,200 Stockland Trust Group 108,013
44,600 TNT Ltd * 63,452
112,100 Western Mining Corp Ltd 600,753
148,200 Westfield Trust Units 253,450
107,100 Westpac Banking Corp 395,533
5,993,935
AUSTRIA - 1.0%
100 Allgemeine Baugesellschaft AG 15,249
100 Allgemeine Baugesellschaft AG Preferred 7.00% 8,237
160 Austrian Airlines * 27,041
1,200 Bank Austria AG (Participating Certificate) 42,077
1,410 Bau Holding AG Preferred (Non Voting) 2.42% 93,539
1,600 Brau Union AG 101,170
400 Constantia Industrie Holding AG * 30,732
2,710 Creditanstalt-Bankverein 169,778
2,030 Creditanstalt-Bankverein Preferred 1.65% 123,234
100 EA-Generali AG 25,982
100 EA-Generali AG Preferred 6.00% 15,881
840 EVN Energie-Versorgung Niederoesterreich AG 101,334
500 Interunfall Versicherungs AG (Bearer) 80,132
700 Lenzing AG 65,067
1,000 Leykam-Muerztaler Papier und Zellstoff AG * 47,594
200 Miba Holding AG Series B Preferred 1.34% 8,547
1,950 OMV AG * 189,214
300 Oesterreichische Brau Beteiligungs AG 17,105
3,960 Oesterreichische Elektrizitaetswirschafts AG 244,243
5,060 Oesterreichische Laenderbank AG 399,079
1,000 Oesterreichische Laenderbank AG Preferred (Non Voting) 48,079
440 Perlmooser Zementwerke AG 30,643
1,300 Radex-Heraklith AG 46,846
600 Steyr-Daimler-Puch AG * 8,800
100 Strabag Oesterreich AG 13,890
300 Universale Bau AG * 17,629
1,300 Veitsch-Radex AG * 34,471
100 Wiener Allianz Versicherungs AG * 23,603
140 Wienerberger Baustoffindustrie AG 49,497
2,078,693
belgium - 0.2%
1,010 Banque Bruxelles Lambert NPV 144,489
20 Banque Nationale de Belgique 25,060
200 Barco NV 15,036
650 Electrabel NPV 127,292
1,080 Groupe Bruxelles Lambert NPV 131,202
160 Petrofina SA Bruxelles 47,053
50 Reunies Electrobel et Tractionel SA 15,136
50 Solvay SA Act 25,807
531,075
CANADA - 0.8%
1,400 Abitibi-Price Inc 18,365
3,900 Air Canada Inc * 21,024
1,600 Alberta Energy Ltd 21,851
6,100 Bank of Montreal 118,931
7,490 Bank of Nova Scotia 148,050
600 BC Telecom Inc 10,728
1,010 BCE Inc 31,398
12,500 Canadian Imperial Bank of Commerce 305,481
3,900 Cominco Ltd * 62,372
600 Dofasco Inc 7,439
4,800 Domtar Inc * 40,970
2,100 Fletcher Challenge Class A 28,113
1,500 Hudsons Bay Co 29,245
3,800 Imasco Ltd 115,058
4,400 Imperial Oil Ltd 149,829
8,100 Inco Ltd 217,601
2,500 Maple Leaf Foods 23,136
9,600 National Bank of Canada 67,278
2,000 Noranda Forest Inc 15,274
5,900 Ranger Oil Ltd 35,517
4,180 Royal Bank of Canada 86,379
7,000 Toronto Dominion Bank 105,660
800 Transcanada Pipelines Ltd 10,566
1,600 United Dominion Inds Ltd 30,332
1,700,597
FINLAND - 0.1%
24,600 Kansallis-Osake-Pankki * 25,877
1,000 Kesko OY 11,184
500 Kymmene OY Sh Fria * 14,395
740 OY Nokia AB Preferred 1.54% 110,619
6,000 Unitas Bank Ltd Class A * 19,001
181,076
FRANCE - 4.6%
200 Accor SA 21,488
150 Agache Financiere 35,263
190 Air Liquide (Registered) 27,317
1,075 Air Liquide 154,556
6,780 Alcatel Alsthom Cie Generale d'Electricite SA 544,033
500 Axa SA 21,517
36,220 Banque Nationale de Paris 1,600,942
25 Bongrain SA 12,653
250 Bouygues 25,695
1,000 Carnaudmetalbox SA Act 32,738
1,025 Carrefour Supermarche SA 417,209
1,950 Casino Guichard Perrachon Act 53,003
450 Club Mediterranee SA 36,546
27,785 Compagnie de Suez SA 1,225,412
3,560 Credit Commercial de France * 145,250
640 Credit Foncier de France (Bearer) 83,062
2,050 Credit Local de France SA 162,502
8,980 Credit Lyonnais 566,855
1,760 Credit National SA 128,230
250 Dassault Electronique SA * 18,457
1,200 Dollfus-Mieg and Cie 67,146
5,125 Elf Sanofi SA 267,751
1,580 Eridania Beghin-Say SA 230,231
925 Essilor International 130,294
80 Europe 1 Communication (New) * 17,641
2,965 Financiere de Paribas SA 168,729
3,800 FINEXTEL 62,017
1,530 Groupe Danone 219,973
200 Labinal SA 30,076
2,510 Lafarge Coppee SA (Bearer) 161,416
450 Lefebvre (Jean) Entreprises 27,890
3,400 LVMH Moet Hennessy Louis Vuitton 541,675
625 Lyonnaise des Eaux 52,943
12,870 Michelin SA Class B * 512,850
1,600 Pechiney International SA 39,013
2,470 Pechiney International SA Preferred 3.43% 165,562
2,545 Pernod-Ricard 155,706
3,195 Peugeot SA * 434,525
150 Radiotechnique 16,378
100 Saint Louis 27,239
200 Saint-Gobain 23,470
3,340 Schneider SA 229,069
375 SEFIMEG 24,174
550 SIMCO 43,491
3,680 Societe Generale d 'Entreprise SA 123,691
1,110 Societe Generale Paris 105,350
940 SOVAC SA 66,934
6,710 Thomson CSF * 165,697
2,910 Total SA Class B 160,398
1,100 UAP Co 25,069
3,800 Worms et Compagnie SA 183,835
9,792,961
GERMANY - 4.6%
150 AEG AG 14,572
660 Bankgesellschaft Berlin AG 151,244
9,690 Bayer AG 2,371,574
1,140 Bayerische Hypotheken-und Wechselbank AG 300,831
230 Bayerische Hypotheken-und Wechselbank AG (New) 59,200
1,490 Bayerische Motorenwerke AG 772,121
3,710 Bayerische Vereinsbank AG 1,101,270
50 Beiersdorf AG (Bearer) 32,986
2,540 Berliner Handels- und Frankfurter Bank 658,117
590 Berliner Kraft und Licht AG Class A 116,165
50 Boss (Hugo) AG Preferred 3.84% 35,037
1,300 Bremer Vulkan Verbund AG * 78,564
5,350 Commerzbank AG 1,232,576
530 Daimler-Benz AG 256,893
200 Didier-Werke AG * 17,570
50 Douglas Holding AG 16,237
3,210 Dresdner Bank AG 875,604
100 Escada AG Preferred (Non Voting) 1.43% 21,672
100 Gehe AG 38,865
50 Kaufhof AG Preferred (Non Voting) 5.59% 12,682
1,050 Kloeckner Humboldt-Deutz AG * 42,352
350 Kugelfischer George Schaefer AG * 54,555
150 Kugelfischer George Schaefer AG Preferred (Non Voting) * 21,945
50 Linotype-Hell AG * 11,895
100 Philips Kommunikations Industrie AG 34,866
150 Porsche AG Preferred (Non Voting) * 65,630
100 Porsche AG Preferred * 42,591
250 Puma AG Preferred (Non Voting) * 61,442
150 Rheinelektra AG 128,183
650 RWE AG Preferred (Non Voting) 168,727
50 Salamander AG 10,853
400 SAP AG 361,784
540 Siemens AG 250,296
400 Villeroy and Boch AG Preferred (Non Voting) 86,686
1,150 Volkswagen AG 310,938
300 Volkswagen AG Preferred (Non Voting) 0.79% 62,246
9,878,769
HONG KONG - 3.4%
73,000 Cathay Pacific Airways Ltd 118,024
55,000 Cross Harbour Tunnel Co Ltd 108,129
157,156 Dairy Farm International 189,038
74,000 Denway Investments 6,126
44,000 Dickson Concepts International Ltd 23,902
275,000 Elec and Eltek International Holdings Ltd 32,012
175,000 Goldlion Holdings Ltd 38,932
153,000 Hang Lung Development Co Ltd 226,586
2,600 Hang Lung Development Co Ltd Warrants 10/31/97 * 457
118,000 Harbour Centre Development Ltd 132,781
1,000 Henderson Land Development Co Ltd 5,575
140,000 Hong Kong Ferry Co Ltd 150,294
31,000 Hong Kong Land Holdings 59,141
12,000 Hongkong Aircraft Engineering Co Ltd 38,647
18,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 20,604
20,000 Hongkong Electric Holdings Ltd 59,885
114,807 Hopewell Holdings Ltd 87,611
175,000 Hutchison Whampoa Ltd 742,417
56,000 Jardine International Motor Holdings Ltd 61,204
45,200 Kowloon Motor Bus Co Ltd 81,262
118,000 Kumagai Gumi Hong Kong Ltd 81,653
92,000 Lai Sun Garment International Ltd 98,170
16,000 Lane Crawford International Ltd Series A 24,627
81,000 Mandarin Oriental 95,861
206,000 National Mutual Asia Ltd 134,553
76,000 New World Development Co Ltd 207,411
74,000 Playmate Toys Holding 22,971
1,088,000 Regal Hotels International Ltd 209,677
55,600 San Miguel Brewery Ltd 48,182
80,000 Shun Tak Holdings Ltd 47,597
12,956 Sino Hotels Holdings Ltd * (c) 3,351
51,826 Sino Land Co Ltd 41,560
64,000 South China Morning Post Ltd 34,767
319,000 Stelux Holdings International Ltd 93,866
18,000 Sun Hung Kai Properties Ltd 121,063
350,000 Swire Pacific Ltd Class A 2,455,862
106,000 Tai Cheung Holdings Ltd 100,770
15,000 Television Broadcasts Ltd 56,457
266,000 Wharf Holdings Ltd 915,165
70,000 Wheelock & Co Ltd 118,153
23,000 Wing On International Holdings Ltd 40,160
91,000 Winsor Industrial Corp Ltd 112,404
7,246,907
ITALY - 2.4%
181,100 Alitalia Linee Aeree Italiane Class A * 99,285
83,000 Alitalia Linee Aeree Italiane Class B (Private Placement) * (b) 31,231
285,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 4.98% 356,891
12,300 Banca Commerciale Italiana SPA 27,636
658,340 Banca di Roma 582,606
56,000 Banca Nazionale dell'Agricoltura SPA (Non Convertible) 23,756
17,500 Banca Toscana 40,578
880,400 Banco di Napoli (Non Convertible) 561,790
380,000 Bastogi-IRBS SPA * 22,996
2,300 Benetton Group SPA 22,049
3,000 Bonifiche-Siele Finanziaria SPA * 61,474
20,000 Caffaro SPA * 23,966
18,500 Cartiere Burgo SPA * 127,472
29,970 Cia Italiana dei Grandi Alberghi Cigahotels SPA * 15,964
30,000 Comau Finanziaria SPA 47,544
16,300 Credito Italiano 17,482
24,590 Credito Italiano (Non convertible) 26,520
14,000 Danieli and Co SPA (Non Convertible) 48,316
19,000 Edison SPA 81,965
9,000 Editoriale l'Espresso SPA 16,447
2,500 Ericsson SPA 33,703
86,000 Fiat SPA * 330,552
163,000 Fiat SPA (Non Convertible) 392,607
115,000 Fiat SPA Preferred * 288,706
6,750 FIDIS SPA 15,227
54,000 Finmeccanica SPA * 48,144
12,500 Gilardini SPA * 31,007
76,850 Industriali Riunite SPA * 74,364
20,420 Istituto Bancario San Paolo 113,295
11,750 Italcementi Fabbriche Riunite Cemento SPA 76,597
35,750 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 112,884
325,000 Montedison SPA * 237,762
160,000 Montedison SPA (Non Convertible) * 97,016
85,000 Montefibre SPA * 70,027
35,000 Olivetti and Co SPA * 38,901
17,000 Olivetti and Co SPA (Non Convertible) * 13,241
75,000 Parmalat Finanziaria SPA 66,282
28,800 Pirelli and Co 65,227
15,000 Pirelli and Co (Non Convertible) 19,323
12,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 59,748
7,000 Rinascente per l'Esercizio di Grandi Magazzini SPA
(Non Convertible) 18,769
9,000 Rinascente per l'Esercizio di Grandi Magazzini SPA
Preferred 5.59% 22,379
20,000 Saipem SPA * 35,111
7,000 Sasib SPA 32,505
4,000 Sasib SPA (Non Convertible) 10,773
16,500 Sirti SPA 110,725
131,630 Snia BPD SPA * 153,792
11,000 Societa Italiana per L'Esercizio delle Telecomunicazioni SPA 26,495
115,000 Societa Metallurgica SPA * 58,568
27,000 SORIN Biomedica SPA * 72,717
36,130 STET SPA 100,337
9,000 Telecom Italia SPA di Rsip 17,445
5,700 Tosi (Franco) SPA 60,962
5,141,159
JAPAN - 7.6%
1,000 Ajinomoto Co Inc 11,594
7,000 Alps Electric Co Ltd * 83,329
2,000 Amada Co Ltd 19,875
49,000 Aoki Corp 268,827
1,400 Arabian Oil Co Ltd 58,982
7,000 Asahi Breweries Ltd 72,460
13,000 Banyu Pharmaceutical Co Ltd 134,299
1,000 Canon Sales Co Inc 22,670
2,400 Chubu Electric Power Co Inc 58,382
2,000 Chugai Pharmaceutical Co Ltd 20,082
16,000 Cosmo Oil Co Ltd 105,171
6,000 CSK Corp 163,967
9,000 Dai Nippon Printing Co Ltd 133,223
4,000 Dai Tokyo Fire and Marine Insurance Co Ltd 25,589
38,000 Daicel Chemical Industries Ltd 179,370
2,000 Daiichi Seiyaku Co Ltd 30,433
3,000 Daikyo Inc 21,707
7,000 Dainippon Ink & Chemicals Inc 30,578
5,000 Daiwa House Industry Co Ltd 72,978
3,000 Daiwa Kosho Lease Co Ltd 27,048
97 East Japan Railway Co 427,742
2,000 Eisai Co Ltd 30,433
5,000 Fuji Photo Film Co Ltd 107,137
17,000 Fujisawa Pharmaceutical Co Ltd 193,572
18,000 Fujita Corp 96,517
1,000 Fujita Kanko Inc 19,564
22,000 Fujitsu Ltd 200,859
5,000 Fukuyama Transporting Co Ltd 46,271
5,000 Furukawa Electric Co Ltd 27,845
11,000 Gakken Co Ltd * 79,706
10,000 General Sekiyu (KK) 94,819
16,000 Hankyu Corp 86,124
16,000 Hanwa Co Ltd * 52,006
35,000 Haseko Corp 186,585
11,000 Hazama-Gumi Ltd 53,517
2,000 Heiwa Real Estate Co Ltd 14,492
8,000 Hitachi Cable Ltd 54,656
7,000 Hitachi Maxell Ltd 109,415
4,000 Hokuriku Bank Ltd 26,624
5,000 Honda Motor Co Ltd 75,565
13,000 INAX Corp 131,474
4,000 Intec Inc 51,343
12,000 Itochu Corp 70,680
6,000 Japan Airport Terminal Co Ltd 65,214
29,000 Japan Energy Co Ltd 103,866
24,000 Japan Synthetic Rubber Co Ltd 135,397
5,000 Joshin Denki Co Ltd 56,933
3,000 Kamigumi Co Ltd 24,843
38,000 Kankaku Securities Co Ltd 153,802
9,000 Keihin Electric Express Railway Co Ltd 52,078
12,000 Keio Teito Electric Railway Co Ltd 65,959
5,000 Keisei Electric Railway Co Ltd 36,385
30,000 Kinki Nippon Railway Co Ltd 240,360
15,000 Kirin Brewery Co Ltd 155,271
6,000 Koito Manufacturing Co Ltd 44,718
5,000 Kokusai Kogyo Co Ltd 49,221
1,000 Kokuyo Co Ltd 24,119
8,000 Komatsu Ltd 58,713
78,000 Kumagai Gumi Co Ltd 386,750
21,000 Kurabo Industries Ltd 78,257
32,000 Kureha Chemical Industry Co Ltd 150,054
3,000 Kyowa Hakko Kogyo Co Ltd 29,005
12,000 Maeda Corp 127,944
13,000 Marubeni Corp 59,345
11,000 Marudai Food Co Ltd 74,240
15,000 Marui Co Ltd 214,275
16,000 Matsushita Electric Works Ltd 161,482
22,000 Mazda Motor Corp * 102,251
8,000 Meiji Seika Kaisha Ltd 47,617
19,000 Mitsubishi Electric Corp 123,513
41,000 Mitsubishi Estate Co Ltd 413,798
10,000 Mitsubishi Gas Chemical Co Inc 40,888
10,000 Mitsubishi Materials Corp 47,099
12,000 Mitsubishi Oil Co Ltd 104,218
14,000 Mitsubishi Trust & Banking Corp 198,540
2,000 Mitsubishi Warehouse & Transportation Co Ltd 28,570
16,000 Mitsui Fudosan Co Ltd 163,801
4,000 Mitsui Mining Co Ltd * 18,219
12,000 Mitsui Petrochemical Industries Ltd 84,468
13,000 Mitsui Trust & Banking Co Ltd 116,940
1,000 Mochida Pharmaceutical Co Ltd 20,185
15,000 Nagoya Railroad Co Ltd 71,891
8,000 Nankai Electric Railway Co Ltd 58,299
21,000 NEC Corp 199,338
14,000 New Japan Securities Co Ltd 79,706
15,000 Nichiei Co Ltd 75,151
6,000 Nichii Co Ltd 65,214
20,000 Nippon Express Co Ltd 178,045
142,000 Nippon Oil Co Ltd 852,544
41,000 Nippon Sheet Glass Co Ltd 210,082
11,000 Nippon Suisan Kaisha Ltd * 51,240
27,000 Nissan Motor Co Ltd 184,742
7,000 Nissho Iwai Corp 31,810
14,000 Nitto Denko Corp 198,540
5,000 NSK Ltd 30,796
13,000 Odakyu Electric Railway Co Ltd 95,005
4,000 Okamoto Industries Inc 25,299
1,000 Ono Pharmaceutical Co Ltd 47,099
3,000 Onoda Cement Co Ltd 17,297
34,000 Renown Inc * 133,389
5,000 Ricoh Co Ltd 42,596
6,000 Royal Co Ltd 77,636
7,000 Sagami Railway Co Ltd 32,535
3,000 Sankyo Co Ltd 70,493
17,000 Sanyo Electric Co Ltd 88,515
3,000 Sapporo Breweries Ltd 27,390
1,000 SECOM Co Ltd 52,999
11,000 Seibu Railway Co Ltd 401,946
3,000 Seino Transportation Co Ltd 47,203
3,000 Sekisui Chemical Co Ltd 29,812
41,000 Sekisui House Ltd 462,605
28,000 Settsu Corp * 101,444
11,000 Shionogi and Co Ltd 93,142
23,000 Shiseido Co Ltd 249,987
8,000 Showa Shell Sekiyu 89,436
1,000 Skylark Co Ltd 14,699
4,000 Sony Corp 173,904
9,000 Sumitomo Corp 77,325
28,000 Sumitomo Metal Industries Ltd * 80,286
8,000 Sumitomo Realty & Development Co Ltd 43,559
13,000 Sumitomo Trust & Banking Co Ltd 150,717
21,000 Taisei Corp 135,210
2,000 Taisho Pharmaceutical Co Ltd 33,953
