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Previous: PUTNAM TAX FREE INCOME TRUST /MA/, 497, 1996-05-07 |
Next: IVAX CORP /DE, DEF 14A, 1996-05-07 |
GMO CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996,
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 29, 1996 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 12, 1996
<TABLE>
<CAPTION>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK - 95.8%
Aerospace - 3.7%
607,801 Lockheed Martin 46,344,826
1,408,500 Raytheon Co 70,601,063
------------------------
116,945,889
------------------------
AUTOMOTIVE - 0.1%
50,800 Bandag Inc (a) 2,590,800
------------------------
BANKING AND FINANCIAL SERVICES - 7.4%
7,400 Bancorp Hawaii Inc 257,150
302,985 Bear Stearns Cos Inc 7,347,374
162,300 Beneficial Corp 8,439,600
7,300 California Federal Bancorp Inc 110,413
90,400 Chase Manhattan Corp 6,734,800
239,800 Chemical Banking Corp 17,175,675
694,600 Citicorp 54,178,800
597,271 Dean Witter Discover and Co 32,103,316
159,455 Edwards (A G) Inc 3,866,784
26,500 First Bank of America Corp 1,159,375
1,100 Glendale Federal Bank * 17,188
347,900 Mercury Financial Co (a) 4,783,625
638,000 Morgan Stanley Group Inc (a) 29,906,250
281,500 Student Loan Marketing Association 23,258,938
687,300 Travelers Inc 45,963,188
------------------------
235,302,476
------------------------
CHEMICALS - 0.4%
312,700 IMC Global Inc * (a) 12,898,875
------------------------
COMPUTER AND OFFICE EQUIPMENT - 0.9%
245,400 Informix Corp 8,650,350
606,300 Micron Technology (a) 19,401,600
------------------------
28,051,950
------------------------
CONSTRUCTION - 0.1%
86,900 Clayton Homes * 1,640,238
------------------------
See accompanying notes to the financial statements. 1
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS - 2.3%
81,400 Clorox Co (a) 6,898,650
470,200 Liz Claiborne 14,752,525
40,300 National Service Industries 1,405,463
382,800 Nike Inc Class B 24,834,150
262,600 Polaroid Corp 11,554,400
135,000 Reebok International Ltd (a) 3,560,625
180,700 VF Corp 9,712,625
------------------------
72,718,438
------------------------
FOOD AND BEVERAGE - 14.4%
653,300 Anheuser-Busch Cos Inc 44,016,088
1,542,500 Archer Daniels Midland Co 29,693,125
6,300 Brown Forman Corp Class B 246,488
1,930,400 Coca-Cola Co 155,879,800
629,500 ConAgra Inc 26,517,688
217,400 CPC International Inc 15,054,950
119,950 Dean Foods Co 3,073,719
589,300 General Mills Co 33,884,750
985,850 Heinz (H J) Co 33,518,900
60,700 Hershey Foods Corp 4,575,263
165,600 Hormel (Geo A) and Co 4,160,700
400,300 IBP Inc 10,007,500
425,600 Kellogg Co 32,132,800
229,800 Pepsico Inc (a) 14,534,850
57,000 Tyson Food Inc Class A 1,282,500
317,400 Unilever ADR (a) 42,690,300
87,100 Universal Foods Corp 3,298,913
137,300 Whitman Corp 3,192,225
------------------------
457,760,559
------------------------
HEALTH CARE - 3.3%
882,600 Medtronic Inc 50,639,175
745,035 Pharmacia & Upjohn Inc 31,198,341
92,900 Rhone Poulenc Rorer Inc (a) 5,945,600
25,900 Tambrands Inc 1,249,675
545,150 Tenet Healthcare Corp * 12,197,731
143,200 Wellpoint Health Networks Class A * 4,850,900
------------------------
106,081,422
------------------------
INSURANCE - 5.5%
33,500 Aetna Life and Casualty Co 2,533,438
42,100 AFLAC Corp (a) 1,952,388
36,900 Allmerica Property and Casualty 950,175
702,900 Allstate Corp 30,136,838
2 See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
INSURANCE - CONTINUED
99,300 AMBAC Inc 4,791,225
219,050 AON Corp 11,390,600
58,600 Chubb Corp 5,691,525
163,800 Cigna Corp 19,410,300
16,100 CNA Financial Corp * 1,871,625
12,400 Jefferson Pilot Corp 689,750
292,600 Loews Corp 24,871,000
76,000 MBIA Inc 5,776,000
84,800 MGIC Investment (a) 4,939,600
124,200 Old Republic International Corp 4,253,850
94,500 Provident Companies Inc 3,201,188
146,200 Providian Corp 6,761,750
119,000 Safeco Corp 4,313,750
326,700 St Paul Cos 18,499,388
234,350 Torchmark Corp 10,867,981
139,209 Transamerica Corp 10,492,878
12,300 Transatlantic Holdings Inc 864,075
97,100 Twentieth Century Industries * 1,638,563
------------------------
175,897,887
------------------------
MACHINERY - 0.5%
310,400 Dover Corp 13,812,800
20,300 FMC Corp * 1,481,900
------------------------
15,294,700
------------------------
MANUFACTURING - 4.4%
1,597,527 Boeing Co 129,599,378
67,600 Pall Corp 1,842,100
158,200 Snap-On Inc 7,079,450
------------------------
138,520,928
------------------------
OIL AND GAS - 3.9%
134,400 Amoco Corp 9,340,800
35,300 Atlantic Richfield Co 3,865,350
10,122 Chevron Corp 563,036
16,900 Columbia Gas Systems * 739,375
19,409 El Paso Natural Gas Co 655,054
See accompanying notes to the financial statements. 3
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
OIL AND GAS - CONTINUED
655,600 Exxon Corp 52,120,200
3,700 FINA Inc Class A 178,063
154,200 Mobil Corp 16,904,175
100 Pennzoil Co 3,825
160,000 Royal Dutch Petroleum Co ADR (a) 22,040,000
104,500 Texaco Inc 8,333,875
171,100 Williams Companies Inc 8,127,250
------------------------
122,871,003
------------------------
PAPER AND ALLIED PRODUCTS - 0.0%
8,100 Consolidated Papers Inc 414,113
39,900 Glatfelter (PH) Co 663,338
------------------------
1,077,451
------------------------
PHARMACEUTICALS - 15.8%
695,500 Abbott Laboratories 29,037,125
549,220 American Home Products Corp 54,098,170
785,400 Amgen Inc 46,927,650
1,162,600 Bristol-Myers Squibb Co 98,966,325
1,650,900 Lilly (Eli) & Co (a) 99,879,450
1,081,900 Merck & Co Inc 71,675,875
1,119,200 Pfizer Inc 73,727,300
404,000 Schering-Plough Corp (a) 22,674,500
42,400 Warner Lambert Co 4,192,300
------------------------
501,178,695
------------------------
PRINTING AND PUBLISHING - 0.6%
248,200 Dun and Bradstreet Corp 15,698,650
41,800 McGraw Hill Inc 3,652,275
19,600 Readers Digest Association Inc 938,350
------------------------
20,289,275
------------------------
RETAIL TRADE - 2.7%
108,400 American Stores Co 3,157,150
215,000 Circuit City Stores Inc 6,369,375
350,500 Dillard Deptartment Stores 10,953,125
203,800 Fruit of the Loom Inc * 5,171,425
198,300 Gap Inc 10,633,838
351,800 May Dept Stores 16,402,675
368,200 Melville Corp (a) 11,736,375
444,100 Rite Aid Corp (a) 13,989,150
179,000 Walgreen Co 5,907,000
36,900 Weismarkets Inc 1,093,163
------------------------
85,413,276
------------------------
4 See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
SERVICES - 1.2%
37,200 BHC Communications Inc Class A * 3,436,350
20,000 E.W. Scripps Co. Class A * 840,000
58,800 Fleming Cos (a) 1,176,000
230,500 Gannett Co Inc 15,674,000
12,200 Kingworld Productions Inc * 510,875
79,400 Omnicom Group 3,245,475
170,100 Supervalu Inc 5,485,725
10,100 Total System Services Inc * 289,113
262,600 Turner Broadcasting System Class B * 7,615,400
------------------------
38,272,938
------------------------
TECHNOLOGY - 7.0%
320,700 3Com Corp (a) 15,674,213
263,100 Apple Computer 7,235,250
98,100 Cabletron Systems Inc * (a) 7,369,763
140,900 Cadence Design Systems Inc * 6,287,663
879,100 Cisco Systems Inc (a) 41,757,250
174,600 Dell Computer Corp 6,001,875
338,700 Digital Equipment Corp * 24,386,400
95,900 Hewlett-Packard Inc 9,661,925
525,000 Intel Corp 30,876,563
274,600 LSI Logic Corp 7,585,825
294,100 Microsoft Corp * 29,023,994
126,400 Novell Inc * 1,540,500
66,800 Seagate Technology * (a) 4,358,700
57,800 Solectron Corp (a) 2,803,300
461,500 Sun Microsystems Inc 24,228,750
113,400 Vishay Intertechnology Inc 2,990,925
------------------------
221,782,896
------------------------
TELECOMMUNICATIONS - 6.7%
1,768,800 AT & T Corp 112,539,879
104,800 Cincinnati Bell Inc 3,432,200
814,500 GTE Corp 34,921,688
1,261,700 MCI Communications Corp * 36,904,725
576,700 Sprint Corp 24,798,100
------------------------
212,596,592
------------------------
TRANSPORTATION - 0.9%
371,600 Burlington Northern Santa Fe Railroad Co 29,728,000
------------------------
See accompanying notes to the financial statements. 5
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 14.0%
179,400 Allegheny Power System Inc 5,225,025
317,900 American Electric Power Inc (a) 13,629,963
311,750 Baltimore Gas and Electric Co 8,845,906
236,000 Carolina Power and Light Co 8,614,000
319,288 Centerior Energy Corp (a) 2,674,037
383,100 Central & South West Corp 10,631,025
293,100 Cinergy Corp 8,756,363
127,700 CMS Energy Corp 3,878,888
560,000 Consolidated Edison 18,270,000
305,400 Dominion Resources Inc (a) 12,063,300
187,750 DPL Inc 4,482,531
173,800 DQE 5,083,650
409,374 DTE Energy Company 14,583,949
431,600 Duke Power Co 21,094,450
1,099,100 Edison International * 19,234,250
167,100 Enova Corp 3,864,188
554,344 Entergy Corp 15,729,511
175,600 Florida Progress Corp 6,211,850
314,500 FPL Group Inc 14,034,563
314,900 General Public Utilities 10,509,788
439,800 Houston Industries Inc 9,950,475
169,600 Illinova Corp 4,833,600
108,900 Kansas City Power and Light Co (a) 2,763,338
270,400 Long Island Lighting Co 4,732,000
115,100 New England Electric System 4,445,738
197,200 New York State Electric and Gas Corp 4,658,850
343,200 Niagara Mohawk Power Corp 2,574,000
124,800 Nipsco Industries Inc (a) 4,711,200
298,500 Northeast Utilities 6,641,625
136,100 Northern States Power Co 6,702,925
314,300 Ohio Edison Co 7,464,625
59,300 Oklahoma Gas and Electric Co 2,446,125
156,000 Pacific Enterprises 4,173,000
1,018,300 Pacific Gas and Electric Co 26,093,938
531,900 PacifiCorp 11,036,925
232,900 Panhandle Eastern Corp 6,666,763
433,700 Peco Energy Co 12,252,025
195,800 Pinnacle West Capital Corp 5,555,825
191,000 Potomac Electric Power Co 5,037,625
249,500 PP&L Resources Inc 6,206,313
537,200 Public Service Enterprise Group Inc 15,108,750
6 See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
UTILITIES - CONTINUED
123,200 Public Service of Colorado (a) 4,342,800
71,000 Puget Sound Power and Light Co (a) 1,775,000
170,400 Scana Corp 4,686,000
1,120,100 Southern Co 26,742,388
210,400 Teco Energy 5,260,000
321,700 Texas Utilities Co 12,988,638
438,000 Unicom Corp 14,016,000
185,000 Union Electric Co (a) 7,816,250
117,200 Western Resources Inc 3,750,400
220,600 Wisconsin Energy Corp (a) 6,369,825
------------------------
449,220,203
------------------------
TOTAL STOCK (Cost $2,367,099,168) 3,046,134,491
------------------------
PAR VALUE ($)/
SHARES SHORT-TERM INVESTMENTS - 9.9%
Repurchase Agreement - 3.4%
$ 107,381,738 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/1/96, with a maturity value of $107,396,413 and an
effective yield of 4.92% , collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $109,400,111. 107,381,738
------------------------
U.S. GOVERNMENT - 0.1%
$ 4,500,000 U.S. Treasury Bill, 5.41% due 5/30/96 (b) 4,445,096
------------------------
CASH EQUIVALENTS - 6.4%
26,903,779 American Advantage Money Market Fund 26,903,779
$ 69,716,473 Bank of Boston Time Deposit, 6.26% due 3/1/96 69,716,473
$ 34,716,027 First Union National Bank Time Deposit, 5.44% due 3/1/96 34,716,027
$ 6,876,401 First Union National Bank Time Deposit, 5.50% due 3/1/96 6,876,401
38,368,320 Lehman Prime Value Money Market Fund 38,368,320
$ 27,500,000 Prudential Securities Group, Inc. Master Note, 5.69% due 3/1/96 27,500,000
------------------------
204,081,000
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $315,908,119) 315,907,834
------------------------
TOTAL INVESTMENTS - 105.7%
(Cost $2,683,007,287) * * 3,362,042,325
Other Assets and Liabilities (net) - (5.7%) (182,728,005)
------------------------
TOTAL NET ASSETS - 100.0% $ 3,179,314,320
========================
See accompanying notes to the financial statements. 7
</TABLE>
GMO CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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
$2,686,762,776, resulting in gross unrealized appreciation and
depreciation of $701,441,369 and $26,161,820, respectively, and net
unrealized appreciation of $675,279,549.
8 See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (cost $2,683,007,287) (Note 1) $ 3,362,042,325
Receivable for investments sold 64,505,101
Receivable for Fund shares sold 28,429,500
Dividends and interest receivable 7,666,348
Receivable for expenses waived or borne by Manager (Note 2) 247,044
---------------------
Total assets 3,462,890,318
---------------------
LIABILITIES:
Payable for investments purchased 67,454,307
Payable upon return of securities loaned (Note 1) 204,072,382
Payable for closed swap contracts (Note 1) 4,000,713
Payable for open swap contracts (Notes 1 and 5) 3,818,888
Payable for variation margin on open futures contracts 364,959
Payable for Fund shares repurchased 2,224,827
Payable to affiliate for management fee (Note 2) 1,343,643
Accrued expenses 296,279
---------------------
Total liabilities 283,575,998
---------------------
NET ASSETS (equivalent to $19.46 per share based on 163,404,368
shares outstanding, unlimited shares authorized) $ 3,179,314,320
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 2,314,886,733
Accumulated undistributed net investment income 9,884,952
Accumulated undistributed net realized gain 180,108,269
Net unrealized appreciation 674,434,366
=====================
NET ASSETS $ 3,179,314,320
=====================
</TABLE>
See accompanying notes to the financial statements. 9
GMO CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $295,019) $ 71,408,642
Interest (including securities lending income of $172,516) 6,419,038
---------------------
Total income 77,827,680
---------------------
EXPENSES:
Management fee (Note 2) 14,964,100
Custodian and transfer agent fees 452,797
Legal fees 126,258
Registration fees 96,197
Audit fees 57,239
Insurance 25,246
Trustee fee (Note 2) 11,100
Miscellaneous 1,177
---------------------
Total expenses 15,734,114
Less: expenses waived or borne by Manager (Note 2) (2,052,651)
---------------------
Net expenses 13,681,463
---------------------
Net investment income 64,146,217
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 396,214,434
Closed futures contracts 18,626,367
Closed swap contracts (11,011,778)
---------------------
Net realized gain 403,829,023
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 462,526,308
Open futures contracts (1,113,124)
Open swap contracts (3,818,888)
Net unrealized gain 457,594,296
--------------------
Net realized and unrealized gain 861,423,319
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 925,569,536
=====================
</TABLE>
10 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 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 64,146,217 $ 53,659,297
Net realized gain 403,829,023 120,519,094
Change in net unrealized appreciation (depreciation) 457,594,296 (23,956,664)
--------------------- ---------------------
Net increase in net assets resulting from operations 925,569,536 150,221,727
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (64,258,886) (50,303,126)
Net realized gains (221,987,205) (137,451,908)
--------------------- ---------------------
(286,246,091) (187,755,034)
--------------------- ---------------------
Fund share transactions: (Note 4)
Proceeds from sale of shares 453,992,902 637,535,879
Net asset value of shares issued to shareholders
in payment of distributions declared 260,120,885 166,089,524
Cost of shares repurchased (483,370,850) (398,849,571)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 230,742,937 404,775,832
--------------------- ---------------------
Total increase in net assets 870,066,382 367,242,525
NET ASSETS:
Beginning of period 2,309,247,938 1,942,005,413
---------------------
---------------------
End of period (including accumulated undistributed
net investment income of $9,884,952 and
$9,992,385, respectively) $ 3,179,314,320 $ 2,309,247,938
===================== =====================
</TABLE>
See accompanying notes to the financial statements. 11
GMO CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.45 $ 15.78 $ 15.73 $ 15.96 $ 15.13
-------------- ------------ ------------ ------------- -------------
Income from investment operations:
Net investment income (a) 0.41 0.41 0.42 0.45 0.43
Net realized and unrealized gain 5.49 0.66 1.59 1.13 1.55
-------------- ------------ ------------ ------------- -------------
Total from investment operations 5.90 1.07 2.01 1.58 1.98
-------------- ------------ ------------ ------------- -------------
Less distributions to shareholders:
From net investment income (0.42) (0.39) (0.43) (0.46) (0.42)
From net realized gains (1.47) (1.01) (1.53) (1.35) (0.73)
-------------- ------------ ------------ ------------- -------------
Total distributions (1.89) (1.40) (1.96) (1.81) (1.15)
-------------- ------------ ------------ ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 19.46 $ 15.45 $ 15.78 $ 15.73 $ 15.96
============== ============ ============ ============= =============
TOTAL RETURN (B) 39.08% 7.45% 13.36% 10.57% 13.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 3,179,314 $ 2,309,248 $ 1,942,005 $ 1,892,955 $ 2,520,710
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.48% 0.49% 0.50%
Net investment income to average
daily net assets (a) 2.25% 2.63% 2.56% 2.79% 2.90%
Portfolio turnover rate 77% 99% 40% 54% 39%
</TABLE>
(a) Net of fees and expenses voluntarily waived or borne by the Manager of
$.01 per share 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.
12 See accompanying notes to the financial statements.
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. (the "Manager"). The
Trust was established as a Massachusetts Business Trust under the laws of
the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index 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 following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
FUTURES CONTRACTS
The Fund may purchase 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 specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and
13
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996.
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 29, 1996, the Fund
loaned securities having a market value of $196,966,063, collateralized by
cash in the amount of $204,081,000, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 5
for a summary of all open swap agreements as of February 29, 1996.
14
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 and 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 29, 1996. 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> <C>
$5,236 ($11,744) $6,508
</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 and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
15
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund received $635,746 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $11,130. 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 29, 1996, aggregated
$2,086,594,482 and $2,127,486,347, respectively.
16
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
4. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
--------------------------- ---------------------------
<S> <C> <C>
Shares sold 25,285,500 41,333,390
Shares issued to shareholders in reinvestment
of distributions 14,052,401 11,326,288
Shares repurchased (25,442,869) (26,231,509)
------------------ -------------------
Net increase 13,895,032 26,428,169
Fund shares:
Beginning of period 149,509,336 123,081,167
------------------ -------------------
End of period 163,404,368 149,509,336
================== ===================
</TABLE>
5. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
- ---------------------- ----------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
133.00 S & P 500 March 1996 $ 42,443,625 $ (749,407)
93.00 S & P 500 June 1996 29,957,625 (32,377)
---------------------
$ (781,784)
=====================
</TABLE>
At February 29, 1996, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
17
GMO CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION UNREALIZED
AMOUNT DATE DESCRIPTION DEPRECIATION
------------------ -------------- -------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
$ 64,013,684 (a) 10/31/96 Agreement with Morgan Stanley & Co. International
Limited dated 10/31/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.42%.
$ (3,748,001)
105,379,172 (b) 12/24/96 Agreement with Morgan Stanley & Co. International
Limited dated 12/26/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.61%.
(70,887)
------------------
Net unrealized depreciation $ (3,818,888)
==================
</TABLE>
(a) Represents notional amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $60,780,144.
(b) Represents notionl amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $105,551,371.
* * *
GMO CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS-(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated
41.46% of distributions as net capital gain dividends.
GMO CORE FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. for more than
fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Core Fund outperformed the S&P 500 for the fiscal year ended February
29, 1996, with a total return of 39.1% for the Fund versus 34.7% for the S&P
500. Consistent with the Fund's investment objective and policies, the Fund was
invested substantially in common stocks throughout the period. During the fiscal
year, GMO's stock selection model tended to overweight high quality, defensive
stocks and underweight bank and telephone stocks. The Fund's holdings of large
capitalization stocks added significantly to performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO CORE FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 09/18/85
38.8% 16.2% 17.2%
[Line Graph Appears Here]
Date GMO Core Fund S & P 500 Index
09/18/85 9,983 10,000
02/28/86 12,625 12,577
02/28/87 16,277 16,288
02/29/88 15,756 15,851
02/28/89 17,568 17,736
02/28/90 21,289 21,088
02/28/91 24,807 24,181
02/29/92 28,173 28,046
02/28/93 31,160 31,035
02/28/94 35,323 33,620
02/28/95 37,958 36,095
02/29/96 52,725 48,620
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 17 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 12, 1996
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
<S> <C> <C>
STOCK - 96.7%
AEROSPACE - 3.0%
49,923 Lockheed Martin 3,806,629
161,200 Raytheon Co 8,080,150
---------------
11,886,779
---------------
AUTOMOTIVE - 0.2%
11,600 Bandag Inc 591,600
---------------
BANKING AND FINANCIAL SERVICES - 4.2%
9,260 Bear Stearns Cos Inc 224,555
35,348 Comdisco Inc 724,624
108,400 Dean Witter Discover and Co 5,826,500
128,300 Mercury Financial Co (a) 1,764,125
59,200 Morgan Stanley Group Inc 2,775,000
24,600 Student Loan Marketing Association 2,032,575
47,500 Travelers Inc 3,176,563
---------------
16,523,942
---------------
CHEMICALS - 0.0%
4,300 Wellman Inc 97,288
COMPUTER AND OFFICE EQUIPMENT - 0.7%
35,500 Informix Corp 1,251,375
27,500 Micron Technology 880,000
15,600 Adobe Systems Inc 522,600
---------------
2,653,975
---------------
CONSTRUCTION - 0.1%
13,100 Clayton Homes * 247,263
---------------
CONSUMER GOODS - 2.2%
7,800 Clorox Co (a) 661,050
22,100 Jones Apparel Group Inc * 914,388
50,100 Liz Claiborne 1,571,888
44,000 Nike Inc Class B 2,854,500
12,900 Polaroid Corp 567,600
39,100 Reebok International Ltd 1,031,263
1,400 Russ Berrie and Co 22,400
7,100 Russell Corp 198,800
17,100 VF Corp 919,125
---------------
8,741,014
---------------
1
See accomapanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
FOOD AND BEVERAGE - 20.9%
120,500 Anheuser-Busch Cos Inc 8,118,688
27,800 Archer Daniels Midland Co 535,150
282,800 Coca-Cola Co 22,836,100
31,200 ConAgra Inc 1,314,300
111,800 CPC International Inc 7,742,150
27,050 Dean Foods Co 693,156
24,100 General Mills Co 1,385,750
173,250 Heinz (H J) Co 5,890,500
11,100 Hershey Foods Corp 836,663
15,700 Hormel (Geo A) and Co 394,463
3,500 International Multifoods Corp 65,188
87,400 Kellogg Co 6,598,700
276,200 Pepsico Inc 17,469,650
5,296 Tootsie Roll Industries Inc 206,544
5,600 Tyson Food Inc Class A 126,000
31,400 Unilever ADR (a) 4,223,300
22,100 Universal Foods Corp 837,038
53,900 Whitman Corp 1,253,175
24,900 Wrigley (William Jr) Co 1,462,875
---------------
81,989,390
---------------
HEALTH CARE - 8.8%
45,600 Boston Scientific Corp * 2,188,800
52,700 Chiron Corp 5,856,288
17,600 Forest Labs * 915,200
500 Haemonetics Corp * 8,500
284,300 Medtronic Inc 16,311,696
13,000 Mylan Laboratories 253,500
16,200 Sofamor Denek Group Inc * 528,525
10,900 Tenet Healthcare Corp * 243,888
6,000 United Healthcare Corp * 391,500
132,200 US Health Care Inc 6,444,750
300 Vivra Inc * 8,850
35,500 Wellpoint Health Networks Class A * 1,202,563
---------------
34,354,060
---------------
INSURANCE - 0.2%
8,100 Loews Corp 688,500
---------------
MACHINERY - 0.3%
23,400 Dover Corp 1,041,300
---------------
2
See accomapanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
MANUFACTURING - 0.1%
15,800 Pall Corp 430,550
1,700 Sequa Corp Class A * 57,375
---------------
487,925
---------------
PHARMACEUTICALS - 25.1%
378,604 Abbott Laboratories 15,806,717
31,700 American Home Products Corp 3,122,450
100,400 Amgen Inc 5,998,900
161,400 Bristol-Myers Squibb Co 13,739,175
153,800 Lilly (Eli) & Co 9,304,900
124,500 Merck & Co Inc 8,248,125
342,256 Pfizer Inc 22,546,114
268,800 Schering-Plough Corp (a) 15,086,400
42,600 Warner Lambert Co 4,212,075
---------------
98,064,856
---------------
PRIMARY PROCESSING - 0.0%
2,000 Valspar 89,250
---------------
PRINTING AND PUBLISHING - 1.8%
4,800 Central Newspapers Class A 175,800
59,400 Dun and Bradstreet Corp 3,757,050
1,600 McClatchy Newspapers Inc 36,800
3,000 Pulitzer Publishing Co 151,500
58,900 Readers Digest Association Inc 2,819,838
---------------
6,940,988
---------------
RETAIL TRADE - 3.9%
20,800 American Stores Co 605,800
3,600 Blair Corp 95,850
47,900 Circuit City Stores Inc 1,419,038
31,200 Dillard Deptartment Stores 975,000
17,400 Fruit of the Loom Inc * 441,525
68,700 Gap Inc 3,684,038
12,600 Hannaford Brothers Co 346,500
700 Neiman Marcus Group Inc 13,913
55,200 Rite Aid Corp (a) 1,738,800
7,500 Stanhome Inc 226,875
161,100 Walgreen Co 5,316,300
7,900 Weismarkets Inc 234,038
---------------
15,097,677
---------------
3
See accomapanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
SERVICES - 1.9%
3,600 BHC Communications Inc Class A * 332,550
6,325 Chris Craft Industries Inc 268,032
47,700 Gannett Co Inc 3,243,600
17,200 Grand Casinos Inc 548,250
500 Kingworld Productions Inc * 20,938
18,200 Lee Enterprises Inc 393,575
5,100 New York Times Co * 140,250
10,300 PHH Corp 516,288
500 Rollins Inc 11,000
2,900 Total System Services Inc * 83,013
37,400 Turner Broadcasting Systems Inc Class B * 1,084,600
3,200 Washington Post Co Class B 921,600
---------------
7,563,696
---------------
TECHNOLOGY - 15.3%
71,200 3Com Corp 3,479,900
34,600 Apple Computer 951,500
30,500 Bay Networks Inc 1,239,063
58,900 Cabletron Systems Inc * 4,424,863
26,650 Cadence Design Systems Inc * 1,189,256
2,300 Cheyenne Software Inc 53,763
333,400 Cisco Systems Inc 15,836,500
2,700 Cypress Semiconductor Corp 34,425
25,600 Dell Computer Corp 880,000
800 Grainger (WW) Inc * 54,700
18,900 Hewlett-Packard Inc 1,904,175
167,200 Intel Corp 9,833,450
31,000 LSI Logic Corp 856,375
120,500 Microsoft Corp * 11,891,844
190,800 Novell Inc * (a) 2,325,375
6,200 Solectron Corp 300,700
74,900 Sun Microsystems Inc 3,932,250
8,700 Thermotrex Corp 382,800
9,300 Vishay Intertechnology Inc 245,288
---------------
59,816,227
---------------
TELECOMMUNICATIONS - 1.0%
61,300 AT & T Corp 3,900,213
---------------
TOBACCO - 6.2%
245,128 Philip Morris Cos Inc 24,267,672
---------------
4
See accomapanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
UTILITIES - 0.8%
2,900 Atlanta Gas Light 52,563
600 Brooklyn Union Gas Co * 15,675
600 California Energy Co Inc * 13,350
16,800 Carolina Power and Light Co 613,200
20,400 Dominion Resources Inc 805,800
7,400 DPL Inc 176,675
4,100 Florida Progress Corp 145,038
2,200 Hawaiian Electric Industry Inc 83,325
4,700 Kansas City Power and Light Co 119,263
1,800 Ku Energy Corp 51,975
1,700 LG&E Energy Corp * 73,100
1,600 MCN Corp 40,200
1,700 Minnesota Power & Light Co 46,538
7,100 Nipsco Industries Inc (a) 268,025
8,800 Panhandle Eastern Corp 251,900
4,500 Southwesten Public Service Co 144,563
1,800 Utilicorp United Inc 53,100
11,900 Wisconsin Energy Corp 343,613
---------------
3,297,903
---------------
TOTAL STOCK (Cost $301,579,731) 378,341,518
---------------
PAR VALUE SHORT-TERM INVESTMENTS - 9.0%
REPURCHASE AGREEMENT - 3.9%
$15,433,251 Salomon Brothers Repurchase Agreement,
dated 2/29/96, due 3/1/96, with a
maturity value of $15,435,360 and an
effective yield of 4.92%, collateralized
by U.S. Treasury obligations with rates
ranging from 7.25% to 13.25%, maturity
dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value
of $15,723,338 15,433,251
----------------
U.S. GOVERNMENT - 0.2%
$ 985,000 U.S. Treasury Bill, 5.41% due 5/30/96 (b) 972,982
----------------
5
See accomapanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------
CASH EQUIVALENTS - 4.9%
2,411,434 American Advantage Money Market Fund 2,411,434
$4,953,746 Bank of Boston Time Deposit, 6.26% due 3/1/9 4,953,746
$3,014,292 First Union National Bank Time Deposit, 5.44 3,014,292
$ 640,138 First Union National Bank Time Deposit, 5.50 640,138
3,478,690 Lehman Prime Value Money Market Fund 3,478,690
$4,500,000 Prudential Securities Group, Inc. Master Not 4,500,000
----------------
18,998,300
----------------
TOTAL SHORT-TERM INVESTMENTS (Cost $35,404,596) 35,404,533
----------------
TOTAL INVESTMENTS - 105.7%
(Cost $336,984,327) * * 413,746,051
Other Assets and Liabilities (net) - (5.7%) (22,380,138)
---------------
TOTAL NET ASSETS - 100.0% $ 391,365,913
===============
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 $337,469,486, resulting in gross unrealized
appreciation and depreciation of $82,305,916 and
$6,029,351, respectively, and net unrealized appreciation
of $76,276,565.
6
</TABLE>
See accomapanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $336,984,327) (Note 1) $ 413,746,051
Receivable for investments sold 24,834,416
Receivable for Fund shares sold 1,287,000
Dividends and interest receivable 561,738
Receivable for expenses waived or borne by Manager (Note 2) 35,515
-------------
Total assets 440,464,720
-------------
LIABILITIES:
Payable for investments purchased 27,733,123
Payable upon return of securities loaned (Note 1) 18,997,274
Payable for closed swap contracts (Note 1) 510,888
Payable for open swap contracts (Notes 1 and 6) 486,094
Payable for variation margin on open futures contracts 73,506
Payable for Fund shares repurchased 1,047,641
Payable to affiliate for management fee (Note 2) 156,687
Accrued expenses 93,594
-------------
Total liabilities 49,098,807
-------------
NET ASSETS (equivalent to $5.65 per share based on 69,297,026
shares outstanding, unlimited shares authorized) $ 391,365,913
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 290,142,619
Accumulated undistributed net investment income 1,067,492
Accumulated undistributed net realized gain 24,019,748
Net unrealized appreciation 76,136,054
-------------
NET ASSETS $ 391,365,913
=============
</TABLE>
7
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $11,885) $ 5,852,767
Interest (including securities lending income of $28,109) 941,958
-------------
Total income 6,794,725
-------------
EXPENSES:
Management fee (Note 2) 1,685,025
Custodian and transfer agent fees 83,931
Audit fees 48,816
Registration fees 23,402
Legal fees 12,990
Insurance 2,963
Trustee fee (Note 2) 1,307
Miscellaneous 435
-------------
Total expenses 1,858,869
Less: expenses waived or borne by Manager (Note 2) (241,245)
-------------
Net expenses 1,617,624
-------------
Net investment income 5,177,101
-------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 38,402,056
Closed futures contracts 3,016,111
Closed swap contracts (1,894,117)
-------------
Net realized gain 39,524,050
-------------
Change in net unrealized appreciation (depreciation) on:
Investments 62,362,858
Open futures contracts (193,403)
Open swap contracts (486,094)
-------------
Net unrealized gain 61,683,361
-------------
Net realized and unrealized gain 101,207,411
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 106,384,512
=============
8
</TABLE>
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,177,101 $ 3,189,370
Net realized gain 39,524,050 12,677,026
Change in net unrealized appreciation (depreciation) 61,683,361 7,126,286
------------ ------------
Net increase in net assets resulting from operations 106,384,512 22,992,682
------------ ------------
Distributions to shareholders from:
Net investment income (4,668,104) (2,852,156)
Net realized gains (23,225,614) (3,416,541)
------------ ------------
(27,893,718) (6,268,697)
------------ ------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 138,511,760 35,930,626
Net asset value of shares issued to shareholders
in payment of distributions declared 24,056,140 4,464,606
Cost of shares repurchased (88,699,098) (48,810,882)
------------ ------------
Net increase (decrease) in net assets resulting
from Fund share transactions 73,868,802 (8,415,650)
------------ ------------
Total increase in net assets 152,359,596 8,308,335
NET ASSETS:
Beginning of period 239,006,317 230,697,982
------------ ------------
End of period (including accumulated undistributed
net investment income of $1,067,492 and
$558,495, respectively) $391,365,913 $239,006,317
============ ============
</TABLE>
9
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.45 $ 4.14 $ 4.55 $ 5.82 $ 14.54
-------- ------- -------- -------- --------
Income from investment operations:
Net investment income (a) 0.08 0.06 0.06 0.07 0.19
Net realized and unrealized gain 1.54 0.38 0.11 0.17 1.63
-------- ------- -------- -------- --------
Total from investment operations 1.62 0.44 0.17 0.24 1.82
-------- ------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.07) (0.06) (0.06) (0.08) (0.23)
From net realized gains (0.35) (0.07) (0.52) (1.43) (10.31)
-------- ------- -------- -------- --------
Total distributions (0.42) (0.13) (0.58) (1.51) (10.54)
-------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 5.65 $ 4.45 $ 4.14 $ 4.55 $ 5.82
======== ======= ======== ======== ========
TOTAL RETURN (b) 37.77% 10.86% 4.13% 3.71% 20.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 391,366 $ 239,006 $ 230,698 $ 168,143 $ 338,439
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.48% 0.49% 0.50%
Net investment income to average
daily net assets (a) 1.54% 1.50% 1.38% 1.15% 1.38%
Portfolio turnover rate 76% 139% 57% 36% 46%
</TABLE>
(a) Net of fees and expenses voluntarily waived or borne by the
Manager of less than $.01 per share 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.
10
See accompanying notes to the financial statements.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks long-term growth of capital through investment in equity
securities of companies chosen from the 1,200 companies with the largest
equity capitalization whose securities are listed on a United States
national securities exchange.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Trustees.
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 specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
11
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29,
1996.
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 29, 1996, the Fund
loaned securities having a market value of $18,389,575, collateralized by
cash in the amount of $18,998,300, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of February 29, 1996.
12
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
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 29, 1996. 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> <C>
$ - ($2,003,927) $2,003,927
</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 and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of
securities is determined on the identified cost basis.
13
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund received $142,053
in purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $1,307. 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 29, 1996, aggregated
$298,892,603 and $242,398,201, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 38% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
14
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 28,535,818 8,350,129
Shares issued to shareholders in reinvestment
of distributions 4,717,528 1,076,722
Shares repurchased (17,613,541) (11,444,911)
------------------ ------------------
Net increase (decrease) 15,639,805 (2,018,060)
Fund shares:
Beginning of period 53,657,221 55,675,281
------------------ ------------------
End of period 69,297,026 53,657,221
================== ==================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
- ---------------------- ----------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
20.00 S&P 500 March 1996 $ 6,382,500 $ (133,197)
4 S&P 500 June 1996 1,288,500 (6,379)
---------------------
$ (139,576)
=====================
</TABLE>
At February 29, 1996, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
15
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION DATE UNREALIZED
AMOUNT DESCRIPTION DEPRECIATION
------------------ ---------------- -------------------------------------------------------- ------------------
<S> <C> <C> <C>
$ 8,174,083 (a) 10/31/96 Agreement with Morgan Stanley & Co. International
Limited dated 10/31/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.42%.
$ (478,617)
11,115,422 (b) 12/24/96 Agreement with Morgan Stanley & Co. International
Limited dated 12/26/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.61%.
(7,477)
------------------
Net unrealized depreciation $ (486,094)
==================
(a) Represents notional amount for purposes of calculating the Fund's obligation. The counterparty notional
amount is $7,761,184.
(b) Represents notional amount for purposes of calculating the Fund's obligation. The counterparty notional
amount is $11,133,586.
</TABLE>
* * *
16
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTION-(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 48.75% of distributions as net capital gain dividends.
GMO GROWTH ALLOCATION FUND
(A SERIES OF GMO TRUST)
PORTFOLIO MANAGERS
- ------------------
Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily
responsible for the day-to-day management of the Fund's portfolio. Each of
these individuals has been a portfolio manager at Grantham, Mayo, Van
Otterloo & Co. for more than fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- ------------------------------------------------------
The GMO Growth Allocation Fund outperformed the S&P 500 Index for the
fiscal year ended February 29, 1996, with a total return of 37.8% for the
Fund versus 34.7% for the S&P 500 Index. Consistent with the Fund's
investment objective and policies, the Fund was invested substantially in
common stocks throughout the period. During the fiscal year, GMO's stock
selection model tended to overweight high quality defensive stocks, which
contributed significantly to performance. Stock selection within the largest
100 stocks was also very strong.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO GROWTH ALLOCATION FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 12/31/88
37.5% 14.7% 17.8%
[Line Graph Appears Here]
Date GMO Growth Allocation Fund S & P 500 Index
12/31/88 9,983 10,000
02/28/89 10,473 10,465
02/28/90 13,126 12,443
02/28/91 16,309 14,268
02/29/92 19,646 16,548
02/28/93 20,374 18,312
02/28/94 21,215 19,837
02/28/95 23,521 21,297
02/29/96 32,405 28,688
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 17 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 12, 1996
<TABLE>
<CAPTION>
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK - 94.8%
AEROSPACE - 2.3%
31,643 Lockheed Martin 2,412,779
80,100 Raytheon Co 4,015,013
15,000 Rockwell International Corp 855,000
-------------------------
7,282,792
-------------------------
AUTOMOTIVE - 2.5%
1,900 Bandag Inc 96,900
7,500 Chrysler Corp 422,813
30,000 Ford Motor Co 937,500
57,500 General Motors Corp 2,946,875
245,000 Mascotech Industries Inc 3,154,375
23,900 Mascotech Industries Inc Convertible Preferred $1.20 (a) 337,588
2,500 SPX Corp 38,438
-------------------------
7,934,489
-------------------------
BANKING AND FINANCIAL SERVICES - 12.2%
67,500 American Express Co 3,105,000
28,700 BankAmerica Corp 2,044,875
33,645 Bear Stearns Cos Inc 815,891
11,800 Beneficial Corp 613,600
22,500 Chase Manhattan Corp 1,676,250
35,000 Chemical Banking Corp 2,506,875
187,499 Citicorp 14,624,954
12,650 Comdisco Inc 259,325
52,300 Dean Witter Discover and Co 2,811,125
15,100 Edwards (A G) Inc 366,175
25,000 Great Western Financial 571,875
2,100 Mercury Financial Co (a) 28,875
35,500 Morgan Stanley Group Inc (a) 1,664,063
22,500 National City Corp 781,875
5,000 Nationsbank Corp 368,750
10,000 PNC Bank Corp 306,250
13,500 Student Loan Marketing Association 1,115,438
27,500 Time Warner Financing * (a) 948,750
63,400 Travelers Inc 4,239,875
-------------------------
38,849,821
-------------------------
CHEMICALS - 0.4%
25,000 Albemarle Corp 481,250
14,300 Borden Chemical and Plastics LP 189,475
12,500 Lubrizol Corp (a) 365,625
16,100 Wellman Inc 364,263
-------------------------
1,400,613
-------------------------
See accompanying notes to the financial statements. 1
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
COMPUTER AND OFFICE EQUIPMENT - 0.1%
5,000 Intergraph Corp * 92,500
10,000 Micron Technology 320,000
-------------------------
412,500
-------------------------
CONSTRUCTION - 0.0%
2,400 McDermott International Inc 46,200
3,500 Pulte Corp 104,563
-------------------------
150,763
-------------------------
CONSUMER GOODS - 3.0%
17,500 Burlington Industries Inc * 199,063
65,000 Eastman Kodak Co 4,647,500
5,000 International Flavors & Fragrances 250,625
4,200 Jones Apparel Group Inc * 173,775
20,200 Liz Claiborne 633,775
57,500 Maytag Corp 1,128,438
10,400 Nike Inc Class B 674,700
15,600 Polaroid Corp 686,400
6,800 Reebok International Ltd 179,350
500 Russell Corp 14,000
1,400 Springs Industries Inc 60,550
15,600 VF Corp 838,500
-------------------------
9,486,676
-------------------------
ELECTRONIC EQUIPMENT - 0.2%
22,500 Integrated Device Technology Inc 270,000
25,000 National Semiconductor Corp 390,625
-------------------------
660,625
-------------------------
FOOD AND BEVERAGE - 6.0%
48,200 Anheuser-Busch Cos Inc 3,247,475
118,180 Archer Daniels Midland Co 2,274,965
9,600 AuBon Pain Co Inc Class A * 72,150
35,000 Coors (Adolph) Co 678,125
3,200 Dean Foods Co 82,000
22,700 General Mills Co 1,305,250
19,300 Heinz (H J) Co 656,200
1,600 Hershey Foods Corp 120,600
7,300 Hormel (Geo A) and Co 183,413
6,100 IBP Inc 152,500
1,400 International Multifoods Corp 26,075
2,500 Nabisco Holdings Corp Class A (a) 87,813
9,000 Pepsico Inc 569,250
11,700 Ralston Ralston Purina Group 783,900
600,000 RJR Nabisco Holdings Convertible Preferred Series C 9.25% 4,125,000
2 See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE - CONTINUED
20,000 Sara Lee Corp 647,500
25,500 Unilever ADR (a) 3,429,750
3,600 Universal Foods Corp 136,350
17,500 Wendys International Inc 317,188
4,900 Whitman Corp 113,925
-------------------------
19,009,429
-------------------------
FOREST PRODUCTS - 0.0%
2,400 Crown Vantage Inc * 36,000
-------------------------
HEALTH CARE - 2.9%
95,000 Beverly Enterprises Inc * 1,151,875
12,400 Chiron Corp 1,377,950
37,500 Community Psychiatric Centers * 346,875
2,400 Johnson & Johnson 224,400
45,000 Laboratory Corporation America Holdings * 348,750
15,300 Medtronic Inc 877,838
67,310 Pharmacia & Upjohn Inc 2,818,606
7,500 Smithkline Beecham Plc ADR (a) 410,625
59,900 Tenet Healthcare Corp * 1,340,263
10,700 Wellpoint Health Networks Class A * 362,463
-------------------------
9,259,645
-------------------------
INSURANCE - 4.4%
20,000 Aetna Life and Casualty Co 1,512,500
27,500 Alexander & Alexander Services Inc 512,188
11,400 Allmerica Property and Casualty 293,550
30,182 Allstate Corp 1,294,053
4,800 American General Corp 174,600
2,500 Cigna Corp 296,250
12,500 First Colony Corp 309,375
2,500 General Re Corp 359,688
2,400 Horace Mann Educators 78,900
10,000 ITT Hartford Group Inc 515,000
7,500 Jefferson Smurfit Corp * 85,313
10,000 Life Re Corp 256,250
31,700 Loews Corp 2,694,500
2,400 Marsh & McLennan Cos Inc 233,100
5,000 National Re Corp 156,250
4,600 Old Republic International Corp 157,550
500 Protective Life Corp 17,563
400 Provident Companies Inc 13,550
205,000 Reliance Group Holdings Inc 1,665,625
See accompanying notes to the financial statements. 3
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE - CONTINUED
25,000 TIG Holdings Inc 790,625
7,500 Transamerica Corp 565,313
115,000 USF & G Corp 1,725,000
22,500 Willis Corroon Group Plc ADR 258,750
-------------------------
13,965,493
-------------------------
MACHINERY - 0.2%
2,500 Allegheny Ludlum Corp 45,625
2,400 Cummins Engine Inc (a) 101,100
25,000 Giddings and Lewis Inc 418,750
-------------------------
565,475
-------------------------
MANUFACTURING - 11.5%
50,000 American Greetings Corp 1,368,750
4,100 Ball Corp 123,000
99,300 Boeing Co 8,055,713
80,000 Corning Inc 2,600,000
20,000 General Electric Co 1,510,000
52,500 International Business Machines Corp 6,437,813
10,000 Lafarge Corp 185,000
5,000 Minnesota Mining and Manufacturing 325,625
1,400 Omnicare Inc (a) 67,550
22,500 Owens Corning (a) 914,063
900 Sequa Corp Class A * 30,375
5,000 SGS Thompson Microelectronics NV 184,375
90,000 Teledyne Inc 2,531,250
6,475 Teledyne Inc Preferred Series E $1.20 97,125
4,800 Temple Inland Inc 193,200
40,000 Tenneco Inc (a) 2,235,000
18,500 United Technologies Corp 1,988,750
25,000 Westinghouse Electric Corp 462,500
400,000 Westinghouse Electric Corp Convertible Preferred $1.30 144A 6,950,000
3,500 Whirlpool Corp 194,688
-------------------------
36,454,777
-------------------------
METALS AND MINING - 1.7%
32,500 Alcan Aluminum Ltd 991,250
15,000 Asarco Inc 448,125
32,500 Cyprus Amax Minerals Co 840,938
7,200 Freeport-McMoran Corp Preferred $0.34 272,700
40,000 Inco Ltd 1,275,000
4 See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
METALS AND MINING - CONTINUED
2,500 Newmont Mining Corp 142,188
5,000 Pegasus Gold * (a) 78,750
5,000 Pittston Minerals Group 75,625
25,000 Reynolds Metals Co 1,290,625
-------------------------
5,415,201
-------------------------
OIL AND GAS - 7.3%
12,000 Amerada Hess Corp 618,000
5,000 Atlantic Richfield Co 547,500
6,100 Chevron Corp 339,313
19,400 Columbia Gas Systems * 848,750
9,600 Dresser Industries Inc 270,000
2,800 El Paso Natural Gas Co 94,500
50,000 Enserch Corp 756,250
27,500 Enserch Exploration Inc 261,250
1,200 Equitable Resources Inc 34,350
31,000 Exxon Corp 2,464,500
2,500 Kerr-McGee Corp 149,063
23,900 Mitchell Energy Class B 675,000
25,000 Occidental Petroleum Corp 575,000
100 Oneok Inc 2,630,989
17,100 Texaco Inc 1,363,725
47,500 Union Texas Petroleum Holdings Inc 938,125
100,000 Unocal Corp 3,000,000
23,900 Unocal Corp Convertible Preferred $3.50 144A 1,572,500
50,000 Westcoast Energy Inc 275,500
-------------------------
23,092,240
-------------------------
PAPER AND ALLIED PRODUCTS - 1.9%
22,500 Boise Cascade Corp Preferred Series G $1.58 677,813
15,000 Champion International Corp 600,000
38,500 International Paper Co 1,371,563
15,000 James River Corp 395,625
100,200 James River Corp Convertible Preferred 9.00% 2,605,200
10,000 Weyerhaeuser Co 423,750
-------------------------
6,073,951
-------------------------
See accompanying notes to the financial statements. 5
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 5.2%
22,700 Abbott Laboratories 947,725
12,500 Allergan Inc 465,625
14,700 American Home Products Corp 1,447,950
14,500 Amgen Inc 866,375
49,700 Bristol-Myers Squibb Co 4,230,713
103,300 Lilly (Eli) & Co 6,249,650
26,600 Merck & Co Inc 1,762,250
8,600 Pfizer Inc 566,525
-------------------------
16,536,813
-------------------------
PRIMARY PROCESSING - 0.7%
22,500 Bethlehem Steel Corp * 309,375
6,200 Dow Chemical Co 497,550
2,500 Du Pont (E I) De Nemours & Co Inc 191,250
5,000 LTV Corp * 63,750
20,000 Methanex Corp * 152,500
18,000 National Steel Corp Class B * 243,000
500 NCH Corp 26,313
15,000 USX-US Steel Group Inc 491,250
2,100 Valspar (a) 93,713
50,000 Weirton Steel Corp * 193,750
-------------------------
2,262,451
-------------------------
PRINTING AND PUBLISHING - 0.1%
3,100 Dun and Bradstreet Corp 196,075
900 Pulitzer Publishing Co 45,450
-------------------------
241,525
-------------------------
REAL ESTATE - 1.0%
45,000 Crown American Realty 354,375
7,500 JP Realty Inc 156,563
71,700 Summit Properties Inc 1,451,925
50,000 Walden Residential Properties Inc 1,087,500
-------------------------
3,050,363
-------------------------
REFINING - 0.5%
3,500 Ashland Inc 128,188
6,100 Diamond Shamrock Inc (a) 186,050
2,500 Imperial Oil Ltd 91,250
21,100 Quaker State Corp 295,400
10,000 Sun Co Inc 291,250
3,600 Tosco Corp 160,650
25,000 Vintage Petroleum Inc 512,500
-------------------------
1,665,288
-------------------------
6 See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE - 3.8%
67,000 American Stores Co 1,951,375
1,300 Blair Corp 34,613
7,400 Circuit City Stores Inc 219,225
25,000 Cone Mills Corp 284,375
11,600 Dillard Deptartment Stores 362,500
3,800 Family Dollar Stores 52,250
1,300 Federated Department Stores * 39,325
15,900 Fruit of the Loom Inc * 403,463
10,000 ITT Industries Inc 262,500
171,200 Kmart (a) 1,198,400
500 Lands' End Inc * 8,438
1,900 Longs Drugstores Corp 85,500
3,500 May Dept Stores 163,188
55,500 Melville Corp 1,769,063
110,000 Price/Costco Inc * 1,897,500
13,000 Rite Aid Corp 409,500
5,000 Sears Roebuck & Co 226,875
2,500 Stanhome Inc 75,625
25,000 The Limited Inc 437,500
500 The Vons Co Inc * 14,375
22,500 Toys R Us Inc 537,188
75,000 Wal-Mart Stores Inc 1,593,750
-------------------------
12,026,528
-------------------------
SERVICES - 0.8%
2,100 BHC Communications Inc Class A * 193,988
5,413 Chris Craft Industries Inc 229,376
15,800 Fleming Cos (a) 316,000
5,800 Gannett Co Inc 394,400
37,500 Kellwood Co 567,188
2,700 Kingworld Productions Inc * 113,063
3,400 Lee Enterprises Inc 73,525
3,000 Meredith Corp 131,625
3,100 PHH Corp 155,388
7,200 Supervalu Inc 232,200
-------------------------
2,406,753
-------------------------
TECHNOLOGY - 7.6%
20,000 Advanced Micro Devices 387,500
20,500 Apple Computer 563,750
5,000 Avnet Inc (a) 249,375
3,600 Cabletron Systems Inc * 270,450
7,200 Cadence Design Systems Inc * 321,300
See accompanying notes to the financial statements. 7
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY - CONTINUED
7,100 Cisco Systems Inc (a) 337,250
67,500 Digital Equipment Corp * 4,860,000
30,000 Fisher Scientific (a) 1,117,500
25,800 Intel Corp 1,517,363
11,700 Microsoft Corp * 1,154,644
38,000 Novell Inc * 463,125
1,000 Seagate Technology * (a) 65,250
105,000 Storage Technology Corp * 3,176,250
16,100 Sun Microsystems Inc 845,250
225,000 Tandem Computers Inc * (a) 2,165,625
225,000 WMX Technologies 6,412,500
2,000 Xerox Corp 260,500
-------------------------
24,167,632
-------------------------
TELECOMMUNICATIONS - 4.1%
14,300 AT & T Corp 909,838
22,500 Comsat Corp 520,313
95,000 GTE Corp 4,073,125
102,500 MCI Communications Corp * 2,998,125
30,000 Pacific Telesis Group 847,500
10,000 Sprint Corp 430,000
25,000 Tele-Communications Class A * 525,000
55,000 US West Inc 1,801,250
37,500 US West Media Group 782,813
-------------------------
12,887,964
-------------------------
TOBACCO - 1.5%
32,500 American Brands Inc 1,474,688
225,000 Hanson Plc ADR (a) 3,318,750
-------------------------
4,793,438
-------------------------
TRANSPORTATION - 2.6%
12,500 AMR Corp * 1,096,875
8,600 Burlington Northern Santa Fe Railroad Co 688,000
175,000 Canadian Pacific Ltd 3,456,250
23,900 Navistar International Corp Preferred $6.00 1,308,525
7,500 Overseas Shipholding Group Inc 140,625
15,000 Ryder System Inc 376,875
27,500 USAir Group Inc Convertible Preferred Series B $4.38 * 1,347,500
-------------------------
8,414,650
-------------------------
8 See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 10.3%
10,900 Allegheny Power System Inc 317,463
12,700 American Electric Power Inc (a) 544,513
3,200 American Water Works Co 121,600
5,400 Atlanta Gas Light 97,875
1,700 Atlantic Energy Inc (a) 31,025
13,800 Baltimore Gas and Electric Co 391,575
800 Boston Edison Co 22,100
5,500 Brooklyn Union Gas Co * 143,688
5,000 California Energy Co Inc * 111,250
2,300 Carolina Power and Light Co 83,950
58,800 Centerior Energy Corp 492,450
11,700 Central & South West Corp 324,675
53,500 Cinergy Corp 1,598,313
3,600 Cipsco Inc 142,650
7,200 CMS Energy Corp 218,700
21,600 Consolidated Edison 704,700
6,600 Delmarva Power and Light Co 146,025
11,100 Destec Energy Inc * 129,038
30,100 DPL Inc 718,638
6,900 DQE 201,825
40,600 DTE Energy Company 1,446,375
12,500 Duke Power Co 610,938
106,800 Edison International * 1,869,000
67,300 Entergy Corp 1,909,638
3,800 Florida Progress Corp 134,425
8,900 FPL Group Inc 397,163
32,100 General Public Utilities 1,071,338
2,700 Hawaiian Electric Industry Inc 102,263
7,300 Houston Industries Inc 165,163
2,500 Idaho Power Co 72,500
2,500 IES Industries 72,500
22,100 Illinova Corp 629,850
3,300 LG&E Energy Corp * 141,900
7,200 Long Island Lighting Co 126,000
6,600 Midamerican Energy Co 119,625
3,600 Montana Power Co 78,750
5,900 Nevada Power Co 128,325
4,300 New England Electric System 166,088
8,900 New York State Electric and Gas Corp 210,263
233,200 Niagara Mohawk Power Corp 1,749,000
5,400 Nipsco Industries Inc (a) 203,850
See accompanying notes to the financial statements. 9
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
UTILITIES - CONTINUED
27,900 Northeast Utilities 620,775
6,200 Northern States Power Co 305,350
34,300 Ohio Edison Co 814,625
700 Oklahoma Gas and Electric Co 28,875
8,700 Pacific Enterprises 232,725
33,900 Pacific Gas and Electric Co 868,688
20,100 PacifiCorp 417,075
45,000 Panhandle Eastern Corp 1,288,125
8,200 Peco Energy Co 231,650
6,900 Pinnacle West Capital Corp 195,788
8,900 Portland General Electric Co 272,563
10,200 Potomac Electric Power Co 269,025
8,200 PP&L Resources Inc 203,975
51,600 Public Service Enterprise Group Inc 1,451,250
5,500 Public Service of Colorado 193,875
7,500 Public Services Co of New Mexico * 133,125
5,100 Puget Sound Power and Light Co (a) 127,500
3,600 Rochester Gas and Electric Corp (a) 81,000
23,900 Southern Co 570,613
3,700 Southwesten Public Service Co 118,863
71,300 Texas Utilities Co 2,878,738
25,000 TransCanada Pipeline Ltd (a) 353,125
82,100 Unicom Corp 2,627,200
3,000 Washington Gas Light 65,250
5,200 Washington Water Power 96,200
3,500 Western Resources Inc 112,000
9,400 Wisconsin Energy Corp 271,425
-------------------------
32,776,410
-------------------------
TOTAL STOCK (Cost $241,047,120) 301,280,305
-------------------------
PAR VALUE DEBT OBLIGATION- 0.3%
COMPUTER AND OFFICE EQUIPMENT - 0.3%
$625,000 Storage Technology, 7.00% due 3/15/08 813,281
-------------------------
TOTAL DEBT OBLIGATION (Cost $709,670) 813,281
-------------------------
10 See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE($)/
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 11.7%
REPURCHASE AGREEMENTS - 5.4%
$1,259,616 Prudential Bache Securities, Inc. Repurchase Agreement
dated 2/29/96, due 3/1/96, with a maturity value of $1,259,786
and an effective yield of 4.87%, collateralized by a U.S.
Government Agency obligation with a rate of 9.00% and
a maturity date of 9/1/22 and a market value of $1,539,246. 1,259,616
$15,936,100 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/1/96, with a maturity value of $15,938,278 and an
effective yield of 4.92% , collateralized by U.S. Treasury
maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $16,235,639. 15,936,100
-------------------------
17,195,716
-------------------------
U.S. GOVERNMENT - 0.1%
$ 300,000 U.S. Treasury Bill, 5.41% due 5/30/96 (b) 296,340
-------------------------
CASH EQUIVALENTS - 6.2%
2,504,942 American Advantage Money Market Fund 2,504,942
$6,820,336 Bank of Boston Time Deposit, 6.26% due 3/1/96 6,820,336
$3,131,178 First Union National Bank Time Deposit, 5.44% due 3/1/96 664,960
3,613,584 Lehman Prime Value Money Market Fund 3,613,584
$3,000,000 Prudential Securities Group, Inc. Master Note, 5.69% due 3/1/96 3,000,000
-------------------------
19,735,000
-------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $37,227,075) 37,227,056
-------------------------
TOTAL INVESTMENTS - 106.8%
(Cost $278,983,865) * * 339,320,642
Other Assets and Liabilities (net) - (6.8%) (21,708,793)
-------------------------
TOTAL NET ASSETS - 100.0% $ 317,611,849
=========================
See accompanying notes to the financial statements. 11
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------------------------
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.
144A - Securities exempt from registration
under Rule 144A of the Securities Act of
1933. These securities may be resold in
transactions exempt from registration,
normally to qualified institutional
investors.
* Non-income producing security.
* * The aggregate identified cost for federal
income tax purposes is $281,505,651, resulting
in gross unrealized appreciation and
depreciation of $62,641,308 and $4,826,317,
respectively, and net unrealized appreciation
of $57,814,991.
</TABLE>
12 See accompanying notes to the financial statements.
<TABLE>
<CAPTION>
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $278,983,865) (Note 1) $ 339,320,642
Receivable for investments sold 1,044,632
Receivable for Fund shares sold 1,313,000
Dividends and interest receivable 934,441
Receivable for expenses waived or borne by Manager (Note 2) 32,871
---------------------
Total assets 342,645,586
---------------------
LIABILITIES:
Payable for investments purchased 3,858,071
Payable upon return of securities loaned (Note 1) 19,730,574
Payable for open swap contracts (Notes 1 and 6) 264,862
Payable for variation margin on open futures contracts 50,889
Payable for Fund shares repurchased 879,052
Payable to affiliate for management fee (Note 2) 177,609
Accrued expenses 72,680
---------------------
Total liabilities 25,033,737
---------------------
Net Assets (equivalent to $14.25 per share based on 22,292,408
shares outstanding, unlimited shares authorized) $ 317,611,849
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 237,295,574
Accumulated undistributed net investment income 1,384,221
Accumulated undistributed net realized gain 18,914,947
Net unrealized appreciation 60,017,107
=====================
NET ASSETS $ 317,611,849
=====================
</TABLE>
See accompanying notes to the financial statements. 13
<TABLE>
<CAPTION>
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $53,067) $ 9,864,421
Interest (including securities lending income of $24,966) 869,152
---------------------
Total income 10,733,573
---------------------
EXPENSES:
Management fee (Note 2) 2,296,190
Custodian and transfer agent fees 102,540
Audit fees 48,089
Legal fees 11,262
Insurance 2,982
Trustee fee (Note 2) 1,291
Registration fees 1,010
Miscellaneous 861
---------------------
Total expenses 2,464,225
Less: expenses waived or borne by Manager (Note 2) (463,260)
---------------------
Net expenses 2,000,965
---------------------
Net investment income 8,732,608
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 56,435,866
Closed futures contracts 1,312,800
Open swap contracts 212,453
---------------------
Net realized gain 57,961,119
---------------------
Change in net unrealized appreciation (depreciation)
Investments 33,726,223
Open futures contracts (100,701)
Open swap contracts (264,862)
---------------------
Net unrealized gain 33,360,660
---------------------
Net realized and unrealized gain 91,321,779
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 100,054,387
=====================
</TABLE>
14 See accompanying notes to the financial statements.
<TABLE>
<CAPTION>
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 8,732,608 $ 12,834,774
Net realized gain 57,961,119 45,814,165
Change in net unrealized appreciation (depreciation) 33,360,660 (41,548,844)
--------------------- ---------------------
Net increase in net assets resulting from operations 100,054,387 17,100,095
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (9,263,106) (16,241,648)
Net realized gains (32,854,343) (53,036,477)
--------------------- ---------------------
(42,117,449) (69,278,125)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 21,822,769 37,637,168
Net asset value of shares issued to shareholders
in payment of distributions declared 37,463,449 59,045,467
Cost of shares repurchased (150,305,768) (373,341,674)
--------------------- ---------------------
Net decrease in net assets resulting
from Fund share transactions (91,019,550) (276,659,039)
--------------------- ---------------------
Total decrease in net assets (33,082,612) (328,837,069)
NET ASSETS:
Beginning of period 350,694,461 679,531,530
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $1,384,221 and
$1,914,719, respectively) $ 317,611,849 $ 350,694,461
===================== =====================
</TABLE>
See accompanying notes to the financial statements. 15
<TABLE>
<CAPTION>
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.05 $ 13.48 $ 13.50 $ 12.94 $ 12.25
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (a) 0.39 0.41 0.43 0.38 0.40
Net realized and unrealized gain 3.71 0.32 1.27 0.98 1.11
------------ ------------ ------------ ------------ ------------
Total from investment operations 4.10 0.73 1.70 1.36 1.51
------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.39) (0.45) (0.40) (0.38) (0.41)
From net realized gains (1.51) (1.71) (1.32) (0.42) (0.41)
------------ ------------ ------------ ------------ ------------
Total distributions (1.90) (2.16) (1.72) (0.80) (0.82)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 14.25 $ 12.05 $ 13.48 $ 13.50 $ 12.94
============ ============ ============ ============ ============
TOTAL RETURN (B) 35.54% 6.85% 13.02% 11.01% 12.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 317,612 $ 350,694 $ 679,532 $ 1,239,536 $ 644,136
Net expenses to average
daily net assets (a) 0.61% 0.61% 0.61% 0.62% 0.67%
Net investment income to average
daily net assets (a) 2.66% 2.86% 2.70% 3.15% 3.75%
Portfolio turnover rate 65% 77% 35% 50% 41%
(a) Net of fees and expenses voluntarily waived or borne by the Manager of the following
per share amounts: $ 0.02 $ 0.02$ 0.02$ 0.01$ 0.01
(b) Calculation excludes subscription fees. The total returns would have been lower had certain expenses
not been waived during the periods shown.
</TABLE>
16 See accompanying notes to the financial statements.
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment in common stocks chosen from the 1,200
companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
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 specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
17
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29,
1996.
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 29, 1996, the Fund
loaned securities having a market value of $19,008,125, collateralized by
cash in the amount of $19,735,000, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of February 29, 1996.
18
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 29, 1996. 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> <C>
$ - ($2,072,042) $2,072,042
</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 and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
19
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund received $24,504 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $1,291. 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 29, 1996, aggregated
$202,393,219 and $299,289,653, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 40% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
20
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 1,619,182 3,061,654
Shares issued to shareholders in reinvestment
of distributions 2,797,603 5,068,747
Shares repurchased (11,220,138) (29,453,951)
------------------ -------------------
Net decrease (6,803,353) (21,323,550)
Fund shares:
Beginning of period 29,095,761 50,419,311
------------------ -------------------
End of period 22,292,408 29,095,761
================== ===================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
<TABLE>
<CAPTION>
FUTURES CONTRACTS
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
(Depreciation)
- ---------------------- ----------------- ------------------------ --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
19 S&P 500 March 1996 $ 6,063,375 $ (54,830)
1 S&P 500 June 1996 322,125 22
---------------------
$ (54,808)
=====================
</TABLE>
At February 29, 1996, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
21
GMO VALUE ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION DATE UNREALIZED
AMOUNT DESCRIPTION DEPRECIATION
----------------- ---------------- -------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
$ 4,459,648 (a) 10/31/96 Agreement with Morgan Stanley & Co. International
Limited dated 10/31/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.42%.
$ (261,113)
5,573,235 (b) 12/24/96 Agreement with Morgan Stanley & Co. International
Limited dated 12/26/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.61%.
(3,749)
Net unrealized depreciation $ (264,862)
==================
</TABLE>
(a) Represents notionl amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $4,234,377.
(b) Represents notional amount for puposes of calculating the Fund's
obligation. The counterparty notional amount is $5,582,343.
* * *
GMO VALUE ALLOCATION FUND
(A Series of GMO Trust)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS-(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 39.48% of distributions as net capital gain dividends.
GMO VALUE ALLOCATION FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. for more than
fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Value Allocation Fund outperformed the S&P 500 for the fiscal year ended
February 29, 1996, with a total return of 35.6% for the Fund versus 34.7% for
the S&P 500. Consistent with the Fund's investment objective and policies, the
Fund was invested substantially in common stocks throughout the period. During
the fiscal year, the Fund's overweight of the largest 100 stocks and defensive,
high quality stocks contributed significantly to performance while an
underweight in banking had a negative contribution.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO VALUE ALLOCATION FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 11/13/90
35.3% 15.4% 19.0%
[Line Graph Appears Here]
Date GMO Value Allocation Fund S & P 500 Index
11/13/90 9,985 10,000
02/28/91 12,266 11,677
02/29/92 13,853 13,544
02/28/93 15,372 14,987
02/28/94 17,372 16,236
02/28/95 18,560 17,431
02/29/96 25,156 23,479
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 17, 1996
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 92.6%
ASSET BACKED SECURITIES - 27.2%
$ 1,000,000 Advanta Credit Card Master Trust 95-D Class A1,
Variable Rate, 1 mo. LIBOR + 19/100 (5.50%) due 2/1/04 1,000,467
500,000 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + 7/8 (6.63%) due 11/15/03 501,875
1,000,000 Nation Premier Finance 95-2, 6.21% due 6/1/99 144A 995,000
500,000 Premier Auto Trust 94-4 Certificates, 6.85% due 5/2/99 508,903
-----------------
3,006,245
-----------------
STRUCTURED NOTES - 24.4%
750,000 Federal Home Loan Bank,
Variable Rate, (.50 x 10YR CMT) + 1.25% (4.34%) due 3/16/98 731,058
1,000,000 Federal National Mortgage Association,
Variable Rate, (.50 x 2YR CMT) + 1.80% (4.73%) due 3/10/98 974,500
1,000,000 Toyota Motor Credit,
Variable Rate, (16.50% - 2 x 3YR DKR SWAP) (5.94%) due 7/28/96 1,000,000
-----------------
2,705,558
-----------------
U.S. GOVERNMENT - 41.0%
4,500,000 U.S. Treasury Note, 6.00% due 8/31/97 4,540,775
-----------------
TOTAL DEBT OBLIGATIONS (Cost $10,229,808) 10,252,578
-----------------
SHORT-TERM INVESTMENTS - 7.0%
REPURCHASE AGREEMENTS - 7.0%
526,278 Salomon Brothers Repurchase Agreement, dated 2/29/96, due 3/1/96,
with a maturity value of $526,350 and an effective yield of 4.92%,
collateralized by U.S. Treasury obligations with rates ranging
from 7.25% to 13.25%, with maturity dates ranging from 8/15/04 to
11/15/15, and with an aggregate market value of $536,170. 526,278
240,757 Prudential Bache Securities, Inc. Repurchase Agreement
dated 2/29/96, due 3/1/96, with a maturity value of $240,789
and an effective yield of 4.87%, collateralized by a U.S.
Government Agency obligation, with a rate of 9.00%,
a maturity date of 9/1/22 and a market value of $294,203. 240,757
-----------------
767,035
-----------------
TOTAL SHORT-TERM INVESTMENTS (at cost) 767,035
-----------------
TOTAL INVESTMENTS - 99.6%
(Cost $10,996,843)* * 11,019,613
Other Assets and Liabilities (net) - 0.4% 46,412
-----------------
TOTAL NET ASSETS - 100.0% $ 11,066,025
=================
</TABLE>
1
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
CMT - Constant Maturity Treasury Index
DKR SWAP - 3 Year Danish Krone Swap Rate
Variable rates - The rates shown on variable rate notes are the
current interest rates at February 29, 1996, 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.
* * The aggregate identified cost for federal income tax
purposes is $10,996,843 resulting in gross unrealized
appreciation and depreciation of $43,795 and $21,025,
respectively, and net unrealized appreciation of $22,770.
2
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $10,996,843) (Note 1) $ 11,019,613
Interest receivable 66,086
Receivable for expenses waived or borne by Manager (Note 2) 7,051
-------------
Total assets 11,092,750
-------------
LIABILITIES:
Payable to affiliate for management fee (Note 2) 2,276
Accrued expenses 24,449
-------------
Total liabilities 26,725
-------------
NET ASSETS (equivalent to $9.77 per share based
on 1,132,734 shares outstanding, unlimited shares authorized) $ 11,066,025
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 10,991,134
Accumulated undistributed net investment income 146,175
Accumulated undistributed net realized loss (94,054)
Net unrealized appreciation 22,770
-------------
NET ASSETS $ 11,066,025
=============
</TABLE>
3
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 577,145
----------------
EXPENSES:
Management fee (Note 2) 21,431
Audit fees 25,524
Custodian and transfer agent fees 4,309
Registration fees 2,177
Legal fees 524
Insurance 64
Trustee fee (Note 2) 27
Miscellaneous 457
----------------
Total expenses 54,513
Less: expenses waived or borne by Manager (Note 2) (33,446)
----------------
Net expenses 21,067
----------------
Net investment income 556,078
----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 74,630
Change in net unrealized appreciation (depreciation) on investments 31,945
----------------
Net realized and unrealized gain 106,575
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 662,653
================
</TABLE>
4
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Operations:
Net investment income $ 556,078 $ 655,082
Net realized gain (loss) 74,630 (168,682)
Change in net unrealized appreciation (depreciation) 31,945 (44,099)
------------ ------------
Net increase in net assets resulting from operations 662,653 442,301
------------ ------------
Distributions to shareholders from:
Net investment income (509,777) (612,710)
------------ ------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 29,521,366 31,888,771
Net asset value of shares issued to shareholders
in payment of distributions declared 477,330 502,424
Cost of shares repurchased (27,279,043) (32,122,310)
------------ ------------
Net increase in net assets resulting
from Fund share transactions 2,719,653 268,885
------------ ------------
Total increase in net assets 2,872,529 98,476
NET ASSETS:
Beginning of period 8,193,496 8,095,020
------------ ------------
End of period (including accumulated undistributed
net investment income of $146,175 and
$99,101, respectively) $ 11,066,025 $ 8,193,496
============ ============
</TABLE>
5
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------
1996 1995 1994 1993 1992 (c)
---- ---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.56 $ 9.79 $ 10.05 $ 10.11 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a) 0.57 0.63 0.44 0.46 0.56
Net realized and unrealized gain (loss) 0.20 (0.28) (0.09) 0.30 0.11
-------- -------- -------- -------- --------
Total from investment operations 0.77 0.35 0.35 0.76 0.67
-------- -------- -------- -------- --------
Less distributions to shareholders:
From net investment income (0.56) (0.58) (0.46) (0.38) (0.56)
From net realized gains - - (0.15) (0.44) -
-------- -------- -------- -------- --------
Total distributions (0.56) (0.58) (0.61) (0.82) (0.56)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.56 $ 9.79 $ 10.05 $ 10.11
======== ======== ======== ======== ========
TOTAL RETURN (B) 8.32% 3.78% 3.54% 8.25% 11.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 11,066 $ 8,193 $ 8,095 $ 10,499 $ 9,257
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) 6.49% 5.02% 4.35% 4.94% 5.83%
Portfolio turnover rate 139% 335% 243% 649% 135%
(a) Net of fees and expenses voluntarily waived or borne by the Manager of
the following per share a $ 0.03 $ 0.02 $ 0.02 $ 0.03 $ 0.03
(b) The total returns would have been lower had certain expenses not
been waived during the periods shown.
(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.
</TABLE>
6
See accompanying notes to the financial statements.
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks current income to the extent consistent with the
preservation of capital and liquidity through investment in a portfolio of
high quality short-term instruments.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less 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.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 29, 1996, the
total value of these securities represented 8.99% of net assets. These
prices may differ from the value that would have been used had a broader
market for the securities existed and the differences could be material to
the financial statements.
7
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults, the value of the collateral declines or
if the seller enters insolvency proceedings, realization of collateral by
the Fund may be delayed or limited.
INDEXED SECURITIES
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indices, or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
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 29, 1996, the Fund had
no securities on loan.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
At February 29, 1996, the Fund had available, for Federal income tax
purposes, unused capital losses of $93,061 which expires on February 28,
2003.
8
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
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.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 29, 1996. 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> <C>
$773 ($748) ($25)
</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 and is adjusted for the accretion of
discounts and amortization of premiums. In determining the net gain or loss
on securities sold, the cost of securities is determined on the identified
cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
9
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 .20% of average daily net assets. Prior to February
7, 1996, this voluntary expense limitation was .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 29, 1996, was $27. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
---------------- ----------------
<S> <C> <C>
U.S. Government securities $ 9,555,391 $ 8,079,270
Investments (non-U.S. Government securities) 4,221,531 2,976,876
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 72% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
10
GMO SHORT-TERM INCOME FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 3,044,961 3,299,162
Shares issued to shareholders in reinvestment 49,952 52,796
of distrobutions
Shares repurchased (2,819,011) (3,322,035)
------------ ------------
Net increase 275,902 29,923
Fund shares: 856,832 826,909
------------ ------------
Beginning of period 1,132,734 856,832
============ ============
</TABLE>
* * *
GMO SHORT-TERM INCOME FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily
responsible for the day-to-day management of the Fund's portfolio. Both
individuals joined Grantham, Mayo, Van Otterloo & Co. in this capacity in
October of 1993.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Short-Term Income Fund outperformed Salomon Brothers 3-Month
Treasury Bill Index for the fiscal year ended February 29, 1996, with a total
return of 8.32% versus 5.68% for the Salomon Brothers index.
Throughout the fiscal year, the U.S. Federal Reserve eased short-term
interest rates in an attempt to stimulate the stagnating economy. The Fund
maintained an average maturity of approximately two and one-half years and
emphasized its investment in asset-backed, AAA-rated instruments. Falling rates
and a longer average maturity contributed to the Fund's outperformance of the
benchmark.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO SHORT-TERM INCOME FUND AND THE SALOMON 3 MONTH TREASURY BILL INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 06/30/91
8.3% N/A 5.9%
[Line Graph Appears Here]
Date GMO Short-Term Income Fund Salomon 3 Month Treasury Bill Index
06/30/91 10,000 10,000
02/29/92 10,381 10,331
02/28/93 11,239 10,686
02/28/94 11,637 11,014
02/28/95 12,088 11,505
02/29/96 13,094 12,158
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Past performance is not indicative of future
performance. Information is unaudited.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 23, 1996
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 77.9%
AUSTRALIA - 4.8%
138,326 Aberfoyle Ltd 382,891
147,843 Adelaide Brighton Ltd 145,832
874,959 Ampolex Ltd * (a) 2,910,313
293,400 Ashton Mining Ltd 455,427
4,570,172 Australia and New Zealand Banking Group Ltd 22,470,162
1,638,034 Australian National Industries Ltd 1,327,674
359,528 Australian Resources Ltd 382,129
410,525 Australian Tourism Group 320,186
213,200 Azon Limited 301,593
3,869,687 Boral Ltd (a) 10,445,115
96,445 Bougainville Copper Ltd * 49,410
75,296 BRL Hardy Ltd 138,180
389,366 BT Property Trust 476,366
1,154,714 Burns Philp & Co Ltd 2,578,220
726,937 Burswood Property Trust 1,028,327
572,098 Caltex Australia Ltd 2,209,146
2,800,267 Coles Myer Ltd 9,485,623
285,793 Commonwealth Bank of Australia 2,364,512
11,361 Consolidated Rutile Ltd * 19,112
451,733 Crusader Ltd * 500,856
3,172,364 CSR Ltd 11,037,154
82,959 Dominion Mining Nl * 46,307
122,755 Eltin Ltd 248,741
310,991 Email Ltd 822,785
80,027 Energy Resources of Australia Class A 367,156
180,944 Foodland Associated 677,958
7,342,473 Fosters Brewing Group Ltd 12,800,882
62,253 Gasgoyne Gold Mines 132,333
834,328 General Property Trust Units 1,486,468
691,680 Gio Australia Holdings Ltd 1,660,724
3,983,683 Goodman Fielder Ltd 4,234,111
266,133 GWA International Ltd 350,018
811,907 Hardie (James) Industries Ltd 1,539,645
110,255 Holyman Ltd 243,646
40,676 ICI Australia Ltd 337,467
75,503 Memtec Ltd 176,087
119,780 Metal Manufactures Ltd 288,508
1,998,154 Mim Holdings Ltd 2,551,574
90,637 Mount Leyshon Gold Mines 298,014
285,228 National Australia Bank Ltd 2,737,150
55,601 National Consolidated Ltd 38,264
6,536,989 News Corp Ltd 37,188,904
3,312,061 News Corp Ltd Preferred 1.19% 16,714,945
1,895,545 North Broken Hill Peko Ltd 5,580,300
See accompanying notes to the financial statements. 1
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
AUSTRALIA - CONTINUED
308,836 Orbital Engine Corp * 229,067
110,255 Orion Resources 136,577
1,392,247 Pacific Dunlop Ltd 3,300,203
441,221 Pacific Magazines and Printing Ltd 1,096,484
1,063,266 Pasminco Ltd 1,284,582
5,647,170 Pioneer International Ltd 16,754,261
213,842 Publishing & Broadcasting Ltd 866,626
964,989 Qantas Airways Ltd 1,756,152
2,301,472 QCT Resources Ltd 2,850,909
1,042,823 QNI Ltd 2,137,018
198,379 Renison Goldfields Consolidated Ltd 1,013,293
228,922 Ross Mining 273,071
286,595 Rothmans Holdings Ltd 1,314,869
2,280,459 Santos Ltd 7,184,262
1,899,278 Schroders Property 3,180,500
78,010 Sea World Property Trust 63,826
153,701 Seven Network Ltd 475,986
159,152 Simsmetal Ltd 879,859
191,913 Smith (Howard) Ltd 1,030,159
696,721 Southcorp Holdings Ltd 1,715,448
181,517 St Barbara Mines Ltd 116,589
905,182 Stockland Trust Group 2,131,814
36,482 Stockland Trust New * 82,502
671,300 TNT Ltd * (a) 795,630
479,371 Walker Corp 179,610
49,749 Wesfi Ltd 144,554
54,201 Westfield Trust New 91,357
1,244,583 Westfield Trust Units 2,188,842
5,187 Weston Foods Ltd 29,945
812,608 Westpac Banking Corp 3,840,009
33,291 Wills (WD & HO) Holdings Ltd 53,458
------------------------
216,747,677
------------------------
AUSTRIA - 1.4%
2,094 Allgemeine Baugesellschaft AG 210,685
2,677 Allgemeine Baugesellschaft AG Preferred 7.00% 115,248
6,510 Austrian Airlines * 1,199,777
37,523 Bank Austria AG (Participating Certificate) 1,433,901
41,015 Bau Holding AG Preferred 2.42% (Non Voting) 1,924,460
53,003 Brau Union AG 3,045,869
3,674 BWT AG 469,178
82,065 Creditanstalt-Bankverein 5,104,972
66,473 Creditanstalt-Bankverein Preferred 1.65% 3,916,399
6,296 EA-Generali AG 2,179,971
3,377 EA-Generali AG Preferred 6.00% 587,742
37,095 EVN Energie-Versorgung Niederoesterreich AG 4,920,137
2 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
AUSTRIA - CONTINUED
1,424 Jenbacher Werke AG 242,464
12,855 Lenzing AG 1,081,971
22,207 Leykam-Muerztaler Papier und Zellstoff AG * 816,390
6,721 Miba Holding AG Series B Preferred 1.34% 273,091
65,220 OEMV AG 6,088,811
13,282 Oesterreichische Brau Beteiligungs AG 681,026
109,046 Oesterreichische Elektrizitaetswirschafts AG 7,173,697
130,997 Oesterreichische Laenderbank AG 10,227,259
40,075 Oesterreichische Laenderbank AG Preferred (Non Voting) 1,795,060
6,293 Perlmooser Zementwerke AG 426,776
56,309 Radex-Heraklith AG 1,906,647
9,098 RAS Versicherungs AG 1,389,800
20,428 Steyr-Daimler-Puch AG * 314,230
4,642 Strabag Oesterreich AG 314,360
9,553 Universale Bau AG * 448,235
1,069 Wiener Allianz Versicherungs AG 207,873
12,432 Wienerberger Baustoffindustrie AG 2,808,357
------------------------
61,304,386
------------------------
BELGIUM - 0.3%
747 Banque Bruxelles Lambert VVPR* 137,450
18,318 Banque Bruxelles Lambert (a) 3,473,612
1,297 Banque Nationale de Belgique 1,936,894
2,746 Barco NV 365,322
170 Bekaert SA 162,309
1,510 Cobepa SA (Cie Belge Paribas) 54,669
4,000 Electrabel SA 921,336
2,400 Gevaert Photo-Producten NV 152,100
1,800 GIB Holdings Ltd 86,137
700 Glaverbel NPV 80,733
23,320 Groupe Bruxelles Lambert SA 3,175,755
1,398 Immobiliere De Belgique NPV 101,784
1,750 Petrofina SA Bruxelles 507,330
23,577 Powerfin SA 3,214,655
5,847 Societe Generale De Belgique 482,783
144 Sofina SA 74,581
687 Tessenderlo Chemie 279,647
6 Tessenderlo Chemie Precompte (Registered) 2,403
------------------------
15,209,500
------------------------
CANADA - 1.5%
101,502 Abitibi-Price Inc 1,415,145
53,600 Air Canada Inc * 191,463
179,105 Alberta Energy Ltd * 3,117,282
16,400 Avenor Inc 230,144
111,303 Bank of Montreal 2,586,319
132,216 Bank of Nova Scotia 2,963,836
See accompanying notes to the financial statements. 3
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
CANADA - CONTINUED
81,492 BCE Inc 2,836,700
52,500 Brascan Ltd Class A (Convertible) 885,046
26,800 CAE Industries Inc 212,466
17,100 Cambridge Shopping Centres Ltd 113,751
155,106 Canadian Imperial Bank of Commerce 4,607,669
30,800 Canadian Marconi Co * 314,343
36,700 Canadian Tire Ltd Class A 391,279
22,200 Canfor Corp 208,365
38,200 CCL Industries Class B 337,653
250,911 Cominco Ltd 5,373,071
83,200 Dominion Textile Inc 424,567
332,318 Domtar Inc 2,301,455
41,900 Donohue Inc Class A 530,718
32,200 Edper Group Ltd Class A 99,763
6,400 Extendicare Inc * 173,793
86,500 Falconbridge Ltd 1,812,921
155,907 Fletcher Challenge Class A 2,045,800
168,602 Gulf Canada Resources Ltd * 737,461
64,800 Hees International Bancorp Inc 732,203
10,600 Hudsons Bay Co 136,195
30,700 Imasco Ltd 581,884
158,707 Imperial Oil Ltd 5,813,761
32,500 Inco Ltd 1,030,618
23,800 International Forest Products A 212,539
5,800 IPL Energy Inc 138,473
4,900 Ipsco Inc 113,414
33,300 Laidlaw Inc Class B (Non Voting) 330,755
349,019 Macmillan Bloedel Ltd 4,452,584
1,500 Magna International Class A 59,595
44,800 Mitel Corp * 265,354
7,500 Molson Class A 125,752
143,404 National Bank of Canada 1,163,018
12,500 Noma Industries Ltd Class A 40,095
108,701 Noranda Forest Inc 693,373
111,700 Noranda Inc 2,198,578
95,402 Norcen Energy Resource 1,408,340
23,500 Nova Corp Alta * 207,718
12,600 Nova Scotia Power Inc 111,372
51,000 Numac Energy Inc 204,483
9,000 Oshawa Group Ltd Class A 150,082
105,101 Petro Canada 1,292,932
38,200 Power Corp 546,510
8,600 Provigo Inc * 48,588
25,700 Ranger Oil Ltd 161,591
72,700 Repap Enterprises Inc * 291,489
4 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
CANADA - CONTINUED
2,900 Rio Algom Ltd 52,852
134,726 Royal Bank of Canada 3,081,489
22,300 Sceptre Resources Ltd 142,245
13,300 Scotts Hospitality Inc 90,897
33,100 Sears Canada Inc 141,762
40,600 Sherritt Inc * 547,549
20,800 Slocan Forest Products Ltd 193,330
5,500 Spar Aerospace Ltd 80,190
165,506 Teck Corp Class B 3,317,962
15,000 Telus Corp 181,793
140,905 Toronto Dominion Bank 2,388,220
10,600 Total Petroleum North America 86,933
14,500 Transalta Corp 153,271
56,600 Transcanada Pipelines Ltd 799,435
56,601 United Dominion Inds Ltd 1,361,642
18,700 Westcoast Energy Inc 296,501
------------------------
69,338,377
------------------------
FINLAND - 0.4%
66,000 Amer Group Class A 1,118,140
2,500 Cultor OY Series 2 110,010
35,500 Cultor OY Series 1 1,507,464
19,900 Finnair Series A 162,000
8,800 Huhtamaki OY Series L 300,107
25,238 Instrumentarium Class A 710,765
13,891 Instrumentarum OY B * 394,262
33,600 Kemira OY 303,099
35,900 Kesko OY 450,226
1,800 Kone Corp Class B 167,523
210,166 Merita Ltd 541,015
5,400 Metra AB Class A 213,859
4,400 Metra AB Class B 174,256
119,844 Nokia Corp Class A 4,166,148
89,000 Partek OY 1,233,650
6,000 Pohjola Insurance Co Series B 93,728
21,119 Rautaruukki OY 141,721
8,500 Sampo Insurance Company Ltd 486,243
15,900 Stockmann AB Series A 874,578
17,800 Stockmann AB Series B 869,429
96,100 Valmet OY 2,600,697
------------------------
16,618,920
------------------------
See accompanying notes to the financial statements. 5
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
FRANCE - 5.3%
4,169 Accor SA 587,504
2,816 Agache Financiere * 878,070
8,530 Air Liquide 1,510,199
28 Air Liquide L Shares 4,957
177,591 Alcatel Alsthom Cie Generale d'Electricite SA 15,759,626
105,598 Axa SA 6,826,432
588,165 Banque Nationale de Paris 22,764,288
1,500 BIC SA 167,618
7,099 BIS SA * 662,240
27,329 Carrefour Supermarche SA 18,458,907
21,990 Club Mediterranee SA * 2,042,638
975 Colas SA 177,651
769,200 Compagnie de Suez SA 29,862,655
25,536 Credit Foncier De France (Bearer) 371,516
147,384 Credit Lyonnais * 7,225,495
31,636 Credit National 2,480,270
8,875 Dassault Electronique SA 496,750
12,416 Dollfus-Mieg and Cie 607,215
6,963 Elf Gabon 1,174,723
105,870 Elf Sanofi SA 7,354,637
39,028 Eridania Beghin-Say SA 6,708,331
2,180 Essilor International 520,093
3,700 Esso 440,629
1,622 Europe 1 Communication 380,852
229,383 Financiere de Paribas SA 12,820,772
68,389 FINEXTEL 1,018,047
4,760 INGENICO SA 45,821
3,933 Labinal SA 577,665
181,765 Lafarge Coppee SA 12,507,900
4,263 Lefebvre (Jean) Entreprises 258,915
37,427 LVMH Moet Hennessy Louis Vuitton 8,528,000
5,200 Metaleurop SA * 50,367
291,805 Michelin SA Class B 13,077,868
14,832 Moulinex SA * 260,533
2,328 Navigation Mixte SA 362,721
1,700 Nord-Est 48,487
16,923 Parisienne de Reescompte (CPR-Cie) 1,449,367
67,022 Pechiney SA Class A * 2,720,389
62,520 Pernod-Ricard 3,929,953
102,893 Peugeot SA 15,398,466
1,190 Poliet SA 117,506
33,500 Renault SA 983,407
67,855 Rhone Poulenc SA Series A 1,692,924
914 Saint Louis 290,260
1,306 Salomon SA 765,986
6 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
FRANCE - CONTINUED
3,475 SEFIMEG (Registered) 253,818
6,472 SIMCO 611,457
291 SIMCO (Registered) 25,760
750 Skis Rossignol SA 257,530
2,750 Sligos SA 249,442
57,382 Societe Generale d 'Entreprise SA 1,343,934
130,335 Societe Generale Paris 14,874,733
117,541 SPIE Batignolles * 5,179,200
317,303 Thomson CSF 8,143,160
10,329 Total SA 682,074
10,815 UAP Co * 246,642
8,310 Union Immobiliere de France 733,975
1,800 Vallourec * 77,527
51,927 Worms et Compagnie SA 2,937,368
------------------------
239,985,270
------------------------
GERMANY - 5.8%
2,450 AEG AG 272,722
49,390 Bankgesellschaft Berlin AG 13,391,791
36,150 BASF AG (a) 9,036,885
227,410 Bayer AG (a) 69,397,418
640,500 Bayer Hypo (Wech) Bank (a) 16,429,782
723,900 Bayer Vereinsbank AG (a) 21,682,029
15,002 Bayerische Motorenwerke AG (a) 8,431,416
19,544 Berliner Kraft und Licht AG Class A 5,432,213
467,250 BHF Bank AG 12,939,426
400 Boss (Hugo) AG Preferred 3.84% 413,690
6,500 Bremer Vulkan Verbund AG * (a) 88,453
175 Colonia Konzern AG 141,100
96,670 Commerzbank AG (a) 22,100,510
3,420 Daimler-Benz AG 1,888,365
20,000 Deutsche Bank AG 1,007,961
3,800 Didier-Werke AG * 307,682
18,500 Douglas Holdings AG 626,863
1,229 Draegerwerk AG Preferred 2.29% 216,248
1,444,900 Dresdner Bank (a) 37,801,187
300 Escada AG 56,440
1,100 Escada AG Preferred (Non Voting) 1.43% 193,849
1,070 GEA AG Preferred 3.13% 356,011
8,328 IKB Deutsche Industriebank AG 1,665,940
2,700 Kaufhalle AG * 294,856
750 Kaufhof AG Preferred (Non Voting) 5.59% 190,345
121,600 Klockner Humboldt Deutz * 748,779
800 Kugelfischer George Schaefer AG Preferred (Non Voting) * 109,954
4,150 Kugelfischer George Schaefer AG * 573,212
1,150 Linotype Hell AG * 117,371
See accompanying notes to the financial statements. 7
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
GERMANY - CONTINUED
2,075 Philips Kommunikations Industrie AG 731,340
3,188 Porsche AG Preferred * 1,735,320
12,180 Porsche AG Preferred (Non Voting) * 6,878,547
3,990 Puma AG Preferred * 1,479,588
1,870 Rheinmetall Berlin AG 274,832
1,620 Rheinmetall Berlin AG Preferred (Non Voting) 5.60% 209,431
15,000 RWE Preferred 465,605
500 Salamander AG 75,185
53,000 Sap AG 8,240,117
52,150 Sap AG Preferred 8,196,673
13,320 Siemens AG (a) 7,599,388
720 Varta AG * 130,312
2,400 Villeroy and Boch AG 340,478
3,725 Volkswagen AG Preferred .79% 1,036,623
------------------------
263,305,937
------------------------
HONG KONG - 3.4%
16,363,000 Allied Properties Ltd 2,455,111
12,006,000 Amoy Properties Ltd (a) 14,209,203
7,837,000 Cathay Pacific Airways Ltd 14,343,547
4,069,062 Dairy Farm International 3,967,335
1,317,611 Great Eagle Holdings Ltd (a) 3,689,737
6,769,000 Guangzhou Investment Co * 1,742,320
7,043,000 Hang Lung Development Co Ltd 13,163,635
9,959,000 Henderson Investment Ltd 9,274,671
1,445,000 Hong Kong China Ltd 462,587
1,365,700 Hong Kong Ferry Co Ltd 1,439,671
3,092,186 Hong Kong Land Holdings 6,710,044
763,200 Hongkong Aircraft Engineering Co Ltd 2,226,051
1,192,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% (a) 1,904,116
3,879,400 Hongkong Electric Holdings Ltd 13,146,681
4,775,000 Hysan Development Co Ltd (a) 13,896,524
320,574 Jardine Strategic Warrants 5/02/98 * 136,244
2,139,000 Kumagai Gumi Hong Kong Ltd 1,964,352
21,996,000 Lai Sun Development 4,125,361
882,000 Lai Sun Garment International Ltd 1,072,375
1,064,000 Liu Chong Hing Investment Ltd 1,224,847
1,316,742 Mandarin Oriental 1,724,932
364,000 New Asia Realty & Trust A Shares 1,068,753
2,616,743 New World Development Co Ltd (a) 12,726,213
500 Playmate Toys Holding 105
75,000 Realty Development Corp Ltd Class A 266,774
8,380,913 Regal International Ltd (a) 2,195,162
5,936,000 Shanghai Petrochemical Co Series H 1,977,067
1,103,000 Shaw Brothers Ltd 1,284,010
2,664,000 Shun Tak Holdings Ltd 1,964,081
8 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
HONG KONG - CONTINUED
3,234,164 Sino Land Co Ltd (a) 3,430,253
4,556,000 South China Morning Post Ltd 3,211,667
826 Stelux Holdings International 201
3,882,000 Sun Hung Kai & Co Ltd 1,217,636
136 Swire Pacific Ltd Class A 1,187
2,632,500 Swire Pacific Ltd Class B 3,796,589
3,842,707 Tai Cheung Holdings Ltd 3,429,546
2,673,000 Wheelock & Co Ltd 5,428,113
1,338,500 Winsor Industrial Corp Ltd 1,263,838
------------------------
156,140,539
------------------------
ITALY - 3.8%
4,092,100 Alitalia Linee Aeree Italiane Class A * 1,829,412
254,000 Ansaldo Transporti SPA 392,378
3,060,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 3,465,212
748,222 Banca Commerciale Italiana SPA 1,658,080
344,000 Banca Commerciale Italiana SPA (Non Convertible) 751,265
11,012,200 Banca di Roma * (a) 10,610,146
227,250 Banca Nazionale dell'Agricoltura di Risp * 89,041
735,500 Banca Nazionale dell'Agricoltura SPA (Non Convertible) * 292,907
509,050 Banca Nazionale dell'Agricoltura SPA Preferred * 189,646
82,500 Banca Popolare di Bergamo Credit (a) 1,351,295
190,400 Banca Toscana * 347,941
577,600 Banco Ambrosiano Veneto SPA (Non Convertible) 879,289
6,622,664 Banco di Napoli (Non Convertible) * 1,761,121
3,500,000 Bastogi-IRBS SPA * 168,611
564,700 Benetton Group SPA (a) 6,585,217
283,750 Caffaro SPA 300,729
600,900 Cartiere Burgo SPA 3,247,973
363,500 Cementir Cementerie del Tirreno SPA 294,192
1,566,300 Cia Italiana dei Grandi Alberghi Cigahotels SPA * 712,302
392,500 COFIDE SPA (Non Convertible) * 94,542
1,447,243 COFIDE SPA * 537,310
565,000 Comau Finanziaria SPA 794,783
222,500 Compagnia Italiana Grandi Alberghi (Non Convertible) * 132,771
83,967 Credito Fondiario 114,880
2,173,910 Credito Italiano (Non Convertible) 2,164,359
89,600 Danieli and Co SPA 641,710
173,000 Danieli and Co SPA (Non Convertible) 615,619
962,300 Edison SPA 4,839,809
41,750 Ericsson SPA 533,661
211,700 Falck Acciaierie and Ferriere Lombarde * 592,875
2,851,200 Fiat SPA 8,973,870
2,146,400 Fiat SPA Preferred 4,094,710
2,584,000 Fiat SPA (Non Convertible) 4,730,351
958,450 FIDIS SPA 2,678,026
See accompanying notes to the financial statements. 9
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
ITALY - CONTINUED
27,000 Filippo SPA * 8,671
222,000 Finmeccanica SPA (Non Convertible) * 103,953
737,925 Finmeccanica SPA * 336,532
510,000 Gemina SPA (Non Convertible) * 189,018
4,043,100 Gemina * 1,690,641
947,440 Gilardini SPA 1,277,989
658,000 Grassetto SPA * 198,223
315,600 IFI Istituto Finanziario Preferred 3,165,447
979,100 IFIL Finanziaria di Partecipazioni * 3,223,123
926,400 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 1,630,441
1,439,650 Industriali Riunite SPA * 827,630
732,000 Industriali Riunite (Cie) SPA (Non Convertible) * 224,277
832,110 Istituto Bancario San Paolo 5,048,225
316,100 Italcementi Fabbriche Riunite Cemento SPA (a) 2,213,130
176,150 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 480,870
1,691,300 Italgas SPA 5,247,154
109,400 Luxottica Group Sponsored ADR 7,685,350
17,000 Magona d'Italia SPA 63,333
100,500 Marzotto and Figli SPA 710,092
257,200 Mondadori Editore 2,235,243
8,586,620 Montedison SPA * (a) 5,267,222
1,150,000 Montedison SPA (Non Convertible) * 547,359
535,000 Montefibre SPA 364,264
445,000 Montefibre SPA (Non Convertible) 242,674
9,286,250 Olivetti and Co SPA * (a) 5,511,482
297,500 Olivetti and Co SPA Preferred * 248,420
738,000 Olivetti and Co SPA (Non Convertible) * 350,787
2,912,800 Parmalat Finanziaria SPA (a) 2,709,164
2,459,175 Pirelli and Co 3,269,759
266,000 Pirelli and Co (Non Convertible) 239,202
227,000 Pirelli SPA (Non Convertible) * 251,519
332,200 Ratti SPA 634,808
21,100 Recordati Industria Chimica e Farmaceutica SPA 178,901
72,818 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 363,894
413,900 Rinascente per l'Esercizio di Grandi Magazzini SPA (a) 2,865,961
455,100 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 1,271,605
367,600 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 1,168,791
320,000 SAFFA SPA * (a) 750,238
30,912 SAFILO SPA 552,979
440,533 Saipem SPA 1,355,408
307,000 Sasib SPA 1,252,184
164,200 Sasib SPA (Non Convertible) 376,528
573,100 Sirti SPA (a) 3,662,769
130,000 Snia BPD SPA (Convertible) 121,079
373,000 Snia BPD SPA (Non Convertible) 222,817
10 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
ITALY - CONTINUED
1,544,740 Societa Metallurgica Italia * (a) 620,142
194,000 Sorin Biomedica SPA 596,889
161,300 Stefanel SPA 233,116
311,570 STET SPA (a) 952,618
14,000 Teleco Cavi SPA 48,560
16,966,900 Telecom Italia SPA 28,390,056
3,999,500 Telecom Italia SPA di Risp (Non Convertible) (a) 5,510,475
27,850 Tosi (Franco) SPA 216,633
11,640 Unione Cementi Marchino Emiliane e di Augusta-Casale
(Non Convertible) * 32,411
------------------------
173,406,089
------------------------
JAPAN - 14.6%
68,000 Ajinomoto Co Inc 737,092
112,000 Alps Electric Co Ltd * 1,203,385
411,000 Amada Co Ltd 4,415,993
1,690,000 Aoki Corp * 6,395,550
53,000 Arabian Oil Co Ltd 2,348,388
269,000 Asahi Breweries Ltd * (a) 3,120,472
50,000 Asics Corp * 157,840
19,000 Bank of Kyoto Ltd 111,106
2,850 Bank of Kyoto Rights Expires 3/18/96 * 7,615
193,000 Bank of Yokohama Ltd 1,466,264
219,000 Banyu Pharmaceutical Co Ltd 2,707,046
62,000 Brother Industries Ltd 344,870
57,550 Canon Sales Co Inc (a) 1,417,272
131,000 Chiba Bank Ltd 1,041,324
37,900 Chubu Electric Power Co Inc 875,696
13,000 Chudenko Corp 451,174
78,000 Chugai Pharmaceutical Co Ltd 741,656
31,000 Chugoku Bank Ltd 548,255
17,700 Chugoku Electric Power Co Inc 403,917
621,000 Cosmo Oil Co Ltd 3,412,931
251,000 CSK Corp 7,303,033
529,000 Dai Nippon Printing Co Ltd 9,104,212
42,000 Dai Tokyo Fire and Marine Insurance Co Ltd 305,505
934,000 Daicel Chemical Industries Ltd 5,461,729
86,000 Daiichi Seiyaku Co Ltd 1,324,712
95,000 Daikin Industries Ltd 984,596
132,000 Daikyo Inc 863,516
214,000 Dainippon Ink & Chemicals Inc 972,635
50,000 Dainippon Pharmaceutical Co Ltd 470,667
41,000 Dainippon Screen Manufacturing Co Ltd * 382,048
36,000 Daito Trust Construction Co Ltd 407,341
246,000 Daiwa Bank Ltd (a) 1,660,740
108,000 Daiwa Kosho Lease Co Ltd 1,129,600
See accompanying notes to the financial statements. 11
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
14,000 Denny's Japan Co Ltd 440,620
2,027 East Japan Railway Co 10,349,900
82,000 Eisai Co Ltd (a) 1,497,005
14,000 Ezaki Glico Co Ltd 128,858
153,000 Fuji Heavy Industries Ltd * 624,104
300,000 Fuji Photo Film Co Ltd 8,500,523
860,000 Fujisawa Pharmaceutical Co Ltd 8,177,237
308,000 Fujita Corp 1,420,367
63,000 Fujita Kanko Inc 1,275,934
1,454,000 Fujitsu Ltd (a) 14,931,254
17,000 Fujiya Co Ltd * 71,608
2,000 Fukuoka City Bank Ltd 14,263
199,000 Fukuyama Transporting Co Ltd (a) 1,854,331
176,000 Furukawa Electric Co Ltd 918,741
305,000 Gakken Co Ltd * 1,995,246
237,000 General Sekiyu (KK) 2,276,029
61,000 Green Cross Corp (a) 333,508
603,000 Hankyu Corp * 3,474,546
46,000 Hankyu Department Stores Inc (a) 647,333
226,000 Hanwa Co Ltd * 784,349
849,000 Haseko Corp 3,067,605
297,000 Hazama-Gumi Ltd 1,174,784
80,000 Heiwa Real Estate Co Ltd 574,308
52,000 Higo Bank Ltd 420,272
99,000 Hiroshima Bank Ltd 471,608
301,000 Hitachi Cable Ltd 2,295,350
1,962,300 Hitachi Ltd 19,777,864
43,000 Hitachi Maxell Ltd (a) 801,369
97,000 Hokkaido Bank Ltd 285,918
24,000 Hokkaido Takushoku Bank Ltd 59,104
70,000 Hokuriku Bank Ltd 397,357
117,000 Honda Motor Co Ltd 2,480,841
11,000 House Foods Corp 197,680
118,000 Hoya Corp 3,926,975
284,000 INAX Corp 2,754,398
119,000 Intec Inc (a) 1,719,882
380,000 Itochu Corp 2,543,691
29,000 Itoham Foods Inc 217,562
3,000 Izumiya Co Ltd 50,204
54,000 Japan Airport Terminal Co Ltd 657,222
1,076,000 Japan Energy Co Ltd 3,785,490
698,000 Japan Synthetic Rubber Co Ltd 4,612,627
913 Japan Tobacco Inc 8,594,371
170,000 Joshin Denki Co Ltd 2,036,702
223,000 Kajima Corp 2,247,599
12 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
26,000 Kaken Pharmaceutical Co Ltd 220,025
122,000 Kamigumi Co Ltd (a) 1,183,227
357,000 Kankaku Securities Co Ltd * 1,418,903
11,000 Kansai Paint Co Ltd 51,355
62,000 Kao Corp 778,169
352,000 Keihin Electric Express Railway Co Ltd (a) 2,031,606
453,000 Keio Teito Electric Railway Co Ltd (a) 2,567,158
191,000 Keisei Electric Railway Co Ltd (a) 1,743,463
1,097,000 Kinki Nippon Railway Co Ltd (a) 8,344,585
388,000 Kirin Brewery Co Ltd 4,500,903
14,000 Kissei Pharmaceutical Co Ltd 448,607
2,000 Koito Manufacturing Co Ltd 13,236
213,000 Kokusai Kogyo Co Ltd 2,167,063
61,000 Kokuyo Co Ltd 1,467,434
271,000 Komatsu Ltd 2,342,293
15,300 Konami Co Ltd (a) 400,067
94,000 Konica Corp 650,680
277,000 Koyo Seiko Co Ltd 2,478,435
2,421,000 Kumagai Gumi Co Ltd 9,898,545
678,000 Kurabo Industries Ltd 2,643,149
887,000 Kureha Chemical Industry Co Ltd 4,318,190
40,000 Kyodo Printing Co Ltd (a) 467,814
143,000 Kyowa Hakko Kogyo Co Ltd 1,306,675
164,000 Lion Corp (a) 949,662
227,000 Maeda Corp (a) 2,223,163
284,000 Makino Milling Machine Co Ltd * 2,916,421
693,000 Marubeni Corp 3,749,330
284,000 Marudai Food Co Ltd 1,995,588
592,000 Marui Co Ltd * 11,370,543
856,000 Matsushita Electric Industrial Co Ltd 13,673,861
623,000 Matsushita Electric Works Ltd (a) 6,693,829
299,000 Mazda Motor Corp * 1,151,422
27,000 Meiji Milk Products Co Ltd 175,088
90,000 Meiji Seika Kaisha Ltd 551,108
88,000 Mercian Corp (a) 611,657
713,000 Minebea Co Ltd 6,169,345
955,000 Mitsubishi Electric Corp 6,992,013
957,000 Mitsubishi Estate Co Ltd 11,647,428
740,000 Mitsubishi Gas Chemical Co Inc 3,482,932
2,857,000 Mitsubishi Materials Corp 14,805,220
442,000 Mitsubishi Oil Co Ltd 3,820,272
161,000 Mitsubishi Rayon Co Ltd 681,230
508,000 Mitsubishi Trust & Banking Corp (a) 7,825,045
80,000 Mitsubishi Warehouse & Transportation Co Ltd 1,277,931
596,000 Mitsui Fudosan Co Ltd 6,970,429
See accompanying notes to the financial statements. 13
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
147,000 Mitsui Mining Co Ltd * 626,186
791,000 Mitsui Petrochemical Industries Ltd 6,498,279
450,000 Mitsui Trust & Banking Co Ltd (a) 4,621,090
61,000 Mitsui-Soko Co Ltd 477,931
43,000 Mochida Pharmaceutical Co Ltd (a) 592,850
27,000 Mori Seiki Co Ltd (a) 562,233
560,000 Nagoya Railroad Co Ltd (a) 2,875,345
23,500 Namco Ltd (a) 744,081
326,000 Nankai Electric Railway Co Ltd (a) 2,256,613
905,000 NEC Corp (a) 10,756,394
313,000 New Japan Securities Co Ltd * 1,839,251
504,000 Nichiei Co Ltd 2,017,534
72,000 Nichii Co Ltd (a) 1,026,909
29,000 Nichirei Corp 191,918
61,000 Nihon Cement Co Ltd 406,009
16,000 Nippon Beet Sugar Manufacturing Co Ltd 73,785
41,000 Nippon Chemi-Con Corp * 260,027
22,000 Nippon Credit Bank Ltd (a) 85,766
44,000 Nippon Denko Co Ltd 166,511
745,000 Nippon Express Co Ltd 6,835,837
19,000 Nippon Flour Mills Co Ltd 102,795
58,000 Nippon Kayaku Co Ltd 383,836
22,000 Nippon Meat Packers Inc 322,145
4,601,000 Nippon Oil Co Ltd (a) 27,648,873
1,203,000 Nippon Sheet Glass Co Ltd 5,536,294
252,000 Nippon Suisan Kaisha Ltd * 1,063,878
38,000 Nippon Yakin Kogyo Co Ltd * 168,014
1,562,000 Nissan Motor Co Ltd 12,089,645
23,000 Nisshin Flour Milling Co Ltd 271,180
502,000 Nisshinbo Industries Inc 4,773,224
211,000 Nissho Iwai Corp 985,081
12,000 Nissin Food Products Co Ltd 286,393
58,000 Nitto Boseki Co Ltd * 180,337
433,000 Nitto Denko Corp (a) 6,546,258
680,000 NSK Ltd 4,978,606
501,000 Odakyu Electric Railway Co Ltd (a) 3,572,787
164,000 Okamoto Industries Inc 1,026,072
67,000 Olympus Optical Co Ltd 634,516
40,000 Ono Pharmaceutical Co Ltd 1,475,706
112,000 Onoda Cement Co Ltd 648,550
35,000 Onward Kashiyama Co Ltd (a) 519,159
3,000 Orient Corp 15,717
989,000 Renown Inc * 3,375,972
173,000 Ricoh Co Ltd (a) 1,858,800
172,000 Royal Co Ltd 2,878,387
14 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
42,000 Ryobi Ltd (a) 218,446
288,000 Sagami Railway Co Ltd 1,243,244
61,000 Sanden Corp 379,329
47,000 Sankyo Aluminum Industry Co Ltd 267,244
142,000 Sankyo Co Ltd 3,267,472
21,000 Sanrio Co Ltd * 217,648
44,000 Sanwa Shutter Corp 358,543
541,000 Sanyo Electric Co Ltd 3,251,041
8,000 Sanyo Securities Co Ltd * 31,948
123,000 Sapporo Breweries Ltd (a) 1,101,702
55,500 Secom Co Ltd (a) 3,461,824
82,000 Seibu Railway Co Ltd 3,750,309
346,000 Seino Transportation Co Ltd (a) 5,757,345
342,000 Sekisui Chemical Co Ltd 4,357,516
626,000 Sekisui House Ltd (a) 7,797,471
847,000 Settsu Corp * 2,834,877
56,000 Shimadzu Corp 332,795
236,000 Shionogi and Co Ltd 1,936,560
245,000 Shiseido Co Ltd 2,772,178
41,000 Shochiku Co Ltd (a) 471,712
34,000 Shokusan Jutaku Sogo Co Ltd * 128,668
372,000 Showa Shell Sekiyu 3,431,016
161,000 Skylark Co Ltd 2,847,390
31,000 Snow Brand Milk Products Co Ltd 199,553
120,000 Sony Corp (a) 7,028,620
46,000 Stanley Electric Co Ltd 314,919
77,000 Sumitomo Coal Mining Co Ltd 358,753
1,204,000 Sumitomo Corp 12,135,019
33,000 Sumitomo Forestry Co Ltd 498,907
844,000 Sumitomo Metal Industries Ltd * 2,375,430
211,000 Sumitomo Osaka Cement Co Ltd 985,081
307,000 Sumitomo Realty and Development Co Ltd * 2,087,145
23,000 Sumitomo Sitix Corp (a) 470,191
425,000 Sumitomo Trust & Banking Co Ltd 5,293,810
62,000 Sumitomo Warehouse Co Ltd 384,368
19,000 SXL Corp Ltd (a) 195,113
277,000 Taisei Corp 1,804,174
109,000 Taisho Pharmaceutical Co Ltd 2,176,476
26,000 Taiyo Yuden Co Ltd 262,052
75,000 Takara Shuzo Co Ltd (a) 812,969
281,000 Takeda Chemical Industries Ltd 4,515,451
508,000 Tanabe Seiyaku Co Ltd 3,661,348
2,468,000 Teijin Ltd 13,117,923
264,000 Teikoku Oil Co Ltd 1,706,951
109,000 Terumo Corp 1,129,695
See accompanying notes to the financial statements. 15
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
33,000 The Japan Steel Works Ltd * 102,605
636,000 Toa Nenryo Kogyo (KK) 9,373,395
599,000 Tobu Railway Co Ltd 3,798,926
75,000 Toei Co Ltd 470,667
9,200 Toho Co Ltd 1,513,359
100,000 Tokyo Broadcasting System Inc 1,682,989
88,000 Tokyo Dome Corp 1,481,031
313,000 Tokyo Electric Co Ltd * 1,532,709
166,000 Tokyo Tatemono Co Ltd * 838,129
157,000 Tokyotokeiba Co Ltd 686,698
631,000 Tokyu Construction Co Ltd 2,939,907
766,000 Tokyu Corp 5,549,986
182,000 Tokyu Department Store Co Ltd 1,149,073
339,000 Tokyu Land Corp 1,366,702
442,000 Toppan Printing Co Ltd 5,757,726
126,000 Toshiba Tungaloy Co Ltd * 754,778
44,000 Tostem Corp 1,351,336
65,000 Toto Ltd (a) 902,349
43,000 Toyo Engineering Corp 286,203
9,000 Toyo Exterior Co Ltd 200,247
258,000 Toyo Ink Manufacturing Co Ltd 1,363,963
119,000 Toyo Trust & Banking Co Ltd 1,073,795
169,000 Toyota Motor Corp 3,647,713
39,000 Tsumura and Co (a) 678,616
18,000 Unicharm Corp 443,282
172,000 Victor Co of Japan Ltd * 2,109,727
252,000 Wacoal Corp 3,138,918
141,000 Yakult Honsha Co Ltd 1,890,368
113,000 Yamaguchi Bank Ltd 1,869,545
48,000 Yamaha Corp 862,603
1,322,000 Yamaichi Securities Co Ltd 9,565,865
103,000 Yamanouchi Pharmaceutical Co Ltd (a) 2,301,512
257,000 Yamato Transport Co Ltd (a) 2,883,522
21,000 Yamazaki Baking Co Ltd 373,395
272,000 Yasuda Trust and Banking Co Ltd (a) 1,466,426
78,000 Yokogawa Bridge Corp (a) 1,105,068
120,000 Yokogawa Electric Corp 1,277,931
43,000 Yoshitomi Pharmaceutical Industries Co Ltd 392,507
------------------------
662,490,389
------------------------
MALAYSIA - 0.3%
2,181,596 Amcol Holdings Ltd 5,901,425
330,000 Antah Holding Berhad * 381,944
164,000 DMIB Berhad 165,364
4,489,000 Faber Group Berhad * 4,403,052
194,000 Golden Hope Plantations Berhad 312,068
16 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
MALAYSIA - CONTINUED
238,000 Highlands and Lowlands Berhad 377,244
326,000 Idris Hydraulic Berhad * 457,894
824,000 Kuala Lumpur Kepong Berhad 2,532,422
330,000 Malayan United Industries Berhad 284,840
164,000 Malaysia Mining Corp Berhad 259,950
47,000 Perlis Plantations 162,272
185,000 Selangor Properties Berhad 188,716
------------------------
15,427,191
------------------------
NEW ZEALAND - 0.6%
814,641 Air New Zealand Ltd Class B 2,550,325
1,824,583 Brierley Investment Ltd 1,584,637
280,807 Carter Holt Harvey Ltd 601,190
27,250 Ceramco Corp Ltd 38,527
821,850 DB Group Ltd 470,314
295,566 Fisher and Paykel Industries Ltd 895,454
742,401 Fletcher Challenge Forest 1,034,630
5,249,368 Fletcher Challenge Ltd 12,051,407
67,786 Independent Newspapers Ltd 230,923
2,537,829 Lion Nathan Ltd 5,552,928
153,850 Telecom Corp of New Zealand 689,840
1,214,907 Trans Tasman Properties * 629,811
98,307 Wilson and Horton Ltd 615,522
------------------------
26,945,508
------------------------
NORWAY - 2.0%
102,400 Aker AS Class A 1,760,330
62,000 Aker AS Class B (Non-Voting) 968,932
285,790 Bergesen d y AS Class A 5,359,567
130,070 Bergesen d y AS Class B 2,337,634
72,300 Christiana Bank OG 185,303
540,000 Den Norske Bank AS Series A 1,755,329
85,850 Det Norske Luftfartsselskab AS Class B 3,937,766
120,400 Dyno Industrier AS 2,558,980
200,050 Elkem AS Class A 2,407,303
201,699 Hafslund Nycomed AS Class A 5,547,763
278,944 Hafslund Nycomed AS Class B 7,410,840
104,840 Kvaerner Industrier AS 3,358,786
6,950 Kvaerner Industrier AS Class B (Non Voting) * 200,936
203,420 Leif Hoegh and Co AS 2,956,501
272,571 NCL Holdings Class A * 634,698
871,840 Norsk Hydro AS 37,196,399
64,100 Norske Skogindustrier AS Series A 1,933,378
21,000 Norske Skogindustrier AS Series B 595,659
124,990 Orkla-Borregaard AS Series A 5,664,672
42,450 Orkla-Borregaard AS Series B (Non Voting) 1,791,195
13,500 Saga Petroleum AS Series A 164,562
See accompanying notes to the financial statements. 17
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
NORWAY - CONTINUED
1,800 Schibsted AS 25,880
17,500 Uni Storebrand AS * 94,627
203,810 Unitor AS 3,185,128
------------------------
92,032,168
------------------------
SINGAPORE - 3.2%
81,000 Auric Pacific Group 137,089
2,942,852 Chuan Hup Holdings Ltd 2,542,421
3,912,096 DBS Land Ltd 15,375,231
3,941,000 Faber Group Berhad * 3,767,553
54,000 Far East Levingston Shipbuilding Ltd 321,212
1,199,309 First Capital Corp Ltd 3,736,827
1,242,148 Fraser and Neave Ltd 16,624,719
38,000 Golden Hope Plantations Berhad 60,277
3,841,936 Hai Sun Hup Group Ltd 2,775,041
1,506,351 Haw Par Brothers International Ltd * 3,434,798
848,000 Highlands and Lowlands Berhad 1,339,121
2,716,104 Hotel Properties Ltd 4,923,858
631,708 Inchcape Berhad 2,191,955
2,663,629 Jardine Matheson Holdings Ltd 21,309,032
6,073,521 Jardine Strategic Holdings Ltd 20,649,971
630,712 Jurong Shipyard Ltd 3,997,360
1,444,849 Lum Chang Holdings Ltd 1,371,028
524,000 Malaysia Mining Corp Berhad 823,765
360,000 Marco Polo Developments Ltd 726,552
610,000 Metro Holdings Ltd 2,419,006
4,889,556 Neptune Orient Lines Ltd 5,643,860
283,200 Prima Ltd 1,102,999
484,424 Robinson and Co Ltd 2,109,696
290,956 Shangri-La Hotel Ltd 1,030,188
341,712 Singapore Land Ltd 2,589,186
2,504,168 Straits Trading Co Ltd 6,667,614
449,036 Times Publishing Ltd 1,125,651
314,000 United Engineers 675,962
10,223,960 United Industrial Corp Ltd 11,294,393
1,472,116 United Overseas Land Ltd * 3,075,270
635,300 Wearne Brothers Ltd 1,493,606
------------------------
145,335,241
------------------------
SPAIN - 4.1%
383,128 Argentaria Corporacion Bancaria de Espana SA 17,279,779
87,124 Asland SA 1,764,733
49,743 Asturiana del Zinc SA * 480,463
221,991 Autopistas Concesionaria Espanola SA (Registered) 2,368,478
253,096 Autopistas del Mare Nostrum SA 3,160,631
21,370 Azucarera de Espana SA 739,279
705,549 Banco Bilbao Vizcaya SA 27,487,441
18 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
SPAIN - CONTINUED
340,504 Banco Central Hispanoamericano SA 7,623,635
33,600 Banco Zaragozano SA 570,320
38,027 Bankinter SA 4,087,933
2,000 Bodegas Y Bebidas SA 50,760
4,404 Corporacion Mapfre (Registered) (a) 245,616
23,490 Cristaleria Espanola SA * 1,507,522
5,290 Cubiertas y MZOV SA 342,063
456,305 Dragados y Construcciones SA (a) 6,417,481
123,073 Ebro Agricolas Compania de Alimentacion SA 1,507,077
81,628 Empresa Nacional de Celulosa SA 1,134,822
92,815 Empresa Nacional de Electricidad SA 5,288,925
497,525 Ercros SA (a) 373,988
19,835 Fabricacion de Automoviles Renault de Espana SA 439,281
2,492,826 FENOSA SA 14,063,955
1,050 Fomento Construcciones y Contratas SA 89,028
1,840,907 Fuerzas Electricas de Cataluna SA 12,677,439
27,211 General Aguas de Barcelona SA 884,160
61,186 Grupo Duro Felguera SA * 314,041
28,400 Hornos Ibericos Alba SA 299,564
172,983 Huarte SA 616,598
1,556,480 Iberdrola SA 15,348,413
1,550 Koipe SA 88,324
29,771 Prosegur Cia SA 1,082,844
415,904 Repsol SA 15,194,682
257,110 Sarrio SA 928,938
2,019,964 Sevillana de Electricidad 15,494,228
180,726 Tabacalera SA Series A 7,961,176
117,401 Tableros Defibras Series B 1,257,326
8,400 Telefonica de Espana ADR 412,650
625,704 Telefonica de Espana SA 10,291,850
397,275 Uralita SA 3,821,187
115,306 Vallehermoso SA 2,208,820
------------------------
185,905,450
------------------------
SWEDEN - 0.8%
80,040 AGA AB Series A 1,185,769
90,500 AGA AB Series B 1,307,213
11,750 Atlas Copco AB Series B 203,665
116,100 Bilspedition AB Series B * 368,077
7,000 Celsius Industrier AB Class B 192,369
67,920 Electrolux AB Series B * 3,335,602
11,900 Esselte AB Series A 204,502
23,000 Esselte AB Series B 402,071
130,216 Fastighets AB (Hufvudstaden) Series A 871,958
35,900 Hennes and Mauritz AB Series B 2,382,679
12,491 Incentive AB Series A 632,873
See accompanying notes to the financial statements. 19
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
SWEDEN - CONTINUED
9,224 Incentive AB Series B 461,197
6,473 Industrivarden AB Series C (Bearer) 200,422
10,118 Industrivarden AB Series A 325,273
10,200 Investor AB Series A (a) 383,064
8,000 Investor AB Series B (a) 301,035
99,120 Marieberg Tidnings AB Series A 2,643,180
12,300 Mo Och Domsjoe AB Series B 606,796
9,900 Perstorp AB Series B 129,066
27,875 Sandvik AB Class B 557,496
77,000 Skandia Group Foersaekrings AB 1,802,357
611,360 Skandinaviska Enskilda Banken Series A 4,465,159
24,200 Skandinaviska Enskilda Banken Series C * 162,766
148,940 Skanska AB Series B 4,655,720
47,720 SKF AB Class B 1,046,297
50,300 Sparbanken Sverige AB Class A 543,981
3,500 Stadshypotek AB Class A 70,518
16,000 Stora Kopparberg Bergslags Series B 206,221
8,017 Svedala Industries 247,041
232,100 Svenska Handelsbanken Series A 4,470,041
23,800 Svenska Handelsbanken Series B 437,212
28,800 Trelleborg AB Class B 347,731
------------------------
35,149,351
------------------------
SWITZERLAND - 4.1%
2,875 Adia SA (Bearer) 549,333
350 Baer Holdings AG 354,819
3,635 Baloise Holdings 7,036,462
2,576 Banque Cantonale Vaudoise (Bearer) 704,988
1,370 Bobst SA (Bearer) 2,171,882
1,553 Bobst SA (Registered) 1,127,334
2,907 CIBA-GEIGY AG (Bearer) 2,588,043
254,943 CS Holdings (Registered) 24,303,077
890 Danzas Holding AG (Registered) 1,017,355
3,792 Elektrowatt AG (Bearer) 1,369,992
410 Fischer (George) AG (Bearer) 519,641
350 Fischer (George) AG (Registered) 84,105
850 Forbo Holdings AG (Registered) 358,865
175 Gottardo (Banca De) 96,370
945 Helvetia Schweizerische Versicherungsgesellschaft 433,667
296 Hero AG (Bearer) 130,897
4,650 Hilti AG, Schaan (Participating Certificate) 3,608,260
3,650 Holderbank Financiere Glarus AG (Bearer) 2,619,107
16,370 Holderbank Financiere Glarus AG (Registered) 2,390,280
6,720 Interdiscount Holdings (Bearer) * 409,312
1,675 Intershop Holding AG (Bearer) 936,379
460 Kuoni Reisen Holdings AG (Registered) 844,389
20 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
SWITZERLAND - CONTINUED
770 Magazine zum Globus (Registered) 462,578
7,016 Merkur Holding AG (Registered) 1,563,014
2,340 Pargesa Holding SA (Bearer) 2,831,039
1,100 Sandoz AG Basel (Bearer) 1,033,458
650 Saurer Group Holdings (Registered) 273,884
1,649 Schindler Holdings AG (Participating Certificate) 1,843,688
1,558 Schindler Holdings AG (Registered) 1,741,944
3,207 Schindler Holdings Warrants, Expires 12/16/96 * 9,365
7,735 Schweizerische Rueckversicherungs-Gesellschaft (Bearer) 8,067,376
1,843 Sika Finanz AG (Bearer) 447,487
3,200 Sika Finanz AG (Registered) 124,155
4,034 SMH AG (Bearer) 2,521,040
17,292 SMH AG (Registered) 2,380,626
700 Societe Generale de Surveillance Holdings Ltd (Registered) 259,908
2,142 Sulzer Gebrueder AG (Registered) 1,394,043
50,270 Swiss Bank Corp (Bearer) 18,497,347
39,299 Swiss Bank Corp (Registered) 7,230,229
23,461 Union Bank of Switzerland (Bearer) 24,508,279
2,768 Union Bank of Switzerland (Registered) 635,127
6,638 Winterthur Schweizerische Versicherungs-Gesellschaft (Bearer) 4,303,484
22,668 Winterthur Schweizerische Versicherungs-Gesellschaft (Registered) 14,752,641
138,064 Zurich Vericher Namen (Registered) 37,669,527
------------------------
186,204,796
------------------------
UNITED KINGDOM - 21.5%
867,400 Allied Colloids Plc * 1,726,273
4,650 Allied Domecq Plc 36,875
143,221 AMEC Plc 218,161
70,620 Amersham International Plc 960,036
855,182 Amstrad Plc 2,801,684
224,999 Anglian Water Plc 1,956,482
492,000 Argos Plc 4,628,431
4,802,171 Argyll Group 21,687,348
579,420 Arjo Wiggins Appleton Plc 1,809,550
21,405,668 ASDA Group Plc 33,916,885
485,300 Ashley (Laura) Holdings * 1,025,265
764,247 Associated British Foods 4,633,144
267,567 Associated British Ports 1,220,663
749,961 BAA Plc 5,614,284
302,600 Barratt Developments Plc 1,165,075
2,499,348 Bass Plc 29,041,252
2,282,560 BAT Industries Plc 19,970,331
460,500 Beazer Holmes Plc 1,216,090
471,599 Berisford International Plc 1,342,866
1,196,900 Blue Circle Industries 6,440,655
See accompanying notes to the financial statements. 21
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
583,083 Boots Co Plc 5,297,829
516,138 British Aerospace Plc 6,862,502
3,071,363 British Gas Inc 11,178,885
278,727 British Land Co Plc 1,679,077
9,678,057 British Petroleum Co Plc 80,007,142
1,528 British Petroleum Co Plc ADR 153,373
2,705,305 British Steel Plc 7,610,101
2,449,324 BTR Plc 12,092,686
728,735 Bunzl Plc 2,186,616
7,254,023 Burton Group Plc 14,769,894
276,300 Calor Group 1,068,044
141,230 Carlton Communications Plc 904,294
141,348 Charter Plc (Registered) 1,832,820
513,187 Coats Viyella Plc 1,579,132
366,646 Cobham Group Plc 3,129,238
525,800 Compass Group 3,916,068
538,399 Costain Group * 609,934
71,945 Courtaulds Textiles Plc 467,547
141,336 Dawson International Plc 205,553
105,399 Delta Plc 649,455
585,936 Dixons Group Plc 4,153,154
11,828 East Midlands Electricity 131,279
669,601 English China Clays Plc 3,500,690
341,715 Eurotunnel SA (Registered) * 431,583
27,925 First Leisure Corp Plc 161,596
8,112,215 General Electric Co Plc 45,950,263
8,075,624 Glaxo Wellcome Plc 111,637,644
1,413,722 Grand Metropolitan Plc 9,392,919
1,188,321 Great Portland Estates Plc 2,928,913
2,275,779 Great Universal Stores Plc 23,081,434
696,623 Greenalls Group Plc 6,121,481
394,468 Greycoat Plc * 948,109
1,918,155 Hammerson Property Investment and Development Corp Plc 10,116,255
500,870 Harrisons & Crosfield Plc 1,242,187
169,945 Hazlewood Foods Plc 262,770
2,282,317 Hillsdown Holdings Plc 5,992,208
1,025,891 Imperial Chemical Industries Plc 14,181,945
1,485,700 Inchcape 5,799,868
3,038,725 Ladbroke Group Plc 8,675,950
26,354 Laing (John) Plc 106,713
295,305 Laing (John) Plc Class A 1,188,977
5,493,000 Lasmo Plc * 15,557,082
364,625 Lex Service Plc (Ordinary) 1,825,328
198,064 London Electric Plc 2,233,187
22 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
1,164,838 London International Group Plc 1,997,241
5,230,537 Lonrho Plc 15,574,450
1,673,533 Marks & Spencer Plc 10,734,829
235,664 Marley Plc 438,345
283,228 Meyer International Plc 1,790,742
282,104 Midlands Electricity Plc 1,684,305
294,789 Mirror Group Plc 977,048
339,441 Nationa Grid Holdings Plc * 1,015,916
1,142,839 National Power Plc 8,424,190
492,010 NFC Var V 1,190,085
574,499 Norcros Plc * 729,985
18,540 Northern Electric Plc 181,792
20,959 Northern Electric Plc Preferred 8.06% * 32,888
580,491 Northern Foods Plc 1,706,253
20,534 Northumbrian Water Group Plc 364,652
225,081 Ocean Group Plc 1,335,234
1,925,349 Peninsular and Oriental Steam Navigation Co 15,415,513
3,038,394 Pilkington Plc 9,721,587
1,033,692 Powergen Plc 8,545,387
921,093 Racal Electronics Plc 4,314,910
1,359,900 Rank Organization 10,107,483
694,499 Reckitt & Colman Plc 6,995,912
946,182 Redland Plc 6,243,078
1,609,200 Rexam Plc 8,942,593
4,778,373 Rolls-Royce Plc 15,142,487
451,682 Rugby Group 781,372
1,204,453 Sainsbury Plc 6,923,834
272,323 Scottish Hydro-Electric Plc 1,388,275
147,316 Scottish & Newcastle Plc 1,498,621
1,055,378 Sears Plc 1,542,973
113,674 Securicor Group Plc Class A (Non-Voting) 1,622,769
260,616 Severn Trent Plc 2,473,658
3,746,418 Shell Transport & Trading Co (Registered) 48,406,703
703,100 Siebe 8,697,116
2,271,655 Signet Group Plc * 608,593
922,810 Simon Engineering Plc * 1,017,165
424,244 Slough Estates Plc 1,367,145
3,351,107 Smith & Nephew Plc 9,593,492
3,373,351 Smithkline Beecham Plc Class A 35,917,449
4,077,987 Smithkline Beecham Plc Equity Units 43,669,717
95,780 South West Water Plc 718,485
155,664 Southern Water Plc * 1,568,054
See accompanying notes to the financial statements. 23
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
76,621 Suter Plc 181,814
869,831 T and N Plc 2,103,966
8,438,950 Tarmac Plc 15,309,238
3,589,386 Taylor Woodrow Plc 8,050,162
2,414,766 Tesco 9,740,976
285,328 Thames Water Plc 2,321,638
140,267 Thorn Emi Plc Ord 3,493,734
1,941,200 Tomkins Plc 7,815,790
3,532,885 Trafalgar House Plc * 2,555,513
107,588 Transport Development Group Plc 354,119
326,844 Unigate Plc 2,221,623
758,728 Unilever Plc 14,019,748
757,559 United Biscuits Holdings Plc 2,725,406
347,187 United Utilities Plc 3,088,065
343,200 Vendome Luxury Group Plc 2,858,203
615,000 Waste Management International * 3,144,622
82,226 Welsh Water Plc 932,769
15,547 Wessex Water Plc 79,733
1,094,264 Whitbread Plc Class A (Limited Voting) 11,927,486
652,174 Wilson (Connolly) Holdings Plc 1,727,255
1,270,888 Wimpey (George) Plc 2,684,931
28,111 Wolseley Plc 203,341
144,097 Yorkshire Water Plc 1,369,916
------------------------
973,545,449
------------------------
TOTAL STOCK AND EQUIVALENTS (Cost $3,188,591,152) 3,535,092,238
------------------------
PAR VALUE ($)/
SHARES SHORT-TERM INVESTMENTS - 21.9%
U.S. GOVERNMENT - 1.5%
$ 72,500,000 U.S. Treasury Bill, 5.10% due 1/9/97 (b) 69,388,782
------------------------
CASH EQUIVALENTS - 20.4%
JPY 5,000,000,000 Chemical Bank Cash Sweep, 0.05% due 3/1/96 47,542,075
$ 207,200,000 First National Bank of Chicago Time Deposit, 5.38% due 3/1/96 207,200,000
DEM 75,000,000 Kredietbank Brussels Cash Sweep, 2.53% due 3/1/96 51,030,823
DEM 75,000,000 Nations Bank Cash Sweep, 2.53% due 3/1/96 51,030,823
JPY 5,000,000,000 Natwest Bank Cash Sweep, .05% due 3/1/96 47,542,075
230,972,703 The Boston Global Investment Trust Money Market Fund 230,972,703
107,570,588 The Liquid Assets Portfolio of Short Term Investments Co 107,570,588
$ 133,100,000 Wachovia Bank Time Deposit, 5.46% due 3/1/96 133,100,000
JPY 5,000,000,000 Westlandesdeutsche Bank Cash Sweep, .05% due 3/1/96 47,542,075
------------------------
923,531,162
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $992,860,285) 992,919,944
------------------------
24 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.8%
(Cost $4,181,451,437) * * 4,528,012,182
Other Assets and Liabilities (net) - 0.2% 10,024,041
------------------------
TOTAL NET ASSETS - 100.0% $ 4,538,036,223
========================
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
$4,188,145,473, resulting in gross
unrealized appreciation and depreciation
of $484,588,356 and $144,721,647, respectively,
and net unrealized appreciation of $339,866,709.
Currency Abbreviations
DEM - German Deutsche Mark
JPY - Japanese Yen
</TABLE>
See accompanying notes to the financial statements. 25
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
At February 29, 1996, industry sector diversification of the Fund's equity
investment was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Banking 10.8%
Services 6.7
Health Care 5.6
Oil and Gas 5.3
Construction 4.4
Retail Trade 4.3
Transportation 4.1
Chemicals 3.4
Real Estate 3.3
Utilities 3.2
Food and Beverage 3.1
Technology 2.9
Telecommunications 2.5
Consumer Goods 2.3
Insurance 2.0
Metals and Mining 1.9
Machinery 1.9
Automotive 1.7
Conglomerates 1.2
Energy 1.1
Paper and Allied Products 0.8
Aerospace 0.8
Miscellaneous 4.6
------
77.9%
======
26 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $4,181,451,437) (Note 1) $ 4,528,012,182
Foreign currency, at value (cost $295,079,600) (Note 1) 279,681,331
Cash 52,306
Receivable for Fund shares sold 89,937,299
Receivable for investments sold 14,041,890
Dividends and interest receivable 3,177,787
Foreign withholding taxes receivable 3,885,775
Receivable for open forward foreign currency contracts (Note 5) 9,602,313
Receivable for closed swap contracts 3,516,760
Receivable for variation margin on open futures contracts 1,763,032
Receivable for expenses waived or borne by Manager (Note 2) 635,715
-----------------------
Total assets 4,934,306,390
-----------------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 338,483,135
Payable for investments purchased 39,581,605
Payable for open forward foreign currency contracts (Note 5) 12,100,226
Payable for open swap contracts (Note 5) 2,333,917
Payable for Fund shares repurchased 60,033
Payable to affiliate for management fee (Note 2) 2,650,420
Accrued expenses 1,060,831
-----------------------
Total liabilities 396,270,167
-----------------------
NET ASSETS (equivalent to $24.62 per share based
on 184,341,225 shares outstanding, unlimited shares authorized) $ 4,538,036,223
=======================
NET ASSETS CONSIST OF:
Paid-in capital $ 4,121,905,163
Accumulated undistributed net investment loss (5,469,509)
Accumulated undistributed net realized gain 94,418,541
Net unrealized appreciation 327,182,028
-----------------------
NET ASSETS $ 4,538,036,223
=======================
</TABLE>
See accompanying notes to the financial statements. 27
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $8,897,472) $ 74,224,279
Interest (including securities lending income of $695,727) 14,976,030
---------------------
Total income 89,200,309
---------------------
EXPENSES:
Management fee (Note 2) 25,419,063
Custodian fees 2,231,006
Registration fees 447,465
Stamp duties and transfer taxes 209,762
Legal fees 119,239
Audit fees 94,984
Transfer agent fees 35,788
Insurance 28,937
Trustee fee (Note 2) 12,818
Miscellaneous 210,332
---------------------
Total expenses 28,809,394
Less: expenses waived or borne by Manager (Note 2) (4,915,283)
---------------------
Net expenses 23,894,111
---------------------
Net investment income 65,306,198
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 85,335,552
Closed futures contracts 63,317,309
Closed swap contracts 3,516,760
Foreign currency, forward contracts and foreign
currency related transactions (42,681,742)
---------------------
Net realized gain 109,487,879
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 297,176,939
Open futures contracts 245,599
Open swap contracts (2,333,917)
Foreign currency, forward contracts and foreign
currency related transactions (5,617,453)
---------------------
Net unrealized gain 289,471,168
---------------------
Net realized and unrealized gain 398,959,047
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 464,265,245
=====================
</TABLE>
28 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 29, 1996 FEBRUARY 28, 1995
----------------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 65,306,198 $ 39,517,111
Net realized gain 109,487,879 238,738,544
Change in net unrealized appreciation (depreciation) 289,471,168 (424,074,855)
----------------------- ----------------------
Net increase (decrease) in net assets resulting from
operations 464,265,245 (145,819,200)
----------------------- ----------------------
Distributions to shareholders from:
Net investment income (62,905,553) (38,432,195)
Net realized gains (102,400,553) (172,566,881)
----------------------- ----------------------
(165,306,106) (210,999,076)
----------------------- ----------------------
Fund share transactions: (Note 4)
Proceeds from sale of shares 2,029,145,465 1,196,755,657
Net asset value of shares issued to shareholders
in payment of distributions declared 141,837,051 191,594,151
Cost of shares repurchased (523,551,284) (726,316,370)
----------------------- ----------------------
Net increase in net assets resulting
from Fund share transactions 1,647,431,232 662,033,438
----------------------- ----------------------
Total increase in net assets 1,946,390,371 305,215,162
NET ASSETS:
Beginning of period 2,591,645,852 2,286,430,690
----------------------- ----------------------
End of period (including accumulated undistributed
net investment income (loss) of ($5,469,509) and
$0, respectively) $ 4,538,036,223 $ 2,591,645,852
======================= ======================
</TABLE>
See accompanying notes to the financial statements. 29
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 22.32 $ 25.56 $ 18.51 $ 18.80 $ 18.73
------------ ------------ ------------- ----------- ----------
Income (loss) from investment operations:
Net investment income (a) 0.36 0.27 0.29 0.29 0.29
Net realized and unrealized gain (loss)
on investments 3.09 (1.57) 7.44 (0.04) 0.22
------------ ------------ ------------- ----------- ----------
Total from investment operations 3.45 (1.30) 7.73 0.25 0.51
------------ ------------ ------------- ----------- ----------
Less distributions to shareholders:
From net investment income (0.39) (0.35) (0.27) (0.20) (0.28)
From net realized gains (0.76) (1.59) (0.41) (0.34) (0.16)
------------ ------------ ------------- ----------- ----------
Total distributions (1.15) (1.94) (0.68) (0.54) (0.44)
------------ ------------ ------------- ----------- ----------
NET ASSET VALUE, END OF PERIOD $ 24.62 $ 22.32 $ 25.56 $ 18.51 $ 18.80
============= ============ ============= =========== ==========
TOTAL RETURN (B) 15.72% (5.31%) 42.10% 1.43% 2.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 4,538,036 $ 2,591,646 $ 2,286,431 $ 918,332 $ 414,341
Net expenses to average
daily net assets (a) 0.71%(c) 0.70% 0.71%(c) 0.70% 0.70%
Net investment income to average
daily net assets (a) 1.93% 1.48% 1.48% 2.36% 2.36%
Portfolio turnover rate 14% 53% 23% 23% 35%
(a) Net of fees and expenses voluntarily waived or borne by the Manager of the following
per share amounts: $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.02
(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.
</TABLE>
30 See accompanying notes to the financial statements.
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks maximum total return through investment in a portfolio of
common stocks of non-U.S. issuers.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
31
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 specified price at a
given date. The Fund may use futures contracts to manage its exposure to
the stock and currency markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is 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 29,
1996.
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 acquired or hedged through
currency contracts as of February 29, 1996.
32
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund 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 the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 5 for a
summary of all open swap agreements as of February 29, 1996.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At February 29, 1996, the Fund loaned securities having a
market value of $313,210,864 collateralized by cash in the amount of
$338,543,291, which was invested in short-term instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryover for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. 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.
33
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
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 29, 1996. 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.
Undistributed Net Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
--------------------------- ------------------------ -----------------
($7,870,154) ($13,390,731) $21,260,885
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, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
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.
34
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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. For the year ended February 29, 1996, the Fund received $6,506,661 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
The Manager 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, stamp duties and transfer taxes)
exceed .69% of average daily net assets. Prior to June 27, 1995, this
voluntary expense limitation was .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 29, 1996, was $12,818. 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 29, 1996 aggregated
$1,014,776,457 and $422,465,761, respectively.
35
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
Year Ended Year Ended
February 29, 1996 February 28, 1995
----------------- -----------------
Shares sold 83,979,899 47,709,816
Shares issued to shareholders in
reinvestment of distributions 6,005,465 8,245,854
Shares repurchased (21,748,238) (29,287,818)
------------- -------------
Net increase 68,237,126 26,667,852
Fund shares:
Beginning of period 116,104,099 89,436,247
------------- -------------
End of period 184,341,225 116,104,099
============= =============
36
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Currency In Exchange for Appreciation
Date Deliver (in U.S. Dollars) (Depreciation)
--------------- ----------------------------- ------------------ ----------------------- -------------------
Buys
<S> <C> <C> <C> <C>
3/1/96 CHF 23,600,000 $ 19,856,963 $ ---
4/5/96 JPY 11,935,721,000 122,177,353 (8,235,133)
4/9/96 NOK 391,700,000 63,737,694 (2,538,968)
4/1/96 SEK 318,400,000 45,156,715 1,889,169
-------------------
$ (8,884,932)
===================
Sales
3/1/96 CHF 23,600,000 $ 20,789,288 $ 932,326
6/3/96 CHF 64,416,800 56,039,059 1,769,873
3/6/96 DEM 1,015,409 727,527 14,377
6/3/96 DEM 173,806,063 122,500,000 3,635,672
3/6/96 FRF 3,200,835 647,746 12,291
2/3/97 GBP 53,800,000 80,433,018 (1,326,125)
-------------------
$ 5,038,414
===================
</TABLE>
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Appreciation
Date Deliver/Units of Currency Receive/In Exchange for
-------------- ------------------------------------ ------------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
3/6/96 DEM 13,028,511 JPY 830,697,864 $ 713,151
3/6/96 FRF 43,867,178 JPY 786,977,178 635,454
----------------
$ 1,348,605
================
</TABLE>
37
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
Currency Abbreviations
CHF Swiss Franc JPY Japanese Yen
DEM German Deutsche Mark NOK Norwegian Kroner
FRF French Franc SEK Swedish Krona
GBP Great British Pound
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
---------------- ---------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Sales
450 All-Ords March 1996 $ 19,707,911 $ 311,046
11,058 IBEX March 1996 35,041,132 1,831,559
573 DAX June 1996 97,800,265 734,802
288 Hang Seng March 1996 20,637,284 (965,613)
378 MATIF CAC March 1996 29,920,389 1,128,010
976 TOPIX March 1996 144,400,114 (132,914)
1,291 TOPIX June 1996 191,127,413 (1,690,535)
=====================
$ 1,216,355
=====================
</TABLE>
At February 29, 1996 the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
38
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Notional Expiration Unrealized
Amount Date Description Depreciation
------------------ -------------- ------------------------------------------------ -----------------
<S> <C> <C> <C>
$ 188,976,845 3/29/96 Agreement with Morgan Stanley & Company $ (2,333,917)
International Limited dated 1/8/96 to pay the
notional amount multiplied by 7.275% and to
receive (pay) the change in the value of a
basket of stocks plus 85% of the cash
dividends paid on the stocks contained in the
basket with ex-dividend dates during the
period of the swap.
180,000,000 3/31/96 Agreement with Swiss Bank Corporation dated -
2/29/96 to receive (pay) the notional amount
multiplied by the EAFE-Lite Rate (as defined)
and to pay LIBOR.
-----------------
Net Unrealized Depreciation $ (2,333,917)
=================
* * *
</TABLE>
39
GMO INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the Fund
has designated 59.04% of distributions as net capital gain dividends.
<PAGE>
GMO INTERNATIONAL CORE FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham, Mr. Forrest Berkley and Ms. Doris Chu are
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Grantham has been with GMO since its founding in 1977. Mr. Berkley and Ms. Chu
have been with GMO and involved in portfolio management for more than nine
years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Core Fund returned 15.7% for the fiscal year
ended February 29, 1996, versus 16.8% for EAFE and 18.5% for the EAFE-Lite
index. Consistent with the Fund's investment objective and policies, the Fund
was invested substantially in common stocks throughout the period. During the
period, GMO's country selection model tended to overweight the countries of
Europe and underweight Japan, which contributed positively to the performance.
Overweights throughout the portfolio in value and small stocks negatively
affected performance. Currency hedges had a slight negative impact on
performance.
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO INTERNATIONAL CORE FUND AND THE MSCI EAFE INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 03/31/87
14.9% 10.0% 10.9%
[Line Graph Appears Here]
Date GMO International Core Fund MSCI EAFE Index
03/31/87 9,925 10,000
02/29/88 9,923 10,977
02/28/89 12,698 13,264
02/28/90 14,434 12,838
02/28/91 15,533 12,542
02/29/92 15,964 11,611
02/28/93 16,198 11,132
02/28/94 23,006 15,493
02/28/95 21,784 14,805
02/29/96 25,209 17,300
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 75 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29,
1996, 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 29, 1996 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 17, 1996
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 78.5%
AUTOMOTIVE - 5.9%
21,000 Fuji Heavy Industries Ltd * 85,661
14,000 Honda Motor Co Ltd 296,853
192,000 Mazda Motor Corp * 739,374
503,000 Nissan Motor Co Ltd 3,893,144
112,000 Toyota Motor Corp 2,417,419
------------------------
7,432,451
------------------------
BANKING - 3.5%
78,000 Asahi Bank Ltd 912,237
30,000 Bank of Fukuoka Ltd 229,628
29,000 Bank of Tokyo Ltd 443,948
4,000 Bank of Yokohama Ltd 30,389
7,000 Daiwa Bank Ltd (a) 47,257
14,000 Gunma Bank Ltd 149,092
20,000 Hiroshima Bank Ltd 95,274
14,000 Mitsubishi Trust & Banking Corp 215,651
35,000 Sanwa Bank Ltd (a) 642,293
74,000 Sumitomo Trust & Banking Co Ltd 921,746
20,000 Tokai Bank Ltd (a) 266,236
2,000 Yamaguchi Bank Ltd 33,089
68,000 Yasuda Trust and Banking Co Ltd (a) 366,606
------------------------
4,353,446
------------------------
CHEMICALS - 4.0%
42,000 Daicel Chemical Industries Ltd 245,602
30,000 Dainippon Ink & Chemicals Inc 136,351
39,000 Denki Kagaku Kogyo * 156,119
20,000 Japan Synthetic Rubber Co Ltd 132,167
14,000 Kansai Paint Co Ltd 65,361
35,000 Kureha Chemical Industry Co Ltd 170,391
96,000 Mitsubishi Gas Chemical Co Inc 451,840
369,000 Mitsubishi Chemical Corp 1,891,138
23,000 Mitsubishi Rayon Co Ltd 97,319
64,000 Mitsui Petrochemical Industries Ltd 525,777
8,000 Shin-Etsu Chemical Co Ltd 164,305
162,000 Teijin Ltd 861,063
3,000 Toagosei Chemical Industry Co Ltd 16,202
18,000 Toray Industries Inc 116,554
5,000 Toyo Ink Manufacturing Co Ltd 26,433
------------------------
5,056,622
------------------------
See accompanying notes to the financial statements. 1
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION - 5.6%
68,000 Aoki Corp * 257,336
2,000 Chudenko Corp 69,411
5,800 Daito Trust Construction Co Ltd 65,627
90,000 Fujita Corp 415,042
42,000 Haseko Corp 151,754
20,000 Hazama-Gumi Ltd 79,110
14,000 INAX Corp 135,780
35,000 Kajima Corp 352,762
100,000 Kumagai Gumi Co Ltd 408,862
24,000 Maeda Corp (a) 235,048
14,000 Nichiei Co Ltd 56,043
6,000 Nihon Cement Co Ltd 39,935
29,000 Obayashi Corp 234,934
10,000 Okumura Corp 88,999
14,000 Onoda Cement Co Ltd 81,069
4,000 Sanwa Shutter Corp 32,595
112,000 Sekisui Chemical Co Ltd 1,427,023
108,000 Sekisui House Ltd 1,345,258
21,000 Shimizu Corp 221,641
48,000 Sumitomo Osaka Cement Co Ltd 224,094
121,000 Taisei Corp 788,105
27,000 Tokyu Construction Co Ltd 125,796
5,000 Tostem Corp 153,561
8,000 Toto Ltd (a) 111,058
------------------------
7,100,843
------------------------
CONSUMER GOODS - 5.3%
8,000 Ajinomoto Co Inc 86,717
18,000 Ezaki Glico Co Ltd 165,675
56,000 Fuji Photo Film Co Ltd 1,586,764
2,000 Hitachi Maxell Ltd (a) 37,273
8,000 Kao Corp 100,409
37,000 Konica Corp 256,119
1,700 Nintendo Co Ltd 114,767
10,000 Olympus Optical Co Ltd 94,704
332,000 Sanyo Electric Co Ltd 1,995,094
20,000 Sony Corp (a) 1,171,437
67,000 Victor Co of Japan Ltd * 821,812
13,000 Yakult Honsha Co Ltd 174,289
7,000 Yamaha Corp 125,796
------------------------
6,730,856
------------------------
2 See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
ELECTRIC - 4.4%
10,000 Alps Electric Co Ltd * 107,445
162,000 Matsushita Electric Industrial Co Ltd 2,587,810
62,000 Matsushita Electric Works Ltd (a) 666,160
251,000 Mitsubishi Electric Corp 1,837,691
56,000 Tokyo Electric Co Ltd * 274,223
10,000 Yokogawa Electric Corp 106,494
------------------------
5,579,823
------------------------
FINANCIAL SERVICES - 0.9%
7,000 Kankaku Securities Co Ltd * 27,822
46,000 Mitsui Trust & Bank Co Ltd 472,378
6,000 New Japan Securities Co Ltd * 35,257
33,000 Nippon Shinpan Co Ltd 225,920
43,000 Yamaichi Securities Co Ltd 311,144
------------------------
1,072,521
------------------------
FOOD AND BEVERAGE - 3.0%
45,000 Asahi Breweries Ltd * (a) 522,012
1,000 Denny's Japan Co Ltd 31,473
125 Japan Tobacco Inc 1,176,666
8,000 Katokichi Co Ltd 170,391
64,000 Kirin Brewery Co Ltd 742,417
5,000 Marudai Food Co Ltd 35,134
5,000 Mercian Corp (a) 34,753
16,000 Nippon Meat Packers Inc 234,287
59,000 Nippon Suisan Kaisha Ltd * 249,082
1,000 Nissin Food Products Co Ltd 23,866
7,700 QP Corp 71,677
16,000 Sapporo Breweries Ltd (a) 143,311
27,000 Snow Brand Milk Products Co Ltd 173,804
10,000 Takara Shuzo Co Ltd (a) 108,396
2,000 Yamazaki Baking Co Ltd 35,561
------------------------
3,752,830
------------------------
HEALTH CARE - 2.0%
18,000 Daiichi Seiyaku Co Ltd 277,265
10,000 Eisai Co Ltd (a) 182,562
8,000 Green Cross Corp (a) 43,739
7,000 Hoya Corp 232,956
21,000 Kyowa Hakko Kogyo Co Ltd 191,889
21,000 Lion Corp (a) 121,603
21,000 Sankyo Co Ltd 483,218
See accompanying notes to the financial statements. 3
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - CONTINUED
21,000 Shionogi and Co Ltd 172,321
64,000 Shiseido Co Ltd 724,161
2,000 Unicharm Corp 49,254
------------------------
2,478,968
------------------------
INSURANCE - 0.3%
21,000 Dai Tokyo Fire and Marine Insurance Co Ltd 152,753
21,000 Nichido Fire & Marine Insurance Co Ltd 160,141
8,000 Sumitomo Marine & Fire Insurance Co Ltd 68,232
------------------------
381,126
------------------------
MACHINERY - 2.7%
8,000 Aida Engineering Ltd 68,080
33,000 Aisin Seiki Co Ltd 476,942
77,000 Amada Co Ltd 827,327
21,000 Daikin Industries Ltd 217,648
24,000 Furukawa Electric Co Ltd 125,283
8,000 Hitachi Cable Ltd 61,006
55,000 Komatsu Ltd 475,373
24,000 Koyo Seiko Co Ltd 214,738
2,000 Kurita Water Industries Ltd 51,155
5,000 Makino Milling Machine Co Ltd * 51,345
21,000 Minebea Co Ltd 181,706
23,000 NHK Spring Co Ltd 132,747
42,000 NSK Ltd 307,502
32,000 Stanley Electric Co Ltd 219,074
------------------------
3,409,926
------------------------
METALS AND MINING - 1.7%
207,000 Mitsubishi Materials Corp 1,072,692
18,000 Mitsui Mining Co Ltd * 76,676
70,000 Nippon Sheet Glass Co Ltd 322,145
13,000 Nitto Denko Corp (a) 196,539
7,000 Sumitomo Coal Mining Co Ltd 32,614
13,000 Toyo Seikan Kaisha Ltd 404,203
------------------------
2,104,869
------------------------
OIL AND GAS - 6.3%
8,700 Arabian Oil Co Ltd 385,490
103,000 Cosmo Oil Co Ltd 566,074
56,000 General Sekiyu (KK) 537,796
179,000 Japan Energy Co Ltd 629,742
73,000 Mitsubishi Oil Co Ltd 630,950
471,000 Nippon Oil Co Ltd (a) 2,830,389
59,600 Showa Shell Sekiyu 549,700
4 See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
OIL AND GAS - CONTINUED
42,000 Teikoku Oil Co Ltd 271,560
105,000 Toa Nenryo Kogyo (KK) 1,547,495
------------------------
7,949,196
------------------------
PAPER AND ALLIED PRODUCTS - 0.4%
37,000 Mitsubishi Paper Mills Co Ltd 230,436
24,000 Settsu Corp * 80,327
10,000 Sumitomo Forestry Co Ltd 151,184
------------------------
461,947
------------------------
PHARMACEUTICALS - 2.7%
16,000 Banyu Pharmaceutical Co Ltd 197,775
10,000 Chugai Pharmaceutical Co Ltd 95,084
7,000 Dainippon Pharmaceutical Co Ltd 65,893
83,000 Fujisawa Pharmaceutical Co Ltd 789,198
3,000 Kaken Pharmaceutical Co Ltd 25,387
5,000 Kissei Pharmaceutical Co Ltd 160,217
4,000 Mochida Pharmaceutical Co Ltd (a) 55,149
5,000 Nippon Kayaku Co Ltd 33,089
5,000 Ono Pharmaceutical Co Ltd 184,463
17,000 Taisho Pharmaceutical Co Ltd 339,450
46,000 Takeda Chemical Industries Ltd 739,184
24,000 Tanabe Seiyaku Co Ltd 172,977
14,000 Terumo Corp 145,098
17,000 Yamanouchi Pharmaceutical Co Ltd (a) 379,861
4,000 Yoshitomi Pharmaceutical Industries Co Ltd 36,512
------------------------
3,419,337
------------------------
PRIMARY PROCESSING - 0.9%
18,000 Daido Steel Co Ltd 91,908
29,000 Nippon Yakin Kogyo Co Ltd * 128,221
62,000 Nisshin Steel Co Ltd 248,778
246,000 Sumitomo Metal Industries Ltd * 692,365
------------------------
1,161,272
------------------------
REAL ESTATE - 3.2%
17,000 Daikyo Inc 111,210
14,000 Daiwa Kosho Lease Co Ltd 146,430
10,000 Heiwa Real Estate Co Ltd 71,789
160,000 Mitsubishi Estate Co Ltd 1,947,323
99,000 Mitsui Fudosan Co Ltd 1,157,840
49,000 Sumitomo Realty and Development Co Ltd * 333,127
21,000 Tokyo Tatemono Co Ltd * 106,028
56,000 Tokyu Land Corp 225,768
------------------------
4,099,515
------------------------
See accompanying notes to the financial statements. 5
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE - 1.4%
7,000 Hankyu Department Stores Inc (a) 98,507
3,000 Joshin Denki Co Ltd 35,942
56,000 Marui Co Ltd * 1,075,592
5,000 Matsuzakaya Co Ltd 57,050
10,000 Nichii Co Ltd 142,626
18,000 UNY Co Ltd 333,745
------------------------
1,743,462
------------------------
SERVICES - 6.0%
8,100 Canon Sales Co Inc (a) 199,477
14,600 CSK Corp 424,798
64,000 Dainippon Printing Co Ltd 1,101,455
10,000 Hanwa Co Ltd * 34,706
2,000 Intec Inc 28,906
75,000 Itochu Corp 502,044
16,000 Kamigumi Co Ltd 155,177
4,000 Kokusai Kogyo Co Ltd 40,696
10,000 Kokuyo Co Ltd 240,563
5,000 Kyodo Printing Co Ltd (a) 58,477
173,000 Marubeni Corp 935,980
10,000 Mitsubishi Warehouse & Transportation Co Ltd 159,741
8,000 Mitsui-Soko Co Ltd 62,679
29,000 Nissho Iwai Corp 135,390
20,000 Okamoto Industries Inc 125,131
8,000 Secom Co Ltd 499,002
172,000 Sumitomo Corp 1,733,574
6,000 Sumitomo Warehouse Co Ltd 37,197
84,000 Toppan Printing Co Ltd 1,094,228
------------------------
7,569,221
------------------------
TECHNOLOGY - 6.3%
4,000 Dainippon Screen Manufacturing Co Ltd * 37,273
143,000 Fujitsu Ltd 1,468,480
315,000 Hitachi Ltd 3,174,860
2,000 Makita Corp 30,617
300 Murata Manufacturing Co Ltd 9,870
115,000 NEC Corp (a) 1,366,835
5,000 Omron Corp 110,298
46,000 Ricoh Co Ltd (a) 494,247
16,000 Rohm Co Ltd 950,841
5,000 TDK Corp 251,973
------------------------
7,895,294
------------------------
6 See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.3%
6,000 Gakken Co Ltd * 39,251
17,000 Tokyo Broadcasting System Inc 286,108
------------------------
325,359
------------------------
TEXTILES - 1.1%
20,000 Kurabo Industries Ltd 77,969
40,000 Nisshinbo Industries Inc 380,337
20,000 Onward Kashiyama Co Ltd (a) 296,663
29,000 Renown Inc * 98,992
13,000 Tokyo Style Co Ltd 205,192
10,000 Tokyu Department Store Co Ltd 63,136
26,000 Wacoal Corp 323,857
------------------------
1,446,146
------------------------
TRANSPORTATION - 10.1%
338 East Japan Railway Co 1,725,834
10,000 Fujita Kanko Inc 202,529
32,000 Fukuyama Transporting Co Ltd 298,184
99,000 Hankyu Corp * 570,448
7,000 Japan Airport Terminal Co Ltd 85,195
56,000 Keihin Electric Express Railway Co Ltd (a) 323,210
74,000 Keio Teito Electric Railway Co Ltd (a) 419,359
29,000 Keisei Electric Railway Co Ltd (a) 264,714
182,000 Kinki Nippon Railway Co Ltd (a) 1,384,425
91,000 Nagoya Railroad Co Ltd (a) 467,244
2,900 Namco Ltd (a) 91,823
52,000 Nankai Electric Railway Co Ltd (a) 359,951
125,000 Nippon Express Co Ltd 1,146,953
81,000 Odakyu Electric Railway Co Ltd 577,636
3,000 Royal Co Ltd 50,204
45,000 Sagami Railway Co Ltd (a) 194,257
29,000 Seibu Railway Co Ltd 1,326,329
39,000 Seino Transportation Co Ltd 648,949
5,000 Shochiku Co Ltd (a) 57,526
11,000 Skylark Co Ltd 194,542
99,000 Tobu Railway Co Ltd 627,869
10,000 Toei Co Ltd 62,756
1,100 Toho Co Ltd 180,945
11,000 Tokyo Dome Corp 185,129
20,000 Tokyotokeiba Co Ltd 87,477
127,000 Tokyu Corp 920,167
39,000 Yamato Transport Co Ltd (a) 437,577
------------------------
12,891,232
------------------------
See accompanying notes to the financial statements. 7
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.5%
11,800 Chugoku Electric Power Co Inc 269,278
11,100 Kyushu Electric Power Co Inc 255,415
3,600 Tohoku Electric Power Co Inc 84,207
------------------------
608,900
------------------------
TOTAL STOCK AND EQUIVALENTS (Cost $100,010,907) 99,025,162
------------------------
PAR VALUE ($)/
SHARES SHORT-TERM INVESTMENTS - 26.0%
CASH EQUIVALENTS - 22.7%
$ 5,300,000 First National Bank of Chicago Time Deposit, 5.38% due 3/1/96 5,300,000
$ 5,300,000 Republic Bank of New York Time Deposit, 5.31% due 3/1/96 5,300,000
3,000,000 The Boston Global Investment Trust Money Market Fund 3,000,000
5,333,386 The Liquid Assets Portfolio of Short Term Investments Co 5,333,386
5,066,354 The Prime Portfolio of Short Term Investments Co 5,066,354
$ 4,600,000 Wachovia Bank Time Deposit, 5.46% due 3/1/96 4,600,000
------------------------
28,599,740
------------------------
U.S. GOVERNMENT - 3.3%
$ 4,400,000 U.S. Treasury Bill, 4.89% due 1/9/97 (b) 4,211,181
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $32,810,619) 32,810,921
------------------------
TOTAL INVESTMENTS - 104.5%
(Cost $132,821,526) * * 131,836,083
Other Assets and Liabilities (net) - (4.5%) (5,729,124)
------------------------
TOTAL NET ASSETS - 100.0% $ 126,106,959
========================
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS:
(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 $132,878,422, resulting
in gross unrealized appreciation and depreciation
of $2,826,403 and $3,868,742, respectively, and
net unrealized depreciation of $1,042,339.