18,000 Takeda Chemical Industries Ltd 208,685
15,000 Tanabe Seiyaku Co Ltd 114,901
86,000 Teijin Ltd 403,271
7,000 Teikoku Oil Co Ltd 45,288
8,000 The Japan Steel Works Ltd 22,856
17,000 Toa Nenryo Kogyo K K 253,403
16,000 Tobu Railway Co Ltd 95,730
200 Toho Co Ltd 31,468
2,000 Tokyo Dome Corp 35,816
4,000 Tokyo Tatemono Co Ltd 22,442
4,000 Tokyotokeiba Co Ltd 18,633
20,000 Tokyu Construction Co Ltd 102,893
20,000 Tokyu Corp 127,323
10,000 Tokyu Department Store Co Ltd 58,796
9,000 Tokyu Land Corp 40,619
8,000 Toppan Printing Co Ltd 96,061
8,000 Toshiba Tungaloy Co Ltd * 33,207
1,000 Tostem Corp 29,295
1,000 Toto Ltd * 15,734
6,000 Toyo Trust & Banking Co Ltd 51,861
19,000 Victor Co of Japan Ltd * 210,445
6,000 Wacoal Corp 60,866
4,000 Yakult Honsha Co Ltd 56,726
7,000 Yamaha Corp 77,532
99,000 Yamaichi Securities Co Ltd 652,792
9,000 Yamanouchi Pharmaceutical Co Ltd 176,078
6,000 Yamato Transport Co Ltd 62,109
10,000 Yasuda Trust and Banking Co Ltd 73,185
3,000 Yokogawa Bridge Corp 38,818
10,000 Yokogawa Electric Corp 91,403
16,326,963
MALAYSIA - 0.4%
29,000 Antah Holding Berhad 23,061
39,200 Bandar Raya Dev Warrants 10/28/97 * 48,218
65,000 DMIB Berhad 70,786
52,000 Faber Group Berhad * 49,703
46,000 Golden Hope Plantations Berhad 81,810
49,000 Highlands and Lowlands Berhad 86,377
29,000 Kuala Lumpur Kepong Berhad 80,090
62,000 Malaysian United Industries Berhad 88,407
35,000 Malaysian Mosaics Berhad 57,037
61,000 Malaysian Resources Corp 107,531
26,000 Perlis Plantations 86,064
36,000 Selangor Properties Berhad 42,166
821,250
NEW ZEALAND - 0.5%
9,000 Air New Zealand Ltd Class B 29,075
26,000 Carter Holt Harvey Ltd 57,315
64,500 DB Group Ltd * 38,815
78,000 Fisher and Paykel Industries Ltd 200,107
60,000 Fletcher Challenge Ltd 149,367
7,000 Independent Newspapers Ltd 23,457
251,500 Lion Nathan Ltd 477,938
976,074
NORWAY - 1.4%
3,900 Aker AS Class A 51,511
2,600 Aker AS Class B (Non Voting) 33,136
12,510 Bergesen d y AS Class A 276,351
7,830 Bergesen d y AS Class B 172,968
37,994 Den Norske Bank AS Series A * 100,364
5,350 Det Norske Luftfartsselskab AS Class B * 195,044
5,400 Dyno Industrier AS 150,153
4,300 Elkem AS Class A* 53,805
2,280 Hafslund Nycomed AS Class A 45,787
21,990 Hafslund Nycomed AS Class B 441,607
5,310 Kvaerner Industrier AS 241,162
400 Kvaerner Industrier AS Class B (Non Voting) 17,302
5,880 Leif Hoegh and Co AS 81,750
21,600 Norsk Hydro AS 817,499
5,010 Orkla-Borregaard AS Series A 184,971
2,900 Saga Petroleum AS Series A 37,407
7,390 Unitor AS 112,447
3,013,264
SINGAPORE - 2.4%
5,000 Amcol Holdings Ltd 10,073
166,000 Chuan Hup Holdings Ltd 148,894
6,000 DBS Land Ltd 15,648
44,000 Faber Group Berhad * 42,805
92,000 First Capital Corp Ltd 250,098
19,000 Fraser and Neave Ltd 200,573
153,000 Hai Sun Hup Group Ltd 146,735
119,000 Haw Par Brothers International Ltd 246,317
170,000 Hotel Properties Ltd 296,754
61,000 Inchcape Berhad 199,496
78,056 Jardine Matheson Holdings Ltd * 718,115
138,000 Jardine Strategic Holdings Ltd * 513,360
10,000 Jurong Shipyard Ltd 83,486
21,000 Lum Chang Holdings Ltd 19,126
32,000 Metro Holdings Ltd 118,122
15,000 Natsteel Ltd 34,774
197,000 Neptune Orient Lines Ltd 254,176
7,000 Prima Ltd 26,805
33,000 Robinson and Co Ltd 133,198
13,000 Shangri-La Hotel Ltd 48,884
89,000 Singapore Airlines Ltd 890,399
133,000 Straits Trading Co Ltd 304,661
31,000 Times Publishing Ltd 82,561
468,000 United Industrial Corp Ltd 390,713
23,000 United Overseas Land Ltd 42,847
13,000 Wearne Brothers Corp Ltd 29,420
5,248,040
SPAIN - 2.5%
15,920 Argentaria Corporacion Bancaria de Espana SA 514,564
13,200 Asturiana del Zinc SA * 130,006
3,600 Autopistas Concesionaria Espanola SA 29,828
600 Azucarera de Espana SA 15,500
31,960 Banco Bilbao Vizcaya SA 851,886
29,540 Banco Central Hispanoamericano SA 686,939
2,450 Banco Zaragozano SA 35,908
470 Bankinter SA 38,502
2,350 Cristaleria Espanola SA * 117,930
6,780 Dragados y Construcciones SA 84,795
16,900 Empresa Nacional de Celulosa SA * 455,089
2,690 Empresa Nacional de Electricidad SA 117,119
173,830 FENOSA SA 665,796
200 Fomento Construcciones y Contratas SA 16,415
39,650 Fuerzas Electricas de Cataluna SA 196,806
800 Huarte SA 7,191
39,480 Iberdrola SA 246,881
7,880 Repsol SA 223,590
127,830 Sevillana de Electricidad 549,561
5,950 Tableros Defibras Series B * 56,974
5,950 Tableros Fibras Rights 4/12/95 * 3,488
19,900 Telefonica de Espana SA 248,104
7,700 Vallehermoso SA 112,853
5,405,725
SWEDEN - 0.5%
3,880 Electrolux AB Series B 195,261
400 Hennes and Mauritz AB Series B 23,535
2,680 Marieberg Tidnings AB Series A 63,877
2,500 Mo Och Domsjoe AB Series B * 124,451
1,450 Pharmacia AB Class A 26,661
26,440 Skandinaviska Enskilda Banken Series A * 144,403
2,560 Skanska AB Series B 56,833
2,200 SKF AB Class B * 40,601
800 Svenska Cellulosa AB 14,165
5,100 Svenska Handelsbanken Series A 64,599
3,000 Sydkraft AB Series A 46,580
3,800 Trelleborg AB Class B * 52,531
4,300 Volvo AB Series A * 86,090
8,500 Volvo AB Series B 170,179
1,109,766
SWITZERLAND - 3.1%
170 Baloise Holdings 315,310
475 Banque Cantonale Vaudoise (Bearer) 245,151
20 CIBA-GEIGY AG (Bearer) 12,645
1,060 CS Holdings (Bearer) 438,515
2,400 CS Holdings (Registered) 198,379
60 Elektrowatt AG (Bearer) 15,628
10 Elvia Schweiz Versicherungs 30,846
250 Helvetia Schweizerische Versicherungsgesellschaft 117,939
100 Hero AG (Bearer) 50,562
300 Hero AG (Registered) 38,708
50 Hilti AG, Schaan (Participating Certificate) 36,692
40 Holderbank Financiere Glarus AG (Bearer) 29,547
120 Holderbank Financiere Glarus AG (Registered) 18,290
40 Interdiscount Holding SA (Bearer) 49,837
50 Intershop Holding AG 21,088
100 Landis and Gyr AG 60,885
40 Merkur Holding AG (Registered) 10,677
20 Pargesa Holding SA (Bearer) 21,128
125 Schindler Holding AG (Participating Certificate) 155,236
60 Schindler Holding AG (Registered) 73,545
650 Schweizerische Rueckversicherungsgesellschaft (Bearer) 388,412
25 Schweizerische Rueckversicherungsgesellschaft (Registered) 14,939
20 SIG Schweiz Industrie AG (Bearer) 19,354
5 SIG Schweiz Insustrie AG (Registered) 9,919
1,060 SMH AG 566,735
4,400 SMH AG (Registered) 523,366
1,060 Swiss Bank Corp (Bearer) 303,456
1,200 Swiss Bank Corp (Registered) 171,283
940 Union Bank of Switzerland (Bearer) 786,081
1,050 Winterthur Schweizerische Versicherungs-Gesellschaft (Registered) 510,584
230 Winterthur Schweizerische Versicherungs-Gesellschaft (Bearer) 115,552
530 Zurich Versicherungs-Gesellschaft (Registered) 505,189
780 Zurich Versicherungs-Gesellschaft (Bearer) 749,776
6,605,254
UNITED KINGDOM - 11.5%
54,600 AMEC Plc 54,433
4,520 Amersham International Plc 58,724
8,740 Anglian Water Plc 66,318
194,762 Argyll Group 830,603
1,037,750 ASDA Group Plc 1,112,583
4,490 BAA Plc 30,908
26,300 Barratt Developments Plc 68,670
123,670 Bass Plc 989,272
55,390 BAT Industries Plc 364,632
8,700 Berisford International Plc 30,495
7,050 Boots Co Plc 53,160
132,290 British Aerospace Plc 986,003
29,910 British Land Co Plc 175,362
246,530 British Steel Plc 622,244
91,960 BTR Plc 456,212
17,000 Bunzl Plc 44,388
272,190 Burton Group Plc 288,587
2,090 Carlton Communications Plc 28,741
4,995 Charter Plc (Registered) 58,966
194,000 Costain Group Plc * 68,307
22,000 Dixons Group Plc 73,109
900 Eastern Group Plc 9,912
41,040 English China Clays Plc 219,510
94,800 Fisons Plc 190,521
250,040 Forte Plc 949,623
331,543 Glaxo Plc 3,326,285
27,432 Grand Metropolitan Plc 166,043
105,920 Great Portland Estates Plc 293,323
3,900 Greenalls Group Plc 24,871
31,220 Guinness Plc * 205,274
108,971 Hammerson Property Investment and Development Corp Plc 552,674
161,577 Hillsdown Holdings Plc 458,959
284,152 Ladbroke Group Plc 759,920
288,650 Lasmo Plc * 701,149
25,100 Lex Service Plc 112,009
8,720 London Electricity Plc 99,629
28,550 London International Group Plc * 42,920
596 Lonrho Plc 1,368
35,570 Marks & Spencer Plc 209,672
13,700 MEPC Plc 85,743
18,080 Meyer International Plc 88,693
6,420 Midland Electricity 74,570
94,940 National Power Plc 696,353
19,500 Norcros Plc 24,069
7,500 North West Water Group Plc 61,004
21,400 Northern Foods Plc 68,576
2,010 Northumbrian Water Group Plc 23,283
7,180 NORWEB Plc 90,214
8,600 Ocean Group Plc 37,561
266,054 Pilkington Plc 696,784
63,390 Powergen Plc 498,549
7,120 Rank Organisation Plc 41,575
18,000 Reckitt & Colman Plc 178,880
56,799 Redland Plc 382,896
38,048 Sainsbury Plc 246,255
9,990 Scottish Power Plc 51,853
355,800 Sears Plc 557,406
4,310 Securicor Group Plc (Non Voting) 62,406
7,740 Severn Trent Plc 61,547
79,000 Signet Group Plc * 21,877
25,740 Slough Estates Plc 91,851
101,178 Smith & Nephew Plc 253,773
160,108 Smithkline Beecham Plc Class A 1,275,683
168,540 Smithkline Beecham Plc Equity Units 1,286,858
17,400 South Western Electricity Plc 223,306
15,970 Southern Water Plc 137,731
60,950 Storehouse Plc 214,120
373,711 Tarmac Plc 620,948
228,823 Taylor Woodrow Plc 427,279
25,985 Tesco 103,006
5,280 Thorn EMI Plc Ord 86,979
17,600 Transport Development Group Plc 51,942
6,290 Unigate Plc 35,037
27,235 Unilever Plc 504,247
27,640 United Biscuits Holdings Plc 146,088
79 Vodafone Group Plc 236
7,320 Welsh Water Plc 68,690
10,890 Wessex Water Plc 47,046
13,165 Whitbread Plc Class A (Limited Voting) 112,081
107,750 Wimpey (George) Plc 205,463
1,130 Wolseley Plc 6,276
24,734,113
UNITED STATES - 36.2%
500 3Com Corp * 26,063
9,800 Aetna Life and Casualty Co 526,750
7,900 AFLAC Inc 298,225
10,900 Albertsons Inc 335,175
1,800 Alco Standard Corp 122,400
3,300 Allegheny Power Systems 77,550
800 Allmerica Property & Casualty 15,600
800 Allstate Corp 22,000
3,200 Ambac Corp 130,000
6,900 American Electric Power 233,738
57,500 American Express 1,940,625
15,800 American General Corp 499,675
16,500 American Home Products 1,179,750
12,700 Amgen Inc * 876,300
13,500 Amoco Corp 799,875
9,500 Amp Inc 712,500
21,200 Anheuser-Busch Cos Inc 1,195,150
7,100 AON Corp 246,725
15,300 Apple Computer Inc 604,350
11,400 Archer Daniels Midland * 216,600
9,800 Ashland Inc 317,275
2,000 Atlantic Richfield Co 219,250
13,900 Autozone Inc * 368,350
5,700 Avery Dennison Corp 213,750
8,100 Baltimore Gas and Electric Co 199,463
1,700 Bandag Inc 102,000
8,000 Bear Stearns Co Inc 150,000
5,300 Beneficial Corp 196,763
1,200 BHC Communications Inc Class A * 89,100
52,100 Boeing Co 2,403,089
6,600 Boston Scientific Corp * 142,725
37,700 Bristol-Myers Squibb Co 2,337,400
5,100 Brown Forman Corp Class B 165,113
4,600 Callaway Golf Co 155,250
14,400 Capital Cities/ ABC Inc 1,274,400
4,300 Carolina Power & Light 118,250
10,400 Centerior Energy Corp 101,400
10,400 Central & South West Corp 256,100
3,000 Chase Manhattan Corp 107,625
7,800 Chemical Banking Corp 312,975
8,700 Chevron Corp 413,250
5,300 Cigna Corp 401,475
7,700 Cinergy Corp 190,575
3,300 Circuit City Stores Inc 71,363
22,600 Citicorp 1,017,000
2,700 Clorox Company 163,013
4,100 CMS Energy Corp 98,400
2,000 Columbia Gas Systems * 52,000
29,600 Columbia/HCA Healthcare Corp 1,224,700
46,500 Compaq Computer Corp * 1,604,250
6,100 Computer Sciences Corp * 299,663
9,000 Conagra Incorporated * 294,750
800 Conseco Inc 28,500
12,700 Consolidated Edison Co of New York 350,838
1,600 Consolidated Papers Inc 77,400
9,000 Corning Inc 289,125
7,100 CPC International 379,850
5,400 CPL Inc 112,725
4,300 Danaher Corp 126,850
900 De Luxe Corp 25,200
3,900 Dean Foods Co 120,900
19,300 Dean Witter Discover & Co 779,238
10,800 Detroit Edison Co 309,150
9,300 Dominion Resources Inc 353,400
6,900 Dover Corp 410,550
8,900 Dow Chemical Co 596,300
2,800 DQE 94,150
6,900 Du Pont (E.I.) De Nemours 387,263
13,700 Duke Power Co 537,725
3,500 Dun & Bradstreet Corp 181,125
5,500 E G & G Inc 79,063
3,600 E Systems Inc 157,500
24,700 Eastman Kodak 1,259,700
3,900 Eaton Corp 195,488
5,200 Edwards AG Inc 117,000
1,700 El Paso Natural Gas Co 52,275
700 Emerson Electric Corp 46,288
9,100 Entergy Corp 203,613
900 Equifax Inc 27,788
27,000 Exxon Corp 1,728,000
3,800 F M C Corp * 222,300
900 First American Bank Corp 30,488
2,400 First Chicago Corp 121,500
1,500 First USA Inc 55,313
1,900 Fleming Cos 37,050
5,700 Florida Progress 178,838
6,500 FPL Group 233,188
1,900 Frontier Corp 43,463
2,400 Gap Inc 78,000
900 Geico Corp 43,988
1,500 General Instrument Corp * 47,625
8,300 General Public Utilities 251,075
7,300 Genuine Parts Co 283,788
4,600 Georgia Gulf Corp * 138,000
1,500 Glatfelter (PH) Co 27,375
3,600 Grainger W W Inc 220,050
9,500 Harley-Davidson 256,500
15,000 Heinz (HJ) Co 590,625
1,200 Hershey Foods Corp 58,800
2,600 Hewlett Packard Co 299,000
3,100 Hormel (Geo A) & Co 82,925
7,100 Household International Inc 310,625
4,000 Houston Inds Inc 153,000
1,545 Hubbell Inc Class B 83,430
3,300 IBP Inc 105,188
4,600 Illinova Corp 107,525
38,700 International Business Machines Corp 2,912,175
5,500 International Flavors & Fragrances 264,688
4,800 Jefferson Pilot Corp 273,600
9,800 Johnson & Johnson 556,150
3,500 Kansas City Power & Light Co 83,563
7,700 Kellogg Co 416,763
500 Kerr-McGee Corp 25,188
18,600 Kroger Co * 488,250
27,000 Lilly (Eli) and Co 1,809,000
5,200 Litton Industries * 189,800
2,600 Liz Claiborne 41,925
12,100 Lockheed Corp 939,263
1,600 Loctite Corp 73,600
1,500 Loews Corp 145,688
6,000 Long Island Lighting 96,000
8,000 LSI Logic Corp * 436,000
8,200 Lyondell Petrochemical 197,825
9,000 Manpower Inc 263,250
400 Mapco 21,850
7,900 Marion Merrell Dow Inc 196,513
1,900 Marsh & McLennan Cos Inc 155,800
18,000 Martin Marietta Corp 859,500
3,200 Mattel Inc 71,600
1,500 MBIA Inc 93,000
1,800 Mc Graw Hill Inc 126,900
14,300 Medtronic Inc 858,000
6,100 Melville Corp 198,250
32,900 Merck & Co. 1,394,138
800 MGIC Investment Corp 30,500
16,700 Micron Tech 1,035,400
15,500 Microsoft Corp * 976,500
4,200 Millipore Corp 223,125
17,000 Minnesota Mining & Manufacturing 930,750
8,200 Mobil Corp 713,400
10,300 Morgan Stanley Group Inc 693,963
300 Murphy Oil Corp 13,125
1,800 Mylan Laboratories 56,250
17,700 National Medical Enterprises Inc * 274,350
3,400 National Service Industries 91,375
2,700 New England Electronic System 89,100
3,300 New York State Electric & Gas Corp 70,950
8,000 Newell Co 191,000
7,000 Niagara Mohawk Power Corp 104,125
3,300 Nike Inc Class B 237,188
3,600 Nipsco Industry 113,850
6,700 Nordstrom Inc 283,075
6,000 Northeast Utilities 136,500
4,100 Northern States Power 185,525
1,600 Northrop Grumman Corp 71,000
3,200 Occidental Petroleum Corp 63,600
7,000 Ohio Edison Co 147,000
1,800 Oklahoma Gas & Electric 63,675
4,000 Old Republic International Corp 99,000
3,700 Omni Group Inc 196,563
16,100 Pacific Corp 307,913
4,900 Pacific Enterprises 120,050
19,900 Pacific Gas & Electric Co 509,938
6,700 Panhandle Eastern Corp 150,750
5,800 Parker Hannifin Corp 271,150
10,800 Peco Energy Co 288,900
4,700 Pennsylvania Power & Light Co. 97,525
100 Pennzoil Co 4,738
7,200 Pep Boys Manny Moe & Jack 235,800
8,400 Phelps Dodge Corp 457,800
30,600 Philip Morris Cos Inc 1,858,950
200 Phillips Petroleum Co 6,675
4,500 Pinnacle West Capital Corp 96,750
4,300 Polaroid Corp 129,000
4,500 Potomac Electric Power Co 87,188
26,100 PPG Industries Inc 959,175
8,800 Premark International Inc 380,600
3,100 Provident Life & Accident Class B 72,850
4,700 Providian Corp 166,263
2,000 Public Service Co of Colorado 61,250
12,700 Public Service Enterprise Group Inc 369,888
2,300 Puget Sound Power & Light 49,738
22,800 Raytheon Co 1,607,400
5,900 Readers Digest Association Class A (Non Voting) 271,400
4,400 Reebok International Ltd 161,150
14,300 Rite Aid Corp 353,925
1,800 Rockwell International Corp 69,300
1,800 Rohm & Haas Co. 101,025
6,800 Royal Dutch Petroleum Co ADR 762,450
400 SAFECO Corp 22,000
3,600 San Diego Gas & Electric 77,850
23,200 Sara Lee Corp 609,000
2,400 Scana Corp 105,900
20,800 SCE Corp 340,600
400 Snap On Tools Corp 13,600
34,600 Southern Co 713,625
1,600 Southern New England Telecommunications Corp 53,000
10,500 St Paul Cos 510,563
600 Stone Container Corp * 14,025
4,700 Storage Technology Corp * 102,225
500 Student Loan Marketing Association 18,438
2,600 Sun Microsystems Inc * 83,200
19,100 Tandem Computers Inc * 324,700
6,200 Teco Energy Inc 133,300
3,400 Texaco Inc 216,750
6,200 Texas Utilities Co 203,825
3,500 Textron Inc 191,625
800 Thomas & Betts Corp 53,300
7,600 Torchmark Corp 318,250
4,500 Transamerica Corp 245,813
400 Transatlantic Holdings Inc 23,000
3,100 Twentieth Century Industries 38,750
900 Tyson Foods Inc Class A 22,163
25,400 U S Healthcare Inc 1,092,200
12,400 Unicom Corp 316,200
10,200 Unilever NV 1,239,300
5,600 Union Electric 212,100
3,800 United Health Care 163,400
2,900 Universal Foods Corp 90,988
16,700 Upjohn Co 588,675
3,400 V F Corporation 175,100
1,000 Vulcan Materials 53,250
2,500 Walgreen Co 118,125
1,200 Weis Markets 30,750
4,600 Wellpoint Health Networks Inc Class A * 151,225
2,900 Western Resources 92,075
8,700 Whitman Corp 164,213
3,900 Williams Companies Inc 112,125
5,800 Wisconsin Energy Corp 160,950
2,300 York International Corp 88,550
77,779,868
TOTAL STOCK AND EQUIVALENTS (Cost $182,320,182) 184,565,489
PAR VALUE U.S. GOVERNMENT - 9.3%
$ 2,900,000 U.S. Treasury Note 6.125% due 7/31/96 (a) 2,880,516
17,300,000 U.S. Treasury Note 6.875% due 10/31/96 (a) 17,345,953
20,226,469
TOTAL U.S. GOVERNMENT (Cost $20,149,891) 20,226,469
PRINCIPAL AMOUNT
OF CONTRACTS
(000's omitted) PURCHASED CALL OPTION - 0.4%
OPTION - 0.4%
30,000 U.S. Treasury Note 7.25%, Expires 3/7/95, Strike $98.13 778,200
TOTAL PURCHASED CALL OPTION (Cost $520,313) 778,200
PAR VALUE SHORT-TERM INVESTMENTS - 17.0%
$ 5,200,000 Bank of New York Time Deposit, 5.25% due 3/1/95 5,200,000
10,400,000 First National Bank of Chicago Time Deposit, 6.00% due 3/1/95 10,400,000
10,400,000 Morgan Guaranty Time Deposit, 5.94% due 3/1/95 10,400,000
10,400,000 Republic Bank of New York Deposit, 6.00% due 3/1/95 10,400,000
36,400,000
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 36,400,000
TOTAL INVESTMENTS - 112.7%
(Cost $239,390,386) * * $ 241,970,158
Other Assets and Liabilities (net) - (12.7%) (27,332,037)
TOTAL NET ASSETS - 100.0% $ 214,638,121
Notes to the Schedule of Investments:
ADR American Depositary Receipt
(a) All or a portion of this security is held as collateral for open futures contracts.
(b) Restricted security - This security is restricted as to resale. At
February 28, 1995, restricted securities amounted to $31,231.
(c) Security valued by management (Note 1).
* Non-income producing security.
** The aggregate identified cost for federal
income tax purposes is $239,508,656, resulting
in gross unrealized appreciation and
depreciation of $6,537,950 and $4,076,448,
respectively, and net unrealized appreciation of
$2,461,502.
</TABLE>
See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
At February 28, 1995, industry sector diversification of the
Fund's equity investments was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
<S> <C>
Services 9.3 %
Banking 9.2
Utilities 5.7
Construction 5.2
Food and Beverage 4.8
Health Care 4.8
Oil and Gas 4.8
Consumer Goods 3.6
Retail Stores 3.4
Technology 3.1
Computer and Office Equipment 3.0
Insurance 3.0
Financial Services 2.9
Primary Processing 2.9
Transportation 2.5
Metals and Mining 2.5
Aerospace 2.4
Automotive 2.0
Miscellaneous 10.9
86.0 %
</TABLE>
See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $202,990,386) (Note 1) $ 205,570,158
Short-term investments, at amortized cost (Note 1) 36,400,000
Foreign currency, at value (cost $153,978) (Note 1) 153,549
Receivable for Fund shares sold 1,412,946
Receivable for investments sold 2,826,702
Dividends and interest receivable 677,573
Foreign withholding taxes receivable 13,595
Receivable for open swap contracts (Notes 1 and 6) 926,320
Receivable for expenses waived or borne by Manager (Note 2) 14,672
Total assets 247,995,515
LIABILITIES:
Payable for investments purchased 32,541,224
Payable for daily variation margin on open futures contracts
(Note 1) 582,825
Payable to affiliate for management fee (Note 2) 102,346
Accrued expenses 130,999
Total liabilities 33,357,394
NET ASSETS(equivalent to $10.12 per share based
on 21,216,892 shares outstanding, unlimited shares authorized) $ 214,638,121
NET ASSETS CONSIST OF:
Paid-in capital $ 213,478,584
Undistributed net investment income 745,109
Accumulated net realized gain on investments, closed futures
contracts, foreign currency and foreign currency related
transactions 110,686
Net unrealized appreciation on investments, open futures contracts,
open swap contracts, foreign currency and foreign currency
related transactions 303,742
NET ASSETS $ 214,638,121
See accompanying notes to the financial statements.
</TABLE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - PERIOD FROM JULY 29, 1994
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 1,088,179
Dividends (net of foreign tax expense of $42,493) 791,851
Total income 1,880,030
EXPENSES:
Management fee (Note 2) 324,126
Custodian fees 135,351
Audit fees 40,008
Registration fees 22,998
Transfer agent fees 14,863
Legal fees 1,324
Insurance 516
Trustee fee (Note 2) 216
Miscellaneous 484
Total expenses 539,886
Less: expenses waived or borne by Manager (Note 2) (80,409)
Net expenses 459,477
Net investment income 1,420,553
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS,
SWAP CONTRACTS, FOREIGN CURRENCY AND FOREIGN CURRENCY RELATED
TRANACTIONS:
Net realized gain (loss) on:
Investments (852,492)
Closed futures contracts 1,018,347
Foreign currency and foreign currency related
transactions (35,636)
Net realized gain 130,219
Change in net unrealized appreciation (depreciation) on:
Investments 2,579,772
Open futures contracts (3,209,526)
Open swap contracts 926,320
Foreign currency and foreign currency related
transactions 7,176
Net unrealized gain 303,742
Net realized and unrealized gain on investments, futures
contracts, swap contracts, foreign currency and foreign
currency related transactions 433,961
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,854,514
See accompanying notes to the financial statements.
</TABLE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS - PERIOD FROM JULY 29, 1994
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
Operations:
Net investment income $ 1,420,553
Net realized gain on investments, closed futures contracts,
foreign currency and foreign currency related
transactions 130,219
Change in net unrealized appreciation on investments, open futures
contracts, open swap contracts, foreign currency and foreign currency
related transactions 303,742
Net increase in net assets resulting from operations 1,854,514
Distributions to shareholders from:
Net investment income (694,977)
Fund share transactions: (Note 5)
Proceeds from sale of shares 214,025,378
Net asset value of shares issued to shareholders
in payment of distributions declared 153,241
Cost of shares repurchased (700,035)
Net increase in net assets resulting
from Fund share transactions 213,478,584
Total increase in net assets 214,638,121
NET ASSETS:
Beginning of period
End of period (including undistributed net income of
$745,109) $ 214,638,121
See accompanying notes to the financial statements.
</TABLE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD FROM JULY 29, 1994
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1995
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income (a) 0.11
Net realized and unrealized gain
on investments 0.08
Total from investment operations 0.19
Less distributions to shareholders :
From net investment income (0.07)
NET ASSET VALUE, END OF PERIOD $ 10.12
TOTAL RETURN (B) 1.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $214,638
Net expenses to average
daily net assets (a) 0.92%*
Net investment income to average
daily net assets (a) 2.85%*
Portfolio turnover rate 194%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.006
for the period ended February 28, 1995.
(b) Calculation excludes subscription fees. The total returns would have been
lower had certain expenses not been waived during the period shown.
See accompanying notes to the financial statements.
</TABLE>
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Global Hedged Equity Fund (the "Fund"), which commenced operations
on July 29, 1994, 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 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 following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
FUTURES CONTRACTS
The Fund may purchase index futures contracts. Stock index futures
contracts represent commitments for future delivery of cash based upon the
level of a specified index of equity securities at a given date. The Fund
may use futures contracts to manage its exposure to the stock and currency
markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
When a forward currency contract is extinguished, through delivery or
offset by entering into another forward currency contract, the Fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the
time it was extinguished or offset. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. At
February 28, 1995 there were no outstanding forward currency contracts.
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
In some cases, depending upon the executing broker, premiums on purchased
and written options are not paid or received until the contracts expire or
are closed or exercised. These contracts are marked to market daily, and
the daily change in market value is paid to or received from the respective
broker. A corresponding payable or receivable is recorded for the
accumulated unrealized position received or paid. Upon settlement, the net
payable or receivable for original premiums and accumulated unrealized
gains and losses is paid to or received from the broker and a gain or loss
is realized.
SWAP AGREEMENTS
A swap is an agreement to exchange the return generated by one instrument
for the return generated by another instrument. The Fund entered into
equity swap agreements which involve a commitment by one party in the
agreement to pay interest in exchange for a market linked return based on a
notional amount. To the extent that the total return of the security or
index underlying the transaction exceeds or falls short of the offsetting
interest rate obligation, the Fund will receive a payment from or make a
payment to the counterparty, respectively. Equity swaps are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss in the Statement of Operations.
Payments received or made at the end of measurement period are recorded as
realized gain or loss in the Statement of Operations. Entering into these
agreements involves, to varying degrees, elements of credit and market risk
in excess of the amounts recognized on the Statement of Assets and
Liabilities. Such risks involve the possibility that there is no liquid
market for these agreements, that the counterparty to the agreements may
default on its obligation to perform and that there may be unfavorable
changes in the price of the security or index underlying these
transactions. See Note 6 for summary of all open swap agreements as of
February 28, 1995.
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"). It is the policy of the Fund to distribute all of its taxable
income, including any net realized gain on investments not offset by loss
carryovers, to shareholders within the prescribed time periods. 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 paid and received by the shareholders of
the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and 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. There is no premium
incurred on reinvested distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net
Income Realized Gain Paid-in Capital
<S> <C> <C>
$19,533 ($19,533) -
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
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 premium is 1.40% of the
amount redeemed. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the period ended February 28, 1995, the Fund received $653,233 in
purchase premiums and no redemption premiums. There is no premium for
reinvested distributions or in-kind transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of 0.65% of average daily net assets. The Manager has
agreed to waive a portion of its fee until further notice to the extent
that the Fund's annual expenses (including management but excluding custody
fees, brokerage commissions and transfer taxes) exceed 0.65% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the period ended February 28, 1995, was $216. 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 U.S.
Government obligations and short-term investments, for the period ended
February 28, 1995, aggregated $212,483,292 and $29,267,931, respectively.