8 See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $132,821,526) (Note 1) $ 131,836,083
Foreign currency, at value (cost $9,377,458) (Note 1) 9,146,373
Cash 50,592
Receivable for investments sold 14,997,148
Dividends and interest receivable 57,521
Receivable for expenses waived or borne by Manager (Note 2) 31,028
---------------------
Total assets 156,118,745
---------------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 13,395,647
Payable for investments purchased 16,148,713
Payable for Fund shares repurchased 20,000
Payable for variation margin on open futures contracts 276,545
Payable to affiliate for management fee (Note 2) 66,944
Accrued expenses 103,937
---------------------
Total liabilities 30,011,786
---------------------
NET ASSET (equivalent to $8.52 per share based
on 14,792,650 shares outstanding, unlimited shares authorized) $ 126,106,959
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 127,976,536
Distributions in excess of net investment income (189,728)
Distributions in excess of net realized gain (127,763)
Net unrealized depreciation (1,552,086)
---------------------
NET ASSETS $ 126,106,959
=====================
</TABLE>
See accompanying notes to the financial statements. 9
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $99,284) $ 584,529
Interest (including securities lending income of $36,668) 95,895
----------------------
Total income 680,424
----------------------
EXPENSES:
Management fee (Note 2) 647,675
Custodian fees 161,438
Audit fees 48,364
Transfer agent fees 27,467
Registration 20,124
Stamp duties and transfer taxes 8,401
Legal fees 1,295
Insurance 735
Trustee fee (Note 2) 337
Miscellaneous 94
----------------------
Total expenses 915,930
Less: expenses waived or borne by Manager (Note 2) (125,662)
----------------------
Net expenses 790,268
----------------------
Net investment loss (109,844)
----------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 3,619,409
Closed futures contracts 666,154
Foreign currency and foreign currency related
transactions (144,829)
----------------------
Net realized gain 4,140,734
----------------------
Change in net unrealized appreciation (depreciation) on:
Investments 1,633,993
Open futures contracts (334,755)
Foreign currency and foreign currency related transactions (249,022)
----------------------
Net unrealized gain 1,050,216
----------------------
Net realized and unrealized gain 5,190,950
----------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,081,106
======================
</TABLE>
10 See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
---------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss $ (109,844) $ (92,986)
Net realized gain 4,140,734 151,486,989
Change in net unrealized appreciation (depreciation) 1,050,216 (156,391,026)
---------------------- ---------------------
Net increase (decrease) in net assets resulting from operations 5,081,106 (4,997,023)
---------------------- ---------------------
Distributions to shareholders:
From net realized gains (12,090,051) (42,616,601)
---------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 79,871,616 95,499,568
Net asset value of shares issued to shareholders
in payment of distributions declared 12,090,051 41,776,818
Cost of shares repurchased (18,968,926) (479,890,795)
---------------------- ---------------------
Net increase (decrease) in net assets resulting
from Fund share transactions 72,992,741 (342,614,409)
---------------------- ---------------------
Total increase (decrease) in net assets 65,983,796 (390,228,033)
NET ASSETS:
Beginning of period 60,123,163 450,351,196
---------------------- ---------------------
End of period (including distributions in excess of net
investment income of $189,728 and $401,346,
respectively) $ 126,106,959 $ 60,123,163
====================== =====================
</TABLE>
See accompanying notes to the financial statements. 11
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.12 $ 11.13 $ 7.37 $ 7.73 $ 9.48
--------------- ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss) (a) (0.01)(d) - (d) - 0.01 -
Net realized and unrealized gain (loss) 0.79 (1.08) 3.94 (0.36) (1.74)
--------------- ------------ ------------ ------------ ------------
Total from investment operations 0.78 (1.08) 3.94 (0.35) (1.74)
--------------- ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income - - - (0.01) -
In excess of net investment income - - (0.01) - -
From net realized gains (1.38) (0.93) (0.17) - -
From paid-in capital (c) - - - - (0.01)
--------------- ------------ ------------ ------------ ------------
Total distributions (1.38) (0.93) (0.18) (0.01) (0.01)
--------------- ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 8.52 $ 9.12 $ 11.13 $ 7.37 $ 7.73
=============== ============ ============ ============ ============
TOTAL RETURN (B) 8.29% (10.62%) 53.95% (4.49%) (18.42%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 126,107 $ 60,123 $ 450,351 $ 306,423 $ 129,560
Net expenses to average
daily net assets (a) 0.92% 0.83% 0.87% 0.88% 0.93%
Net investment income to average
daily net assets (a) (0.13%) (0.02%) (0.01%) 0.12% (0.11%)
Portfolio turnover rate 23% 60% 8% 17% 25%
</TABLE>
(a) Net of fees and expenses voluntarily waived or borne by the Manager of
$.01 per share for the fiscal year ended 1996, less than $.01 per share
for the fiscal year ended 1995, and $.01 per share for the fiscal years
ended 1994, 1993, 1992.
(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.
12 See accompanying notes to the financial statements.
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. (the "Manager").
The Trust was established as a Massachusetts Business Trust under the laws
of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares.
The Fund seeks maximum total return through investment in Japanese
securities, primarily in common stocks of Japanese companies.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges. Those values are then translated into U.S. dollars at
the current exchange rate. Short-term investments with a remaining maturity
of sixty days or less are valued at amortized cost which approximates
market value. Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by
the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
13
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 specified price at a
given date. The Fund may use futures contracts to manage its exposure to
the stock and currency markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instruments or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash and U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in 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. See Note 6 for all open futures contracts held as of
February 29, 1996.
SECURITY LENDING
The Fund may lend its securities to certain qualified brokers. The loans
are collateralized at all times with cash or securities with a market value
at least equal to the market value of the securities on loan. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. The Fund receives compensation for lending its
securities. At February 29, 1996, the Fund loaned securities having a
market value of $12,375,478, collateralized by cash in the amount of
$13,399,740, which was invested in short-term instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income has 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'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
14
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996. 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>
$321,462 ($3,826,294) $3,504,832
</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, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for accretion of discounts. In determining the net gain or loss on
securities sold, the cost of securities is determined on the identified
cost basis.
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. For the year ended February 29, 1996 the Fund received
$183,740 in purchase premiums and no redemption premiums. There is no
premium for reinvested distributions or in-kind transactions.
15
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments and the
possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times more
volatile than securities of comparable U.S. companies and U.S. securities
markets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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, stamp duties, transfer taxes and
custodian fees) exceed .69% of average daily net assets. Prior to September
18, 1995, this voluntary expense limitation was .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 29, 1996, was $337. 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 29, 1996, aggregated
$60,234,863 and $18,770,763, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 88% of the outstanding shares of the Fund were held
by four shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
16
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 8,808,517 8,607,105
Shares issued to shareholders in reinvestment
of distributions 1,394,470 4,075,787
Shares repurchased (2,001,579) (46,537,969)
---------------- ----------------
Net increase (decrease) 8,201,408 (33,855,077)
Fund shares:
Beginning of period 6,591,242 40,446,319
---------------- ----------------
End of period 14,792,650 6,591,242
================ ================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 29, 1996 is as
follows:
<TABLE>
<CAPTION>
Number Net
of Type Expiration Contract Unrealized
Contracts Date Value Depreciation
-------------- --------------------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Buys
34 TOPIX March 1996 $ 5,030,332 $ (215,188)
144.00 TOPIX June 1996 21,318,627 (119,567)
-------------------
$ (334,755)
===================
</TABLE>
* * *
17
GMO JAPAN FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 97.90% of distributions as net capital gain dividends.
GMO JAPAN FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham, Mr. Forrest Berkley and Ms. Doris Chu are
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Grantham has been with GMO since its founding in 1977. Mr. Berkley and Ms. Chu
have been with GMO and involved in portfolio management for more than nine
years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Japan Fund's performance underperformed the MSCI Japan index
for the fiscal year ended February 29, 1996, with a total return of 8.3% versus
8.9% for the MSCI Japan index. Consistent with the Fund's investment objective
and policies, the Fund was invested substantially in common stocks throughout
the period. Value stocks outperformed during the year while small capitalization
stocks underperformed, with a resulting mixed impact on performance. During the
fiscal year, GMO's stock selection model tended to underweight bank stocks while
overweighting exporters such as consumer goods, durable goods and technology.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO JAPAN FUND AND THE MSCI JAPAN INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 06/08/90
7.2% 2.8% 1.9%
[Line Graph Appears Here]
Date GMO Japan Fund MSCI Japan Index
06/08/90 9,960 10,000
02/28/91 9,669 9,615
02/29/92 7,887 7,904
02/28/93 7,533 7,387
02/28/94 11,598 10,826
02/28/95 10,365 9,701
02/29/96 11,159 10,565
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 40 bp on purchase and 70 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Past performance is not indicative
of future performance. Information is unaudited.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 12, 1996
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK - 96.9%
AEROSPACE - 3.7%
10,862 Lockheed Martin 828,228
25,600 Raytheon Co 1,283,200
-------------------------
2,111,428
-------------------------
AUTOMOTIVE - 0.1%
1,000 Bandag Inc 51,000
-------------------------
BANKING AND FINANCIAL SERVICES - 7.4%
100 Bancorp Hawaii Inc 3,475
5,540 Bear Stearns Cos Inc 134,345
2,900 Beneficial Corp 150,800
1,600 Chase Manhattan Corp 119,200
4,300 Chemical Banking Corp 307,988
12,700 Citicorp 990,600
10,900 Dean Witter Discover and Co 585,875
3,200 Edwards (A G) Inc 77,600
700 First Bank of America Corp 30,625
6,000 Mercury Financial Co (a) 82,500
11,400 Morgan Stanley Group Inc 534,375
5,100 Student Loan Marketing Association 421,388
12,600 Travelers Inc 842,625
-------------------------
4,281,396
-------------------------
CHEMICALS - 0.4%
5,700 IMC Global Inc * (a) 235,125
-------------------------
COMPUTER AND OFFICE EQUIPMENT - 0.9%
4,700 Informix Corp 165,675
11,700 Micron Technology (a) 374,400
-------------------------
540,075
-------------------------
CONSTRUCTION - 0.1%
1,600 Clayton Homes * 30,200
-------------------------
CONSUMER GOODS - 2.3%
1,500 Clorox Co (a) 127,125
8,500 Liz Claiborne 266,688
700 National Service Industries 24,413
6,900 Nike Inc Class B 447,638
4,700 Polaroid Corp 206,800
2,400 Reebok International Ltd (a) 63,300
3,200 VF Corp 172,000
-------------------------
1,307,964
-------------------------
See accompanying notes to the financial statements. 1
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE - 14.5%
11,800 Anheuser-Busch Cos Inc 795,025
27,895 Archer Daniels Midland Co 536,979
100 Brown Forman Corp Class B 3,913
35,100 Coca-Cola Co 2,834,303
11,500 ConAgra Inc 484,438
3,900 CPC International Inc 270,075
2,400 Dean Foods Co 61,500
10,600 General Mills Co 609,500
17,900 Heinz (H J) Co 608,600
1,100 Hershey Foods Corp 82,913
2,700 Hormel (Geo A) and Co 67,838
7,300 IBP Inc 182,500
7,600 Kellogg Co 573,800
4,200 Pepsico Inc (a) 265,650
1,200 Tyson Food Inc Class A 27,000
5,700 Unilever ADR (a) 766,650
1,600 Universal Foods Corp 60,600
2,500 Whitman Corp 58,125
-------------------------
8,289,409
-------------------------
HEALTH CARE - 3.3%
16,000 Medtronic Inc 918,000
13,470 Pharmacia & Upjohn Inc 564,056
1,700 Rhone Poulenc Rorer Inc 108,800
600 Tambrands Inc 28,950
9,700 Tenet Healthcare Corp * 217,038
2,600 Wellpoint Health Networks Class A * 88,075
-------------------------
1,924,919
-------------------------
INSURANCE - 4.8%
600 Aetna Life and Casualty Co 45,375
800 AFLAC Corp 37,100
900 Allmerica Property and Casualty 23,175
12,800 Allstate Corp 548,800
2,000 AMBAC Inc 96,500
3,900 AON Corp 202,800
1,100 Chubb Corp 106,838
3,000 Cigna Corp 355,500
300 CNA Financial Corp * 34,875
200 Jefferson Pilot Corp 11,125
1,400 MBIA Inc 106,400
1,600 MGIC Investment (a) 93,200
2,200 Old Republic International Corp 75,350
2 See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
INSURANCE - CONTINUED
1,700 Provident Companies Inc 57,588
2,600 Providian Corp 120,250
2,400 Safeco Corp 87,000
5,800 St Paul Cos 328,425
4,200 Torchmark Corp 194,775
2,500 Transamerica Corp 188,438
200 Transatlantic Holdings Inc 14,050
2,100 Twentieth Century Industries * 35,438
-------------------------
2,763,002
-------------------------
MACHINERY - 0.5%
5,700 Dover Corp 253,650
500 FMC Corp * 36,500
-------------------------
290,150
-------------------------
MANUFACTURING - 4.4%
29,100 Boeing Co 2,360,738
1,200 Pall Corp 32,700
2,900 Snap-On Inc 129,775
-------------------------
2,523,213
-------------------------
OIL AND GAS - 3.9%
2,400 Amoco Corp 166,800
600 Atlantic Richfield Co 65,700
500 Columbia Gas Systems * 21,875
500 El Paso Natural Gas Co 16,875
11,900 Exxon Corp 946,050
2,800 Mobil Corp 306,950
200 Pennzoil Co 7,650
2,900 Royal Dutch Petroleum Co ADR (a) 399,475
1,900 Texaco Inc 151,525
3,250 Williams Companies Inc 154,375
-------------------------
2,237,275
-------------------------
PAPER AND ALLIED PRODUCTS - 0.0%
100 Consolidated Papers Inc 5,113
1,000 Glatfelter (PH) Co 16,625
-------------------------
21,738
-------------------------
PHARMACEUTICALS - 15.8%
12,700 Abbott Laboratories 530,225
9,900 American Home Products Corp 975,150
14,102 Amgen Inc 842,595
21,200 Bristol-Myers Squibb Co 1,804,650
30,100 Lilly (Eli) & Co 1,821,050
19,700 Merck & Co Inc 1,305,125
See accompanying notes to the financial statements. 3
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - CONTINUED
20,300 Pfizer Inc 1,337,263
7,300 Schering-Plough Corp (a) 409,713
800 Warner Lambert Co 79,100
-------------------------
9,104,871
-------------------------
PRINTING AND PUBLISHING - 0.6%
4,400 Dun and Bradstreet Corp 278,300
800 McGraw Hill Inc 69,900
-------------------------
348,200
-------------------------
RETAIL TRADE - 2.7%
2,000 American Stores Co 58,250
3,800 Circuit City Stores Inc 112,575
6,400 Dillard Deptartment Stores 200,000
3,700 Fruit of the Loom Inc * 93,888
3,600 Gap Inc 193,050
6,400 May Dept Stores 298,400
6,700 Melville Corp 213,563
7,800 Rite Aid Corp (a) 245,700
3,500 Walgreen Co 115,500
600 Weismarkets Inc 17,775
-------------------------
1,548,701
-------------------------
SERVICES - 1.2%
700 BHC Communications Inc Class A * 64,663
300 E.W. Scripps Co. Class A * 12,600
1,400 Fleming Cos (a) 28,000
4,200 Gannett Co Inc 285,600
300 Kingworld Productions Inc * 12,563
1,500 Omnicom Group 61,313
3,000 Supervalu Inc 96,750
4,800 Turner Broadcasting Systems Inc Class B * 139,200
-------------------------
700,689
-------------------------
TECHNOLOGY - 7.1%
6,000 3Com Corp (a) 293,250
5,100 Apple Computer 140,250
1,800 Cabletron Systems Inc * (a) 135,225
2,500 Cadence Design Systems Inc * 111,563
15,800 Cisco Systems Inc 750,500
3,100 Dell Computer Corp 106,563
6,100 Digital Equipment Corp * 439,200
1,900 Hewlett-Packard Inc 191,425
9,500 Intel Corp 558,719
4 See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY - CONTINUED
5,300 LSI Logic Corp 146,413
5,400 Microsoft Corp * 532,913
2,500 Novell Inc * 30,469
1,200 Seagate Technology * (a) 78,300
1,000 Solectron Corp 48,500
8,200 Sun Microsystems Inc 430,500
2,300 Vishay Intertechnology Inc 60,663
-------------------------
4,054,453
-------------------------
TELECOMMUNICATIONS - 7.8%
32,100 AT & T Corp 2,042,363
2,000 Cincinnati Bell Inc 65,500
29,100 GTE Corp 1,247,663
23,000 MCI Communications Corp * 672,750
10,500 Sprint Corp 451,500
-------------------------
4,479,776
-------------------------
TRANSPORTATION - 1.1%
7,600 Burlington Northern Santa Fe Railroad Co 608,000
-------------------------
UTILITIES - 14.3%
3,400 Allegheny Power System Inc 99,025
5,700 American Electric Power Inc 244,388
5,600 Baltimore Gas and Electric Co 158,900
4,400 Carolina Power and Light Co 160,600
6,200 Centerior Energy Corp 51,925
6,800 Central & South West Corp 188,700
5,200 Cinergy Corp 155,350
2,400 CMS Energy Corp 72,900
10,000 Consolidated Edison 326,250
5,400 Dominion Resources Inc 213,300
3,600 DPL Inc 85,950
3,400 DQE 99,450
7,300 DTE Energy Company 260,063
7,700 Duke Power Co 376,338
20,200 Edison International * 353,500
3,200 Enova Corp 74,000
10,200 Entergy Corp 289,425
3,100 Florida Progress Corp 109,663
6,000 FPL Group Inc 267,750
5,600 General Public Utilities 186,900
7,900 Houston Industries Inc 178,738
3,300 Illinova Corp 94,050
See accompanying notes to the financial statements. 5
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
UTILITIES - CONTINUED
2,000 Kansas City Power and Light Co (a) 50,750
5,200 Long Island Lighting Co 91,000
2,200 New England Electric System 84,975
3,800 New York State Electric and Gas Corp 89,775
6,600 Niagara Mohawk Power Corp 49,500
2,400 Nipsco Industries Inc 90,600
5,800 Northeast Utilities 129,050
2,400 Northern States Power Co 118,200
6,000 Ohio Edison Co 142,500
1,100 Oklahoma Gas and Electric Co 45,375
2,800 Pacific Enterprises 74,900
18,700 Pacific Gas and Electric Co 479,188
9,300 PacifiCorp 192,975
4,200 Panhandle Eastern Corp 120,225
7,700 Peco Energy Co 217,525
3,500 Pinnacle West Capital Corp 99,313
3,700 Potomac Electric Power Co 97,588
4,400 PP&L Resources Inc 109,450
9,500 Public Service Enterprise Group Inc 267,188
2,400 Public Service of Colorado 84,600
1,400 Puget Sound Power and Light Co (a) 35,000
3,300 Scana Corp 90,750
20,500 Southern Co 489,438
3,700 Teco Energy 92,500
6,300 Texas Utilities Co 254,363
7,800 Unicom Corp 249,600
3,300 Union Electric Co 139,425
2,300 Western Resources Inc 73,600
4,200 Wisconsin Energy Corp 121,275
-------------------------
8,227,793
-------------------------
TOTAL STOCK (Cost $43,933,246) 55,679,377
-------------------------
PAR VALUE SHORT-TERM INVESTMENTS - 11.5%
REPURCHASE AGREEMENT - 4.9%
$ 2,802,285 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/1/96, with a maturity value of $2,802,668 and an
effective yield of 4.92% , collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $2,854,958. 2,802,285
-------------------------
6 See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
DESCRIPTION VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
PAR VALUE ($)/
SHARES U.S. GOVERNMENT - 0.3%
$ 200,000 U.S. Treasury Bill, 5.41% due 5/30/96 (b) 197,560
-------------------------
CASH EQUIVALENTS - 6.3%
460,206 American Advantage Money Market Fund 460,206
$ 1,804,185 Bank of Boston Time Deposit, 6.26% due 3/1/96 1,804,185
$ 575,258 First Union National Bank Time Deposit, 5.44% due 3/1/96 575,258
$ 122,166 First Union National Bank Time Deposit, 5.50% due 3/1/96 122,166
663,885 Lehman Prime Value Money Market Fund 663,885
-------------------------
3,625,700
-------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $6,625,557) 6,625,545
-------------------------
TOTAL INVESTMENTS - 108.4%
(Cost $50,558,803) * * 62,304,922
Other Assets and Liabilities (net) - (8.4%) (4,819,907)
-------------------------
TOTAL NET ASSETS - 100.0% $ 57,485,015
=========================
</TABLE>
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 $50,696,693, resulting
in gross unrealized appreciation and
depreciation of $12,115,204 and $507,245,
respectively, and net unrealized appreciation
of $11,607,959.
See accompanying notes to the financial statements. 7
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $50,558,803) (Note 1) $ 62,304,922
Receivable for investments sold 904,644
Dividends and interest receivable 138,292
Receivable for expenses waived or borne by Manager (Note 2) 8,861
---------------------
Total assets 63,356,719
---------------------
LIABILITIES:
Payable for investments purchased 2,000,846
Payable upon return of securities loaned (Note 1) 3,625,998
Payable for closed swap contracts (Note 1) 82,800
Payable for open swap contracts (Notes 1 and 6) 78,948
Payable for variation margin on open futures contracts 7,286
Payable to affiliate for management fee (Note 2) 23,211
Accrued expenses 52,615
---------------------
Total liabilities 5,871,704
---------------------
NET ASSETS (equivalent to $12.93 per share based on 4,444,322
shares outstanding, unlimited shares authorized) $ 57,485,015
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 41,371,537
Accumulated undistributed net investment income 167,328
Accumulated undistributed net realized gain 4,248,984
Net unrealized appreciation 11,697,166
=====================
NET ASSETS $ 57,485,015
=====================
</TABLE>
8 See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $6,448) $ 1,387,360
Interest (including securities lending income of $3,395) 167,012
---------------------
Total income 1,554,372
---------------------
EXPENSES:
Management fee (Note 2) 284,306
Custodian and transfer agent fees 54,899
Audit fees 44,145
Legal fees 2,081
Insurance 520
Trustee fee (Note 2) 218
Registration fees 204
Miscellaneous 486
---------------------
Total expenses 386,859
Less: expenses waived or borne by Manager (Note 2) (113,925)
---------------------
Net expenses 272,934
---------------------
Net investment income 1,281,438
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 9,633,895
Closed futures contracts 519,541
Closed swap contracts (219,229)
---------------------
Net realized gain 9,934,207
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 7,308,470
Open futures contracts 29,995
Open swap contracts (78,948)
---------------------
Net unrealized gain 7,259,517
---------------------
Net realized and unrealized gain 17,193,724
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,475,162
=====================
</TABLE>
See accompanying notes to the financial statements. 9
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
---------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,281,438 $ 1,310,448
Net realized gain 9,934,207 4,347,228
Change in net unrealized appreciation (depreciation) 7,259,517 (2,293,926)
--------------------- ---------------------
Net increase in net assets resulting from operations 18,475,162 3,363,750
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (1,114,110) (1,340,450)
Net realized gains (6,201,500) (4,364,391)
--------------------- ---------------------
(7,315,610) (5,704,841)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 9,065,588 2,407,000
Net asset value of shares issued to shareholders
in payment of distributions declared 7,315,610 5,704,841
Cost of shares repurchased (18,024,466) (13,646,591)
--------------------- ---------------------
Net decrease in net assets resulting
from Fund share transactions (1,643,268) (5,534,750)
--------------------- ---------------------
Total increase (decrease) in net assets 9,516,284 (7,875,841)
NET ASSETS:
Beginning of period 47,968,731 55,844,572
---------------------
---------------------
End of period (including accumulated undistributed
net investment income of $167,328 and
$0, respectively) $ 57,485,015 $ 47,968,731
===================== =====================
</TABLE>
10 See accompanying notes to the financial statements.
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.65 $ 11.07 $ 11.35 $ 10.50 $ 10.00
------------- ------------ ------------ ------------ -------------
Income from investment operations:
Net investment income (a) 0.28 0.23 0.34 0.31 0.12
Net realized and unrealized gain 3.71 0.50 1.18 0.84 0.44
------------- ------------ ------------ ------------ -------------
Total from investment operations 3.99 0.73 1.52 1.15 0.56
------------- ------------ ------------ ------------ -------------
Less distributions to shareholders:
From net investment income (0.25) (0.28) (0.35) (0.30) (0.06)
From net realized gains (1.46) (0.87) (1.45) - -
------------- ------------ ------------ ------------ -------------
Total distributions (1.71) (1.15) (1.80) (0.30) (0.06)
------------- ------------ ------------ ------------ -------------
NET ASSET VALUE, END OF PERIOD $ 12.93 $ 10.65 $ 11.07 $ 11.35 $ 10.50
============= ============ ============ ============ =============
TOTAL RETURN (B) 38.64% 7.36% 14.12% 11.20% 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 57,485 $ 47,969 $ 55,845 $ 85,232 $ 75,412
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.48% 0.49% 0.49%
Net investment income to average
daily net assets (a) 2.25% 2.52% 2.42% 2.88% 3.77%
Portfolio turnover rate 81% 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 the following
per share amounts: $ 0.03 $ 0.03 $ 0.03 $ 0.02 $ 0.01
(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. 11
GMO Tobacco-Free Core Fund
(A Series of GMO Trust)
Notes to Financial Statements
February 29, 1996
- --------------------------------------------------------------------------------
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
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks a total return greater than that of the Standard & Poor's
500 Stock Index through investment in common stocks of issuers chosen from
the 1,200 companies with the largest equity capitalization whose securities
are listed on a United States national securities exchange which are not
tobacco producing issuers.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
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 specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not
12
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996.
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 29, 1996, the Fund
loaned securities having a market value of $3,480,338 collateralized by
cash in the amount of $3,625,700, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be
13
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
unfavorable changes in the price of the security or index underlying these
transactions. See Note 6 for a summary of all open swap agreements as of
February 29, 1996.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 29, 1996. 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>
$ - $748 ($748)
</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 and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
14
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund received $13,831 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $218. 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 29, 1996, aggregated
$43,005,852 and $50,622,030, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 100% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the outstanding
shares of the Fund.
15
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. Share transactions
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
--------------------------- ---------------------------
<S> <C> <C>
Shares sold 781,571 226,368
Shares issued to shareholders in reinvestment
of distributions 594,645 560,904
Shares repurchased (1,434,132) (1,331,510)
------------ ------------
Net decrease (57,916) (544,238)
Fund shares
Beginning of period 4,502,238 5,046,476
------------ ------------
End of period 4,444,322 4,502,238
============ ============
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
- ---------------------- ----------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
3 S&P 500 March 1996 $ 957,375 $ 29,995
</TABLE>
At February 29, 1996, the Fund has sufficient cash and/or securities to
cover any commitments or margin on open futures contracts.
16
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION DATE UNREALIZED
AMOUNT DESCRIPTION DEPRECIATION
----------------- ---------------- -------------------------------------------------------- ------------------
<S> <C> <C> <C>
$ 1,324,715 (a) 10/31/96 Agreement with Morgan Stanley & Co. International
Limited dated 10/31/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.42%.
$ (77,570)
2,049,212 (b) 12/24/96 Agreement with Morgan Stanley & Co. International
Limited dated 12/26/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.61%.
(1,378)
------------------
Net unrealized depreciation $ (78,948)
==================
</TABLE>
(a) Represents notional amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $1,257,799.
(b) Represents notional amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $2,052,561.
* * *
17
GMO TOBACCO-FREE CORE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 46.28% of distributions as net capital gain dividends.
GMO TOBACCO-FREE CORE FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. for more than
fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Tobacco-Free Core Fund outperformed the S&P 500 for the fiscal year
ended February 29, 1996, with a total return of 38.6% for the Fund versus 34.7%
for the S&P 500. Consistent with the Fund's investment objective and policies,
the Fund was invested substantially in common stocks throughout the period.
During the fiscal year, GMO's stock selection model tended to overweight high
quality, defensive stocks and underweight bank and telephone stocks. The Fund's
holdings of large capitalization stocks added significantly to performance. In
fiscal 1996, the Fund's restriction on owning tobacco stocks contributed
negatively to performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO TOBACCO-FREE CORE FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 10/31/91
38.4% N/A 17.2%
[Line Graph Appears Here]
Date GMO Tobacco-Free Core Fund S & P 500 Index
10/31/91 9,983 10,000
02/29/92 10,545 10,631
02/28/93 11,724 11,764
02/28/94 13,380 12,744
02/28/95 14,363 13,682
02/29/96 19,913 18,430
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 17 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 12, 1996
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 97.9%
AEROSPACE - 1.3%
20,000 Gencorp Inc 260,000
45,000 Rockwell International Corp 2,565,000
------------------------
2,825,000
------------------------
AUTOMOTIVE - 2.3%
5,000 Chrysler Corp 281,875
7,500 Ford Motor Co 234,375
25,000 General Motors Corp 1,281,250
15,000 Intermet Corp * 195,000
170,000 Mascotech Industries Inc 2,188,750
38,600 Mascotech Industries Inc Convertible Preferred $1.20 (a) 545,225
7,500 TBC Corp * 53,438
------------------------
4,779,913
------------------------
BANKING AND FINANCIAL SERVICES - 7.9%
60,000 American Express Co 2,760,000
15,000 Chase Manhattan Corp 1,117,500
35,000 Chemical Banking Corp 2,506,875
39,134 Citicorp 3,052,477
11,000 First Interstate Bancorp 1,797,125
15,000 Great Western Financial 343,125
4,000 John Nuveen and Company Inc Class A 99,000
5,000 Nationsbank Corp 368,750
25,000 PNC Bank Corp 765,625
25,000 Salomon 6.75% "DEC" Equity Linked Security (Elks) (b) 1,221,875
20,000 Time Warner Financing * 690,000
30,000 Travelers Inc 2,006,250
------------------------
16,728,602
------------------------
CHEMICALS - 1.8%
25,000 Albemarle Corp 481,250
5,000 Arcadian Corp * 102,500
25,000 Borden Chemical and Plastics LP 331,250
7,500 Cytec Industries Inc * 577,500
15,000 Georgia Gulf Corp 478,125
20,000 IMC Global Inc * (a) 825,000
15,000 Lubrizol Corp (a) 438,750
22,500 Wellman Inc 509,063
------------------------
3,743,438
------------------------
COMMUNICATIONS - 0.1%
2,500 DSC Communications 76,250
2,500 Time Warner Inc 106,875
------------------------
183,125
------------------------
See accompanying notes to the financial statements.
1
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
COMPUTER AND OFFICE EQUIPMENT - 0.2%
5,000 Micron Technology (a) 160,000
10,000 Sequent Computer 117,500
5,000 Silicon Graphics * 125,000
------------------------
------------------------
402,500
------------------------
CONSTRUCTION - 0.0%
5,000 McDermott International Inc 96,250
------------------------
CONSUMER GOODS - 4.7%
25,000 American Safety Razor Co * 225,000
47,500 Black and Decker Corp 1,603,125
25,000 Burlington Industries Inc * 284,375
82,500 Eastman Kodak Co 5,898,750
2,500 International Flavors & Fragrances 125,313
30,000 Maytag Corp 588,750
10,000 Procter and Gamble Co 820,000
25,000 Scotts Company Class A * 443,750
------------------------
9,989,063
------------------------
ELECTRONIC EQUIPMENT - 0.3%
2,500 General Instrument Corp 68,125
5,000 Integrated Device Technology Inc 60,000
12,500 National Semiconductor Corp 195,313
10,000 Philips NV ADR 413,750
------------------------
737,188
------------------------
ENVIRONMENTAL CONTROL - 0.1%
10,000 Wheelabrator Technologies Inc * 158,750
------------------------
FOOD AND BEVERAGE - 4.5%
5,000 Anheuser-Busch Cos Inc 336,875
2,500 Archer Daniels Midland Co 48,125
10,000 AuBon Pain Co Inc Class A * 75,156
25,000 Coca Cola Enterprises Inc 709,375
25,000 Coors (Adolph) Co 484,375
10,000 Darden Restaurants Inc * 122,500
5,000 Nabisco Holdings Corp Class A (a) 175,625
45,000 Nestle SA ADR 2,463,057
1,500 Ralcorp Holdings Inc 41,625
See accompanying notes to the financial statements.
2
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE - CONTINUED
5,000 Riviana Foods Inc * 71,250
525,000 RJR Nabisco Holdings Convertible Preferred Series C 9.25% 3,609,375
17,500 Sara Lee Corp 566,563
5,000 Unilever ADR (a) 672,500
5,000 Wendys International Inc 90,625
------------------------
9,467,026
------------------------
FOREST PRODUCTS - 0.0%
2,500 Crown Vantage Inc * 37,500
------------------------
HEALTH CARE - 3.2%
67,500 Baxter International Inc 3,088,125
75,000 Beverly Enterprises Inc * 909,375
5,000 Caremark International Inc * 127,500
20,000 Centocor Inc * 582,500
25,000 Community Psychiatric Centers * 231,250
15,000 Glaxo Plc ADR 410,625
15,000 Laboratory Corporation America Holdings * 116,250
22,500 Owens and Minor Holdings Co 261,563
25,000 Perrigo Co * 350,000
12,500 Smithkline Beecham Plc (a) 684,375
------------------------
6,761,563
------------------------
INSURANCE - 7.5%
22,500 Aetna Life and Casualty Co 1,701,563
90,000 Alexander & Alexander Services Inc 1,676,250
25,000 Alexander & Alexander Services Inc Convertible Preferred (a) 1,178,125
30,000 Allstate Corp 1,286,250
7,500 Cigna Corp 888,750
15,000 First Colony Corp 371,250
5,000 Gallagher (Arthur J) and Co 195,625
2,500 ITT Hartford Group Inc 128,750
20,000 Jefferson Smurfit Corp * 227,500
1,000 Liberty Corp 34,000
25,000 Life Re Corp 640,625
5,000 Loews Corp 425,000
10,000 National Re Corp 312,500
200,000 Reliance Group Holdings Inc 1,625,000
50,000 Sedgwick Group ADR (a) 505,190
15,000 TIG Holdings Inc 474,375
15,000 Transamerica Corp 1,130,625
See accompanying notes to the financial statements.
3
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE - CONTINUED
70,000 USF & G Corp 1,050,000
7,500 USLIFE Corp 226,875
25,000 Washington National Corp 662,500
85,000 Willis Corroon Group Plc ADR (a) 977,500
8,000 Zurich Reinsurance Centre Inc * 254,000
------------------------
15,972,253
------------------------
MACHINERY - 1.1%
7,500 Cincinnati Milacron Inc 215,625
12,500 Cummins Engine Inc (a) 526,563
15,000 FMC Corp * 1,095,000
25,000 Giddings and Lewis Inc 418,750
------------------------
2,255,938
------------------------
MANUFACTURING - 11.4%
25,000 American Greetings Corp 684,375
50,000 Corning Inc 1,625,000
22,500 Fleetwood Enterprises Inc 604,688
25,000 General Electric Co 1,887,500
50,000 Griffon Corp * 500,000
37,500 International Business Machines Corp 4,598,438
10,000 Lafarge Corp 185,000
45,000 Owens Corning (a) 1,828,125
10,000 SGS Thompson Microelectronics NV 368,750
95,000 Teledyne Inc 2,671,875
5,275 Teledyne Inc Preferred Series E $1.20 79,125
200 Temple Inland Inc 8,050
25,000 Tenneco Inc (a) 1,396,863
22,500 United Technologies Corp 2,418,750
45,000 Westinghouse Electric Corp 832,500
260,000 Westinghouse Electric Corp Convertible Preferred $1.30 144A 4,517,500
------------------------
24,206,539
------------------------
METALS AND MINING - 2.6%
10,000 Alcan Aluminum Ltd 305,000
10,000 Amcol International Corp 150,000
12,500 Asarco Inc 373,438
5,000 Battle Mountain Gold Convertible Preferred $3.25 282,500
25,000 Brascan Ltd 418,750
10,000 Cyprus Amax Minerals Co 258,750
14,924 Echo Bay Mines Ltd 205,200
25,000 Falconbridge Ltd 523,943
50,300 Freeport-McMoran Corp Preferred $0.34 1,905,113
5,000 Newmont Mining Corp 284,375
See accompanying notes to the financial statements.
4
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
METALS AND MINING - CONTINUED
25,000 Pittston Minerals Group 378,125
15,000 Placer Dome Inc 423,750
6,000 Santa Fe Pacific Gold Corp 93,750
------------------------
5,602,694
------------------------
OIL AND GAS - 8.5%
12,500 Amerada Hess Corp 643,750
7,500 Atlantic Richfield Co 821,250
15,000 Atlantic Richfield Co Convertible Preferred 9.00% 405,000
5,000 Dresser Industries Inc 140,625
37,500 Eni SPA 1,410,938
50,000 Enserch Corp 756,250
10,000 Enserch Exploration Inc 95,000
4,000 Halliburton Co 219,500
5,000 Kerr-McGee Corp 298,125
95,000 Lasmo Plc ADR 795,625
25,000 Mitchell Energy Class A 425,000
17,500 Mitchell Energy Class B 297,500
125,000 Noram Energy Corp 1,125,000
20,000 Noram Energy Corp Convertible Preferred Series A $3.00 792,500
30,000 Occidental Petroleum Corp 690,000
10,000 Oryx Energy Co * 128,750
2,500 Pennzoil Co 95,625
5,000 Questar Corp 157,500
15,000 Reading and Bates Corp Preferred $1.625 840,000
200 Royal Dutch Petroleum Co ADR (a) 27,550
75,000 Santa Fe Energy Resources Inc Convertible Preferred 8.25% (a) 740,625
10,000 Texaco Inc 797,500
25,000 Union Texas Petroleum Holdings Inc 493,750
65,000 Unocal Corp 1,950,000
26,100 Unocal Corp Convertible Preferred $3.50 144A 1,415,925
75,000 USX - Marathon Group 1,387,500
75,000 Westcoast Energy Inc 1,190,625
------------------------
18,141,413
------------------------
PAPER AND ALLIED PRODUCTS - 2.7%
25,000 Boise Cascade Corp Preferred Series G $1.58 753,125
10,000 Champion International Corp 400,000
12,500 International Paper Co 445,313
25,000 James River Corp 659,375
97,500 James River Corp Convertible Preferred 9.00% 2,535,000
See accompanying notes to the financial statements.
5
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
PAPER AND ALLIED PRODUCTS - CONTINUED
9,600 Pope and Talbot 127,200
10,000 Stone Container Corp 137,500
15,000 Weyerhaeuser Co 635,625
------------------------
5,693,138
------------------------
PHARMACEUTICALS - 0.9%
30,000 Lilly (Eli) & Co 1,815,000
200 Merck & Co Inc 13,250
------------------------
1,828,250
------------------------
PRIMARY PROCESSING - 1.5%
25,000 Armco Inc * 140,625
5,000 Armco Inc Convertible Preferred $3.625 250,000
12,500 Bethlehem Steel Corp * 171,875
5,000 Dow Chemical Co 401,250
10,000 Du Pont (E I) De Nemours & Co Inc 765,000
17,500 National Steel Corp Class B * 236,250
25,000 Northwestern Steel and Wire * 200,000
20,000 Republic Engineered Steels * 105,000
15,000 USX-US Steel Group Inc 491,250
100,000 Weirton Steel Corp * 387,500
------------------------
3,148,750
------------------------
PRINTING AND PUBLISHING - 0.1%
2,500 Dun and Bradstreet Corp 158,125
------------------------
REAL ESTATE - 3.7%
50,000 AMLI Residential Properties Trust 1,012,500
37,500 Crown American Realty 295,313
50,000 Debartolo Realty Corp 650,000
25,000 Irvine Apartment Communities 503,125
82,500 JP Realty Inc 1,722,188
25,000 Regency Realty Corp 412,500
77,500 Summit Properties Inc 1,569,375
75,000 Walden Residential Properties Inc 1,631,250
------------------------
7,796,251
------------------------
REFINING - 1.2%
25,000 Ashland Inc Convertible Preferred $3.125 1,546,875
15,000 Imperial Oil Ltd 547,500
25,000 Quaker State Corp 350,000
10,000 Vintage Petroleum Inc 205,000
------------------------
2,649,375
------------------------
See accompanying notes to the financial statements.
6
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE - 3.4%
25,000 American Stores Co 728,125
15,000 Cone Mills Corp 170,625
35,000 Federated Department Stores * 1,058,750
85,000 Kmart (a) 595,000
5,000 Melville Corp 159,375
125,000 Price/Costco Inc * 2,156,250
15,000 Sears Roebuck & Co 680,625
15,000 The Limited Inc 262,500
5,000 Toys R Us Inc 119,375
60,000 Wal-Mart Stores Inc 1,275,000
5,000 Williams-Sonoma Inc * 74,375
------------------------
7,280,000
------------------------
SERVICES - 1.5%
15,000 Anthony Industries 330,000
20,000 Cordiant Plc ADR * 100,000
25,000 Host Marriott Corp * 325,000
25,000 International Technology Corp 56,250
25,000 International Technology Corp Convertible Preferred 7.00% 425,000
25,000 Kellwood Co 378,125
25,000 Morningstar Group Inc * 212,500
25,000 Ogden Corp 534,375
25,000 Pinkertons Inc * 456,250
10,000 Safety Kleen 145,000
17,500 Wackenhut Corp Class B 262,500
------------------------
3,225,000
------------------------
TECHNOLOGY - 8.4%
10,000 Advanced Micro Devices 193,750
37,500 Avnet Inc 1,870,313
25,000 Cray Research Inc * 709,375
50,000 Data General Corp * 843,750
72,500 Digital Equipment Corp * 5,220,000
10,000 Fisher Scientific 372,500
10,000 Intel Corp 588,125
25,000 Novell Inc * 304,688
65,000 Storage Technology Corp * 1,966,250
225,000 Tandem Computers Inc * 2,165,625
105,000 WMX Technologies 2,992,500
5,000 Xerox Corp 651,250
------------------------
17,878,126
------------------------
See accompanying notes to the financial statements.
7
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 5.6%
15,000 Airtouch Communications Inc * 465,000
12,500 AT & T Corp 795,313
10,000 BCE Inc (a) 347,500
5,000 Bell Atlantic Corp 330,625
10,000 Comsat Corp 231,250
105,000 GTE Corp 4,501,875
65,000 MCI Communications Corp * 1,901,250
25,000 Pacific Telesis Group 706,250
1,500 SBC Communications 82,313
5,000 Sprint Corp 215,000
15,000 Sprint Corp Convertible Preferred 8.25% 594,375
25,000 Tele-Communications Class A * 525,000
20,000 US West Inc 655,000
30,000 US West Media Group 626,250
------------------------
11,977,001
------------------------
TOBACCO - 1.2%
10,000 American Brands Inc 453,750
135,000 Hanson Plc ADR (a) 1,991,250
------------------------
2,445,000
------------------------
TRANSPORTATION - 3.6%
15,000 AMR Corp * 1,316,250
100,000 Canadian Pacific Ltd 1,975,000
5,000 Delta Air Lines Inc 390,000
1,000 Delta Air Lines Inc Convertible Preferred Series C $3.50 61,625
12,500 Hunt (JB) Transportation Services Inc 228,125
25,000 Navistar International Corp * 253,125
26,100 Navistar International Corp Preferred $6.00 1,428,975
7,500 Overseas Shipholding Group Inc 140,625
25,000 Ryder System Inc 628,125
15,000 Southern Pacific Rail Corp * 356,250
10,000 USAir Group Inc * 168,750
15,000 USAir Group Inc Convertible Preferred Series B $4.38 * 735,000
------------------------
7,681,850
------------------------
UTILITIES - 6.6%
50,000 Centerior Energy Corp 418,750
34,000 Cinergy Corp 1,015,750
5,000 CMS Energy Corp 151,875
25,000 DPL Inc 596,875
20,000 DTE Energy Company 712,500
10,000 Edison International * 175,000
55,000 Entergy Corp 1,560,625
See accompanying notes to the financial statements.
8
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
UTILITIES - CONTINUED
15,000 General Public Utilities 500,625
150,000 Niagara Mohawk Power Corp 1,125,000
23,600 Northeast Utilities 525,100
27,500 Ohio Edison Co 653,125
25,000 PacifiCorp 518,750
95,000 Panhandle Eastern Corp 2,719,375
27,000 Public Service Enterprise Group Inc 759,375
26,100 Southern Co 623,138
12,500 Texas Utilities Co 504,688
75,000 TransCanada Pipeline Ltd 1,059,375
12,500 Unicom Corp 400,000
------------------------
14,019,926
------------------------
TOTAL STOCK AND EQUIVALENTS (Cost $165,842,223) 207,869,547
------------------------
PAR VALUE DEBT OBLIGATIONS - 0.7%
COMPUTERS - 0.2%
$ 375,000 Storage Technology, 7.00% due 3/15/08 487,969
------------------------
HEALTH CARE - 0.5%
2,500,000 Roche Holdings Inc, 0.00% due 4/20/10 1,106,250
------------------------
TOTAL DEBT OBLIGATIONS (Cost $1,368,225) 1,594,219
------------------------
SHORT-TERM INVESTMENTS - 6.5%
REPURCHASE AGREEMENT - 0.9%
1,967,483 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/1/96, with a maturity value of $1,967,752 and an
effective yield of 4.92% , collateralized by U.S.
Treasury obligations with rates ranging from 7.25% to
13.25%, maturity dates ranging from 8/15/04 to
11/15/15, and with an aggregate market value of $2,004,464. 1,967,483
------------------------
U.S. GOVERNMENT - 0.0%
35,000 U.S. Treasury Bill, 5.28% due 03/14/96 34,936
------------------------
See accompanying notes to the financial statements.
9
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
CASH EQUIVALENTS - 5.6%
1,498,307 American Advantage Money Market Fund 1,498,307
$ 2,873,939 Bank of Boston Time Deposit, 6.26% due 3/1/96 2,873,939
$ 1,872,884 First Union National Bank Time Deposit, 5.44% due 3/1/96 1,872,884
$ 397,740 First Union National Bank Time Deposit, 5.50% due 3/1/96 397,740
2,161,430 Lehman Prime Value Money Market Fund 2,161,430
$ 3,000,000 Prudential Securities Group, Inc. Master Note, 5.69% due 3/1/96 3,000,000
------------------------
11,804,300
------------------------
TOTAL SHORT-TERM INVESTMENTS (at cost) 13,806,719
------------------------
TOTAL INVESTMENTS - 105.1%
(Cost $181,017,167) * * 223,270,485
Other Assets and Liabilities (net) - (5.1%) (10,842,139)
------------------------
TOTAL NET ASSETS - 100.0% $ 212,428,346
========================
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
(a) All or 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.
144A - Securities exempt from registration
under Rule 144A of the Securities Act of
1933. These securities may be resold in
transactions exempt from registration,
normally to qualified institutional
investors.
* Non-income producing security.
* * The aggregate identified cost for federal income tax purposes is $181,659,529,
resulting in gross unrealized appreciation and depreciation of $47,395,200
and $5,784,244, respectively, and net unrealized appreciation of $41,610,956.
</TABLE>
See accompanying notes to the financial statements.
10
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $181,017,167) (Note 1) $ 223,270,485
Receivable for investments sold 631,344
Dividends and interest receivable 647,507
Receivable for expenses waived or borne by Manager (Note 2) 14,163
---------------------
Total assets 224,563,499
---------------------
LIABILITIES:
Payable for investments purchased 143,225
Payable upon return of securities loaned (Note 1) 11,802,676
Payable to affiliate for management fee (Note 2) 128,866
Accrued expenses 60,386
---------------------
Total liabilities 12,135,153
---------------------
NET ASSETS (equivalent to $15.04 per share based on 14,123,445
shares outstanding, unlimited shares authorized) $ 212,428,346
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 161,524,955
Accumulated undistributed net investment income 875,858
Accumulated undistributed net realized gain 7,774,215
Net unrealized appreciation 42,253,318
=====================
NET ASSETS $ 212,428,346
=====================
</TABLE>
See accompanying notes to the financial statements.
11
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $35,402) $ 6,369,970
Interest (including securities lending income of $17,718) 324,869
---------------------
Total income 6,694,839
---------------------
EXPENSES:
Management fee (Note 2) 1,496,155
Custodian and transfer agent fees 51,545
Audit fees 44,512
Legal fees 7,494
Registration fees 1,961
Insurance 1,778
Trustee fee (Note 2) 766
Miscellaneous 481
---------------------
Total expenses 1,604,692
Less: expenses waived or borne by Manager (Note 2) (108,537)
---------------------
Net expenses 1,496,155
---------------------
Net investment income 5,198,684
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 15,914,196
Closed futures contracts 18,610
---------------------
Net realized gain 15,932,806
---------------------
Change in net unrealized appreciation (depreciation) on investments 30,653,753
---------------------
Net realized and unrealized gain 46,586,559
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 51,785,243
=====================
</TABLE>
See accompanying notes to the financial statements.
12
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,198,684 $ 4,916,741
Net realized gain 15,932,806 7,371,472
Change in net unrealized appreciation (depreciation) 30,653,753 1,387,837
--------------------- ---------------------
Net increase in net assets resulting from operations 51,785,243 13,676,050
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (5,212,954) (4,583,693)
Net realized gains (10,547,076) (7,395,946)
--------------------- ---------------------
(15,760,030) (11,979,639)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 8,794,800 39,104,294
Net asset value of shares issued to shareholders
in payment of distributions declared 11,508,937 8,303,555
Cost of shares repurchased (26,771,511) (14,000,000)
--------------------- ---------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (6,467,774) 33,407,849
--------------------- ---------------------
Total increase in net assets 29,557,439 35,104,260
NET ASSETS:
Beginning of period 182,870,907 147,766,647
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $875,858 and
$890,128, respectively) $ 212,428,346 $ 182,870,907
===================== =====================
</TABLE>
See accompanying notes to the financial statements.
13
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,
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.54 $ 12.49 $ 11.71 $ 10.82 $ 10.00
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (a) 0.37 0.34 0.27 0.30 0.11
Net realized and unrealized gain 3.26 0.55 1.64 1.32 0.77
------------ ------------ ------------ ------------ ------------
Total from investment operations 3.63 0.89 1.91 1.62 0.88
------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.37) (0.32) (0.28) (0.30) (0.06)
From net realized gains (0.76) (0.52) (0.85) (0.43) -
------------ ------------ ------------ ------------ ------------
Total distributions (1.13) (0.84) (1.13) (0.73) (0.06)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 15.04 $ 12.54 $ 12.49 $ 11.71 $ 10.82
============ ============ ============ ============ ============
TOTAL RETURN (B) 29.95% 7.75% 16.78% 15.66% 8.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 212,428 $ 182,871 $ 147,767 $ 62,339 $ 32,252
Net expenses to average
daily net assets (a) 0.75% 0.75% 0.75% 0.73% 0.62%**
Net investment income to average
daily net assets (a) 2.61% 2.84% 2.32% 2.77% 3.43%**
Portfolio turnover rate 34% 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 the
following per share amounts: $ 0.01 $ 0.01$ 0.01$ 0.03$ 0.03
(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.
14
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks long-term capital growth through investment primarily in
equity securities.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term 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 specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Losses may arise from the changes in
the value of the underlying instrument, if there is an
15
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, 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.
INDEXED SECURITIES
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indices, or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
SECURITY LENDING
The Fund may lend its securities to 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 29, 1996, the Fund
loaned securities having a market value of $11,249,378, collateralized by
cash in the amount of $11,804,300, which was invested in short-term
instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
16
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
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. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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 29, 1996, the Fund did not receive any
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
17
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $766. 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 29, 1996, aggregated
$66,690,098 and $74,412,848, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 94% of the outstanding shares of the Fund were held
by four shareholders each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 616,745 3,213,626
Shares issued to shareholders in reinvestment
of distributions 825,614 706,233
Shares repurchased (1,900,841) (1,169,385)
---------- ----------
Net increase (decrease) (458,482) 2,750,474
Fund shares:
Beginning of period 14,581,927 11,831,453
---------- ----------
End of period 14,123,445 14,581,927
========== ==========
</TABLE>
* * *
18
GMO FUNDAMENTAL VALUE FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 37.32% of distributions as net capital gain dividends.
PORTFOLIO MANAGER
Mr. Richard A. Mayo is primarily responsible for the day-to-day
management of the Fund's portfolio. A founding partner of GMO, Mr. Mayo has been
a portfolio manager for more than twenty-five years.
MANAGEMENT DISCUSSION AND ANALYSIS
GMO FUNDAMENTAL VALUE FUND
The predominant theme of the market in the second half of 1995 was large
defensive growth stocks -- drug, telephone, and household products companies.
Reacting to a slowing in the economy and declining interest rates, money
managers were attracted to such stocks. In addition, the continued very large
flow of money into mutual funds made it necessary for portfolio managers to
emphasize large capitalization stocks in order to invest money quickly.
[BAR CHART APPEARS HERE.]
Net Cash Flow into Equity Mutual Funds (US$ billions)
Date Amount
Mar-90 3.7
Apr-90 4.0
May-90 3.9
Jun-90 4.5
Jul-90 3.9
Aug-90 0.2
Sep-90 (2.5)
Oct-90 0.0
Nov-90 1.5
Dec-90 3.8
Jan-91 0.5
Feb-91 3.8
Mar-91 3.0
Apr-91 3.6
May-91 3.9
Jun-91 1.8
Jul-91 4.0
Aug-91 3.6
Sep-91 3.9
Oct-91 4.8
Nov-91 3.8
Dec-91 10.5
Jan-92 7.0
Feb-92 2.0
Mar-92 7.1
Apr-92 7.4
May-92 6.9
Jun-92 5.1
Jul-92 6.9
Aug-92 3.9
Sep-92 4.9
Oct-92 4.8
Nov-92 9.9
Dec-92 13.7
Jan-93 10.1
Feb-93 8.5
Mar-93 12.6
Apr-93 11.7
May-93 9.3
Jun-93 10.2
Jul-93 10.0
Aug-93 12.2
Sep-93 10.0
Oct-93 13.5
Nov-93 8.8
Dec-93 20.9
Jan-94 18.3
Feb-94 14.4
Mar-94 7.5
Apr-94 11.0
May-94 11.2
Jun-94 8.8
Jul-94 9.3
Aug-94 14.2
Sep-94 9.4
Oct-94 9.8
Nov-94 2.7
Dec-94 10.8
Jan-95 6.2
Feb-95 8.4
Mar-95 8.3
Apr-95 10.4
May-95 8.4
Jun-95 10.0
Jul-95 14.0
Aug-95 13.7
Sep-95 13.9
Oct-95 9.3
Nov-95 14.6
Dec-95 28.8
This inflow plus $100 billion in announced corporate
buybacks is major support for the market.
Source: DATASTREAM
In the last three months of 1995, this concentration in large defensive
stocks reached an extreme. All of the move in the S&P 500 was accounted for by
only twenty two (22) companies. And, as you can see in the table below, none was
cyclical.
22 STOCKS MOVE S&P 500
The following 22 stocks account for 100% of the S&P 500 move from 9/30/95
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1) GE 10.7% 12) MMM 71.8%
2) MRK 18.6% 13) PG 75.2%
3) KO 26.4% 14) PEP 78.6%
4) XON 34.1% 15) LLY 81.7%
5) JNJ 41.1% 16) AHP 84.6%
6) RD 46.2% 17) AIG 87.4%
7) PFE 51.3% 18) GTE 90.1%
8) MO 56.0% 19) AIT 92.7%
9) BMY 60.4% 20) MOB 95.2%
10) BLS 64.6% 21) CA 97.8%
11) MCD 68.3% 22) TX 100.0%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund lagged the S&P 500 in the last quarter of 1995 since we did not
have major holdings in the above list of companies. We had small positions in
five of the group, a major weighting in GTE, and were helped by major positions
in Eastman Kodak, Baxter Labs, Smith-Kline Beecham, and MCI Communications,
companies that benefited from the same effect -- i.e. interest in large liquid
stocks with stable earnings growth. By November, we thought that sector was
getting overvalued. For instance, the large telephone stocks by then were up an
average of 45%, and we began to gradually take profits. These sales had a
negative impact on relative performance since this type of stock led the market
into early February 1996.
We were also taking some profits because we were concerned that the
assumptions of steadily declining interest rates and slow economic growth that
encouraged the focus on the big defensive stocks were becoming too widely held.
Thus, data that caused a change in direction in interest rates would be a
problem for those stocks and, due to their market size, a problem for the
market. A shift has occurred. Industrial production in February was up 1.2%, the
largest gain in four (4) years. Job growth in the same month leaped by 720,000.
Driven by the appearance that the economy is much stronger than previously
assumed, interest rates have increased 100 basis points, a very large move in
the short term.
Increasing rates and changing economic assumptions have created
significant volatility in the stock market on a day-to-day basis for the last
four weeks as investment managers try to reorient their portfolios. They have
tried to increase their cyclical exposure and reduce exposure to companies that
would be most negatively impacted by the higher rate structure. We are being
helped by this shift. We own some paper companies, some chemical companies, and
most importantly some airline stocks that have moved to the top of the
performance lists.
In addition, the evidence that the economy is "strong" has reawakened
interest in smaller companies which traditionally are more impacted by economic
shifts. Smaller company stocks lagged the market by approximately 5% during the
latter half of 1995. We have about 25% of the portfolio invested in medium to
smaller companies and this penalized our performance by about 2%. In February
1996 there was a shift. The Russell 2000 Index (an index of smaller stocks)
outperformed the S&P 500 by more than 1% and these gains are continuing into
March. It was also encouraging that on the most recent days of big declines in
the market, small stocks materially outperformed. At last, the values we saw in
Mascotech, American Greetings, Storage Technology, and Price-Costco are catching
attention.
Going forward, we expect continued choppiness in the market. This usually
happens when the variables that affect stock valuation such as profits, interest
rates, and inflation are being re-evaluated. Consequently, we are maintaining a
certain defensiveness.
We are adding to positions in WMX Technology, Marathon Oil, Unocal,
Hanson PLC ADR, Wal Mart, Canadian Pacific, and other selected cyclicals. We
watch for opportunities in the technology sector, a group that now has violent
selling phases. We don't see any major sectors that look significantly
undervalued. We are adding to REITs, but that is more the attraction of good
total returns -- high yields coupled with modest growth.
We think the rest of 1996 and early 1997 will continue to be challenging.
Rapid changes in expectations lead to more volatile stock prices, but we are
encouraged that our emphasis on value will produce favorable returns.