Cost of purchases and proceeds from sales from U.S. Government obligations
for the period ended February 28, 1995, aggregated $150,542,777 and
$130,476,125, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 42% 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 full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Period from July 29, 1994
(Commencement of Operations)
to February 28, 1995
<S> <C>
Shares sold 21,270,733
Shares issued to shareholders in
reinvestment of distributions 15,401
Share repurchased (69,242)
Net Increase 21,216,892
Fund shares:
Beginning of period ___
End of period 21,216,892
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding at futures contracts February 28, 1995 is as
follows:
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
<S> <C> <C> <C> <C>
Buys
40 U.S. Treasury Note March 1995 $ 8,163,750 $ 154,200
Sales
196 S&P 500 March 1995 47,877,900 $ (3,086,990)
124 S&P 500 June 1995 30,538,100 (276,736)
$ (3,363,726)
</TABLE>
At February 28, 1995 the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.
<TABLE>
<CAPTION>
SWAP AGREEMENTS
UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
<C> <C> <S> <C>
8,000,000 9/1/95 Agreement with Morgan Stanley & Co. International
Limited dated 9/1/94 to pay (receive) the notional
amount multiplied by the return on the EASEA index
plus 5.93% of the EASEA dividend yield and to
receive 6 month LIBOR plus 0.10%. (a) $ 447,284
12,500,000 10/31/95 Agreement with Morgan Stanley & Co. International
Limited dated 10/28/94 to pay (receive) the notional
amount multiplied by the return on the EASEA index
plus 5.93% of the EASEA dividend yield and to receive 6
month LIBOR plus 0.05%. (a) 545,987
30,000,000 1/31/96 Agreement with Morgan Stanley & Co. International
Limited dated 1/31/95 to pay (receive) the notional
amount multiplied by the return on the EASEA index plus
5.93% of the EASEA dividend yield and to receive 6
month LIBOR plus 0.05%. (a) (871,419)
50,000,000 1/31/96 Agreement with Swiss Bank Corporation dated 1/31/95 to
pay (receive) the notional amount multiplied by the
return on the EAFE Index and to receive LIBOR plus
0.05%. 426,401
8,000,000 9/29/95 Agreement with Union Bank of Switzerland dated
9/30/94 to pay (receive) the notional amount
multiplied by the return on the EAFE Japan index
multiplied by a stated Japan weight (which is a
percentage of the EAFE Japan Index as a proportion
of the market capitalization weighted EAFE Index
currently at 23%) plus the return on the EASEA
index multiplied by 1 minus the stated Japan
weighting and to receive LIBOR plus 0.10%. 378,067
Net unrealized appreciation $ 926,320
(a) Notional amount is increased (decreased) by each
periodic payment received or made.
</TABLE>
* * *
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of GMO Domestic Bond Fund (A
Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Domestic Bond Fund at February
28, 1995, and the results of its operations, the changes in its net assets and
the financial highlights for the period from August 18, 1994 (commencement of
operations) to February 28, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at February 28, 1995 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
DEBT OBLIGATIONS - 81.1%
ASSET BACKED SECURITIES - 27.9%
<C> <S> <C>
$ 2,000,000 Carco Auto Loan 92-A Class A, Variable Rate, 6.48% due 9/15/99 2,000,018
5,000,000 CIT Group Securitization Corp 95-1 Class A4, 8.95% due 8/15/20 5,001,563
2,500,000 Discover Card Trust 91-F Class A, 7.85% due 11/21/00 2,525,146
2,500,000 First USA Credit Card Master Trust 94-4 Class A, Variable Rate, 6.50% due 8/15/03 2,502,734
3,500,000 Fremont SBL Master Trust 93-A Class A, Variable Rate, 6.60% due 3/15/98 3,503,828
10,000,000 Keycorp Student Loan Trust 95-A Class B, Variable Rate, 6.88% due 10/27/21 9,978,125
2,000,000 Potomac Mills Finance Corp, Variable Rate, 6.78% due 10/20/04 1,997,500
5,000,000 Premier Auto Trust 95-1 Class B Certificates, 8.10% due 3/4/01 4,876,563
4,883,303 Resolution Trust Corp 94-C1 Class A3, Variable Rate, 6.61% due 6/25/26 4,863,465
3,257,000 SMS Student Loan Trust 94-B Certificates, Variable Rate, 6.81% due 10/25/23 3,249,875
5,000,000 Society Student Loan Trust 93-A Class A2, Variable Rate, 6.45% due 7/25/03 5,000,000
5,388,000 Society Student Loan Trust 93-A Class B, Variable Rate, 6.75% due 7/25/03 5,376,214
2,500,000 Swift 94-A Class A, Variable Rate, 6.28% due 3/15/99 2,501,172
5,000,000 Woodfield Finance Corp, Variable Rate, 6.84% due 10/13/03 5,050,000
58,426,203
CORPORATE OBLIGATIONS - 4.3%
8,855,000 New England Telephone & Telegraph, 7.88% due 11/15/29 8,998,894
STRUCTURED NOTE - 4.5%
10,000,000 Sallie Mae, Variable Rate, 0.00% due 1/24/96 (c) 9,437,501
U.S. GOVERNMENT - 44.4%
32,000,000 U.S. Treasury Note, 6.25% due 8/31/96 (b) 31,789,952
43,000,000 U.S. Treasury Note, 6.88% due 8/31/99 42,717,748
10,000,000 U.S. Treasury Note, 7.25% due 5/15/04 (a) 10,000,000
10,000,000 U.S. Treasury Bond, 6.25% due 8/15/23 8,506,250
93,013,950
TOTAL DEBT OBLIGATIONS (Cost $168,619,191) 169,876,548
SHORT-TERM INVESTMENTS - 8.8%
REPURCHASE AGREEMENTS - 3.8%
7,957,116 Salomon Brothers Repurchase Agreement, dated 2/28/95, due
3/1/95, with a maturity value of $7,958,477 and an
effective yield of 5.60%, collateralized by a U.S.
Treasury Bond with a rate of 6.25%, a maturity date of
8/15/23, and with an aggregate market value of $8,174,042. 7,957,116
CASH EQUIVALENTS - 5.0%
6,792,113 Bank of Boston Time Deposit, 6.16%, due 3/1/95 6,792,113
83,759 Dreyfus Cash Management Money Market Fund Plus, A Shares 83,759
531,861 National Westminster Time Deposit, 6.00%, due 3/1/95 531,861
2,992,267 Provident Institutional Prime Money Market Fund 2,992,267
10,400,000
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 18,357,116
TOTAL INVESTMENTS - 89.9%
(Cost $186,976,307) * * $ 188,233,664
Other Assets and Liabilities (net) - 10.1% 21,143,584
TOTAL NET ASSETS - 100.0% $ 209,377,248
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) All or a portion of this security is on loan.
(b) A portion of this security is held as collateral for open futures contracts.
(c) Interest rate is linked to changes in the daily 3 month LIBOR rate.
Variable rates - The rates shown on variable rate notes
are the current interest rates at February 28,
1995, which are subject to change based on the
terms of the security.
** The aggregate identified cost for federal
income tax purposes is $186,976,307, resulting
in gross unrealized appreciation and
depreciation of $1,544,455 and $287,098,
respectively, and net unrealized appreciation
of $1,257,357.
</TABLE>
See accompanying notes to the financial statements.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
ASSETS:
<S> <C>
Investments, at value (cost $168,619,191) (Note 1) $ 169,876,548
Short-term investments, at amortized cost (Note 1) 18,357,116
Receivable for Fund shares sold 30,758,634
Interest receivable 764,664
Receivable for daily variation margin on open futures contracts 96,094
Receivable from expenses waived or borne by the Manager (Note 2) 7,420
Total assets 219,860,476
LIABILITIES:
Payable upon return of securities loaned (Note 1) 10,395,060
Payable to affiliate for management fee (Note 2) 32,555
Accrued expenses 55,613
Total liabilities 10,483,228
NET ASSETS(equivalent to $10.13 per share based
on 20,670,984 shares outstanding, unlimited shares authorized) $ 209,377,248
NET ASSETS CONSIST OF:
Paid-in capital $ 205,605,620
Undistributed net investment income 1,322,007
Accumulated net realized loss on investments and
closed futures contracts (103,743)
Net unrealized appreciation on investments
and open futures contracts 2,553,364
NET ASSETS $ 209,377,248
</TABLE>
See accompanying notes to the financial statements.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - PERIOD FROM AUGUST 18, 1994 (COMMENCEMENT OF
OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $29,793) $ 2,759,584
EXPENSES:
Management fee (Note 2) 95,643
Audit fees 30,009
Custodian and transfer agent fees 20,909
Registration fees 15,773
Legal fees 1,037
Insurance 374
Trustee fee (Note 2) 154
Miscellaneous 476
Total expenses 164,375
Less: expenses waived or borne by Manager (Note 2) (68,732)
Net expenses 95,643
Net investment income 2,663,941
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS:
Net realized loss on:
Investments (57,305)
Closed futures contracts (46,438)
Net realized loss (103,743)
Change in net unrealized appreciation (depreciation) on:
Investments 1,257,357
Open futures contracts 1,296,007
Net unrealized gain 2,553,364
Net realized and unrealized gain on investments
and futures contracts 2,449,621
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,113,562
</TABLE>
See accompanying notes to the financial statements.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS - PERIOD FROM AUGUST 18, 1994 (COMMENCEMENT
OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
Operations:
Net investment income $ 2,663,941
Net realized loss on investments
and closed futures contracts (103,743)
Change in net unrealized appreciation (depreciation) of investments
and open futures contracts 2,553,364
Net increase in net assets resulting from operations 5,113,562
Distributions to shareholders from net
investment income (1,341,934)
Fund share transactions: (Note 5)
Proceeds from sale of shares 210,727,193
Net asset value of shares issued to shareholders
in payment of distributions declared 957,879
Cost of shares repurchased (6,079,452)
Net increase in net assets resulting from Fund
share transactions 205,605,620
Total increase in net assets 209,377,248
NET ASSETS:
Beginning of period -
End of period (including undistributed net
investment income of $1,322,007) $ 209,377,248
</TABLE>
See accompanying notes to the financial statements.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD FROM AUGUST 18, 1994
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1995
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income (a) 0.24
Net realized and unrealized gain
on investments and futures contracts 0.07
Total from investment operations 0.31
Less distributions to shareholders from
net investment income (0.18)
NET ASSET VALUE, END OF PERIOD $ 10.13
TOTAL RETURN (B) 3.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 209,377
Net expenses to average
daily net assets (a) 0.25%*
Net investment income to average
daily net assets (a) 6.96%*
Portfolio turnover rate 65%
* Annualized
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.01 for the period .
(b) The total returns would have been lower had certain expenses not been waived during
the period shown.
</TABLE>
See accompanying notes to the financial statements.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Domestic Bond Fund (the "Fund"), which commenced operations on
August 18, 1994, 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 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 following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the trustees.
FUTURES CONTRACTS
The Fund may 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 instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. 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 nvolve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
INDEXED SECURITIES
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indicies, 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 certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $10,000,000, collateralized by
cash in the amount of $10,400,000, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and 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 will be reported in the Fund's financial statements as
a return of capital. Furthermore, differences in the recognition or
classification of income between the financial statements and tax earnings
and profits 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. In determining the
net gain or loss on securities sold, the cost of securities is determined
on the identified cost basis. Premiums and market discounts are amortized
and accreted.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .25% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .25% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the period ended February 28, 1995, was $154. 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 U.S.
Government obligations and short-term investments, for the period ended
February 28, 1995 aggregated $79,487,741 and $2,586,383, respectively. Cost
of purchases and proceeds from sales of U.S. Government obligations for the
period ended February 28, 1995, aggregated $127,878,360 and $36,383,672,
respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 80% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Period from August 18, 1994
(Commencement of Operations)
to February 28, 1995
<S> <C>
Shares sold 21,191,425
Shares issued to shareholders in reinvestment
of distributions 98,345
Shares repurchased (618,786)
Fund shares:
Beginning of period --
End of period 20,670,984
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 28, 1995, is as
follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
<C> <S> <C> <C> <C>
30 U.S. Treasury Bond March 1995 $ 3,119,062 $ 188,212
110 U.S. Treasury Note 5 Yr March 1995 11,383,282 364,332
50 U.S. Treasury Note 10 Yr March 1995 5,218,750 218,375
160 U.S. Treasury Bond June 1995 16,550,000 336,613
70 U.S. Treasury Note 5 Yr June 1995 7,217,657 59,163
50 U.S. Treasury Note 10 Yr June 1995 5,192,188 129,312
$1,296,007
At February 28, 1995, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
</TABLE>
* * *
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Short-Term Income Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Short-Term Income Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 10, 1995
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
<C> <S> <C>
DEBT OBLIGATIONS - 89.1%
ASSET BACKED SECURITIES - 24.2%
$ 1,000,000 Fremont SBL Master Trust 93-A Class A, Variable Rate, 6.60% due 3/15/98 1,001,094
1,000,000 Premier Auto Trust 94-4 Class B Certificates, 6.85% due 5/2/99 983,719
1,984,813
STRUCTURED NOTES - 28.2%
1,000,000 Sallie Mae, Variable Rate, 0.00% due 1/24/96 (a) 943,750
1,500,000 Toyota Motor Credit, Variable Rate, 0.00% due 7/28/96 (b) 1,357,500
2,301,250
U.S. GOVERNMENT - 36.7%
3,000,000 U.S. Treasury Note, 6.88% due 10/31/96 3,006,558
TOTAL DEBT OBLIGATIONS (Cost $7,301,796) 7,292,621
SHORT-TERM INVESTMENTS - 22.2%
REPURCHASE AGREEMENTS - 15.2%
415,615 Cantor Fitzgerald Repurchase Agreement dated 2/28/95, due
3/1/95, with a maturity value of $415,678 and an effective
yield of 5.48%, collateralized by U.S. Treasury Bonds with
rates ranging from 4.25% to 8.75% and maturities ranging from
5/15/96 to 5/15/17, with an aggregate market of $425,097. 415,615
415,615 Prudential Securities Group, Inc. Repurchase Agreement dated
2/28/95, due 3/1/95, with a maturity value of $415,681 and an effective
yield of 5.75%, collateralized by U.S. Government Agency Obligations
with rates ranging from 3.64% to 11.62%, maturities ranging from 5/1/00
to 10/25/24, and with an aggregate market value of $423,879. 415,615
415,615 Salomon Brothers Repurchase Agreement, dated 2/28/95, due
3/1/95, with a maturity value of $415,680 and an effective
yield of 5.60%, collateralized by a U.S. Treasury Bond with a
rate of 6.25%, a maturity date of 8/15/23, and with an aggregate
market value of $426,939. 415,615
1,246,845
CASH EQUIVALENTS - 7.0%
575,905 Bank of Boston Time Deposit, 5.39% due 3/1/95 575,905
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 1,822,750
TOTAL INVESTMENTS - 111.3%
(Cost $9,124,546) * * $ 9,115,371
Other Assets and Liabilities (net) - (11.3%) (921,875)
TOTAL NET ASSETS - 100.0% $ 8,193,496
NOTES TO SCHEDULE OF INVESTMENTS:
Variable rates - The rates shown on variable rate notes are
the current interest rates at February 28, 1995,
which are subject to change based on the terms of
the security.
(a) Interest rate linked to changes in the daily 3 month LIBOR rate.
(b) Interest rate linked to changes in the 3 year Danish Kroner swap rate.
** The aggregate identified cost for federal income
tax purposes is $9,124,546, resulting in gross
unrealized appreciation and depreciation of $13,460
and $22,635, respectively, and net unrealized
depreciation of $9,175.
</TABLE>
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $7,301,796) (Note 1) $ 7,292,621
Short-term investments, at amortized cost (Note 1) 1,822,750
Interest receivable 79,873
Receivable for expenses waived or borne by Manager (Note 2) 840
Total assets 9,196,084
LIABILITIES:
Payable for Fund shares repurchased 979,726
Payable to affiliate for management fee (Note 2) 1,584
Accrued expenses 21,278
Total liabilities 1,002,588
NET ASSETS (equivalent to $9.56 per share based
on 856,832 shares outstanding, unlimited shares authorized) $ 8,193,496
NET ASSETS CONSIST OF:
Paid-in capital $ 8,271,506
Undistributed net investment income 99,101
Accumulated net realized loss on investments (167,936)
Net unrealized depreciation on investments (9,175)
NET ASSETS $ 8,193,496
</TABLE>
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $160) $ 687,713
EXPENSES:
Management fee (Note 2) 32,631
Audit fees 17,895
Custodian and transfer agent fees 3,612
Registration fee 2,000
Legal fees 541
Insurance 156
Trustee fee (Note 2) 65
Miscellaneous 424
Total expenses 57,324
Less: expenses waived or borne by Manager (Note 2) (24,693)
Net expenses 32,631
Net investment income 655,082
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (168,682)
Change in net unrealized appreciation (depreciation)
on investments (44,099)
Net realized and unrealized loss on investments (212,781)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 442,301
</TABLE>
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 655,082 $ 446,120
Net realized gain (loss) on investments (168,682) 58,828
Net change in unrealized appreciation (depreciation)
on investments (44,099) (144,254)
Net increase in net assets resulting from operations 442,301 360,694
Distributions to shareholders from:
Net investment income (612,710) (475,362)
Net realized gains (161,684)
(612,710) (637,046)
Fund share transactions: (Note 5)
Proceeds from sale of shares 31,888,771 4,364,168
Net asset value of shares issued to shareholders
in payment of distributions declared 502,424 454,522
Cost of shares repurchased (32,122,310) (6,946,696)
Net increase in net assets resulting
from Fund share transactions 268,885 (2,128,006)
Total increase (decrease) in net assets 98,476 (2,404,358)
NET ASSETS:
Beginning of period 8,095,020 10,499,378
End of period (including undistributed net
investment income of $99,101 and
$56,729, respectively) $ 8,193,496 $ 8,095,020
</TABLE>
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
1995 1994 1993 1992 (C) 1991 (B)(C)*
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.79 $ 10.05 $ 10.11 $ 10.00 $ 10.00
Income from investment operations:
Net investment income (a) 0.63 0.44 0.46 0.56 0.67
Net realized and unrealized gain
(loss) on investments (0.28) (0.09) 0.30 0.11 --
Total from investment operations 0.35 0.35 0.76 0.67 0.67
Less distributions to shareholders from:
Net investment income (0.58) (0.46) (0.38) (0.56) (0.67)
Net realized gains -- (0.15) (0.44) -- --
Total distributions (0.58) (0.61) (0.82) (0.56) (0.67)
Net asset value, end of period $ 9.56 $ 9.79 $ 10.05 $ 10.11 $ 10.00
Total Return (d) 3.78% 3.54% 8.25% 11.88% 3.83%
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 8,193 $ 8,095 $ 10,499 $ 9,257 $ 40,850
Net expenses to average
daily net assets (a) 0.25% 0.25% 0.25% 0.25% 0.25%**
Net investment income to average
daily net assets (a) 5.02% 4.35% 4.94% 5.83% 7.88%**
Portfolio turnover rate 335% 243% 649% 135% --
* For the period from the commencement of operations, April 17, 1990 to February 28, 1991.
** Annualized.
(a)Net of fees and expenses voluntarily waived or borne by the Manager of $.02, $.02, $.03, $.03 and
$.09 per share for the fiscal years ended 1995, 1994, 1993, 1992 and for
the period ended February 28, 1991, respectively.
(b)The per share amounts and the number of shares outstanding have been
restated to reflect a one for ten reverse stock split effective December
1, 1991.
(c)The Fund operated as a money market fund from April 17, 1990 until June
30, 1991. Subsequently, the Fund became a short-term income fund.
(d)The total returns would have been lower had certain expenses not been
waived during the period shown.
</TABLE>
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The 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 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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
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 may
be valued at amortized cost which approximates market value, unless
circumstances dictate otherwise. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
INDEXED SECURITIES
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indicies, 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 certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income quarterly, and 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 will be reported in the Fund's financial statements as
a return of capital. Furthermore, differences in the recognition or
classification of income between the financial statements and tax earnings
and profits 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. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis. Premium and market discount are amortized and accreted.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager") for management and investment advisory services is paid monthly
at the annual rate of .25% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses (including the
management fee but excluding brokerage commissions and transfer taxes)
exceed .25% of average daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $65. 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 and U.S. Government obligations, for the year ended
February 28, 1995, aggregated $4,260,813 and $3,034,523, respectively. Cost
of purchases and proceeds from sales of U.S. Government obligations during
the year aggregated $21,016,294 and $17,838,594, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 66% of the outstanding shares of the Fund were held
by two shareholders each holding in excess of 10% of the Fund's outstanding
shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
Shares sold 3,299,162 433,133
Shares issued to shareholders in reinvestment
of distributions 52,796 46,009
Shares repurchased (3,322,035) (696,894)
Net increase (decrease) 29,923 (217,752)
Fund shares:
Beginning of period 826,909 1,044,661
End of period 856,832 826,909
</TABLE>
* * *
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO International Bond Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO International Bond Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 20, 1995
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
<C> <S> <C>
DEBT OBLIGATIONS - 83.4%
ARGENTINA - 2.2%
AGP 5,500,000 Argentina Bocon - Pro 1, Variable Rate, Peso Deposit Rate 1 mo., due 4/1/07 1,595,000
USD 4,500,000 Argentina Bocon - Pro 2, Variable Rate, 1 mo. LIBOR, due 4/1/07 1,800,000
3,395,000
BELGIUM - 2.6%
USD 4,000,000 BBL International Variable Rate, 5.00% due 4/23/99 3,940,000
BRAZIL - 4.9%
USD 4,141,653 Republic of Brazil Capitalization Bond, 8.00% due 4/15/14 1,682,547
USD 8,000,000 Republic of Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + 13/16 (6.75%),
due 4/15/09 4,120,000
USD 4,000,000 Republic of Brazil Par Bonds Series YL3, 4.00% Step Up, due 4/15/24 1,540,000
7,342,547
BULGARIA - 0.4%
USD 1,000,000 Bulgaria Discount, 6 mo. LIBOR + 13/16 (7.56%), due 7/28/24 433,750
USD 1,000,000 Bulgaria, FLIRB, 2.00% due 7/28/12 192,500
626,250
CANADA - 5.6%
CAD 2,000,000 Province of British Columbia, 7.88% due 11/30/23 1,212,807
GBP 2,000,000 Province of Ontario, 6.88% due 9/15/00 2,836,639
CAD 3,000,000 Province of Quebec, 7.50% due 12/1/03 1,914,618
CAD 1,500,000 Province of Saskatchewan, 11.00% due 1/9/01 1,184,239
CAD 2,000,000 Societe Quebec D'Ass D'Eaux, 8.13% due 8/11/03 1,306,238
8,454,541
CHINA - 0.6%
USD 1,000,000 Bank of China, 8.25% due 3/15/14 928,827
DENMARK - 2.2%
DKK 20,000,000 Kingdom of Denmark, 8.00% due 11/15/01 3,320,451
FINLAND - 1.9%
JPY 250,000,000 Republic of Finland, 5.25% due 4/16/98 2,713,289
FRANCE - 12.9%
ECU 4,500,000 Caisse Francaise Development, 5.50% due 2/9/01 4,911,030
SEK 20,000,000 Credit Foncier, 6.50% due 2/22/99 2,355,326
ECU 5,000,000 Government of France, 8.25% due 4/25/22 5,976,990
ECU 4,750,000 Societe Nationale Chemins de France, 9.38% due 3/12/01 6,265,199
19,508,545
GERMANY - 6.0%
JPY 150,000,000 Deutsche Bank Finance NV, 4.38% due 7/16/98 1,592,296
GBP 1,300,000 Dresdner Finance Bank, 6.00% due 12/7/99 1,818,135
JPY 300,000,000 KFW International Finance, 6.00% due 11/29/99 3,397,104
ECU 2,000,000 KFW International Finance, 5.50% due 1/31/01 2,191,239
8,998,774
INDONESIA - 0.7%
USD 1,000,000 Tjiwi Kimia International, 13.25% due 8/1/01 1,005,000
JAPAN - 2.2%
CAD 5,000,000 Japan Highway Public Corp., 7.88% due 9/27/02 3,355,433
JORDAN - 0.9%
USD 2,000,000 Jordan Par, 4.00% Step Up, due 12/23/23 144A 720,000
USD 1,000,000 Jordan PDI, Variable Rate, 6 mo. LIBOR + 13/16 (7.63%), due 12/23/05 670,000
1,390,000
MEXICO - 2.5%
FRF 35,000,000 Mexico Par Bond, 6.63% due 12/31/19 3,391,209
CHF 1,500,000 United Mexican States Par Bond, 3.75% due 12/31/19 441,105
3,832,314
MULTINATIONAL - 1.1%
ITL 3,000,000,000 Nordic Investment Bank, 10.80% due 5/24/03 1,658,034
SOUTH AFRICA - 1.1%
ZAL 8,000,000 Republic of South Africa R153, 13.00% due 8/31/10 1,627,586
SOUTH KOREA - 0.7%
USD 1,200,000 Korea Electric Power, 6.38% due 12/1/03 1,053,000
SPAIN - 6.6%
ESP 160,000,000 Government of Spain, 11.60% due 1/15/97 1,261,208
ESP 500,000,000 Government of Spain, 10.25% due 11/30/98 3,742,142
ESP 500,000,000 Government of Spain, 11.30% due 1/15/02 3,796,806
ESP 160,000,000 Government of Spain, 10.90% due 8/30/03 1,182,992
9,983,148
SUPRA NATIONAL - 1.6%
JPY 200,000,000 World Bank, 6.75% due 6/18/01 2,345,398
SWEDEN - 2.2%
SEK 10,000,000 Kingdom of Sweden, 11.00% due 1/21/99 1,398,501
SEK 20,000,000 Kingdom of Sweden, 6.00% due 2/9/05 1,960,187
3,358,688
THAILAND - 0.6%
THB 25,000,000 Thai Military Bank, 6.75% due 2/28/97 943,514
TURKEY - 0.4%
GBP 600,000 Republic of Turkey, 9.00% due 10/27/03 677,949
UNITED KINGDOM - 4.1%
GBP 2,000,000 Guaranteed Export Financial Corp., 12.88% due 9/29/02 3,771,008
GBP 1,500,000 UK Treasury, 9.75% due 8/27/02 2,501,570
6,272,578
UNITED STATES - 18.2%
Asset Backed Securities - 14.3%
USD 1,436,155 BCI Home Equity Loan 94-1 Class A-1, Variable Rate, 6.37% due 4/15/09 1,430,452
USD 1,500,000 First International Funding Co, Variable Rate, 6.80% due 6/3/98 1,511,250
USD 2,500,000 First USA Credit Card Master Trust 94-4 Class A, Variable Rate, 6.50% due 8/15/03 2,502,736
USD 2,000,000 Fremont SBL Master Trust 93-A Class A, Variable Rate, 6.60% due 3/15/98 2,002,188
USD 1,000,000 Potomac Mills Finance Corp, Variable Rate, 6.78% due 10/20/04 998,750
USD 2,000,000 Premier Auto Trust 94-4 Class B Certificates, 6.85% due 5/2/99 1,967,438
USD 976,661 Resolution Trust Corp 94-C1 Class A3, Variable Rate, 6.61% due 6/25/26 972,693
USD 3,766,000 Society Student Loan 94-A, Variable Rate, 5.01% due 7/26/21 3,748,347
USD 4,500,000 Society Student Loan Trust 93-A Class B, Variable Rate, 6.75% due 7/25/03 4,490,156
USD 2,000,000 Woodfield Finance Corp, Variable Rate, 6.84% due 10/13/03 2,020,000
21,644,010
CORPORATE OBLIGATIONS - 1.3%
USD 2,000,000 New England Telephone & Telegraph, 7.88% due 11/15/29 2,032,500
STRUCTURED NOTE - 0.6%
USD 1,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (b) 841,200
U.S. GOVERNMENT - 2.0%
USD 3,000,000 U.S. Treasury Note, 6.88% due 10/31/96 (a) 3,006,558
TOTAL UNITED STATES 27,524,268
VENEZUELA - 1.2%
USD 1,000,000 Government of Venezuela FLIRB Series A, Variable Rate, 7.00% due 3/31/07 448,750
USD 3,000,000 Government of Venezuela FLIRB Series B, Variable Rate, 7.00% due 3/31/07 1,346,250
1,795,000
TOTAL DEBT OBLIGATIONS (Cost $127,422,217) 126,050,134
LOAN PARTICIPATIONS - 2.0%
Ivory Coast - 0.3%
FRF 15,000,000 Ivory Coast Syndicated Loan, (Sub-participation with Banque Paribas)* 422,535
JAMAICA - 0.4%
USD 1,000,000 Republic of Jamaica Syndicated Loan Tranche B, LIBOR + 13/16,
(Sub-participation with Salomon) 630,000
MOROCCO - 0.4%
USD 1,000,000 Kingdom of Morocco Registered Loan Agreement Tranche A, LIBOR + 13/16,
(Sub-participation with Banque Paribas) 620,000
RUSSIA - 0.9%
ECU 1,000,000 Russia Vnesheconombank Promissory Note,
(Sub-participation with Bank of America Illinois)* 253,801
FRF 25,000,000 Russia Vnesheconombank Syndicated Loan, (Sub-participation with Banque Paribas)* 1,129,189
1,382,990
TOTAL LOAN PARTICIPATIONS (Cost $3,862,999) 3,055,525
PRINCIPAL AMOUNT
OF CONTRACTS
(000's omitted) CALL OPTIONS PURCHASED - 0.0%
CROSS CURRENCY OPTIONS - 0.0%
DEM 30,000 DEM Call/ BEF Put, Expires 8/13/95 Strike 21.07 58,386
OPTIONS ON BONDS - 0.0%
USD 6,000 Argentina Par Bond 4.25%, Expires 4/11/95, Strike 49.00 0
TOTAL CALL OPTIONS PURCHASED (Cost $493,386) 58,386
PUT OPTIONS PURCHASED - 0.3%
OPTIONS ON BONDS - 0.3%
USD 5,820 Brazil IDU, Brady Bond, Expires 4/13/95 Strike 78.88 161,476
USD 1,940 Brazil IDU, Brady Bond, Expires 4/17/95 Strike 78.75 48,500
USD 4,850 Brazil IDU, Brady Bond, Expires 5/10/95 Strike 79.44 162,397
USD 1,940 Brazil IDU, Brady Bond, Expires 5/2/95 Strike 75.88 30,070
402,443
TOTAL PUT OPTIONS PURCHASED (Cost $227,326) 402,443
PAR VALUE SHORT-TERM INVESTMENTS - 13.5%
REPURCHASE AGREEMENTS - 9.9%
$ 7,500,779 Prudential Securities Group, Inc. Repurchase Agreement
dated 2/28/95, due 3/1/95, with a maturity value of $7,501,978
and an effective yield of 5.75%, collateralized by U.S. Government
Agency Obligations with rates ranging from 3.64% to 11.62%, maturities
ranging from 5/1/00 to 10/25/24, and with an aggregate market
value of $7,650,745. 7,500,779
7,500,779 Salomon Brothers Repurchase Agreement, dated 2/28/95, due
3/1/95, with a maturity value of $7,501,946 and an
effective yield of 5.60%, collateralized by a U.S.
Treasury Bond with a rate of 6.25%, a maturity date of
8/15/23, and with an aggregate market value of $7,705,145. 7,500,779
15,001,558
CASH EQUIVALENTS - 3.6%
5,341,614 Bank of Boston Time Deposit, 5.39% due 3/1/95 5,341,614
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 20,343,172
TOTAL INVESTMENTS - 99.2%
(Cost $152,349,100) * * $ 149,909,660
Other Assets and Liabilities (net) - 0.8% 1,279,711
TOTAL NET ASSETS - 100.0% $ 151,189,371
NOTES TO THE SCHEDULE OF INVESTMENTS:
The principal amount of each security is stated in the
currency in which the security is denominated.
AGP - Argentinian Peso FRF - French Franc
BEF - Belgian Franc GBP - Pound Sterling
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Mark SEK - Swedish Krona
DKK - Danish Krone THB - Thai Baht
ECU - European Currency Unit USD - United States Dollar
ESP - Spanish Peseta ZAL - South African Rand
(a) All or a portion of this security is held as collateral for open futures contract
(b) Principal is linked to the value of the Brazilian Capitalization Bond and the
Brazilian IDU Bond.
Variable Rates - The rates shown on variable rate notes are
the current interest rates at February 28, 1995,
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.
* Non performing. Borrower not currently paying interest.
** The aggregate identified cost for federal income
tax purposes is $152,349,100 resulting in gross
unrealized appreciation and depreciation of
$2,194,224 and $4,633,664, respectively, and net
unrealized depreciation of $2,439,440.
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $132,005,928) (Note 1) $ 129,566,488
Short-term investments, at amortized cost (Note 1) 20,343,172
Foreign currency, at value (cost $481,256) (Note 1) 482,818
Interest receivable 3,790,113
Receivable for investments sold 690,534
Receivable for option premiums 64,190
Receivable for Fund shares sold 419,000
Receivable from brokers for open futures contracts (Note 1) 211,280
Receivable for open forward foreign currency contracts (Note 6) 1,232,076
Receivable for expenses waived or borne by Manager (Note 2) 9,548
Total assets 156,809,219
LIABILITIES:
Payable for investments purchased 4,181,496
Written options outstanding, at value (premiums $354,160) (Note 6) 461,060
Payable for Fund shares repurchased 356,000
Premiums payable on options purchased (Note 1) 58,386
Payable for open forward foreign currency contracts (Note 6) 430,916
Payable to affiliate for management fee (Note 2) 44,739
Accrued expenses 87,251
Total liabilities 5,619,848
NET ASSETS (equivalent to $9.64 per share based
on 15,687,479 shares outstanding, unlimited shares authorized) $ 151,189,371
NET ASSETS CONSIST OF:
Paid-in capital $ 152,319,198
Undistributed net investment income 3,765,102
Accumulated net realized loss (3,341,397)
Net unrealized depreciation (1,553,532)
NET ASSETS $ 151,189,371
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $1,019, and
net of foreign tax expense of $4,780) $ 6,831,915
EXPENSES:
Management fee (Note 2) 345,558
Custodian and transfer agent fees 90,017
Audit fees 71,584
Legal Fees 8,934
Registration 8,525
Insurance 974
Trustee fee (Note 2) 388
Miscellaneous 821
Total expenses 526,801
Less: expenses waived or borne by Manager (Note 2) (181,243)
Net expenses 345,558
Net investment income 6,486,357
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS, WRITTEN OPTIONS, FOREIGN CURRENCY, FORWARD
CONTRACTS AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments (2,465,597)
Closed futures contracts (1,398,771)
Written options 1,262,439
Foreign currency, forward contracts and
foreign currency related transactions 6,033,088
Net realized gain 3,431,159
Change in net unrealized appreciation (depreciation) on:
Investments (1,864,869)
Open futures contracts (47,387)
Written options (158,727)
Foreign currency, forward contracts and foreign
currency related transactions 911,221
Net unrealized loss (1,159,762)
Net realized and unrealized gain on investments,
futures contracts, written options, foreign currency,
forward contracts and foreign currency related
transactions 2,271,397
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,757,754
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1995 FEBRUARY 28,
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 6,486,357 $ 317,154
Net realized gain (loss) on investments, closed futures
contracts, written options, foreign currency, forward
contracts and foreign currency related transactions 3,431,159 (163,626)
Change in net unrealized depreciation on investments,
open futures contracts, written options, foreign currency,
forward contracts and foreign currency
related transactions (1,159,762) (393,770)
Net increase (decrease) in net assets resulting from operations 8,757,754 (240,242)
Distributions to shareholders from:
Net investment income (6,618,737) -
Net realized gains (3,028,602) -
(9,647,339) -
Fund share transactions: (Note 5)
Proceeds from sale of shares 137,180,193 39,771,720
Net asset value of shares issued to shareholders
in payment of distributions declared 6,467,224
Cost of shares repurchased (31,018,305) (81,634)
Net increase in net assets resulting
from Fund share transactions 112,629,112 39,690,086
Total increase in net assets 111,739,527 39,449,844
NET ASSETS:
Beginning of period 39,449,844 -
End of period (including undistributed net investment
income of $3,765,102 and $41,678, re $ 151,189,371 $ 39,449,844
* Period from December 22, 1993 (commencement of operations) to February 28,
1994.