Thank you for investing with us.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO FUNDAMENTAL VALUE FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 10/31/91
29.8% N/A 18.1%
[Line Graph Appears Here]
Date GMO Fundamental Value Fund S & P 500 Index
10/31/91 9,985 10,000
02/29/92 10,871 10,631
02/28/93 12,574 11,764
02/28/94 14,684 12,744
02/28/95 15,822 13,682
02/29/96 20,561 18,430
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 17, 1996
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 87.3%
AUSTRALIA - 2.5%
<S> <C> <C> <C>
43,600 Aberfoyle Ltd 120,686
45,073 Adelaide Brighton Ltd 44,460
96,930 Australian Gas & Light 392,823
97,600 Australian National Industries Ltd 79,108
99,000 Bougainville Copper Ltd * 50,719
158,232 Burns Philp & Co Ltd 353,297
91,800 Caltex Australia Ltd 354,484
2,900 Coal & Allied Industries Ltd 32,597
44,900 Crusader Ltd * 49,783
89,342 Email Ltd 236,371
46,733 Fairfax Holdings Ltd 102,200
430,434 Goodman Fielder Ltd 457,493
101,875 Hardie (James) Industries Ltd 193,189
23,200 Metal Manufactures Ltd 55,881
30,800 Opsm Protector Ltd 50,635
81,655 Pacific Magazines and Printing Ltd 202,922
266,000 Pasminco Ltd 321,367
63,483 Pioneer International Ltd 188,344
52,800 Publishing & Broadcasting Ltd 213,980
254,387 QCT Resources Ltd 315,118
18,050 Rothmans Holdings Ltd 82,812
252,887 Santos Ltd 796,685
96,500 Seven Network Ltd 298,844
189,800 Southcorp Holdings Ltd 467,320
6,800 Weston Foods Ltd 39,257
47,200 Wills (WD & HO) Holdings Ltd 75,792
----------------------
5,576,167
----------------------
AUSTRIA - 2.1%
777 Allgemeine Baugesellschaft AG 78,177
888 Allgemeine Baugesellschaft AG Preferred 7.00% 38,229
800 Austrian Airlines * 147,438
11,700 Bank Austria AG (Participating Certificate) 447,103
700 Bau Holding AG Preferred 2.42% (Non Voting) 32,845
1,150 Brau Union AG 66,086
200 BWT AG 25,540
2,800 Creditanstalt-Bankverein 174,178
1,200 Creditanstalt-Bankverein Preferred 1.65% 70,701
100 EA-Generali AG 34,625
1,100 EA-Generali AG Preferred 6.00% 191,447
600 EVN Energie-Versorgung Niederoesterreich AG 79,582
2,300 Flughafen Wien AG * 157,316
1,100 Jenbacher Werke AG 187,297
200 Lenzing AG 16,833
See accompanying notes to the financial statements. 1
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
AUSTRIA - CONTINUED
300 Leykam-Muerztaler Papier und Zellstoff AG * 11,029
800 Miba Holding AG Series B Preferred 1.34% 32,506
7,000 OEMV AG 653,506
1,100 Oesterreichische Brau Beteiligungs AG 56,402
3,000 Oesterreichische Elektrizitaetswirschafts AG 197,358
7,200 Oesterreichische Laenderbank AG 562,122
700 Oesterreichische Laenderbank AG Preferred (Non Voting) 31,355
110 Perlmooser Zementwerke AG 7,460
18,658 Radex-Heraklith AG 631,768
300 RAS Versicherungs AG 45,828
2,400 Steyr-Daimler-Puch AG * 36,918
1,942 Strabag Oesterreich AG 131,514
3,662 Universale Bau AG * 171,824
1,700 VA Technologie AG (Bearer) * 215,120
200 Wiener Allianz Versicherungs AG 38,891
330 Wienerberger Baustoffindustrie AG 74,546
----------------------
4,645,544
----------------------
CANADA - 1.9%
6,000 Abitibi-Price Inc 83,652
5,000 Avenor Inc 70,166
18,900 Cameco Corp 1,029,907
3,100 Canadian Marconi Co * 31,638
38,300 Canadian Tire Ltd Class A 408,338
900 Canfor Corp 8,447
1,900 CCL Industries Class B 16,794
21,900 Cominco Ltd 468,972
18,100 Dominion Textile Inc 92,364
24,400 Domtar Inc 168,981
13,000 Gulf Canada Resources Ltd * 56,862
6,400 Hudsons Bay Co 82,231
13,900 Inter-City Prods Corp * 15,706
1,700 International Forest Products A 15,181
9,400 Ipsco Inc 217,569
15,300 Molson Class A 256,534
2,900 Molson Co Ltd Class B 48,888
11,300 Noranda Forest Inc 72,079
8,500 Noranda Inc 167,305
30,100 Nova Scotia Power Inc 266,056
15,800 Oshawa Group Ltd Class A 263,477
10,600 Power Corp 151,649
1,700 Scotts Hospitality Inc 11,618
10,200 Sears Canada Inc 43,685
3,600 Semi-Tech Class A 20,995
1,280 Slocan Forest Products Ltd 11,897
6,600 Total Petroleum North America 54,128
----------------------
4,135,119
----------------------
2 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
DENMARK - 0.0%
800 Hafnia Holdings Class A * (a) -
----------------------
FINLAND - 3.0%
29,000 Amer Group Class A 491,305
9,500 Cultor OY Serie 2 418,037
25,000 Cultor OY Series 1 1,061,594
4,000 Huhtamaki Oy Series L 136,412
700 Instrumentarum OY B * 19,868
79,000 Kesko OY 990,748
63,700 Partek OY 882,961
132,400 Rautaruukki OY 888,483
62,600 Valmet OY 1,694,107
----------------------
6,583,515
----------------------
HONG KONG - 5.1%
518,000 Applied International Holdings Ltd Warrants 12/30/99 * 28,140
3,170,000 Applied International Holdings Ltd * 319,819
103,000 Cathay Pacific Airways Ltd 188,514
59,000 Cross Harbour Tunnel Co Ltd 115,615
205,802 Dairy Farm International 200,657
5,094,000 Denway Investments * 316,265
333,000 Dickson Concepts International Ltd 340,268
16,780 Furama Hotel Enterprises Ltd 24,960
1,338,100 Goldlion Holdings Ltd 1,133,653
19,000 Harbour Centre Development Ltd 23,838
44,500 Hong Kong Ferry Co Ltd 46,910
3,100 Hong Kong Ferry Co Ltd Warrants 6/30/96 * 417
49,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 78,273
420,000 Jardine International Motor Holdings Ltd 581,277
113,937 Jardine Strategic Warrants 5/02/98 * 48,423
40,800 Kowloon Motor Bus Co Ltd 69,396
1,341,000 Kumagai Gumi Hong Kong Ltd 1,231,508
548,000 Lai Sun Garment International Ltd 666,283
203,000 Lane Crawford International Ltd Series A 295,392
2,952,000 Laws International Holdings Ltd * 339,826
78,148 Mandarin Oriental 102,374
766,000 Playmate Toys Holding 161,498
211,455 Playmates Properties Holdings 30,359
40,000 Realty Development Corp Ltd Class B 25,740
6,366,509 Regal International Ltd 1,667,542
76,000 San Miguel Brewery Ltd 37,601
864,000 Shun Tak Holdings Ltd 636,999
130,000 South China Morning Post Ltd 91,641
See accompanying notes to the financial statements. 3
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
HONG KONG - CONTINUED
1,933,595 Stelux Holdings International 470,190
172,500 Swire Pacific Ltd Class A 1,506,063
22,000 Television Broadcasts Ltd 83,660
85,000 Wing On International Holdings Ltd 150,622
211,500 Winsor Industrial Corp Ltd 199,703
----------------------
11,213,426
----------------------
ITALY - 5.9%
192,300 Alitalia Linee Aeree Italiane Class A * 85,970
118,000 Alitalia Linee Aeree Italiane Class B Preferred * 32,630
27,400 Ansaldo Transporti SPA 42,327
350,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 396,348
474,400 Banca Nazionale dell' Agricoltura di Risp * 185,879
589,800 Banca Nazionale dell'Agricoltura SPA (Non Convertible) * 234,883
36,500 Banca Nazionale dell'Agricoltura SPA Preferred * 13,598
70,000 Caffaro SPA 74,189
34,200 Caltagirone SPA 28,558
23,000 Cantoni ITC SPA * 32,502
31,500 Cartiere Burgo SPA 170,263
200,000 Cementir Cementerie del Tirreno SPA 161,866
162,900 Cia Italiana dei Grandi Alberghi Cigahotels SPA * 74,082
42,100 COFIDE SPA (Non Convertible) * 10,141
129,600 COFIDE SPA * 48,116
335,000 Comau Finanziaria SPA 471,243
8,800 Danieli and Co SPA 63,025
38,000 Danieli and Co SPA (Non Convertible) 135,223
5,100 Edison SPA 25,650
20,000 Falck Acciaierie and Ferriere Lombarde * 56,011
165,000 Fiat SPA Preferred 1.68% 314,772
273,000 Fiat SPA (Non Convertible) 499,762
82,800 FIDIS SPA 231,353
439,500 Finmeccanica SPA (Non Convertible) * 205,799
102,000 Fornara SPA * 4,717
230,000 Gemina SPA (Non Convertible) * 85,243
407,800 Gemina * 170,524
75,833 Gilardini SPA 102,290
213,400 Grassetto SPA * 64,287
29,300 IFI Istituto Finanziario Preferred 2.46% 293,877
90,400 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 159,102
96,300 IFIL Finanziaria di Partecipazioni * 317,012
170,200 Industriali Riunite SPA * 97,845
87,900 Industriali Riunite (Cie) SPA (Non Convertible) * 26,932
4 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
ITALY - CONTINUED
29,000 Italcementi Fabbriche Riunite Cemento SPA 203,039
53,000 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 144,684
117,400 Italgas SPA 364,226
4,400 Luxottica Group Sponsored ADR 309,100
3,000 Marzotto and Figli SPA (Convertible) 21,043
35,300 Mondadori Editore 306,781
135,000 Montedison SPA (Non Convertible) * 64,255
315,000 Montefibre SPA 214,473
60,000 Montefibre SPA (Non Convertible) 32,720
306,000 Olivetti and Co SPA * 181,614
166,000 Olivetti and Co SPA (Non Convertible) * 78,903
38,000 Olivetti and Co SPA Preferred * 31,731
266,300 Parmalat Finanziaria SPA 247,683
66,750 Pirelli and Co 88,752
77,000 Pirelli and Co (Non Convertible) 69,243
26,000 Pirelli SPA (Non Convertible) * 28,808
20,500 Ratti SPA 39,174
16,000 Recordati Industria Chimica e Farmaceutica SPA 135,659
75,500 Recordati Industria Chimica e Farmaceutica SPA (Non Convertible) 377,296
220,000 Rinascente per l'Esercizio di Grandi Magazzini SPA
Preferred 5.59% 614,707
30,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 207,728
140,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 445,132
167,000 SAFFA SPA * 391,530
3,200 SAFILO SPA 57,244
13,000 Sasib SPA 53,024
17,400 Sasib SPA (Non Convertible) 39,900
39,000 Sirti SPA 249,255
100,000 Snia BPD SPA (Convertible) 93,137
605,000 Snia BPD SPA (Non Convertible) 361,405
413,000 Societa Metallurgica Italia * 165,801
42,000 Sorin Biomedica SPA 129,223
26,000 Stefanel SPA 37,576
308,800 Telecom Italia SPA di Risp (Non Convertible) 425,462
12,000 Tosi (Franco) SPA 93,343
606,274 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) * 1,688,162
----------------------
12,907,832
----------------------
JAPAN - 18.5%
6,000 Aida Engineering Ltd 51,060
7,000 Ajinomoto Co Inc 75,877
5,000 Alps Electric Co Ltd * 53,723
8,000 Amada Co Ltd 85,956
See accompanying notes to the financial statements. 5
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
56,000 Aoki Corp * 211,924
5,700 Arabian Oil Co Ltd 252,563
31,000 Asahi Breweries Ltd * 359,608
6,000 Asics Corp * 18,941
3,000 Bank of Kyoto Ltd 17,543
450 Bank of Kyoto Rights Expires 3/18/96 * 1,202
19,000 Bank of Yokohama Ltd 144,347
8,000 Banyu Pharmaceutical Co Ltd 98,888
5,250 Canon Sales Co Inc 129,291
14,000 Chiba Bank Ltd 111,286
1,000 Chudenko Corp 34,706
7,000 Chugai Pharmaceutical Co Ltd 66,559
3,000 Chugoku Bank Ltd 53,057
68,000 Cosmo Oil Co Ltd 373,719
3,000 CSK Corp 87,287
36,000 Daicel Chemical Industries Ltd 210,516
9,000 Daiichi Seiyaku Co Ltd 138,633
27,000 Dainippon Ink & Chemicals Inc 122,716
5,000 Dainippon Pharmaceutical Co Ltd 47,067
4,000 Dainippon Screen Manufacturing Co Ltd * 37,273
4,000 Daito Trust Construction Co Ltd 45,260
23,000 Daiwa Bank Ltd 155,272
8,000 Denki Kagaku Kogyo * 32,024
1,000 Denny's Japan Co Ltd 31,473
2,000 Descente Ltd 12,646
8,000 Eisai Co Ltd 146,049
37,000 Fuji Heavy Industries Ltd * 150,927
21,000 Fujisawa Pharmaceutical Co Ltd 199,677
15,000 Fujita Corp 69,174
7,000 Fujita Kanko Inc 141,770
60,000 Fujiya Co Ltd * 252,734
1,000 Fukuoka City Bank Ltd 7,131
21,000 Fukuyama Transporting Co Ltd 195,683
22,000 Furukawa Electric Co Ltd 114,843
95,000 Gakken Co Ltd * 621,470
40,000 General Sekiyu (KK) 384,140
39,000 Godo Shusei Co Ltd 205,810
6,000 Green Cross Corp 32,804
64,000 Hankyu Corp * 368,774
5,000 Hankyu Department Stores Inc 70,362
11,000 Hanwa Co Ltd * 38,176
22,000 Haseko Corp 79,490
9,000 Hazama-Gumi Ltd 35,600
6 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
4,000 Higo Bank Ltd 32,329
8,000 Hiroshima Bank Ltd 38,110
50,600 Hitachi Ltd 509,993
22,000 Hitachi Maxell Ltd 410,003
6,000 Hokkaido Bank Ltd 17,686
8,000 Hokuriku Bank Ltd 45,412
2,000 Honen Corp 11,182
1,000 House Foods Corp 17,971
3,000 Hoya Corp 99,838
4,000 INAX Corp 38,794
46,000 Intec Inc 664,828
8,000 Itoham Foods Inc 60,017
25,000 Japan Airport Terminal Co Ltd 304,269
119,000 Japan Energy Co Ltd 418,656
119,000 Japan Synthetic Rubber Co Ltd 786,393
35,000 Joshin Denki Co Ltd 419,321
2,000 Kaken Pharmaceutical Co Ltd 16,925
13,000 Kamigumi Co Ltd 126,082
7,000 Kao Corp 87,858
37,000 Keihin Electric Express Railway Co Ltd 213,549
49,000 Keio Teito Electric Railway Co Ltd 277,684
20,000 Keisei Electric Railway Co Ltd 182,562
1,000 Kissei Pharmaceutical Co Ltd 32,043
16,000 Koito Manufacturing Co Ltd 105,886
59,000 Kokusai Kogyo Co Ltd 600,266
5,000 Kokuyo Co Ltd 120,281
34,000 Komatsu Ltd 293,867
1,000 Konami Co Ltd 26,148
10,000 Konica Corp 69,221
58,000 Koyo Seiko Co Ltd 518,950
22,000 Kumagai Gumi Co Ltd 89,950
123,000 Kurabo Industries Ltd 479,509
268,000 Kureha Chemical Industry Co Ltd 1,304,707
4,000 Kyodo Printing Co Ltd 46,781
15,000 Kyowa Hakko Kogyo Co Ltd 137,064
19,000 Lion Corp 110,022
66,000 Maeda Corp 646,382
61,000 Makino Milling Machine Co Ltd * 626,414
50,000 Marubeni Corp 270,514
112,000 Marudai Food Co Ltd 786,992
15,000 Matsushita Electric Works Ltd 161,168
26,000 Matsushita Refrigeration Co 194,067
7,000 Matsuzakaya Co Ltd 79,871
See accompanying notes to the financial statements. 7
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
36,000 Mazda Motor Corp * 138,633
9,000 Mercian Corp 62,556
200 Mitsubishi Chemical Corp 1,025
13,000 Mitsubishi Gas Chemical Co Inc 61,187
37,000 Mitsubishi Materials Corp 191,737
48,000 Mitsubishi Oil Co Ltd 414,871
20,000 Mitsubishi Rayon Co Ltd 84,625
25,000 Mitsubishi Trust & Banking Corp 385,091
8,000 Mitsubishi Warehouse & Transportation Co Ltd 127,793
54,000 Mitsuboshi Belting Ltd 322,449
13,000 Mitsui Mining Co Ltd * 55,377
25,000 Mitsui Toatsu Chemicals Inc 99,838
22,000 Mitsui Trust & Banking Co Ltd 225,920
6,000 Mitsui-Soko Co Ltd 47,010
3,000 Mochida Pharmaceutical Co Ltd 41,362
83,000 Nagasakiya Co Ltd * 333,831
60,000 Nagoya Railroad Co Ltd 308,073
2,000 Namco Ltd 63,326
35,000 Nankai Electric Railway Co Ltd 242,274
155,000 Nichiei Co Ltd 620,472
9,000 Nichii Co Ltd 128,364
6,000 Nihon Cement Co Ltd 39,935
1,000 Nippon Beet Sugar Manufacturing Co Ltd 4,612
121,000 Nippon Chemi-Con Corp * 767,396
3,000 Nippon Denko Co Ltd 11,353
5,000 Nippon Kayaku Co Ltd 33,089
2,000 Nippon Meat Packers Inc 29,286
4,000 Nippon Metal Industry Co Ltd 20,006
174,000 Nippon Oil Co Ltd 1,045,621
13,000 Nippon Piston Ring Co Ltd 65,513
12,000 Nippon Sheet Glass Co Ltd 55,225
8,000 Nippon Suisan Kaisha Ltd * 33,774
4,000 Nippon Yakin Kogyo Co Ltd * 17,686
50,000 Nissan Fire & Marine Insurance Co Ltd 349,434
2,000 Nisshin Flour Milling Co Ltd 23,581
25,000 Nissho Iwai Corp 116,716
1,000 Nissin Food Products Co Ltd 23,866
7,000 Nitto Boseki Co Ltd * 21,765
5,000 Nitto Denko Corp 75,592
19,000 NSK Ltd 139,108
54,000 Odakyu Electric Railway Co Ltd 385,091
17,000 Okamoto Industries Inc 106,360
7,000 Olympus Optical Co Ltd 66,293
8 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
3,000 Ono Pharmaceutical Co Ltd 110,678
10,000 Onoda Cement Co Ltd 57,906
265,000 Renown Inc * 904,583
21,000 Ricoh Co Ltd 225,635
56,000 Royal Co Ltd 937,149
4,000 Ryobi Ltd 20,804
31,000 Sagami Railway Co Ltd 133,821
25,000 Sanden Corp 155,463
4,000 Sankyo Aluminum Industry Co Ltd 22,744
35,000 Sanrio Co Ltd * 362,746
4,000 Sanwa Shutter Corp 32,595
145,000 Sanyo Securities Co Ltd * 579,062
13,000 Sapporo Breweries Ltd 116,440
5,000 Secom Co Ltd 311,876
10,000 Seino Transportation Co Ltd 166,397
11,000 Sekisui Chemical Co Ltd 140,154
256,000 Settsu Corp * 856,822
36,000 Shionogi and Co Ltd 295,407
14,000 Shiseido Co Ltd 158,410
4,000 Shochiku Co Ltd 46,021
4,000 Shokusan Jutaku Sogo Co Ltd * 15,137
134,000 Showa Denko * 408,995
40,000 Showa Shell Sekiyu 368,927
5,000 Skylark Co Ltd 88,428
3,000 Snow Brand Milk Products Co Ltd 19,312
5,000 Stanley Electric Co Ltd 34,230
7,000 Sumitomo Coal Mining Co Ltd 32,614
3,000 Sumitomo Forestry Co Ltd 45,355
25,000 Sumitomo Osaka Cement Co Ltd 116,716
22,000 Sumitomo Trust & Banking Co Ltd 274,033
6,000 Sumitomo Warehouse Co Ltd 37,197
2,000 SXL Corp Ltd 20,538
34,000 Taisei Corp 221,451
11,000 Taisho Pharmaceutical Co Ltd 219,644
6,000 Taiyo Yuden Co Ltd 60,474
7,000 Takara Shuzo Co Ltd 75,877
28,000 Tanabe Seiyaku Co Ltd 201,807
28,000 Teikoku Oil Co Ltd 181,040
10,000 Terumo Corp 103,642
64,000 Tobu Railway Co Ltd 405,895
7,000 Toei Co Ltd 43,929
800 Toho Co Ltd 131,596
5,000 Tokai Carbon Co Ltd 24,769
See accompanying notes to the financial statements. 9
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
9,000 Tokyo Dome Corp 151,469
90,000 Tokyo Electric Co Ltd * 440,715
43,000 Tokyo Rope Manufacturing Co Ltd 212,608
8,000 Tokyo Sowa Bank Ltd 30,503
13,000 Tokyotokeiba Co Ltd 56,860
113,000 Tokyu Construction Co Ltd 526,481
84,000 Tokyu Corp 608,615
7,000 Tokyu Department Store Co Ltd 44,195
35,000 Toppan Printing Co Ltd 455,929
28,000 Toshiba Tungaloy Co Ltd * 167,728
4,000 Tostem Corp 122,849
7,000 Toto Ltd 97,176
13,000 Toyo Engineering Corp 86,527
4,000 Toyo Kanetsu (KK) 20,120
10,000 Toyo Trust & Banking Co Ltd 90,235
31,000 Tsugami Corp 165,066
4,000 Tsumura and Co 69,602
1,000 Unicharm Corp 24,627
193,000 Victor Co of Japan Ltd * 2,367,310
7,000 Wacoal Corp 87,192
3,000 Yamaguchi Bank Ltd 49,634
5,000 Yamaha Corp 89,855
10,000 Yamanouchi Pharmaceutical Co Ltd 223,448
27,000 Yamato Transport Co Ltd 302,938
2,000 Yamazaki Baking Co Ltd 35,561
19,000 Yasuda Trust and Banking Co Ltd 102,434
7,000 Yokogawa Electric Corp 74,546
4,000 Yoshitomi Pharmaceutical Industries Co Ltd 36,512
----------------------
40,548,766
----------------------
NEW ZEALAND - 0.5%
25,000 Air New Zealand Ltd Class B 78,265
4,500 Ceramco Corp Ltd 6,362
658,000 DB Group Ltd 376,549
15,510 Fernz Corp Ltd 45,110
9,617 Fisher and Paykel Industries Ltd 29,136
42,500 Fletcher Challenge Forest 59,229
14,500 Independent Newspapers Ltd 49,396
218,000 Lion Nathan Ltd 476,998
2,500 Steel and Tube Holdings Ltd 13,465
8,500 Wilson and Horton Ltd 53,220
----------------------
1,187,730
----------------------
10 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
NORWAY - 3.7%
11,100 Aker AS Class A 190,817
4,000 Aker AS Class B (Non-Voting) 62,512
13,700 Bergesen d y AS Class A 256,923
8,000 Bergesen d y AS Class B 143,777
123,700 Den Norske Bank AS Series A 402,100
8,600 Det Norske Luftfartsselskab AS Class B 394,465
5,800 Dyno Industrier AS 123,273
14,700 Elkem AS Class A 176,893
30,233 Hafslund Nycomed AS Class A 831,563
11,675 Hafslund Nycomed AS Class B 310,175
3,050 Kvaerner Industrier AS 97,714
1,200 Kvaerner Industrier AS Class B (Non Voting) * 34,694
11,900 Leif Hoegh and Co AS 172,954
79,750 Norsk Hydro AS 3,402,474
12,430 Norske Skogindustrier AS Series A 374,912
2,780 Norske Skogindustrier AS Series B 78,854
6,050 Orkla-Borregaard AS Series A 274,192
3,100 Orkla-Borregaard AS Series B (Non Voting) 130,806
35,300 Unitor AS 551,666
18,571 Vard AS Class A * 43,244
----------------------
8,054,008
----------------------
SINGAPORE - 4.8%
42,000 Amcol Holdings Ltd 113,614
6,000 Boustead Holdings Berhad 12,364
2,391,000 Chuan Hup Holdings Ltd 2,065,659
21,000 Fraser and Neave Ltd 281,061
494,000 Hai Sun Hup Group Ltd 356,818
16,500 Haw Par Brothers International Ltd * 37,623
145,000 Hotel Properties Ltd 262,862
122,000 Inchcape Berhad 423,326
143,362 Jardine Matheson Holdings Ltd 1,146,896
805,437 Jardine Strategic Holdings Ltd 2,738,486
47,000 Kulim Berhad 66,565
45,000 Low Keng Huat Singapore Ltd 24,218
24,000 Natsteel Ltd 49,966
170,000 Neptune Orient Lines Ltd 196,226
210,000 Parkway Holdings Ltd 574,018
97,000 Prima Ltd 377,793
223,000 Robinson and Co Ltd 971,179
34,000 Straits Trading Co Ltd 90,529
245,000 Times Publishing Ltd 614,170
46,000 Wearne Brothers Ltd 108,147
----------------------
10,511,520
----------------------
SPAIN - 4.3%
12,155 Acerinox SA 1,176,988
7,500 Asland SA 151,916
36,403 Asturiana del Zinc SA * 351,613
See accompanying notes to the financial statements. 11
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
SPAIN - CONTINUED
9,300 Azucarera de Espana SA 321,726
27,600 Banco Zaragozano SA 468,477
1,125 Bodegas Y Bebidas SA 28,552
15,650 Cristaleria Espanola SA * 1,004,373
22,000 Empresa Nacional de Celulosa SA 305,852
40,400 Ercros SA 30,369
19,950 Espanola de Carburos Metalicos SA 877,207
138,100 Espanola de Tubos por Extrusion SA * 161,853
3,500 Fabricacion de Automoviles Renault de Espana SA 77,514
3,783 Grupo Anaya SA 87,909
27,400 Grupo Duro Felguera SA * 140,632
261,727 Huarte SA 932,926
1,010 Koipe SA 57,553
275,820 Sarrio SA 996,537
55,799 Tableros Defibras Series B 597,589
167,515 Uralita SA 1,611,242
----------------------
9,380,828
----------------------
SWEDEN - 4.3%
24,900 Bilspedition AB Series B * 78,942
40,700 Celsius Industrier AB Class B 1,118,488
1,000 Esselte AB Series A 17,185
600 Esselte AB Series B 10,489
21,400 Euroc Industri AB Series A 554,811
57,860 Marieberg Tidnings AB Series A 1,542,922
3,300 Mo Och Domsjoe AB Series B 162,799
117,420 Skandinaviska Enskilda Banken Series A 857,595
3,000 SKF AB Class B 65,777
295,400 Stena Line AB Class B 1,584,208
40,600 Svenska Handelsbanken Series B 745,832
3,600 Svenska Kullagerfabriken AB 78,666
64,300 Sydkraft AB Series A 1,343,146
55,600 Sydkraft AB Series C 971,963
31,900 Trelleborg Class B AB 385,160
----------------------
9,517,983
----------------------
SWITZERLAND - 6.4%
900 Adia SA (Bearer) 171,965
50 Ascom Holding AG (Bearer) * 53,817
500 Ascom Holding AG (Registered) * 100,125
2,840 Bobst SA (Registered) 2,061,577
550 CIBA-GEIGY AG (Bearer) 489,654
2,625 CS Holdings (Registered) 250,235
100 Danzas Holding AG (Registered) 114,310
350 Elektrowatt AG (Bearer) 126,450
150 EMS-Chemie Holdings AG (Bearer) 672,090
250 Fischer (George) AG (Registered) 60,075
12 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
SWITZERLAND - CONTINUED
200 Forbo Holdings AG (Registered) 84,439
150 Hero AG (Bearer) 66,333
500 Hero Lenzburg (Registered) 56,320
1,050 Hilti AG, Schaan (Participating Certificate) 814,768
550 Holderbank Financiere Glarus AG (Bearer) 394,660
2,400 Holderbank Financiere Glarus AG (Registered) 350,438
3,450 Interdiscount Holdings (Bearer) * 210,138
1,160 Kuoni Reisen Holdings AG (Registered) 2,129,328
830 Magazine zum Globus (Participating Certificate) 429,370
300 Magazine zum Globus (Registered) 180,225
20 Merkur Holding AG (Registered) 4,456
4,260 Saurer Group Holdings (Registered) 1,794,994
190 Schindler Holding AG (Participating Certificate) 212,432
270 Schindler Holding AG (Registered) 301,877
460 Schindler Holdings Warrants, Expires 12/16/96 * 1,343
20 SIG AG (Bearer) 22,194
20 SIG AG (Registered) 45,056
450 Sika Finanz AG (Bearer) 109,262
4,600 Sika Finanz AG (Registered) 178,473
96 SMH AG (Bearer) 59,995
3,300 SMH AG (Registered) 454,318
250 Societe Generale de Surveillance Holdings Ltd (Bearer) 479,766
750 Societe Generale de Surveillance Holdings Ltd (Registered) 278,473
175 Sulzer Gebrueder AG (Registered) 113,892
350 Swiss Bank Corp (Bearer) 128,786
250 Swiss Bank Corp (Registered) 45,995
2,150 Swissair AG (Participating Certificate) * 304,965
485 Union Bank of Switzerland (Bearer) 506,650
250 Union Bank of Switzerland (Registered) 57,363
10 Zellweger Luwa AG (Bearer) * 8,469
----------------------
13,925,076
----------------------
UNITED KINGDOM - 24.3%
119,600 Allied Colloids Plc * 238,024
96,926 Amstrad Plc 317,542
6,040 Anglian Water Plc 52,521
67,800 Argos Plc 637,820
59,661 Argyll Group 269,439
1,187,000 ASDA Group Plc 1,880,780
66,900 Ashley (Laura) Holdings * 141,336
5,400 Associated British Foods 32,737
80,900 Astec (BSR) Plc 147,381
43,990 Barratt Developments Plc 169,371
See accompanying notes to the financial statements. 13
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
22,060 Bass Plc 256,327
131,592 BAT Industries Plc 1,151,311
63,500 Beazer Holmes Plc 167,691
121,863 Berisford International Plc 347,002
165,000 Blue Circle Industries 887,884
28,620 Boots Co Plc 260,038
273,873 British Aerospace Plc 3,641,379
100,404 Bunzl Plc 301,269
595,125 Burton Group Plc 1,211,732
38,100 Calor Group 147,276
26,375 Carlton Communications Plc 168,879
27,760 Charter Plc (Registered) 359,956
55,848 Cobham Group Plc 476,650
72,500 Compass Group 539,968
89,502 Costain Group * 101,394
41,081 Dawson International Plc 59,746
140,902 Dixons Group Plc 998,723
2,640 East Midlands Electricity 29,301
132,068 English China Clays Plc 690,455
6,200 First Leisure Corp Plc 35,878
116,243 Glaxo Wellcome Plc 1,606,946
77,177 Grand Metropolitan Plc 512,772
96,020 Greenalls Group Plc 843,763
35,302 Greycoat Plc * 84,849
39,655 Hammerson Property Investment and Development Corp Plc 209,139
109,620 Hazlewood Foods Plc 169,495
314,593 Hillsdown Holdings Plc 825,962
204,800 Inchcape 799,497
1,545,823 Ladbroke Group Plc 4,413,523
38,563 Laing (John) Plc 156,150
9,127 Laing (John) Plc Class A 36,748
1,195,200 Lasmo Plc * 3,385,004
88,060 Lex Service Plc (Ordinary) 440,832
38,640 London Electric Plc 435,669
210,687 London International Group Plc 361,246
965,481 Lonrho Plc 2,874,816
90,660 Marks & Spencer Plc 581,536
51,560 Marley Plc 95,904
23,500 McAlpine (Alfred) Plc 51,086
42,447 Meyer International Plc 268,376
57,280 Midlands Electricity Plc 341,991
175,023 Nationa Grid Holdings Plc * 523,828
200,497 Norcros Plc * 254,761
14 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
46,973 Northern Electric Plc 460,590
53,100 Northern Electric Plc Preferred 8.06% * 83,323
114,085 Northern Foods Plc 335,333
32,898 Northumbrian Water Group Plc 584,217
44,480 Ocean Group Plc 263,866
127,000 Racal Electronics Plc 594,938
24,400 Rank Organization 181,353
95,705 Reckitt & Colman Plc 964,067
221,800 Rexam Plc 1,232,580
658,700 Rolls-Royce Plc 2,087,396
59,526 Sainsbury Plc 342,187
5,074 Scottish & Newcastle Plc 51,617
140,100 Sears Plc 204,828
22,320 Securicor Group Plc Class A (Non-Voting) 318,632
75,420 SEEBOARD Plc 614,250
64,900 Siebe 802,792
412,040 Signet Group Plc * 110,389
109,894 Simon Engineering Plc * 121,130
27,460 South Wales Electricity 355,225
18,316 South West Water Plc 137,396
18,300 Storehouse Plc 86,568
166,106 T and N Plc 401,781
800,564 Tarmac Plc 1,452,316
672,580 Taylor Woodrow Plc 1,508,441
251,500 Tomkins Plc 1,012,606
487,017 Trafalgar House Plc * 352,284
117,600 Transport Development Group Plc 387,073
27,855 Unilever Plc 514,704
149,262 United Biscuits Holdings Plc 536,987
900 Vendome Luxury Group Plc 7,495
84,800 Waste Management International * 433,600
11,683 Welsh Water Plc 132,532
12,618 Welsh Water Plc Preferred 6.42% 19,172
12,040 Whitbread Plc Class A (Limited Voting) 131,236
128,180 Wilson (Connolly) Holdings Plc 339,479
352,235 Wimpey (George) Plc 744,146
5,333 Wolseley Plc 38,576
----------------------
52,938,808
----------------------
TOTAL STOCK AND EQUIVALENTS (Cost $186,533,579) 191,126,322
----------------------
</TABLE>
See accompanying notes to the financial statements. 15
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.0%
UNITED STATES - 2.0%
<S> <C> <C>
$ 600,000 First National Bank of Chicago Time Deposit, 5.38% due 3/1/96 600,000
4,000,000 U.S. Treasury Bill, 5.17% due 1/9/97 (b) 3,828,347
----------------------
4,428,347
----------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $4,415,467) 4,428,347
----------------------
TOTAL INVESTMENTS - 89.3%
(Cost $190,949,046) * * 195,554,669
Other Assets and Liabilities (net) - 10.7% 23,409,061
----------------------
TOTAL NET ASSETS - 100.0% $ 218,963,730
======================
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) Security is valued by management (Note1).
(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 $191,188,500, resulting in
gross unrealized appreciation and depreciation of
$23,740,009 and $19,373,840, respectively, and net
unrealized appreciation of $4,366,169.
</TABLE>
16 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-continued
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
At February 29, 1996, industry sector diversification of the Fund's equity
Investments was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Services 11.1%
Transportation 9.0
Construction 8.9
Machinery 6.8
Retail Trade 5.8
Oil and Gas 5.7
Consumer Goods 5.2
Aerospace 3.3
Food and Beverage 3.1
Utilities 3.1
Banking 3.1
Chemicals 2.7
Metals and Mining 2.4
Health Care 2.4
Paper and Allied Products 2.1
Telecommunications 1.8
Conglomerates 1.5
Technology 1.4
Textiles 1.4
Primary Processing 1.1
Automotive 0.7
Pharmaceuticals 0.7
Miscellaneous 4.0
----------
87.3%
----------
See accompanying notes to the financial statements. 17
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at value (cost $190,949,046) (Note 1) $ 195,554,669
Foreign currency, at value (cost $32,907,983) (Note 1) 32,279,779
Cash 61,862
Receivable for investments sold 6,118,165
Receivable for Fund shares sold 3,091,220
Dividends and interest receivable 104,383
Receivable for variation margin on open futures contracts 183,573
Receivable for open forward foreign currency contracts (Note 5) 62,613
Receivable for foreign tax reclaims 75,666
Receivable for expenses waived or borne by Manager (Note 2) 64,259
---------------------
Total assets 237,596,189
---------------------
LIABILITIES:
Payable for investments purchased 17,121,507
Payable for Fund shares repurchased 548,021
Payable for open forward foreign currency contracts (Note 5) 643,477
Payable to affiliate for management fee (Note 2) 214,404
Accrued expenses 105,050
---------------------
Total liabilities 18,632,459
---------------------
NET ASSETS (equivalent to $12.95 per share based
on 16,902,821 shares outstanding, unlimited shares authorized) $ 218,963,730
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 210,963,609
Accumulated undistributed net investment income 476,295
Accumulated undistributed net realized gain 3,752,355
Net unrealized appreciation 3,771,471
---------------------
NET ASSETS $ 218,963,730
=====================
</TABLE>
18 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Dividends (net of foreign tax expense of $606,271) $ 4,495,477
Interest 628,663
---------------------
Total income 5,124,140
---------------------
EXPENSES:
Management fee (Note 2) 2,467,267
Custodian fees 271,831
Audit fees 57,405
Transfer agent fees 28,861
Legal fees 7,503
Stamp duties and transfer taxes 4,911
Registration fees 3,478
Insurance 1,752
Trustee fee (Note 2) 766
Miscellaneous 14,735
---------------------
Total expenses 2,858,509
Less: expenses waived or borne by Manager (Note 2) (1,358,838)
---------------------
Net expenses 1,499,671
---------------------
Net investment income 3,624,469
---------------------
REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss)
on:
Investments 4,651,444
Closed futures contracts 1,980,867
Foreign currency, forward contracts and foreign
currency related transactions (2,214,373)
---------------------
Net realized gain 4,417,938
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 13,385,333
Open futures contracts 316,259
Foreign currency, forward contracts and foreign
currency related transactions (414,116)
---------------------
Net unrealized gain 13,287,476
---------------------
Net realized and unrealized gain 17,705,414
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,329,883
=====================
</TABLE>
See accompanying notes to the financial statements. 19
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- ----------------------
INCREASE (DECREASE) IN NET ASSETS:
Operations:
<S> <C> <C>
Net investment income $ 3,624,469 2,536,514
Net realized gain 4,417,938 9,647,409
Change in net unrealized appreciation (depreciation) 13,287,476 (31,826,852)
--------------------- ---------------------
Net increase (decrease) in net assets
resulting from operations 21,329,883 (19,642,929)
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (2,798,026) (2,988,635)
In excess of net investment income (319,106) -
Net realized gains (2,401,896) (13,044,663)
--------------------- ---------------------
(5,519,028) (16,033,298)
--------------------- ---------------------
Fund share transactions: (Note 4)
Proceeds from sale of shares 41,404,225 110,097,988
Net asset value of shares issued to shareholders
in payment of distributions declared 4,310,448 14,268,183
Cost of shares repurchased (28,746,998) (35,149,466)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 16,967,675 89,216,705
--------------------- ---------------------
Total increase in net assets 32,778,530 53,540,478
NET ASSETS:
Beginning of period 186,185,200 132,644,722
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $476,295 and
$706,457, respectively) $ 218,963,730 186,185,200
===================== =====================
</TABLE>
20 See accompanying notes to the financial statements.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 *
---------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.95 $ 14.45 $ 8.91 $ 9.62 $ 10.00
---------------- ------------- ------------ ------------- ------------
Income (loss) from investment operations:
Net investment income (a) 0.18 0.18 0.15 0.35 0.06
Net realized and unrealized gain (loss) 1.16 (1.52) 5.59 (0.68) (0.43)
---------------- ------------ ------------ ------------- ------------
Total from investment operations 1.34 (1.34) 5.74 (0.33) (0.37)
---------------- ------------ ------------ ------------- ------------
Less distributions to shareholders from:
Net investment income (0.17) (0.20) (0.12) (0.38) (0.01)
In excess of net investment income (0.02) - - - -
Net realized gains (0.15) (0.96) (0.08) - -
---------------- ------------ ------------ ------------- ------------
Total distributions (0.34) (1.16) (0.20) (0.38) (0.01)
---------------- ------------ ------------ ------------- ------------
NET ASSET VALUE, END OF PERIOD $ 12.95 $ 11.95 $ 14.45 $ 8.91 $ 9.62
================ ============ ============ ============= ============
TOTAL RETURN (B) 11.43% (9.66%) 64.67% (3.30%) (3.73%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 218,964 $ 186,185 $ 132,645 $ 35,802 $ 24,467
Net expenses to average
daily net assets (a) 0.76%(c) 0.76(c) 0.75% 0.75% 0.85%**
Net investment income to average
daily net assets (a) 1.84% 1.45% 1.50% 4.02% 1.91%**
Portfolio turnover rate 13% 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 the following
per share amounts: $ 0.07 $ 0.08 $ 0.09 $ 0.09 $ 0.05
(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 taxes not waived or borne by the Manager, which
approximate .01% of average daily net assets.
</TABLE>
See accompanying notes to the financial statements. 21
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. (the "Manager"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares.
The Fund seeks maximum total return through investment primarily in equity
securities of small capitalization foreign companies traded on a major
stock exchange of a foreign country.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
22
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 buy and sell is shown under Note 5, and represents the currency exposure
the Fund has acquired or hedged through currency contracts as of February
29, 1996.
FUTURES CONTRACTS
The Fund may purchase index futures contracts. Stock index futures
contracts represent commitments for future delivery of cash based upon the
level of a specified index of equity securities at a specified price at a
given date. The Fund may use futures contracts to manage its exposure to
the stock and currency markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is 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 29,
1996.
23
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are
to be treated, to the extent allowable under the Code, as if paid and
received by the shareholders of the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
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 net operating
losses.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 29, 1996. 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 Accumulated Net Realized
Investment Income Gain/(Loss) Paid-in Capital
------------------------------------- --------------------------------- --------------------------
<S> <C> <C> <C>
($737,499) $755,046 ($17,547)
</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.
24
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis, and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
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
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. For the year ended February 29, 1996, the Fund
received $166,331 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 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
The Manager 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 fee but excluding brokerage commissions,
stamp duties 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 29, 1996, was $766. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
25
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the year ended February 29, 1996, aggregated
$23,138,901 and $34,075,264, respectively.
4. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 3,283,845 7,848,879
Shares issued to shareholders in
reinvestment of distributions 348,837 1,117,555
Shares repurchased (2,315,294) (2,560,141)
-------------- -------------
Net increase 1,317,388 6,406,293
Fund shares:
Beginning of period 15,585,433 9,179,140
-------------- -------------
End of period 16,902,821 15,585,433
============== =============
</TABLE>
26
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
Net Unrealized
Settlement Units of In Exchange for Appreciation
Date Deliver/Receive Currency (in U.S. Dollars) (Depreciation)
--------------- ------------------------ ------------------ ---------------------- -------------------
Buys
<S> <C> <C> <C> <C> <C>
3/1/96 CHF 5,100,000 $ 4,456,873 $ -
4/5/96 JPY 692,000,000 7,080,733 (474,679)
4/9/96 NOK 13,300,000 2,164,185 (86,210)
-------------------
$ (560,889)
===================
Sales
3/1/96 CHF 5,100,000 $ 4,492,600 $ 35,728
6/3/96 CHF 680,280 600,000 26,885
6/3/96 GBP 3,900,000 5,958,420 (1,246)
2/3/97 GBP 3,300,000 4,933,624 (81,342)
-------------------
$ (19,975)
===================
</TABLE>
Currency Abbreviations
CHF - Swiss Franc
GBP- Great British Pound
JPY - Japanese Yen
NOK - Norwegian Krona
28
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
Net Unrealized
Number of Appreciation
Contracts Type Expiration Date Contract Value (Depreciation)
----------------- --------------------- ---------------------- -------------------- ---------------------
Buys
<S> <C> <C> <C>
63 All-Ords March 1996 $ 2,759,108 $ 51,972
30 CAC 40 March 1996 2,374,634 126,233
30 DAX June 1996 5,120,433 38,475
526 IBEX March 1996 1,666,815 86,115
46 TOPIX March 1996 6,805,743 (10,274)
60 TOPIX June 1996 8,882,761 (89,104)
---------------------
$ 203,417
=====================
Sales
45 Hang Seng March 1996 $ 3,224,576 $ 112,842
=====================
At February 29, 1996, the Fund had cash and/or securities to cover any margin requirements on open futures
contracts.
</TABLE>
* * *
28
GMO INTERNATIONAL SMALL COMPANIES FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS-(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's distributions are
from investment company taxable income, except that the Fund has designated
43.52% of distributions as net capital gain dividends.
GMO INTERNATIONAL SMALL COMPANIES FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham, Mr. Forrest Berkley and Ms. Doris Chu are primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Grantham
has been with GMO since its founding in 1977. Mr. Berkley and Ms. Chu have been
with GMO and involved in portfolio management for more than nine years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Small Companies Fund returned 11.4% for the fiscal
year ended February 29, 1996, versus 16.8% for the EAFE index and 18.5% for the
EAFE-Lite index. Consistent with the Fund's investment objective and policies,
the Fund was invested substantially in common stocks which ranked within the
smallest 50% by market capitalization within each country. During the fiscal
year, GMO's country selection model tended to overweight countries in Europe and
underweight Japan, which contributed positively to the Fund's performance.
However, the underperformance of smaller stocks and the overweight in value
stocks negatively affected the Fund's performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO INTERNATIONAL SMALL COMPANIES FUND AND THE MSCI EAFE INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 10/14/91
9.2% N/A 9.9%
[Line Graph Appears Here]
Date GMO International Small Companies Fund MSCI EAFE Index
10/14/91 9,875 10,000
02/29/92 9,517 9,591
02/28/93 9,181 9,195
02/28/94 15,137 12,798
02/28/95 13,676 12,230
02/29/96 15,125 14,291
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 125 bp on purchase and 75 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Past performance is not indicative
of future performance. Information is unaudited.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 12, 1996
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 95.7%
ADVERTISING - 0.1%
600 Grey Advertising 133,800
------------------------
AEROSPACE - 1.6%
20,000 AAR Corp 392,500
2,000 Curtiss Wright Corp 107,500
3,700 Hi-Shear Industries * 23,125
24,800 Logicon Inc 787,400
2,700 Sparton Corp 10,463
57,100 Thiokol Corp 2,341,100
14,700 United Industial Corp 71,663
------------------------
3,733,751
AUTOMOTIVE - 0.9% ------------------------
5,700 Bandag Inc 290,700
7,000 Excel Industries Inc 82,250
8,400 Oshkosh Truck 126,000
21,800 Smith (A O) Corp Class A 539,550
20,600 SPX Corp 316,725
21,500 Standard Products Corp 446,125
25,250 TBC Corp * 179,906
900 Trak Auto Corp * 13,500
7,950 Wynn's International Inc 175,894
------------------------
2,170,650
------------------------
BANKING AND FINANCIAL SERVICES - 7.2%
32,700 Alex Brown Inc 1,626,825
800 Baldwin and Lyons Inc Class B 13,000
13,700 Banponce Corp 602,800
7,400 CCB Financial Corp 371,850
97,000 Comdisco Inc 1,988,500
14,000 Compass Bancshares 451,500
10,700 Deposit Guaranty Corp 505,575
8,340 Downey Financial Corp 182,438
19,900 Eaton Vance Corp 671,625
78,700 Edwards (A G) Inc 1,908,475
3,200 First Citizens Bancshares Class A 190,400
1,900 First Empire State Corp 457,900
5,900 First Hawaiian Inc 166,675
2,724 Glendale Federal Bank * 42,563
6,350 Inter-Regional Financial Group 138,906
903 Investors Financial Services Corp 20,092
8,700 Jefferies Group Inc 495,900
See accompanying notes to the financial statements. 1
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
BANKING AND FINANCIAL SERVICES - CONTINUED
4,900 LDI Corp * 18,988
300 Midland Co 15,000
90,275 Money Store Inc (a) 2,008,619
18,350 Morgan Keegan Inc 224,788
21,700 Piper Jaffrey Inc 309,225
43,570 Quick and Reilly Group 1,143,699
32,300 Raymond James Financial Corp 714,638
21,960 Southern National Corp 614,880
8,400 Star Banc Corp 529,200
6,700 Student Loan Group 276,375
5,500 Trustmark Corp 114,125
900 Value Line Inc 32,625
16,550 Washington Federal Inc 353,756
10,500 Waterhouse Investor Services * (a) 258,563
3,400 Wilmington Trust Corp 113,050
------------------------
16,562,555
CHEMICALS - 0.4% ------------------------
600 Macdermid Inc 38,700
3,700 Quaker Chemical 51,338
2,300 Stepan Co 43,700
30,900 Wellman Inc 699,113
------------------------
832,851
CONSTRUCTION - 0.7% ------------------------
7,400 Hovanian Enterprise Inc 51,338
1,500 Pitt-Des Moines 66,000
31,300 Pulte Corp 935,088
6,300 Texas Industries Inc 389,025
10,800 US Home Corp 282,150
------------------------
1,723,601
CONSUMER GOODS - 7.1% ------------------------
23,500 Alberto Culver Co Class B 831,313
9,300 Armor All Products Corp 147,638
10,700 Beauticontrol Cosmetics Inc 96,300
9,109 Block Drug Co Inc Class A 346,124
6,100 Carter-Wallace Inc * 84,638
4,900 Church & Dwight Co Inc 99,225
43,400 First Brands 1,160,950
8,000 Garan Inc 122,000
16,900 Helene Curtis Industries 1,178,775
12,900 Huffy Corp 141,900
9,000 Johnson Worldwide Associates * 183,375
2 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS - CONTINUED
59,800 Jones Apparel Group Inc * 2,474,225
9,563 Jostens Inc 217,558
15,400 K Swiss Inc Class A 136,675
45,200 Kinetic Concepts Inc 615,850
27,510 Lancaster Colony Corp 1,038,503
72,600 Liz Claiborne 2,277,825
2,300 Mem Co 10,063
31,540 Natures Sunshine Products Inc 977,740
3,800 Oil Dri America Class A 54,150
4,700 Oxford Industries Inc 78,725
32,100 Paragon Trade Brands Inc * 810,525
12,800 Polaroid Corp 563,200
21,700 Russ Berrie and Co 347,200
28,400 Russell Corp 795,200
1,900 Springs Industries Inc 82,175
30,600 Starter Corp * 179,775
13,300 Superior Surgical Manufacturing 131,338
42,000 Tultex Corp * 183,750
12,200 WD 40 Co 588,650
1,900 Weyco Group 71,250
16,500 WH Brady Co Class A 410,438
------------------------
16,437,053
ELECTRONIC EQUIPMENT - 0.0% ------------------------
2,000 SL Industries Inc 15,750
------------------------
FOOD AND BEVERAGE - 5.8%
3,700 Alico Inc 90,650
82,400 Bob Evans Farms 1,380,200
1,100 Bridgeford Food Corp * 10,725
46,400 Dean Foods Co 1,189,000
10,800 Dreyers Grand Ice Cream Inc 329,400
300 Farmer Brothers Co 40,800
15,300 Flowers Industries Inc 208,463
2,300 Golden Poultry Co 23,288
31,300 Great Atlantic & Pacific Tea Co 704,250
15,600 Hormel (Geo A) and Co 391,950
39,900 IBP Inc 997,500
1,500 Imperial Holly Inc 14,063
41,800 International Multifoods Corp 778,525
7,800 Interstate Bakeries Corp 171,600
12,500 JM Smucker Co 251,563
See accompanying notes to the financial statements. 3
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE - CONTINUED
3,600 Lance Inc 57,600
36,100 Luby's Cafeteria Inc 749,075
1,100 Penwest Ltd 19,800
14,500 Pilgrims Pride Corp 101,500
34,300 Quality Food Centers Inc 763,175
3,800 Riser Foods Inc Class A * 68,400
85,000 Ryans Family Steak House * 563,125
16,400 Sanderson Farms Inc 176,300
16,700 Savannah Foods and Industries Inc 181,613
500 Scope Industries Inc 20,500
300 Seaboard Corp 71,700
23,900 Showbiz Pizza Time * 391,363
39,900 Smith Food and Drug Center Class B 967,575
6,200 Tasty Baking 76,725
7,700 Thorn Apple Valley 113,575
12,160 Tootsie Roll Industries Inc 474,240
7,900 United Foods Inc Class B * 15,800
45,725 Universal Foods Corp 1,731,834
5,325 Uno Restaurant Corp 37,941
29,550 WLR Foods Inc 380,456
------------------------
13,544,274
------------------------
HEALTH CARE - 10.8%
35,100 Adac Laboratories 539,670
5,300 Alpharma Inc 135,813
54,100 Amsco International Inc 845,313
37,200 Ballard Medical Products 613,800
34,400 Beckman Instruments Inc 1,247,000
21,400 Bindley Western Industries Inc 363,800
64,700 Bio Technology General Corp 525,688
7,100 BioMet Inc * 134,900
4,100 Bio-Rad Laboratories Inc Class A * 158,363
38,000 Columbia Laboratories Inc 427,500
5,800 Copley Pharmaceutical Inc * 109,475
11,900 Coram Healthcare Corp 58,013
11,000 Curative Technologies Inc 213,125
8,000 Datascope Corp * 188,000
17,500 Diagnostic Prods Corp 647,500
24,900 Empi Inc 460,650
84,100 FHP Group * (a) 2,754,275
4 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - CONTINUED
1,400 Forum Group Inc 18,375
29,900 Haemonetics Corp * 508,300
4,600 Healthdyne Inc 42,550
1,700 Healthdyne Information Enterprises 6,375
46,200 Idexx Laboratories Inc 2,217,600
38,400 ISIS Pharmaceuticals Inc 477,600
1,200 KV Pharmaceuticals Co 19,950
7,300 Life Technologies Inc 197,100
21,750 Lunar Corp 859,125
14,600 Marquette Electronics Class A * 281,050
35,300 Medimmune Inc 661,875
52,500 Mentor Corp 1,345,313
30,900 Nellcor Inc * 2,070,300
3,900 Prime Medical Service Inc 39,000
13,400 Regeneron Pharmaceuticals Inc 160,800
23,400 Research Medical Corp * 558,675
22,700 Respironics Inc (a) 505,075
39,700 Sofamor Denek Group Inc * 1,295,213
16,100 Spacelabs Medical Inc * 430,675
20,800 Target Therapeutics Inc 1,089,400
5,800 Tecnol Medical Products Inc * 97,150
57,700 US Bioscience Inc 396,688
38,400 Utah Medical Products Inc * 835,200
1 Vencor Inc * 22
30,000 Vital Sign Inc 885,000
5,900 Vitalink Pharmacy Services * 112,100
19,600 Vivra Inc * 578,200
------------------------
25,111,596
------------------------
INSURANCE - 12.5%
4,668 Alleghany Corp 919,596
58,600 Allmerica Property and Casualty 1,508,950
15,600 AMBAC Inc 752,700
34,700 American Bankers Insurance Group 1,249,200
5,949 American Heritage Life Investments 126,416
10,300 American National Insurance 702,975
22,900 Argonaut Group Inc 755,700
5,500 Avemco Corp 83,875
8,000 Bankers Life Holding Corp 180,000
12,700 Capital Re Corp 438,150
10,900 Capitol American Financial Corp 269,775
9,500 Citizens Corp 186,438
See accompanying notes to the financial statements. 5
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
INSURANCE - CONTINUED
10,700 Conseco Inc * 724,925
5,900 Crawford and Co 93,663
8,800 Delphi Financial Group Inc * 218,900
23,200 Enhance Financial Services Group Inc 565,500
24,100 First Colony Corp 596,475
11,400 Foremost Corporation of America 652,650
46,215 Fremont Gen Corp 1,086,053
16,563 Frontier Insurance Group Inc 509,312
14,000 Gallagher (Arthur J) and Co 547,750
8,400 Guaranty National Corp 113,400
11,600 Hilb Rogal and Hamilton Co 159,500
6,100 Home Beneficial Corp Class B 158,600
25,800 Horace Mann Educators 848,175
13,500 Independent Insurance Group 364,500
17,600 Integon Corp 352,000
7,400 John Alden Financial Corp 140,600
3,500 Kansas City Life Insurance Co 206,063
17,700 Liberty Corp 601,800
18,300 Life Re Corp 468,938
7,200 Markel Corp * 648,000
20,400 National Re Corp 637,500
1,900 Nymagic Inc 39,425
1,300 Ohio Casualty Corp 48,425
34,800 Old Republic International Corp 1,191,900
8,300 Orion Capital 392,175
23,500 Penncorp Financial Group Inc (a) 769,625
46,200 Presidential Life Corp 421,575
45,800 Protective Life Corp 1,608,725
28,100 Provident Companies Inc 951,888
16,400 Reinsurance Group of America 647,800
48,939 Reliastar Financial Corp 2,349,072
10,275 RLI Corp 262,013
20,800 Selective Insurance Group 774,800
11,000 Transatlantic Holdings Inc 772,750
13,200 Twentieth Century Industries * 222,750
45,175 USLIFE Corp 1,366,484
8,500 Zenith National Insurance Corp 201,875
------------------------
28,889,361
------------------------
6 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.3%
2,400 Gleason Corp 96,000
2,700 Lindsay Manufacturing Co * 85,725
16,400 Zebra Technologies Corp 504,300
------------------------
686,025
MANUFACTURING - 3.5% ------------------------
14,400 Alliant Techsystems Inc * 720,000
500 American Biltrite Inc 10,188
45,900 Ball Corp 1,377,000
4,400 Barnes Group Inc 193,600
6,100 Blessings Corp 64,050
59,600 BMC Industries 1,370,800
15,200 BW/IP Inc 235,600
5,600 CSS Industries Inc * 121,100
27,300 Gibson Greetings Inc * (a) 392,438
23,300 Global Industrial Technologies Inc 544,638
3,100 Greif Brothers Corp 96,100
1,400 Kaman Corp Class A 14,350
6,800 Katy Industries Inc 79,900
800 Kysor Industrial Corp 20,700
5,000 Liqui-Box Corp 160,000
1,100 Manitowoc Co Inc 35,063
1,700 Mine Safety Appliances 76,925
9,145 Myers Industries 149,749
15,800 O'Sullivan Corp 161,950
100 Paxar Corp 1,425
2,500 Robbins & Myers Inc 77,500
4,400 Sequa Corp Class A * 148,500
19,700 Snap-On Inc 881,575
9,100 Standex International Corp 257,075
11,700 Synetic Inc * 359,775
15,650 Tredegar Industries 391,250
6,600 Tyler Corp * 17,325
10,400 West Co Inc 240,500
------------------------
8,199,076
METALS AND MINING - 0.0% ------------------------
6,100 Oregon Metallurgical Corp 105,988
------------------------
See accompanying notes to the financial statements. 7
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
OIL AND GAS - 1.8%
3,200 Atwood Oceanics Inc * 102,400
7,600 Bay State Gas Co 215,650
16,000 Berry Petroleum Class A 154,000
5,500 Cascade Natural Gas 85,938
6,200 Connecticut Natural Gas Corp 146,475
4,100 Crown Central Petroleum Class A * 73,288
5,200 Daniel Industries 74,100
10,600 Energy Ventures Inc 274,275
1,550 Equitable Resources Inc 44,369
1,900 FINA Inc Class A 91,438
5,300 Giant Industries Inc 61,613
2,200 Howell Corp 30,525
15,300 Indiana Energy Inc 382,500
9,850 K N Energy 301,656
7,900 Laclede Gas Co 165,900
7,850 Madison Gas & Electric Co 213,913
9,700 National Fuel Gas 311,613
4,450 North Carolina Natural Gas 111,806
8,300 Northwest Natural Gas Co 273,900
17,100 Peoples Energy Corp 525,825
14,700 Piedmont Natural Gas Co 330,750
3,029 Southeastern Mich Gas Entrprise 52,242
6,100 United Cities Gas Co 99,125
7,400 Washington Energy 148,000
------------------------
4,271,301
------------------------
PAPER AND ALLIED PRODUCTS - 0.0%
400 American Filtona 13,800
------------------------
PRIMARY MATERIALS - 0.0%
800 Carpenter Technology 29,000
------------------------
PRIMARY PROCESSING - 0.6%
5,100 Lea Ronal Inc 136,425
5,100 NCH Corp 268,388
3,600 Petrolite Corp 99,000
17,800 Valspar (a) 794,325
------------------------
1,298,138
------------------------
8 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING - 1.4%
17,000 Central Newspapers Class A 622,625
23,500 Houghton Mifflin Co 1,039,875
11,600 McClatchy Newspapers Inc 266,800
7,600 Plenum Publishing 296,400
13,500 Pulitzer Publishing Co 681,750
12,500 Wiley (John) and Sons Class A 418,750
------------------------
3,326,200
------------------------
REFINING - 2.4%
6,800 Ashland Coal 154,700
60,200 Diamond Shamrock Inc (a) 1,836,100
8,700 Getty Petroleum Corp * 130,500
13,500 Holly Corp 298,688
69,200 Tosco Corp 3,088,050
1,300 Vintage Petroleum Inc 26,650
------------------------
5,534,688
------------------------
RETAIL TRADE - 11.1%
51,950 Arbor Drugs Inc 1,019,519
18,525 Arctco Inc 192,197
17,400 Baker J Inc 84,825
10,100 Blair Corp 268,913
15,800 Bruno's Inc 156,025
6,300 Buckle (The) Inc * 133,875
37,800 Burlington Coat Factory Warehouse * 444,150
38,200 Caldor Inc * (a) 114,600
63,600 Casey's General Stores Inc 1,431,000
2,100 Claire's Stores Inc 33,075
24,800 CPI Corp 378,200
10,700 Crown Books * 85,600
4,200 Crystal Brands * (c) -
1,500 Dart Group Corp Class A 131,250
8,700 Deb Shops Inc 29,363
8,200 Delchamps Inc 200,900
40,500 Dress Barn Inc * 389,813
2,700 Duty Free International Inc * 36,788
9,800 Edison Brothers Stores Inc * (a) 14,700
42,300 Egghead Inc * 245,869
6,700 Fabri-Centers of America Class A 82,075
75,400 Family Dollar Stores 1,036,750
20,400 Fay's Inc 155,550
14,900 Fruit of the Loom Inc * 378,088
37,400 General Host Corp * 158,950
See accompanying notes to the financial statements. 9
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE - CONTINUED
6,228 Genovese Drug Stores Inc Class A 59,945
26,500 Giant Food Inc Class A 871,188
36,500 Hancock Fabrics Inc 346,750
39,500 Hannaford Brothers Co 1,086,250
7,300 Hi-Lo Automotive Inc * 40,150
18,700 House of Fabrics * 6,427
7,800 Ingles Markets 90,675
3,900 Intertan * 19,500
15,400 Lillian Vernon Corp 211,750
28,200 Longs Drugstores Corp 1,269,000
52,700 MacFrugals Bargains Close Outs Inc * 810,263
23,100 Mercantile Stores 1,209,863
3,700 National Presto Industry * 152,625
9,800 Neiman Marcus Group Inc 194,775
1,500 Oshmans Sporting Goods * 15,938
11,200 Phillips Van Heusen 110,600
8,500 Pier 1 Imports Inc 112,625
14,000 Revco (DS) Inc 388,500
36,100 Richfood Holdings Inc 992,750
23,600 Rite Aid Corp (a) 743,400
74,300 Ross Stores Inc 1,820,350
32,400 Ruddick Corp 356,400
94,100 Service Merchandise Co 482,263
22,900 Shopko Stores Inc 271,938
14,700 Smart & Final Inc 305,025
126,800 Southland Corp * 475,500
33,200 Stanhome Inc 1,004,300
11,660 Strawbridge and Clothier Class A 308,990
59,200 Stride Rite Corp 481,000
6,500 Syms Corp * 50,375
62,100 The Vons Co Inc * 1,785,375
54,100 Tyco Toys Inc * 304,313
22,700 Value City Department Stores Inc * 141,875
31,900 Venture Stores Inc (a) 179,438
63,900 Waban Inc * 1,437,750
11,300 Weismarkets Inc 334,763
------------------------
25,674,704
------------------------
10 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
SERVICES - 12.1%
2,400 ABM Industries Inc 70,500
25,100 Advo Inc 549,063
16,800 Allwaste * 73,500
1,000 AMC Entertainment 21,125
22,700 American Business Information 357,525
38,000 American Media Inc Class A 152,000
2,300 Applebee's International Inc 48,300
8,500 Aquarion Co 218,875
32,700 Banta Corp 1,373,400
51,500 Belo (AH) Corp 1,802,500
1,200 Berlitz International Inc * 19,350
4,900 BET Holdings Inc Class A * 151,288
3,700 Borg-Warner Security Corp * 38,850
25,300 Bowne and Co Inc 474,375
45,500 Buffetts Inc 557,375
3,700 California Water Service Co 129,038
31,950 Casino America Inc * 193,697
4,850 Castle AM 143,075
10,900 Chemed Corp 423,738
43,529 Chris Craft Industries Inc 1,844,540
6,400 Consumers Water Co 108,800
18,400 Dames and Moore Inc 225,400
33,700 Data Broadcasting Corp 385,444
19,400 Devon Group Inc * 552,900
1,200 Devry Inc 35,550
5,100 E-Town Corp 144,713
70,700 Fleming Cos (a) 1,414,000
25,100 Flightsafety International Inc 1,339,713
11,100 Franklin Quest Co 222,000
16,900 Grand Casinos Inc 538,688
83,400 Handleman Co 417,000
51,100 Harland (JH) Co 1,143,363
4,700 Horsehead Resources * 21,444
31,600 International Dairy Queen Inc Class A * 679,400
6,625 International Shipholding Corp 130,844
10,800 Jenny Craig Inc * 103,950
28,500 Kellwood Co 431,063
9,400 Kingworld Productions Inc * 393,625
46,200 Lee Enterprises Inc 999,075
1,050 Marcus Corp 27,169
15,800 McGrath Rentcorp 292,300
See accompanying notes to the financial statements. 11
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
SERVICES - CONTINUED
25,800 Meredith Corp 1,131,975
49,300 Mid American Waste Systems Inc * 80,113
19,700 Nash Finch Co 334,900
29,800 National Auto Credit Inc 394,850
31,800 PHH Corp 1,593,975
8,700 Philadelphia Suburban Corp 193,575
5,800 Primark Corp 229,100
13,500 Republic Industries Inc 398,250
28,850 Rollins Inc 634,700
2,600 Roto Rooter Inc 79,950
13,300 Rykoff Sexton Inc 191,188
2,800 Sbarro Inc 69,650
3,500 Sevenson Environmental Services 58,625
12,100 Shoneys Inc 101,338
25,800 Showboat Inc * 619,200
7,900 Sizzler International Inc 24,688
36,100 Sonic Corp 735,538
12,300 Super Food Services Inc 142,988
6,300 Technology Solutions Co 151,200
3,100 Thermo Terratech Inc 43,013
5,700 Total System Services Inc * 163,163
19,300 True North Communications Inc 395,650
9,800 Unifirst Corp 189,875
5,100 United Television Inc 457,725
19,448 United Water Resources Inc 250,393
3,200 USA Waste Services Inc 68,400
4,200 Vallen Corp * 74,288
7,500 Volt Information Sciences Inc 180,000
6,400 Wackenhut Corp 116,800
18,300 Western Waste Industries * 574,163
------------------------
27,927,828
TECHNOLOGY - 0.0% ------------------------
550 American Satellite Network Warrants Expires 6/30/99 * (c) -
9,900 Everex Systems Inc * (c) -
------------------------
-
TELECOMMUNICATIONS - 0.1% ------------------------
12,500 Atlantic Tele-Network Inc 225,000
------------------------
TOBACCO - 0.1%
4,800 Culbro Corp * 318,000
------------------------
12 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 2.4%
52,500 Comair Holdings Inc 1,634,063
61,300 Mesa Airlines Inc 727,938
1,500 Oglebay Norton Co 59,250
180,900 USAir Group Inc * 3,052,688
------------------------
5,473,939
------------------------
UTILITIES - 12.8%
28,800 American Water Works Co 1,094,400
40,700 Atlanta Gas Light 737,688
32,300 Atlantic Energy Inc (a) 589,475
7,500 Atmos Energy Corp 169,688
9,800 Black Hills Corp 252,350
16,400 Boston Edison Co 453,050
41,200 Brooklyn Union Gas Co * 1,076,350
32,100 California Energy Co Inc * 714,225
29,100 Centerior Energy Corp 243,713
20,200 Central Hudson Gas & Electric 590,850
15,800 Central Louisiana Electric Inc 416,725
44,300 Central Maine Power 647,888
13,150 Central Vermont Public Service 189,031
9,900 Cilcorp Inc 425,700
21,800 Cipsco Inc 863,825
5,500 Colonial Gas Co 122,375
9,900 Commonwealth Energy Systems 467,775
6,700 Connecticut Energy Corp 135,675
17,200 Delmarva Power and Light Co 380,550
51,100 Destec Energy Inc * 594,038
27,500 Eastern Enterprises 972,813
23,200 Eastern Utilities Associates 504,600
10,000 Empire District Electric Co 182,500
9,600 Energen Corp 226,800
2,700 Green Mountain Power Corp 75,938
22,000 Hawaiian Electric Industry Inc 833,250
18,900 Idaho Power Co 548,100
18,600 IES Industries 539,400
5,900 Interstate Power Co 189,538
100 Kansas City Power and Light Co 2,538
15,300 Ku Energy Corp 441,788
8,400 LG&E Energy Corp * 361,200
28,900 MCN Corp 726,113
17,850 MDU Resources Group Inc 365,925
49,582 Midamerican Energy Co 898,674
See accompanying notes to the financial statements. 13
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
UTILITIES - CONTINUED
16,200 Minnesota Power & Light Co 443,475
31,700 Nevada Power Co 689,475
12,600 New Jersey Resources Corp 366,975
6,200 New York State Electric and Gas Corp 146,475
4,300 Northwestern Public Service Co 128,463
7,000 NUI Corporation 129,500
100 Oklahoma Gas and Electric Co 4,125
6,700 Orange and Rockland Utilities 242,875
5,800 Otter Tail Power Co 218,950
3,800 Pennsylvania Enterprises Inc 144,400
58,200 Portland General Electric Co 1,782,375
13,700 Public Service Co of North Carolina 226,050
58,400 Public Services Co of New Mexico * 1,036,600
49,500 Rochester Gas and Electric Corp (a) 1,113,750
28,700 Sierra Pacific Resources 695,975
11,100 Sigcorp Inc 377,400
4,900 South Jersey Industries 107,188
8,900 Southern California Water Co 169,100
12,000 Southwesten Public Service Co 385,500
2,200 St Joseph Light & Power 71,500
8,300 TNP Enterprises Inc 173,263
87,400 Tucson Electric Power Co * (a) 284,050
11,500 UGI Corp 241,500
13,500 United Illuminating Co 516,375
100 Utilicorp United Inc 2,950
28,100 Washington Gas Light 611,175
30,900 Washington Water Power 571,650
10,300 Wicor Inc 339,900
17,000 Wisconsin Power & Light Holding Co (a) 527,000
12,600 WPS Resources Corp 415,800
5,800 Yankee Energy System Inc 137,025
------------------------
29,335,387
------------------------
TOTAL STOCK AND EQUIVALENTS (Cost $201,189,121) 221,574,316
------------------------
14 See accompanying notes to the financial statements.
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE ($)/
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.8%
REPURCHASE AGREEMENT - 4.1%
$ 9,446,380 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/1/96, with a maturity value of $9,447,671 and an
effective yield of 4.92%, collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $9,623,937. 9,446,380
------------------------
U.S. GOVERNMENT - 0.1%
$ 250,000 U.S. Treasury Bill, 5.41% due 5/30/96 (b) 246,948
------------------------
CASH EQUIVALENTS - 4.6%
1,347,811 American Advantage Money Market Fund 1,347,811
$ 5,283,935 Bank of Boston Time Deposit, 6.26% due 3/1/96 5,283,935
$ 1,684,763 First Union National Bank Time Deposit, 5.44% due 3/1/96 1,684,763
$ 357,789 First Union National Bank Time Deposit, 5.50% due 3/1/96 357,789
1,944,327 Lehman Prime Value Money Market Fund 1,944,327
------------------------
10,618,625
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $20,311,971) 20,311,953
------------------------
TOTAL INVESTMENTS - 104.5%
(Cost $221,501,092) * * 241,886,269
Other Assets and Liabilities (net) - (4.5%) (10,352,838)
------------------------
TOTAL NET ASSETS - 100.0% $ 231,533,431
========================
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) All or a portion of this security is on loan.
(b) This security is held as collateral for open futures contracts.
(c) Bankrupt security - valued by management (Note 1).
* Non-income producing security.
* * The aggregate identified cost for federal
income tax purposes is $222,670,678 resulting in
gross unrealized appreciation and depreciation
of $24,991,281 and $5,775,690 respectively, and
net unrealized appreciation of $19,215,591
</TABLE>
See accompanying notes to the financial statements. 15
<TABLE>
<CAPTION>
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $221,501,092) (Note 1) $ 241,886,269
Receivable for investments sold 5,721,644
Receivable for Fund shares sold 592,000
Dividends and interest receivable 444,726
Receivable for expenses waived or borne by Manager (Note 2) 29,599
---------------------
Total assets 248,674,238
---------------------
LIABILITIES:
Payable for investments purchased 6,196,613
Payable upon return of securities loaned (Note 1) 10,617,785
Payable for variation margin on open futures contracts 65,686
Payable for Fund shares repurchased 105,148
Payable to affiliate for management fee (Note 2) 90,926
Accrued expenses 64,649
---------------------
Total liabilities 17,140,807
---------------------
NET ASSETS (equivalent to $13.89 per share based on 16,666,567
shares outstanding, unlimited shares authorized) $ 231,533,431
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 206,204,739
Accumulated undistributed net investment income 686,982
Accumulated undistributed net realized gain 4,220,996
Net unrealized appreciation 20,420,714
=====================
NET ASSETS $ 231,533,431
=====================
</TABLE>
16 See accompanying notes to the financial statements.
<TABLE>
<CAPTION>
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 3,243,700
Interest (including securities lending income of $58,829) 518,116
---------------------
Total income 3,761,816
---------------------
EXPENSES:
Management fee (Note 2) 873,239
Custodian and transfer agent fees 124,785
Audit fees 47,957
Registration fees 10,485
Legal fees 6,213
Insurance 1,492
Trustee fee (Note 2) 634
Miscellaneous 189
---------------------
Total expenses 1,064,994
Less: expenses waived or borne by Manager (Note 2) (226,684)
---------------------
Net expenses 838,310
---------------------
Net investment income 2,923,506
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 32,650,695
Closed futures contracts 3,019,826
Closed swap contracts (534,171)
---------------------
Net realized gain 35,136,350
---------------------
Change in net unrealized appreciation (depreciation)on:
Investments 3,422,474
Open futures contracts (504,165)
---------------------
Net unrealized gain 2,918,309
---------------------
Net realized and unrealized gain 38,054,659
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 40,978,165
=====================
See accompanying notes to the financial statements. 17
</TABLE>
<TABLE>
<CAPTION>
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,923,506 $ 2,687,380
Net realized gain 35,136,350 14,687,241
Change in net unrealized appreciation (depreciation) 2,918,309 (8,564,992)
--------------------- ---------------------
Net increase in net assets resulting from operations 40,978,165 8,809,629
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (2,725,107) (2,478,510)
Net realized gains (38,332,108) (13,249,265)
--------------------- ---------------------
(41,057,215) (15,727,775)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 79,331,116 106,039,496
Net asset value of shares issued to shareholders
in payment of distributions declared 35,880,229 13,476,187
Cost of shares repurchased (119,379,511) (28,102,815)
--------------------- ---------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (4,168,166) 91,412,868
--------------------- ---------------------
Total increase (decrease) in net assets (4,247,216) 84,494,722
NET ASSETS:
Beginning of period 235,780,647 151,285,925
---------------------
---------------------
End of period (including accumulated undistributed
net investment income of $686,982 and
$707,076, respectively) $ 231,533,431 $ 235,780,647
===================== =====================
18 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)
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
----------------------------------- ------------ ------------ ------------
------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.61 $ 14.31 $ 12.68 $ 11.12 $ 10.00
------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (a) 0.23 0.20 0.21 0.22 0.04
Net realized and unrealized gain 3.20 0.34 2.14 1.59 1.08
------------ ------------ ------------ ------------ ------------
Total from investment operations 3.43 0.54 2.35 1.81 1.12
------------ ------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.23) (0.20) (0.22) (0.21) -
From net realized gains (2.92) (1.04) (0.50) (0.04) -
------------
------------ ------------ ------------ ------------
Total distributions (3.15) (1.24) (0.72) (0.25) -
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 13.89 $ 13.61 $ 14.31 $ 12.68 $ 11.12
============ ============ ============ ============ ============
TOTAL RETURN (B) 27.18% 4.48% 18.97% 16.46% 11.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 231,533 $ 235,781 $ 151,286 $ 102,232 $ 58,258
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.48% 0.49% 0.49%**%
Net investment income to average
daily net assets (a) 1.67% 1.55% 1.66% 2.02% 2.19%**
Portfolio turnover rate 135% 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 the following
per share amounts: $ 0.02 $ 0.01 $ 0.02 $ 0.02$ 0.01
(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. 19
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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
Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks long-term growth of capital through investment primarily in
companies whose equity capitalization ranks in the lower two-thirds of the
1,800 companies with the largest equity capitalization whose securities are
listed on a United States national securities exchange.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
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
specified price at a given date. The Fund may use futures contracts to
manage its exposure to the stock markets. Buying futures tends to increase
the Fund's exposure to the underlying instrument. Selling futures tends to
decrease the Fund's exposure to the underlying instrument or hedge other
Fund instruments. Upon purchase of a futures contract, the Fund is required
to deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. Government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is liquidated on the following business
day. Gains or losses are recognized but not considered realized until the
contracts expire or are closed. Futures contracts involve, to varying
degrees, risk of loss in excess of the variation margin disclosed in the
Statement of Assets and Liabilities. Losses may arise from the changes in
the value of the underlying
20
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996.
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 29, 1996, the Fund
loaned securities having a market value of $10,140,894, collateralized by
cash in the amount of $10,618,625, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. 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 the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform and that there may be unfavorable changes in the
price of the security or index underlying these transactions. At February
29, 1996 there were no open swap contracts.
21
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 29, 1996. 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> <C>
($218,493) $145,814 $72,679
</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 and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
22
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29,
1996, the Fund received $518,457 in purchase premiums and $354,508 in
redemption premiums. There is no premium for reinvested distributions or
in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $634. 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 29, 1996, aggregated
$230,047,091 and $269,348,949, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 41% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
23
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 5,303,210 7,782,253
Shares issued to shareholders in reinvestment
of distributions 2,682,509 1,047,874
Shares repurchased (8,644,888) (2,079,900)
--------------- ----------------
Net increase (decrease) (659,169) 6,750,227
Fund shares:
Beginning of period 17,325,736 10,575,509
--------------- ----------------
End of period 16,666,567 17,325,736
=============== ================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 29, 1996 is as
follows:
<TABLE>
<CAPTION>
Net
Number of Unrealized
Contracts Type Expiration Date Contract Value Appreciation
- -------------------- ------------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C>
7 Russell 2000 March 1996 $ 1,132,250 $ 41,625
40 S&P Mid Cap 400 March 1996 4,538,000 (5,245)
4 S&P Mid Cap 400 June 1996 459,200 (843)
-------------------
$ 35,537
===================
</TABLE>
At February 29, 1996, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.
* * *
GMO CORE II SECONDARIES FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTION - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 51.94% of distributions as net capital gain dividends.
GMO CORE II SECONDARIES FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. for more than
fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Core II Secondaries Fund underperformed the S&P 500 for the fiscal year
ended February 29, 1996, with a total return of 27.2% for the Fund versus 34.7%
for the S&P 500. Consistent with the Fund's investment objective and policies,
the Fund was invested substantially in common stocks throughout the period.
Generally, the Fund's performance is largely attributable to the
underperformance of small- and middle-capitalization stocks.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO CORE II SECONDARIES FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 12/31/91
25.3% N/A 18.3%
[Line Graph Appears Here]
Date GMO Core II Secondaries Fund S & P 500 Index
12/31/91 9,925 10,000
02/29/92 11,037 9,941
02/28/93 12,856 11,000
02/28/94 15,294 11,916
02/28/95 15,861 12,794
02/29/96 20,172 17,233
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 75 bp on purchase and 75 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Past performance is not indicative
of future performance. Information is unaudited.
PELICAN FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
Pelican 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 Pelican Fund at February 29, 1996,
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 29, 1996 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 12, 1996
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 80.6%
AEROSPACE - 1.3%
25,000 Coltec Inds Inc * 343,750
35,000 Rockwell International Corp 1,995,000
-------------------
2,338,750
-------------------
AUTOMOTIVE - 1.9%
5,000 Chrysler Corp 281,875
12,500 Federal-Mogul Corp * 231,250
15,000 General Motors Corp 768,750
15,000 Intermet Corp * 195,000
150,000 Mascotech Industries Inc 1,931,250
-------------------
3,408,125
-------------------
BANKING AND FINANCIAL SERVICES - 7.9%
50,000 American Express Co 2,300,000
15,000 Chase Manhattan Corp 1,117,500
25,000 Chemical Banking Corp 1,790,625
52,418 Citicorp 4,088,642
27,150 First Chicago Corp 1,177,631
7,500 First Interstate Bancorp 1,225,313
7,500 Great Western Financial 171,563
7,500 Nationsbank Corp 553,125
1,000 Salomon 6.75% "DEC" Equity Linked Security (Elks) (a) 48,875
22,500 Travelers Inc 1,504,688
-------------------
13,977,962
-------------------
CHEMICALS - 1.6%
25,000 Albemarle Corp 481,250
10,000 Bayer A G 310,000
25,000 Borden Chemical and Plastics LP 331,250
5,000 Cytec Industries Inc * 385,000
10,000 Georgia Gulf Corp 318,750
5,000 Lubrizol Corp 146,250
10,000 Praxair Inc * 345,000
20,000 Wellman Inc 452,500
-------------------
2,770,000
-------------------
COMMUNICATIONS - 0.2%
5,000 Motorola Inc * 271,250
-------------------
COMPUTER AND OFFICE EQUIPMENT - 0.3%
5,000 Micron Technology 160,000
12,500 Moore Corp Ltd * 245,313
12,500 Sequent Computer 146,875
-------------------
552,188
-------------------
See accompanying notes to the financial statements.
1
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS - 4.0%
35,000 Black and Decker Corp 1,181,250
25,000 Burlington Industries Inc * 284,375
65,000 Eastman Kodak Co 4,647,500
30,000 Maytag Corp 588,750
2,500 Procter and Gamble Co 205,000
10,000 Scotts Company Class A * 177,500
-------------------
7,084,375
-------------------
ELECTRONIC EQUIPMENT - 0.1%
2,500 Integrated Device Technology Inc 30,000
7,500 National Semiconductor Corp 117,188
1,500 Philips NV ADR 62,063
-------------------
209,251
-------------------
FOOD AND BEVERAGE - 3.6%
7,500 Anheuser-Busch Cos Inc 505,313
13,125 Archer Daniels Midland Co 252,656
10,000 AuBon Pain Co Inc Class A * 75,156
15,000 Coca Cola Enterprises Inc 425,625
20,000 Coors (Adolph) Co 387,500
20,000 Darden Restaurants Inc * 245,000
42,500 Nestle SA ADR 2,326,221
15,000 Riviana Foods Inc Del * 213,750
162,500 RJR Nabisco Holdings Convertible Preferred Series C 9.25% 1,117,188
15,000 Sara Lee Corp 485,625
1,000 Unilever ADR 134,500
12,500 Wendys International Inc 226,563
-------------------
6,395,097
-------------------
HEALTH CARE - 3.2%
50,000 Baxter International Inc 2,287,500
60,000 Beverly Enterprises Inc * 727,500
25,000 Caremark International Inc * 637,500
25,000 Centocor Inc * 728,125
15,000 Community Psychiatric Centers * 138,750
5,000 Haemonetics Corp * 85,000
17,500 Laboratory Corporation America Holdings * 135,625
10,000 Magellan Health Services Inc 238,750
20,000 Owens and Minor Holdings Co 232,500
22,500 Perrigo Co * 315,000
5,000 Pharmacia & Upjohn Inc 209,375
-------------------
5,735,625
-------------------
See accompanying notes to the financial statements.
2
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 7.2%
5,000 Ace Ltd * 233,750
17,500 Aetna Life and Casualty Co 1,323,438
70,000 Alexander & Alexander Services Inc 1,303,750
14,000 Alexander & Alexander Services Inc Convertible Preferred $3.63 144A 672,000
25,000 Allstate Corp 1,071,875
7,500 Cigna Corp 888,750
10,000 Gallagher (Arthur J) and Co 391,250
10,000 Hilb Rogal and Hamilton Co 137,500
7,500 Liberty Corp 255,000
15,000 Life Re Corp 384,375
12,500 National Re Corp 390,625
5,000 Provident Companies Inc 169,375
150,000 Reliance Group Holdings Inc 1,218,750
75,000 Sedgwick Group ADR 757,785
10,000 TIG Holdings Inc 316,250
15,000 Transamerica Corp 1,130,625
62,500 USF & G Corp 937,500
7,500 USLIFE Corp 226,875
20,000 Washington National Corp 530,000
37,500 Willis Corroon Group Plc ADR 431,250
-------------------
12,770,723
-------------------
MACHINERY - 1.0%
12,500 Cincinnati Milacron Inc 359,375
7,500 Cummins Engine Inc 315,938
12,500 FMC Corp * (a) 912,500
15,000 Giddings and Lewis Inc 251,250
-------------------
1,839,063
-------------------
MANUFACTURING - 9.9%
25,000 American Greetings Corp 684,375
50,000 Corning Inc 1,625,000
10,000 Fleetwood Enterprises Inc 268,750
17,500 General Electric Co 1,321,250
15,000 Gerber Scientific Inc * 223,125
50,000 Griffon Corp * 500,000
27,500 International Business Machines Corp 3,372,188
2,500 Minnesota Mining and Manufacturing 162,813
32,500 Owens Corning 1,320,313
10,000 SGS Thompson Microelectronics NV 368,750
65,000 Teledyne Inc 1,828,125
3,265 Teledyne Inc Preferred Series E $1.20 48,975
12,500 Tenneco Inc 698,438
See accompanying notes to the financial statements.
3
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - CONTINUED
20,000 United Technologies Corp 2,150,000
35,000 Westinghouse Electric Corp 647,500
137,500 Westinghouse Electric Corp Convertible Preferred $1.30 144A 2,397,648
-------------------
17,617,250
-------------------
METALS AND MINING - 1.5%
5,000 Alcan Aluminum Ltd 152,500
12,500 Amcol International Corp 187,500
5,000 Asarco Inc 149,375
37,500 Echo Bay Mines Ltd 515,625
15,000 Falconbridge Ltd 314,366
10,000 Freeport-McMoran Corp Preferred 0.00% 378,750
15,000 Pittston Minerals Group 226,875
15,000 Placer Dome Inc 423,750
6,000 Santa Fe Pacific Gold Corp 93,750
12,500 Sherritt Inc * 168,573
-------------------
2,611,064
-------------------
MISCELLANEOUS - 0.1%
25,000 OHM Corp * 181,250
-------------------
OIL AND GAS - 5.5%
7,500 Amerada Hess Corp 386,250
22,500 Atlantic Richfield Co Convertible Preferred 9.00% 607,500
15,000 Coflexip SA Sponsored ADR * 264,375
5,000 Dresser Industries Inc 140,625
15,000 Eni SPA 564,375
40,000 Enserch Corp 605,000
5,000 Halliburton Co 274,375
50,000 Lasmo Plc ADR 418,750
10,000 Mitchell Energy Class A 170,000
25,000 Mitchell Energy Class B 425,000
5,000 Mobil Corp 548,125
65,000 Noram Energy Corp 585,000
20,000 Occidental Petroleum Corp 460,000
2,500 Texaco Inc 199,375
25,000 Union Texas Petroleum Holdings Inc 493,750
50,000 Unocal Corp 1,500,000
55,000 USX - Marathon Group 1,017,500
50,000 Westcoast Energy Inc 793,750
15,000 YPF Sociedad Anonima ADR * 290,625
-------------------
9,744,375
-------------------
See accompanying notes to the financial statements.
4
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER AND ALLIED PRODUCTS - 1.0%
25,000 James River Corp 659,375
28,500 James River Corp Convertible Preferred 9.00% 741,000
10,000 Weyerhaeuser Co 423,750
-------------------
1,824,125
-------------------
PHARMACEUTICALS - 1.6%
10,000 Allergan Inc 372,500
15,000 Glaxo Plc ADR 410,625
20,000 Lilly (Eli) & Co 1,210,000
15,000 Smithkline Beecham Plc ADR 821,250
-------------------
2,814,375
-------------------
PRIMARY PROCESSING - 0.9%
500 Armco Inc Convertible Preferred $3.625 25,000
20,000 Armco Inc * 112,500
7,500 Du Pont (E I) De Nemours & Co Inc 573,750
15,000 LTV Corp * 191,250
25,000 Northwestern Steel and Wire * 200,000
10,000 USX-US Steel Group Inc 327,500
25,000 Weirton Steel Corp * 96,875
-------------------
1,526,875
-------------------
PRINTING AND PUBLISHING - 0.2%
2,500 Donnelley (RR) & Sons Co * 90,000
5,000 Dun and Bradstreet Corp 316,250
-------------------
406,250
-------------------
REAL ESTATE - 1.7%
10,000 Crown American Realty 78,750
10,000 Evans Withycombe Residential 223,750
65,000 JP Realty Inc 1,356,875
25,000 Summit Properties Inc 506,250
40,000 Walden Residential Properties Inc 870,000
-------------------
3,035,625
-------------------
REFINING - 0.7%
10,000 Ashland Inc Convertible Preferred $3.125 618,750
10,000 Imperial Oil Ltd 365,000
5,000 Quaker State Corp 70,000
5,000 Vintage Petroleum Inc 102,500
-------------------
1,156,250
-------------------
See accompanying notes to the financial statements.
5
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE - 3.2%
25,000 American Stores Co 728,125
20,000 Cone Mills Corp 227,500
25,000 Federated Department Stores * 756,250
100,000 Food Lion Inc * 556,250
62,500 Kmart 437,500
95,000 Price/Costco Inc * 1,638,750
5,000 Sears Roebuck & Co 226,875
5,000 The Limited Inc 87,500
5,000 TJX Cos Inc * 111,250
30,000 Wal-Mart Stores Inc 637,500
17,000 Williams-Sonoma Inc * 252,875
-------------------
5,660,375
-------------------
SERVICES - 0.9%
10,000 Anthony Industries 220,000
55,000 Cordiant Plc ADR * 275,000
25,000 International Technology Corp 56,250
22,500 Kellwood Co 340,313
50,000 Morningstar Group Inc * 425,000
5,000 Ogden Corp 106,875
10,000 Pinkertons Inc * 182,500
2,250 Wackenhut Corp Class B 33,750
-------------------
1,639,688
-------------------
TECHNOLOGY - 9.6%
35,000 Avnet Inc 1,745,625
15,000 Cray Research Inc * 425,625
25,000 Data General Corp * 421,875
60,000 Digital Equipment Corp * 4,320,000
15,000 Fisher Scientific 558,750
25,000 Information Resources Inc 365,625
15,000 Intel Corp 882,188
15,000 Intergraph Corp * 277,500
15,000 Novell Inc * 182,813
5,000 Quickturn Design Systems Inc 55,625
12,500 SCI Systems Inc * 463,281
62,500 Storage Technology Corp * 1,890,625
175,000 Tandem Computers Inc * 1,684,375
5,000 Texas Instruments Inc * 249,375
100,000 WMX Technologies 2,850,000
5,000 Xerox Corp 651,250
-------------------
17,024,532
-------------------
See accompanying notes to the financial statements.
6
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 4.6%
10,000 Airtouch Communications Inc * 310,000
10,000 AT & T Corp 636,250
5,000 Bell Atlantic Corp 330,625
85,000 GTE Corp 3,644,375
50,000 MCI Communications Corp * 1,462,500
5,200 Pacific Telesis Group 146,900
5,000 Sprint Corp 215,000
25,000 Tele-Communications Class A * 525,000
5,000 Tele-Communications Liberty Media Class A * 138,125
15,000 US West Inc 491,250
15,000 US West Media Group 313,125
-------------------
8,213,150
-------------------
TOBACCO - 1.3%
15,000 American Brands Inc 680,625
10,000 BAT Industries Plc ADR * 178,750
95,000 Hanson Plc ADR 1,401,250
-------------------
2,260,625
-------------------
TRANSPORTATION - 2.9%
10,000 AMR Corp * 877,500
75,000 Canadian Pacific Ltd 1,481,250
7,500 Delta Air Lines Inc 585,000
5,000 Hunt (JB) Transportation Services Inc 91,250
16,500 Navistar International Corp Preferred $6.00 903,375
10,000 Overseas Shipholding Group Inc 187,500
20,000 Ryder System Inc 502,500
2,500 Southern Pacific Rail Corp * 59,375
7,500 USAir Group Inc Convertible Preferred Series B $4.38 * 367,500
-------------------
5,055,250
-------------------
UTILITIES - 2.7%
25,000 Centerior Energy Corp 209,375
10,000 CMS Energy Corp 303,750
100,000 Niagara Mohawk Power Corp 750,000
12,500 Northeast Utilities 278,125
1,000 PacifiCorp 20,750
82,500 Panhandle Eastern Corp 2,361,563
35,000 TransCanada Pipeline Ltd 494,375
10,000 Unicom Corp 320,000
-------------------
4,737,938
-------------------
TOTAL STOCK AND EQUIVALENTS (Cost $104,380,091) 142,861,406
-------------------
See accompanying notes to the financial statements.