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 22, 1993
YEAR ENDED (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 28, 1995 FEBRUARY 28, 1994
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96 $ 10.00
Income (loss) from investment operations:
Net investment income (a) 0.98 0.08
Net realized and unrealized loss
on investments (0.21) (0.12)
Total from investment operations 0.77 (0.04)
Less distributions to shareholders:
From net investment income (0.75) -
From net realized gains (0.34) -
Total distributions (1.09) -
NET ASSET VALUE, END OF PERIOD $ 9.64 $ 9.96
TOTAL RETURN (B) 8.23% (0.40%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $ 151,189 $ 39,450
Net expenses to average
daily net assets (a) 0.40% 0.40%*
Net investment income to average
daily net assets (a) 7.51% 5.34%*
Portfolio turnover rate 141% 14%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.02
and .01 for the fiscal year ended February 28, 1995 and for the period ended
February 28, 1994, respectively.
(b) Calculation excludes subscription fees. The total return would have been
lower had certain expenses not been waived during the periods shown.
</TABLE>
See accompanying notes to the financial statements.
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The 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 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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued in good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
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. When a forward currency contract is
extinguished, through delivery or offset by entering into another forward
currency contract, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value of the contract at the time it was extinguished or offset. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Fund's Statement of Assets and Liabilities. In addition,
the Fund could be exposed to risk if the counterparties are unable to meet
the terms of the contracts or if the value of the currency changes
unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the
Fund has committed to buy or sell is shown under Note 6 and represents the
currency exposure the Fund has acquired or hedged through currency
contracts as of February 28, 1995.
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. See Note
6 for a summary of open written option contracts as of February 28, 1995.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
In some cases, depending upon the executing broker, premiums on purchased
and written options are not paid or received until the contracts expire or
are closed or exercised. These contracts are marked to market daily, and
the daily change in market value is paid to or received from the respective
broker. A corresponding payable or receivable is recorded for the
accumulated unrealized position received or paid. Upon settlement, the net
payable or receivable for original premiums and accumulated unrealized
gains and losses is paid to or received from the broker and a gain or loss
is realized.
LOAN AGREEMENTS
The Fund may invest in loan agreements which are indirect interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. A loan is often administered by a bank or other
financial institution (the lender) that acts as agent for all holders. The
lender administers the terms of the loan, as specified in the loan
agreement. 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. In addition, if the Fund invests in the
indebtedness of an emerging country, there is 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 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At February 28, 1995, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary. Withholding taxes on foreign
interest and dividend income have been withheld in accordance with the
applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund 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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Loss Paid-in Capital
<S> <C> <C>
$3,855,804 ($3,855,804) __
</TABLE>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the year ended February 28, 1995, the Fund received $190,309 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of .40% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses exceed .40% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 28, 1995, was $388. 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 and U.S. Government obligations for the year ended
February 28, 1995, aggregated $189,148,454 and $95,702,553, respectively.
Cost of purchases and proceeds from sales of U.S. Government obligations
were $14,017,544 and $10,917,031, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 61% 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 Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Period from
December 22, 1993
Year Ended (Commencement of Operations) to
February 28, 1995 February 28, 1994
<S> <C> <C>
Shares sold 14,201,980 3,968,013
Shares issued to shareholders in
reinvestment of distributions 696,838 --
Shares repurchased (3,171,314) (8,038)
Net increase 11,727,504 3,959,975
Fund shares:
Beginning of period 3,959,975 --
End of period 15,687,479 3,959,975
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1995 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency In Exchange for (Depreciation)
<S> <C> <C> <C> <C>
Sales
3/31/95 Australian Dollars 5,000,000 $ 3,664,250 $ (17,332)
4/28/95 French Francs 5,000,000 952,744 (18,322)
3/2/95 German Deutsche Marks 94,000 64,230 35
3/31/95 Swedish Krona 63,000,000 8,691,140 134,191
$ 98,572
Buys
5/1/95 Canadian Dollars 30,000,000 $ 21,217,908 $ 281,509
4/28/95 Danish Krone 20,000,000 3,347,280 88,496
5/2/95 European Currency Units 30,000,000 37,408,500 654,600
3/2/95 German Deutsche Marks 85,500 58,422 (32)
3/31/95 German Deutsche Marks 36,000,000 24,657,534 (50,018)
3/1/95 Italian Lira 871,941 520 2
3/31/95 Italian Lira 15,000,000,000 9,121,036 (173,140)
$ 801,417
</TABLE>
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency In Exchange for (Depreciation)
<S> <C> <C> <C> <C>
4/28/95 German Deutsche Marks/ DEM 10,000,000 FRF 34,770,000 $ (88,167)
French Francs
3/31/95 German Deutsche Marks/ DEM 5,000,000 CHF 4,254,500 17,717
Swiss Francs
3/31/95 Italian Lira/ ITL 4,490,400,000 DEM 4,000,000 (83,905)
German Deutsche Marks
3/31/95 Spanish Pesetas/ ESP 1,326,675,000 DEM 15,000,000 55,526
German Deutsche Marks
$ (98,829)
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
<S> <C> <C> <C> <C>
Buys
50 Australian Dollar 3 Year March 1995 $ 343,302 $ 104,937
75 Australian Dollar 10 Year March 1995 579,674 246,180
40 Canadian Government Bond March 1995 2,918,189 148,534
94 Italian Government Bond 5 Year March 1995 14,234,387 (224,823)
48 Italian Government Bond 10 Year March 1995 5,988,536 (160,918)
25 Italian Government Bond June 1995 2,969,821 (106,480)
120 Japanese Yen March 1995 15,532,580 401,100
62 Japanese Yen June 1995 8,111,925 135,997
145 MATIF ECU Bond March 1995 14,459,052 220,200
85 U.K. Gilt March 1995 6,848,069 (11,324)
$ 753,403
Sales
64 German Deutsche Mark March 1995 5,477,600 $ (377,280)
20 MATIF March 1995 2,076,077 1,537
70 Swiss Government Bond March 1995 5,612,669 (60,799)
45 U.S. Treasury Note March 1995 4,696,875 (252,056)
$ (688,598)
</TABLE>
At February 28, 1995, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
WRITTEN OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Puts Calls
Numbers of Numbers of
Contracts Premiums Contracts Premiums
<S> <C> <C> <C> <C>
Outstanding, beginning of period -- $ -- 42 $ 175,725
Options written 37 498,641 68 1,643,313
Options terminated in closing
transactions (20) (62,932) -- --
Options exercised (13) (240,063) (23) (474,032)
Options expired (1) (28,070) (85) (1,158,422)
Outstanding, end of period 3 $ 167,576 2 $ 186,584
</TABLE>
SUMMARY OF WRITTEN OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Principal Amount
of Contracts
(000's omitted) Exercise Price Expiration Date Value
<S> <C> <C> <C> <C>
Calls
DEM Call/FRF Put 20,000 DEM 3.63 DEM 8/31/95 $ 64,190
Japanese Yen Call 1,000,000 JPY 90.00 JPY 6/22/95 41,370
$ 105,560
Puts
Republic of Brazil
Capitalization Bond Put 5,000 USD 45.94 USD 5/10/95 $ 355,500
</TABLE>
* * *
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 1.02% of the total distributions as net capital gain
dividends.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Currency Hedged International Bond Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Currency Hedged International
Bond Fund at February 28, 1995, and the results of its operations, the changes
in its net assets and the financial highlights for the period from September 30,
1994 (commencement of operations) to February 28, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 20, 1995
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
DEBT OBLIGATIONS - 91.0%
ARGENTINA - 2.3%
<C> <C> <S> <C>
AGP 7,500,000 Argentina Bocon - Pro 1, Variable Rate, Peso Deposit Rate 1 mo.,
due 4/1/07 2,175,000
USD 8,000,000 Argentina Bocon - Pro 2, Variable Rate, 1 mo. LIBOR, due 4/1/07 3,200,000
5,375,000
AUSTRALIA - 7.4%
AUD 14,000,000 Government of Australia, 13.00% due 7/15/00 11,743,887
AUD 5,000,000 Queensland Treasury, 6.50% due 6/14/05 2,824,242
AUD 4,000,000 Treasury Corp of Victoria, 12.50% due 7/15/00 3,257,608
17,825,737
BRAZIL - 5.1%
USD 11,388,300 Republic of Brazil Capitalization Bond, 8.00% due 4/15/14 4,627,004
USD 10,000,000 Republic of Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + 13/16, 5,150,000
(6.75%), due 4/15/09
USD 6,500,000 Republic of Brazil Par Bonds Series YL3, 4.00% Step Up, due 4/15/24 2,502,500
12,279,504
BULGARIA - 0.5%
USD 6,400,000 Bulgaria, FLIRB, 2.00% due 7/28/12 1,232,000
CANADA - 4.3%
CAD 8,600,000 Canada (Cayman) Government , 7.25% due 6/1/08 5,220,943
CAD 3,500,000 Government of Canada, 10.75% due 3/15/98 2,694,049
CAD 3,000,000 Government of Canada, 10.25% due 3/15/14 2,447,176
10,362,168
COSTA RICA - 0.5%
USD 1,531,860 Costa Rica, Variable Rate, 3 mo. LIBOR + 13/16 (7.06%), due 5/21/05 1,133,576
DENMARK - 1.4%
DKK 20,000,000 Kingdom of Denmark, 8.00% due 11/15/01 3,320,451
FRANCE - 16.7%
ECU 6,000,000 Caisse Francaise Development, 5.50% due 2/9/01 6,551,940
SEK 20,000,000 Credit Foncier, 6.50% due 2/22/99 2,354,891
ECU 20,000,000 Government of France, 8.25% due 4/25/22 23,907,960
ECU 5,250,000 Societe Nationale Chemins de France, 9.38% due 3/12/01 6,924,694
39,739,485
GERMANY - 2.4%
JPY 500,000,000 KFW International Finance, 6.00% due 11/29/99 5,661,841
ITALY - 2.6%
ECU 5,000,000 Government of Italy, 9.25% due 3/7/11 6,186,375
JORDAN - 0.8%
USD 2,455,000 Jordan Discount, Variable Rate, 6 mo. LIBOR + 13/16 (7.63%), due 12/23/23 1,522,100
USD 1,000,000 Jordan Par, 4.00% Step Up, due 12/23/23 360,000
1,882,100
MEXICO - 2.1%
FRF 51,500,000 Mexico Par Bond, 6.63% due 12/31/19 4,989,922
MULTINATIONAL - 1.6%
ITL 7,000,000,000 Nordic Investment Bank, 10.80% due 5/24/03 3,868,746
PORTUGAL - 1.9%
ECU 4,200,000 Republic of Portugal, 6.00% due 2/16/04 4,450,383
SOUTH AFRICA - 0.6%
ZAL 8,000,000 Republic of South Africa R153, 13.00% due 8/31/10 1,627,586
SPAIN - 3.3%
ESP 500,000,000 Government of Spain, 10.25% due 11/30/98 (a) 3,742,142
ESP 250,000,000 Government of Spain, 11.30% due 1/15/02 1,898,793
ESP 300,000,000 Government of Spain, 10.90% due 8/30/03 2,218,109
7,859,044
SUPRA NATIONAL - 3.2%
ITL 16,000,000,000 Eurofima, 8.38% due 10/27/03 7,712,345
SWEDEN - 4.4%
SEK 40,000,000 Kingdom of Sweden, 11.00% due 1/21/99 5,594,002
SEK 50,000,000 Kingdom of Sweden, 6.00% due 2/9/05 4,900,467
10,494,469
UNITED KINGDOM - 4.0%
GBP 2,400,000 Guaranteed Export Financial Corp., 12.88% due 9/29/02 4,525,209
GBP 3,000,000 UK Treasury, 9.75% due 8/27/02 5,003,141
9,528,350
UNITED STATES - 25.0%
ASSET BACKED SECURITIES - 19.1%
USD 4,920,000 CIT Group Securitization Corp 95-1 Class A4, 8.95% due 8/15/20 4,921,538
USD 2,500,000 Discover Card Trust 91-F Class A, 7.85% due 11/21/00 2,522,023
USD 2,500,000 First USA Credit Card Master Trust 94-4 Class A, Variable Rate, 6.50%
due 8/15/03 2,502,734
USD 5,000,000 First USA Credit Card Master Trust 95-2 A, Variable Rate, 6.37% due 10/15/04 5,000,000
USD 5,000,000 HFC Home Equity Loan Cert 91-1 B, Variable Rate, 6.98% due 1/19/06 5,027,344
USD 10,000,000 Keycorp Student Loan Trust 94-B Class Certificates, Variable Rate, 6.79%
due 11/25/21 9,975,000
USD 1,000,000 Potomac Mills Finance Corp, Variable Rate, 6.78% due 10/20/04 998,750
USD 1,953,321 Resolution Trust Corp 94-C1 Class A3, Variable Rate, 6.61% due 6/25/26 1,945,386
USD 2,000,000 SMS Student Loan Trust 94-B Class Certificates, Variable Rate, 6.81%
due 10/25/23 1,995,625
USD 4,500,000 Society Student Loan Trust 93-A Class A2, Variable Rate, 6.45% due 7/25/03 4,500,000
USD 500,000 Society Student Loan Trust 93-A Class B, Variable Rate, 6.75% due 7/25/03 498,906
USD 2,500,000 Swift 94-A Class A, Variable Rate, 6.28% due 3/15/99 2,501,172
USD 3,000,000 Woodfield Finance Corp, Variable Rate, 6.84% due 10/13/03 3,030,000
45,418,478
CORPORATE OBLIGATIONS - 1.3%
USD 3,000,000 New England Telephone & Telegraph, 7.88% due 11/15/29 3,048,750
STRUCTURED NOTES - 3.8%
USD 2,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (c) 1,682,400
USD 4,000,000 Sallie Mae, Variable Rate, 0.00% due 1/24/96 (d) 3,775,000
USD 4,000,000 Toyota Motor Credit, Variable Rate, 0.00% due 7/28/96 (e) 3,620,000
9,077,400
U.S. GOVERNMENT - 0.8%
USD 2,000,000 U.S. Treasury Note, 6.88% due 10/31/96 (b) 2,004,372
TOTAL UNITED STATES 59,549,000
VENEZUELA - 0.9%
USD 5,000,000 Government of Venezuela FLIRB Series B, Variable Rate, 7.00% due 3/31/07 2,243,750
TOTAL DEBT OBLIGATIONS (Cost $217,976,754) 217,321,832
LOAN PARTICIPATIONS - 1.7%
JAMAICA - 0.5%
USD 2,000,000 Republic of Jamaica Syndicated Loan Tranche B, LIBOR + 13/16,
(Sub-participation with Salomon) 1,260,000
MEXICO - 0.7%
USD 2,892,725 United Mexican States Combined Old New Money Registered Loan,
LIBOR + 13/16, (Sub-participation with Chase Manhattan
Bank) 1,677,781
RUSSIA - 0.5%
CHF 5,000,000 Russia Vnesheconombank Syndicated Loan,
(Sub-participation with Banque Paribas)* 886,239
ECU 1,000,000 Russia Vnesheconombank Promissory Note,
(Sub-participation with Bank of America, Illinois)* 253,801
1,140,040
TOTAL LOAN PARTICIPATIONS (Cost $4,827,367) 4,077,821
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
of Contracts CALL OPTION PURCHASED - 0.0%
(000's omitted) Cross Currency Options - 0.0%
<C> <C> <S> <C>
DEM 40,000 DEM Call / BEF Put, Expires 8/31/95, Strike 21.07 77,848
TOTAL CALL OPTION PURCHASED (Cost $77,848) 77,848
PUT OPTIONS PURCHASED - 0.2%
OPTIONS ON BONDS - 0.2%
USD 5,820 Brazil IDU, Brady Bond, Expires 4/13/95 Strike 78.88 161,476
USD 1,940 Brazil IDU, Brady Bond, Expires 4/17/95 Strike 78.75 48,500
USD 4,850 Brazil IDU, Brady Bond, Expires 5/10/95 Strike 79.44 162,397
USD 1,940 Brazil IDU, Brady Bond, Expires 5/2/95 Strike 75.88 30,070
402,443
TOTAL PUT OPTIONS PURCHASED (Cost $227,326) 402,443
SHARES RIGHTS - 0.0%
MEXICO - 0.0%
7,221,000 Mexico Value Recovery, Series Rights, Expires 6/30/03 0
TOTAL RIGHTS (Cost $0) 0
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE SHORT-TERM INVESTMENTS - 8.2%
REPURCHASE AGREEMENTS - 6.9%
<C> <S> <C>
$ 4,757,722 Prudential Securities Group, Inc. Repurchase Agreement
dated 2/28/95, due 3/1/95, with a maturity value of $4,758,482
and an effective yield of 5.75%, collateralized by U.S. Government
Agency Obligations with rates ranging from 3.64% to 11.62%, maturities
ranging from 5/1/00 to 10/25/24, and with an aggregate market
value of $4,852,826. 4,757,722
11,587,114 Salomon Brothers Repurchase Agreement, dated 2/28/95,
due 3/1/95, with a maturity value of $11,588,916 and
an effective yield of 5.60%, collateralized by a U.S.
Treasury Bond with a rate of 6.25%, a maturity date of
8/15/23,
and with an aggregate market value of $11,902,816. 11,587,114
16,344,836
CASH EQUIVALENTS - 1.3%
1,574,686 Bank of Boston Time Deposit, 6.16% due 3/1/95 1,574,686
512,539 Dreyfus Cash Management Money Market Fund Plus, A Shares 512,539
161,450 National Westminster Bank Time Deposit, 6.00% due 3/1/95 161,450
908,325 Provident Institutional Prime Money Market Fund 908,325
3,157,000
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 19,501,836
TOTAL INVESTMENTS - 101.1%
(Cost $242,611,131) * * $ 241,381,780
Other Assets and Liabilities (net) - (1.1%) (2,717,342)
TOTAL NET ASSETS - 100.0% $ 238,664,438
NOTES TO THE SCHEDULE OF INVESTMENTS:
The principal amount of each security is stated in the currency in which
the security is denominated.
AGP - Argentinian Peso ESP - Spanish Peseta
AUD - Australian Dollar FRF - French Franc
BEF - Belgian Franc GBP - Great British Pound
CAD - Canadian Dollar ITL - Italian Lira
CHF - Swiss Franc JPY - Japanese Yen
DEM - German Deutsche Mark SEK - Swedish Krona
DKK - Danish Krone USD - United States Dollar
ECU - European Currency Unit ZAL - South African Rand
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
(c) Principal is linked to the value of the Brazilian Capitalization Bond and the
Brazilian IDU Bond.
(d) Interest rate linked to changes in the daily 3 month LIBOR rate.
(e) Interest rate linked to changes in the 3 year Danish Krone swap rate.
* Non-performing. Borrower not currently paying interest.
Variable rates - The rates shown on variable rate notes are
the current interest rates at February 28, 1995,
which are subject to change based on the terms of
the security.
** The aggregate identified cost for federal income
tax purposes is $242,611,131 resulting in gross
unrealized appreciation and depreciation of
$3,388,086 and $4,617,437, respectively, and net unrealized
depreciation of $1,229,351.
</TABLE>
See accompanying notes to the financial statements.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $223,109,295) (Note 1) $ 221,879,944
Short-term investments, at amortized cost (Note 1) 19,501,836
Foreign currency, at value (cost $658,377) (Note 1) 657,668
Interest receivable 6,640,720
Receivable for investments sold 3,396,391
Receivable for Fund shares sold 1,211,156
Receivable for open forward foreign currency contracts (Note 6) 1,131,852
Receivable from brokers on options and open futures contracts (Note 1) 214,425
Receivable for expenses waived or borne by Manager (Note 2) 54,586
Total assets 254,688,578
LIABILITIES:
Payable for investments purchased 11,725,916
Payable upon return of securities loaned (Note 1) 3,155,333
Payable for open forward foreign currency contracts (Note 6) 325,372
Written options outstanding, at value (premiums $199,671) (Note 6) 451,785
Payable for Fund shares repurchased 115,497
Premiums payable on options purchased (Note 1) 77,848
Payable to affiliate for management fee (Note 2) 87,707
Accrued expenses 84,682
Total liabilities 16,024,140
NET ASSETS(equivalent to $9.99 per share based
on 23,885,450 shares outstanding, unlimited shares authorized) $ 238,664,438
NET ASSETS CONSIST OF:
Paid-in capital $ 237,927,839
Undistributed net investment income 2,072,925
Accumulated net realized gain 37,085
Net unrealized depreciation (1,373,411)
NET ASSETS $ 238,664,438
</TABLE>
See accompanying notes to the financial statements.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - PERIOD FROM SEPTEMBER 30, 1994
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $6,931) $ 5,420,167
EXPENSES:
Management fee (Note 2) 306,031
Custodian and transfer agent fees 49,260
Audit fees 30,002
Registration fees 29,744
Legal fees 1,834
Insurance 678
Trustee fee (Note 2) 254
Miscellaneous 324
Total expenses 418,127
Less: expenses waived or borne by Manager (Note 2) (173,302)
Net expenses 244,825
Net investment income 5,175,342
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS, WRITTEN OPTIONS, FOREIGN CURRENCY, FORWARD CONTRACTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments (1,127,038)
Closed futures contracts 1,160,048
Foreign currency, forward contracts and foreign
currency related transactions (1,031,056)
Net realized loss on investments (998,046)
Change in net unrealized appreciation (depreciation) on:
Investments (1,229,351)
Open futures contracts (768,479)
Written options (252,114)
Foreign currency, forward contracts and foreign
currency related transactions 876,533
Net unrealized loss (1,373,411)
Net realized and unrealized loss on investments, futures
contracts, written options, foreign currency, forward
contracts and foreign currency related transactions (2,371,457)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,803,885
</TABLE>
See accompanying notes to the financial statements.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS - PERIOD FROM SEPTEMBER 30, 1994
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,175,342
Net realized loss on investments, closed futures contracts,
foreign currency, forward contracts, and foreign
currency related transactions (998,046)
Change in net unrealized appreciation (depreciation) on investments,
open futures contracts, written options, foreign currency, forward
contracts and foreign currency related transactions (1,373,411)
Net increase in net assets resulting from operations 2,803,885
Distributions to shareholders from:
Net investment income (2,089,096)
(2,089,096)
Fund share transactions: (Note 5)
Proceeds from sale of shares 251,185,791
Net asset value of shares issued to shareholders
in payment of distributions declared 998,389
Cost of shares repurchased (14,234,531)
Net increase in net assets resulting
from Fund share transactions 237,949,649
Total increase in net assets 238,664,438
NET ASSETS:
Beginning of period
End of period (including undistributed net
investment income of $2,072,925) $ 238,664,438
</TABLE>
See accompanying notes to the financial statements.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD FROM SEPTEMBER 30, 1994
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1995
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income (a) 0.24
Net realized and unrealized gain (loss)
on investments (0.09)
Total from investment operations 0.15
Less distributions to shareholders:
From net investment income (0.16)
NET ASSET VALUE, END OF PERIOD $ 9.99
TOTAL RETURN (B) 1.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 238,664
Net expenses to average
daily net assets (a) 0.40%*
Net investment income to average
daily net assets (a) 8.46%*
Portfolio turnover rate 64%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for the period ended February 28, 1995.
(b) Calculation excludes subscription fees. The total return would have been
lower had certain expenses not been waived during the period shown.
</TABLE>
See accompanying notes to the financial statements.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Currency Hedged International Bond Fund (the "Fund"), which
commenced operations on September 30, 1994, 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 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 following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued in good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
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. When a forward currency contract is
extinguished, through delivery or offset by entering into another forward
currency contract, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value of the contract at the time it was extinguished or offset. These
contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Fund's Statement of Assets and Liabilities. In addition,
the Fund could be exposed to risk if the counterparties are unable to meet
the terms of the contracts or if the value of the currency changes
unfavorably to the U.S. dollar. The U.S. dollar value of the currencies the
Fund has committed to buy or sell is shown under Note 6 and represents the
currency exposure the Fund has acquired or hedged through currency
contracts as of February 28, 1995.
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. See Note
6 for summary of all open written option contracts as of February 28, 1995.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
In some cases, depending upon the executing broker, premiums on purchased
and written options are not paid or received until the contracts expire or
are closed or exercised. These contracts are marked to market daily, and
the daily change in market value is paid to or received from the respective
broker. A corresponding payable or receivable is recorded for the
accumulated unrealized position received or paid. Upon settlement, the net
payable or receivable for original premiums and accumulated unrealized
gains and losses is paid to or received from the broker and a gain or loss
is realized.
LOAN AGREEMENTS
The Fund may invest in loan agreements which are indirect interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. A loan is often administered by a bank or other
financial institution (the lender) that acts as agent for all holders. The
lender administers the terms of the loan, as specified in the loan
agreement. 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. In addition, if the Fund invests in the
indebtedness of an emerging country, there is 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 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At February 28, 1995, the Fund loaned securities
having a market value of $3,068,556, collateralized by cash in the amount
of $3,157,000, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary. Taxes on foreign interest
and dividend income have been withheld in accordance with the applicable
country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund 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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions and redemptions
in-kind.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Gain (Loss) Paid-in Capital
<S> <C> <C>
($1,013,321) $1,035,131 ($21,810)
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits 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. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .15% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the period ended February 28, 1995, the Fund received $149,247 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments of domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of .50% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses exceed .40% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the period ended February 28, 1995, was $254. 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 and U.S. Government obligations during the period
ended February 28, 1995 aggregated $296,190,867 and $75,817,376,
respectively. Cost of purchases and proceeds from sales of U.S. Government
obligations during the period aggregated $19,945,360 and $17,944,391,
respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 64% 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 Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Period from
September 30, 1994
(Commencement of Operations) to
February 28, 1995
<S> <C>
Shares sold 25,227,397
Shares issued to shareholders in
reinvestment of distributions 101,052
Shares repurchased (1,442,999)
Net increase 23,885,450
Fund shares:
Beginning of period ___
End of period 23,885,450
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1995 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
<C> <S> <C> <C> <C>
Buys
43 Australian Dollar 10 year March 1995 $ 297,048 $ 130,689
146 Canadian Government Bond March 1995 10,659,319 542,021
142 Italian 5 year Bond March 1995 21,501,127 (340,075)
52 Italian 10 year Bond March 1995 6,487,580 (174,327)
35 Italian 10 year Govt. Bond June 1995 4,157,750 (149,072)
5 Japanese 10 year Govt. Bond June 1995 5,563,179 92,448
6 Japanese 10 year Govt. Bond March 1995 6,623,465 116,785
12 Japanese Yen March 1995 1,553,250 26,760
290 MATIF ECU Bond March 1995 28,903,935 137,414
50 MATIF ECU Bond June 1995 5,039,767 (13,890)
280 U.K. Gilt March 1995 22,439,492 9,420
$ 378,173
Sales
77 Australian Dollar 3 year March 1995 178,696 $ (100,398)
100 German Deutsche Mark March 1995 8,558,750 (447,800)
5 MATIF March 1995 535,898 (6,384)
100 Swiss Government Bond March 1995 8,026,132 (81,164)
100 U.S. Treasury Note March 1995 10,396,875 (510,906)
$ (1,146,652)
</TABLE>
At February 28, 1995, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Appreciation
Date Deliver/Receive Currency In Exchange for (Depreciation)
Buys
<C> <S> <C> <C> <C>
5/1/95 Canadian Dollars 35,000,000 $ 24,754,226 $ 328,428
3/2/95 German Deutsche Marks 114,000 77,895 (43)
3/1/95 Italian Lira 1,324,059 789 3
$ 328,388
Sales
3/31/95 Australian Dollars 35,000,000 $ 25,718,000 $ (53,072)
3/31/95 European Currency Units 16,500,000 21,034,200 98,213
4/28/95 French Francs 25,000,000 4,763,720 (91,613)
3/2/95 German Deutsche Marks 141,000 96,344 55
3/31/95 German Deutsche Marks 8,000,000 5,479,452 11,115
3/31/95 Great British Pounds 6,500,000 10,316,800 47,927
3/31/95 Italian Lira 15,000,000,000 9,121,036 173,140
3/31/95 Japanese Yen 900,000,000 9,326,425 (12,835)
3/31/95 Swedish Krona 167,000,000 23,036,957 354,248
$ 527,178
</TABLE>
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Receive Units In (Depreciation)
of Exchange
Currency for
<C> <S> <C> <C> <C> <C> <C>
3/31/95 German Deutsche Marks/ DEM 10,000,000 CHF 8,509,000 $ 35,433
Swiss Francs
3/31/95 Italian Lira/ ITL 6,735,600,000 DEM 6,000,000 83,290
German Deutsche Marks
3/31/95 Spanish Pesetas/ ESP 2,653,350,000 DEM 30,000,000 (167,809)
German Deutsche Marks
$ (49,086)
</TABLE>
WRITTEN OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Puts Calls
Numbers of Numbers of
Contracts Premiums Contracts Premiums
<S> <C> <C> <C> <C>
Outstanding, beginning of period __ $ __ __ $ __
Options written 1 103,386 3 96,285
Options terminated in closing __ __ __ __
transactions
Options expired __ __ __ __
Outstanding, end of period 1 $ 103,386 3 $ 96,285
</TABLE>
SUMMARY OF WRITTEN OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Principal Amount of
Contracts Expiration
(000's omitted) Exercise Price Date Value
<S> <C> <C> <C> <C>
Calls
DEM Call/FRF Put 30,000 DEM 3.63 DEM 8/31/95 $ 96,285
Puts
Republic of Brazil
Capitalization Bond Put 5,000 USD 45.94 USD 5/10/95 $ 355,500
</TABLE>
* * *
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 28, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Emerging Country Debt Fund (A Series of GMO Trust)
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of GMO Emerging Country Debt Fund at
February 28, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the period from April 19, 1994
(commencement of operations) to February 28, 1995, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at February 28, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 20, 1995
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
<C> <S> <C>
DEBT OBLIGATIONS - 80.0%
ARGENTINA - 15.1%
AGP 46,670,000 Argentina Bocon - Pro 1, Variable Rate, Peso Deposit Rate 1 mo., due 4/1/07 13,534,300
USD 45,500,000 Argentina Bocon - Pro 2, Variable Rate, 1 mo. LIBOR, due 4/1/07 18,200,000
USD 10,000,000 Republic of Argentina Discount Bond, 6 mo. LIBOR + 13/16 (7.13%), due 3/31/23 5,112,500
36,846,800
BRAZIL - 15.6%
USD 33,133,227 Republic of Brazil Capitalization Bond, 8.00% due 4/15/14 13,460,373
USD 24,000,000 Republic of Brazil New Money Bond, Variable Rate, 6 mo. LIBOR + 13/16 (6.75%),
due 4/15/09 12,360,000
USD 31,500,000 Republic of Brazil Par Bonds Series YL3, 4.00% Step Up, due 4/15/24 12,127,500
37,947,873
Bulgaria - 3.2%
USD 8,000,000 Bulgaria, Discount, 6 mo. LIBOR + 13/16 (7.56%), due 7/28/24 3,460,000
USD 22,000,000 Bulgaria, FLIRB, 2.00% due 7/28/12 4,235,000
7,695,000
CHINA - 0.8%
USD 2,000,000 Bank of China, 8.25% due 3/15/14 1,857,654
COSTA RICA - 0.8%
USD 3,600,000 Banco Central Costa Rica Par Bond A, 6.25% due 5/21/10 1,872,000
DOMINICAN REPUBLIC - 1.6%
USD 7,750,000 Dominican Republic, Discount Bond, 6 mo. LIBOR + 13/16 (7.13%), due 8/30/24 3,720,000
ECUADOR - 1.5%
USD 2,750,217 Republic of Ecuador Discount, Variable Rate, 6 mo. LIBOR + 13/16 (7.25%),
due 2/28/25 1,216,930
USD 9,400,000 Republic of Ecuador PDI, Variable Rate, 3.00% Step Up, due 2/27/15 (c) 2,373,445
3,590,375
HUNGARY - 0.6%
USD 2,095,000 National Bank of Hungary, 8.88% due 11/1/13 1,566,800
INDONESIA - 0.4%
USD 1,000,000 Tjiwi Kimia International, 13.25% due 8/1/01 1,005,000
JORDAN - 4.5%
USD 4,000,000 Jordan Par, 4.00% Step Up, due 12/23/23 1,440,000
USD 14,169,378 Jordan PDI, Variable Rate, 6 mo. LIBOR + 13/16 (7.63%), due 12/23/05 9,493,483
10,933,483
MEXICO - 8.7%
FRF 190,000,000 Mexico Par Bond, 6.63% due 12/31/19 18,409,422
CHF 1,500,000 United Mexican States Par Bond, 3.75% due 12/31/19 441,105
USD 5,000,000 United Mexican States Par Bond, 6.25% due 12/31/19 2,443,750
21,294,277
NIGERIA - 0.8%
USD 5,000,000 Central Bank of Nigeria Par Bond, 6.25% due 11/15/20 1,943,750
PAKISTAN - 0.8%
USD 2,000,000 Islamic Republic of Pakistan, 11.50% due 12/22/99 1,900,000
PANAMA - 1.4%
USD 4,601,000 Republic of Panama, FRN Variable Rate, 6 mo. LIBOR + 13/16 (7.13%),
due 5/10/02 3,312,720
PHILIPPINES - 0.7%
USD 3,000,000 Central Bank of the Philippines Par, 5.75% Step Up, due 12/1/17 (a) 1,770,000
POLAND - 2.4%
USD 15,000,000 Poland PDI, 3.25% Step Up, due 10/27/14 5,962,500
SOUTH AFRICA - 4.1%
ZAL 22,000,000 Republic of South Africa ESCOM #169, 15.00% due 10/1/98 5,459,259
ZAL 22,000,000 Republic of South Africa R153, 13.00% due 8/31/11 4,475,862
9,935,121
SOUTH KOREA - 0.2%
USD 500,000 Korea Electric Power, 6.38% due 12/1/03 438,750
THAILAND - 0.2%
THB 15,000,000 Thai Military Bank, 6.75% due 2/28/97 566,109
TURKEY - 1.3%
GBP 2,900,000 Republic of Turkey, 9.00% due 10/27/03 3,276,752
URUGUAY - 0.1%
USD 500,000 Banco Central del Uruguay DCN, Variable Rate, 6 mo. LIBOR + 13/16 (7.88%),
due 2/18/07 325,000
UNITED STATES - 6.2%
ASSET BACKED SECURITIES - 1.9%
USD 3,500,000 Fremont SBL Master Trust 93-A Class A, Variable Rate, 6.60% due 3/15/98 3,503,828
USD 1,000,000 Premier Auto Trust 94-4 Class B Certificates, 6.85% due 5/2/99 983,719
4,487,547
STRUCTURED NOTE - 1.0%
USD 3,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (d) 2,523,600
U.S. GOVERNMENT - 3.3%
USD 8,000,000 U.S. Treasury Note, 6.88% due 10/31/96 (b) 8,017,488