7
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
DEBT OBLIGATIONS - 13.0%
BANKING AND FINANCIAL SERVICES - 1.1%
181,500 Citicorp, 10.50% due 2/1/16 190,170
289,000 Citicorp, Variable Rate Note, 6.50% due 5/1/04 289,630
1,000,000 General Motors Acceptance Corp, 5.50% due 12/15/01 947,800
550,000 Standard Credit Card Master Trust I,
Variable Rate Note, 6.11% due 9/15/97 551,546
-------------------
1,979,146
-------------------
CHEMICALS - 0.5%
500,000 IMC Fertilizer Group Inc, 10.13% due 6/15/01 553,750
300,000 IMC Fertilizer Group Inc, 10.75% due 6/15/03 330,000
-------------------
883,750
-------------------
COMPUTERS - 0.2%
250,000 Storage Technology, 7.00% due 3/15/08 326,563
-------------------
FOOD AND BEVERAGE - 0.8%
550,000 Anheuser-Busch Cos Inc, 8.50% due 3/1/17 572,891
131,000 Anheuser-Busch Cos Inc, 10.00% due 7/1/18 139,670
750,000 General Foods Corp, 7.00% due 6/15/11 719,033
-------------------
1,431,594
-------------------
PAPER AND ALLIED PRODUCTS - 0.3%
500,000 Georgia Pacific Corp, 9.75% due 1/15/18 522,790
-------------------
REAL ESTATE - 1.0%
1,750,000 HMH Properties Inc, 9.50% due 05/15/05 1,785,000
-------------------
RETAIL TRADE - 0.4%
1,000,000 Kmart Corp, 8.13% due 12/01/06 780,000
-------------------
TECHNOLOGY - 0.5%
1,000,000 VLSI Technology Inc, 8.25% due 10/01/05 920,000
-------------------
TRANSPORTATION - 1.4%
1,100,000 AMR Corp, 9.00% due 8/1/12 1,209,286
1,100,000 United Air Lines Inc, 9.13% due 1/15/12 1,211,188
-------------------
2,420,474
-------------------
UTILITIES - 0.8%
1,700,000 Tennessee Gas Pipeline Co, 6.00% due 12/15/11 1,446,020
-------------------
See accompanying notes to the financial statements.
8
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT - 5.9%
500,000 U.S. Treasury Note, 5.88% due 5/31/96 500,780
3,850,000 U.S. Treasury Note, 4.75% due 8/31/98 3,782,625
1,250,000 U.S. Treasury Note, 7.75% due 2/15/01 1,356,638
850,000 U.S. Treasury Bond, 11.13% due 8/15/03 1,106,060
750,000 U.S. Treasury Bond, 10.75% due 8/15/05 992,933
2,500,000 U.S. Treasury Bond, 7.25% due 5/15/16 2,676,950
-------------------
2,462,698
-------------------
U.S. GOVERNMENT AGENCY - 0.1%
417,936 Federal Home Loan Mortgage Corp, 7.50% due 1/1/23,
Series 146, Interest Only Strip 122,112
-------------------
TOTAL DEBT OBLIGATIONS (Cost $21,539,449) 23,033,435
-------------------
SHORT-TERM INVESTMENT - 7.0%
REPURCHASE AGREEMENT - 7.0%
12,345,000 State Street Bank and Trust Co Repurchase Agreement,
dated 2/29/96, due 3/01/96, with a maturity value of
$12,346,629 and an effective yield of 4.75% ,
collateralized by a U.S. Treasury Bond, with a rate of
12.00% due 8/15/13 with an aggregate market value of
$12,595,077. 12,345,000
-------------------
TOTAL SHORT-TERM INVESTMENT (Cost $12,345,000) 12,345,000
-------------------
TOTAL INVESTMENTS - 100.6%
(Cost $138,264,540) * * 178,239,841
Other Assets and Liabilities (net) - (0.6%) (1,001,548)
-------------------
TOTAL NET ASSETS - 100.0% $ 177,238,293
===================
See accompanying notes to the financial statements.
9
PELICAN FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
(a) 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.
144A - Securities exempt from registration
under Rule 144A of the Securities Act of
1933. These securities may be resold in
transactions exempt from registration,
normally to qualified institutional
investors.
Variable Rate Notes - The rates shown on variable
rate notes are the current interest rates
at February 29, 1996, which are subject to
change based on the terms of the security.
* Non-income producing security.
** The aggregate identified cost for
federal income tax purposes is
$139,621,070, resulting in gross
unrealized appreciation and depreciation
of $41,943,159 and $3,324,388,
respectively, and net unrealized
appreciation of $38,618,771.
</TABLE>
See accompanying notes to the financial statements.
10
PELICAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $138,264,540) (Note 1) $ 178,239,841
Cash 4,452
Dividends and interest receivable 671,466
Receivable for Fund shares sold 97,512
-------------------
Total assets 179,013,271
-------------------
LIABILITIES:
Payable for investments purchased 1,470,267
Payable for Fund shares repurchased 62,696
Payable to affiliate for management fee (Note 2) 126,247
Accrued expenses and other liabilities 115,768
-------------------
Total liabilities 1,774,978
-------------------
Net Assets (equivalent to $14.52 per share based
on 12,204,124 shares outstanding, unlimited shares authorized) $ 177,238,293
===================
NET ASSETS CONSIST OF:
Paid-in capital $ 134,003,101
Accumulated undistributed net investment income 646,595
Accumulated undistributed net realized gain 2,613,296
Net unrealized appreciation 39,975,301
-------------------
NET ASSETS $ 177,238,293
===================
</TABLE>
See accompanying notes to the financial statements.
11
PELICAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $36,850) $ 3,397,889
Interest 1,965,985
---------------------
Total income 5,363,874
---------------------
EXPENSES:
Management fee (Note 2) 1,390,969
Custodian and transfer agent fees 162,872
Audit fees 54,105
Registration fees 10,476
Legal fees 5,702
Insurance 1,354
Trustee fee (Note 2) 572
Miscellaneous 2,454
---------------------
Total expenses 1,628,504
---------------------
Net investment income 3,735,370
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 9,082,971
Change in net unrealized appreciation (depreciation)
on investments 25,308,348
---------------------
Net realized and unrealized gain 34,391,319
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 38,126,689
=====================
</TABLE>
See accompanying notes to the financial statements.
12
PELICAN FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 3,735,370 $ 2,626,763
Net realized gain 9,082,971 5,174,436
Change in net unrealized appreciation (depreciation) 25,308,348 224,762
--------------------- ---------------------
Net increase in net assets resulting from operations 38,126,689 8,025,961
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (3,369,047) (2,546,856)
Net realized gains (6,173,331) (5,635,884)
--------------------- ---------------------
(9,542,378) (8,182,740)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 37,226,671 19,359,981
Net asset value of shares issued to shareholders
in payment of distributions declared 8,801,280 7,685,710
Cost of shares repurchased (15,293,740) (10,133,809)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 30,734,211 16,911,882
--------------------- ---------------------
Total increase in net assets 59,318,522 16,755,103
NET ASSETS:
Beginning of period 117,919,771 101,164,668
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $646,595 and
$280,272, respectively) $ 177,238,293 $ 117,919,771
===================== =====================
</TABLE>
See accompanying notes to the financial statements.
13
PELICAN FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.99 $ 12.08 $ 11.37 $ 10.70 $ 9.89
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income (a) 0.31 0.37 0.29 0.36 0.42
Net realized and unrealized gain 3.04 0.46 1.40 1.06 1.02
------------- ------------- ------------- ------------- -------------
Total from investment operations 3.35 0.83 1.69 1.42 1.44
------------- ------------- ------------- ------------- -------------
Less distributions to shareholders:
From net investment income (0.29) (0.37) (0.37) (0.38) (0.40)
From net realized gains (0.53) (0.55) (0.61) (0.37) (0.23)
------------- ------------- ------------- ------------- -------------
Total distributions (0.82) (0.92) (0.98) (0.75) (0.63)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 14.52 $ 11.99 $ 12.08 $ 11.37 $ 10.70
============= ============= ============= ============= =============
TOTAL RETURN (B) 28.54% 7.38% 15.14% 13.93% 15.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 177,238 $ 117,920 $ 101,165 $ 85,401 $ 65,907
Net expenses to average
daily net assets (a) 1.05% 1.10% 1.10% 1.10% 1.10%
Net investment income to average
daily net assets (a) 2.42% 2.51% 2.42% 3.40% 4.08%
Portfolio turnover rate 32% 40% 49% 39% 56%
(a) Net of fees and expenses voluntarily waived or borne by the Manager of the following
per share amounts: $ - $ - $ 0.01 $ 0.01 $ 0.01
(b) 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.
14
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Pelican Fund (the "Fund") is a series of GMO Trust (the "Trust"). The
Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified management investment company. The Fund is advised
and managed by Grantham, Mayo, Van Otterloo & Co. ("the Manager"). The
Trust was established as a Massachusetts Business Trust under the laws of
the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which will issue a separate series of shares.
The Fund seeks long-term capital growth primarily through investment in
equity securities.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term debt obligations with a remaining maturity of sixty days or less
are valued at amortized cost which approximates market value. Other assets
and securities for which no quotations are readily available are valued at
fair value as determined in good faith by the Trustees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
15
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States.
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.
DISTRIBUTIONS TO SHAREHOLDERS
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. 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. Premium,
market and original issue discounts are not 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 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.
16
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager is paid monthly at the annual rate of .90% 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 1.10% of average daily net assets. Effective March
1, 1996, this limitation was reduced to 0.95% 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 29, 1996, was $572. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ 4,518,126 $ 501,563
Investments (non-U.S. Government securities) 47,215,650 44,353,384
</TABLE>
4. PRINCIPAL SHAREHOLDER
At February 29, 1996, 37% of the outstanding shares of the Fund were held
by one shareholder.
17
PELICAN FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
---------------------------- ----------------------------
<S> <C> <C>
Shares sold 2,841,802 1,641,663
Shares issued to shareholders in reinvestment
of distributions 647,025 672,854
Shares repurchased (1,115,726) (860,814)
---------- --------
Net increase 2,373,101 1,453,703
Fund shares:
Beginning of period 9,831,023 8,377,320
--------- ---------
End of period 12,204,124 9,831,023
========== =========
</TABLE>
* * *
18
PELICAN FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 40.26% of distributions as net capital gain dividends.
PORTFOLIO MANAGER
Mr. Richard A. Mayo is primarily responsible for the day-to-day
management of the Fund's portfolio. A founding partner of GMO, Mr. Mayo has been
a portfolio manager for more than twenty-five years.
MANAGEMENT DISCUSSION AND ANALYSIS
PELICAN FUND
The predominant theme of the market in the second half of 1995 was
large defensive growth stocks -- drug, telephone, and household products
companies. Reacting to a slowing in the economy and declining interest rates,
money managers were attracted to such stocks. In addition, the continued very
large flow of money into mutual funds made it necessary for portfolio managers
to emphasize large capitalization stocks in order to invest money quickly.
[BAR CHART APPEARS HERE.]
Net Cash Flow into Equity Mutual Funds (US$ billions)
Date Amount
Mar-90 3.7
Apr-90 4.0
May-90 3.9
Jun-90 4.5
Jul-90 3.9
Aug-90 0.2
Sep-90 (2.5)
Oct-90 0.0
Nov-90 1.5
Dec-90 3.8
Jan-91 0.5
Feb-91 3.8
Mar-91 3.0
Apr-91 3.6
May-91 3.9
Jun-91 1.8
Jul-91 4.0
Aug-91 3.6
Sep-91 3.9
Oct-91 4.8
Nov-91 3.8
Dec-91 10.5
Jan-92 7.0
Feb-92 2.0
Mar-92 7.1
Apr-92 7.4
May-92 6.9
Jun-92 5.1
Jul-92 6.9
Aug-92 3.9
Sep-92 4.9
Oct-92 4.8
Nov-92 9.9
Dec-92 13.7
Jan-93 10.1
Feb-93 8.5
Mar-93 12.6
Apr-93 11.7
May-93 9.3
Jun-93 10.2
Jul-93 10.0
Aug-93 12.2
Sep-93 10.0
Oct-93 13.5
Nov-93 8.8
Dec-93 20.9
Jan-94 18.3
Feb-94 14.4
Mar-94 7.5
Apr-94 11.0
May-94 11.2
Jun-94 8.8
Jul-94 9.3
Aug-94 14.2
Sep-94 9.4
Oct-94 9.8
Nov-94 2.7
Dec-94 10.8
Jan-95 6.2
Feb-95 8.4
Mar-95 8.3
Apr-95 10.4
May-95 8.4
Jun-95 10.0
Jul-95 14.0
Aug-95 13.7
Sep-95 13.9
Oct-95 9.3
Nov-95 14.6
Dec-95 28.8
This inflow plus $100 billion in announced corporate
buybacks is major support for the market.
Source: DATASTREAM
In the last three months of 1995, this concentration in large defensive
stocks reached an extreme. All of the move in the S&P 500 was accounted for by
only twenty two (22) companies. And, as you can see in the table below, none was
cyclical.
22 STOCKS MOVE S&P 500
The following 22 stocks account for 100% of the S&P 500 move from
9/30/95
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1) GE 10.7% 12) MMM 71.8%
2) MRK 18.6% 13) PG 75.2%
3) KO 26.4% 14) PEP 78.6%
4) XON 34.1% 15) LLY 81.7%
5) JNJ 41.1% 16) AHP 84.6%
6) RD 46.2% 17) AIG 87.4%
7) PFE 51.3% 18) GTE 90.1%
8) MO 56.0% 19) AIT 92.7%
9) BMY 60.4% 20) MOB 95.2%
10) BLS 64.6% 21) CA 97.8%
11) MCD 68.3% 22) TX 100.0%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund lagged the S&P 500 in the last quarter of 1995 since we did
not have major holdings in the above list of companies. We had small positions
in five of the group, a major weighting in GTE, and were helped by major
positions in Eastman Kodak, Baxter Labs, Smith-Kline Beecham, and MCI
Communications, companies that benefited from the same effect -- i.e. interest
in large liquid stocks with stable earnings growth. By November, we thought that
sector was getting overvalued. For instance, the large telephone stocks by then
were up an average of 45%, and we began to gradually take profits. These sales
had a negative impact on relative performance since this type of stock led the
market into early February 1996.
We were also taking some profits because we were concerned that the
assumptions of steadily declining interest rates and slow economic growth that
encouraged the focus on the big defensive stocks were becoming too widely held.
Thus, data that caused a change in direction in interest rates would be a
problem for those stocks and, due to their market size, a problem for the
market. A shift has occurred. Industrial production last month was up 1.2%, the
largest gain in four (4) years. Job growth in the same month leaped by 720,000.
Driven by the appearance that the economy is much stronger than previously
assumed, interest rates have increased 100 basis points, a very large move in
the short term.
Increasing rates and changing economic assumptions have created
significant volatility in the stock market on a day-to-day basis for the last
four weeks as investment managers try to reorient their portfolios. They have
tried to increase their cyclical exposure and reduce exposure to companies that
would be most negatively impacted by the higher rate structure. We are being
helped by this shift. We own some paper companies, some chemical companies, and
most importantly some airline stocks that have moved to the top of the
performance lists.
In addition, the evidence that the economy is "strong" has reawakened
interest in smaller companies which traditionally are more impacted by economic
shifts. Smaller company stocks lagged the market by approximately 5% during the
latter half of 1995. We have about 25% of the portfolio invested in medium to
smaller companies and this penalized our performance by about 2%. In February
1996 there was a shift. The Russell 2000 Index (an index of smaller stocks)
outperformed the S&P 500 by more than 1% and these gains are continuing into
March. It was also encouraging that on the most recent days of big declines in
the market, small stocks materially outperformed. At last, the values we saw in
Mascotech, American Greetings, Storage Technology, and Price-Costco are catching
attention.
Going forward, we expect continued choppiness in the market. This
usually happens when the variables that affect stock valuation such as profits,
interest rates, and inflation are being re-evaluated. Consequently, we are
maintaining a certain defensiveness. We are only 80% invested in stocks, but
will be opportunistic when evaluating ideas or observing significant price
changes. At the moment we don't have great enthusiasm for bonds. It will take
time for the market to stabilize and some large leveraged bond positions will
need to be unwound. Our most significant bond purchase recently was K-Mart
Corporation. These were more volatile than we originally thought as the specter
of bankruptcy was over-emphasized by the media. As retail sales have picked up
and the company's balance sheet has been re-capitalized, some confidence has
been restored. The bonds are up 40% from their lows and we are even thinking of
taking some profits.
In equities, we are adding to positions in WMX Technology, Marathon
Oil, Unocal, Hanson PLC ADR, Wal Mart, Canadian Pacific, and other selected
cyclicals. We watch for opportunities in the technology sector, a group that now
has violent selling phases. We don't see any major sectors that look
significantly undervalued. We are adding to REITs, but that is more the
attraction of good total returns -- high yields coupled with modest growth.
We think the rest of 1996 and early 1997 will continue to be
challenging. Rapid changes in expectations lead to more volatile stock prices,
but we are encouraged that our emphasis on value will produce favorable returns.
Thank you for investing with us.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO PELICAN FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 05/31/89
28.5% 15.8% 12.7%
[Line Graph Appears Here]
Date GMO Pelican Fund S & P 500 Index
05/31/89 10,000 10,000
02/28/90 9,931 10,617
02/28/91 10,743 12,174
02/29/92 12,380 14,120
02/28/93 14,098 15,625
02/28/94 16,232 16,927
02/28/95 17,430 18,173
02/29/96 22,618 24,478
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Past performance is not indicative of future
performance. Information is unaudited.
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 12, 1996
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK - 95.1%
AEROSPACE - 3.6%
39,593 Lockheed Martin 3,018,966
92,200 Raytheon Co 4,621,525
-------------------------
7,640,491
-------------------------
AUTOMOTIVE - 0.1%
3,300 Bandag Inc 168,300
-------------------------
BANKING AND FINANCIAL SERVICES - 7.3%
600 Bancorp Hawaii Inc 20,850
19,790 Bear Stearns Cos Inc 479,908
10,500 Beneficial Corp 546,000
700 California Federal Bancorp Inc 10,588
5,900 Chase Manhattan Corp 439,550
15,800 Chemical Banking Corp 1,131,675
45,600 Citicorp 3,556,800
39,000 Dean Witter Discover and Co 2,096,250
10,200 Edwards (A G) Inc 247,350
1,800 First Bank of America Corp 78,750
22,600 Mercury Financial Co (a) 310,750
41,600 Morgan Stanley Group Inc (a) 1,950,000
18,300 Student Loan Marketing Association 1,512,038
46,100 Travelers Inc 3,082,938
-------------------------
15,463,447
-------------------------
CHEMICALS - 0.4%
20,500 IMC Global Inc * (a) 845,625
-------------------------
COMPUTER AND OFFICE EQUIPMENT - 0.9%
16,000 Informix Corp 564,000
42,500 Micron Technology 1,360,000
-------------------------
1,924,000
-------------------------
CONSTRUCTION - 0.1%
5,700 Clayton Homes * 107,588
-------------------------
CONSUMER GOODS - 2.3%
5,500 Clorox Co (a) 466,125
30,600 Liz Claiborne 960,075
2,800 National Service Industries 97,650
24,900 Nike Inc Class B 1,615,388
17,200 Polaroid Corp 756,800
8,600 Reebok International Ltd 226,825
11,800 VF Corp 634,250
-------------------------
4,757,113
-------------------------
See accompanying notes to financial statements.
1
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE - 14.2%
42,500 Anheuser-Busch Cos Inc 2,863,438
100,365 Archer Daniels Midland Co 1,932,026
400 Brown Forman Corp Class B 15,650
126,400 Coca-Cola Co 10,206,800
41,300 ConAgra Inc 1,739,763
14,200 CPC International Inc 983,350
7,600 Dean Foods Co 194,750
38,400 General Mills Co 2,208,000
64,200 Heinz (H J) Co 2,182,800
4,000 Hershey Foods Corp 301,500
10,800 Hormel (Geo A) and Co 271,350
26,200 IBP Inc 655,000
27,800 Kellogg Co 2,098,900
15,100 Pepsico Inc 955,075
3,900 Tyson Food Inc Class A 87,750
20,700 Unilever ADR (a) 2,784,150
5,700 Universal Foods Corp 215,888
8,900 Whitman Corp 206,925
-------------------------
29,903,115
-------------------------
HEALTH CARE - 3.3%
57,900 Medtronic Inc 3,322,013
48,745 Pharmacia & Upjohn Inc 2,041,197
6,200 Rhone Poulenc Rorer Inc 396,800
1,800 Tambrands Inc 86,850
35,600 Tenet Healthcare Corp * 796,550
9,200 Wellpoint Health Networks Class A * 311,650
-------------------------
6,955,060
-------------------------
INSURANCE - 5.4%
2,200 Aetna Life and Casualty Co 166,375
2,800 AFLAC Corp (a) 129,850
2,500 Allmerica Property and Casualty 64,375
46,200 Allstate Corp 1,980,825
6,400 AMBAC Inc 308,800
14,300 AON Corp 743,600
3,800 Chubb Corp 369,075
10,700 Cigna Corp 1,267,950
1,100 CNA Financial Corp * 127,875
800 Jefferson Pilot Corp 44,500
19,200 Loews Corp 1,632,000
4,900 MBIA Inc 372,400
5,500 MGIC Investment 320,375
See accompanying notes to financial statements.
2
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE - CONTINUED
8,000 Old Republic International Corp 274,000
6,100 Provident Companies Inc 206,638
9,700 Providian Corp 448,625
7,700 Safeco Corp 279,125
21,300 St Paul Cos 1,206,113
15,200 Torchmark Corp 704,900
9,100 Transamerica Corp 685,913
800 Transatlantic Holdings Inc 56,200
6,600 Twentieth Century Industries * 111,375
-------------------------
11,500,889
-------------------------
MACHINERY - 0.5%
20,800 Dover Corp 925,600
1,400 FMC Corp * 102,200
-------------------------
1,027,800
-------------------------
MANUFACTURING - 4.3%
104,600 Boeing Co 8,485,675
4,400 Pall Corp 119,900
10,300 Snap-On Inc 460,925
-------------------------
9,066,500
-------------------------
OIL AND GAS - 3.8%
8,800 Amoco Corp 611,600
2,300 Atlantic Richfield Co 251,850
400 Chevron Corp 22,250
1,100 Columbia Gas Systems * 48,125
1,300 El Paso Natural Gas Co 43,875
42,700 Exxon Corp 3,394,650
200 FINA Inc Class A 9,625
10,100 Mobil Corp 1,107,213
10,700 Royal Dutch Petroleum Co ADR (a) 1,473,925
6,700 Texaco Inc 534,325
10,975 Williams Companies Inc 521,313
-------------------------
8,018,751
-------------------------
PAPER AND ALLIED PRODUCTS - 0.0%
500 Consolidated Papers Inc 25,563
3,200 Glatfelter (PH) Co 53,200
-------------------------
78,763
-------------------------
See accompanying notes to financial statements.
3
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 15.5%
45,600 Abbott Laboratories 1,903,800
35,900 American Home Products Corp 3,536,150
51,098 Amgen Inc 3,053,106
76,200 Bristol-Myers Squibb Co 6,486,525
108,000 Lilly (Eli) & Co 6,534,000
71,000 Merck & Co Inc 4,703,750
72,900 Pfizer Inc 4,802,288
26,300 Schering-Plough Corp (a) 1,476,088
2,700 Warner Lambert Co 266,963
-------------------------
32,762,670
-------------------------
PRINTING AND PUBLISHING - 0.6%
16,300 Dun and Bradstreet Corp 1,030,975
2,700 McGraw Hill Inc 235,913
1,300 Readers Digest Association Inc 62,238
-------------------------
1,329,126
-------------------------
RETAIL TRADE - 2.6%
7,100 American Stores Co 206,788
13,800 Circuit City Stores Inc 408,825
22,900 Dillard Department Stores 715,625
13,300 Fruit of the Loom Inc * 337,488
12,900 Gap Inc 691,763
23,300 May Dept Stores 1,086,363
24,300 Melville Corp 774,563
28,900 Rite Aid Corp (a) 910,350
11,900 Walgreen Co 392,700
2,500 Weismarkets Inc 74,063
-------------------------
5,598,528
-------------------------
SERVICES - 1.2%
2,400 BHC Communications Inc Class A * 221,700
1,300 E.W. Scripps Co. Class A * 54,600
4,000 Fleming Cos (a) 80,000
15,100 Gannett Co Inc 1,026,800
1,000 Kingworld Productions Inc * 41,875
5,200 Omnicom Group 212,550
10,900 Supervalu Inc 351,525
700 Total System Services Inc * 20,038
17,300 Turner Broadcasting Systems Inc Class B * 501,700
-------------------------
2,510,788
-------------------------
See accompanying notes to financial statements.
4
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY - 6.8%
21,000 3Com Corp 1,026,375
17,100 Apple Computer 470,250
6,400 Cabletron Systems Inc * 480,800
9,200 Cadence Design Systems Inc * 410,550
57,700 Cisco Systems Inc (a) 2,740,750
11,900 Dell Computer Corp 409,063
22,000 Digital Equipment Corp * 1,584,000
5,100 Hewlett-Packard Inc 513,825
34,200 Intel Corp 2,011,388
17,900 LSI Logic Corp 494,488
19,700 Microsoft Corp * 1,944,144
8,100 Novell Inc * 98,719
4,300 Seagate Technology * (a) 280,575
3,900 Solectron Corp 189,150
30,100 Sun Microsystems Inc 1,580,250
8,200 Vishay Intertechnology Inc 216,275
-------------------------
14,450,602
-------------------------
TELECOMMUNICATIONS - 7.2%
115,200 AT & T Corp 7,329,600
6,700 Cincinnati Bell Inc 219,425
83,100 GTE Corp 3,562,913
82,100 MCI Communications Corp * 2,401,425
37,600 Sprint Corp 1,616,800
-------------------------
15,130,163
-------------------------
TRANSPORTATION - 1.0%
25,900 Burlington Northern Santa Fe Railroad Co 2,071,976
-------------------------
UTILITIES - 14.0%
12,200 Allegheny Power System Inc 355,325
20,800 American Electric Power Inc (a) 891,800
20,100 Baltimore Gas and Electric Co 570,338
16,900 Carolina Power and Light Co 616,850
21,300 Centerior Energy Corp 178,388
25,100 Central & South West Corp 696,525
19,000 Cinergy Corp 567,625
8,400 CMS Energy Corp 255,150
36,500 Consolidated Edison 1,190,813
19,700 Dominion Resources Inc 778,150
12,400 DPL Inc 296,050
11,650 DQE 340,763
26,800 DTE Energy Company 954,750
See accompanying notes to financial statements.
5
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
UTILITIES - CONTINUED
28,300 Duke Power Co 1,383,163
73,600 Edison International * 1,288,000
11,200 Enova Corp 259,000
37,200 Entergy Corp 1,055,550
11,300 Florida Progress Corp 399,738
21,000 FPL Group Inc 937,125
20,700 General Public Utilities 690,863
28,700 Houston Industries Inc 649,338
11,400 Illinova Corp 324,900
7,200 Kansas City Power and Light Co 182,700
17,900 Long Island Lighting Co 313,250
7,700 New England Electric System (a) 297,413
13,100 New York State Electric and Gas Corp 309,488
22,700 Niagara Mohawk Power Corp 170,250
8,300 Nipsco Industries Inc (a) 313,325
19,400 Northeast Utilities 431,650
8,800 Northern States Power Co 433,400
20,100 Ohio Edison Co 477,375
4,000 Oklahoma Gas and Electric Co 165,000
10,100 Pacific Enterprises 270,175
68,100 Pacific Gas and Electric Co 1,745,063
34,800 PacifiCorp 722,100
15,100 Panhandle Eastern Corp 432,238
29,200 Peco Energy Co 824,900
12,900 Pinnacle West Capital Corp 366,038
12,300 Potomac Electric Power Co 324,413
16,500 PP&L Resources Inc 410,438
35,000 Public Service Enterprise Group Inc 984,375
8,200 Public Service of Colorado 289,050
4,700 Puget Sound Power and Light Co (a) 117,500
11,400 Scana Corp 313,500
73,600 Southern Co 1,757,200
13,500 Teco Energy 337,500
22,600 Texas Utilities Co 912,475
28,700 Unicom Corp 918,400
11,900 Union Electric Co 502,775
7,500 Western Resources Inc 240,000
14,200 Wisconsin Energy Corp 410,025
-------------------------
29,652,220
-------------------------
TOTAL STOCK (Cost $163,877,230) 200,963,515
-------------------------
See accompanying notes to financial statements.
6
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE ($)/
SHARES DESCRIPTION VALUE($)
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 13.6%
REPURCHASE AGREEMENTS - 6.4%
$ 2,888,352 Prudential Bache Securities, Inc. Repurchase Agreement
dated 2/29/96, due 3/1/96, with a maturity value of $2,888,743
and an effective yield of 4.87%, collateralized by a U.S.
Government Agency obligation with a rate of 8.00%
and maturity date of 4/1/23, and a market value
of $3,856,987. 2,888,352
$ 10,650,711 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/1/96, with a maturity value of $10,652,167 and an
effective yield of 4.92%, collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $10,850,905. 10,650,711
-------------------------
13,539,063
-------------------------
U.S. GOVERNMENT - 0.1%
$ 300,000 U.S. Treasury Bill, 5.41% due 5/30/96 (b) 296,340
-------------------------
CASH EQUIVALENTS - 7.1%
1,899,377 American Advantage Money Market Fund 1,899,377
$ 7,446,288 Bank of Boston Time Deposit, 6.26% due 3/1/96 7,446,288
$ 2,374,221 First Union National Bank Time Deposit, 5.44% due 3/1/96 2,374,221
$ 504,207 First Union National Bank Time Deposit, 5.50% due 3/1/96 504,207
2,740,007 Lehman Prime Value Money Market Fund 2,740,007
-------------------------
14,964,100
-------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $28,799,522) 28,799,503
-------------------------
TOTAL INVESTMENTS - 108.7%
(Cost $192,676,752) * * 229,763,018
Other Assets and Liabilities (net) - (8.7%) (18,444,302)
-------------------------
TOTAL NET ASSETS - 100.0% $ 211,318,716
=========================
See accompanying notes to financial statements.
7
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - (CONTINUED)
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------------------------
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 $193,142,835, resulting
in gross unrealized appreciation and
depreciation of $38,354,883 and $1,734,700,
respectively, and net unrealized appreciation
of $36,620,183.
</TABLE>
See accompanying notes to the financial statements.
8
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $192,676,752) (Note 1) $ 229,763,018
Receivable for investments sold 3,380,400
Dividends and interest receivable 503,044
Receivable for expenses waived or borne by Manager (Note 2) 17,558
---------------------
Total assets 233,664,020
---------------------
LIABILITIES:
Payable for investments purchased 6,529,338
Payable upon return of securities loaned (Note 1) 14,965,059
Payable for closed swap contracts (Note 1) 329,795
Payable for open swap contracts (Notes 1 and 6) 315,104
Payable for variation margin on open futures contracts 55,996
Payable to affiliate for management fee (Note 2) 83,395
Accrued expenses 66,617
---------------------
Total liabilities 22,345,304
---------------------
NET ASSETS (equivalent to $13.63 per share based on 15,503,866
shares outstanding, unlimited shares authorized) $ 211,318,716
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 141,122,078
Accumulated undistributed net investment income 774,923
Accumulated undistributed net realized gain 32,641,217
Net unrealized appreciation 36,780,498
=====================
NET ASSETS $ 211,318,716
=====================
</TABLE>
See accompanying notes to the financial statements.
9
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding taxes of $25,529) $ 5,849,216
Interest (including securities lending income of $12,921) 514,453
---------------------
Total income 6,363,669
---------------------
EXPENSES:
Management fee (Note 2) 1,134,431
Custodian and transfer agent fees 90,543
Audit fees 43,606
Legal fees 9,184
Insurance 2,142
Trustee fee (Note 2) 914
Registration fees 122
Miscellaneous 177
---------------------
Total expenses 1,281,119
Less: expenses waived or borne by Manager (Note 2) (169,840)
---------------------
Net expenses 1,111,279
---------------------
Net investment income 5,252,390
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 52,592,959
Closed futures contracts 465,647
Closed swap contracts (863,127)
---------------------
Net realized gain 52,195,479
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 18,966,628
Open futures contracts 2,720
Open swap contracts (315,104)
---------------------
Net unrealized gain 18,654,244
---------------------
Net realized and unrealized gain 70,849,723
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 76,102,113
=====================
</TABLE>
See accompanying notes to the financial statements.
10
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 5,252,390 $ 4,975,763
Net realized gain 52,195,479 8,878,913
Change in net unrealized appreciation (depreciation) 18,654,244 925,826
--------------------- ---------------------
Net increase in net assets resulting from operations 76,102,113 14,780,502
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (5,069,167) (4,670,650)
Net realized gains (19,784,233) (12,614,921)
--------------------- ---------------------
(24,853,400) (17,285,571)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 23,582,604 47,339,037
Net asset value of shares issued to shareholders
in payment of distributions declared 10,007,238 5,887,140
Cost of shares repurchased (80,810,937) (10,457,780)
--------------------- ---------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (47,221,095) 42,768,397
--------------------- ---------------------
Total increase in net assets 4,027,618 40,263,328
NET ASSETS:
Beginning of period 207,291,098 167,027,770
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $774,923 and
$918,110, respectively) $ 211,318,716 $ 207,291,098
===================== =====================
</TABLE>
See accompanying notes to the financial statements.
11
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 28/29,
------------------------------------------------------------------------
1996 1995 1994 1993*
---- ---- ---- -----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 11.26 $ 10.38 $ 10.00
------------ ------------ ------------ ------------
Income from investment operations:
Net investment income (a) 0.29 0.28 0.29 0.05
Net realized and unrealized gain 3.90 0.49 1.21 0.33
------------ ------------ ------------ ------------
Total from investment operations 4.19 0.77 1.50 0.38
------------ ------------ ------------ ------------
Less distributions to shareholders:
From net investment income (0.29) (0.27) (0.30) -
From net realized gains (1.33) (0.70) (0.32) -
------------ ------------ ------------ ------------
Total distributions (1.62) (0.97) (0.62) -
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 13.63 $ 11.06 $ 11.26 $ 10.38
============ ============ ============ ============
TOTAL RETURN (B) 38.90% 7.56% 14.64% 3.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 211,319 $ 207,291 $ 167,028 $ 169,208
Net expenses to average
daily net assets (a) 0.48% 0.48% 0.48% 0.48%**
Net investment income to average
daily net assets (a) 2.27% 2.61% 2.56% 3.20%**
Portfolio turnover rate 84% 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
per share 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.
12
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. (the "Manager"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares.
The Fund seeks a total return greater than that of the Standard & Poors 500
Stock Index 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.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
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 specified
price at a given date. The Fund may use futures contracts to manage its
exposure to the stock markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in 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
13
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29,
1996.
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 29, 1996, the Fund
loaned securities having a market value of $14,409,350, collateralized by
cash in the amount of $14,964,100 which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. 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 the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform, or that there may be unfavorable changes in the
price of the security or index underlying these transactions. See Note 6
for a summary of all open swap agreements as of February 29, 1996.
14
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign dividend income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 29, 1996. 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>
($326,410) $326,002 $408
</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 and is adjusted for the accretion of discounts. In
determining the net gain or loss on securities sold, the cost of securities
is determined on the identified cost basis.
15
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund received $25,353 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 29, 1996, was $914. 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 29, 1996, aggregated
$183,314,202 and $225,509,383, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 80% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
16
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
--------------------------- ----------------------------
<S> <C> <C>
Shares sold 1,735,802 4,299,814
Shares issued to shareholders in
reinvestment of distributions 767,911 561,797
Shares repurchased (5,734,152) (957,241)
---------- --------
Net increase (decrease) (3,230,439) 3,904,370
Fund shares:
Beginning of period 18,734,305 14,829,935
---------- ----------
End of period 15,503,866 18,734,305
========== ==========
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FUTURES CONTRACT
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Appreciation
- ---------------------- ----------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
23 S&P 500 March 1996 $ 7,339,875 $ 9,336
</TABLE>
At February 29, 1996, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
17
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION DATE UNREALIZED
AMOUNT DESCRIPTION DEPRECIATION
----------------- ---------------- -------------------------------------------------------- ------------------
<S> <C> <C> <C>
$ 5,276,572 (a) 10/31/96 Agreement with Morgan Stanley & Co. International
Limited dated 10/31/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.42%. $
(308,963)
9,128,308 (b) 12/24/96 Agreement with Morgan Stanley & Co. International
Limited dated 12/26/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.61%.
(6,141)
------------------
Net unrealized depreciation $ (315,104)
==================
(a) Represents notional amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $5,010,035.
(b) Represents notional amount for purposes of calculating the Fund's
obligation. The counterparty notional amount is $9,143,224.
</TABLE>
* * *
18
GMO U.S. SECTOR ALLOCATION FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 39.61% of distributions as net capital gain dividends.
GMO U.S. SECTOR ALLOCATION FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Christopher Darnell are primarily responsible for
the day-to-day management of the Fund's portfolio. Each of these individuals has
been a portfolio manager at Grantham, Mayo, Van Otterloo & Co. for more than
fifteen years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Sector Allocation Fund outperformed the S&P 500 for the fiscal year
ended February 29, 1996, with a total return of 38.9% for the Fund versus 34.7%
for the S&P 500. Consistent with the Fund's investment objective and policies,
the Fund was invested substantially in common stocks throughout the period.
During the fiscal year, GMO's stock selection model tended to overweight high
quality, defensive stocks and underweight bank and telephone stocks. The Fund's
holdings of large capitalization stocks added significantly to performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO U.S. SECTOR ALLOCATION FUND AND THE S & P 500 INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 12/31/92
38.7% N/A 19.9%
[Line Graph Appears Here]
Date GMO U.S. Sector Allocation Fund S & P 500 Index
12/31/92 9,983 10,000
02/28/93 10,362 10,221
02/28/94 11,879 11,072
02/28/95 12,777 11,887
02/29/96 17,748 16,012
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 17 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 23, 1996
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 89.2%
ARGENTINA - 2.7%
AGP 4,000,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, due 4/1/07 (a) 2,760,000
USD 3,000,000 Republic of Argentina Bocon Pro 2, PIK,
Variable Rate, 1 mo. LIBOR, due 4/1/07 2,400,000
--------------------
5,160,000
--------------------
AUSTRIA - 3.1%
CAD 7,000,000 Autobahn Schnell, 8.50% due 3/3/03 5,332,410
ATS 7,030,000 Republic of Austria, 7.00% due 2/14/00 719,826
--------------------
6,052,236
--------------------
BRAZIL - 3.0%
USD 3,231,731 Republic of Brazil Capitalization Bond (Registered),
PIK, 8.00% due 4/15/14 1,949,122
USD 6,463,453 Republic of Brazil Capitalization Bond,
PIK, 8.00% due 4/15/14 3,898,238
--------------------
5,847,360
--------------------
BULGARIA - 0.3%
USD 1,000,000 Bulgaria Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + 13/16 (6.25%), due 7/28/24 506,250
--------------------
CANADA - 6.9%
CAD 2,244,000 Government of Canada, 6.50% due 6/1/04 1,539,294
CAD 3,050,000 Government of Canada, 8.50% due 3/01/00 2,366,763
CAD 2,000,000 Province of British Columbia, 7.88% due 11/30/23 1,337,659
GBP 3,000,000 Province of Ontario, 6.88% due 9/15/00 4,434,252
CAD 5,000,000 Societe Quebec D'Ass D'Eaux, 8.13% due 8/11/03 3,617,510
--------------------
13,295,478
--------------------
DENMARK - 6.3%
DKK 65,000,000 Kingdom of Denmark, 8.00% due 11/15/01 12,124,910
--------------------
ECUADOR - 0.2%
USD 1,041,447 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR + 13/16 (6.81%), due 2/27/15 412,673
--------------------
FRANCE - 11.5%
SEK 20,000,000 Credit Foncier, 6.50% due 2/22/99 2,724,108
ECU 7,000,000 Government of France, 8.25% due 4/25/22 9,017,344
ECU 7,500,000 Societe Nationale Chemins de France, 9.38% due 3/12/01 10,468,133
--------------------
22,209,585
--------------------
GERMANY - 1.1%
JPY 200,000,000 KFW International Finance, 6.00% due 11/29/99 2,149,853
--------------------
See accompanying notes to financial statements.
1
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
JAPAN - 4.8%
JPY 400,000,000 Japan Development Bank, 6.50% due 9/20/01 4,501,284
GBP 3,000,000 Kobe City, 9.50% due 10/20/04 4,898,115
--------------------
9,399,399
--------------------
JORDAN - 0.9%
USD 2,000,000 Republic of Jordan Par Bond,
Variable Rate, Step up, 4.00%, due 12/23/23 144A 1,040,000
USD 1,000,000 Republic of Jordan PDI,
Variable Rate, 6 mo. LIBOR + 13/16 (6.44%), due 12/23/05 780,000
--------------------
1,820,000
--------------------
MEXICO - 1.6%
FRF 30,000,000 Mexico Par Bond, 6.63% due 12/31/19 3,085,084
--------------------
SOUTH AFRICA - 1.0%
SAR 8,000,000 Republic of South Africa, 13.00% due 8/31/10 1,848,889
--------------------
SPAIN - 7.7%
ESP 650,000,000 Government of Spain, 10.25% due 11/30/98 5,439,258
ESP 499,650,000 Government of Spain, 7.40% due 7/30/99 3,877,416
ESP 650,000,000 Government of Spain, 10.90% due 8/30/03 5,622,090
--------------------
14,938,764
--------------------
SUPRANATIONAL - 2.0%
SEK 10,000,000 International Finance Corp, 10.63% due 9/20/99 1,608,569
JPY 200,000,000 World Bank, 6.75% due 6/18/01 2,267,757
--------------------
3,876,326
--------------------
SWEDEN - 5.4%
SEK 60,000,000 Kingdom of Sweden, 10.25% due 5/5/00 9,621,191
SEK 7,000,000 Kingdom of Sweden, 6.00% due 2/9/05 861,143
--------------------
10,482,334
--------------------
TURKEY - 0.4%
GBP 600,000 Republic of Turkey, 9.00% due 10/27/03 799,130
--------------------
UNITED KINGDOM - 1.9%
GBP 2,000,000 Guaranteed Export Financial Corp, 12.88% due 9/29/02 3,784,385
--------------------
UNITED STATES - 27.3%
ASSET BACKED SECURITIES - 26.7%
USD 10,050,000 Advanta Credit Card Master Trust 95-D Class A1,
Variable Rate, 1 mo. LIBOR + 19/100 (5.50%), due 2/1/04 10,054,711
USD 10,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + 1/4 (6.20%), due 10/3/01 10,000,000
USD 5,000,000 European Sovereign Investments,
Variable Rate, 3 mo. LIBOR + 1/10 (5.35%), due 7/28/99 4,990,000
USD 1,500,000 First International Funding Co,
Variable Rate, 3 mo. LIBOR + 11/20 (6.43%), due 6/3/98 1,507,950
USD 2,500,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + 37/100 (5.68%), due 8/15/03 2,520,148
See accompanying notes to financial statements.
2
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES - CONTINUED
USD 9,000,000 Nation Premier Finance 95-2, 6.21% due 6/1/99 144A 8,955,000
USD 4,000,000 PARMA Food Corp BV,
Variable Rate, 3 mo. LIBOR + 1/4 (6.06%), due 12/20/00 3,995,000
USD 1,000,000 Potomac Mills Finance Corp,
Variable Rate, 1 mo. LIBOR + 13/20 (5.96%), due 10/20/04 144A 998,500
USD 3,766,000 SMS Student Loan 94-A Certificates,
Variable Rate, 1 mo. LIBOR + 7/10 (6.51%), due 7/26/21 3,770,708
USD 5,000,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR + 3/4 (6.56%), due 7/25/03 5,006,313
--------------------
51,798,330
--------------------
STRUCTURED NOTES - 0.6%
USD 1,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (c) 1,123,000
--------------------
TOTAL UNITED STATES 52,921,330
--------------------
VENEZUELA - 1.1%
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + 13/16 (6.69%), due 3/31/20 1,110,000
USD 2,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 13/16 (6.56%), due 3/31/20 1,110,000
--------------------
2,220,000
--------------------
TOTAL DEBT OBLIGATIONS (Cost $166,358,367) 172,933,986
--------------------
LOAN PARTICIPATIONS - 1.4%
IVORY COAST - 0.3%
FRF 15,000,000 Ivory Coast Credit Agreement
(Participation with Banque Paribas)* 565,667
--------------------
RUSSIA - 1.1%
ECU 1,000,000 Russia Vnesheconombank Loan Agreement
(Participation with Bank of America)* 421,430
FRF 25,000,000 Russia Vnesheconombank Loan Agreement
(Participation with Banque Paribas)* 1,662,267
--------------------
2,083,697
--------------------
TOTAL LOAN PARTICIPATIONS (Cost $2,513,026) 2,649,364
--------------------
PRINCIPAL
AMOUNT
(000's ommitted) CALL OPTIONS PURCHASED - 1.7%
OPTIONS ON BONDS - 0.6%
USD 11,000 Brazil Par Bond,
Expires 4/10/96 Knock Out 40.00, Strike 40.00 1,116,896
--------------------
See accompanying notes to financial statements.
3
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000's ommitted)
CROSS CURRENCY OPTIONS - 0.9%
DEM 30,000 DEM Call/BEF Put, Expires 3/4/96 Strike 21.50 -
ECU 10,000 ECU Call/DEM Put,
Expires 7/25/96 Knock Out 1.81, Strike 1.83 154,482
ECU 50,000 ECU Call/DEM Put,
Expires 7/25/96 Knock Out 1.81, Strike 1.82 974,321
DEM 82,350 ECU Call/DEM Put,
Expires 6/13/96 Knock Out 1.82, Strike 1.83 657,813
--------------------
1,786,616
--------------------
OPTION ON CURRENCY - 0.2%
USD 12,000 French Francs, Expires 5/28/96 Strike 5.17 418,920
--------------------
TOTAL CALL OPTIONS PURCHASED (Cost $2,520,232) 3,322,432
--------------------
PUT OPTIONS PURCHASED - 3.6%
OPTIONS ON BONDS - 0.1%
USD 4,650 Brazil IDU Brady Bond, Expires 3/21/96 Strike 81.875 -
USD 4,650 Brazil IDU Brady Bond, Expires 3/7/96 Strike 81.75 -
USD 4,650 Brazil IDU Brady Bond, Expires 4/8/96 Strike 82.94 897
USD 5,580 Brazil IDU Brady Bond, Expires 5/16/96 Strike 86.81 56,955
USD 2,790 Brazil IDU Brady Bond, Expires 5/24/96 Strike 87.13 34,864
USD 1,860 Brazil IDU Brady Bond, Expires 5/24/96 Strike 87.38 25,601
--------------------
118,317
--------------------
OPTIONS ON CURRENCY - 3.5%
USD 12,000 French Francs, Expires 5/28/96 Strike 5.17 86,640
JPY 2,000,000 Japanese Yen, Expires 4/18/96 Strike 86.00 4,057,820
JPY 2,000,000 Japanese Yen, Expires 4/29/96 Strike 92.00 2,530,760
USD 30,000 Japanese Yen, Expires 9/13/96 Strike 120.00 62,700
--------------------
6,737,920
--------------------
OPTION ON FUTURES - 0.0%
JPY 750 3 mo. Euro Yen Future, Expires 3/19/96 Strike 99.25 64,182
--------------------
TOTAL PUT OPTIONS PURCHASED (Cost $1,510,713) 6,920,419
--------------------
SHARES RIGHTS AND WARRANTS - 0.0%
VENEZUELA - 0.0%
19,280 Republic of Venezuela Recovery Warrants,
Expires 4/15/20 -
--------------------
TOTAL RIGHTS AND WARRANTS (Cost $0) -
--------------------
See accompanying notes to financial statements.
4
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------
PAR VALUE ($)/ SHORT-TERM INVESTMENTS - 3.3%
SHARES REPURCHASE AGREEMENT - 1.1%
$ 2,284,487 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/01/96, with a maturity value of $2,284,799 and an
effective yield of 4.92%, collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
with maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $2,327,427. 2,284,487
--------------------
U.S. GOVERNMENT - 1.0%
$ 2,000,000 U.S. Treasury Bill, 4.82% due 1/9/97 (b) 1,914,172
--------------------
CASH EQUIVALENTS - 1.2%
306,057 American Advantage Money Market Fund 306,057
$ 1,199,862 Bank of Boston Time Deposit, 6.26% due 3/1/96 1,199,862
$ 382,572 First Union National Bank Time Deposit, 5.44% due 3/1/96 382,572
$ 81,246 First Union National Bank Time Deposit, 5.50% due 3/1/96 81,246
441,513 Lehman Prime Value Money Market Fund 441,513
--------------------
2,411,250
--------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $6,611,655) 6,609,909
--------------------
TOTAL INVESTMENTS - 99.2%
(Cost $179,513,993) * * 192,436,110
Other Assets and Liabilities (net) - 0.8% 1,484,206
--------------------
TOTAL NET ASSETS - 100.0% 193,920,316
====================
See accompanying notes to financial statements.
5
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
PIK - Payment In Kind.
PDI - Past Due Interest.
Knock Out - Option will expire if underlying
security reaches Knock Out price.
144A - Securities exempt from
registration under Rule 144A of the
Securities Act of 1933. These
securities may be resold in
transactions exempt from
registration, normally to qualified
institutional buyers.
Variable and Step up rates - The rates shown
on variable and step up rate notes
are the current interest rates at
February 29, 1996, which are subject
to change based on the terms of the
security.
(a) All or a portion of this security is on loan.
(b) All or a portion of 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. Restricted as to
public resale. At the date of
acquisition, this security was valued at
cost. There were no outstanding
unrestricted securities of the same
class as those held.
* Non-performing. Borrower not currently paying interest.
** The aggregate identified cost for federal income tax purposes is $179,513,993,
resulting in gross unrealized appreciation and depreciation of $14,820,507
and $1,898,390, respectively, and net unrealized appreciation of $12,922,117.
CURRENCY ABBREVIATIONS
AGP - Argentinian Peso ESP - Spanish Peseta
ATS - Austrian Schilling FRF - French Franc
AUD - Austrailian Dollar GBP - British Pound Sterling
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc NLG - Netherlands Guilder
DEM - German Mark SAR - South African Rand
DKK - Danish Krone SEK - Swedish Krona
ECU - European Currency Unit USD - United States Dollar
</TABLE>
See accompanying notes to the financial statements.
6
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $179,513,993) (Note 1) $ 192,436,110
Foreign currency, at value (cost $588,830) (Note 1) 582,285
Receivable for investments sold 2,452,822
Interest receivable 5,548,537
Receivable for open forward foreign currency contracts (Note 6) 4,399,707
Receivable for expenses waived or borne by Manager (Note 2) 35,970
---------------------
Total assets 205,455,431
---------------------
LIABILITIES:
Payable for investments purchased 2,863,675
Written options outstanding, at value (premiums $1,163,925) (Note 6) 363,700
Payable upon return of securities loaned (Note 1) 2,410,897
Payable for open forward foreign currency contracts (Note 6) 5,718,659
Payable to broker for open futures contracts 16,796
Payable to affiliate for management fee (Note 2) 61,214
Accrued expenses 100,174
---------------------
Total liabilities 11,535,115
---------------------
NET ASSETS (equivalent to $10.92 per share based
on 17,765,600 shares outstanding, unlimited shares authorized) $ 193,920,316
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 174,300,100
Accumulated undistributed net investment income 4,884,754
Accumulated undistributed net realized gain 1,966,474
Net unrealized appreciation 12,768,988
=====================
NET ASSETS $ 193,920,316
=====================
</TABLE>
See accompanying notes to the financial statements.
7
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $6,596) $ 16,699,901
---------------------
EXPENSES:
Management fee (Note 2) 779,352
Custodian and transfer agent fees 163,336
Audit fees 57,864
Legal fees 18,083
Registration fees 15,052
Insurance 1,762
Trustee fee (Note 2) 794
Miscellaneous 767
---------------------
Total expenses 1,037,010
Less: expenses waived or borne by Manager (Note 2) (257,658)
---------------------
Net expenses 779,352
---------------------
Net investment income 15,920,549
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 8,330,635
Closed futures contracts 8,851,737
Written options 1,657,418
Foreign currency, forward contracts and foreign
currency related transactions (12,207,210)
---------------------
Net realized gain 6,632,580
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 15,361,557
Open futures contracts 279,623
Written options 907,125
Foreign currency, forward contracts and foreign
currency related transactions (2,225,785)
---------------------
Net unrealized gain 14,322,520
---------------------
Net realized and unrealized gain 20,955,100
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 36,875,649
=====================
</TABLE>
See accompanying notes to the financial statements.
8
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- -----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 15,920,549 $ 6,486,357
Net realized gain 6,632,580 3,431,159
Change in net unrealized appreciation (depreciation) 14,322,520 (1,159,762)
--------------------- ---------------------
Net increase in net assets resulting from operations 36,875,649 8,757,754
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (10,442,087) (6,618,737)
Net realized gains (5,446,434) (3,028,602)
--------------------- ---------------------
(15,888,521) (9,647,339)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 129,800,791 137,180,193
Net asset value of shares issued to shareholders
in payment of distributions declared 11,864,446 6,467,224
Cost of shares repurchased (119,921,420) (31,018,305)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 21,743,817 112,629,112
--------------------- ---------------------
Total increase in net assets 42,730,945 111,739,527
NET ASSETS:
Beginning of period 151,189,371 39,449,844
---------------------
---------------------
End of period (including accumulated undistributed
net investment income of $4,884,754 and
$3,765,102, respectively) $ 193,920,316 $ 151,189,371
===================== =====================
</TABLE>
See accompanying notes to the financial statements.
9
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28/29,
---------------------------------------------------------------
1996 1995 1994*
---- ---- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 9.96 $ 10.00
------------ ------------- ------------
Income from investment operations:
Net investment income (a) 0.62 0.98 0.08
Net realized and unrealized gain (loss) 1.55 (0.21) (0.12)
------------ ------------- ------------
Total from investment operations 2.17 0.77 (0.04)
------------ ------------- ------------
Less distributions to shareholders:
From net investment income (0.59) (0.75) -
From net realized gains (0.30) (0.34) -
------------ ------------ -------------
Total distributions (0.89) (1.09) -
------------ ------------- ------------
NET ASSET VALUE, END OF PERIOD $ 10.92 $ 9.64 $ 9.96
============ ============= ============
TOTAL RETURN (B) 22.72% 8.23% (0.40%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 193,920 $ 151,189 $ 39,450
Net expenses to average
daily net assets (a) 0.40% 0.40% 0.40%**
Net investment income to average
daily net assets (a) 8.17% 7.51% 5.34%**
Portfolio turnover rate 99% 141% 14%
* Period from December 22, 1993 (commencement of operations) to February 28,
1994.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of the
following per share amounts: $ 0.01 $ 0.02 $ 0.01
(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.
10
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the international fixed income securities
market.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 29, 1996, the
total value of these securities represented 15.45 % of net assets. These
prices may differ from the value that would have been used had a broader
market for the securities existed and the differences could be material to
the financial statements.
11
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 29, 1996.
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
12
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996.
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 29, 1996.
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 direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
13
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling to pay the principal and interest when
due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
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 29, 1996, the Fund loaned securities
having a market value of $2,070,000, collateralized by cash in the amount
of $2,411,250, which was invested in short-term instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest have been withheld in accordance with
the applicable country's tax treaty with the United States.
14
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's present policy is to declare and pay distributions from net
investment income semi-annually, and from net realized short-term and
long-term capital gains at least annually. All distributions will be paid
in shares of the Fund, at net asset value, unless the shareholder elects to
receive cash distributions.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions, futures, options,
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 29, 1996. 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>
($4,358,810) $4,121,725 $237,085
</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, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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.
15
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund received $148,860 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
The Manager 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
(including management but excluding brokerage commissions and transfer
taxes) 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 29, 1996, was $794. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ - $ 3,037,500
Investments (non-U.S. Government securities) 201,534,443 173,130,703
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 52% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
16
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
-------------------------- -------------------------
<S> <C> <C>
Shares sold 11,762,649 14,201,980
Shares issued to shareholders in
reinvestment of distributions 1,091,175 698,838
Shares repurchased (10,775,703) (3,171,314)
----------- ----------
Net increase 2,078,121 11,727,504
Fund shares:
Beginning of period 15,687,479 3,959,975
---------- ---------
End of period 17,765,600 15,687,479
========== ==========
</TABLE>
17
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement In Exchange for Appreciation
Date Deliver/Receive Units of Currency (U.S.dollars) (Depreciation)
--------------- ----------------------------- ---------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Sales
3/7/96 AGP 4,500,000 $ 4,492,363 $ (5,883)
3/22/96 AGP 9,000,000 8,984,726 (2,333)
5/28/96 AGP 2,000,000 1,991,040 11,463
5/13/96 AUD 13,000,000 9,769,630 (127,184)
4/2/96 CAD 26,000,000 19,028,839 75,583
5/15/96 DEM 12,000,000 8,196,478 (1,827)
3/1/96 GBP 261,336 400,079 10
4/3/96 GBP 29,000,000 44,224,470 (133,910)
3/26/96 JPY 4,300,000,000 41,375,397 347,550
-------------------
$ 163,469
===================
Buys
5/13/96 AUD 8,000,000 $ 6,045,200 $ 45,147
4/2/96 CAD 15,000,000 10,925,506 9,065
5/15/96 DEM 43,000,000 29,631,073 (253,815)
4/3/96 GBP 28,000,000 43,221,920 (393,139)
3/26/96 JPY 12,600,000,000 123,391,608 (3,170,477)
5/2/96 ECU 43,500,000 53,768,175 1,015,377
-------------------
$ (2,747,842)
===================
</TABLE>
18
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Settlement (Depreciation)
Date Deliver/Units of Currency Receive/In Exchange for
-------------- ----------------------------------- ------------------------------------- -----------------
<S> <C> <C> <C>
3/20/96 BEF 638,817,500 ECU 17,000,000 $ 228,790
4/29/96 CHF 35,734,290 DEM 44,000,000 34,247
3/1/96 DEM 15,000,000 NLG 16,795,200 625
3/12/96 DEM 89,000,000 ITL 97,900,448,000 2,190,730
3/29/96 DEM 35,000,000 FRF 120,415,575 68,888
4/9/96 DEM 15,000,000 ECU 8,164,465 49,573
4/10/96 DEM 31,000,000 SEK 143,562,170 70,125
4/16/96 DEM 58,000,000 ESP 4,935,930,000 148,311
4/29/96 DEM 40,000,000 CHF 32,458,950 (53,609)
5/6/96 DKK 104,719,500 DEM 27,000,000 (29,728)
4/16/96 ESP 1,964,840,000 DEM 23,000,000 (119,064)
3/29/96 FRF 34,417,250 DEM 10,000,000 (22,225)
5/6/96 FRF 126,172,000 ECU 20,000,000 101,840
3/12/96 ITL 31,571,760,000 DEM 29,000,000 (503,227)
3/1/96 NLG 16,790,250 DEM 15,000,000 2,383
6/3/96 NLG 16,786,500 DEM 15,000,000 (738)
4/10/96 SEK 155,208,700 DEM 33,000,000 (426,933)
4/9/96 ECU 35,000,000 DEM 63,918,750 (474,567)
-----------------
$ 1,265,421
=================
</TABLE>
19
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net
Number Unrealized
of Type Expiration Contract Appreciation
Contracts Date Value (Depreciation)
-------------- ---------------------------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Buys
115 Australian Government Bond
10 year March 1996 $ 10,400,920 $ (221,846)
37 Canadian Government Bond June 1996 2,923,124 (4,767)
84 Spanish Government Bond 10 Year June 1996 6,564,216 39,578
76 German Government Bond June 1996 12,599,840 10,851
82 Italian Government Bond
10 Year June 1996 11,602,666 62,317
17 Japanese Government Bond 10 Year June 1996 18,961,495 18,051
95 MATIF ECU Bond June 1996 10,626,151 18,412
10 U.K. Gilt June 1996 814,583 (8,469)
-------------------
$ (85,873)
===================
Sales
60 Euro Dollar June 1996 14,215,500 $ 49,050
22 French Government Bond June 1996 2,666,921 13,143
200 Japanese Yen March 1996 49,067,435 86,868
39 Swiss Government Bond March 1996 3,845,882 32,087
27 Swiss Government Bond June 1996 2,533,629 (7,096)
50 U.S. Treasury Note March 1996 5,573,438 137,125
50 U.S. Treasury Bill June 1996 11,902,500 15,875
12 U.S. Treasury Bond March 1996 1,378,125 64,410
59 U.S. Treasury Bond June 1996 6,744,438 38,839
-------------------
$ 430,301
===================
</TABLE>
At February 29, 1996, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
20
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
WRITTEN OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Puts Calls
Premiums Premiums
----------------- ------------------
<S> <C> <C>
Outstanding, beginning of period $ 167,576 $ 186,584
----------------- ------------------
Options written 1,163,896 2,093,670
Options terminated in closing
transactions (199,180) (674,830)
Options expired (728,292) (845,499)
----------------- ------------------
Outstanding, end of period $ 404,000 $ 759,925
================= ==================
</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
Brazil Par Bond Call 10,000 USD 60.00 USD 4/10/96 $ 660
Japanese Yen Call 2,000,000 JPY 68.00 JPY 4/29/96 --
Swiss Franc Call 8,000 CHF 1.174 CHF 5/28/96 131,360
---------------
$ 132,020
===============
PUTS
Swiss Franc Put 8,000 CHF 1.174 CHF 5/28/96 231,680
---------------
$ 231,680
===============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
* * *
21
GMO INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 4.69% of distributions as net capital gains dividends.
GMO INTERNATIONAL BOND FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily
responsible for the day-to-day management of the Fund's portfolio. Both
individuals joined Grantham, Mayo, Van Otterloo & Co. in this capacity in
October of 1993.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO International Bond Fund outperformed the J.P. Morgan Non-U.S.
Government Index for the period ending February 29, 1996, with a total return of
22.7% for the period versus 12.9% for the J.P. Morgan Non-U.S. Government Index.
For the fiscal year ending February 29, 1996, European bond markets produced
stellar performances as they reversed the poor showings of fiscal 1995. This
happened in an environment of steepening yield curves and falling yields as the
European monetary policy eased across the board. GMO's bond and currency models
performed well over the year, with the Fund well ahead of its benchmark for the
majority of the period. During the year the Fund overweighted Italian and
Spanish bonds and currencies and underweighted the Belgian Franc and Japanese
Yen.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO INTERNATIONAL BOND FUND AND THE J.P. MORGAN NON-U.S. GOVERNMENT BOND INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 12/22/93
22.4% N/A 13.5%
[Line Graph Appears Here]
Date GMO International Bond Fund J.P. Morgan Non-U.S. Government Bond Index
12/22/93 9,985 10,000
02/28/94 9,945 9,881
02/28/95 10,763 10,872
02/29/96 13,197 12,339
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 17, 1996
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK AND EQUIVALENTS - 92.0%
ARGENTINA - 3.4%
<S> <C> <C>
6,446,978 Acindar Industria Argentina de Aceros SA Class A * 3,836,527
7,031,520 Alpargatas SA * 3,340,473
749,900 Astra Cia Argentina 1,290,022
731,815 Atanor Cia Naci * 1,537,042
10,199,657 Cia Celulosa Argentina SA Class B * 2,652,309
858,557 Ciadea SA (Bearer) * 3,864,084
172,954 Corcemar Class B * 709,218
83,622 Fiplasto Class B * 267,631
194,381 Garovaglio Y Zorraquin * 709,597
1,874,900 Indupa SA Industrial y Comercial * 806,328
327,321 Juan Minetti SA 1,260,375
1,823,160 Ledesma SA 2,461,635
67,983 Pirelli Cables Industria * 121,028
688,358 Polledo * 382,096
472,950 Quimica Estrella Class B * 328,750
468,308 Rigolleau Christalerias Preferred * 224,822
6,679,418 Siderca 6,613,616
15,703 YPF Sociedad Anonima ADR 304,246
---------------------
30,709,799
---------------------
BRAZIL - 13.1%
65,000,000 Acesita Cia Acos Espec Preferred 422,442
6,191,000 Acos Villares SA Preferred 2,514,813
1,420,000 Alpargatas de Sao Paulo 158,605
15,160,000 Alpargatas Preferred 1,754,696
1,860,000 Aracruz Cellulose Class B Preferred 2,606,550
170,000,000 Avipal SA 345,265
199,446,000 Banco de Brasil SA Preferred * 2,774,725
354,319,000 Banco Estado Sao Paulo Preferred * 1,745,059
2,380,000 Banco Itau SA Preferred 886,987
148,940,000 Banco Nacional Preferred 1,512
11,970,000 Belgo Mineira Preferred (Registered) 705,011
4,400,000 Belgo Mineira (Registered) 294,897
58,500,000 Bombril SA Preferred * 1,128,713
2,319,000 Brasinca Industrial SA Preferred 270,815
7,802,000 Caemi Mineracao e Metalurgica SA Preferred 316,913
359,200,000 Cemig Preferred 9,119,066
1,450,000 Centrais Electric Preferred Class B * 912,922
122,100,000 Cia Energetica de Sao Paulo SA Preferred (Registered) * 4,166,093
167,700,000 Cia Hering Preferred (Registered) 860,000
1,770,000 Cimento Port Itau Preferred (Registered) 505,989
See accompanying notes to the financial statements. 1
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
BRAZIL - CONTINUED
51,400 Cofap Cia Fabricadora Pecas Preferred * 274,029
75,000,000 Companhia Paranaense * 604,722
11,256,000 Copene-Petroquimica do Nordeste SA Class A Preferred 6,080,926
6,700,000 Duratex Preferred 323,723
73,553,771 Electrobras Class B Preferred (Registered) 20,465,837
9,800,000 Electrobras Ordinary 2,706,880
493,750 Industries Klabin Papel E Celulose Preferred 451,257
1,300,000 Iochpe Maxion Preferred 224,422
170,000,000 Iparanga Brasil De Petroleo Preferred 1,778,116
42,420,000 Mesbla Preferred (Registered) * 689,231
13,600,000 Metal Leve Industry Preferred 2.50% (Registered) 179,538
335,746,000 Olvebra Preferred * 95,465
141,700,000 Paranapanema Preferred SA 1,697,954
52,000,000 Petrobras Dis 1,716,172
78,500,000 Petroleo Brasileiro SA Preferred 8,728,865
350,000,000 Sharp SA Equipment Electronicos Preferred * 330,541
56,700,000 Siderurgica de Nacional 1,520,061
308,400,000 Siderurgica de Tubarao Preferred Series B 6,106,931
64,700,000 Siderurgica Riograndense Preferred (Registered) 1,051,231
16,000 Telecomunicacoes Brasileiras SA ADR 840,000
410,031,000 Telecomunicacoes Brasileiras SA Ordinary 17,279,804
117,200,000 Telecomunicacoes Brasileiras SA Preferred 6,117,370
249,222 Telecomunicacoes de Sao Paulo SA Preferred 41,252
3,248,722 Unipar Preferred 3,101,090
2,927,400,000 Usiminas Preferred 3,180,816
602,000 Varig Preferred (Registered) * 1,711,703
1,000,000 Weg Preferred (Registered) 501,650
---------------------
119,290,659
---------------------
CHILE - 1.4%
79,200 Chilquinta Sponsored ADR 144A 1,227,600
29,500 Cia De Telecomunicac Chile ADR 2,441,125
77,200 Conchatoro (Vina De Concha) 1,254,500
62,200 Embotelladora Adina Sponsored ADR 2,239,200
9,000 Empresa Natl De Electricidad ADR 180,000
95,300 Maderas Y Sinteticos Soc ADR 1,917,913
53,800 Soc Quinica Y Min De Chile ADR 2,730,350
54,300 Telex Chile Sponsored ADR 468,338
---------------------
12,459,026
---------------------
2 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CHINA - 1.1%
1,982,000 Chengdu Telecom Cable Series H 402,489
866,650 China First Pencil Series B 348,393
1,530,000 Dongfang Electrical Machinery Series H * 455,166
3,702,000 Harbin Power Equipment Series H 737,407
7,316,000 Maanshan Iron & Steel Series H 1,305,879
2,420,000 Northeast Electrical Transmission &
Transformation Machinery Manufacturing Company Ltd Series H * 453,872
4,188,000 Qingling Motor Co Ltd Series H 1,300,074
1,172,900 Shanghai Chlor-Alkali Chemical Co Series B 300,262
3,539,990 Shanghai Erfangji Textile Machinery Co Ltd Series B * 509,759
434,160 Shanghai Hai Xing Shipping Company Ltd Series B 190,162
2,408,000 Shanghai Haixin Shipping Series H 211,795
1,140,100 Shanghai Hero Co Ltd Series B 344,310
2,740,000 Shanghai Petrochemical Co Series H 912,595
437,800 Shanghai Phoenix Bicycle Series B 78,804
735,000 Shenzhen China Bicycle Co Series B 123,589
770,000 Shenzhen Konka Electronic Series B 388,424
4,810,000 Tianjin Bohai Chemical Industry (Group) Co Ltd Series H 429,284
4,452,000 Yizheng Chemical Fibre Co Series H 1,238,066
---------------------
9,730,330
---------------------
CZECH REPUBLIC - 2.3%
79,700 Ceske Energeticke Zavody * 2,862,268
60,934 Czech Republic Fund Inc 860,693
32,340 IPS Praha * 3,172,910
138,800 Komercni Bank AS GDR 144A * 3,199,340
33,600 Komercni Bank AS GDR Reg S * 774,480
2,870 Leciva AS * 271,072
5,272 Metrostav AS * 579,001
3,057 Pivovar Radegast AS 477,307
8,624 Sepap AS * 525,661
59,390 SPT Telecom AS * 6,131,198
1,926 Stavby Silnic A Zeleznic SA * 75,091
28,350 Synthesia * 716,119
13,780 Vertex SA * 771,833
---------------------
20,416,973
---------------------
See accompanying notes to the financial statements. 3
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
GREECE - 2.2%
18,220 Aktor SA 302,451
31,400 Aluminum of Greece Preferred 10.41% 1,378,022
673,470 Balkan Export * 656,799
236,900 Boutaris Wine Co * 639,035
211,246 Commercial Bank of Greece (Registered) 7,854,934
108,880 Etba Leasing (Registered) 1,929,399
87,500 Etma Rayon Manufacturing 508,373
68,600 Hellenic Technodom SA 1,417,749
16,850 Ionian Bank (Registered) 349,636
67,975 National Bank of Greece (Registered) 4,033,957
6,250 National Investment Bank for Industrial Development (Registered) 143,952
26,750 Petzetakis SA Preferred * 111,012
14,500 Petzetakis SA * 75,820
83,800 Shelman * 636,416
---------------------
20,037,555
---------------------
HUNGARY - 1.4%
10,000 Borsodchem GDR 144A * 146,500
176,977 Danubus Hotel (Registered) * 1,894,335
77,414 Egis Gyogysergyar * 2,630,348
40,302 Graboplast (Registered) * 725,127
8,293 Matav (Registered) * 1,313,985
58,460 Pannonplast Muanyagipari 1,412,047
45,826 Pick Szeged (Bearer) * 2,194,407
53,489 Richter Gedeon Vegyeszeti Gyar * 1,789,182
12,431 Zalakeramia AG * 428,942
---------------------
12,534,873
---------------------
INDIA - 5.0%
373,000 Arvind Mills Ltd GDR 1,174,950
25,000 Ashok Leyland GDR 144A * 293,750
105,000 Ashok Leyland Ltd GDR 1,233,750
7,000 Bajaj Auto GDR 144A 187,250
331,300 Bombay Dyeing & Manufacturing Co Ltd GDR 2,898,875
63,000 Bses Ltd Sponsored GDR 144A 967,050
547,000 Cesc Ltd GDR * 1,996,550
45,000 DCW 236,250
117,000 Finolex Cables Ltd GDR 980,460
247,000 Garden Silk Mills Ltd GDR 834,860
63,500 Grasim Industries Ltd GDS 1,270,000
45,000 Great Eastern Shipping Co GDR 144A 315,000
261,000 Great Eastern Shipping Co Ltd GDR 1,827,000
73,200 Hindalco Industries GDR 2,562,000
4 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
INDIA - CONTINUED
100,000 Hindustan Development Corp GDR 60,000
300,000 Hindustan Development Corp GDR 144A 180,000
97,000 Hindusthan Development Corp Units (2GDR/1WTS) * 117,370
282,000 India Cements GDR 1,551,000
186,300 India Fund Inc * 1,839,713
60,000 Indian Aluminum 144A 300,000
189,100 Indian Petrochemical Co Ltd GDR * 2,931,050
85,000 Indian Rayon & Industries GDR 1,275,000
655,000 Indo Gulf Fertilizers GDR 851,500
90,000 Indo Gulf Fertilizers GDR 144A 117,000
100,000 Jain Irrigation Systems Ltd EDR 225,000
201,000 JCT Ltd GDR Series S 1,407,000
325,000 JK Corp GDR (Registered) * 975,000
172,200 Larsen & Toubro GDR 2,669,100
150,833 Mahindra Mahindra GDR * 1,206,664
87,400 Morgan Stanley India Fund Inc * 917,700
100,000 NEPC Micon Ltd GDR 144A 118,000
40,000 Raymond Woolens GDR 830,000
295,500 Reliance Industries Ltd GDR 4,063,125
83,000 Sanghi Polyesters GDR 144A (Registered) 290,500
50,000 Sanghi Polyesters GDS 144A 175,000
572,500 Siv Industries GDR 2,364,425
168,500 Southern Petrochemicals Industries Corp Ltd GDR 1,305,875
20,000 Sterlite Industrie Ltd GDR 175,000
33,333 Tube Investments of India GDR 116,666
57,333 Tube Investments of India GDR 144A 200,666
212,000 Usha Beltron Ltd GDR 583,000
78,000 Usha Beltron Ltd GDR 144A 214,500
845,000 Videocon International Ltd GDR 2,028,000
101,000 Wockhart GDR 808,000
---------------------
46,673,599
---------------------
INDONESIA - 4.3%
428,000 Andayani Megah (Foreign Registered) 369,523
1,746,500 Astra International (Foreign Registered) 2,902,666
809,875 Bank Bali (Foreign Registered) 2,010,266
800,250 Bank Private Development Finance (Foreign Registered) 578,640
1,172,000 Barito Pacific Timber (Foreign Registered) 1,024,520
50,000 Cipendawa Farm Enterprise (Foreign Registered) 24,822
171,000 Ciputra Devlopment (Foreign Registered) * 358,019
800,000 Dharmala Intiland (Foreign Registered) 483,488
See accompanying notes to the financial statements. 5
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
INDONESIA - CONTINUED
3,099,000 Duta Anggada Realty (Foreign Registered) 1,638,798
5,144,000 Gadjah Tunggal (Foreign Registered) 3,497,431
1,870,000 Great River Industries (Foreign Registered) 1,130,153
3,740,000 Great River Rights 4/2/96 (Foreign Registered) 645,802
3,816,500 Hadtex Indosyntec (Foreign Registered) * 2,265,352
967,360 Indah Kiat Pulp and Paper (Foreign Registered) * 772,552
390,000 Indocement Tunggal (Foreign Registered) 1,553,097
208,700 Indorama Synthetics (Foreign Registered) 741,013
2,838,000 Jakarta International Hotel and Development (Foreign Registered) 3,154,695
2,439,000 JAPFA Comfeed (Foreign Registered) 1,316,102
368,000 Jaya Real Property (Foreign Registered) * 1,270,883
552,000 Metrodata Electronic (Foreign Registered) * 357,436
153,500 Modernland Realty (Foreign Registered) * 165,659
2,123,500 Multipolar (Foreign Registered) 1,718,784
699,109 Pabrik Kertas Tjiwi (Foreign Registered) 709,219
678,000 Pakuwon Jati (Foreign Registered) 285,366
29,000 Pan Brothers Textile (Foreign Registered) * 7,511
3,498,000 Polysindo Eka Perkasa (Foreign Registered) 1,963,048
493,000 Semen Gresik (Foreign Registered) 1,734,492
1,700,000 Sinar Mas Agro (Foreign Registered) * 1,265,918
2,259,000 Tambang Timah IDR (Foreign Registered) * 3,315,605
2,500 Trafindo Perkasa (Foreign Registered) * 1,322
1,859,550 Ungul Indah Corp (Foreign Registered) 1,766,031
117,500 United Tractors (Foreign Registered) 258,688
---------------------
39,286,901
---------------------
KOREA - 7.3%
23,230 Asia Cement Manufacturing 893,519
57,892 Boram Bank Co Ltd 856,007
8,860 Central Investment and Finance * 164,168
64,880 Cheil Industries 1,268,499
13,215 Cho Hung Bank Co Ltd 184,914
68,300 Coryo Securities Preferred * 584,768
82,565 Daegu Bank 1,351,553
172,400 Daewoo Heavy Ind Ltd Preferred * 1,156,603
151,250 Daewoo Sec Ltd Preferred 15.98% * 2,436,757
24,600 Daihan Investment and Finance Preferred 23.40% * 282,607
140,900 Daishin Secs Preferred 18.00% * 1,242,362
47,640 Dong Shin Construction * 387,183
387 Dongbu Construction 7,665
12,900 Dongbu Construction Co Preferred * 114,733
29,990 Dongbu Industrial Co Preferred * 240,288
6 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
KOREA - CONTINUED
73,370 Dongbu Steel Preferred * 721,933
193,600 Dongsuh Securities Preferred * 1,756,514
17,770 Haitai Confectionary Preferred * 112,404
62,120 Haitai Confectionery Co Ltd * 666,805
30,000 Han Dok Preferred * 146,061
115,623 Hana Bank 2,462,871
269,150 Hanbo Steel & General Construction * 2,407,578
108,407 Hanil Bank 1,460,346
66,000 Hanil Synthetic Fiber Preferred * 307,840
7,200 Hannong Corp * 299,938
36,900 Hanshin Construction Preferred 155,607
33,500 Hanshin Securities Co Preferred * 359,594
835 Hanwha Chemical Corp 11,097
1,959 Hanwha Chemical Corp (New) 26,035
16,700 Hanwha Chemical Preferred * 132,311
63,700 Hyundai Motor Service Preferred * 1,294,269
29,350 Inkel Corp 397,559
51,690 Inkel Corp Preferred * 356,027
48,500 Kang Won Industrial Preferred (Non Voting) * 384,876
14,400 Keum Kang Ltd 990,224
1,185 Kolon Construction 20,140
39,500 Kolon Construction Co Ltd Preferred 2.03% * 304,370
824 Kolon Industries 18,996
52,400 Kolon Industries Preferred * 576,531
21,200 Kolon International Corp Preferred * 162,546
4,012 Kookmin Bank 95,174
246,814 Korea First Bank * 2,407,111
49,223 Korea Fund 1,089,059
69,400 Korea Kumho Petrochemical 647,396
68,000 Korea Kumho Petrochemical Preferred * 430,132
68,325 Korea Long Term Credit Bank 2,017,969
69,600 Kum Ho & Co Inc Preferred 2.02% * 329,078
93,700 Kumho Construction & Engineering Preferred * 571,144
54,560 Kun Young Construction * 501,990
41,106 Kwanju Bank 420,226
20,000 Kyung Nam Bank 267,076
11,910 Kyungnam Wool Text Preferred * 88,577
54,000 Lg Securities Co Preferred * 572,743
122,400 Lucky Chemical Ltd Preferred * 1,126,164
20,000 Mando Machinery Preferred 493,259
37,400 Oriental Brewing Co Ltd Preferred * 310,173
See accompanying notes to the financial statements. 7
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
KOREA - CONTINUED
29,900 Pacific Chemical Co Ltd Preferred * 259,817
28,882 Sam Hee Investment and Finance Co Ltd * 352,467
31,000 Sam Whan Preferred 346,623
35,750 Samho International * 255,830
65,800 Sammi Corp Preferred * 234,595
708 Samsung Display Devices 64,146
41,568 Samsung Display Devices Preferred * 2,470,017
10,000 Samsung Electronic Ltd GDR * 527,500
1,192 Samsung Electronics Ltd 209,268
108,703 Samsung Electronics Preferred (Non Voting) * 11,424,060
35,439 Shin Han Investment and Finance Co Ltd * 652,127
38,142 Shin Poong Paper Manufacturing 1,315,998
104,361 Shinhan Bank * 2,486,900
20,087 Shinhan Investment & Financial Preferred 192,515
27,000 Shinwon Preferred * 574,899
92,300 Shinyoung Securities Preferred * 1,073,324
56,600 Ssangyong Investment Securities Co Preferred * 575,005
95,820 Ssangyong Oil Refining 2,314,227
27,100 STC Corp Preferred (Non Voting) * 227,868
8,900 Sun Kyong Ltd 169,459
12,350 Sung Bo Chemical Co 347,198
47,300 Sunkyong Ltd Preferred 1.28% 441,237
14,350 Sunkyong Securities 183,375
70,700 Sunkyong Securities Preferred 13.11% (Non Voting) * 591,764
46,060 Tong Yang Cement Corp Preferred * 618,018
22,700 Tong Yang Investment & Financial Preferred * 217,558
42,000 Tong Yang Securities Co Preferred * 354,227
2,600 Tongyang Nylon * 74,423
---------------------
66,625,814
---------------------
MALAYSIA - 8.8%
3,412,000 Amalgamated Steel Mills Berhad 2,677,338
243,666 Amsteel Corp Warrants Expires 5/19/00 * 94,644
3,973,000 Berjaya Group 2,571,975
1,662,000 Berjaya Industrial Berhad 1,095,480
1,869,000 Berjaya Leisure Berhad 1,649,894
849,000 Cement Industries of Malaysia Berhad 2,731,403
219,000 Esso Malaysia Bhd 592,867
2,458,000 Golden Hope Plantations Berhad 3,953,939
1,144,000 Guinness Anchor Berhad 2,446,171
699,000 IGB Corp Berhad 584,145
177,000 Intiplus Berhad 145,139
8 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
MALAYSIA - CONTINUED
483,000 Kedah Cement Berhad 956,980
1,016,000 Kuala Lumpur Kepong Berhad 3,208,883
809,000 Kumpulan Emas Berhad 733,204
2,225,000 Kumpulan Guthrie Berhad 3,404,543
1,495,000 Malayan Cement Berhad 3,548,631
3,202,000 Malayan United Industries Berhad 2,763,810
1,292,000 Malaysia Mining Corp Berhad 2,047,897
1,165,000 Malaysian International Ship (Alien Market) 3,245,253
33,000 Malaysian Oxygen Berhad 156,662
967,000 Malaysian Tobacco Co Berhad 1,517,577
1,916,000 MBF Capital Berhad 2,240,144
955,000 Metroplex Berhad 824,309
585,000 Nestle Malaysia 4,521,540
852,000 Nylex Berhad 2,941,620
98,500 Oriental Holdings Berhad 502,393
57,000 Perusahaan Otomobil 212,453
1,500,000 Public Bank Berhad (Foreign Registered) 3,913,606
795,000 Rothmans of Pall Mall Malaysia Berhad 6,830,862
522,000 Shell Refinery Co 1,495,057
3,686,200 Sime Darby Berhad 9,906,807
1,520,000 Sime UEP Properties Berhad 2,528,562
1,047,000 Tan Chong Motor Holdings Berhad 1,462,382
1,196,000 Tractors Malaysia Holdings Berhad 1,783,114
133,600 UMW Holding Berhad Warrants 1/26/00 * 120,559
225,600 UMW Holdings Berhad 659,416
---------------------
80,069,259
---------------------
MEXICO - 10.2%
6,680,000 Aerovias de Mexico SA de CV Class A * 368,189
167,000 Cementos Mexicanos Cemex Series A (Registered) 569,816
3,265,000 Cemex SA CPO 11,204,692
611,000 Cemex SA Series B 2,285,236
2,845,000 Controladora Commercial Mexicana SA Series B* 2,001,207
2,727,480 Cydsa SA Class A * 5,991,866
798,000 Desc Sociedad De Formento Series C 3,057,953
1,062,000 Dina (Consorcio Grupo Dina) * 363,756
487,400 Empresas ICA Soc Contrlad ADR * 5,666,025
46,000 Empresas ICA Soc Controladora 531,837
2,896,000 Femsa Class B 7,274,205
8,300 Grupo Celanese Mexicana Series B 121,995
328,963 Grupo Fin Bancomer SA Class L * 116,562
2,077,600 Grupo Financiero Banamex Class B 4,002,515
See accompanying notes to the financial statements. 9
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
MEXICO - CONTINUED
19,030 Grupo Financiero Banamex Class L 33,265
15,860,000 Grupo Financiero Bancomer Class B * 5,952,703
992,000 Grupo Financiero Invermexico Class B * 106,751
60,400 Grupo Financiero Invermexico Series L * 6,420
700 Grupo Financiero Serfin SA de CV Class B * 423
9,616,000 Grupo Gigante SA Class B * 1,842,436
38,886 Grupo Mexico Class B Warrants 8/9/01 * 146,460
922,000 Grupo Mexico Class B * 3,315,328
10,000 Grupo Posadas SA Convertible 144A * 81,400
3,653,000 Grupo Posadas SA Series A * 1,486,129
660,000 Grupo Simec SA Series B * 168,032
6,310,000 Grupo Situr SA de CV Series B * 1,565,079
174,000 Grupo Tribasa SA ADR * 1,239,750
1,775,000 Herdez Series A * 498,491
770,000 Posada SA Series L * 312,244
1,075,000 Sears Roebuck de Mexico SA * 2,694,554
387,900 Telefonos de Mexico ADR Series L 11,830,950
333,000 Transportacion Maritima Mexico Class A 2,447,244
39,000 Ttolmex Sa De Con Class B * 181,693
1,178,100 Tubos de Acero de Mexico SA * 8,951,705
2,283,280 Vitro SA 4,045,181
334,600 Vitro SA ADR 1,756,650
---------------------
92,218,742
---------------------
PERU - 0.5%
219,430 Banco Weise 422,303
1,048,410 CNC T Shares * 471,096
595,000 CPT Telefonica Del Peru B Shares 1,258,605
62,507 Credicorp Ltd * 1,140,706
176,690 Enrique Ferreyos 239,681
69,420 Milpo Minera T Shares 426,702
88,673 Minsur T Shares 714,195
---------------------
4,673,288
---------------------
PHILIPPINES - 0.1%
7,000 Philippine Long Distance Telephone Sponsored ADR 413,875
159,000 Sime Darby Pilipinas Inc 110,944
---------------------
524,819
---------------------
POLAND - 5.2%
126,100 Agros Holdings Series C 1,527,589
22,100 Bank Przemyslowo Handlowy 829,074
189,485 Bank Rozwoju Eksportu SA 4,146,604
78,900 Bank Slaski SA 5,950,645
10 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
POLAND - CONTINUED
58,586 Debica Series A 1,385,093
96,000 Drosed 1,046,659
1,032,300 Elektrim SA (Bearer) 6,494,736
58,500 Elektrobudowa SA * 560,082
307,935 Exbud SA * 4,392,195
83,608 Gorazde Cement * 2,777,132
45,945 Hula Szula Irena SA 556,583
106,309 Jelfa * 1,454,011
17,200 Polfa Kunto Series A * 291,036
384,538 Polifarb Cieszyn (Bearer) 1,878,361
438,300 Polifarb Wroclaw 2,021,079
73,627 Rafako SA (Raciborska Fabryka) * 863,154
57,292 Rolimpex SA Series A 1,690,327
531,300 Sokolow * 479,603
149,129 Stomil-Olsztyn SA * 2,331,051
174,513 Universal SA 528,517
175,100 Vistula 667,145
1,345,279 Wielkopolski 4,521,063
41,845 Wolczanka SA 387,545
---------------------
46,779,284
---------------------
PORTUGAL - 2.0%
171,700 Banco Chemical SA (Registered) 1,900,838
54,750 Banco Commercial Portugues (Registered) 764,379
140,100 Banco De Fomento Exterior SA * 1,781,496
276,640 Banco Espirito Santo e Commercial de Lisboa (Registered) 4,350,011
26,100 Banco Totta & Acores (New) 504,670
287,100 Banco Totta & Acores (Registered) 5,551,372
15,400 Cel-Cat Fabrica Nacional de Condutores Electricos SA * 207,130
25,100 Cimpor Cimentos De Portugal SA (Registered) 459,011
12,666 Cristais Alcobaca Preferred * 176,003
96,900 Empresa Fabril de Maquinas Electricas 768,518
44,500 Fisipe Fibra Sint 243,552
75,500 Sonae Investimentos 1,699,882
---------------------
18,406,862
---------------------
RUSSIA - 1.1%
30 Chernogorneft RDC 144A * 1,650,000
65 Irkutsken Ergo 144A (Participating Certificates) * 2,600,000
160 Lukoil Holding RDC 144A * 3,304,000
28,300 Mosenergo Sponsored ADR 144A * 198,100
460 Mosengergo RDC 144A * 1,071,800
120 Rostelecom RDC 144A * 1,008,000
---------------------
9,831,900
---------------------
See accompanying notes to the financial statements. 11
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA - 7.0%
58,400 AECI Ltd 350,853
100,800 Anglo American Corp (Registered) 6,589,767
42,258 Anglo American Platinum 267,525
124,700 Beatrix Mines Ltd 1,160,000
368,000 De Beers Centenary Link Units 11,696,124
106,000 De Beers Consolidated Mines Ltd ADR 3,378,750
335,300 Del Monte Royal Foods Ltd 424,540
305,275 Driefontein Consolidated Ltd 4,614,622
278,532 Elandsrand Gold Mining Co Ltd 1,637,365
160,300 Engen Ltd 1,128,727
112,100 Free State Consolidated Gold Mines 1,078,999
30,000 Free State Consolidated Gold Mines ADR 288,750
100,800 Harmony Gold Mining 1,315,349
72,800 Impala Platinum Holdings Ltd 1,316,796
40,900 JCI Ltd 348,760
41,320 Johannesburg Consol Investment Co 565,881
10,000 Kloof Gold Mining Ltd ADR 136,250
392,900 Lebowa Platinum Mines * 309,650
288,771 Loraine Gold Mines Ltd * 1,007,341
77,600 Polifin * 141,364
130,600 Randgold & Exploration Co 556,822
180,000 Rembrandt Group Ltd 1,755,814
88,900 Sappi Ltd 1,091,150
694,550 Sasol Ltd 6,012,255
4,433,175 South African Iron & Steel Industrial Corp Ltd 3,757,316
1,860,000 Sun International Ltd 2,499,225
9,120 Vaal Reefs Exploration & Mining 895,504
302,348 Western Areas Gold Mining Co Ltd 5,117,259
83,037 Western Deep Levels 4,087,480
---------------------
63,530,238
---------------------
SRI LANKA - 0.4%
121,000 Aitken Spence & Co 423,731
2,916,350 Blue Diamonds Jewelery Ltd 882,755
46,500 Development Finance Corp * 284,968
96,333 Hayleys Ltd 403,743
199,714 John Keells Holdings Ltd 654,739
216,900 Lanka Walltile Ltd 214,132
96,000 National Development Bank 429,617
---------------------
3,293,685
---------------------
12 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
TAIWAN - 5.5%
40,000 Acer GDR 144A * 450,000
772,000 Acer Inc * 1,642,374
574,800 Asia Cement 907,205
16,587 Asia Cement Corp GDR 144A 265,392
4,674,825 Chia Hsin Flour * 2,405,585
2,195,000 Chia Hsin Livestock * 1,089,597
401,000 China General Plastics Corp 367,489
6,923,000 China Steel Corp 5,085,628
28,300 China Steel Corp GDR 144A 424,500
880,000 China Wire & Cable 656,048
5,258,000 Chung Shing Textile * 2,294,567
525,000 Ensure Co Ltd * 481,126
620,000 Far East Depatment Store * 615,536
577,000 Feng An Metal Industrial Co Ltd * 419,667
1,657,000 Formosa Chemicals and Fiber Co 1,391,981
199,000 Formosan Rubber Group * 198,291
3,736,341 Goldsun Development & Construction * 2,622,423
919,320 Hua Engineering Wire and Cable 658,615
1,630,000 International Commercial Bank of China 4,238,308
2,748,350 Kwong Fong Industries Corp * 1,669,119
771,330 Laelae Enterprise Co Ltd * 563,813
707,600 Li Peng * 445,177
372,000 Megamedia Corp * 408,553
2,627,360 Pacific Construction * 1,767,625
1,130,600 Pacific Elec Wire * 752,418
1,015,385 Pao Shiang Construction & Industrial * 646,201
15,393 President Enterprises Corp GDS * 184,716
894,600 Prince Housing Develop Corp 660,425
310,300 R O C Taiwan Fund 2,986,638
722,000 Shin Yih Fiber * 535,632
21,000 Taiwan Cement 28,868
1,240,500 Taiwan Match & Woodwork Co Ltd 1,984,944
176,000 Taiwan Pulp and Paper Co * 108,168
999,000 Taroko Textile * 523,151
8,077 Tuntex Distinct Corp GDR 144A * 44,424
64,422 Tuntex Distinct Corp GDS * 354,321
2,411,210 Universal Cement 2,113,250
1,518,000 Wan Yu Paper * 725,933
2,689,000 Yieh Loong Co 1,515,728
7,052,000 Yue Loong Motor * 5,308,619
525,000 Yuen Foong Yu Manufacturing 450,578
---------------------
49,992,633
---------------------
See accompanying notes to the financial statements. 13
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
THAILAND - 0.5%
800 Asia Credit (Foreign Registered) 5,426
352,700 Bangkok Rubber Public Co Ltd (Foreign Registered) * 199,364
423,000 Bangkok Rubber (Foreign Registered) 239,102
142,400 CP Feedmill Public Co Ltd (Foreign Registered) 796,446
389,000 First Bangkok City Bank (Foreign Registered) 370,329
227,600 GFPT Public Co Ltd (Foreign Registered) * 97,053
23,000 International Cosmetics Public Co Ltd (Foreign Registered) 200,714
1,100 Karat Sanitaryware (Foreign Registered) 4,342
290,000 Krisda Mahanakorn Public Co Ltd (Foreign Registered) * 626,934
17,700 MDX Public Co Ltd (Foreign Registered) 30,190
654,100 NEP Realty and Industry Co Ltd (Foreign Registered) * 265,947
418,600 Padaeng Industry Ltd * 327,939
75,000 Pranda Jewelry Co Ltd (Foreign Registered) * 148,007
87,200 Prasit Development Public Co Ltd (Foreign Registered) * 110,686
32,400 Saha Pathana International Holding (Foreign Registered) * 73,257
70,000 Saha Pathanapibul Public Co (Foreign Registered) 141,610
296,600 Saha Union Public Co Ltd (Foreign Registered) 450,018
73,300 Star Block 87,954
24,000 Swedish Motor (Foreign Registered) 94,248
131,500 Thai German Ceramics Industries (Foreign Registered) 331,228
31,300 Union Asia Finance (Foreign Registered) 148,989
---------------------
4,749,783
---------------------
TURKEY - 8.0%
18,601,500 Akal Tekstil 2,195,365
16,560,000 Akbank 4,698,139
3,850,000 Bagfas 1,572,855
14,030,000 Celik Halat * 1,358,632
14,500,000 Eczacibasi Ilac * 1,162,808
86,395,000 Eregli Demir ve Celik Fabrikalari Turk Anonim Sirketi 9,673,521
4,400,000 Global Menkul Degerler * 432,743
12,000,000 Hurriyet Gazette * 590,104
255,935,000 Izmir Demir Celik 6,292,849
1,570,000 Mardin Cimento 285,066
15,350,000 Netas Telekomunik 5,109,699
7,655,000 Petkim 6,949,614
7,415,000 Raks Elektronik SA 2,860,985
4,321,000 Sarkuysan Elektronk Bakir Sanayi 1,062,434
56,554,000 Tofas Otomobil Fab 6,246,697
52,208,000 Turkiye Garanti Bankasi AS 4,660,723
2,233,500 Usasucak Servisi Anonim Sirketi 4,731,276
181,350,000 Yapi Ve Kredi Bankasi AS 12,485,134
---------------------
72,368,644
---------------------
14 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - 0.3%
837,297 Lonrho Plc 2,493,136
---------------------
VENEZUELA - 0.9%
384,799 Ceramica Carabobo Class A ADR 404,039
1,355,000 Ceramica Carabobo Class B ADR 1,355,000
201,040 Mantex SAICA ADR * 954,940
174,975 Siderurgica Venezolana Sivensa 51,427
1,203,000 Siderurgica Venezuela ADR 2,309,760
284,600 Sudamtex ADR 1,458,575
124,800 Venezolana de Cementos 182,608
2,333 Venezolana de Prerreducidos Caroni GDS * 8,865
913,100 Venezolano de Pulpa y Papel GDS 144A 1,369,650
---------------------
8,094,864
---------------------
---------------------
TOTAL STOCK AND EQUIVALENTS (Cost $862,976,669) 834,792,666
---------------------
PAR VALUE CONVERTIBLE BONDS - 0.5%
INDIA - 0.3%
1,950,000 Essar Gujarat Ltd, 5.50% due 8/5/98 1,901,250
700,000 Sterlite, 3.50% due 6/30/99 556,500
---------------------
2,457,750
---------------------
KOREA - 0.0%
225,000 Ssangyong Oil Refining, 3.75% due 12/31/08 244,125
---------------------
THAILAND - 0.2%
1,500,000 Bangkok Bank PCL, 3.25% due 3/3/04 1,695,000
566,000 Bangkok Land Ltd, 4.50% due 10/13/03 367,900
---------------------
2,062,900
---------------------
---------------------
TOTAL CONVERTIBLE BONDS (Cost $5,862,444) 4,764,775
---------------------
DEBT OBLIGATION - 1.1%
UNITED STATES - 1.1%
10,000,000 First Chicago Master Trust II Series 1994-I Class A
(Cost $10,010,156) 10,009,375
---------------------
PRINCIPAL AMOUNT
OF CONTRACTS
(000's ommitted) CALL OPTION PURCHASED - 0.2%
SOUTH AFRICA - 0.2%
SAR 5000 South Africian Index, Expires 3/15/96 Strike 5550 * (Cost $965,636) 1,394,612
---------------------
See accompanying notes to the financial statements. 15
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 5.2%
UNITED STATES - 5.2%
$ 17,550,000 U.S. Treasury Bill, 5.14% due 11/14/96 16,931,187
30,200,000 Wachovia Bank Time Deposit, 5.46% due 3/1/96 30,200,000
---------------------
47,131,187
---------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $46,928,019) 47,131,187
---------------------
TOTAL INVESTMENTS - 99.0%
(Cost $926,742,924) * * 898,092,615
Other Assets and Liabilities (net) - 1.0% 9,086,905
---------------------
TOTAL NET ASSETS - 100.0% $ 907,179,520
=====================
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
GDR Global Depository Receipt
GDS Global Depository Shares
SAR South African Rand
144A Securities exempt from registration
under Rule 144A of the Securities Act
of 1933. These securities may be
resold in transactions exempt from
registration, normally to qualified
institutional investors.
* Non-income producing security.
* * The aggregate identified cost for
federal income tax purposes is
$928,527,387 resulting in gross
unrealized appreciation and depreciation
of $66,578,814 and $97,013,586, respectively,
and net unrealized depreciation of $30,434,772.
</TABLE>
16 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
At February 29, 1996, industry sector diversification of the Fund's equity
investments was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Banking 10.8%
Constuction 8.7
Services 8.0
Primary Processing 6.7
Utilities 6.1
Metals and Mining 5.6
Oil and Gas 4.7
Telecommunications 4.6
Textiles 4.0
Automotive 3.1
Financial Services 3.1
Consumer Goods 2.9
Food and Beverage 2.5
Chemicals 2.4
Technology 2.3
Real Estate 1.8
Conglomerates 1.8
Paper and Allied Products 0.8
Electric 0.3
Manufacturing 7.7
-----
Miscellaneous 92.0%
=====
See accompanying notes to the financial statements. 17
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $926,742,924) (Note 1) $ 898,092,615
Foreign currency, at value (cost $3,746,877) (Note 1) 3,714,999
Cash 76,640
Receivable for investments sold 1,365,697
Receivable for Fund shares sold 6,498,000
Dividends and interest receivable 1,892,249
Receivable for open forward foreign currency contracts (Note 6) 517,832
Foreign withholding taxes receivable 20,370
Receivable for open swap contracts (Notes 1 and 6) 1,634,534
Receivable for expenses waived or borne by Manager (Note 2) 14,377
---------------------
Total assets 913,827,313
---------------------
LIABILITIES:
Payable for investments purchased 4,631,539
Payable for open forward foreign currency contracts (Note 6) 781,550
Payable to affiliate for management fee (Note 2) 718,840
Accrued expenses 515,864
---------------------
Total liabilities 6,647,793
---------------------
Net Asset (equivalent to $10.54 per share based
on 86,054,424 shares outstanding, unlimited shares authorized) $ 907,179,520
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 954,919,906
Accumulated undistributed net investment income 7,846,974
Accumulated undistributed net realized loss (28,277,467)
Net unrealized depreciation (27,309,893)
---------------------
NET ASSETS $ 907,179,520
=====================
</TABLE>
18 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $1,970,657) $ 13,673,072
Interest 2,192,601
---------------------
Total income 15,865,673
---------------------
EXPENSES:
Management fee (Note 2) 5,944,710
Custodian fees 1,546,707
Stamp duties and transfer taxes 381,843
Registration fees 132,176
Audit fees 70,271
Transfer agent fees 29,006
Legal fees 21,911
Insurance 4,960
Trustee fee (Note 2) 2,156
Miscellaneous 10,088
---------------------
Total expenses 8,143,828
Less: expenses waived by Manager (Note 2) (90,073)
---------------------
Net expenses 8,053,755
---------------------
Net investment income 7,811,918
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (25,692,323)
Swap contracts 200,331
Foreign currency, forward contracts and foreign
currency related transactions 440,475
---------------------
Net realized loss (25,051,517)
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 65,033,890
Swap contracts 1,634,534
Foreign currency, forward contracts and foreign
currency related transactions (259,043)
---------------------
Net unrealized gain 66,409,381
---------------------
Net realized and unrealized gain 41,357,864
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 49,169,782
=====================
</TABLE>
See accompanying notes to the financial statements. 19
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- ----------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 7,811,918 $ 2,567,359
Net realized gain (loss) (25,051,517) 10,748,639
Change in net unrealized appreciation (depreciation) 66,409,381 (99,215,818)
--------------------- ---------------------
Net increase (decrease) in net assets
resulting from operations 49,169,782 (85,899,820)
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (615,855) (2,332,870)
Net realized gains (7,081,456) (7,201,224)
--------------------- ---------------------
(7,697,311) (9,534,094)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 494,501,573 374,416,514
Net asset value of shares issued to shareholders
in payment of distributions declared 7,137,961 8,065,981
Cost of shares repurchased (20,191,247) (17,198,392)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 481,448,287 365,284,103
--------------------- ---------------------
Total increase in net assets 522,920,758 269,850,189
NET ASSETS:
Beginning of period 384,258,762 114,408,573
--------------------- ---------------------
End of period (including accumulated undistributed
net investment income of $7,846,974 and $0,
respectively) $ 907,179,520 $ 384,258,762
===================== =====================
</TABLE>
20 See accompanying notes to the financial statements.
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28/29, PERIOD FROM DECEMBER 9, 1993
---------------------------------------------------- (COMMENCEMENT OF OPERATIONS)
1996 1995 TO FEBRUARY 28, 1994
---------------------------------------------------- ------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 12.13 $ 10.00
-------------- -------------- --------------
Income (loss) from investment operations:
Net investment income (a) 0.10 0.05 0.02
Net realized and unrealized gain (loss)
on investments 1.06 (2.37) 2.11
-------------- -------------- --------------
Total from investment operations 1.16 (2.32) 2.13
-------------- -------------- --------------
Less distributions to shareholders from:
Net investment income (0.01) (0.07) (0.00)(c)
Net realized gains (0.13) (0.22) -
-------------- -------------- --------------
Total distributions (0.14) (0.29) (0.00)
-------------- -------------- --------------
NET ASSET VALUE, END OF PERIOD $ 10.54 $ 9.52 $ 12.13
============== ============== ==============
TOTAL RETURN (B) 12.24% (19.51%) 21.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 907,180 $ 384,259 $ 114,409
Net expenses to average
daily net assets (a) 1.35% 1.58% 1.64%*
Net investment income to average
daily net assets (a) 1.31% 0.85% 0.87%*
Portfolio turnover rate 35% 50% 2%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the manager of
less than $0.01 per share for the fiscal year ended 1996 and for the
period ended 1994.
(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) The per share income distribution was $ 0.004.
</TABLE>
See accompanying notes to the financial statements. 21
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks long-term capital appreciation consistent with a prudent
level of risk through investment in equity and equity-related securities
traded in the securities markets of newly industrializing countries in
Asia, Latin America, the Middle East, Southern Europe, Eastern Europe and
Africa.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between trade and settlement dates on
securities transactions and
22
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
the difference between the amount of investment income and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid.
FORWARD CURRENCY CONTRACTS
The Fund may enter into forward currency contracts in connection with
settling planned purchases or sales of securities or to hedge the currency
exposure associated with some or all of the Fund's portfolio securities. A
forward currency contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
forward currency contract fluctuates with changes in forward currency
exchange rates. Forward currency contracts are marked to market daily and
the change in value is recorded by the Fund as an unrealized gain or loss.
When a forward currency contract is extinguished, through delivery or
offset by entering into another forward currency contract, the Fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the
time it was extinguished or offset. These contracts may involve market risk
in excess of the unrealized gain or loss reflected in the Fund's Statement
of Assets and Liabilities. In addition, the Fund could be exposed to risk
if the counterparties are unable to meet the terms of the contracts or if
the value of the currency changes unfavorably to the U.S. dollar. The U.S.
dollar value of the currencies the Fund has committed to sell is shown
under Note 6, and represents the currency exposure the Fund has acquired or
hedged through currency contracts as of February 29, 1996.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 6 for a
summary of all open swap agreements as of February 29, 1996.
23
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. As of
February 29, 1996, there were no outstanding written options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryovers for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the United States. Dividends received by shareholders of the Fund which are
derived from foreign source income and foreign taxes paid by the Fund are
to be treated, to the extent allowable under the Code, as if paid and
received by the shareholders of the Fund.
At February 29, 1996, the Fund had available, for Federal income tax
purposes, unused capital losses of $23,466,203 which expires on February
28, 2004.
24
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
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 and swap transacions.
The following reclassification represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of February 29, 1996. 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>
$650,911 ($650,911) -
</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, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
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.
25
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS OF FUND SHARES
The premium on cash purchases of Fund shares is 1.60% of the amount
invested. In the case of cash redemptions, the premium is .40% of the
amount redeemed. For shares acquired on or prior to June 1, 1995, the
premium on cash purchases was 2% and there was no premium on cash
redemptions. 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 29, 1996, the Fund
received $8,125,500 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 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
The Manager is paid monthly at the annual rate of 1.00% of average daily
net assets. Effective June 27, 1995, the Manager has voluntarily
undertaken, until further notice, to limit its management fee to 0.98%. The
Manager has also 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 custody fees, brokerage commissions, stamp duties, and transfer
taxes) exceed 1.20% of average daily net assets.
The Manager has entered into a Consulting Agreement with Dancing Elephant,
Ltd. (the "Consultant") with respect to the management of the portfolio.
Payments made by the Manager to the Consultant will not affect the amounts
payable by the Fund to the Manager or the Fund's expense ratio.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 29, 1996, was $2,156. 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 29, 1996, aggregated
$638,602,784 and $195,665,632, respectively.
4. PRINCIPAL SHAREHOLDER
At February 29, 1996, 12% of the outstanding shares of the Fund were held
by one shareholder.
26
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
February 29, 1996 February 28, 1995
--------------------------- ------------------------------
<S> <C> <C>
Shares sold 47,019,289 31,656,227
Shares issued to shareholders in reinvestment
of distributions 684,670 708,112
Shares repurchased (2,004,988) (1,438,354)
---------- ----------
Net increase 45,698,971 30,925,985
Fund shares:
Beginning of period 40,355,453 9,429,468
---------- ----------
End of period 86,054,424 40,355,453
========== ==========
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Units of In Exchange for Appreciation
Settlement Date Deliver/Receive Currency (in U.S. Dollars) (Depreciation)
------------------- ---------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Buys
5/9/96 MYR 142,193,046 $ 57,589,546 $ (781,550)
==================
Sales
10/1/96 DEM 82,105,000 $ 57,021,343 $ 517,832
5/9/96 MYR 142,193,046 56,807,995 -
------------------
$ 517,832
==================
</TABLE>
Currency Abbreviations:
DEM - German Deutsche Mark
MYR - Malaysian Ringgit
27
GMO EMERGING MARKETS FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
Unrealized
Notional Expiration Date Appreciation
Amount Description (Depreciation)
----------------- ---------------- ---------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
$ 5,236,544 11/20/96 Agreement with Union Bank of Switzerland dated 11/20/95
to pay the notional amount multiplied by 3-month LIBOR
plus .75% and to receive (pay) the return on the Taiwan
Weighted Index. (a) $ (23,634)
3,099,021 11/22/96 Agreement with Union Bank of Switzerland dated 11/22/95
to pay the notional amount multiplied by 3-month LIBOR
plus .75% and to receive (pay) the return on the Taiwan
Weighted Index. (a) (12,954)
1,000,000 12/4/96 Agreement with Barclays Bank PLC dated 12/5/95 to pay
the notional amount multiplied by 3-month LIBOR minus
2.00% and to receive (pay) the return on the Taiwan
Weighted Index. (a) (11,499)
4,000,000 12/12/96 Agreement with Barclays Bank PLC dated 12/13/95 to pay
the notional amount multiplied by 3-month LIBOR plus
1.00% and to receive (pay) the return on the Taiwan
Weighted Index. (a) (260,063)
1,000,000 12/12/96 Agreement with Barclays Bank PLC dated 12/13/95 to pay
the notional amount multiplied by 3-month LIBOR plus
1.00% and to receive (pay) the return on the Taiwan
Weighted Index. (a) (65,016)
2,500,000 1/3/97 Agreement with Barclays Bank PLC dated 1/5/96 to pay the
notional amount multiplied by
3-month LIBOR plus .75% and to receive (pay) the return
on the Taiwan Weighted Index. (a) (41,392)
10,000,000 1/17/97 Agreement with Barclays Bank PLC dated 1/18/96 to pay
the notional amount multiplied by
3-month LIBOR plus 2.90% and to receive (pay) the return
on the India portion of the IFC Investable Index. (a) 2,049,092
------------------
Net unrealized appreciation $ 1,634,534
==================
(a) Notional amount is increased (decreased) by each
periodic payment received or made.
* * *
</TABLE>
GMO EMERGING MARKETS FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham and Mr. Arjun Divecha are primarily responsible
for the day-to-day management of the Fund's portfolio. Mr. Grantham has been
with GMO since its founding in 1977. In October of 1993, a strategic alliance
was formed with Mr. Divecha, who serves as a subadvisor to the Fund.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Emerging Markets Fund underperformed the International Finance
Corporation Emerging Markets Investable Index for the fiscal year ended February
29, 1996, with a total return of 12.2% for the Fund versus 13.6% for the IFC
Investable Index. Consistent with the Fund's investment objectives and policies,
the Fund was invested substantially in equity securities throughout the period.
During the fiscal year, the Fund tended to overweight stocks in Korea, Taiwan
and India and underweight stocks in South Africa and Malaysia.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO EMERGING MARKETS FUND AND THE IFC INVESTABLE INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 12/09/93
10.0% N/A 3.3%
[Line Graph Appears Here]
Date GMO Emerging Markets Fund IFC Investable Index
12/09/93 9,840 10,000
02/28/94 11,941 10,893
02/28/95 9,612 8,364
02/29/96 10,746 9,499
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 160 bp on purchase and 40 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Past performance is not indicative
of future performance. Information is unaudited.
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 23, 1996
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 65.0%
ARGENTINA - 18.5%
AGP 58,670,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1 mo. Peso Deposit Rate, due 4/1/07 40,482,300
USD 75,000,000 Republic of Argentina Bocon Pro 2, PIK,
Variable Rate, 1 mo. LIBOR , due 4/1/07 60,000,000
USD 20,000,000 Republic of Argentina Discount Bond,
Variable Rate, 6 mo. LIBOR + 13/16 (6.56%), due 3/31/23 12,600,000
-----------------------
113,082,300
-----------------------
BRAZIL - 9.3%
USD 27,776,737 Republic of Brazil Capitalization Bond (Registered),
PIK, 8.00% due 4/15/14 16,752,706
USD 65,711,850 Republic of Brazil Capitalization Bond,
PIK, 8.00% due 4/15/14 39,632,131
USD 1,228,000 Republic of Brazil FLIRB Series L (Registered),
Variable Rate, Step up, 4.00%, due 4/15/09 669,260
-----------------------
57,054,097
-----------------------
BULGARIA - 4.2%
USD 10,833,479 Bulgaria Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 1 5/16 (6.75%), due 7/28/24 5,511,532
USD 1,000,000 Republic of Bulgaria FLIRB Series A (Registered),
Variable Rate, Step up, 2.00%, due 7/28/12 312,500
USD 38,000,000 Republic of Bulgaria FLIRB Series A ,
Variable Rate, Step up, 2.00%, due 7/28/12 11,875,000
USD 25,589,572 Republic of Bulgaria FLIRB Series B,
Variable Rate, Step up, 2.50%, due 7/28/12 8,060,715
-----------------------
25,759,747
-----------------------
CHINA - 0.5%
USD 3,000,000 Peoples Republic of China, 9.00% due 1/15/2096 2,831,250
-----------------------
COSTA RICA - 1.2%
USD 3,410,864 Central Bank of Costa Rica Interest Series A,
Variable Rate, 3 mo. LIBOR + 13/16 (6.09%), due 5/21/05 2,728,691
USD 1,940,664 Central Bank of Costa Rica Interest Series B,
Variable Rate, 3 mo. LIBOR + 13/16 (6.09%), due 5/21/05 1,513,718
USD 5,000,000 Central Bank of Costa Rica Principal Bond Series A,
6.25% due 5/21/10 3,150,000
-----------------------
7,392,409
-----------------------
DOMINICAN REPUBLIC - 1.2%
USD 14,957,000 Dominican Republic Discount Bond,
Variable Rate, 6 mo. LIBOR + 13/16 (6.56%), due 8/30/24 7,478,500
-----------------------
See accompanying notes to the financial statements.
1
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
ECUADOR - 3.2%
USD 15,000,000 Republic of Ecuador Par Bond,
Variable Rate, Step up, 3.25%, due 2/28/2025 (a) 5,296,800
USD 225,975 Republic of Ecuador PDI (Bearer), PIK,
Variable Rate, 6 mo. LIBOR +13/16 (6.81%), due 2/27/15 89,543
USD 36,477,085 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR +13/16 (6.81%), due 2/27/15 14,454,044
-----------------------
19,840,387
-----------------------
HUNGARY - 0.6%
USD 4,095,000 National Bank of Hungary, 8.88% due 11/1/13 3,702,699
-----------------------
JORDAN - 4.5%
USD 22,250,000 Republic of Jordan Par Bond,
Variable Rate, Step up, 4.00%, due 12/23/23 144A 11,570,000
USD 3,241,547 Republic of Jordan PDI (Registered), Variable Rate,
6 mo. LIBOR + 13/16 (6.44%), due 12/23/05 144A 2,528,407
USD 17,385,795 Republic of Jordan PDI,
Variable Rate, 6 mo. LIBOR + 13/16 (6.44%), due 12/23/05 13,560,920
-----------------------
27,659,327
-----------------------
LITHUANIA - 0.5%
USD 3,000,000 Republic of Lithuania (Registered),
10% due 12/22/97 144A 2,996,250
-----------------------
MEXICO - 7.6%
USD 17,500,000 Mexico Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + 13/16 (6.77%), due 12/31/19 12,425,000
USD 12,550,000 Mexico Par Bond Series A, 6.25% due 12/31/19 7,757,406
USD 8,000,000 Mexico Par Bond Series B, 6.25% due 12/31/19 4,944,960
FRF 213,250,000 Mexico Par Bond, 6.63% due 12/31/19 21,929,835
-----------------------
47,057,201
-----------------------
NETHERLANDS - 0.3%
USD 2,000,000 Indah Kiat International Finance, 12.50% due 6/15/06 2,020,000
-----------------------
NIGERIA - 0.9%
USD 11,000,000 Central Bank of Nigeria Par Bond,
Variable Rate, Step up, 6.25%, due 11/15/20 5,527,500
-----------------------
PAKISTAN - 0.4%
USD 2,500,000 Islamic Republic of Pakistan, 11.50% due 12/22/99 2,571,875
-----------------------
PHILIPPINES - 0.4%
USD 3,000,000 Central Bank of the Philippines Par,
Variable Rate, Step up, 6.25%, due 12/1/17 (a) 2,377,500
-----------------------
See accompanying notes to the financial statements.
2
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
POLAND - 1.8%
USD 12,000,000 Poland Discount Bond (Registered), Variable Rate, 6 mo.
LIBOR + 13/16 (6.88%), due 10/27/24 10,320,000
USD 2,000,000 Poland RSTA (Registered),
Variable Rate, Step up, 2.75%, due 10/27/24 1,017,500
-----------------------
11,337,500
-----------------------
RUSSIA - 0.9%
USD 12,500,000 Russia Ministry of Finance, 2.63% due 5/14/03 5,250,000
-----------------------
SOUTH AFRICA - 1.6%
SAR 20,000,000 Republic of South Africa, 13.00% due 8/31/10 4,622,222
SAR 20,000,000 Republic of South Africa, 15.00% due 10/1/98 5,273,902
-----------------------
9,896,124
-----------------------
TURKEY - 0.4%
GBP 2,000,000 Republic of Turkey, 9.00% due 10/27/03 2,663,766
-----------------------
UNITED STATES - 0.5%
STRUCTURED NOTE - 0.5%
USD 3,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (c) 3,369,000
-----------------------
URUGUAY - 0.7%
USD 6,000,000 Central Bank of Uruguay DCB,
Variable Rate, 6 mo. LIBOR + 13/16 (6.44%), due 2/18/07 4,372,500
-----------------------
VENEZUELA - 5.8%
USD 18,000,000 Republic of Venezuela DCB,
Variable Rate, 6 mo. LIBOR + 14/16 (6.75%), due 12/18/08 9,517,500
USD 4,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + 13/16 (6.69%), due 3/31/20 2,220,000
USD 9,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6 mo. LIBOR + 13/16 (6.56%), due 3/31/20 4,995,000
USD 1,500,000 Republic of Venezuela FLIRB Series B,
Variable Rate, 6 mo. LIBOR + 14/16 (6.63%), due 3/31/07 819,375
USD 378,000 Republic of Venezuela FLIRB Series B Odd Lot,
Variable Rate, 6 mo. LIBOR + 14/16 (6.63%), due 3/31/07 202,703
USD 33,515,500 Republic of Venezuela New Money Bond Series A,
Variable Rate, 6 mo. LIBOR + 1 (6.69%), due 12/18/05 17,888,902
-----------------------
35,643,480
-----------------------
TOTAL DEBT OBLIGATIONS (Cost $340,853,748) 399,883,412
-----------------------
LOAN ASSIGNMENTS - 0.2%
CONGO - 0.1%
FRF 20,400,000 Congo Loan Agreement (Direct Assignment)* 536,490
-----------------------
LIBERIA - 0.1%
JPY 1,500,000,000 Republic of Liberia Loan Agreement (Direct Assignment)* 650,732
-----------------------
TOTAL LOAN ASSIGNMENTS (Cost $1,196,726) 1,187,222
-----------------------
See accompanying notes to the financial statements.
3
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS - 21.3%
ALGERIA - 1.4%
JPY 217,500,000 Algeria Reprofiled Loan
Japanese LIBOR + 1 1/2 (Participation with Bank of America) 930,636
USD 2,000,000 Algeria Reprofiled Loan
LIBOR + 1 3/8 (Participation with Salomon) 1,039,997
FRF 60,000,000 Algeria Syndicated Loan
LIBOR + 1 1/4 (Participation with Salomon) 5,239,863
USD 3,079,365 Algeria Syndicated Loan LIBOR + 3/8 and LIBOR + 5/8
(Sub-Participation with Bankers Trust Co.) 1,354,921
-----------------------
8,565,417
-----------------------
CAMEROON - 0.3%
NLG 28,052,902 Cameroon Loan Agreement
(Participation with Bank of America and Salomon)* 2,088,411
-----------------------
CHILE - 0.7%
JPY 463,687,933 Banco del Estado de Chile Restructuring Agreement
Japanese LIBOR + 13/16 (Participation with Citicorp NA) 4,025,801
-----------------------
IVORY COAST - 1.7%
FRF 204,243,357 Ivory Coast Credit Agreements (Participation with
Banque Paribas, J.P. Morgan, Bank of America and Salomon)* 7,702,248
FRF 36,900,000 Ivory Coast Refinancing Agreement
(Participation with Banque Paribas and Bank of America)* 1,391,541
DEM 361,735 Ivory Coast Credit Agreement (Participation with Salomon)* 35,073
SDR 2,974,383 Ivory Coast Credit Agreement (Participation with Salomon)* 622,508
USD 1,641,700 Ivory Coast Refinancing Agreement (Participation with Salomon)* 217,525
JPY 428,291,342 Ivory Coast Refinancing Agreement (Participation with Salomon)* 580,312
BEF 18,333,554 Ivory Coast Refinancing Agreement (Participation with Salomon)* 86,459
-----------------------
10,635,666
-----------------------
JAMAICA - 0.8%
USD 7,000,000 Jamaica Refinancing Agreement Tranche B, LIBOR + 13/16
(Participation with Salomon and Chase Manhattan Bank) 4,970,000
-----------------------
MOROCCO - 4.7%
JPY 4,373,738,837 Morocco Restructuring and Consolidating Agreement Tranche A
Japanese Long Term Prime + .1175%
(Participation with Bankers Trust Co. and J.P. Morgan) 22,041,281
JPY 384,300,844 Morocco Restructuring and Consolidating Agreement Tranche A
Japanese Long Term Prime + .2175%
(Participation with J. P. Morgan) 1,936,669
USD 8,000,000 Morocco Restructuring and Consolidating Agreement Tranche A
LIBOR + 13/16 (Participation with Banque Paribas) 5,200,000
-----------------------
29,177,950
-----------------------
NIGERIA - 1.0%
USD 15,000,000 Nigeria Promissory Notes 5.92%
(Participation with Salomon and J. P. Morgan) 6,262,500
-----------------------
See accompanying notes to the financial statements.
4
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
PANAMA - 1.6%
JPY 886,232,904 Panama Loan Agreement
(Participation with Chase Manhattan Bank, and Citicorp N.A.)* 5,982,936
USD 5,000,000 Panama Loan Agreement (Participation with Chase Manhattan Bank)* 3,950,000
-----------------------
9,932,936
-----------------------
PERU - 0.7%
USD 5,000,000 Peru Banco Central Stand-by Credit Agreement
(Participation with Bankers Trust Co.)* 4,200,000
-----------------------
RUSSIA - 8.3%
USD 2,500,000 International Bank for Economic Cooperation (Comecon Countries)
Loan Agreement (Participation with Bank of America)* 575,000
DEM 10,000,000 International Investment Bank (Comecon Countries)
Loan Agreement (Participation with Bank of America)* 1,854,120
USD 46,000,000 International Investment Bank (Comecon Countries) Loan Agreement
(Participation with Bank of America, Salomon and New Alliance)* 12,305,000
NLG 2,165,880 Russia Vnesheconombank Loan Agreement
(Participation with J. P. Morgan)* 440,942
FRF 413,721,000 Russia Vnesheconombank Loan Agreement (Participation
with Banque Paribas, Bank of America,
Chase Manhattan Bank and Lehman)* 27,508,591
GBP 11,309,552 Russia Vnesheconombank Loan Agreement
(Participation with Chase Manhattan Bank and Bank of America)* 5,800,121
ECU 3,000,000 Russia Vnesheconombank Note Purchase Agreement
(Sub-participation with Bank of America)* 1,075,590
ECU 5,000,000 Russia Vnesheconombank Note Purchase Agreement
(Participation with J. P. Morgan)* (d) 1,749,564
-----------------------
51,308,928
-----------------------
SENEGAL - 0.1%
USD 2,142,241 Senegal Refinancing Credit Agreement (Participation with Salomon)* 348,114
-----------------------
TOTAL LOAN PARTICIPATIONS (Cost $116,253,191) 131,515,723
-----------------------
See accompanying notes to the financial statements.
5
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT CALL OPTIONS PURCHASED - 5.7%
(000's omitted) OPTIONS ON BONDS - 5.7%
USD 26,250 Brazil Discount Z,
Expires 5/6/96 Knock Out 52.00, Strike at 52.00 2,310,866
USD 177,000 Brazil Par Bond,
Expires 4/10/96 Knock Out 40.00, Strike at 40.00 17,971,872
USD 25,000 Brazil Par Bond,
Expires 4/16/96 Knock Out 40.50, Strike at 40.50 2,406,550
USD 42,000 Mexico Discount Bond,
Expires 4/29/96 Knock Out 60.00, Strike at 60.00 4,620,882
USD 25,000 Mexico Par Bond,
Expires 4/22/96 Knock Out 54.00, Strike at 54.00 1,841,425
USD 50,000 Venezuela Par Bond,
Expires 4/24/96 Knock Out 42.00, Strike at 42.00 6,114,100
-----------------------
35,265,695
-----------------------
TOTAL CALL OPTIONS PURCHASED (Cost $26,380,050) 35,265,695
-----------------------
PUT OPTIONS PURCHASED - 0.1%
OPTIONS ON BONDS - 0.1%
USD 9,300 Brazil IDU Brady Bond, Expires 3/21/96 Strike 81.88 -
USD 13,950 Brazil IDU Brady Bond, Expires 3/7/96 Strike 81.75 -
USD 4,650 Brazil IDU Brady Bond, Expires 4/8/96 Strike 82.94 897
USD 6,510 Brazil IDU Brady Bond, Expires 5/16/96 Strike 86.81 66,448
USD 9,300 Brazil IDU Brady Bond, Expires 5/24/96 Strike 87.13 116,213
USD 13,950 Brazil IDU Brady Bond, Expires 5/24/96 Strike 87.38 192,008
-----------------------
375,566
-----------------------
TOTAL PUT OPTIONS PURCHASED (Cost $352,006) 375,566
-----------------------
SHARES RIGHTS AND WARRANTS - 0.0%
MEXICO - 0.0%
86,761,000 Mexican Value Recovery Rights, Expires 6/30/03 -
-----------------------
NIGERIA - 0.0%
15,000 Central Bank of Nigeria Payment Adjusted Warrants,
Expires 11/15/20 -
-----------------------
VENEZUELA - 0.0%
62,840 Republic of Venezuela Recovery Warrants,
Expires 4/15/20 -
-----------------------
TOTAL RIGHTS AND WARRANTS (Cost $0) -
-----------------------
See accompanying notes to the financial statements.
6
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
PAR VALUE ($)/ SHORT-TERM INVESTMENTS - 9.0%
SHARES REPURCHASE AGREEMENT - 4.0%
$ 24,605,317 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/01/96, with a maturity value of $24,608,680 and an
effective yield of 4.92%, collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
with maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $25,067,804. 24,605,317
-----------------------
U.S. GOVERNMENT - 3.6%
$ 23,000,000 U.S. Treasury Bill, 4.79% due 1/9/97 (b) 22,012,978
-----------------------
CASH EQUIVALENTS - 1.4%
1,081,434 American Advantage Money Market Fund 1,081,434
$ 3,239,639 Bank of Boston Time Deposit, 6.26% due 3/1/96 3,239,639
$ 1,351,793 First Union National Bank Time Deposit, 5.44% due 3/1/96 1,351,793
$ 287,077 First Union National Bank Time Deposit, 5.50% due 3/1/96 287,077
1,560,057 Lehman Prime Value Money Market Fund 1,560,057
$ 1,000,000 Prudential Securities Group, Inc.
Master Note, 5.69% due 3/1/96 1,000,000
-----------------------
8,520,000
-----------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $55,156,502) 55,138,295
-----------------------
TOTAL INVESTMENTS - 101.3%
(Cost $540,192,223) * * 623,365,913
Other Assets and Liabilities (net) - (1.3%) (7,880,870)
-----------------------
TOTAL NET ASSETS - 100.0% 615,485,043
=======================
See accompanying notes to the financial statements.
7
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
PIK - Payment In Kind.
PDI - Past Due Interest.
RSTA - Revolving Short-Term Trade Related Facility Agreement.
Knock Out - Option will expire if underlying
security reaches Knock Out price.
144A - Securities exempt from
registration under Rule 144A of the
Securities Act of 1933. These
securities may be resold in
transactions exempt from
registration, normally to qualified
institutional investors.
Variable and Step up rates - The rates shown
on variable and step up rate notes
are the current interest rates at
February 29, 1996, which are subject
to change based on the terms of the
security.
(a) All or a portion of this security is on loan.
(b) All or a portion of 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. Restricted as to
public resale. At the date of
acquisition, this security was valued at
cost. There were no outstanding
unrestricted securities of the same
class as those held.
(d) Security contains a swap feature dated
12/5/95, expiring 3/24/97, with a
current notional amount of $1,500,000 to
pay 7.80% and receive 6 mo. ECU LIBOR +
0.25%.
* Non-performing. Borrower not currently paying interest.
** The aggregate identified cost for
federal income tax purposes is
$541,257,694 resulting in gross
unrealized appreciation and
depreciation of $85,658,627 and
$3,550,408, respectively, and net
unrealized appreciation of
$82,108,219.
CURRENCY ABBREVIATIONS
AGP - Argentinian Peso JPY - Japanese Yen
BEF - Belgian Franc NLG - Netherlands Guilder
DEM - German Mark PZL - Polish Zloty
ECU - European Currency Unit SAR - South African Rand
FRF - French Franc SDR - Special Drawing Rights
GBP - British Pound Sterling USD - United States Dollar
</TABLE>
See accompanying notes to the financial statements.
8
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $540,192,223) (Note 1) $ 623,365,913
Foreign currency, at value (cost $1,263,590) (Note 1) 1,250,746
Receivable for investments sold 6,319,097
Receivable for open swap contracts (Notes 1 and 6) 23,609
Receivable for Fund shares sold 666,000
Interest receivable 8,368,749
Receivable for open forward foreign currency contracts (Note 6) 1,296,442
Receivable for expenses waived or borne by Manager (Note 2) 167,343
---------------------
Total assets 641,457,899
---------------------
LIABILITIES:
Payable for investments purchased 16,231,181
Written options outstanding, at value (premiums $352,000) (Note 6) 2,640
Payable upon return of securities loaned (Note 1) 8,524,373
Payable for open forward foreign currency contracts (Note 6) 595,627
Payable for variation margin on open futures contracts 79,303
Payable to affiliate for management fee (Note 2) 264,915
Accrued expenses 274,817
---------------------
Total liabilities 25,972,856
---------------------
NET ASSETS (equivalent to $11.76 per share based
on 52,339,284 shares outstanding, unlimited shares authorized) $ 615,485,043
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 496,046,665
Accumulated undistributed net investment income 13,630,078
Accumulated undistributed net realized gain 17,949,090
Net unrealized appreciation 87,859,210
=====================
NET ASSETS $ 615,485,043
=====================
</TABLE>
See accompanying notes to the financial statements.
9
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $48,125) $ 67,635,234
---------------------
EXPENSES:
Management fee (Note 2) 2,504,503
Custodian and transfer agent fees 554,695
Legal fees 99,237
Registration fees 84,129
Audit fees 64,731
Insurance 4,269
Trustee fee (Note 2) 1,914
Miscellaneous 1,128
---------------------
Total expenses 3,314,606
Less: expenses waived or borne by Manager (Note 2) (810,112)
---------------------
Net expenses 2,504,494
---------------------
Net investment income 65,130,740
---------------------
REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain
(loss) on:
Investments 63,066,570
Closed futures contracts (5,977,569)
Written options 497,942
Foreign currency, forward contracts and foreign
currency related transactions 3,494,477
---------------------
Net realized gain 61,081,420
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 112,958,567
Open futures contracts 4,494,361
Written options 853,587
Open swap contracts 23,609
Foreign currency, forward contracts and foreign
currency related transactions 1,393,297
---------------------
Net unrealized gain 119,723,421
---------------------
Net realized and unrealized gain 180,804,841
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 245,935,581
=====================
</TABLE>
See accompanying notes to the financial statements.
10
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM APRIL 19, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 1996 TO FEBRUARY 28, 1995
----------------------- ---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 65,130,740 $ 8,832,634
Net realized gain (loss) 61,081,420 (6,189,201)
Change in net unrealized appreciation (depreciation) 119,723,421 (31,864,211)
--------------------- ---------------------
Net increase (decrease) in net assets resulting from operations 245,935,581 (29,220,778)
--------------------- ---------------------
Distributions to shareholders from:
Net investment income (55,195,795) (6,479,050)
Net realized gains (30,587,693) -
In excess of net realized gain - (1,550,403)
--------------------- ---------------------
(85,783,488) (8,029,453)
--------------------- ---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 342,519,546 277,027,720
Net asset value of shares issued to shareholders
in payment of distributions declared 61,638,059 5,095,310
Cost of shares repurchased (192,275,999) (1,421,455)
--------------------- ---------------------
Net increase in net assets resulting
from Fund share transactions 211,881,606 280,701,575
--------------------- ---------------------
Total increase in net assets 372,033,699 243,451,344
NET ASSETS:
Beginning of period 243,451,344 -
---------------------
---------------------
End of period (including accumulated undistributed
net investment income of $13,630,078 and
$2,358,106, respectively) $ 615,485,043 $ 243,451,344
===================== =====================
</TABLE>
See accompanying notes to the financial statements.
11
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM APRIL 19, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
FEBRUARY 29, 1996 TO FEBRUARY 28, 1995
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.39 $ 10.00
------------ -------------
Income from investment operations:
Net investment income (a) 1.35 0.48
Net realized and unrealized gain (loss) 3.84 (1.59)
------------ -------------
Total from investment operations 5.19 (1.11)
------------ -------------
Less distributions to shareholders:
From net investment income (1.17) (0.40)
From net realized gains (0.65) -
In excess of net realized gains - (0.10)
------------ -------------
Total distributions (1.82) (0.50)
------------ -------------
NET ASSET VALUE, END OF PERIOD $ 11.76 $ 8.39
============= ============
TOTAL RETURN (B) 63.78% (11.65%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 615,485 $ 243,451
Net expenses to average
daily net assets (a) 0.50% 0.50%*
Net investment income to average
daily net assets (a) 12.97% 10.57%*
Portfolio turnover rate 158% 104%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of
the following per share amounts: $ 0.02 $ 0.01
(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.
12
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Emerging Country Debt Fund (the "Fund") is a series of GMO Trust
(the "Trust"). The Fund is registered under the Investment Company Act of
1940, as amended, as an open-end, non-diversified management investment
company. The Fund is advised and managed by Grantham, Mayo, Van Otterloo &
Co. (the "Manager"). The Trust was established as a Massachusetts Business
Trust under the laws of the Commonwealth of Massachusetts on June 24, 1985.
The Declaration of Trust permits the Trustees to create an unlimited number
of series ("Funds"), each of which issues a separate series of shares.
The Fund seeks high total return by investing primarily in sovereign debt
of countries in Asia, Latin America, the Middle East, Southern Europe,
Eastern Europe and Africa.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 29, 1996, the
total value of these securities represented 12.88 % of net assets. These
prices may differ from the value that would have been used had a broader
market for the securities existed and the differences could be material to
the financial statements.
13
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currenciescurrency
gains and losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 29, 1996.
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
14
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996.
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 all open written option contracts as of February 29, 1996.
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 direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the
15
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
governmental entities responsible for the repayment of the debt may be
unable, or unwilling to pay the principal and interest when due.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
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 29, 1996, the Fund
loaned securities having a market value of $7,674,300, collateralized by
cash in the amount of $8,520,000, which was invested in short-term
instruments.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to interest rates. The Fund entered into interest rate swap agreements
which involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. Interest rate swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may
16
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
default on its obligation to perform and that there may be unfavorable
changes in the fluctuation of interest rates. See Note 6 for a summary of
the open swap agreement as of February 29, 1996.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest income have been withheld in
accordance with the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
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 29, 1996. 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>
$1,337,027 ($ 4,800,511) $ 3,463,484
</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, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
17
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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. Effective with shares acquired on or after July 1, 1995, the
premium on cash redemptions is .25% 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. For the
year ended February 29, 1996, the Fund received $1,393,282 in purchase
premiums and $4,743 in redemption premiums. There is no premium for
reinvested distributions or in-kind transactions.
INVESTMENT RISK
Investments in emerging country debt present certain risks that are not
inherent in many other securities. Many emerging countries present elements
of political and/or economic instability, which may result in the fund's
inability to collect on a timely basis, or in full, principal and interest
payments. Further, countries may impose various types of foreign currency
regulations or controls which may impede the fund's ability to repatriate
amounts it receives. The fund may acquire interest in securities or bank
loans which are in default at the time of acquisition in anticipation of
improving conditions in the related countries. These factors may result in
significant volatility in the values of its holdings. The markets for
emerging country debt are relatively illiquid. Accordingly, the fund may
not be able to realize in an actual sale amounts approximating those used
to value its holdings.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 management fee but excluding brokerage commissions and transfer
taxes) exceed .50% of average daily net assets. Effective March 1, 1996,
custody fees will be excluded from the expense limitation.
The Fund's portion of the fee paid by the Trust to the unaffiliated Trustee
during the year ended February 29, 1996, was $1,914. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
18
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- --------------------
<S> <C> <C>
U.S. Government securities $ - $ 8,098,984
Investments (non-U.S. Government securities) 835,119,984 698,133,602
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 28% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from April 19, 1994
Year Ended (commencement of operations) to
February 29, 1996 February 28, 1995
-------------------------- -------------------------------------
<S> <C> <C>
Shares sold 34,834,354 28,628,219
Shares issued to shareholders in
reinvestment of distributions 5,671,374 549,064
Shares repurchased (17,191,233) (152,494)
------------------ -------------------
Net increase 23,314,495 29,024,789
Fund shares:
Beginning of period 29,024,789
------------------ -------------------
End of period 52,339,284 29,024,789
================== ===================
</TABLE>
19
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units In Exchange for Appreciation
Date Deliver/Receive of Currency (in U.S. Dollars) (Depreciation)
----------------- ------------------------- ------------------ --------------------- --------------------
<S> <C> <C> <C> <C>
Buys
8/12/96 PZL 27,384,790 $ 10,000,000 $ (49,826)
====================
Sales
3/7/96 AGP 5,000,000 $ 4,991,514 $ (6,536)
4/29/96 AGP 10,000,000 9,967,109 16,860
5/28/96 AGP 5,000,000 4,977,601 28,657
4/29/96 FRF 313,000,000 61,688,612 (539,265)
3/1/96 JPY 3,714,086 35,491 171
3/26/96 JPY 3,800,000,000 37,507,921 1,250,754
--------------------
$ 750,641
====================
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number of Contract Value Net Unrealized
Contracts Type Expiration Date Appreciation
-------------- -------------------------------- ---------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Sales
200 Euro Dollar June 1996 $ 47,385,000 $ 163,500
100 MATIF June 1996 12,122,367 59,743
600 U.S. Treasury Bill March 1996 68,906,250 2,939,250
200 U.S. Treasury Bill June 1996 22,862,500 420,375
100 90 Day U.S. Treasury Bill June 1996 23,805,000 31,750
--------------------
$ 3,614,618
====================
</TABLE>
At February 29, 1996, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
20
GMO EMERGING COUNTRY DEBT FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
WRITTEN OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Puts Calls
Premiums Premiums
------------------ ------------------
<S> <C> <C>
Outstanding, beginning of period $ 206,773 $ -
------------------ ------------------
Options written 291,170 352,000
Options expired 497,943
------------------ ------------------
Outstanding, end of period $ - $ 352,000
================== ==================
</TABLE>
SUMMARY OF WRITTEN OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Principal Amount of
Contracts (000's Exercise Price Expiration Date
omitted) Value
---------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Republic of Brazil
Capitalization Bond Call $ 40,000 USD $ 60.00 4/10/96 $ 2,640
==================
</TABLE>
SWAP AGREEMENT
<TABLE>
<CAPTION>
Notional Expiration Date Unrealized
Amount Description Appreciation
----------------- ---------------- ---------------------------------------------------------- ------------------
<S> <C> <C> <C>
$ 1,500,000 3/24/97 Agreement with Morgan Guaranty Trust Company dated $ 23,609
12/5/95 to pay the notional amount multiplied by the 6
month ECU LIBOR plus 0.25% and to receive the notional
amount multiplied by 7.80%.
</TABLE>
See Notes to the Schedule of Investments for definitions
of currency abbreviations.