Total United States 15,028,635
VENEZUELA - 9.0%
USD 19,598,000 Republic of Venezuela FLIRB Series A, Variable Rate, 7.00% due 3/31/07 8,786,735
USD 29,334,000 Republic of Venezuela FLIRB Series B, Variable Rate, 7.00% due 3/31/07 13,160,505
21,947,240
TOTAL DEBT OBLIGATIONS (Cost $217,196,565) 194,735,839
LOAN PARTICIPATIONS - 15.5%
CHILE - 1.7%
JPY 463,687,933 Banco del Estado de Chile Syndicated Loan, (Sub-participation with Citicorp) 4,123,803
IVORY COAST - 1.2%
USD 6,000,000 Ivory Coast Syndicated Loan (Sub-participation with Banque Paribas)* 870,000
FRF 79,141,655 Ivory Coast Syndicated Loan (Sub-participation with Banque Paribas,
Morgan Stanley, and Bank of America, Illinois)* 2,229,342
3,099,342
JAMAICA - 1.6%
USD 6,000,000 Republic of Jamaica Syndicated Loan Tranche B,
(Sub-participation with Chase Manhattan Bank and Salomon) 3,780,000
MEXICO - 5.0%
USD 21,000,000 United Mexican States Combined Old New Money Registered Loan, LIBOR + 13/16,
(Sub-participation with Chase Manhattan Bank, Morgan Stanley and Salomon) 12,180,000
MOROCCO - 1.1%
USD 2,000,000 Kingdom of Morocco Registered Loan Agreement Tranche A, LIBOR + 13/16,
(Sub-participation with Banque Paribas) 1,240,000
USD 2,000,000 Kingdom of Morocco Registered Loan Agreement Tranche B, LIBOR + 13/16,
(Sub-participation with Banque Paribas) 1,337,500
2,577,500
NIGERIA - 1.7%
USD 15,000,000 Nigeria Promissory Notes
(Sub-participation with J.P. Morgan and Salomon)* 4,200,000
PANAMA - 1.5%
JPY 386,232,904 Republic of Panama Syndicated Loan
(Sub-participation with Chase Manhattan Bank)* 1,487,815
USD 5,000,000 Republic of Panama Syndicated Loan
(Sub-participation with Chase Manhattan Bank)* 2,187,500
3,675,315
RUSSIA - 1.7%
ECU 3,000,000 Russia Vnesheconombank Promissory Note
(Sub-participation with Bank of America Illinois)* 761,402
FRF 40,750,000 Russia Vnesheconombank Syndicated Loan
(Sub-participation with Banque Paribas and Chase Manhattan Bank)* 1,840,578
NLG 13,276,991 Russia Vnesheconombank Syndicated Loan
(Sub-participation with Chase Manhattan Bank and Morgan Stanley)* 1,616,189
4,218,169
TOTAL LOAN PARTICIPATIONS (Cost $42,230,652) 37,854,129
PRINCIPAL AMOUNT PURCHASED OPTIONS - 2.2%
OF CONTRACTS
(000's omitted) CALL OPTIONS PURCHASED - 1.7%
OPTIONS ON BONDS - 1.3%
USD 4,000 Argentina Par Bond 4.25%, Expires 5/3/95, Strike 50.00 4,000
USD 60,000 Brazil Par Series YL3, 4.00%, Expires 4/13/95 Strike 36.00 2,040,000
USD 20,000 Brazil Par Series YL3, 4.00%, Expires 4/18/95 Strike 34.81 806,000
USD 20,000 Mexican Par Bond 6.63%, Expires 3/31/95 Strike 50.00 314,000
3,164,000
OPTIONS ON LOAN PARTICIPATIONS - 0.4%
FRF 40,000 Russia Vnesheconombank Promissory Note, Expires 6/13/95 Strike 10.00 854,784
TOTAL CALL OPTIONS PURCHASED (Cost $7,455,511) 4,018,784
PUT OPTIONS PURCHASED - 0.5%
OPTIONS ON BONDS - 0.5%
USD 17,460 Brazil IDU, Brady Bond, Expires 4/13/95 Strike 78.88 484,428
USD 5,820 Brazil IDU, Brady Bond, Expires 4/17/95 Strike 78.75 145,500
USD 9,700 Brazil IDU, Brady Bond, Expires 5/10/95 Strike 79.44 324,795
USD 15,520 Brazil IDU, Brady Bond, Expires 5/2/95 Strike 75.88 240,560
1,195,283
TOTAL PUT OPTIONS PURCHASED (Cost $706,184) 1,195,283
SHARES RIGHTS AND WARRANTS - 0.0%
MEXICO - 0.0%
23,534,000 Mexico Value Recovery, Series Rights, Expires 6/30/03 0
NIGERIA - 0.0%
5,000 Central Bank of Nigeria Warrants, Expires 11/15/20 0
TOTAL RIGHTS AND WARRANTS (Cost $0) 0
SHORT-TERM INVESTMENTS - 13.4%
REPURCHASE AGREEMENTS - 9.6%
$ 11,672,695 Prudential Securities Group, Inc. Repurchase Agreement
dated 2/28/95, due 3/1/95, with a maturity value of $11,674,559
and an effective yield of 5.75%, collateralized by U.S. Government
Agency Obligations with rates ranging from 3.64% to 11.62%, maturities
ranging from 5/1/00 to 10/25/24, and with an aggregate market
value of $11,906,094. 11,672,695
11,672,695 Salomon Brothers Repurchase Agreement, dated
2/28/95, due 3/1/95, with a maturity value of
$11,674,511 and an effective yield of 5.60%,
collateralized by a U.S. Treasury Bond with a rate
of 6.25%, a maturity date of 8/15/23,
and with an aggregate market value of $11,990,728. 11,672,695
23,345,390
CASH EQUIVALENTS - 3.8%
7,405,568 Bank of Boston Cash Sweep, 5.39% due 3/1/95 7,405,568
843,228 Bank of Boston Time Deposit, 6.05%, due 3/1/95 843,228
366,661 Dreyfus Cash Management Money Market Fund Plus, A Shares 366,661
93,587 National Westminster Time Deposit, 6.05%, due 3/1/95 93,587
526,524 Provident Institutional Prime Money Market Fund 526,524
9,235,568
TOTAL SHORT-TERM INVESTMENTS (at amortized cost) 32,580,958
TOTAL INVESTMENTS - 111.1%
(Cost $300,169,870) * * 270,384,993
Other Assets and Liabilities (net) - (11.1%) (26,933,649)
TOTAL NET ASSETS - 100.0% $243,451,344
NOTES TO THE SCHEDULE OF INVESTMENTS:
The principal amount of each security is stated in the
currency in which the security is denominated.
AGP - Argentinian Peso JPY - Japanese Yen
CHF - Swiss Franc NLG - Netherlands Guilder
ECU - European Currency Unit THB - Thai Baht
FRF - French Franc USD - United States Dollar
GBP - British Pound Sterling ZAL - South African Rand
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
(c) This security has been purchased on a when-issued basis.
(d) Principal is linked to the value of the Brazilian Capitalization Bond and the
Brazilian IDU Bond.
Variable Rates - The rates shown on variable rate notes are
the current interest rates at February 28, 1995, which
are subject to change based on the terms of the
security.
* Non-performing. Borrower not currently paying interest.
** The aggregate identified cost for federal income tax
purposes is $301,145,490 resulting in gross unrealized
appreciation and depreciation of $2,506,846 and
$33,267,343, respectively, and net unrealized
depreciation of $30,760,497.
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $267,588,912) (Note 1) $ 237,804,035
Short-term investments, at amortized cost (Note 1) 32,580,958
Foreign currency, at value (cost $431,386) (Note 1) 438,317
Interest receivable 6,138,138
Receivable for Fund shares sold 4,283,500
Premium receivable for options written (Note 1) 1,111,088
Receivable from brokers for open futures contracts (Note 1) 10,141
Receivable for expenses waived or borne by Manager (Note 2) 30,156
Total assets 282,396,333
LIABILITIES:
Payable for investments purchased 35,475,790
Payable upon return of securities loaned (Note 1) 1,829,738
Payable for open forward foreign currency contracts (Note 6) 725,486
Written options outstanding, at value (premiums $206,773) (Note 6) 711,000
Payable to affiliate for management fee (Note 2) 88,646
Accrued expenses 114,329
Total liabilities 38,944,989
NET ASSETS(equivalent to $8.39 per share based
on 29,024,789 shares outstanding, unlimited shares authorized) $ 243,451,344
NET ASSETS CONSIST OF:
Paid-in capital $ 280,701,575
Undistributed net investment income 2,358,106
Accumulated net realized loss (7,744,126)
Net unrealized depreciation (31,864,211)
NET ASSETS $ 243,451,344
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - PERIOD FROM APRIL 19, 1994
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $2,495) $ 9,250,552
EXPENSES:
Management fee (Note 2) 417,918
Custodian and transfer agent fees 75,793
Audit fees 50,014
Registration fees 44,354
Legal fees 2,723
Insurance 952
Trustee fee (Note 2) 378
Miscellaneous 606
Total expenses 592,738
Less: expenses waived or borne by Manager (Note 2) (174,820)
Net expenses 417,918
Net investment income 8,832,634
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, FUTURES CONTRACTS,
WRITTEN OPTIONS, FOREIGN CURRENCY, FORWARD CONTRACTS AND FOREIGN
CURRENCY RELATED TRANSACTIONS:
Net realized gain (loss) on:
Investments (5,525,604)
Closed futures contracts (157,100)
Foreign currency, forward contracts and foreign
currency related transactions (506,497)
Net realized loss (6,189,201)
Change in net unrealized appreciation (depreciation) on:
Investments (29,784,877)
Open futures contracts (879,743)
Written options (504,227)
Foreign currency, forward contracts and foreign
currency related transactions (695,364)
Net unrealized loss (31,864,211)
Net realized and unrealized loss on investments, futures
contracts, written options, foreign currency, forward
contracts and foreign currency related transactions (38,053,412)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (29,220,778)
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS - PERIOD FROM APRIL 19, 1994
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, 1995
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 8,832,634
Net realized loss on investments, closed futures
contracts, foreign currency, forward contracts
and foreign currency related transactions (6,189,201)
Change in net unrealized depreciation on investments, open
futures contracts, written options, foreign currency, forward
contracts and foreign currency related transactions (31,864,211)
Net decrease in net assets resulting from operations (29,220,778)
Distributions to shareholders from:
Net investment income (6,479,050)
In excess of net realized gains (1,550,403)
(8,029,453)
Fund share transactions: (Note 5)
Proceeds from sale of shares 277,027,720
Net asset value of shares issued to shareholders
in payment of distributions declared 5,095,310
Cost of shares repurchased (1,421,455)
Net increase in net assets resulting
from Fund share transactions 280,701,575
Total increase in net assets 243,451,344
NET ASSETS:
Beginning of period
End of period (including undistributed net
investment income of $2,358,106) $ 243,451,344
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD FROM APRIL 19, 1994
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 28, 1995
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income (loss) from investment operations:
Net investment income (a) 0.48
Net realized and unrealized gain (loss)
on investments (1.59)
Total from investment operations (1.11)
Less distributions to shareholders:
From net investment income (0.40)
In excess of net realized gains (0.10)
Total distributions (0.50)
NET ASSET VALUE, END OF PERIOD $ 8.39
TOTAL RETURN (B) (11.65%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 243,451
Net expenses to average
daily net assets (a) 0.50%
Net investment income to average
daily net assets (a) 10.57%
Portfolio turnover rate 104%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.01
per share for the period ended February 28, 1995.
(b) Calculation excludes subscription fees. The total return would have been
lower had certain expenses not been waived during the period shown.
</TABLE>
See accompanying notes to the financial statements.
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Emerging Country Debt Fund (the "Fund"), which commenced operations
on April 19, 1994, 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 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 following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued in good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies and the
difference between the amount of investment income and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker. Futures contracts are marked to
market daily and an appropriate payable or receivable for the change in
value ("variation margin") is recorded by the Fund. Gains or losses are
recognized but not considered realized until the contracts expire or are
closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from the changes in the value of the
underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 28, 1995.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
When a forward currency contract is extinguished, through delivery or
offset by entering into another forward currency contract, the Fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the
time it was extinguished or offset. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to buy or sell is
shown under Note 6 and represents the currency exposure the Fund has
acquired or hedged through currency contracts as of February 28, 1995.
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. See Note
6 for a summary of open written option contracts as of February 28, 1995.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
In some cases, depending upon the executing broker, premiums on purchased
and written options are not paid or received until the contracts expire or
are closed or exercised. These contracts are marked to market daily, and
the daily change in market value is paid to or received from the respective
broker. A corresponding payable or receivable is recorded for the
accumulated unrealized position received or paid. Upon settlement, the net
payable or receivable for original premiums and accumulated unrealized
gains and losses is paid to or received from the broker and a gain or loss
is realized.
LOAN AGREEMENTS
The Fund may invest in loan agreements which are indirect interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. A loan is often administered by a bank or other
financial institution (the lender) that acts as agent for all holders. The
lender administers the terms of the loan, as specified in the loan
agreement. 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. In addition, if the Fund invests in the
indebtedness of an emerging country, there is 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 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. The Fund receives
compensation for lending its securities. At February 28, 1995, the Fund
loaned securities having a market value of $1,770,000, collateralized by
cash in the amount of $1,830,000, 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. It is
the policy of the Fund to distribute all of its taxable income, including
any net realized gain on investments not offset by loss carryovers, to
shareholders within the prescribed time periods. Therefore, no provision
for federal income or excise tax is necessary. Taxes on foreign interest
income have been withheld in accordance with the applicable country's tax
treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
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. The Fund's present policy is to declare and pay
distributions from net investment income semi-annually, and net realized
short-term and long-term capital gains at least annually. All distributions
will be paid in shares of the Fund, at net asset value, unless the
shareholder elects to receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 28, 1995. This reclassification has no impact
on net investment income, realized gain/loss and net asset value of the
Fund and is primarily attributable to certain differences in the
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
<TABLE>
<CAPTION>
Undistributed Net Investment Accumulated Net Realized
Income Loss Paid-in Capital
<S> <C> <C>
$4,522 ($4,522) __
</TABLE>
Distributions in excess of tax basis earnings and profits will be reported
in the Fund's financial statements as a return of capital. Furthermore,
differences in the recognition or classification of income between the
financial statements and tax earnings and profits 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. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis. Premium and market discounts are amortized or accreted.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is .50% of the amount
invested. The Manager may waive such premium to the extent that a
transaction results in minimal brokerage and transaction costs to the Fund.
All purchase premiums are paid to and recorded as paid-in capital by the
Fund. For the period ended February 28, 1995, the Fund received $1,129,714
in purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Compensation of Grantham, Mayo, Van Otterloo & Co., the Fund's manager (the
"Manager"), for management and investment advisory services is paid monthly
at the annual rate of .50% of average daily net assets. The Manager has
agreed to waive a portion of its fee and bear other expenses until further
notice to the extent that the Fund's annual expenses exceed .50% of average
daily net assets.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the period ended February 28, 1995, was $378. 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 and U.S. Government obligations during the period
ended February 28, 1995 aggregated $341,480,895 and $88,789,320,
respectively. Cost of purchases and proceeds from sales of U.S. Government
obligations during the period aggregated $17,958,559 and $9,992,597,
respectively.
4. PRINCIPAL SHAREHOLDERS
At February 28, 1995, 43% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Period from April 19, 1994
(commencement of operations)
to February 28, 1995
<S> <C>
Shares sold 28,628,219
Shares issued to shareholders in
reinvestment of distributions 549,064
Shares repurchased (152,494)
Net increase 29,024,789
Fund shares:
Beginning of period --
End of period 29,024,789
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 28, 1995 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Units In Exchange for Net Unrealized
Settlement Date Deliver/Receive of Currency (in U.S. Dollars) Depreciation
Purchases
<S> <C> <C> <C> <C>
3/2/95 Brazilian Real 8,800,000 $ 10,377,359 $ (28,476)
Sales
3/2/95 Brazilian Real 8,800,000 10,000,000 $ (348,882)
4/28/95 French Francs 95,000,000 18,102,134 (348,128)
$ (697,010)
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
<C> <S> <C> <C> <C>
Sales
50 Euro Dollar June 1995 $ 11,686,250 $ (120,375)
40 German Deutsche Mark June 1995 3,423,501 (235,800)
100 MATIF June 1995 10,658,381 (135,693)
50 U.S. Treasury Bond March 1995 5,198,438 (387,875)
$ (879,743)
</TABLE>
At February 28, 1995, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
WRITTEN PUT OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Number of
Contracts Premiums
<S> <C> <C>
Outstanding, beginning of period -- $ --
Options written 3 249,273
Options exercised (1) (42,500)
Outstanding, end of period 2 $ 206,773
</TABLE>
SUMMARY OF WRITTEN PUT OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Principal Amount
of Contracts Expiration
(000's omitted) Exercise Price Date Value
<S> <C> <C> <C> <C>
Republic of Brazil
Capitalization Bond Put $10,000 $49.94 5/10/95 $ 711,000
</TABLE>
* * *
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS (UNAUDITED)
For the fiscal year ended February 28, 1995, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 1.78% of distributions as net capital gain dividends.