* * *
21
GMO EMERGING COUNTRY DEBT FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily
responsible for the day-to-day management of the Fund's portfolio. Both
individuals joined Grantham, Mayo, Van Otterloo & Co. in this capacity in
October of 1993.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Emerging Country Debt Fund outperformed the J.P. Morgan
Emerging Markets Bond Index Plus for the period ended February 29, 1996 with a
total return of 63.8% versus 42.0% for the J.P. Morgan Emerging Markets Bond
Index Plus. Emerging debt has performed strongly throughout the year, especially
in the non-Latin countries such as Poland and Bulgaria. Our exposure to such
strong performers as well as to Venezuelan, Russian and Argentine debt helped
boost performance. GMO's strategy of diversification to non-Latins and an
underweight in Mexico contributed to the Fund's overall outperform-ance. In
addition, the continued improvement of fundamentals in the major Latin countries
and an easing of rates by the Fed accounted for exceptionally strong returns in
almost all emerging market countries.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO EMERGING COUNTRY DEBT FUND AND THE
J.P MORGAN EMERGING MARKETS BOND INDEX PLUS ("EMBI+")
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 04/19/94
62.6% N/A 21.4%
[Line Graph Appears Here]
J.P. Morgan J.P. Morgan
Emerging Markets Emerging Markets
Date GMO Emerging Country Debt Fund Bond Index Bond Index +
04/19/94 9,950 10,000 10,000
02/28/95 8,792 9,220 9,220
02/29/96 14,364 13,000 13,030
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 50 bp on purchase and 25 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Prior to 7/31/95 the benchmark was
the J.P. Morgan Emerging Markets Index (EMBI). From August 1, 1995 going
forward, the benchmark was EMBI+. The performance of the EMBI Index is also
shown form August 1, 1995 forward for comparison. The benchmark was changed from
EMBI to EMBI+ because the newly available EMBI+ Index is more comprehensive,
represents a larger portion of the market capitalization of the emerging country
debt asset class, and is otherwise more representative of the universe of
investments the Fund will utilize. Past performance is not indicative of future
performance. Information is unaudited.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 23, 1996
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 86.4%
AUSTRALIA - 2.9%
4,460 Aberfoyle Ltd 12,345
32,048 Adelaide Brighton Ltd 31,612
175,703 Australia and New Zealand Banking Group Ltd 863,879
140,385 Australian National Industries Ltd 113,786
19,386 Australian Resources Ltd 20,605
22,136 Australian Tourism Group 17,265
11,496 Azon Limited 16,262
117,572 Boral Ltd 317,352
25,802 Bougainville Copper Ltd * 13,219
4,060 BRL Hardy Ltd 7,451
19,981 BT Property Trust 24,446
98,471 Burns Philp & Co Ltd 219,864
37,974 Burswood Property Trust 53,718
15,457 Caltex Australia Ltd 59,687
3,565 Commonwealth Bank of Australia 29,495
683 Consolidated Rutile Ltd * 1,149
250,832 CSR Ltd 872,684
4,990 Dominion Mining Nl * 2,785
5,945 Eltin Ltd 12,046
36,160 Email Ltd 95,668
9,756 Foodland Associated 36,554
4,246 Gasgoyne Gold Mines 9,026
39,706 General Property Trust Units 70,742
39,496 Gio Australia Holdings Ltd 94,830
304,802 Goodman Fielder Ltd 323,963
14,350 GWA International Ltd 18,873
71,184 Hardie (James) Industries Ltd 134,989
5,945 Holyman Ltd 13,137
10,998 Metal Manufactures Ltd 26,490
5,010 Mount Leyshon Gold Mines 16,473
16,442 National Australia Bank Ltd 157,783
3,344 National Consolidated Ltd 2,301
377,215 News Corp Ltd 2,145,975
229,413 News Corp Ltd Preferred 1.19% 1,157,776
64,216 North Broken Hill Peko Ltd 189,046
18,579 Orbital Engine Corp * 13,780
5,945 Orion Resources 7,364
243,513 Pacific Dunlop Ltd 577,227
44,007 Pacific Magazines and Printing Ltd 109,362
293,500 Pioneer International Ltd 870,768
54,018 Publishing & Broadcasting Ltd 218,916
58,053 Qantas Airways Ltd 105,649
25,159 QCT Resources Ltd 31,165
40,192 QNI Ltd 82,364
See accompanying notes to the financial statements. 1
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA - CONTINUED
15,509 Ross Mining 18,500
11,781 Rothmans Holdings Ltd 54,050
88,794 Santos Ltd 279,733
120,024 Schroders Property 200,990
4,206 Sea World Property Trust 3,441
32,641 Seven Network Ltd 101,084
8,901 Simsmetal Ltd 49,208
35,942 Southcorp Holdings Ltd 88,495
9,787 St Barbara Mines Ltd 6,286
83,526 Stockland Trust Group 196,714
3,365 Stockland Trust New * 7,610
25,848 Walker Corp 9,685
2,682 Wesfi Ltd 7,793
10,176 Westfield Trust New 17,152
234,445 Westfield Trust Units 412,317
6,831 Weston Foods Ltd 39,436
113,973 Westpac Banking Corp 538,584
19,211 Wills (WD & HO) Holdings Ltd 30,848
------------------------
11,261,797
------------------------
AUSTRIA - 0.6%
61 Allgemeine Baugesellschaft AG 6,137
242 Austrian Airlines * 44,600
3,069 Bank Austria AG 239,604
1,608 Bank Austria AG Preferred (Non Voting) 72,026
1,704 Bank Austria AG (Participating Certificate) 65,117
1,459 Bau Holding AG Preferred 2.42% (Non Voting) 68,458
2,410 Brau Union AG 138,493
3,032 Creditanstalt-Bankverein 188,610
2,323 Creditanstalt-Bankverein Preferred 1.65% 136,865
207 EA-Generali AG 71,673
120 EA-Generali AG Preferred 6.00% 20,885
1,291 EVN Energie-Versorgung Niederoesterreich AG 171,233
99 Jenbacher Werke AG 16,857
425 Lenzing AG 35,771
783 Leykam-Muerztaler Papier und Zellstoff AG * 28,785
318 Miba Holding AG Series B Preferred 1.34% 12,921
2,127 OEMV AG 198,573
2,019 Oesterreichische Brau Beteiligungs AG 103,523
4,549 Oesterreichische Elektrizitaetswirschafts AG 299,260
267 Perlmooser Zementwerke AG 18,107
1,380 Radex-Heraklith AG 46,727
402 RAS Versicherungs AG 61,409
739 Steyr-Daimler-Puch AG * 11,368
178 Strabag Oesterreich AG 12,054
332 Universale Bau AG * 15,578
2 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRIA - CONTINUED
108 Wiener Allianz Versicherungs AG 21,001
405 Wienerberger Baustoffindustrie AG 91,488
------------------------
2,197,123
------------------------
BELGIUM - 0.0%
136 Banque Brussells Lambert 25,789
20 Banque Nationale de Belgique 29,867
100 Electrabel SA 23,033
50 Solvay Et Cie 29,330
------------------------
108,019
------------------------
CANADA - 0.9%
6,600 Abitibi-Price Inc 92,018
4,000 Alberta Energy Ltd * 69,619
500 Avenor Inc 7,017
11,800 Bank of Montreal 274,194
14,490 Bank of Nova Scotia 324,817
600 BC Telecom Inc 11,044
2,310 BCE Inc 80,410
2,500 Brascan Ltd Class A (Convertible) 42,145
20,400 Canadian Imperial Bank of Commerce 606,014
1,400 Canadian Marconi Co * 14,288
3,300 Canadian Tire Ltd Class A 35,183
1,100 Canfor Corp 10,324
1,600 CCL Industries Class B 14,143
600 Dofasco Inc 8,912
4,100 Dominion Textile Inc 20,922
22,800 Domtar Inc 157,900
900 Donohue Inc Class A 11,400
10,600 Fletcher Challenge Class A 139,092
8,500 Gulf Canada Resources Ltd * 37,179
3,100 Hees International Bancorp Inc 35,028
1,900 Hudsons Bay Co 24,412
3,100 Imasco Ltd 58,757
5,800 Imperial Oil Ltd 212,466
19,200 Macmillan Bloedel Ltd 244,943
800 Molson Class A 13,414
16,800 National Bank of Canada 136,249
7,700 Noranda Forest Inc 49,116
2,200 Noranda Inc 43,302
1,600 Nova Scotia Power Inc 14,143
900 Oshawa Group Ltd Class A 15,008
4,300 Petro Canada 52,898
1,800 Power Corp 25,752
11,280 Royal Bank of Canada 257,999
1,700 Sears Canada Inc 7,281
900 Sherritt Inc * 12,138
See accompanying notes to the financial statements. 3
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
CANADA - CONTINUED
2,100 Telus Corp 25,451
14,300 Toronto Dominion Bank 242,373
3,200 Transcanada Pipelines Ltd 45,198
2,300 United Dominion Inds Ltd 55,331
800 Westcoast Energy Inc 12,685
------------------------
3,540,565
------------------------
FINLAND - 0.1%
1,400 Amer Group Class A 23,718
500 Cultor OY Series 1 21,232
5,000 Enso Gutzeit Oy A Series A 35,203
1,800 Finnair Series A 14,653
600 Huhtamaki Oy Series L 20,462
2,700 Kemira OY 24,356
2,000 Kesko OY 25,082
100 Kone Corp Class B 9,307
2,000 Kymmene OY Sh Fria 55,885
30,766 Merital Ltd * 79,199
300 Metra AB Class A 11,881
400 Metra AB Class B 15,841
860 Nokia Corp Class A 29,896
3,000 Outokumpu Series A 48,184
1,000 Partek OY 13,861
3,700 Repola OY 73,999
200 Stockmann AB Series A 11,001
200 Stockmann AB Series B 9,769
1,000 Valmet OY 27,062
------------------------
550,591
------------------------
FRANCE - 1.3%
150 Agache Financiere * 46,772
190 Air Liquide 33,639
7,480 Alcatel Alsthom Cie Generale d'Electricite SA 663,784
17,081 Banque Nationale de Paris 661,102
27,785 Compagnie de Suez SA 1,078,697
2,879 Credit Commercial de France 137,086
1,377 Credit Local de France SA 109,406
1,822 Credit National 142,845
1,311 FINEXTEL 19,516
200 Labinal SA 29,375
5,899 Lafarge Coppee SA 405,931
2,634 Pechiney SA Class A * 106,913
2,449 Peugeot SA 366,505
5,700 Renault SA 167,326
4 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANCE - CONTINUED
9,068 Rhone Poulenc SA Series A 226,239
100 Saint Louis 31,757
200 Saint-Gobain 25,803
688 Societe Generale d 'Entreprise SA 16,114
4,156 Societe Generale Paris 474,312
4,572 Thomson CSF 117,334
3,800 Worms et Compagnie SA 214,956
------------------------
5,075,412
------------------------
GERMANY - 2.3%
250 AEG AG 27,829
860 Bankgesellschaft Berlin AG 233,184
2,000 BASF AG 499,966
10,390 Bayer AG 3,170,657
18,900 Bayer Hypo (Wech) Bank 484,813
20,100 Bayer Vereinsbank AG 602,029
190 Bayerische Motorenwerke AG 106,784
50 Berliner Kraft und Licht AG Class A 13,897
9,650 BHF Bank AG 267,235
350 Bremer Vulkan Verbund AG * 4,763
2,700 Commerzbank AG 617,269
1,250 Continental AG 21,339
430 Daimler-Benz AG 237,426
150 Degussa 54,093
32,100 Dresdner Bank 839,794
300 Fried Krupp AG * 40,641
50 GEA AG Preferred 3.13% 16,636
25 Gehe AG New * 13,693
1,450 Hoechst AG 456,005
350 Kugelfischer George Schaefer AG * 48,343
50 Linotype Hell AG * 5,103
100 Papierwerke Waldhof * 14,425
150 Philips Kommunikations Industrie AG 52,868
300 Puma AG Preferred * 111,247
390 Siemens AG 222,505
500 Thyssen AG 95,768
200 Villeroy and Boch AG 28,373
900 Volkswagen AG 342,315
300 Volkswagen AG Preferred .79% 83,486
------------------------
8,712,486
------------------------
HONG KONG - 0.8%
387,000 Allied Properties Ltd 58,066
262,500 Amoy Properties Ltd 310,671
171,000 Cathay Pacific Airways Ltd 312,970
29,470 Great Eagle Holdings Ltd 82,526
137,000 Guangzhou Investment Co * 35,263
See accompanying notes to the financial statements. 5
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
HONG KONG - CONTINUED
157,000 Hang Lung Development Co Ltd 293,439
217,000 Henderson Investment Ltd 202,089
37,000 Hong Kong China Ltd 11,845
33,000 Hong Kong Ferry Co Ltd 34,787
15,600 Hongkong Aircraft Engineering Co Ltd 45,501
27,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 43,130
84,500 Hongkong Electric Holdings Ltd 286,357
100,000 Hysan Development Co Ltd 291,027
17,250 Jardine Strategic Warrants 5/02/98 * 7,331
45,000 Kumagai Gumi Hong Kong Ltd 41,326
476,000 Lai Sun Development 89,274
24,000 Lai Sun Garment International Ltd 29,180
22,000 Liu Chong Hing Investment Ltd 25,326
7,000 New Asia Realty & Trust A Shares 20,553
57,740 New World Development Co Ltd 280,812
5,700 Playmate Toys Holding 1,202
172,397 Regal International Ltd 45,155
224,000 Shanghai Petrochemical Co Series H 74,580
22,000 Shaw Brothers Ltd 25,610
52,000 Shun Tak Holdings Ltd 38,338
70,614 Sino Land Co Ltd 74,895
104,000 South China Morning Post Ltd 73,313
73,000 Sun Hung Kai & Co Ltd 22,897
57,500 Swire Pacific Ltd Series B 82,926
83,000 Tai Cheung Holdings Ltd 74,076
57,000 Wheelock & Co Ltd 115,751
30,000 Winsor Industrial Corp Ltd 28,327
------------------------
3,158,543
------------------------
ITALY - 1.6%
282,100 Alitalia Linee Aeree Italiane Class A * 126,115
6,800 Ansaldo Transporti SPA 10,505
380,000 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 430,320
26,300 Banca Commerciale Italiana SPA 58,282
453,340 Banca di Roma * 436,789
76,000 Banca Nazionale dell'Agricoltura SPA (Non Convertible) * 30,266
1,000 Banca Popolare di Bergamo Credit 16,379
11,000 Banco Ambrosiano Veneto SPA (Non Convertible) 16,745
1,088,137 Banco di Napoli (Non Convertible) * 289,361
380,000 Bastogi-IRBS SPA * 18,306
20,000 Caffaro SPA 21,197
33,000 Cartiere Burgo SPA 178,371
41,870 Cia Italiana dei Grandi Alberghi Cigahotels SPA * 19,041
10,400 COFIDE SPA (Non Convertible) * 2,505
38,600 COFIDE SPA * 14,331
40,000 Comau Finanziaria SPA 56,268
6 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
ITALY - CONTINUED
24,590 Credito Italiano (Non Convertible) 24,482
2,500 Danieli and Co SPA 17,905
18,000 Danieli and Co SPA (Non Convertible) 64,053
6,500 Edison SPA 32,691
3,500 Ericsson SPA 44,738
5,700 Falck Acciaierie and Ferriere Lombarde * 15,963
15,000 Fiat SPA 47,211
173,000 Fiat SPA Preferred 1.68% 330,034
237,000 Fiat SPA (Non Convertible) 433,860
25,550 FIDIS SPA 71,390
17,397 Finmeccanica SPA * 7,934
108,000 Gemina * 45,161
32,500 Gilardini SPA 43,839
12,500 Grassetto SPA * 3,766
8,400 IFI Istituto Finanziario Preferred 2.46% 84,251
24,700 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 43,471
26,100 IFIL Finanziaria di Partecipazioni * 85,919
113,850 Industriali Riunite SPA * 65,450
40,000 Industriali Riunite (Cie) SPA (Non Convertible) * 12,256
40,420 Istituto Bancario San Paolo 245,219
8,400 Italcementi Fabbriche Riunite Cemento SPA 58,811
46,250 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 126,257
45,200 Italgas SPA 140,230
2,900 Luxottica Group Sponsored ADR 203,725
8,800 Mondadori Editore 76,478
135,000 Montedison SPA (Non Convertible) * 64,255
156,600 Montedison SPA * 96,062
105,000 Montefibre SPA 71,491
248,050 Olivetti and Co SPA * 147,220
5,000 Olivetti and Co SPA Preferred * 4,175
33,500 Olivetti and Co SPA (Non Convertible) * 15,923
145,800 Parmalat Finanziaria SPA 135,607
112,400 Pirelli and Co 149,449
22,000 Pirelli and Co (Non Convertible) 19,784
7,000 Pirelli SPA (Non Convertible) * 7,756
6,000 Ratti SPA 11,466
18,000 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 50,294
7,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 22,257
800 SAFILO SPA 14,311
6,000 Sasib SPA (Non Convertible) 13,759
30,500 Sirti SPA 194,930
143,300 Societa Metallurgica Italia * 57,528
33,000 Sorin Biomedica SPA 101,533
See accompanying notes to the financial statements. 7
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
ITALY - CONTINUED
4,900 Stefanel SPA 7,082
453,100 Telecom Italia SPA 758,155
106,800 Telecom Italia SPA di Risp (Non Convertible) 147,148
6,700 Tosi (Franco) SPA 52,116
------------------------
6,192,176
------------------------
JAPAN - 6.2%
1,000 Ajinomoto Co Inc 10,840
8,000 Alps Electric Co Ltd * 85,956
4,000 Amada Co Ltd 42,978
79,000 Aoki Corp * 298,964
9,000 Asahi Breweries Ltd * 104,402
1,000 Bank of Yokohama Ltd 7,597
16,000 Banyu Pharmaceutical Co Ltd 197,775
1,050 Canon Sales Co Inc 25,858
2,800 Chubu Electric Power Co Inc 64,695
2,000 Chugai Pharmaceutical Co Ltd 19,017
22,000 Cosmo Oil Co Ltd 120,909
9,400 CSK Corp 273,500
16,000 Dainippon Printing Co Ltd 275,364
4,000 Dai Tokyo Fire and Marine Insurance Co Ltd 29,096
58,000 Daicel Chemical Industries Ltd 339,165
2,000 Daiichi Seiyaku Co Ltd 30,807
3,000 Daikyo Inc 19,625
7,000 Dainippon Ink & Chemicals Inc 31,815
1,000 Daiwa Bank Ltd 6,751
5,000 Daiwa House Industry Co Ltd * 75,592
3,000 Daiwa Kosho Lease Co Ltd 31,378
2,000 Eisai Co Ltd 36,512
7,000 Fuji Photo Film Co Ltd 198,346
29,000 Fujisawa Pharmaceutical Co Ltd 275,744
21,000 Fujita Corp 96,843
41,000 Fujitsu Ltd 421,033
7,000 Fukuyama Transporting Co Ltd 65,228
5,000 Furukawa Electric Co Ltd 26,101
12,000 Gakken Co Ltd * 78,501
12,000 General Sekiyu (KK) 115,242
22,000 Hankyu Corp * 126,766
53,000 Haseko Corp 191,499
12,000 Hazama-Gumi Ltd 47,466
2,000 Heiwa Real Estate Co Ltd 14,358
9,000 Hitachi Cable Ltd 68,632
12,000 Hitachi Ltd 120,947
8,000 Hitachi Maxell Ltd 149,092
4,000 Hokuriku Bank Ltd 22,706
5,000 Honda Motor Co Ltd 106,019
8 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
16,000 INAX Corp 155,177
4,000 Intec Inc 57,811
7,000 Japan Airport Terminal Co Ltd 85,195
40,000 Japan Energy Co Ltd 140,725
32,000 Japan Synthetic Rubber Co Ltd 211,467
5 Japan Tobacco Inc 47,067
7,000 Joshin Denki Co Ltd 83,864
3,000 Kamigumi Co Ltd 29,096
46,000 Kankaku Securities Co Ltd * 182,828
22,000 Kirin Brewery Co Ltd 255,206
7,000 Koito Manufacturing Co Ltd 46,325
7,000 Kokusai Kogyo Co Ltd 71,218
1,000 Kokuyo Co Ltd 24,056
9,000 Komatsu Ltd 77,788
1,000 Koyo Seiko Co Ltd 8,947
219,000 Kumagai Gumi Co Ltd 895,407
28,000 Kurabo Industries Ltd 109,157
43,000 Kureha Chemical Industry Co Ltd 209,337
3,000 Kyowa Hakko Kogyo Co Ltd 27,413
15,000 Maeda Corp 146,905
19,000 Marubeni Corp 102,795
12,000 Marudai Food Co Ltd 84,321
24,000 Marui Co Ltd * 460,968
5,000 Matsushita Electric Industrial Co Ltd 79,871
25,000 Matsushita Electric Works Ltd 268,613
25,000 Mazda Motor Corp * 96,273
9,000 Meiji Seika Kaisha Ltd 55,111
32,000 Mitsubishi Electric Corp 234,287
16,000 Mitsubishi Gas Chemical Co Inc 75,307
16,000 Mitsubishi Oil Co Ltd 138,290
2,000 Mitsubishi Warehouse & Transportation Co Ltd 31,948
25,000 Mitsui Fudosan Co Ltd 292,384
18,000 Mitsui Petrochemical Industries Ltd 147,875
17,000 Mitsui Trust & Banking Co Ltd 174,575
35,000 NEC Corp 415,993
16,000 New Japan Securities Co Ltd * 94,019
19,000 Nichiei Co Ltd 76,058
7,000 Nichii Co Ltd 99,838
380,000 Nippon Oil Co Ltd 2,283,541
65,000 Nippon Sheet Glass Co Ltd 299,135
12,000 Nippon Suisan Kaisha Ltd * 50,661
49,000 Nissan Motor Co Ltd 379,253
3,000 Nisshinbo Industries Inc 28,525
7,000 Nissho Iwai Corp 32,680
21,000 Nitto Denko Corp 317,486
See accompanying notes to the financial statements. 9
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
10,000 NSK Ltd 73,215
4,000 Okamoto Industries Inc 25,026
1,000 Ono Pharmaceutical Co Ltd 36,893
45,000 Renown Inc * 153,608
7,000 Ricoh Co Ltd 75,212
7,000 Royal Co Ltd 117,144
3,000 Sankyo Co Ltd 69,031
23,000 Sanyo Electric Co Ltd 138,214
26,000 Seibu Railway Co Ltd 1,189,122
5,000 Seino Transportation Co Ltd 83,199
5,000 Sekisui Chemical Co Ltd 63,706
96,000 Sekisui House Ltd 1,195,778
37,000 Settsu Corp * 123,838
14,000 Shionogi and Co Ltd 114,881
32,000 Shiseido Co Ltd 362,080
11,000 Showa Shell Sekiyu 101,455
1,000 Skylark Co Ltd 17,686
4,000 Sony Corp 234,287
18,000 Sumitomo Corp 181,421
37,000 Sumitomo Metal Industries Ltd * 104,136
9,000 Sumitomo Realty and Development Co Ltd * 61,187
10,000 Sumitomo Trust & Banking Co Ltd 124,560
12,000 Taisei Corp 78,159
2,000 Taisho Pharmaceutical Co Ltd 39,935
25,000 Takeda Chemical Industries Ltd 401,731
21,000 Tanabe Seiyaku Co Ltd 151,355
226,000 Teijin Ltd 1,201,236
8,000 Teikoku Oil Co Ltd 51,726
8,000 The Japan Steel Works Ltd * 24,874
13,000 Toa Nenryo Kogyo (KK) 191,595
200 Toho Co Ltd 32,899
4,000 Tokyo Tatemono Co Ltd * 20,196
26,000 Tokyu Construction Co Ltd 121,137
12,000 Tokyu Land Corp 48,379
11,000 Toppan Printing Co Ltd 143,292
9,000 Toshiba Tungaloy Co Ltd * 53,913
1,000 Tostem Corp 30,712
1,000 Toto Ltd 13,882
7,000 Toyo Trust & Banking Co Ltd 63,164
1,000 Toyota Motor Corp 21,584
25,000 Victor Co of Japan Ltd * 306,646
8,000 Wacoal Corp 99,648
4,000 Yakult Honsha Co Ltd 53,627
8,000 Yamaha Corp 143,767
268,000 Yamaichi Securities Co Ltd 1,939,222
10 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
11,000 Yamanouchi Pharmaceutical Co Ltd 245,793
8,000 Yamato Transport Co Ltd 89,759
12,000 Yasuda Trust and Banking Co Ltd 64,695
3,000 Yokogawa Bridge Corp 42,503
11,000 Yokogawa Electric Corp 117,144
------------------------
23,876,167
------------------------
MALAYSIA - 0.2%
29,000 Antah Holding Berhad * 33,565
39,200 Bandar Raya Developments Warrants 9/1/97 * 34,912
65,000 DMIB Berhad 65,541
52,000 Faber Group Berhad * 51,004
46,000 Golden Hope Plantations Berhad 73,996
49,000 Highlands and Lowlands Berhad 77,668
29,000 Kuala Lumpur Kepong Berhad 91,592
124,000 Malayan United Industries Berhad 107,031
35,000 Malaysian Mosaics 45,315
61,000 Malaysian Resources Corp 151,973
26,000 Perlis Plantations 89,768
36,000 Selangor Properties Berhad 36,723
------------------------
859,088
------------------------
NETHERLANDS - 1.3%
13,700 Royal Dutch Petroleum Co ADR 1,887,175
22,000 Unilever Nv 2,959,000
------------------------
4,846,175
------------------------
NEW ZEALAND - 0.1%
39,076 Brierley Investment Ltd 33,937
24,821 DB Group Ltd 14,204
14,617 Fisher and Paykel Industries Ltd 44,284
183 Fletcher Challenge Forest Division 255
1,284 Fletcher Challenge Ltd 2,948
1,894 Independent Newspapers Ltd 6,452
50,165 Lion Nathan Ltd 109,764
2,396 Wilson and Horton Ltd 15,002
------------------------
226,846
------------------------
NORWAY - 1.2%
3,900 Aker AS Class A 67,044
2,600 Aker AS Class B (Non-Voting) 40,633
12,510 Bergesen d y AS Class A 234,606
7,830 Bergesen d y AS Class B 140,722
15,800 Christiana Bank OG 40,495
37,994 Den Norske Bank AS Series A 123,504
5,350 Det Norske Luftfartsselskab AS Class B 245,394
5,400 Dyno Industrier AS 114,772
4,300 Elkem AS Class A 51,744
5,310 Kvaerner Industrier AS 170,118
See accompanying notes to the financial statements. 11
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
NORWAY - CONTINUED
400 Kvaerner Industrier AS Class B (Non Voting) * 11,565
70,300 Norsk Hydro AS 2,999,297
11,300 Norske Skogindustrier AS Series A 340,830
------------------------
4,580,724
------------------------
SINGAPORE - 2.1%
166,000 Chuan Hup Holdings Ltd 143,413
292,000 DBS Land Ltd 1,147,612
44,000 Faber Group Berhad * 42,064
144,000 First Capital Corp Ltd 448,678
19,000 Fraser and Neave Ltd 254,293
306,000 Hai Sun Hup Group Ltd 221,025
119,000 Haw Par Brothers International Ltd * 271,345
170,000 Hotel Properties Ltd 308,183
61,000 Inchcape Berhad 211,663
701,250 Jardine Strategic Holdings Ltd 2,384,250
15,000 Natsteel Ltd 31,229
215,000 Neptune Orient Lines Ltd 248,168
7,000 Prima Ltd 27,263
39,000 Robinson and Co Ltd 169,847
89,000 Singapore Airlines Ltd 894,947
156,000 Straits Trading Co Ltd 415,367
31,000 Times Publishing Ltd 77,711
42,000 United Engineers 90,415
553,000 United Industrial Corp Ltd 610,898
23,000 United Overseas Land Ltd * 48,047
44,000 Wearne Brothers Ltd 103,445
------------------------
8,149,863
------------------------
SPAIN - 2.5%
25,470 Argentaria Corporacion Bancaria de Espana SA 1,148,744
2,150 Asland SA 43,549
600 Azucarera de Espana SA 20,757
41,510 Banco Bilbao Vizcaya SA 1,617,186
37,640 Banco Central Hispanoamericano SA 842,732
1,420 Bankinter SA 152,651
2,850 Cristaleria Espanola SA * 182,905
18,330 Dragados y Construcciones SA 257,793
3,100 Ebro Agricolas Compania de Alimentacion SA 37,961
14,950 Empresa Nacional de Celulosa SA 207,840
3,840 Empresa Nacional de Electricidad SA 218,817
12,300 Ercros SA 9,246
200 Fomento Construcciones y Contratas SA 16,958
86,350 Fuerzas Electricas de Cataluna SA 594,651
5,150 Huarte SA 18,357
63,480 Iberdrola SA 625,975
12 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
SPAIN - CONTINUED
15,380 Repsol SA 561,895
22,346 Sarrio SA 80,736
148,430 Sevillana de Electricidad 1,138,539
9,850 Tableros Defibras Series B 105,490
20,900 Telefonica de Espana SA 343,772
236,230 Union Electrica Fenosa SA 1,332,756
6,600 Uralita SA 63,482
------------------------
9,622,792
------------------------
SWEDEN - 0.0%
400 Mo Och Domsjoe AB Series B 19,733
3,940 Skandinaviska Enskilda Banken Series A 28,776
960 Skanska AB Series B 30,009
1,500 Svenska Handelsbanken Series A 28,889
1,900 Volvo Aktiebolaget Series B 40,674
------------------------
148,081
------------------------
SWITZERLAND - 0.5%
40 Baloise Holdings 77,430
1,054 Banque Cantonale Vaudoise (Bearer) 288,454
1,850 CS Holdings (Registered) 176,356
20 Hero AG (Bearer) 8,844
50 Hero Lenzburg (Registered) 5,632
25 Hilti AG, Schaan (Participating Certificate) 19,399
30 Holderbank Financiere Glarus AG (Registered) 4,380
100 Interdiscount Holdings (Bearer) * 6,091
25 Schindler Holding AG (Participating Certificate) 27,952
25 Schindler Holding Warrants, Expires 12/16/96 * 73
25 Schweizerische Rueckversicherungsgesellschaft (Bearer) 26,074
210 SMH AG (Bearer) 131,239
850 SMH AG (Registered) 117,021
260 Swiss Bank Corp (Bearer) 95,670
250 Swiss Bank Corp (Registered) 45,995
205 Union Bank of Switzerland (Bearer) 214,151
220 Winterthur Schweizerische Versicherungs-Gesellschaft (Registered) 143,179
1,350 Zurich Vericher Namen (Registered) 368,335
------------------------
1,756,275
------------------------
UNITED KINGDOM - 8.0%
23,200 Allied Colloids Plc * 46,172
6,651 AMEC Plc 10,131
13,621 Amstrad Plc 44,624
17,192 Anglian Water Plc 149,493
13,100 Argos Plc 123,237
287,005 Argyll Group 1,296,159
26,911 Arjo Wiggins Appleton Plc 84,044
13,000 Ashley (Laura) Holdings * 27,464
See accompanying notes to the financial statements. 13
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
28,302 Associated British Foods 171,577
12,427 Associated British Ports 56,693
39,358 BAA Plc 294,638
25,012 Barratt Developments Plc 96,302
187,908 Bass Plc 2,183,403
63,634 BAT Industries Plc 556,740
12,300 Beazer Holmes Plc 32,482
18,070 Berisford International Plc 51,454
32,000 Blue Circle Industries 172,196
142,648 British Gas Inc 519,198
31,869 British Land Co Plc 191,982
162,279 British Petroleum Co Plc 1,341,538
355,282 British Steel Plc 999,418
22,156 Bunzl Plc 66,481
62,100 Burton Group Plc 126,442
7,400 Calor Group 28,605
3,800 Charter Plc (Registered) 49,274
23,834 Coats Viyella Plc 73,340
14,000 Compass Group 104,270
27,817 Costain Group * 31,513
3,341 Courtaulds Textiles Plc 21,712
6,564 Dawson International Plc 9,546
4,895 Delta Plc 30,162
48,842 English China Clays Plc 255,347
15,870 Eurotunnel SA (Registered) * 20,044
216,600 General Electric Co Plc 1,226,894
176,997 Glaxo Wellcome Plc 2,446,811
115,518 Great Portland Estates Plc 284,723
60,808 Great Universal Stores Plc 616,728
18,582 Greenalls Group Plc 163,287
19,691 Guinness 138,064
147,731 Hammerson Property Investment and Development Corp Plc 779,126
23,262 Harrisons & Crosfield Plc 57,691
7,893 Hazlewood Foods Plc 12,204
188,895 Hillsdown Holdings Plc 495,943
30,496 Imperial Chemical Industries Plc 421,578
39,700 Inchcape 154,981
379,563 Ladbroke Group Plc 1,083,701
31,357 Lex Service Plc (Ordinary) 156,974
9,521 London Electric Plc 107,350
82,665 Lonrho Plc 246,143
10,945 Marley Plc 20,358
13,029 MEPC Plc 81,978
24,357 Meyer International Plc 154,000
14 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
15,750 Midlands Electricity Plc 94,036
13,691 Mirror Group Plc 45,377
15,842 Nationa Grid Holdings Plc * 47,414
118,799 National Power Plc 875,701
25,054 Norcros Plc * 31,835
23,258 North West Water Group Plc 206,869
2,010 Northumbrian Water Group Plc 35,694
38,964 Peninsular and Oriental Steam Navigation Co 311,969
431,972 Pilkington Ordinary Plc 1,382,129
75,981 Powergen Plc 628,124
24,642 Racal Electronics Plc 115,437
36,300 Rank Organization 269,800
18,500 Reckitt & Colman Plc 186,356
80,568 Redland Plc 531,602
43,000 Rexam Plc 238,958
127,569 Rolls-Royce Plc 404,261
20,978 Rugby Group 36,290
51,520 Sainsbury Plc 296,164
12,647 Scottish Hydro-Electric Plc 64,473
9,501 Scottish Power Plc 53,235
1,942 Scottish & Newcastle Plc 19,756
390,427 Sears Plc 570,808
19,303 Severn Trent Plc 183,216
108,983 Shell Transport & Trading Co (Registered) 1,408,147
18,800 Siebe 232,550
87,991 Signet Group Plc * 23,573
29,757 Slough Estates Plc 95,893
1,158 Smithkline Beecham Plc Equity Units 12,401
4,124 South West Water Plc 30,936
21,029 Southern Water Plc 211,832
505 Storehouse Plc 2,389
23,244 T and N Plc 56,223
562,581 Tarmac Plc 1,020,587
272,602 Taylor Woodrow Plc 611,383
54,995 Tesco 221,846
13,252 Thames Water Plc 107,828
51,800 Tomkins Plc 208,561
94,400 Trafalgar House Plc * 68,284
21,734 Transport Development Group Plc 71,536
10,053 Unigate Plc 68,332
9,200 Vendome Luxury Group Plc 76,618
16,400 Waste Management International * 83,857
9,620 Welsh Water Plc 109,129
See accompanying notes to the financial statements. 15
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
6,265 Welsh Water Plc Preferred 6.42% 9,519
721 Wessex Water Plc 3,697
37,762 Whitbread Plc Class A (Limited Voting) 411,606
17,416 Wilson (Connolly) Holdings Plc 46,126
126,708 Wimpey (George) Plc 267,689
6,692 Yorkshire Water Plc 63,620
------------------------
30,067,881
------------------------
UNITED STATES - 53.8%
6,700 20th Century Industries California * 113,063
22,400 3Com Corp * 1,094,800
48,500 Abbott Laboratories 2,024,875
2,300 Aetna Life and Casualty 173,938
4,100 Aflac Inc 190,138
12,400 Allegheny Power System 361,150
2,600 Allmerica Property & Casualty 66,950
49,100 Allstate Corp 2,105,163
6,900 Ambac Corp 332,925
22,100 American Electric Power 947,538
38,300 American Home Products 3,772,550
7,500 American Stores Co 218,438
54,400 Amgen Inc * 3,250,400
9,300 Amoco Corp 646,350
45,200 Anheuser Busch Inc 3,045,350
15,200 Aon Corp 790,400
18,200 Apple Computer Inc 500,500
107,000 Archer Daniels Midland 2,059,750
2,400 Atlantic Richfield Co 262,800
122,500 AT&T Corp 7,794,063
21,700 Baltimore Gas & Elec Co 615,738
400 Bancorp Hawaii Inc 13,900
3,600 Bandag Inc 183,600
21,100 Bear Stearns Co 511,675
11,300 Beneficial Corp 587,600
2,600 BHC Communications Inc Class A 240,175
111,200 Boeing Co 9,021,100
81,000 Bristol-Myers Squibb Co 6,895,125
1,600 Brown Forman Corp Class B 62,600
20,100 Burlington North Santa Fe Corp 1,608,000
6,800 Cabletron Systems Inc * 510,850
1,200 Cabot Corp 72,600
9,700 Cadence Design System Inc * 432,863
8,600 Capital Cities 1,092,200
16,000 Carolina Power & Light 584,000
22,300 Centerior Energy Corp 186,763
16 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - CONTINUED
26,700 Central & South West Corp 740,925
6,400 Chase Manhattan Corp 476,800
16,800 Chemical Banking Corp 1,203,300
1,100 Chevron Corp 61,188
4,100 Chubb Corp 398,213
11,300 Cigna Corp 1,339,050
7,300 Cincinnati Bell 239,075
20,600 Cinergy Corp 615,425
15,000 Circuit City Stores Inc 444,375
54,600 Cisco Systems Inc 2,593,500
48,800 Citicorp 3,806,400
6,000 Clayton Homes Inc 113,250
3,500 Clorox Co 296,625
8,500 CMS Energy Corp 258,188
1,100 CNA Financial Corp * 127,875
134,400 Coca Cola Co 10,852,800
1,200 Columbia Gas Systems 52,500
44,100 Conagra Inc 1,857,713
38,800 Consolidated Edison Co of New York 1,265,850
3,100 Consolidated Papers Inc 158,488
15,200 CPC International 1,052,600
13,000 DPL Inc 310,375
8,300 Dean Foods Co 212,688
41,500 Dean Witter Discover & Co 2,230,625
11,200 Dell Computer Corp * 385,000
23,400 Digital Equipment Corp * 1,684,800
24,400 Dillard Department Stores Class A * 762,500
21,100 Dominion Resources Inc 833,450
21,400 Dover Corp 952,300
12,200 DQE 356,850
28,400 DTE Energy Company 1,011,750
30,100 Duke Power Co 1,471,138
17,300 Dun & Bradstreet Corp 1,094,225
74,500 Edison International 1,303,750
11,100 Edwards AG Inc 269,175
1,700 El Paso Natural Gas Co 57,375
11,700 Enova Corp 270,563
31,900 Entergy Corp 905,163
45,400 Exxon Corp 3,609,300
2,000 FMC Corp * 146,000
300 Fina Inc Class A 14,438
1,900 First American Bank Corp 83,125
4,100 Fleming Co 82,000
12,200 Florida Progress 431,575
21,400 FPL Group 954,975
See accompanying notes to the financial statements. 17
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - CONTINUED
14,200 Fruit of The Loom Class A * 360,325
16,100 Gannett Co 1,094,800
13,700 Gap Inc 734,663
40,800 General Mills Inc 2,346,000
22,000 General Public Utilities 734,250
2,300 Glatfelter (PH) Co 38,238
68,200 Heinz (HJ) Co 2,318,800
4,200 Hershey Foods Corp 316,575
17,800 Hewlett Packard Co 1,793,350
11,600 Hormel Foods & Co 291,450
5,200 Household International Inc 349,700
30,500 Houston Industries Inc 690,063
27,800 IBP Inc 695,000
11,900 Illinova Corp 339,150
21,800 IMC Global Inc 899,250
17,000 Informix Corp * 599,250
36,400 Intel Corp 2,140,775
900 Jefferson Pilot Corp 50,063
7,600 Kansas City Power & Light Co 192,850
29,500 Kellogg Co 2,227,250
900 Kingworld Productions * 37,688
115,000 Lilly (Eli) and Co 6,957,500
32,500 Liz Claiborne 1,019,688
42,023 Lockheed Martin Corp 3,204,254
20,400 Loews Corp 1,734,000
18,700 Long Island Lighting 327,250
19,000 LSI Logic Corp * 524,875
24,600 May Department Stores 1,146,975
5,300 MBIA Inc 402,800
2,900 Mc Graw Hill Inc 253,388
87,300 MCI Communications Corp 2,553,525
61,600 Medtronic Inc 3,534,300
25,500 Melville Corp 812,813
75,500 Merck & Co 5,001,875
24,100 Mercury Finance Co 331,375
5,900 MGIC Investment Corp 343,675
39,800 Micron Tech 1,273,600
18,500 Microsoft Corp * 1,825,719
10,900 Mobil Corp 1,194,913
44,400 Morgan Stanley Group Inc 2,081,250
2,900 Natl Service Industries 101,138
8,000 New England Elec Systems 309,000
13,700 New York State Electric & Gas Corp 323,663
23,800 Niagara Mohawk Power Corp 178,500
26,500 Nike Inc Class B 1,719,188
18 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - CONTINUED
8,700 Nipsco Industry 328,425
20,800 Northeast Utilities 462,800
9,500 Northern States Power 467,875
20,400 Novell Inc * 248,625
21,800 Ohio Edison Co 517,750
4,100 Oklahoma Gas & Electric 169,125
8,600 Old Republic International Corp 294,550
5,600 Omni Group Inc 228,900
37,000 Pacific Corp 767,750
10,800 Pacific Enterprises 288,900
67,500 Pacific Gas & Electric Co 1,729,688
4,700 Pall Corp Co 128,075
16,200 Panhandle Eastern Corp 463,725
30,000 Peco Energy Co 847,500
100 Pennzoil Co 3,825
16,000 Pepsico Inc 1,012,000
77,500 Pfizer Inc 5,105,313
51,835 Pharmacia & Upjohn Inc 2,170,591
13,800 Pinnacle West Cap Corp 391,575
18,300 Polaroid Corp 805,200
13,300 Potomac Electric Power Co 350,788
17,300 PP&L Resources 430,338
6,600 Provident Companies Inc 223,575
10,200 Providian Corp 471,750
37,200 Public Service Enterprise Group 1,046,250
8,600 Public Service of Colorado 303,150
5,000 Puget Sound Power & Light 125,000
98,100 Raytheon Co 4,917,263
1,700 Readers Digest Class A (Non-Voting) 81,388
9,300 Reebok International Ltd 245,288
6,500 Rhone Poulenc Rorer Inc 416,000
30,700 Rite Aid Corp 967,050
8,300 SAFECO Corp 300,875
11,900 Scana Corp 327,250
28,100 Schering Plough 1,577,113
4,600 Seagate Technology * 300,150
11,000 Snap On Tools Corp 492,250
3,600 Solectron Corp * 174,600
79,200 Southern Co 1,890,900
40,000 Sprint Corp 1,720,000
22,600 St Paul Cos 1,279,725
19,500 Student Loan Marketing 1,611,188
31,800 Sun Microsystems Inc * 1,669,500
11,800 Supervalu Inc 380,550
1,900 Tambrands Inc 91,675
See accompanying notes to the financial statements. 19
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - CONTINUED
14,800 Teco Energy Inc 370,000
37,900 Tenet Healthcare Corp * 848,013
7,300 Texaco Inc 582,175
22,300 Texas Utilities 900,363
16,200 Torchmark Corp 751,275
600 Total System Services Inc 17,175
9,700 Transamerica Corp 731,138
900 Transatlantic Hldg Inc 63,225
39,700 Travelers (The) 2,654,938
18,400 Turner Broadcasting Systems Class B 533,600
4,000 Tyson Foods Inc Class A 90,000
29,600 Unicom Corp 947,200
12,900 Union Electric 545,025
6,100 Universal Foods Corp 231,038
12,500 V F Corporation 671,875
7,700 Vishay Intertechnology * 203,088
12,500 Walgreen Co 412,500
3,000 Warner Lambert 296,625
2,600 Weis Markets 77,025
10,000 Wellpoint Health Networks Inc Class A * 338,750
8,100 Western Resources 259,200
9,500 Whitman Corp 220,875
11,800 Williams Comp Inc 560,500
15,300 Wisconsin Energy Corp 441,788
------------------------
205,735,163
------------------------
TOTAL STOCK AND EQUIVALENTS (Cost $296,286,703) 330,665,767
------------------------
PAR VALUE SHORT-TERM INVESTMENTS - 13.6%
U.S. GOVERNMENT - 7.7%
$ 31,000,000 U.S. Treasury Bill, 5.17% due 1/9/97 (a) 29,669,687
------------------------
CASH EQUIVALENTS - 5.9%
4,200,000 First National Bank of Chicago Time Deposit, 5.38% due 3/1/96 4,200,000
18,300,000 Morgan Guaranty Time Deposit, 5.44% due 3/1/96 18,300,000
------------------------
22,500,000
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $52,206,138) 52,169,687
------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $348,492,841) * * 382,835,454
Other Assets and Liabilities (net) - 0.0% 98,302
------------------------
TOTAL NET ASSETS - 100.0% $ 382,933,756
========================
20 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
ADR American Depositary Receipt
(a) This security is held as collateral for open futures
contracts.
* Non-income producing security.
* * The aggregate identified cost for federal
income tax purposes is $348,626,542, resulting in
gross unrealized appreciation and depreciation of
$41,147,244 and $6,938,332, respectively, and net
unrealized appreciation of $34,208,912.
</TABLE>
See accompanying notes to the financial statements. 21
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
At February 29, 1996, industry sector diversification of the Fund's equity
investment was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Utilities 9.2%
Food and Beverage 9.1
Health Care 6.8
Banking 5.7
Oil and Gas 5.2
Consumer Goods 4.7
Aerospace 4.6
Telecommunications 4.2
Technology 3.8
Services 3.8
Transportation 3.0
Pharmaceuticals 2.9
Financial Services 2.9
Construction 2.6
Insurance 2.5
Retail Trade 2.4
Chemicals 2.2
Computers and Office Equipment 2.1
Manufacturing 1.7
Real Estate 1.6
Metals and Mining 1.1
Automotive 0.7
Machinery 0.7
Paper and Allied Products 0.5
Miscellaneous 2.4
------
86.4%
======
22 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $348,492,841) (Note 1) $ 382,835,454
Foreign currency, at value (cost $773,843) (Note 1) 773,386
Cash 75,345
Receivable for Fund shares sold 328,000
Receivable for investments sold 183,497
Receivable for daily variation margin on open futures contracts 1,743,810
Dividends and interest receivable 609,064
Foreign withholding taxes receivable 110,413
Receivable for expenses waived or borne by Manager (Note 2) 37,789
----------------------
Total assets 386,696,758
----------------------
LIABILITIES:
Payable for investments purchased 360,615
Payable for open swap contracts (Notes 1 and 6) 3,021,205
Payable to affiliate for management fee (Note 2) 195,252
Accrued expenses 185,930
----------------------
Total liabilities 3,763,002
----------------------
NET ASSET (equivalent to $10.64 per share based
on 35,975,948 shares outstanding, unlimited shares authorized) $ 382,933,756
======================
NET ASSETS CONSIST OF:
Paid-in capital $ 366,683,822
Accumulated undistributed net investment income 298,205
Accumulated undistributed net realized loss (15,934,531)
Net unrealized appreciation 31,886,260
----------------------
NET ASSETS $ 382,933,756
======================
</TABLE>
See accompanying notes to the financial statements. 23
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense of $499,050) $ 7,173,291
Interest 3,070,970
---------------------
Total income 10,244,261
EXPENSES:
Management fee (Note 2) 2,071,406
Custodian fees 390,220
Audit fees 69,324
Registration fees 66,424
Legal fees 30,129
Transfer agent fees 28,338
Stamp duties and transfer taxes 15,400
Insurance 2,763
Trustee fee (Note 2) 1,310
Miscellaneous 981
---------------------
Total expenses 2,676,295
Less: expenses waived or borne by Manager (Note 2) (199,269)
---------------------
Net expenses 2,477,026
---------------------
Net investment income 7,767,235
---------------------
REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on:
Investments 25,868,126
Closed futures contracts (30,460,744)
Closed swap contracts (11,486,457)
Foreign currency and foreign currency related
transactions (44,285)
---------------------
---------------------
Net realized loss (16,123,360)
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 31,762,841
Open futures contracts 3,777,207
Open swap contracts (3,947,525)
Foreign currency and foreign currency related
transactions (10,005)
---------------------
Net unrealized gain 31,582,518
---------------------
Net realized and unrealized gain 15,459,158
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 23,226,393
=====================
</TABLE>
24 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995*
----------------------- ------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 7,767,235 $ 1,420,553
Net realized gain (loss) (16,123,360) 130,219
Change in net unrealized appreciation 31,582,518 303,742
----------------------- ------------------------
Net increase in net assets resulting from operations 23,226,393 1,854,514
----------------------- ------------------------
Distributions to shareholders from:
Net investment income (8,135,996) (694,977)
----------------------- ------------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 193,770,517 214,025,378
Net asset value of shares issued to shareholders
in payment of distributions declared 4,125,224 153,241
Cost of shares repurchased (44,690,503) (700,035)
----------------------- ------------------------
Net increase in net assets resulting
from Fund share transactions 153,205,238 213,478,584
----------------------- ------------------------
Total increase in net assets 168,295,635 214,638,121
NET ASSETS:
Beginning of period 214,638,121 -
----------------------- ------------------------
End of period (including accumulated undistributed
net investment income of $298,205, and $745,109,
respectively) $ 382,933,756 $ 214,638,121
======================= ========================
* Period from July 29, 1994 (commencement of operations) to February 28,
1995.
</TABLE>
See accompanying notes to the financial statements. 25
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995*
------------------------ ------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.12 $ 10.00
------------------------ ------------------------
Income from investment operations:
Net investment income (a) 0.21 0.11
Net realized and unrealized gain
on investments 0.55 0.08
------------------------ ------------------------
Total from investment operations 0.76 0.19
------------------------ ------------------------
Less distributions to shareholders :
From net investment income (0.24) (0.07)
------------------------ ------------------------
NET ASSET VALUE, END OF PERIOD $ 10.64 $ 10.12
======================== ========================
TOTAL RETURN (B) 7.54% 1.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $382,934 $214,638
Net expenses to average
daily net assets (a) 0.78% 0.92%**
Net investment income to average
daily net assets (a) 2.44% 2.85%**
Portfolio turnover rate 214% 194%
* Period from July 29, 1994 (commencement of operations) to February 28, 1995.
** Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of the following
per share amounts: $ 0.005 $ 0.006
(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>
26 See accompanying notes to the financial statements.
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. (the "Manager").
The Trust was established as a Massachusetts Business Trust under the laws
of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares.
The Fund seeks total return consistent with minimal exposure to general
equity market risk.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings, other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
27
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may purchase index futures contracts. Stock index futures
contracts represent commitments for future delivery of cash based upon the
level of a specified index of equity securities at a specified price at a
given date. The Fund may use futures contracts to manage its exposure to
the stock and currency markets. Buying futures tends to increase the Fund's
exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. Upon purchase of a futures contract, the Fund is required to
deposit with its custodian, in a segregated account in the name of the
futures broker, an amount of cash or U.S. government obligations in
accordance with the initial margin requirements of the broker or exchange.
Futures contracts are marked to market daily and an appropriate payable or
receivable for the change in value ("variation margin") is recorded by the
Fund. The payable or receivable is 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 29,
1996.
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 29, 1996, there were no outstanding forward currency contracts.
28
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. As of
February 29, 1996, there were no outstanding written options.
The Fund may also purchase put and call options. The Fund pays a premium
which is included in the Fund's Statement of Assets and Liabilities as an
investment and subsequently marked to market to reflect the current value
of the option. The risk associated with purchasing put and call options is
limited to the premium paid.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into swap agreements to manage its exposure
to the equity markets. The Fund enters into equity swap agreements which
involve a commitment by one party in the agreement to pay interest in
exchange for a market linked return based on a notional amount. To the
extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the Fund will receive a payment from or make a payment to the
counterparty, respectively. Equity swaps are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss in the Statement of Operations. Payments received
or made at the end of the measurement period are recorded as realized gain
or loss in the Statement of Operations. Entering into these agreements
involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there is no liquid market for these
agreements, that the counterparty to the agreements may default on its
obligation to perform or that there may be unfavorable changes in the price
of the security or index underlying these transactions. See Note 6 for a
summary of all open swap agreements as of February 29, 1996.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to distribute substantially all of its net
investment income and net realized short-term and long-term capital gains,
if any, after giving effect to any available capital loss carryover for
federal income tax purposes. Therefore, no provision for federal income or
excise tax is necessary. Taxes on foreign interest and dividend income have
been withheld in accordance with the applicable country's tax treaty with
the
29
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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.
At February 29, 1996, the Fund had available, for Federal income tax
purposes, unused capital losses of $15,787,926, of which $273,403 expires
on February 28, 2002, and of which $15,514,523 expires on February 28,
2003.
DISTRIBUTIONS TO SHAREHOLDERS
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 29, 1996. 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>
($78,143) $78,143 $-
</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, 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.
30
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 and redemption premiums are paid to and recorded as paid-in
capital by the Fund. For the year ended February 29, 1996, the Fund
received $669,693 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
The Manager is paid monthly at the annual rate of .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, stamp duties and
transfer taxes) exceed .65% 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 29, 1996, was $1,310. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
31
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
--------------------- ---------------------
<S> <C> <C>
U.S. Government securities $440,705,916 $462,370,010
Investments (non-U.S. Government securities) 246,824,753 157,004,165
</TABLE>
4. PRINCIPAL SHAREHOLDER
At February 29, 1996, 25% 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
Year Ended (commencement of operations)
February 29, 1996 to February 28, 1995
----------------- --------------------
<S> <C> <C>
Shares sold 18,601,167 21,270,733
Shares issued to shareholders in reinvestment
of distributions 393,253 15,401
Shares repurchased (4,235,364) (69,242)
----------------- ------------------
Net increase 14,759,056 21,216,892
Fund shares:
Beginning of period 21,216,892 __
----------------- ------------------
End of period 35,975,948 21,216,892
================= ==================
</TABLE>
32
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number Contract Appreciation
of Type Expiration Date Value (Depreciation)
Contracts
-------------- ------------------------ --------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Sales
65 S & P 500 March 1996 $ 20,743,125 $ (580,700)
596 S & P 500 June 1996 191,986,500 1,148,381
---------------------
$ 567,681
=====================
</TABLE>
At February 29, 1996, the Fund had cash and/or securities to cover any
margin requirements on open futures contracts.
33
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
<TABLE>
<CAPTION>
UNREALIZED
NOTIONAL EXPIRATION DATE APPRECIATION
AMOUNT DESCRIPTION (DEPRECIATION)
----------------- ---------------- -------------------------------------------------------- ------------------
<S> <C> <C> <C>
$ 7,452,701 5/31/96 Agreement with Morgan Stanley & Co. International $ (412,521)
Limited dated 5/15/95 to pay (receive) the notional
amount multiplied by the return on the EASEA index
plus 9.0927% of the EASEA dividend yield and to
receive 6 month LIBOR minus 0.4293%. (a)
6,151,556 5/31/96 Agreement with Morgan Stanley & Co. International (212,837)
Limited dated 5/15/95 to pay (receive) the notional
amount multiplied by the return on the EAFE index plus
8.352% of the EAFE dividend yield and to receive 6
month LIBOR minus 0.1885%. (a)
13,000,000 5/31/96 Agreement with Swiss Bank Corporation dated 5/15/95 to (320,496)
pay (receive) the notional amount multiplied by the
return on the EAFE Index and to receive LIBOR.
10,000,000 5/31/96 Agreement with Swiss Bank Corporation dated 5/31/95 to (278,437)
pay (receive) the notional amount multiplied by the
return on the EAFE Index and to receive LIBOR.
8,000,000 8/30/96 Agreement with Swiss Bank Corporation dated 9/8/95 to (313,515)
pay (receive) the notional amount multiplied by the
return on the EAFE Index and to receive LIBOR minus
0.10%.
15,000,000 9/30/96 Agreement with Swiss Bank Corporation dated 9/29/95 to (354,984)
pay (receive) the notional amount multiplied by the
return on the EAFE Index and to receive LIBOR.
15,000,000 10/31/96 Agreement with Deutsche Bank AG dated 10/31/95 to pay (869,312)
(receive) the notional amount multiplied by the return
on the EAFE Index and to receive 6 month LIBOR. (a)
34
GMO GLOBAL HEDGED EQUITY FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SWAP AGREEMENTS - CONTINUED
UNREALIZED
NOTIONAL EXPIRATION APPRECIATION
AMOUNT DATE DESCRIPTION (DEPRECIATION)
--------------- ---------------- -------------------------------------------------------- ------------------
$ 5,309,322 (b) 12/24/96 Agreement with Morgan Stanley & Co. International $ (3,572)
Limited dated 12/26/95 to pay (receive) the notional
amount multiplied by the return on the Standard &
Poor's 500 Index (including dividends) less the
notional amount multiplied by 6 month LIBOR and to
receive (pay) the change in the market value of a
basket of selected securities plus any dividends paid
during the swap period less the counterparty's
notional amount multiplied by LIBOR plus 0.61%.
20,000,000 1/31/97 Agreement with Swiss Bank Corporation dated 1/31/96 to 16,847
pay (receive) the notional amount multiplied by the
return on the EAFE Index and to receive LIBOR plus
0.20%.
20,000,000 1/31/97 Agreement with Swiss Bank Corporation dated 1/31/96 to (272,378)
pay (receive) the notional amount multiplied by the
return on the EAFE X-Japan Index and to receive LIBOR.
------------------
Net unrealized depreciation $ (3,021,205)
==================
</TABLE>
(a) Notional amount is increased (decreased) by
each periodic payment received or made.
(b) Represents notional amount for purposes
of calculating the Fund's obligation.
The counterparty notional amount is $5,317,998.
* * *
35
GMO GLOBAL HEDGED EQUITY FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham, Mr. Christopher Darnell, Mr. Forrest Berkley
and Ms. Doris Chu are primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Grantham has been with GMO since its founding in 1977. Mr.
Darnell has been with GMO and involved in portfolio management for more than 15
years. Mr. Berkley and Ms. Chu have been with GMO and involved in portfolio
management for more than nine years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Global Hedged Equity Fund outperformed the Salomon 3 Month
T-Bill benchmark index for the fiscal year ended February 29, 1996 with the Fund
returning 7.5% versus 5.7% for the Salomon 3 Month T-Bill. Consistent with the
Fund's investment objective and policies, the Fund was invested substantially in
a combination of common stocks of the U.S. and developed international equity
markets and short positions in the equity indices of the U.S. and developed
international markets in order to eliminate substantially all exposure to
overall equity market risk. The cash position of the fund, which has ranged from
2% to 30%, has been invested in fixed income securities designed to give the
return of a 30 day U.S. treasury bill to a 2-year treasury note. The Fund's
outperformance of the Salomon 3 Month T-Bill is principally due to the excess
return of its U.S. stock holdings relative to the S&P, which was sold short.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO GLOBAL HEDGED EQUITY FUND AND THE SALOMON 3 MONTH TREASURY BILL INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 07/29/94
5.4% N/A 4.6%
[Line Graph Appears Here]
Date GMO Global Hedged Fund Salomon 3 Month Treasury Bill Index
07/29/94 9,940 10,000
02/28/95 10,132 10,297
02/29/96 10,744 10,882
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 60 bp on purchase and 140 bp on redemption. Transaction fees
are paid to the Fund to cover trading costs. Past performance is not indicative
of future performance. Information is unaudited.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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
29, 1996, 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 29, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 17, 1996
<TABLE>
<CAPTION>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 98.7%
ASSET BACKED SECURITIES - 45.2%
$ 10,000,000 Banc One Credit Card Master Trust 94-B
Class A, 7.55% due 12/15/99 10,306,249
2,000,000 Carco Auto Loan Master Trust 92-2 Class A,
Variable Rate, 1 mo. LIBOR + 7/20 (5.66%) due 9/15/99 2,000,000
15,000,000 Chevy Chase Master Credit Card,
95-C Class A Variable Rate, 1 mo. LIBOR + 13/50 (5.57%) due 5/15/06 15,000,000
4,500,000 Dilmun Capital Corp,
Variable Rate, 6 mo. LIBOR + 7/8 (6.63%) due 11/15/03 4,516,875
10,400,000 Discover Card Master Trust I 94-2 Class A,
Variable Rate, 1 mo. LIBOR + 7/20 (5.66%) due 10/16/04 10,472,684
5,000,000 European Sovereign Investments,
Variable Rate, 6 mo. LIBOR + 2/5 (5.83%) due 1/20/99 5,012,500
5,000,000 First USA Credit Card Master Trust 94-4 Class A,
Variable Rate, 1 mo. LIBOR + 37/100 (5.68%) due 8/15/03 5,040,295
10,000,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + 73/100 (6.04%) due 11/25/21 10,000,000
10,000,000 Keycorp Student Loan Trust 95-A Class B,
Variable Rate, 1 mo. LIBOR + 3/4 (6.06%) due 10/27/21 10,000,000
6,400,000 MBNA Master Credit Card Trust 94-C Class A,
Variable Rate, 1 mo. LIBOR + 1/4 (5.56%) due 3/15/04 6,416,000
6,000,000 Nation Premier Finance, 95-2 6.21% due 6/1/99 144A 5,970,000
6,000,000 Navistar Financial Dealer Note Master Trust 95-1 Class A,
Variable Rate, 1 mo. LIBOR + 3/10 (5.63%) due 8/25/07 6,002,813
6,000,000 Oakwood Mortgage Investors Inc 95-A
Class A4, 7.70% due 9/15/20 5,894,063
10,000,000 Oakwood Mortgage Investors Inc 95-B
Class A4, 7.50% due 1/15/21 9,621,875
3,000,000 Potomac Mills Finance Corp,
Variable Rate, 1 mo. LIBOR + 13/20 (5.96%) due 10/20/04 144A 2,995,500
3,500,000 Premier Auto Trust 94-4 Certificates, 6.85% due 5/2/99 3,562,318
5,000,000 Premier Auto Trust 95-1 Certificates, 8.10% due 3/04/01 5,241,406
4,432,769 Resolution Trust Corp 94-C1 Class A3,
Variable Rate, 1 mo. LIBOR + 11/20 (5.93%) due 6/25/26 4,434,154
2,637,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + 3/4 (6.06%) due 10/25/23 2,637,000
4,932,000 SMS Student Loan Trust 95-A Certificates,
Variable Rate, 1 mo. LIBOR + 13/20 (5.96%) due 4/25/25 4,925,835
5,888,000 Society Student Loan Trust 93-A Class B,
Variable Rate, 1 mo. LIBOR +3/4 (6.56%) due 7/25/03 5,895,435
4,512,443 UCFC Home Equity Loan 95-B2 Class A8,
Variable Rate, 1 mo. LIBOR + 9/20 (6.14%) due 10/10/26 4,502,572
-------------------------
140,447,574
-------------------------
STRUCTURED NOTES - 12.6%
3,550,000 Federal Home Loan Bank,
Variable Rate, (10YR CMT + 2.55% -3mo LIBOR) (2.60%) due 7/28/98 3,347,650
3,000,000 Federal Home Loan Bank, 4.90% due 2/23/98 2,960,598
1,250,000 Federal National Mortgage Association,
Variable Rate, ((.50% x 2YR CMT) + 1.80%) (4.73%) due 3/10/98 1,218,125
2,500,000 Federal National Mortgage Association,
Variable Rate, ((.50% x 10YR CMT) + 1.50%) (4.60%) due 2/25/98 2,441,250
See accompanying notes to the financial statements. 1
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 10,000,000 Federal National Mortgage Association,
Step up, 5.90% due 1/19/99 10,003,220
20,000,000 SallieMae,
Variable Rate, (10.25% -5YR DM SWAP) (4.40%) due 3/23/98 19,350,000
-------------------------
39,320,843
-------------------------
U.S. GOVERNMENT - 28.3%
25,000,000 U.S. Treasury Note, 6.00% due 8/31/97 25,226,525
21,000,000 U.S. Treasury Note, 6.88% due 8/31/99 21,807,156
14,000,000 U.S. Treasury Note, 6.38% due 8/15/02 (a) 14,336,854
28,000,000 U.S. Treasury Note, 6.25% due 8/15/23 (b) 26,661,208
-------------------------
88,031,743
-------------------------
U.S. GOVERNMENT AGENCY - 12.6%
15,000,000 Federal National Mortgage Association, 5.19% due 7/20/98 14,719,035
5,000,000 Federal National Mortgage Association, 6.73% due 11/4/02 4,941,294
20,000,000 Federal National Mortgage Association, 6.49% due 1/19/06 19,431,180
-------------------------
39,091,509
-------------------------
TOTAL DEBT OBLIGATIONS (Cost $304,979,401) 306,891,669
-------------------------
SHORT-TERM INVESTMENTS - 5.4%
REPURCHASE AGREEMENT - 0.7%
2,045,854 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/01/96, with a maturity value of $2,046,133 and
an effective yield of 4.92%, collateralized by U.S.
Treasury obligations with rates ranging from 7.25% to
13.25%, with maturity dates ranging from 8/15/04 to
11/15/15, and with an aggregate market value of $2,084,308. 2,045,854
-------------------------
PAR VALUE ($)/
SHARES CASH EQUIVALENTS - 4.7%
872,519 American Advantage Money Market Fund 872,519
$ 681,642 Bank of Boston Time Deposit, 6.26% due 3/1/96 681,642
$ 497,078 First Union National Bank Time Deposit, 5.44% due 3/1/96 497,078
1,701,261 Lehman Prime Value Money Market Fund 1,701,261
$ 11,000,000 Prudential Securities Group, Inc.
Master Note, 5.69% due 3/1/96 11,000,000
-------------------------
14,752,500
-------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $16,798,354) 16,798,354
-------------------------
TOTAL INVESTMENTS - 104.1%
(Cost $321,777,755) * * 323,690,023
Other Assets and Liabilities (net) - (4.1%) (12,740,678)
-------------------------
TOTAL NET ASSETS - 100.0% $ 310,949,345
=========================
2 See accompanying notes to the financial statements.
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS-CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
CMT - Constant Maturity Treasury Index
DM SWAP - 5 Year Deutsche Mark Constant Maturity Swap Rate
Variable and Step up rates - The rates shown on
variable and step up rate notes are the
current interest rates at February 29, 1996,
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
investors.
(a) All or a portion of this security is on loan.
(b) Security is held as collateral for open futures contracts.
* * The aggregate identified cost for federal income tax purposes is
$321,777,755, resulting in gross unrealized appreciation and
depreciation of $3,242,560 and $1,330,292, respectively, and net
unrealized appreciation of $1,912,268.
</TABLE>
See accompanying notes to the financial statements. 3
<TABLE>
<CAPTION>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $321,777,755) (Note 1) $ 323,690,023
Cash 653,125
Receivable for variation margin on open futures contracts (Note 1) 17,188
Interest receivable 1,457,781
Receivable for expenses waived or borne by Manager (Note 2) 26,611
---------------------
Total assets 325,844,728
---------------------
LIABILITIES:
Payable upon return of securities loaned (Note 1) 14,749,712
Payable to affiliate for management fee (Note 2) 62,815
Accrued expenses 82,856
---------------------
Total liabilities 14,895,383
---------------------
Net Assets (equivalent to $10.40 per share based
on 29,888,776 shares outstanding, unlimited shares authorized) $ 310,949,345
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 303,088,382
Accumulated undistributed net investment income 3,439,616
Accumulated undistributed net realized gain 3,567,277
Net unrealized appreciation 854,070
=====================
NET ASSETS $ 310,949,345
=====================
</TABLE>
4 See accompanying notes to the financial statements.
<TABLE>
<CAPTION>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $38,968) $ 19,134,985
---------------------
EXPENSES:
Management fee (Note 2) 707,127
Registration fees 62,007
Custodian and transfer agent fees 48,442
Audit fees 23,003
Legal fees 20,705
Insurance 2,489
Trustee fee (Note 2) 1,158
Miscellaneous 587
---------------------
Total expenses 865,518
Less: expenses waived or borne by Manager (Note 2) (158,391)
---------------------
Net expenses 707,127
---------------------
Net investment income 18,427,858
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 5,047,012
Closed futures contracts 9,852,214
---------------------
Net realized gain 14,899,226
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 654,911
Open futures contracts (2,354,205)
---------------------
Net unrealized loss (1,699,294)
---------------------
Net realized and unrealized gain 13,199,932
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 31,627,790
=====================
</TABLE>
See accompanying notes to the financial statements. 5
<TABLE>
<CAPTION>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 18, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 29, 1996 FEBRUARY 28, 1995
------------------------- -------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 18,427,858 $ 2,663,941
Net realized gain (loss) 14,899,226 (103,743)
Change in net unrealized appreciation (depreciation) (1,699,294) 2,553,364
----------------------- -----------------------
Net increase in net assets resulting from operations 31,627,790 5,113,562
----------------------- -----------------------
Distributions to shareholders from:
Net investment income (16,310,249) (1,341,934)
Net realized gains (11,149,215) -
----------------------- -----------------------
(27,459,464) (1,341,934)
----------------------- -----------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 112,856,301 210,727,193
Net asset value of shares issued to shareholders
in payment of distributions declared 23,494,050 957,879
Cost of shares repurchased (38,946,580) (6,079,452)
----------------------- -----------------------
Net increase in net assets resulting
from Fund share transactions 97,403,771 205,605,620
----------------------- -----------------------
Total increase in net assets 101,572,097 209,377,248
NET ASSETS:
Beginning of period 209,377,248 -
----------------------- -----------------------
End of period (including accumulated undistributed
net investment income of $3,439,616 and
$1,322,007, respectively) $ 310,949,345 $ 209,377,248
======================= =======================
</TABLE>
6 See accompanying notes to the financial statements.
<TABLE>
<CAPTION>
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 18, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.13 $ 10.00
----------------------- ----------------------
Income from investment operations:
Net investment income (a) 0.66 0.24
Net realized and unrealized gain 0.58 0.07
----------------------- ----------------------
Total from investment operations 1.24 0.31
----------------------- ----------------------
Less distributions to shareholders:
From net investment income (0.60) (0.18)
From net realized gains (0.37) 0.00
----------------------- ----------------------
Total distributions (0.97) (0.18)
----------------------- ----------------------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.13
======================= ======================
TOTAL RETURN (B) 12.50% 3.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 310,949 $ 209,377
Net expenses to average
daily net assets (a) 0.25% 0.25% *
Net investment income to average
daily net assets (a) 6.52% 6.96% *
Portfolio turnover rate 70% 65%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne
by the Manager of $.01 per share for each period
presented.
(b) 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. 7
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Domestic Bond Fund (the "Fund") is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks high total return through investment in U.S. government
securities and other investment grade bonds denominated in U.S. dollars
while generally maintaining a portfolio duration of approximately four to
six years (excluding short-term investments).
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Short-term investments with a remaining maturity of sixty days or less are
valued at amortized cost which approximates market value. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 29, 1996, the
total value of these securities represented 13.63% of net assets. These
prices may differ from the value that would have been used had a broader
market for the securities existed and the differences could be material to
the financial statements.
8
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond
markets. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instruments or hedge other Fund instruments.
Upon purchase of a futures contract, the Fund is required to deposit with
its custodian, in a segregated account in the name of the futures broker,
an amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. The payable
or receivable is liquidated on the following business day. Gains or losses
are recognized but not considered realized until the contracts expire or
are closed. Futures contracts involve, to varying degrees, risk of loss in
excess of the variation margin disclosed in the Statement of Assets and
Liabilities. Losses may arise from 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 29, 1996.
REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund acquires a security for
cash and obtains a simultaneous commitment from the seller to repurchase
the security at an agreed upon price and date. The Fund, through its
custodian, takes possession of securities collateralizing the repurchase
agreement. The collateral is marked to market daily to ensure that the
market value of the underlying assets remains sufficient to protect the
Fund in the event of default by the seller. In connection with transactions
in repurchase agreements, if the seller defaults, the value of the
collateral declines or if the seller enters insolvency proceedings,
realization of collateral by the Fund may be delayed or limited.
INDEXED SECURITIES
The Fund may also invest in indexed securities whose redemption values
and/or coupons are linked to the prices of other securities, securities
indices, or other financial indicators. The Fund uses indexed securities to
increase or decrease its exposure to different underlying instruments and
to gain exposure to markets that may be difficult to invest in through
conventional securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment.
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 29, 1996, the Fund
loaned securities having a market value of $14,336,854, collateralized by
cash in the amount of $14,752,500, which was invested in short-term
instruments.
9
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 29, 1996. 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>
- ($78,991) $78,991
</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 and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
10
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable by the Trustees,
taking into consideration, among other things, the nature and type of
expense and the relative size of the Funds.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager 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 29, 1996, was $1,158. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ 87,779,837 $ 95,578,063
Investments (non-U.S. Government securities) 222,810,468 96,128,844
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 65% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
11
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from
August 18, 1994
(commencement of operations)
Year Ended to February 28, 1995
February 29, 1996
------------------------ ------------------------------------
<S> <C> <C>
Shares sold 10,635,774 21,191,425
Shares issued to shareholders in
reinvestment of distributions 2,246,492 98,345
Shares repurchased (3,664,474) (618,786)
------------------- -------------------
Net increase 9,217,792 20,670,984
Fund shares:
Beginning of period 20,670,984 ---
------------------- -------------------
End of period 29,888,776 20,670,984
=================== ===================
</TABLE>
6. FINANCIAL INSTRUMENTS
A summary of outstanding futures contracts at February 29, 1996 is as
follows:
<TABLE>
<CAPTION>
Number of Net Unrealized
Contracts Type Expiration Date Contract Value Depreciation
-------------------- ------------------------------- --------------------- --------------------- -------------------
<C> <C> <C> <C> <C>
265 U.S. Treasury Note 5 Yr June 1996 $ 28,727,656 $ (436,754)
495 U.S. Treasury Note 10 Yr June 1996 54,821,250 (529,619)
160 U.S. Treasury Bond June 1996 18,290,000 (91,825)
------------------
$ (1,058,198)
==================
</TABLE>
At February 29, 1996, the Fund has sufficient cash and/or securities to
cover any commitments or margin on these contracts.
* * *
12
GMO DOMESTIC BOND FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS-(UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated 19.37% of distributions as net capital gain dividends.
GMO DOMESTIC BOND FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily
responsible for the day-to-day management of the Fund's portfolio. Both
individuals joined Grantham, Mayo, Van Otterloo & Co. in this capacity in
October of 1993.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Domestic Bond Fund slightly outperformed the Lehman Government
Bond Index for the fiscal year ended February 29, 1996 with a total return of
12.50% versus 12.10% for the Lehman Government Bond Index. The Fund's
outperformance is attributed to the narrowing of asset-backed spreads and the
rise in the price of government bond futures relative to the cash market. The
Fund's duration was close to that of the Lehman Government Bond Index at 5
years. The Fund invests in AAA-rated asset-backed bonds to provide a moderate
yield spread over Treasuries.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO DOMESTIC BOND FUND AND THE LEHMAN GOVERNMENT BOND INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 08/18/94
12.5% N/A 10.2%
[Line Graph Appears Here]
Date GMO Domestic Bond Fund Lehman Government Bond Index
08/18/94 10,000 10,000
02/28/95 10,315 10,366
02/29/96 11,604 11,620
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Past performance is not indicative of future
performance. Information is unaudited.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
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 29, 1996, 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 29, 1996 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 23, 1996
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 88.1%
ARGENTINA - 2.9%
AGP 7,000,000 Republic of Argentina Bocon Pro 1, PIK,
Variable Rate, 1mo. Peso Deposit Rate, due 4/1/07 (a) 4,830,000
USD 2,500,000 Republic of Argentina Bocon Pro 2, PIK,
Variable Rate, 1 mo. LIBOR , due 4/1/07 2,000,000
------------------------
6,830,000
------------------------
AUSTRIA - 1.6%
SEK 25,000,000 Oesterreich Kontrollbank, 9.25% due 7/15/99 3,857,350
------------------------
BRAZIL - 3.0%
USD 3,231,378 Republic of Brazil Capitalization Bond (Registered),
PIK, 8.00% due 4/15/14 1,948,908
USD 8,617,000 Republic of Brazil Capitalization Bond,
PIK, 8.00% due 4/15/14 5,197,867
------------------------
7,146,775
------------------------
BULGARIA - 0.3%
USD 400,000 Republic of Bulgaria FLIRB Series A (Registered),
Variable Rate, Step up, 2.00%, due 7/28/12 125,000
USD 1,000,000 Republic of Bulgaria FLIRB Series A ,
Variable Rate, Step up, 2.00%, due 7/28/12 312,500
USD 1,000,000 Republic of Bulgaria FLIRB Series B,
Variable Rate, Step up, 2.50%, due 7/28/12 315,000
------------------------
752,500
------------------------
CANADA - 4.0%
CAD 3,000,000 Government of Canada, 10.25% due 3/15/14 2,655,999
CAD 4,000,000 Province of Quebec, 10.50% due 11/30/98 3,185,596
CAD 5,000,000 Province of Quebec, 7.50% due 12/1/03 3,550,080
------------------------
9,391,675
------------------------
DENMARK - 2.1%
DKK 27,000,000 Kingdom of Denmark, 8.00% due 11/15/01 5,036,501
------------------------
ECUADOR - 0.3%
USD 1,540,300 Republic of Ecuador PDI (Registered), PIK,
Variable Rate, 6 mo. LIBOR +13/16 (6.81%), due 2/27/15 610,344
------------------------
FINLAND - 2.3%
ECU 4,000,000 Republic of Finland, 8.50% due 2/13/07 5,354,048
------------------------
See accompanying notes to financial statements.
1
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
FRANCE - 18.1%
SEK 20,000,000 Credit Foncier, 6.50% due 2/22/99 2,724,108
CAD 9,000,000 Credit Local de France, 6.75% due 3/21/06 5,953,856
ECU 15,000,000 Government of France, 8.25% due 4/25/22 19,322,880
ECU 10,500,000 Societe Nationale Chemins de France, 9.38% due 3/12/01 14,655,386
------------------------
42,656,230
------------------------
GERMANY - 2.3%
JPY 500,000,000 KFW International Finance, 6.00% due 11/29/99 5,374,632
------------------------
ITALY - 2.9%
ECU 5,000,000 Government of Italy, 9.25% due 3/7/11 6,824,650
------------------------
JAPAN - 1.4%
GBP 2,000,000 Kobe City, 9.50% due 10/20/04 3,265,410
------------------------
JORDAN - 0.2%
USD 1,000,000 Republic of Jordan Par Bond,
Variable Rate, Step up, 4.00%, due 12/23/23 144A 520,000
------------------------
MEXICO - 1.8%
FRF 41,500,000 Mexico Par Bond, 6.63% due 12/31/19 4,267,705
------------------------
SOUTH AFRICA - 0.8%
SAR 8,000,000 Republic of South Africa, 13.00% due 8/31/10 1,848,889
------------------------
SPAIN - 3.6%
ESP 500,000,000 Government of Spain, 10.25% due 11/30/98 4,184,045
ESP 500,000,000 Government of Spain, 10.90% due 8/30/03 4,324,685
------------------------
8,508,730
------------------------
SUPRANATIONAL - 1.0%
SEK 15,000,000 International Finance Corp, 10.63% due 9/20/99 2,412,853
------------------------
SWEDEN - 5.2%
SEK 40,000,000 Kingdom of Sweden, 10.25% due 5/5/00 6,414,127
SEK 4,700,000 Kingdom of Sweden, 13.00% due 6/15/01 836,588
SEK 41,000,000 Kingdom of Sweden, 6.00% due 2/9/05 5,043,836
------------------------
12,294,551
------------------------
UNITED KINGDOM - 3.3%
GBP 4,160,000 Guaranteed Export Financial Corp, 12.88% due 9/29/02 7,871,520
------------------------
See accompanying notes to financial statements.
2
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - 30.1%
ASSET BACKED SECURITIES - 27.2%
USD 3,000,000 Advanta Credit Card Master Trust 95-D Class A1,
Variable Rate, 1 mo. LIBOR + 19/100, (5.50%), due 2/1/04 3,001,406
USD 4,000,000 Discover Card Master Trust I 94-2 Class A,
Variable Rate, 1 mo. LIBOR + 7/20 (5.66%), due 10/16/04 4,027,956
USD 12,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + 1/4 (6.20%), due 10/3/01 12,000,000
USD 5,300,000 European Sovereign Investments,
Variable Rate, 3 mo. LIBOR + 1/10 (5.35%) due 7/28/99 5,289,400
USD 1,950,000 Keycorp Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + 73/100 (6.04%) due 11/25/21 1,950,000
USD 13,500,000 MBNA Master Credit Card Trust 94-C Class A,
Variable Rate, 1 mo. LIBOR + 1/4 (5.56%), due 3/15/04 13,533,750
USD 9,000,000 Nation Premier Finance 144A, 95-2 6.21% due 6/1/99 8,955,000
USD 6,892,000 Oakwood Mortgage Investors Inc 95-A
Class A4, 7.70% due 9/15/20 6,770,313
USD 4,000,000 PARMA Food Corp BV,
Variable Rate, 3mo. LIBOR + 1/4 (6.06%), due 12/20/00 3,995,000
USD 2,200,000 SMS Student Loan 94-A Certificates,
Variable Rate, 1 mo. LIBOR + 7/10 (6.51%), due 7/26/21 2,202,750
USD 2,620,000 SMS Student Loan Trust 94-B Certificates,
Variable Rate, 1 mo. LIBOR + 3/4 (6.06%), due 10/25/23 2,620,000
------------------------
64,345,575
------------------------
STRUCTURED NOTES - 2.9%
USD 2,000,000 Bankers Trust Medium Term Note, 17.10% due 10/14/97 (c) 2,246,000
USD 4,500,000 Toyota Motor Credit, Variable Rate,
(16.50% - (2 x 3yr DKR SWAP)) (5.94%) due 7/28/96 4,500,000
------------------------
6,746,000
------------------------
------------------------
TOTAL UNITED STATES 71,091,575
------------------------
VENEZUELA - 0.9%
USD 2,000,000 Republic of Venezuela Discount Bond Series A,
Variable Rate, 6 mo. LIBOR + 13/16, (6.69%), due 3/31/20 1,110,000
USD 2,000,000 Republic of Venezuela Discount Bond Series B,
Variable Rate, 6mo. LIBOR + 13/16 (6.56%), due 3/31/20 1,110,000
------------------------
2,220,000
------------------------
TOTAL DEBT OBLIGATIONS (Cost $195,257,563) 208,135,938
------------------------
See accompanying notes to financial statements.
3
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS - 0.9%
RUSSIA - 0.9%
ECU 1,000,000 Russia Vnesheconombank Loan Agreement
(Participation with Bank of America)* 421,430
FRF 25,000,000 Russia Vnesheconombank Loan Agreement
(Participation with Banque Paribas)* 1,662,267
------------------------
TOTAL LOAN PARTICIPATIONS (Cost $1,570,993) 2,083,697
------------------------
PRINCIPAL
AMOUNT CALL OPTIONS PURCHASED - 1.5%
(000's omitted) OPTIONS ON BONDS - 0.5%
USD 12,000 Brazil Par Bond,
Expires 4/10/96 Knock Out 40, Strike at 40.00 1,218,432
------------------------
CROSS CURRENCY OPTIONS - 0.7%
DEM 40,000 DEM Call/BEF Put, Expires 3/4/96 Strike 21.50 -
ECU 30,000 ECU Call/DEM Put,
Expire 7/25/96 Knock Out 1.805, Strike 1.82 584,593
ECU 15,000 ECU Call/DEM Put,
Expires 7/25/96 Knock Out 1.81, Strike 1.83 231,724
DEM 100,650 ECU Call/DEM Put,
Expires 6/13/96 Knock Out 1.815, Strike 1.83 803,994
------------------------
1,620,311
------------------------
OPTIONS ON CURRENCY - 0.3%
USD 18,000 French Francs, Expires 5/28/96 Strike 5.17 628,380
------------------------
TOTAL CALL OPTIONS PURCHASED (Cost $2,732,021) 3,467,123
------------------------
PUT OPTIONS PURCHASED - 4.3%
OPTIONS ON BONDS - 0.1%
USD 4,650 Brazil IDU Brady Bond, Expires 3/21/96 Strike 81.88 -
USD 4,650 Brazil IDU Brady Bond, Expires 3/7/96 Strike 81.75 -
USD 4,650 Brazil IDU Brady Bond, Expires 4/8/96 Strike 82.94 897
USD 6,510 Brazil IDU Brady Bond, Expires 5/16/96 Strike 86.81 66,448
USD 2,790 Brazil IDU Brady Bond, Expires 5/24/96 Strike 87.13 34,864
USD 2,790 Brazil IDU Brady Bond, Expires 5/24/96 Strike 87.38 38,402
------------------------
140,611
------------------------
OPTIONS ON CURRENCY - 4.2%
USD 18,000 French Francs, Expires 5/28/96 Strike 5.17 129,960
JPY 3,000,000 Japanese Yen, Expires 4/18/96 Strike 86.00 6,086,730
JPY 3,000,000 Japanese Yen, Expires 4/29/96 Strike 92.00 3,796,140
USD 30,000 Japanese Yen, Expires 9/13/96 Strike 120.00 62,700
------------------------
10,075,530
------------------------
OPTION ON FUTURES - 0.0%
JPY 875,000 3 mo. Euro Yen Future, Expires 3/19/96 Strike 99.25 74,879
------------------------
TOTAL PUT OPTIONS PURCHASED (Cost $2,089,002) 10,291,020
------------------------
See accompanying notes to financial statements.
4
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
DESCRIPTION VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
SHARES RIGHTS AND WARRANTS - 0.0%
MEXICO - 0.0%
7,221,000 Mexican Value Recovery Rights, Expires 6/30/03 -
------------------------
VENEZUELA - 0.0%
19,280 Republic of Venezuela Recovery Warrants,
Expires 4/15/20 -
------------------------
TOTAL RIGHTS AND WARRANTS (Cost $0) -
------------------------
PAR VALUE ($)/
SHARES SHORT-TERM INVESTMENTS - 5.6%
REPURCHASE AGREEMENTS - 1.6%
$ 3,776,023 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/01/96, with a maturity value of $3,776,539 and an
effective yield of 4.92%, collateralized by U.S. Treasury
obligations with rates ranging from 7.25% to 13.25%,
with maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $3,846,998. 3,776,023
------------------------
U.S. GOVERNMENT - 1.6%
$ 4,000,000 U.S. Treasury Bill, 4.79% due 1/9/97 (b) 3,828,344
------------------------
CASH EQUIVALENTS - 2.4%
714,134 American Advantage Money Market Fund 714,134
$ 2,795,335 Bank of Boston Time Deposit, 6.26% due 3/1/96 2,795,335
$ 897,012 First Union National Bank Time Deposit, 5.44% due 3/1/96 897,012
$ 189,573 First Union National Bank Time Deposit, 5.50% due 3/1/96 189,573
1,030,196 Lehman Prime Value Money Market Fund 1,030,196
------------------------
5,626,250
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $13,234,109) 13,230,617
------------------------
TOTAL INVESTMENTS - 100.4%
(Cost $214,883,688) * * 237,208,395
Other Assets and Liabilities (net) - (0.4%) (1,046,537)
------------------------
TOTAL NET ASSETS - 100.0% $ 236,161,858
========================
See accompanying notes to financial statements.
5
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
DKR SWAP - 3 Year Danish Krone Swap Rate.
PIK - Payment In Kind.
PDI - Past Due Interest.
Knock Out - Option will expire if underlying
security reaches Knock Out price.
144A - Securities exempt from registration
under Rule 144A of the Securities Act
of 1933. These securities may be
resold in transactions exempt from
registration, normally to qualified
institutional investors.
Variable and Step up rates - The rates shown on
variable and step up rate notes are the
current interest rates at February 29,
1996, which are subject to change based
on the terms of the security.
(a) All or a portion of this security is on loan.
(b) All or a portion of 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. Restricted as to
public resale. At the date of acquisition,
this security was valued at cost. There
were no outstanding unrestricted
securities of the same class as those
held.
* Non-performing. Borrower not currently paying interest.
* * The aggregate identified cost for federal income tax purposes is $214,884,001,
resulting in gross unrealized appreciation and depreciation of $23,527,627
and $1,203,233, respectively, and net unrealized appreciation of $22,324,394.
CURRENCY ABBREVIATIONS
AGP - Argentinian Peso FRF - French Franc
AUD - Australian Dollar GBP - British Pound Sterling
BEF - Belgian Franc ITL - Italian Lira
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc NLG - Netherlands Guilder
DEM - German Mark SAR - South African Rand
DKK - Danish Krone SEK - Swedish Krona
ECU - European Currency Unit USD - United States Dollar
ESP - Spanish Peseta
</TABLE>
See accompanying notes to the financial statements.
6
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $214,883,688) (Note 1) $ 237,208,395
Foreign currency, at value (cost $193,013) (Note 1) 186,716
Receivable for Fund shares sold 79,000
Interest receivable 6,760,038
Receivable from brokers for open futures contracts 102,503
Receivable for open forward foreign currency contracts (Note 6) 3,455,180
Receivable for expenses waived or borne by Manager (Note 2) 55,854
---------------------
Total assets 247,847,686
---------------------
LIABILITIES:
Written options outstanding, at value (premiums $1,701,890) (Note 6) 545,220
Payable upon return of securities loaned (Note 1) 5,625,370
Payable for open forward foreign currency contracts (Note 6) 5,311,290
Payable to affiliate for management fee (Note 2) 94,706
Accrued expenses 109,242
---------------------
Total liabilities 11,685,828
---------------------
NET ASSETS (equivalent to $10.92 per share based
on 21,628,308 shares outstanding, unlimited shares authorized) $ 236,161,858
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 211,381,989
Accumulated undistributed net investment income 2,213,016
Accumulated undistributed net realized gain 27,472
Net unrealized appreciation 22,539,381
=====================
NET ASSETS $ 236,161,858
=====================
</TABLE>
See accompanying notes to the financial statements.
7
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $8,025) $ 20,805,867
---------------------
EXPENSES:
Management fee (Note 2) 1,163,131
Custodian and transfer agent fees 185,798
Audit fees 87,572
Legal fees 26,726
Registration fees 16,179
Insurance 2,086
Trustee fee (Note 2) 1,008
Miscellaneous 811
---------------------
Total expenses 1,483,311
Less: expenses waived or borne by Manager (Note 2) (552,806)
---------------------
Net expenses 930,505
---------------------
Net investment income 19,875,362
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 10,292,260
Closed futures contracts 5,067,827
Written options 1,951,205
Foreign currency, forward contracts and foreign
currency related transactions (2,903,652)
---------------------
Net realized gain 14,407,640
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 23,554,058
Open futures contracts 1,594,535
Written options 1,408,784
Foreign currency, forward contracts and foreign
currency related transactions (2,644,585)
---------------------
Net unrealized gain 23,912,792
---------------------
Net realized and unrealized gain 38,320,432
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 58,195,794
=====================
</TABLE>
See accompanying notes to the financial statements.
8
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995*
---------------------- ------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 19,875,362 $ 5,175,342
Net realized gain (loss) 14,407,640 (998,046)
Change in net unrealized appreciation (depreciation) 23,912,792 (1,373,411)
--------------------- ----------------------
Net increase in net assets resulting from operations 58,195,794 2,803,885
--------------------- ----------------------
Distributions to shareholders from:
Net investment income (19,852,732) (2,089,096)
Net realized gains (8,211,314) -
In excess of net realized gains (5,504,514) -
--------------------- ----------------------
(33,568,560) (2,089,096)
--------------------- ----------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 108,698,337 251,185,791
Net asset value of shares issued to shareholders
in payment of distributions declared 26,923,624 998,389
Cost of shares repurchased (162,751,775) (14,234,531)
--------------------- ----------------------
Net increase (decrease) in net assets resulting
from Fund share transactions (27,129,814) 237,949,649
--------------------- ----------------------
Total increase (decrease) in net assets (2,502,580) 238,664,438
NET ASSETS:
Beginning of period 238,664,438 -
---------------------
----------------------
End of period (including accumulated undistributed
net investment income of $2,213,016 and
$2,072,925, respectively) $ 236,161,858 $ 238,664,438
===================== ======================
* Period from September 30, 1994 (commencement of operations) to
February 28, 1995.
</TABLE>
See accompanying notes to the financial statements.
9
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SEPTEMBER 30, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS) TO
FEBRUARY 29, 1996 FEBRUARY 28, 1995
---------------------------- --------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 10.00
----------------------- ---------------------
Income from investment operations:
Net investment income (a) 1.05 0.24
Net realized and unrealized gain (loss) 1.62 (0.09)
----------------------- ---------------------
Total from investment operations 2.67 0.15
----------------------- ---------------------
Less distributions to shareholders:
From net investment income (1.04) (0.16)
From net realized gains (0.42) -
In excess of net realized gains (0.28) -
----------------------- ---------------------
Total distributions (1.74) (0.16)
----------------------- ---------------------
NET ASSET VALUE, END OF PERIOD $ 10.92 $ 9.99
======================= =====================
TOTAL RETURN (B) 27.36% 1.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 236,162 $ 238,664
Net expenses to average
daily net assets (a) 0.40% 0.40%*
Net investment income to average
daily net assets (a) 8.54% 8.46%*
Portfolio turnover rate 85% 64%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of the following
per share amounts: $ 0.03 $ 0.01
(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.
10
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Currency Hedged International Bond Fund (the "Fund") is a series of
GMO Trust (the "Trust"). The Fund is registered under the Investment
Company Act of 1940, as amended, as an open-end, non-diversified management
investment company. The Fund is advised and managed by Grantham, Mayo, Van
Otterloo & Co. (the "Manager"). The Trust was established as a
Massachusetts Business Trust under the laws of the Commonwealth of
Massachusetts on June 24, 1985. The Declaration of Trust permits the
Trustees to create an unlimited number of series ("Funds"), each of which
issues a separate series of shares.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units, while generally attempting to hedge substantially all
of its foreign currency risk. The Fund generally seeks to provide a total
return greater than that provided by the international fixed income
securities market.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 29, 1996, the
total value of these securities represented 14.01% of net assets. These
prices may differ from the value that would have been used had a broader
market for the securities existed and the differences could be material to
the financial statements.
11
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 29, 1996.
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
12
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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
29, 1996.
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 all open written option contracts as of February 29, 1996.
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 direct debt instruments which are interests in
amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive
payments of principal, interest and any fees to which it is entitled only
from the lender selling the loan agreement and only upon receipt by the
lender of payments from the borrower. The Fund generally has no right to
enforce compliance with the terms of the loan agreement with the borrower.
As a result, the Fund may be subject to the credit risk of both the
borrower and the lender that is selling the loan agreement. When the Fund
purchases assignments from lenders it acquires direct rights against the
borrower on the loan. Direct indebtedness of emerging countries involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling to pay the principal and interest when
due.
13
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the seller defaults and the value of the collateral declines
or if the seller enters insolvency proceedings, realization of collateral
by the Fund may be delayed or limited.
SECURITY LENDING
The Fund may lend its securities to certain member firms of the New York
Stock Exchange. The loans are collateralized at all times with cash or
securities with a market value at least equal to the market value of the
securities on loan. As with other extensions of credit, the Fund may bear
the risk of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. The Fund receives compensation for
lending its securities. At February 29, 1996, the Fund loaned securities
having a market value of $4,830,000, collateralized by cash in the amount
of $5,626,250, which was invested in short-term instruments.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest have been withheld in accordance with
the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
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.
14
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996. 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>
$117,461 ($701,425) $583,964
</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, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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 29, 1996, the Fund received $69,304 in
purchase premiums. There is no premium for cash redemptions, reinvested
distributions or in-kind transactions.
15
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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
The Manager 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 mangement fee but excluding brokerage commissions and transfer
taxes) 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 29, 1996, was $1,008. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
3. PURCHASES AND SALES OF SECURITIES
For the year ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
--------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ 3,002,813 $ 5,061,719
Investments (non-U.S. Government securities) 176,640,182 215,207,380
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 54% of the outstanding shares of the Fund were held
by two shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
16
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from
September 30, 1994
Year Ended (commencement of operations) to
February 28, 1996 February 29, 1995
-------------------------- -------------------------------------
<S> <C> <C>
Shares sold 9,674,966 25,227,397
Shares issued to shareholders in
reinvestment of distributions 2,519,953 101,052
Shares repurchased (14,452,061) (1,442,999)
------------------ ------------------
Net increase (decrease) (2,257,142) 23,885,450
Fund shares:
Beginning of period 23,885,450 __
------------------ ------------------
End of period 21,628,308 23,885,450
================== ==================
</TABLE>
17
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Currency In Exchange for Appreciation
Date Deliver/Receive (in U.S. Dollars) (Depreciation)
----------------- ---------------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Buys
5/13/96 AUD 11,000,000 $ 8,312,150 $ 62,077
4/2/96 CAD 20,000,000 14,576,474 2,954
5/15/96 DEM 45,500,000 31,430,960 (345,722)
4/3/96 GBP 35,000,000 54,020,850 (484,874)
3/26/96 JPY 11,000,000,000 106,875,408 (1,920,453)
-------------------
$ (2,686,018)
===================
Sales
3/7/96 ARS 5,500,000 $ 5,490,666 $ (7,190)
3/22/96 ARS 11,000,000 10,981,332 (2,851)
5/28/96 ARS 3,000,000 2,986,560 17,194
5/13/96 AUD 23,000,000 17,284,730 (225,020)
4/2/96 CAD 46,000,000 33,694,041 161,358
5/15/96 DEM 134,000,000 91,145,108 (402,626)
4/3/96 GBP 43,000,000 65,697,710 (75,061)
3/26/96 JPY 5,300,000,000 50,909,650 340,445
-------------------
$ (193,751)
===================
</TABLE>
18
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Settlement (Depreciation)
Date Deliver/Units of Currency Receive/In Exchange for
-------------- ----------------------------------- ------------------------------------- -----------------
<S> <C> <C> <C>
3/20/96 BEF 864,282,500 ECU 23,000,000 $ 309,540
4/29/96 CHF 51,171,470 DEM 63,000,000 43,591
3/1/96 DEM 34,500,000 NLG 38,628,960 1,438
3/12/96 DEM 90,000,000 ITL 98,703,828,000 2,025,106
3/29/96 DEM 24,000,000 FRF 82,524,600 38,084
4/9/96 DEM 15,000,000 ECU 8,164,465 49,573
4/10/96 DEM 37,000,000 SEK 171,339,150 82,333
4/16/96 DEM 72,000,000 ESP 6,127,950,000 188,846
4/29/96 DEM 50,000,000 CHF 40,533,840 (100,467)
5/6/96 DKK 129,929,750 DEM 33,500,000 (36,884)
4/9/96 ECU 21,000,000 DEM 38,351,250 (284,740)
4/16/96 ESP 2,391,681,000 DEM 28,000,000 (142,549)
3/29/96 FRF 85,992,625 DEM 25,000,000 (45,531)
5/6/96 FRF 157,715,000 ECU 25,000,000 127,300
3/12/96 ITL 39,196,230,000 DEM 36,000,000 (627,068)
3/1/96 NLG 38,617,805 DEM 34,500,000 5,341
6/3/96 NLG 38,608,950 DEM 34,500,000 (1,697)
4/10/96 SEK 253,368,300 DEM 54,000,000 (608,557)
-----------------
$ 1,023,659
=================
</TABLE>
19
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Number of Expiration Date Contract Value Appreciation
Contracts Type (Depreciation)
-------------- ----------------------------------------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Buys
99 Australian 3 year Government Bond March 1996 $ 8,105,003 $ (103,899)
106 Australian 10 year Government Bond March 1996 9,613,299 (160,195)
53 Canadian Government Bond June 1996 4,187,177 (6,817)
39 German Government Bond June 1996 6,465,708 5,568
95 Italian 10 year Government Bond June 1996 13,442,113 72,197
24 Japanese 10 year Government Bond June 1996 26,793,689 43,330
55 MATIF ECU Bond June 1996 6,151,982 10,658
31 United Kingdom Gilt June 1996 2,525,455 (26,251)
143 Spanish Meffsa 10 year Government Bond June 1996 11,174,797 67,924
------------------
$ (97,485)
==================
Sales
120 Euro Dollar June 1996 $ 28,431,000 $ 98,100
200 Japanese Yen March 1996 49,067,419 86,884
80 French Franc June 1996 9,697,893 47,794
47 Swiss Government Bond March 1996 4,633,550 37,202
33 Swiss Government Bond June 1996 3,096,658 (7,879)
116 U.S. Treasury Bond March 1996 13,321,875 622,630
32 U.S. Treasury Bond June 1996 3,658,000 19,760
60 U.S. Treasury Bill June 1996 14,283,000 19,050
------------------
$ 923,541
==================
</TABLE>
At February 29, 1996, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
20
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
WRITTEN OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Puts Calls
Premiums Premiums
------------------- -------------------
<S> <C> <C>
Outstanding, beginning of period $ 103,386 $ 96,285
------------------- -------------------
Options written 1,549,232 2,516,991
Options terminated in closing
transactions (95,794) (684,472)
Options exercised (490,000)
Options expired (460,824) (832,914)
------------------- -------------------
Outstanding, end of period $ 606,000 $ 1,095,890
=================== ===================
</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
Brazil IDU Brady Bond Call 10,000 USD 60.00 USD 4/10/96 $ 660
Japanese Yen Call 3,000,000 JPY 68.00 JPY 4/29/96 -
Swiss Francs Call 12,000 CHF 1.17 CHF 5/28/96 197,040
---------------
$ 197,700
===============
PUTS
Swiss Francs Put 12,000 CHF 1.17 CHF 5/28/96 $ 347,520
---------------
$ 347,520
===============
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
* * *
21
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A SERIES OF GMO TRUST)
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS - (UNAUDITED)
- --------------------------------------------------------------------------------
For the fiscal year ended February 29, 1996, all of the Fund's
distributions are from investment company taxable income, except that the
Fund has designated .10% of distributions as net capital gain dividends.
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily
responsible for the day-to-day management of the Fund's portfolio. Both
individuals joined Grantham, Mayo, Van Otterloo & Co. in this capacity in
October of 1993.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Currency Hedged International Bond Fund outperformed the J.P.
Morgan Non-U.S. Government Bond Hedged Index for the period ended February 29,
1996, with a total return of 27.4% for the period versus 15.8% for the J.P.
Morgan Non-U.S. Government Bond Hedged Index. GMO's bond and currency models
performed well over the year, with the Fund well ahead of its benchmark for the
majority of the period. During the year the Fund overweighted Italian and
Spanish bonds and currencies and underweighted the Belgian Franc and Japanese
yen.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO CURRENCY HEDGED INTERNATIONAL BOND FUND AND THE
J.P. MORGAN NON-U.S. GOVERNMENT BOND HEDGED INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 09/30/94
27.2% N/A 19.7%
[Line Graph Appears Here]
<TABLE>
<CAPTION>
Date GMO Currency Hedged Interantional Bond Fund J.P. Morgan Non-U.S. Government Bond Hedged Index
<C> <C> <C>
09/30/94 9,985 10,000
02/28/95 10,134 10,408
02/29/96 12,906 12,048
</TABLE>
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total returns would have been lower had certain expenses not been
waived during the periods shown, and do not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Currency Hedged 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 Currency Hedged International
Core Fund at February 29, 1996, the results of its operations, the changes in
its net assets and the financial highlights for the period from June 30, 1995
(commencement of operations) to February 29, 1996, 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 29, 1996 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 17, 1996
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK AND EQUIVALENTS - 60.4%
AUSTRALIA - 3.9%
6,439 Aberfoyle Ltd 17,823
12,840 Adelaide Brighton Ltd 12,665
104,306 Amcor Ltd 757,697
30,705 Ampolex Ltd * 102,132
180,632 Australia and New Zealand Banking Group Ltd 888,113
65,208 Australian National Industries Ltd 52,853
27,493 Australian Resources Ltd 29,221
31,393 Australian Tourism Group 24,485
16,303 Azon Limited 23,062
194,209 Boral Ltd 524,212
8,376 Bougainville Copper Ltd * 4,291
5,757 BRL Hardy Ltd 10,565
28,336 BT Property Trust 34,667
114,013 Burns Philp & Co Ltd 254,566
53,031 Burswood Property Trust 75,018
29,407 Caltex Australia Ltd 113,555
121,638 Coles Myer Ltd 412,037
35,757 Comalco Ltd 187,290
11,488 Commonwealth Bank of Australia 95,046
986 Consolidated Rutile Ltd * 1,659
8,854 Crusader Ltd * 9,817
237,463 CSR Ltd 826,171
7,205 Dominion Mining Nl * 4,022
8,431 Eltin Ltd 17,084
31,723 Email Ltd 83,929
13,836 Foodland Associated 51,841
285,728 Fosters Brewing Group Ltd 498,139
6,022 Gasgoyne Gold Mines 12,801
115,100 General Property Trust Units 205,066
52,893 Gio Australia Holdings Ltd 126,996
319,193 Goodman Fielder Ltd 339,259
20,351 GWA International Ltd 26,766
78,131 Hardie (James) Industries Ltd 148,162
8,431 Holyman Ltd 18,631
15,482 ICI Australia Ltd 128,446
22,999 Mayne Nickless Ltd * 119,058
6,557 Memtec Ltd 15,292
196,729 Mim Holdings Ltd 251,216
6,809 Mount Leyshon Gold Mines 22,388
21,766 National Australia Bank Ltd 208,874
4,829 National Consolidated Ltd 3,323
434,435 News Corp Ltd 2,471,499
260,715 News Corp Ltd Preferred 1.19% 1,315,748
166,066 North Broken Hill Peko Ltd 488,882
See accompanying notes to the financial statements.
1
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA - CONTINUED
26,823 Orbital Engine Corp * 19,895
8,431 Orion Resources 10,444
221,717 Pacific Dunlop Ltd 525,561
18,774 Pacific Magazines and Printing Ltd 46,656
72,070 Pasminco Ltd 87,071
204,352 Pioneer International Ltd 606,280
49,499 Publishing & Broadcasting Ltd 200,602
83,811 Qantas Airways Ltd 152,525
89,416 QCT Resources Ltd 110,763
54,168 QNI Ltd 111,004
13,653 Renison Goldfields Consolidated Ltd 69,738
17,494 Ross Mining 20,868
15,810 Rothmans Holdings Ltd 72,535
125,522 Santos Ltd 395,439
76,328 Schroders Property 127,818
5,965 Sea World Property Trust 4,880
12,012 Simsmetal Ltd 66,407
20,529 Smith (Howard) Ltd 110,196
57,297 Southcorp Holdings Ltd 141,075
13,880 St Barbara Mines Ltd 8,915
36,682 Stockland Trust Group 86,391
1,492 Stockland Trust New 3,374
7,000 TNT Ltd * 8,296
36,657 Walker Corp 13,735
3,804 Wesfi Ltd 11,053
211,937 Western Mining Corp Holdings Ltd 1,362,905
7,157 Westfield Trust New 12,063
162,768 Westfield Trust Units 286,259
6,022 Weston Foods Ltd 34,766
29,516 Westpac Banking Corp 139,479
2,891 Wills (WD & HO) Holdings Ltd 4,642
------------------------
15,866,002
------------------------
AUSTRIA - 1.0%
187 Austrian Airlines * 34,464
1,082 Bank Austria AG (Participating Certificate) 41,347
3,496 Bau Holding AG Preferred 2.42% (Non Voting) 164,035
5,678 Brau Union AG 326,292
7,300 Creditanstalt-Bankverein 454,107
5,638 Creditanstalt-Bankverein Preferred 1.65% 332,175
386 EA-Generali AG 133,651
2,660 EVN Energie-Versorgung Niederoesterreich AG 352,812
1,056 Lenzing AG 88,881
1,334 Leykam-Muerztaler Papier und Zellstoff AG * 49,042
4,498 OEMV AG 419,924
2,009 Oesterreichische Brau Beteiligungs AG 103,010
See accompanying notes to the financial statements.
2
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
AUSTRIA - CONTINUED
9,225 Oesterreichische Elektrizitaetswirschafts AG 606,876
5,034 Oesterreichische Laenderbank AG 393,017
3,572 Oesterreichische Laenderbank AG Preferred (Non Voting) 159,999
2,809 Radex-Heraklith AG 95,114
262 RAS Versicherungs AG 40,023
51 Strabag Oesterreich AG 3,454
774 Wienerberger Baustoffindustrie AG 174,845
------------------------
3,973,068
------------------------
BELGIUM - 0.3%
762 Banque Bruxelles Lambert 144,497
39 Banque Nationale de Belgique 58,241
1,879 Barco NV 249,978
1,510 Cobepa SA (Cie Belge Paribas) 54,669
1,500 Groupe Bruxelles Lambert SA 204,272
1,532 Powerfin SA 208,884
203 Sofina SA 105,138
157 Tessenderlo Chemie 63,908
------------------------
1,089,587
------------------------
CANADA - 1.2%
1,998 Abitibi-Price Inc 27,856
4,995 Alberta Energy Ltd * 86,937
2,997 Bank of Montreal 69,641
5,994 Bank of Nova Scotia 134,365
3,200 BC Telecom Inc 58,903
1,998 BCE Inc 69,549
11,200 Bombardier Inc Class B 167,377
5,100 Brascan Ltd Class A (Convertible) 85,976
7,900 CAE Industries Inc 62,630
11,394 Canadian Imperial Bank of Commerce 338,477
22,600 Canadian Pacific Ltd 442,774
6,600 Canadian Tire Ltd Class A 70,366
10,989 Cominco Ltd 235,321
17,982 Domtar Inc 124,534
4,100 Donohue Inc Class A 51,932
7,300 Falconbridge Ltd 152,998
6,993 Fletcher Challenge Class A 91,762
1,998 Gulf Canada Resources Ltd * 8,739
8,200 Imasco Ltd 155,422
6,993 Imperial Oil Ltd 256,168
4,800 Inco Ltd 152,214
10,200 Laidlaw Inc Class B (Non Voting) 101,312
18,981 MacMillan Bloedel Ltd 242,149
1,300 Magna International Class A 51,649
13,396 National Bank of Canada 108,643
999 Noranda Forest Inc 6,372
See accompanying notes to the financial statements.
3
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
CANADA - CONTINUED
8,400 Noranda Inc 165,336
1,998 Norcen Energy Resource 29,495
15,500 Nova Corp Alta * 137,006
13,399 Petro Canada 164,832
5,500 Power Corp 78,686
9,400 Repap Enterprises Inc * 37,689
5,994 Royal Bank of Canada 137,096
5,994 Teck Corp Class B 120,164
7,800 Telus Corp 94,533
4,995 Toronto Dominion Bank 84,661
8,700 Transalta Corp 91,963
9,000 Transcanada Pipelines Ltd 127,119
999 United Dominion Inds Ltd 24,033
4,100 Westcoast Energy Inc 65,008
------------------------
4,711,687
------------------------
FINLAND - 0.3%
3,000 Amer Group Class A 50,825
1,500 Cultor OY Series 1 63,696
2,600 Huhtamaki OY Series L 88,668
10,600 Kemira OY 95,621
8,000 Kesko OY 100,329
500 Kone Corp Class B 46,534
2,000 Kymmene OY Sh Fria 55,885
63,733 Merita Ltd * 164,063
1,300 Metra AB Class A 51,485
1,200 Metra AB Class B 47,524
3,996 Nokia Corp Class A 138,913
4,000 Partek OY 55,445
3,300 Repola OY 65,999
800 Stockmann AB Series A 44,004
200 Stockmann AB Series B 9,769
5,000 Valmet OY 135,312
------------------------
1,214,072
------------------------
FRANCE - 3.9%
45 Accor SA 6,341
92 Air Liquide 16,288
143 Air Liquide L Shares 25,318
6,183 Alcatel Alsthom Cie Generale d'Electricite SA 548,686
3,638 Axa SA 235,180
45,207 Banque Nationale de Paris 1,749,688
76 BIS SA * 7,090
1,850 Carrefour Supermarche SA 1,249,551
See accompanying notes to the financial statements.
4
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANCE - CONTINUED
598 Club Mediterranee SA * 55,548
36,064 Compagnie de Suez SA 1,400,113
276 Credit Foncier De France (Bearer) 4,015
5,176 Credit Lyonnais * 253,753
878 Credit National 68,835
134 Dollfus-Mieg and Cie 6,553
192 Elf Gabon 32,392
3,738 Elf Sanofi SA 259,674
2,214 Eridania Beghin-Say SA 380,554
23,622 Financiere de Paribas SA 1,320,291
741 FINEXTEL 11,031
42 Labinal SA 6,169
21,783 Lafarge Coppee SA 1,498,966
1,336 LVMH Moet Hennessy Louis Vuitton 304,417
26,753 Michelin SA Class B 1,198,993
457 Parisienne de Reescompte (CPR-Cie) 39,140
1,855 Pechiney SA Class A * 75,294
2,235 Pernod-Ricard 140,490
8,220 Peugeot SA 1,230,165
18,500 Renault SA 543,075
27,485 Rhone Poulenc SA Series A 685,727
14 Salomon SA 8,211
4,203 Schneider SA * 185,196
70 SIMCO 6,613
1,574 Societe Generale d 'Entreprise SA 36,864
15,200 Societe Generale Paris 1,734,729
11,167 Thomson CSF 286,586
108 Total SA 7,132
90 Union Immobiliere de France 7,949
1,443 Worms et Compagnie SA 81,627
------------------------
15,708,244
------------------------
GERMANY - 4.2%
7,300 Bankgesellschaft Berlin AG 1,979,350
5,100 BASF AG 1,274,913
10,750 Bayer AG 3,280,516
34,500 Bayer Hypo (Wech) Bank 884,977
57,450 Bayer Vereinsbank AG 1,720,725
600 Bayerische Motorenwerke AG 337,212
850 Berliner Kraft und Licht AG Class A 236,256
47,050 BHF Bank AG 1,302,943
4,900 Commerzbank AG 1,120,229
700 Daimler-Benz AG 386,507
29,600 Dresdner Bank 774,389
1,700 Hoechst AG 534,626
150 IKB Deutsche Industriebank AG 30,006
See accompanying notes to the financial statements.
5
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
GERMANY - CONTINUED
1,500 Klockner Humboldt Deutz * 9,237
200 Kugelfischer George Schaefer AG * 27,625
450 Porsche AG Preferred (Non Voting) * 254,134
200 Puma AG Preferred * 74,165
4,700 Sap AG 730,727
5,650 Sap AG Preferred 888,038
2,250 Siemens AG 1,283,680
500 Volkswagen AG Preferred .79% 139,144
------------------------
17,269,399
------------------------
HONG KONG - 3.1%
1,166,000 Allied Properties Ltd 174,947
860,500 Amoy Properties Ltd 1,018,409
561,000 Cathay Pacific Airways Ltd 1,026,762
550,182 Dairy Farm International 536,427
93,181 Great Eagle Holdings Ltd 260,937
450,000 Guangzhou Investment Co * 115,829
506,000 Hang Lung Development Co Ltd 945,733
713,000 Henderson Investment Ltd 664,006
122,000 Hong Kong China Ltd 39,056
98,000 Hong Kong Ferry Co Ltd 103,308
759,287 Hong Kong Land Holdings 1,647,653
52,000 Hongkong Aircraft Engineering Co Ltd 151,670
88,000 Hongkong and Shanghai Hotels Ltd Preferred 1.95% 140,572
278,000 Hongkong Electric Holdings Ltd 942,099
340,000 Hysan Development Co Ltd 989,491
145,000 Kumagai Gumi Hong Kong Ltd 133,161
1,520,000 Lai Sun Development 285,077
78,000 Lai Sun Garment International Ltd 94,836
72,000 Liu Chong Hing Investment Ltd 82,884
215,129 Mandarin Oriental 281,819
26,000 New Asia Realty & Trust A Shares 76,340
187,815 New World Development Co Ltd 913,416
5,000 Realty Development Corp Ltd Class A 17,785
600,000 Regal International Ltd 157,154
432,000 Shanghai Petrochemical Co Series H 143,884
81,000 Shaw Brothers Ltd 94,293
190,000 Shun Tak Holdings Ltd 140,081
224,000 Sino Land Co Ltd 237,581
332,000 South China Morning Post Ltd 234,037
278,000 Sun Hung Kai & Co Ltd 87,198
182,500 Swire Pacific Ltd Series B 263,201
271,000 Tai Cheung Holdings Ltd 241,863
187,000 Wheelock & Co Ltd 379,745
96,000 Winsor Industrial Corp Ltd 90,645
------------------------
12,711,899
------------------------
See accompanying notes to the financial statements.
6
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
ITALY - 3.5%
167,500 Alitalia Linee Aeree Italiane Class A * 74,882
22,500 Ansaldo Transporti SPA 34,758
5,250 Assicurazioni Generali SPA 128,313
267,400 Autostrade Concessioni e Costruzioni SPA Class B Preferred 6.39% 302,810
34,000 Banca Commerciale Italiana SPA 75,345
1,077,500 Banca di Roma * 1,038,161
4,500 Banca Popolare di Bergamo Credit 73,707
2,500 Banca Toscana * 4,569
6,000 Banco Ambrosiano Veneto SPA (Non Convertible) 9,134
593,582 Banco di Napoli (Non Convertible) * 157,847
48,500 Benetton Group SPA 565,580
45,000 Cartiere Burgo SPA 243,233
138,500 Cia Italiana dei Grandi Alberghi Cigahotels SPA * 62,985
34,600 COFIDE SPA (Non Convertible) * 8,334
128,000 COFIDE SPA * 47,522
5,000 Comau Finanziaria SPA 7,033
8,100 Danieli and Co SPA 58,012
106,000 Edison SPA 533,118
250 Ericsson SPA 3,196
18,700 Falck Acciaierie and Ferriere Lombarde * 52,370
246,000 Fiat SPA 774,261
191,000 Fiat SPA Preferred 1.68% 364,373
229,000 Fiat SPA (Non Convertible) 419,215
84,800 FIDIS SPA 236,942
86,484 Finmeccanica SPA * 39,441
357,600 Gemina * 149,532
57,500 Gilardini SPA 77,561
27,900 IFI Istituto Finanziario Preferred 2.46% 279,835
86,600 IFIL Finanziaria di Partecipazioni SPA * 285,081
81,900 IFIL Finanziaria di Partecipazioni SPA (Non Convertible) 144,142
442,500 Industriali Riunite SPA * 254,385
64,700 Industriali Riunite (Cie) SPA (Non Convertible) * 19,823
71,500 Istituto Bancario San Paolo 433,775
34,250 Italcementi Fabbriche Riunite Cemento SPA 239,797
17,500 Italcementi Fabbriche Riunite Cemento SPA (Non Convertible) 47,773
149,600 Italgas SPA 464,125
9,700 Luxottica Group Sponsored ADR 681,425
1,000 Marzotto and Figli SPA 7,066
29,100 Mondadori Editore 252,899
101,400 Montedison SPA (Non Convertible) * 48,263
760,000 Montedison SPA * 466,201
821,450 Olivetti and Co SPA Preferred * 487,539
257,700 Parmalat Finanziaria SPA 239,684
129,000 Pirelli and Co 171,521
5,900 Pirelli and Co (Non Convertible) 5,306
See accompanying notes to the financial statements.
7
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
ITALY - CONTINUED
19,900 Pirelli SPA (Non Convertible) * 22,049
3,900 Ratti SPA 7,453
23,000 Rinascente per l'Esercizio di Grandi Magazzini SPA 159,259
24,000 Rinascente per l'Esercizio di Grandi Magazzini SPA Preferred 5.59% 67,059
19,000 Rinascente per l'Esercizio di Grandi Magazzini SPA (Non Convertible) 60,411
15,000 SAFFA SPA * 35,167
2,700 SAFILO SPA 48,300
7,500 Saipem SPA 23,076
15,000 Sasib SPA 61,182
14,500 Sasib SPA (Non Convertible) 33,250
48,500 Sirti SPA 309,971
300,000 Snia BPD SPA * 279,412
176,500 Societa Metallurgica Italia * 70,857
16,200 Stefanel SPA 23,413
2,500 STET SPA 7,644
1,500,800 Telecom Italia SPA 2,511,230
353,800 Telecom Italia SPA di Risp (Non Convertible) 487,462
5,500 Unione Cementi Marchino Emiliane e di Augusta-Casale (Non Convertible) * 15,315
9,500 Unione Cementi Marchino Emiliane e di Augusta-Casale * 61,265
------------------------
14,354,649
------------------------
JAPAN - 10.6%
3,000 Alps Electric Co Ltd * 32,234
24,000 Amada Co Ltd 257,868
141,000 Aoki Corp * 533,593
2,600 Arabian Oil Co Ltd 115,204
17,000 Asahi Breweries Ltd * 197,205
9,000 Bank of Yokohama Ltd 68,375
9,000 Banyu Pharmaceutical Co Ltd 111,248
12,600 Canon Sales Co Inc 310,298
5,000 Chiba Bank Ltd 39,745
400 Chubu Electric Power Co Inc 9,242
47,000 Cosmo Oil Co Ltd 258,306
21,600 CSK Corp 628,468
37,000 Dainippon Printing Co Ltd 636,779
73,000 Daicel Chemical Industries Ltd 426,880
3,000 Daiichi Seiyaku Co Ltd 46,211
1,000 Daikin Industries Ltd 10,364
5,000 Daikyo Inc 32,709
2,000 Dainippon Ink & Chemicals Inc 9,090
11,000 Daiwa Bank Ltd 74,261
1,000 Daiwa Kosho Lease Co Ltd 10,459
171 East Japan Railway Co 873,129
1,000 Eisai Co Ltd 18,256
17,000 Fuji Photo Film Co Ltd 481,696
72,000 Fujisawa Pharmaceutical Co Ltd 684,606
See accompanying notes to the financial statements.
8
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
13,000 Fujita Corp 59,951
1,000 Fujita Kanko Inc 20,253
124,000 Fujitsu Ltd 1,273,367
9,000 Fukuyama Transporting Co Ltd 83,864
3,000 Furukawa Electric Co Ltd 15,660
13,000 Gakken Co Ltd * 85,043
9,000 General Sekiyu (KK) 86,431
45,000 Hankyu Corp * 259,294
69,000 Haseko Corp 249,311
13,000 Hazama-Gumi Ltd 51,422
1,000 Hiroshima Bank Ltd 4,764
13,000 Hitachi Cable Ltd 99,135
159,000 Hitachi Ltd 1,602,548
3,000 Honda Motor Co Ltd 63,611
3,000 Hoya Corp 99,838
13,000 INAX Corp 126,082
3,000 Intec Inc 43,358
18,000 Itochu Corp 120,491
83,000 Japan Energy Co Ltd 292,003
54,000 Japan Synthetic Rubber Co Ltd 356,851
72 Japan Tobacco Inc 677,760
7,000 Joshin Denki Co Ltd 83,864
9,000 Kajima Corp 90,710
5,000 Kamigumi Co Ltd 48,493
16,000 Kankaku Securities Co Ltd * 63,592
16,000 Keihin Electric Express Railway Co Ltd 92,346
33,000 Keio Teito Electric Railway Co Ltd 187,012
9,000 Keisei Electric Railway Co Ltd 82,153
86,000 Kinki Nippon Railway Co Ltd 654,179
24,000 Kirin Brewery Co Ltd 278,406
9,000 Kokusai Kogyo Co Ltd 91,566
1,000 Kokuyo Co Ltd 24,056
49,000 Komatsu Ltd 423,514
13,000 Koyo Seiko Co Ltd 116,316
205,000 Kumagai Gumi Co Ltd 838,167
33,000 Kurabo Industries Ltd 128,649
72,000 Kureha Chemical Industry Co Ltd 350,518
5,000 Kyowa Hakko Kogyo Co Ltd 45,688
1,000 Lion Corp 5,791
9,000 Maeda Corp 88,143
13,000 Makino Milling Machine Co Ltd * 133,498
54,000 Marubeni Corp 292,156
13,000 Marudai Food Co Ltd 91,347
47,000 Marui Co Ltd * 902,729
73,000 Matsushita Electric Industrial Co Ltd 1,166,112
See accompanying notes to the financial statements.
9
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
49,000 Matsushita Electric Works Ltd 526,481
13,000 Mazda Motor Corp * 50,062
54,000 Minebea Co Ltd 467,244
105,000 Mitsubishi Electric Corp 768,755
95,000 Mitsubishi Estate Co Ltd 1,156,223
53,000 Mitsubishi Gas Chemical Co Inc 249,453
246,000 Mitsubishi Materials Corp 1,274,793
34,000 Mitsubishi Oil Co Ltd 293,867
1,000 Mitsubishi Rayon Co Ltd 4,231
35,000 Mitsubishi Trust & Banking Corp 539,127
1,000 Mitsubishi Warehouse & Transportation Co Ltd 15,974
47,000 Mitsui Fudosan Co Ltd 549,681
64,000 Mitsui Petrochemical Industries Ltd 525,777
34,000 Mitsui Trust & Banking Co Ltd 349,149
39,000 Nagoya Railroad Co Ltd 200,247
15,000 Nankai Electric Railway Co Ltd 103,832
72,000 NEC Corp 855,757
15,000 New Japan Securities Co Ltd * 88,143
24,000 Nichiei Co Ltd 96,073
55,000 Nippon Express Co Ltd 504,659
400,000 Nippon Oil Co Ltd 2,403,727
99,000 Nippon Sheet Glass Co Ltd 455,605
11,000 Nippon Suisan Kaisha Ltd * 46,439
153,000 Nissan Motor Co Ltd 1,184,197
35,000 Nisshinbo Industries Inc 332,795
2,000 Nissho Iwai Corp 9,337
34,000 Nitto Denko Corp 514,025
54,000 NSK Ltd 395,360
34,000 Odakyu Electric Railway Co Ltd 242,465
1,000 Okamoto Industries Inc 6,257
76,000 Renown Inc * 259,428
7,000 Ricoh Co Ltd 75,212
5,000 Royal Co Ltd 83,674
13,000 Sagami Railway Co Ltd 56,119
5,000 Sankyo Co Ltd 115,052
36,000 Sanyo Electric Co Ltd 216,335
1,000 Sapporo Breweries Ltd 8,957
1,500 Secom Co Ltd 93,563
1,000 Seibu Railway Co Ltd 45,735
23,000 Seino Transportation Co Ltd 382,714
23,000 Sekisui Chemical Co Ltd 293,049
49,000 Sekisui House Ltd 610,345
52,000 Settsu Corp * 174,042
9,000 Shionogi and Co Ltd 73,852
9,000 Shiseido Co Ltd 101,835
See accompanying notes to the financial statements.
10
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
JAPAN - CONTINUED
24,000 Showa Shell Sekiyu 221,356
5,000 Skylark Co Ltd 88,428
3,000 Sony Corp 175,716
99,000 Sumitomo Corp 997,813
41,000 Sumitomo Metal Industries Ltd * 115,394
2,000 Sumitomo Osaka Cement Co Ltd 9,337
13,000 Sumitomo Realty and Development Co Ltd * 88,381
25,000 Sumitomo Trust & Banking Co Ltd 311,401
13,000 Taisei Corp 84,672
3,000 Taisho Pharmaceutical Co Ltd 59,903
17,000 Takeda Chemical Industries Ltd 273,177
34,000 Tanabe Seiyaku Co Ltd 245,051
214,000 Teijin Ltd 1,137,454
13,000 Teikoku Oil Co Ltd 84,054
1,000 Terumo Corp 10,364
49,000 Toa Nenryo Kogyo (KK) 722,164
47,000 Tobu Railway Co Ltd 298,079
100 Toho Co Ltd 16,450
3,000 Tokyo Broadcasting System Inc 50,490
3,000 Tokyo Dome Corp 50,490
15,000 Tokyo Electric Co Ltd * 73,453
1,000 Tokyo Tatemono Co Ltd * 5,049
1,000 Tokyotokeiba Co Ltd 4,374
47,000 Tokyu Construction Co Ltd 218,979
62,000 Tokyu Corp 449,216
9,000 Tokyu Department Store Co Ltd 56,822
15,000 Tokyu Land Corp 60,474
34,000 Toppan Printing Co Ltd 442,902
13,000 Toyo Ink Manufacturing Co Ltd 68,727
1,000 Toyo Trust & Banking Co Ltd 9,023
18,000 Toyota Motor Corp 388,514
5,000 Victor Co of Japan Ltd * 61,329
11,000 Wacoal Corp 137,016
5,000 Yakult Honsha Co Ltd 67,034
3,000 Yamaguchi Bank Ltd 49,634
108,000 Yamaichi Securities Co Ltd 781,478
13,000 Yamanouchi Pharmaceutical Co Ltd 290,482
11,000 Yamato Transport Co Ltd 123,419
13,000 Yasuda Trust and Banking Co Ltd 70,087
1,000 Yokogawa Electric Corp 10,649
------------------------
43,024,750
------------------------
See accompanying notes to the financial statements.
11
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
MALAYSIA - 0.2%
118,000 Amcol Holdings Ltd 319,201
24,000 DMIB Berhad 24,200
212,000 Faber Group Berhad * 207,941
73,000 Landmark Berhad 109,981
41,000 Malayan United Industries Berhad 35,389
35,000 Malaysia Mining Corp Berhad 55,477
48,000 Selangor Properties Berhad 48,964
------------------------
801,153
------------------------
NEW ZEALAND - 0.4%
320,580 Brierley Investment Ltd 278,421
179,285 Carter Holt Harvey Ltd 383,838
32,055 Fisher and Paykel Industries Ltd 97,115
31,578 Fletcher Challenge Forest 44,008
222,562 Fletcher Challenge Ltd 510,954
22,405 Independent Newspapers Ltd 76,326
90,839 Lion Nathan Ltd 198,761
1,992 Telecom Corp of New Zealand 8,932
20,672 Wilson and Horton Ltd 129,432
------------------------
1,727,787
------------------------
NORWAY - 1.5%
6,700 Aker AS Class A 115,178
2,400 Aker AS Class B (Non-Voting) 37,507
9,400 Bergesen d y AS Class A 176,283
7,800 Bergesen d y AS Class B 140,183
69,100 Christiana Bank OG 177,102
265,500 Den Norske Bank AS Series A 863,037
5,600 Det Norske Luftfartsselskab AS Class B 256,861
4,000 Dyno Industrier AS 85,016
8,300 Elkem AS Class A 99,878
10,450 Hafslund Nycomed AS Class A 287,429
10,200 Hafslund Nycomed AS Class B 270,988
5,750 Kvaerner Industrier AS 184,214
3,150 Kvaerner Industrier AS Class B (Non Voting) * 91,072
6,900 Leif Hoegh and Co AS 100,284
51,550 Norsk Hydro AS 2,199,342
7,800 Norske Skogindustrier AS Series A 235,263
1,800 Norske Skogindustrier AS Series B 51,056
6,700 Orkla-Borregaard AS Series A 303,651
1,850 Orkla-Borregaard AS Series B (Non Voting) 78,062
13,500 Saga Petroleum AS Series A 164,562
1,900 Schibsted AS 27,318
16,700 Uni Storebrand AS * 90,301
6,600 Unitor AS 103,144
------------------------
6,137,731
------------------------
See accompanying notes to the financial statements.
12
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
SINGAPORE - 1.9%
14,000 Auric Pacific Group 23,694
149,000 Chuan Hup Holdings Ltd 128,726
206,000 DBS Land Ltd 809,617
95,000 First Capital Corp Ltd 296,003
68,000 Fraser and Neave Ltd 910,102
181,000 Hai Sun Hup Group Ltd 130,737
80,000 Haw Par Brothers International Ltd * 182,417
139,000 Hotel Properties Ltd 251,985
25,000 Inchcape Berhad 86,747
207,915 Jardine Matheson Holdings Ltd 1,663,320
335,500 Jardine Strategic Holdings Ltd 1,140,700
34,000 Jurong Shipyard Ltd 215,487
62,000 Lum Chang Holdings Ltd 58,832
18,000 Metro Holdings Ltd 71,381
255,000 Neptune Orient Lines Ltd 294,338
11,000 Prima Ltd 42,842
22,000 Robinson and Co Ltd 95,811
11,000 Shangri-La Hotel Ltd 38,948
16,000 Singapore Land Ltd 121,234
135,000 Straits Trading Co Ltd 359,452
17,000 Times Publishing Ltd 42,616
36,000 United Engineers 77,499
540,000 United Industrial Corp Ltd 596,537
82,000 United Overseas Land Ltd * 171,299
25,000 Wearne Brothers Ltd 58,776
------------------------
7,869,100
------------------------
SPAIN - 3.1%
13,222 Argentaria Corporacion Bancaria de Espana SA 596,337
2,426 Asland SA 49,140
19,692 Autopistas Concesionaria Espanola SA (Registered) 210,099
8,854 Autopistas del Mare Nostrum SA 110,568
230 Azucarera de Espana SA 7,957
24,251 Banco Bilbao Vizcaya SA 944,793
11,236 Banco Central Hispanoamericano SA 251,566
1,328 Bankinter SA 142,761
2,642 Cepsa (Compania Espanola) (Bearer) 79,226
1,909 Corporacion Mapfre (Registered) 106,467
2,646 Cristaleria Espanola SA * 169,813
15,965 Dragados y Construcciones SA 224,532
3,427 Ebro Agricolas Compania de Alimentacion SA 41,965
2,272 Empresa Nacional de Celulosa SA 31,586
3,245 Empresa Nacional de Electricidad SA 184,911
5,375 Ercros SA 4,040
214 Fabricacion de Automoviles Renault de Espana SA 4,739
See accompanying notes to the financial statements.
13
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
SPAIN - CONTINUED
64,413 Fuerzas Electricas de Cataluna SA 443,581
10,759 General Aguas de Barcelona SA 349,589
4,817 Huarte SA 17,170
223,896 Iberdrola SA 2,207,833
4,138 Prosegur Cia SA 150,509
56,870 Repsol SA 2,077,695
7,161 Sarrio SA 25,873
100,624 Sevillana de Electricidad 771,841
8,081 Tabacalera SA Series A 355,977
8,452 Tableros Defibras Series B 90,518
136,814 Telefonica de Espana SA 2,250,376
86,197 Union Electrica Fenosa SA 486,304
13,900 Uralita SA 133,697
3,210 Vallehermoso SA 61,491
------------------------
12,582,954
------------------------
SWEDEN - 0.7%
2,550 AGA AB Series A 37,778
7,300 AGA AB Series B 105,434
2,150 Atlas Copco AB Series B 37,266
9,000 Bilspedition AB Series B * 28,533
2,700 Electrolux AB Series B * 132,599
11,192 Fastighets AB (Hufvudstaden) Series A 74,944
1,000 Hennes and Mauritz AB Series B 66,370
4,529 Incentive AB Series A 229,468
700 Incentive AB Series B 35,000
1,737 Industrivarden Series A 55,841
2,800 Investor AB Series A 105,155
2,800 Marieberg Tidnings AB Series A 74,666
100 Mo Och Domsjoe AB Series B 4,933
6,200 Skandia Group Foersaekrings AB 145,125
49,000 Skandinaviska Enskilda Banken Series A 357,879
11,700 Skanska AB Series B 365,731
3,000 SKF AB 65,555
600 SKF AB Class B 13,155
22,300 Sparbanken Sverige AB A Shares 241,169
3,500 Stadshypotek AB Class A 70,518
2,147 Svedala Industries 66,159
17,800 Svenska Handelsbanken Series A 342,812
1,800 Svenska Handelsbanken Series B 33,066
1,605 Sydkraft AB Series A 33,526
------------------------
2,722,682
------------------------
See accompanying notes to the financial statements.
14
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
SWITZERLAND - 3.0%
25 Adia SA (Bearer) 4,777
300 Alusuisse Lonza Holdings (Bearer) * 241,802
150 Baloise Holdings 290,363
45 Bobst SA (Bearer) 71,339
550 Ciba-Geigy AG (Bearer) 489,654
3,100 Ciba-Geigy AG (Registered) 2,770,213
12,390 CS Holdings (Registered) 1,181,108
10 Danzas Holding AG (Registered) 11,431
720 Elektrowatt AG (Bearer) 260,125
80 Fischer (George) AG (Bearer) 101,393
450 Hilti AG, Schaan (Participating Certificate) 349,186
260 Holderbank Financiere Glarus AG (Bearer) 186,567
1,660 Holderbank Financiere Glarus AG (Registered) 242,386
50 Interdiscount Holdings (Bearer) * 3,045
164 Intershop Holding AG (Bearer) 91,681
50 Kuoni Reisen Holdings AG (Registered) 91,781
5 Magazine zum Globus (Registered) 3,004
220 Merkur Holding AG (Registered) 49,011
90 Pargesa Holding SA (Bearer) 108,886
10 Sandoz AG Basel (Bearer) 9,395
25 Schindler Holding AG (Participating Certificate) 27,952
25 Schindler Holding AG (Registered) 27,952
50 Schindler Holdings Warrants, Expires 12/16/96 * 146
250 Schweizerische Rueckversicherungsgesellschaft (Bearer) 260,743
280 Sika Finanz AG (Bearer) 67,985
597 SMH AG (Bearer) 373,094
600 SMH AG (Registered) 82,603
78 Sulzer Gebrueder AG (Registered) 50,763
3,950 Swiss Bank Corp (Bearer) 1,453,442
4,550 Swiss Bank Corp (Registered) 837,109
1,065 Union Bank of Switzerland (Bearer) 1,112,541
32 Union Bank of Switzerland (Registered) 7,343
300 Winterthur Schweizerische Versicherungs-Gesellschaft (Bearer) 194,493
915 Winterthur Schweizerische Versicherungs-Gesellschaft (Registered) 595,494
1,925 Zurich Vericher Namen (Registered) 525,219
------------------------
12,174,026
------------------------
UNITED KINGDOM - 17.6%
76,700 Allied Colloids Plc * 152,646
10,790 AMEC Plc 16,436
3,254 Amersham International Plc 44,236
49,221 Amstrad Plc 161,254
14,406 Anglian Water Plc 125,268
43,500 Argos Plc 409,221
308,374 Argyll Group 1,392,665
See accompanying notes to the financial statements.
15
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
43,653 Arjo Wiggins Appleton Plc 136,330
1,406,735 ASDA Group Plc 2,228,946
42,900 Ashley (Laura) Holdings * 90,632
47,430 Associated British Foods 287,538
20,158 Associated British Ports 91,962
56,502 BAA Plc 422,980
26,800 Barratt Developments Plc 103,186
168,922 Bass Plc 1,962,794
182,920 BAT Industries Plc 1,600,384
40,700 Beazer Holmes Plc 107,481
24,621 Berisford International Plc 70,108
105,900 Blue Circle Industries 569,860
38,625 Boots Co Plc 350,943
175,874 British Aerospace Plc 2,338,397
231,397 British Gas Inc 842,219
12,633 British Land Co Plc 76,102
631,523 British Petroleum Co Plc 5,220,712
191,932 British Steel Plc 539,910
161,096 BTR Plc 795,356
64,433 Bunzl Plc 193,335
475,465 Burton Group Plc 968,093
24,400 Calor Group 94,319
1,385 Carlton Communications Plc 8,868
12,500 Charter Plc (Registered) 162,084
38,663 Coats Viyella Plc 118,970
16,905 Cobham Group Plc 144,280
46,500 Compass Group 346,324
2,786 Costain Group * 3,156
5,420 Courtaulds Textiles Plc 35,223
10,648 Dawson International Plc 15,486
7,940 Delta Plc 48,925
29,479 Dixons Group Plc 208,949
43,193 English China Clays Plc 225,814
25,744 Eurotunnel SA Units (Registered) * 32,514
717,554 General Electric Co Plc 4,064,463
543,601 Glaxo Wellcome Plc 7,514,755
92,452 Grand Metropolitan Plc 614,261
76,451 Great Portland Estates Plc 188,433
201,324 Great Universal Stores Plc 2,041,871
61,656 Greenalls Group Plc 541,794
3,873 Greycoat Plc * 9,309
125,863 Hammerson Property Investment and Development Corp Plc 663,795
37,735 Harrisons & Crosfield Plc 93,585
12,803 Hazlewood Foods Plc 19,796
See accompanying notes to the financial statements.
16
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
201,874 Hillsdown Holdings Plc 530,019
72,078 Imperial Chemical Industries Plc 996,408
131,400 Inchcape 512,959
206,505 Ladbroke Group Plc 589,598
4,827 Laing (John) Plc 19,546
366,051 Lasmo Plc * 1,036,717
32,290 Lex Service Plc (Ordinary) 161,645
9,970 London Electric Plc 112,413
59,029 London International Group Plc 101,212
346,402 Lonrho Plc 1,031,447
110,461 Marks & Spencer Plc 708,549
17,755 Marley Plc 33,025
8,709 Meyer International Plc 55,064
13,358 Midlands Electricity Plc 79,754
22,209 Mirror Group Plc 73,609
15,322 Nationa Grid Holdings Plc * 45,857
74,943 National Power Plc 552,426
37,068 NFC Var V 89,661
41,609 Norcros Plc * 52,870
26,032 Northern Foods Plc 76,517
10,377 Ocean Group Plc 61,559
130,680 Peninsular and Oriental Steam Navigation Co 1,046,303
201,336 Pilkington Plc 644,191
66,976 Powergen Plc 553,681
81,492 Racal Electronics Plc 381,754
120,300 Rank Organization 894,132
61,434 Reckitt & Colman Plc 618,844
64,350 Redland Plc 424,593
142,300 Rexam Plc 790,785
422,651 Rolls-Royce Plc 1,339,365
34,029 Rugby Group 58,867
79,325 Sainsbury Plc 456,002
20,516 Scottish Hydro-Electric Plc 104,588
5,985 Scottish & Newcastle Plc 60,884
79,512 Sears Plc 116,247
5,241 Securicor Group Plc Class A (Non-Voting) 74,819
19,634 Severn Trent Plc 186,358
331,387 Shell Transport & Trading Co (Registered) 4,281,784
62,200 Siebe 769,394
14,585 Signet Group Plc * 3,907
45,258 Simon Engineering Plc * 49,886
19,561 Slough Estates Plc 63,036
See accompanying notes to the financial statements.
17
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
SHARES DESCRIPTION VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - CONTINUED
218,736 Smith & Nephew Plc 626,194
220,999 Smithkline Beecham Plc Class A 2,353,067
330,954 Smithkline Beecham Plc Equity Units 3,544,069
6,689 South West Water Plc 50,177
9,121 Southern Water Plc 91,878
76,895 T and N Plc 185,995
555,516 Tarmac Plc 1,007,771
236,366 Taylor Woodrow Plc 530,114
156,782 Tesco 632,446
21,496 Thames Water Plc 174,907
7,652 Thorn EMI Plc Ord 190,594
171,700 Tomkins Plc 691,310
312,468 Trafalgar House Plc * 226,024
8,105 Transport Development Group Plc 26,677
15,070 Unigate Plc 102,434
49,918 Unilever Plc 922,383
48,137 United Biscuits Holdings Plc 173,178
26,157 United Utilities 232,654
30,400 Vendome Luxury Group Plc 253,174
54,400 Waste Management International * 278,158
6,195 Welsh Water Plc 70,276
1,170 Wessex Water Plc 6,000
75,574 Whitbread Plc Class A (Limited Voting) 823,757
57,735 Wilson (Connolly) Holdings Plc 152,909
66,075 Wimpey (George) Plc 139,593
10,856 Yorkshire Water Plc 103,207
------------------------
71,925,189
------------------------
TOTAL STOCK AND EQUIVALENTS (Cost $235,422,423) 245,863,979
------------------------
PAR VALUE
SHORT-TERM INVESTMENTS - 39.0%
UNITED STATES - 39.0%
$ 28,800,000 Bank of New York Time Deposit, 5.00% due 3/1/96 28,800,000
28,800,000 First National Bank of Chicago Time Deposit, 5.38% due 3/1/96 28,800,000
28,800,000 Morgan Guaranty Time Deposit, 5.44% due 3/1/96 28,800,000
28,800,000 Republic Bank of New York Deposit, 5.31% due 3/1/96 28,800,000
15,500,000 U.S. Treasury Bill, 5.17% due 1/9/97 (a) 14,834,843
28,800,000 Wachovia Bank Time Deposit, 5.46% due 3/1/96 28,800,000
------------------------
158,834,843
------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $158,794,872) 158,834,843
------------------------
TOTAL INVESTMENTS - 99.4%
(Cost $394,217,295) * * 404,698,822
Other Assets and Liabilities (net) - 0.6% 2,527,756
------------------------
TOTAL NET ASSETS - 100.0% $ 407,226,578
========================
See accompanying notes to the financial statements.
18
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
(a) This security is held as collateral for open futures contracts.
* Non-income producing security.
* * The aggregate identified cost for federal
income tax purposes is $394,217,413, resulting in
gross unrealized appreciation and depreciation of
$16,452,837 and $5,971,428, respectively, and net
unrealized appreciation of $10,481,409.
</TABLE>
See accompanying notes to the financial statements.
19
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
At February 29, 1996, industry sector diversification of the Fund's equity
investments was as follows:
PERCENTAGE OF
INDUSTRY SECTOR NET ASSETS
Banking 7.3%
Services 5.3
Oil and Gas 4.3
Health Care 4.0
Chemicals 3.6
Retail Trade 3.2
Construction 3.0
Transportation 2.7
Technology 2.6
Telecommunications 2.5
Real Estate 2.4
Utilities 2.4
Food and Beverage 2.4
Metals and Mining 1.9
Automotive 1.5
Consumer Goods 1.5
Machinery 1.3
Conglomerates 1.2
Energy 1.1
Aerospace 1.1
Paper and Allied Products 0.8
Insurance 0.7
Miscellaneous 3.6
---
60.4%
====
See accompanying notes to the financial statements.
20
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $394,217,295) (Note 1) $ 404,698,822
Foreign currency, at value (cost $556,084) (Note 1) 555,359
Cash 5,810
Dividends and interest receivable 206,575
Foreign withholding taxes receivable 58,066
Receivable for open forward foreign currency contracts (Note 6) 2,812,244
Receivable for variation margin on open futures contracts 140,272
Receivable for expenses waived or borne by Manager (Note 2) 97,138
---------------------
Total assets 408,574,286
---------------------
LIABILITIES:
Payable for investments purchased 230,238
Payable for open forward foreign currency contracts (Note 6) 637,192
Payable to affiliate for management fee (Note 2) 237,712
Accrued expenses 242,566
---------------------
Total liabilities 1,347,708
---------------------
NET ASSETS (equivalent to $11.54 per share based
on 35,278,555 shares outstanding, unlimited shares authorized) $ 407,226,578
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 385,991,253
Accumulated undistributed net investment income 6,114,326
Accumulated undistributed net realized gain 2,838,672
Net unrealized appreciation 12,282,327
---------------------
NET ASSETS $ 407,226,578
=====================
</TABLE>
See accompanying notes to the financial statements.
21
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - PERIOD FROM JUNE 30, 1995
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax expense $232,168) $ 1,782,250
Interest 1,993,262
---------------------
Total income 3,775,512
EXPENSES:
Management fee (Note 2) 1,097,558
Custodian fees 351,022
Registration fees 113,171
Audit fees 49,588
Transfer agent fees 21,692
Legal fees 7,146
Stamp duties and transfer taxes 4,147
Insurance 1,584
Trustee fee (Note 2) 481
Miscellaneous 876
---------------------
Total expenses 1,647,265
Less: expenses waived or borne by Manager (Note 2) (633,365)
---------------------
Net expenses 1,013,900
---------------------
Net investment income 2,761,612
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 1,266,610
Closed futures contracts 3,487,015
Foreign currency, forward contracts and foreign currency
related transactions 4,718,505
---------------------
Net realized gain 9,472,130
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments 10,481,527
Open futures contracts (372,917)
Foreign currency, forward contracts and foreign currency
related transactions 2,173,717
---------------------
Net unrealized gain 12,282,327
---------------------
Net realized and unrealized gain 21,754,457
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 24,516,069
=====================
</TABLE>
See accompanying notes to the financial statements.
22
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS - PERIOD FROM JUNE 30, 1995
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 2,761,612
Net realized gain 9,472,130
Change in net unrealized appreciation (depreciation) 12,282,327
-------------------------
Net increase in net assets resulting from operations 24,516,069
-------------------------
Distributions to shareholders from:
Net investment income (1,491,247)
Net realized gains (1,789,497)
-------------------------
(3,280,744)
-------------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 383,683,337
Net asset value of shares issued to shareholders
in payment of distributions declared 2,801,916
Cost of shares repurchased (494,000)
-------------------------
Net increase in net assets resulting
from Fund share transactions 385,991,253
-------------------------
Total increase in net assets 407,226,578
NET ASSETS:
Beginning of period -
-------------------------
End of period (including accumulated undistributed
net investment income of $6,114,326) $ 407,226,578
=========================
</TABLE>
See accompanying notes to the financial statements.
23
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM JUNE 30, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------------------
Income from investment operations:
Net investment income (a) 0.23
Net realized and unrealized gain (loss)
on investments 1.44
-------------------------
Total from investments operations 1.67
-------------------------
Less distributions to shareholders from:
Net investment income (0.06)
Net realized gains (0.07)
-------------------------
Total distributions (0.13)
-------------------------
NET ASSET VALUE, END OF PERIOD $ 11.54
=========================
TOTAL RETURN (B) 16.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 407,227
Net expenses to average
daily net assets (a) 0.69%*
Net investment income to average
daily net assets (a) 1.89%*
Portfolio turnover rate 7%
* Annualized.
(a) Net of fees and expenses voluntarily waived or borne by the Manager of $.05 per share.
(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.
24
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Currency Hedged International Core Fund (the "Fund"), which
commenced operations on June 30, 1995, is a series of GMO Trust (the
"Trust"). The Fund is registered under the Investment Company Act of 1940,
as amended, as an open-end, non-diversified management investment company.
The Fund is advised and managed by Grantham, Mayo, Van Otterloo & Co. (the
"Manager"). The Trust was established as a Massachusetts Business Trust
under the laws of the Commonwealth of Massachusetts on June 24, 1985. The
Declaration of Trust permits the Trustees to create an unlimited number of
series ("Funds"), each of which issues a separate series of shares.
The Fund seeks 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 following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
25
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. 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 29, 1996.
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 29, 1996.
26
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest and dividend income have been withheld
in accordance with the applicable country's tax treaty with the United
States.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund's 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 the
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 29, 1996. 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>
$4,843,961 ($4,843,961) -
</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, or when the Fund is informed of the
ex-dividend date. Interest income is recorded on the accrual basis and is
adjusted for the accretion of discounts. In determining the net gain or
loss on securities sold, the cost of securities is determined on the
identified cost basis.
27
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 .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. For the period ended February 29, 1996, the Fund received $878,415 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
The Manager 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, stamp
duties and transfer taxes) exceed .69% 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 29, 1996, was $481. No remuneration is
paid to any Trustee or officer who is affiliated with the Manager.
3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding
short-term investments, for the period ended February 29, 1996, aggregated
$245,744,510 and $11,811,165, respectively.
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 57% of the outstanding shares of the Fund were held
by three shareholders, each holding in excess of 10% of the Fund's
outstanding shares.
28
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
5. SHARE TRANSACTIONS
The Declaration of Trust permits Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from June 30, 1995
(commencement of operations) to
February 29, 1996
-----------------------------------
<S> <C>
Shares sold 35,069,613
Shares issued to shareholders in reinvestment
of distributions 253,567
Shares repurchased (44,625)
----------
Net increase 35,278,555
Fund shares:
Beginning of period -
----------
End of period 35,278,555
==========
</TABLE>
29
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Settlement Units of Currency In Exchange for Appreciation
Date Deliver/Receive (in U.S. Dollars) (Depreciation)
----------------- ---------------------------- -------------------- ----------------------- -------------------
<S> <C> <C> <C> <C>
Buys
5/15/96 NOK 23,700,000 $ 3,731,764 $ (28,812)
===================
Sales
5/15/96 ATS 7,100,000 $ 699,507 $ 9,490
5/15/96 AUD 11,700,000 8,639,280 (271,440)
5/15/96 BEF 122,000,000 4,132,791 78,315
5/15/96 CHF 27,100,000 23,451,021 660,867
5/15/96 GBP 43,100,000 66,425,715 540,469
5/15/96 DEM 26,000,000 18,133,631 369,821
5/15/96 DKK 16,000,000 2,870,728 47,703
5/16/96 ESP 500,000,000 4,066,363 50,390
5/15/96 FIM 7,500,000 1,723,742 68,346
5/15/96 FRF 96,200,000 19,465,803 331,197
5/15/96 HKD 78,000,000 10,078,822 (10,925)
5/15/96 IEP 500,000 800,450 12,060
5/15/96 ITL 20,500,790,000 12,788,038 (268,543)
5/15/96 JPY 4,600,000,000 44,508,115 329,935
5/15/96 MYR 19,000,000 7,418,977 (11,896)
5/15/96 NLG 23,030,000 14,327,263 266,781
5/15/96 NZD 1,650,000 1,074,893 (29,056)
5/15/96 SGD 3,400,000 2,405,547 (16,520)
5/15/96 SEK 24,000,000 3,589,107 46,870
-------------------
$ 2,203,864
===================
</TABLE>
30
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
Currency Abbreviations
ATS Austrian Schilling HKD Hong Kong Dollar
AUD Australian Dollar IEP Irish Pound
BEF Belgian Franc ITL Italian Lira
CHF Swiss Franc JPY Japanese Yen
GBP Great British Pound MYR Malaysian Ringgit
DEM German Deutsche Mark NLG Netherlands Guilder
DKK Danish Krona NOK Norwegian Kroner
ESP Spanish Peseta NZD New Zealand Dollar
FIM Finnish Markka SGD Singapore Dollar
FRF French Franc SEK Swedish Krona
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Net
Number Contract Unrealized
of Type Expiration Value Appreciation
Contracts Date (Depreciation)
-------------- ---------------------------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Buys
170.00 All-Ords March 1996 $ 7,445,211 $ 60,100
130.00 DAX June 1996 22,188,542 166,727
162.00 FT-SE 100 June 1996 23,089,359 34,038
90.00 Hang Seng March 1996 6,449,151 (301,067)
3,013 IBEX March 1996 9,547,742 493,296
155.00 MATIF March 1996 12,268,943 386,931
27.00 MIB 30 June 1996 2,518,351 22,122
172.00 TOPIX March 1996 25,447,561 (921,176)
226.00 TOPIX June 1996 33,458,401 (313,888)
--------------------
$ (372,917)
====================
</TABLE>
At February 29, 1996, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
* * *
31
GMO CURRENCY HEDGED INTERNATIONAL CORE FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. R. Jeremy Grantham, Mr. Forrest Berkley and Ms. Doris Chu are
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Grantham has been with GMO since its founding in 1977. Mr. Berkley and Ms. Chu
have been with GMO and involved in portfolio management for more than nine
years.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Currency Hedged International Core Fund underperformed the
EAFE-Lite Hedged benchmark index from the Fund's inception on June 30, 1995
through February 29, 1996, with a total return of 16.7% versus 18.8% for the
index. Consistent with the Fund's investment objective and policies, the Fund
was invested substantially in common stocks throughout the period. During the
period, GMO's country selection model tended to overweight the countries of
Europe and underweight Japan, which contributed positively to the performance.
Overweights throughout the portfolio in value and small stocks negatively
affected performance.
Comparison of Change in Value of a $10,000 Investment in GMO Currency
Hedged International Core Fund and the MSCI EAFE-Lite Hedged Index As of
February 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 06/30/95
N/A N/A 15.8%
[Line Graph Appears Here]
Date GMO Currency Hedged International Core Fund MSCI EAFE-Lite Hedged Index
06/30/95 9,925 10,000
02/29/96 11,579 11,878
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total return would have been lower had certain expenses not been
waived during the periods shown, and does not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 75 on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
ANNUAL REPORT
FEBRUARY 29, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of GMO Trust and the Shareholders of
GMO Global 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 Global Bond Fund at February
29, 1996, the results of its operations, the changes in its net assets and the
financial highlights for the period from December 28, 1995 (commencement of
operations) to February 29, 1996, 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 29, 1996 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 23, 1996
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEBT OBLIGATIONS - 92.9%
DENMARK - 8.0%
DKK 13,300,000 Kingdom of Denmark, 8.00% due 11/15/01 2,480,943
----------------------------
FRANCE - 8.5%
ECU 1,000,000 Government of France, 8.25% due 4/25/22 1,288,192
ECU 1,000,000 Societe Nationale Chemins de France, 9.38% due 3/12/01 1,395,751
----------------------------
2,683,943
----------------------------
GERMANY - 3.5%
JPY 100,000,000 KFW International Finance, 6.00% due 11/29/99 1,074,926
----------------------------
MEXICO - 1.7%
FRF 5,000,000 Mexico Par Bond, 6.63% due 12/31/19 514,180
----------------------------
SPAIN - 6.6%
ESP 263,000,000 Spanish Government, 7.40% due 7/30/99 2,040,950
----------------------------
SWEDEN - 4.1%
SEK 5,000,000 Kingdom of Sweden, 10.25% due 5/5/00 801,766
SEK 4,000,000 Kingdom of Sweden, 6.00% due 2/9/05 492,082
----------------------------
1,293,848
----------------------------
UNITED STATES - 60.5%
ASSET BACKED SECURITIES - 31.5%
USD 2,000,000 Advanta Credit Card Master Trust 95-D Class A1,
Variable Rate,1 mo. LIBOR + 19/100 (5.50%), due 2/1/04 2,000,938
USD 801,880 BCI Home Equity Loan 94-1 Class A1,
Variable Rate, 1 mo. LIBOR + 6/25 (5.87%), due 3/29/44 797,614
USD 3,000,000 Eagle Pier Corp BV,
Variable Rate, 6 mo. LIBOR + 1/4 (6.20%), due 10/3/01 3,000,000
USD 4,000,000 Nation Premier Finance 95-2, 6.21% due 6/1/99 144A 3,980,000
----------------------------
9,778,552
----------------------------
STRUCTURED NOTES - 22.4%
USD 5,000,000 Federal Home Loan Bank, Variable Rate,
(10.00% - 6 mo. LIBOR) (4.19%), due 9/22/03 4,285,000
USD 2,750,000 Federal Home Loan Bank, Variable Rate,
((.50 x 10YR CMT) + 1.25) (4.34%), due 3/16/98 2,680,546
----------------------------
6,965,546
----------------------------
See accompanying notes to the financial statements.
1
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
PAR VALUE DESCRIPTION VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT - 6.6%
USD 1,000,000 U.S. Treasury Note, 6.00% due 8/31/97 1,009,061
USD 1,000,000 U.S. Treasury Note, 6.88% due 8/31/99 (a) 1,038,436
----------------------------
2,047,497
----------------------------
TOTAL UNITED STATES 18,791,595
----------------------------
TOTAL DEBT OBLIGATIONS (Cost $29,428,610) 28,880,385
----------------------------
SHARES MUTUAL FUND - 3.4%
UNITED STATES - 3.4%
90,352 GMO Emerging Country Debt Fund 1,062,534
----------------------------
TOTAL MUTUAL FUND (Cost $1,050,000) 1,062,534
----------------------------
PRINCIPAL
AMOUNT
(000's omitted) CALL OPTIONS PURCHASED - 0.6%
CROSS CURRENCY OPTIONS- 0.6%
ECU 5,000 ECU Call/DEM Put,
Expires 7/25/96 Knock Out 1.805, Strike 1.82 97,432
ECU 5,000 ECU Call/DEM Put,
Expires 7/25/96 Knock Out 1.81, Strike 1.83 77,241
----------------------------
174,673
----------------------------
TOTAL CALL OPTIONS PURCHASED (Cost $113,768) 174,673
----------------------------
PAR VALUE SHORT-TERM INVESTMENT - 0.4%
REPURCHASE AGREEMENT - 0.4%
USD 122,754 Salomon Brothers Repurchase Agreement, dated 2/29/96,
due 3/01/96, with a maturity value of $122,771 and an
effective yield of 4.92%, collateralized by U.S. Treasury
Obligations with rates ranging from 7.25% to 13.25%,
with maturity dates ranging from 8/15/04 to 11/15/15,
and with an aggregate market value of $125,061. 122,754
----------------------------
TOTAL SHORT-TERM INVESTMENT (at cost) 122,754
----------------------------
TOTAL INVESTMENTS - 97.3%
(Cost $30,715,132) * * 30,240,346
Other Assets and Liabilities (net) - 2.7% 832,072
----------------------------
TOTAL NET ASSETS - 100.0% $ 31,072,418
============================
See accompanying notes to the financial statements.
2
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
SCHEDULE OF INVESTMENTS - CONTINUED
(SHOWING PERCENTAGE OF TOTAL NET ASSETS)
FEBRUARY 29, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
NOTES TO THE SCHEDULE OF INVESTMENTS:
CMT - Constant Maturity Treasury Index.
Knock Out - Option will expire if underlying security
reaches Knock Out price.
Variable rates - The rates shown on variable rate notes
are the current interest rates at February 29,
1996, 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
investors.
(a) All or a portion of this security is held as collateral
for open futures contracts.
* * The aggregate identified cost for federal
income tax purposes is $30,715,132, resulting in
gross unrealized appreciation and depreciation
of $84,627 and $559,413, respectively, and net
unrealized depreciation of $474,786.
CURRENCY ABBREVIATIONS
AUD - Australian Dollar FRF - French Franc
BEF - Belgian Franc GBP - British Pound Sterling
CAD - Canadian Dollar JPY - Japanese Yen
CHF - Swiss Franc ITL - Italian Lira
DEM - German Mark NLG - Netherlands Guilder
DKK - Danish Krone SEK - Swedish Krona
ECU - European Currency Unit USD - United States Dollar
ESP - Spanish Paseta
</TABLE>
See accompanying notes to the financial statements.
3
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF ASSETS AND LIABILITIES - FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $30,715,132) (Note 1) $ 30,240,346
Cash 34,375
Receivable from brokers for open futures contracts (Note 1) 16,138
Interest receivable 700,851
Receivable for open forward foreign currency contracts (Note 6) 576,045
Receivable for expenses waived or borne by Manager (Note 2) 30,593
---------------------
Total assets 31,598,348
---------------------
LIABILITIES:
Due to Custodian 8,960
Payable for open forward foreign currency contracts (Note 6) 453,485
Payable to affiliate for management fee (Note 2) 8,687
Accrued expenses 54,798
---------------------
Total liabilities 525,930
---------------------
NET ASSETS (equivalent to $9.89 per share based
on 3,143,053 shares outstanding, unlimited shares authorized) $ 31,072,418
=====================
NET ASSETS CONSIST OF:
Paid-in capital $ 31,527,501
Accumulated undistributed net investment income 145,359
Accumulated undistributed net realized loss (255,309)
Net unrealized depreciation (345,133)
=====================
NET ASSETS $ 31,072,418
=====================
</TABLE>
See accompanying notes to the financial statements.
4
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF OPERATIONS - PERIOD FROM DECEMBER 28, 1995
(COMMENCEMENT OF OPERATIONS) TO FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (including securities lending income of $14) $ 321,498
---------------------
EXPENSES:
Management fee (Note 2) 17,307
Audit fees 28,000
Custodian and transfer agent fees 15,219
Registration fees 10,210
Legal fees 998
Insurance 101
Trustee fee (Note 2) 6
Miscellaneous 263
---------------------
Total expenses 72,104
Less: expenses waived or borne by Manager (Note 2) (55,292)
---------------------
Net expenses 16,812
---------------------
Net investment income 304,686
---------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments 189
Closed futures contracts (194,470)
Foreign currency, forward contracts and foreign
currency related transactions (220,355)
---------------------
Net realized loss (414,636)
---------------------
Change in net unrealized appreciation (depreciation) on:
Investments (474,786)
Open futures contracts 13,823
Foreign currency, forward contracts and foreign
currency related transactions 115,830
---------------------
Net unrealized loss (345,133)
---------------------
Net realized and unrealized loss (759,769)
---------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (455,083)
=====================
</TABLE>
See accompanying notes to the financial statements.
5
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
STATEMENT OF CHANGES IN NET ASSETS - PERIOD FROM DECEMBER
28, 1995 (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 29, 1996
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, 1995
-----------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 304,686
Net realized loss (414,636)
Change in net unrealized appreciation (depreciation) (345,133)
---------------------
Net decrease in net assets resulting from operations (455,083)
---------------------
Fund share transactions: (Note 5)
Proceeds from sale of shares 31,527,501
---------------------
Total increase in net assets 31,072,418
NET ASSETS:
Beginning of period -
---------------------
End of period (including accumulated undistributed
net investment income of $145,359) $ 31,072,418
=====================
</TABLE>
See accompanying notes to the financial statements.
6
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 28, 1995
(COMMENCEMENT OF OPERATIONS)
TO FEBRUARY 29, 1996
------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------------
Income from investment operations:
Net investment income (a) 0.05
Net realized and unrealized loss (0.16)
----------------
Total from investment operations (0.11)
----------------
NET ASSET VALUE, END OF PERIOD $ 9.89
================
TOTAL RETURN (B) (1.10%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 31,072
Net expenses to average
daily net assets (a) 0.34%*
Net investment income to average
daily net assets (a) 6.16%*
Portfolio turnover rate 0%
* Annualized
(a) Net of fees and expenses voluntarily waived or borne by the Manager of
$0.01 per share.
(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.
7
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The GMO Global Bond Fund (the "Fund"), which commenced operations on
December 28, 1995, is a series of GMO Trust (the "Trust"). The Fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end, non-diversified management investment company. The Fund is
advised and managed by Grantham, Mayo, Van Otterloo & Co. (the "Manager").
The Trust was established as a Massachusetts Business Trust under the laws
of the Commonwealth of Massachusetts on June 24, 1985. The Declaration of
Trust permits the Trustees to create an unlimited number of series
("Funds"), each of which issues a separate series of shares.
The Fund seeks high total return by investing primarily in investment grade
bonds denominated in various currencies including U.S. dollars and
multicurrency units. The Fund generally seeks to provide a total return
greater than that provided by the global fixed income securities market.
The following is a summary of significant accounting policies which are in
conformity with generally accepted accounting principles and which are
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
PORTFOLIO VALUATION
Portfolio securities listed on a securities exchange for which market
quotations are available are valued at the last quoted sale price on each
business day, or if there is no such reported sale, at the most recent
quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recent quoted bid price.
Securities which are primarily traded on foreign exchanges are generally
valued at the preceding closing values of such securities on their
respective exchanges, and those values are then translated into U.S.
dollars at the current exchange rate. Short-term investments with a
remaining maturity of sixty days or less are valued at amortized cost which
approximates market value. Other assets and securities for which no
quotations are readily available are valued at fair value as determined in
good faith by the Trustees.
Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield
data relating to investments or securities with similar characteristics.
Certain investments in securities held by the Fund were valued on the basis
of a price provided by a principal market maker. At February 29, 1996, the
total value of these securities represented 13.43 % of net assets. These
prices may differ from the value that would have been used had a broader
market for the securities existed and the differences could be material to
the financial statements.
8
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. The
market values of foreign securities, currency holdings and other assets and
liabilities are translated to U.S. dollars based on the prevailing exchange
rates each business day. Income and expenses denominated in foreign
currencies are translated at prevailing exchange rates when accrued or
incurred. The Fund does not isolate realized and unrealized gains and
losses attributable to changes in exchange rates from gains and losses that
arise from changes in the market value of investments. Such fluctuations
are included with net realized and unrealized gain or loss on investments.
Net realized gains and losses on foreign currency transactions represent
net exchange gains and losses on disposition of foreign currencies,
currency gains and losses realized between the trade and settlement dates
on securities transactions, and the difference between the amount of
investment income and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid.
FUTURES CONTRACTS
The Fund may use futures contracts to manage its exposure to the bond and
currency markets. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other Fund instruments. Upon
purchase of a futures contract, the Fund is required to deposit with its
custodian, in a segregated account in the name of the futures broker, an
amount of cash or U.S. government obligations in accordance with the
initial margin requirements of the broker or exchange. Futures contracts
are marked to market daily and an appropriate payable or receivable for the
change in value ("variation margin") is recorded by the Fund. Gains or
losses are recognized but not considered realized until the contracts
expire or are closed. Futures contracts involve, to varying degrees, risk
of loss in excess of the variation margin disclosed in the Statement of
Assets and Liabilities. Losses may arise from the changes in the value of
the underlying instrument, if there is an illiquid secondary market for the
contracts, or if counterparties do not perform under the contract terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. See Note 6 for
all open futures contracts held as of February 29, 1996.
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
9
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996.
OPTIONS
The Fund may write call and put options on securities it owns or in which
it may invest. When the Fund writes a call or put option, an amount equal
to the premium received is recorded as a liability and subsequently marked
to market to reflect the current value of the option written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or closed are
offset against the proceeds or amounts paid on the transaction to determine
the realized gain or loss. If a written put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The
Fund as a writer of an option has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security
underlying the written option. There is the risk the Fund may not be able
to enter into a closing transaction because of an illiquid market. At
February 29, 1996, the Fund had no written option contracts outstanding.
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.
INDEXED SECURITIES
The Fund may invest in indexed securities whose redemption values and/or
coupons are linked to the prices of other securities, securities indices,
or other financial indicators. The Fund uses indexed securities to increase
or decrease its exposure to different underlying instruments and to gain
exposure to markets that may be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their underlying
instruments, but any loss is limited to the amount of the original
investment.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with certain banks and
broker/dealers whereby the Fund acquires a security for cash and obtains a
simultaneous commitment from the seller to repurchase the security at an
agreed upon price and date. The Fund, through its custodian, takes
possession of securities collateralizing the repurchase agreement. The
collateral is marked to market daily to ensure that the market value of the
underlying assets remains sufficient to protect the Fund in the event of
default by the seller. In connection with transactions in repurchase
agreements, if the
10
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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 29, 1996, the Fund had no securities on
loan.
TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. The
Fund intends to distribute substantially all of its net investment income
and net realized short-term and long-term capital gains, if any, after
giving effect to any available capital loss carryovers for federal income
tax purposes. Therefore, no provision for federal income or excise tax is
necessary. Taxes on foreign interest have been withheld in accordance with
the applicable country's tax treaty with the United States.
DISTRIBUTIONS TO SHAREHOLDERS
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 29, 1996. 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>
($159,327) $159,327 $ -
</TABLE>
11
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
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, and is adjusted for the accretion of
discounts. In determining the net gain or loss on securities sold, the cost
of securities is determined on the identified cost basis.
EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated 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 29, 1996, the Fund received $12,569 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
The Manager is paid monthly at the annual rate of .35% 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 .34% 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 29, 1996, was $6. No remuneration is paid
to any Trustee or officer who is affiliated with the Manager.
12
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
For the period ended February 29, 1996, cost of purchases and proceeds from
sales of investments, other than short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
-------------------- ---------------------
<S> <C> <C>
U.S. Government securities $ 2061247 $ -
Investments (non-U.S. Government securities) 28,434,925 36,151
</TABLE>
4. PRINCIPAL SHAREHOLDERS
At February 29, 1996, 74% 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 Trustees to issue an unlimited number of
shares of beneficial interest (without par value). Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
Period from December 28,
1995 (commencement of
operations) to
February 29, 1996
---------------------------
<S> <C>
Shares sold 3,143,053
Shares issued to shareholders in
reinvestment of distributions -
Shares repurchased -
---------
Net increase 3,143,053
Fund shares:
Beginning of period -
---------
End of period 3,143,053
=========
</TABLE>
13
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
A summary of outstanding financial instruments at February 29, 1996 is as
follows:
FORWARD CURRENCY CONTRACTS
<TABLE>
<CAPTION>
In Exchange for Net Unrealized
Settlement (U.S.dollars) Appreciation
Date Deliver/Receive Units of Currency (Depreciation)
- --------------- ---------------------------- -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Buys
5/13/96 AUD 1,500,000 $ 1,133,475 $ 8,466
4/2/96 CAD 3,200,000 2,335,691 (2,983)
5/15/96 DEM 5,700,000 3,937,244 (43,050)
5/2/96 ECU 6,500,000 8,034,325 151,723
4/3/96 GBP 5,200,000 8,030,028 (76,112)
3/26/96 JPY 835,000,000 7,976,727 (9,692)
-------------------
$ 28,352
===================
Sales
5/13/96 AUD 2,600,000 $ 1,953,926 $ (25,437)
4/2/96 CAD 2,500,000 1,825,520 3,092
5/15/96 DEM 7,350,000 5,003,335 (18,126)
4/3/96 GBP 3,900,000 5,924,282 (41,155)
3/26/96 JPY 460,000,000 4,404,533 15,508
-------------------
$ (66,118)
===================
</TABLE>
14
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FORWARD CROSS CURRENCY CONTRACTS
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Settlement (Depreciation)
Date Deliver/Units of Currency Receive/In Exchange for
- -------------- ----------------------------------- ------------------------------------- -----------------
<C> <C> <C> <C> <C> <C>
3/20/96 BEF 94,524,400 ECU 2,500,000 $ 14,408
4/29/96 CHF 5,521,779 DEM 6,800,000 5,958
4/29/96 DEM 6,700,000 CHF 5,431,491 (13,499)
4/16/96 DEM 9,550,000 ESP 812,773,500 24,799
3/29/96 DEM 3,100,000 FRF 10,657,200 4,476
3/12/96 DEM 14,450,000 ITL 15,856,130,750 330,711
3/1/96 DEM 2,250,000 NLG 2,519,280 94
4/10/96 DEM 4,650,000 SEK 21,572,469 16,154
5/6/96 DKK 23,271,000 DEM 6,000,000 (6,606)
4/9/96 ECU 3,500,000 DEM 6,391,875 (47,457)
4/16/96 ESP 316,070,000 DEM 3,700,000 (19,050)
3/29/96 FRF 9,465,325 DEM 2,750,000 (6,228)
3/12/96 ITL 5,498,651,500 DEM 5,050,000 (88,151)
3/1/96 NLG 2,518,050 DEM 2,250,000 656
6/3/96 NLG 2,517,975 DEM 2,250,000 (111)
4/10/96 SEK 17,917,640 DEM 3,800,000 (55,828)
-----------------
$ 160,326
=================
</TABLE>
See Notes to the Schedule of Investments for definitions of currency
abbreviations.
15
GMO GLOBAL BOND FUND
(A SERIES OF GMO TRUST)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Number Net Unrealized
of Contracts Appreciation
Type Expiration Date Contract Value (Depreciation)
------------- -------------------------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Buys
16.00 Australian Government Bond
10 Year March 1996 $ 1,469,089 $ (27,239)
25 Canadian Government Bond March 1996 1,974,684 (2,267)
4.00 Canadian Government Bond June 1996 316,014 (491)
9.00 German Government Bond June 1996 1,492,086 1,285
12.00 Italian Government Bond 10 Year June 1996 1,697,951 9,120
14 Spain Government Bond 10 Year June 1996 1,094,036 6,596
11 U.K. Gilt June 1996 896,134 (9,316)
21.00 U.S. Treasury Note 10 Year June 1996 2,325,750 (23,126)
-------------------
$ (45,438)
===================
Sales
5.00 Euro Dollar June 1996 1,184,625 $ 1,963
1.00 Japanese Government Bond 10 Year March 1996 1,099,208 10,666
9.00 MATIF FRF Bond June 1996 1,091,013 5,377
7 Swiss Government Bond March 1996 681,343 8,387
4 Swiss Government Bond June 1996 375,352 (1,051)
40.00 U.S. Treasury Note 5 Year June 1996 4,336,250 33,919
-------------------
$ 59,261
===================
</TABLE>
At February 29, 1996, the Fund has cash and/or securities to cover any
margin requirements on open futures contracts.
* * *
16
GMO GLOBAL BOND FUND
(A Series of GMO Trust)
PORTFOLIO MANAGERS
Mr. William L. Nemerever and Mr. Thomas F. Cooper are primarily
responsible for the day-to-day management of the Fund's portfolio. Both
individuals joined Grantham, Mayo, Van Otterloo & Co. in this capacity in
October of 1993.
MANAGEMENT DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
The GMO Global Bond Fund outperformed the J.P. Morgan Global Government
Bond Index for the period ending February 29, 1996. Since its inception on
December 28, 1995, the Fund returned -1.1% for the period versus -1.6% for the
JP Morgan Global Government Bond Index. The Fund's total return suffered due to
rising global interest rates. The Fund overweighted the Italian and the Spanish
bond markets, underweighted the U.S. dollar, and overweighted the Lira and the
Peseta. The Fund's exposure to U.S. debt hurt somewhat while its exposure to the
Italian and Spanish bond and currency markets enhanced its performance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
GMO GLOBAL BOND FUND
J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX
AS OF FEBRUARY 29, 1996
Average Annual Total Return
Since
Inception
1 Year 5 Year 12/28/95
N/A N/A -1.3%
[Line Graph Appears Here]
Date GMO Global Fund J.P. Morgan Global Government Bond Index
12/28/95 9,985 10,000
02/29/96 9,875 9,971
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The total return would have been lower had certain expenses not been
waived during the periods shown, and does not include the effect of taxes on
reinvested distributions. Each performance figure assumes purchase at the
beginning and redemption at the end of the stated period and reflects a
transaction fee of 15 bp on purchase. Transaction fees are paid to the Fund to
cover trading costs. Past performance is not indicative of future performance.
Information is unaudited.
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